Taxation Law: San Beda College of Law

San Beda College of Law
MEMORY AID IN TAXATION LAW
TAXATION LAW
I. GENERAL PRINCIPLES 6. levied for a public purpose.
REQUISITES OF A VALID TAX

POWER OF TAXATION 1. should be for a public purpose
TAXATION power by which the 2. the rule of taxation shall be uniform
sovereign through its law-making body 3. that either the person or property
raises revenue to defray the necessary taxed be within the jurisdiction of
expenses of government from among the taxing authority
those who in some measure are 4. that the assessment and collection
privileged to enjoy its benefits and must of certain kinds of taxes guarantees
bear its burdens. against injustice to individuals,
especially by way of notice and
Two Fold Nature of the Power of opportunity for hearing be provided
Taxation 5. the tax must not impinge on the
1. It is an inherent attribute of inherent and Constitutional
sovereignty limitations on the power of taxation
2. It is legislative in character
THEORIES AND BASES OF TAXATION
Extent of Taxing Power 1. Lifeblood Theory
Subject to constitutional and Taxes are what we pay for civilized
inherent restrictions, the power of society. Without taxes, the government
taxation is regarded as comprehensive, would be paralyzed for lack of the
unlimited, plenary and supreme. motive power to activate and operate it.
Hence, despite the natural reluctance to
SCOPE OF LEGISLATIVE TAXING POWER surrender part of one's hard-earned
1. Amount or rate of tax income to the taxing authorities, every
2. Apportionment of the tax person who is able to must contribute
3. Kind of tax his share in the running of the
4. Method of collection government. (CIR v. Algue, Inc.)
5. Purpose/s of its levy, provided it is
for public purpose 2. Necessity Theory
6. Subject to be taxed, provided it is The power to tax is an attribute of
within its jurisdiction sovereignty emanating from necessity. It
7. Situs of taxation is a necessary burden to preserve the
State's sovereignty and a means to give
TAXES enforced proportional the citizenry an army to resist an
contributions from the persons and aggression, a navy to defend its shores
property levied by the law-making body from invasion, a corps of civil servants to
of the State by virtue of its sovereignty serve, public improvements designed for
in support of government and for public the enjoyment of the citizenry and those
needs. which come within the State's territory,
and facilities and protection which a
CHARACTERISTICS OF TAXES government is supposed to provide.
1. forced charge; (Phil. Guaranty Co., Inc. v. CIR)
2. pecuniary burden payable in money;
3. levied by the legislature; 3. Benefits-Protection / Reciprocity
4. assessed with some reasonable rule Theory
of apportionment; (see theoretical Taxation is described as a symbiotic
justice) relationship whereby in exchange of the
5. imposed by the State within its benefits and protection that the citizens
jurisdiction; get from the Government, taxes are
paid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE

CHAIRPERSON: Charmaine Torres ASST. CHAIRPERSON: Rhohail Castro EDP: Rachelle Saya SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
Cabrera, Jhundee
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Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The courts power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS THE POWER TO TAX THE POWER TO interference extends to the
DESTROY? administrative realm.
1. Power to tax is the power to
destroy (Marshall Dictum) refers ASPECTS OF TAXATION
to the unlimitedness and the degree 1. Levy or imposition of the tax (tax
or vigor with which the taxing power legislation)
may be employed to raise revenue. 2. Enforcement or tax administration
- the financial needs of the State may (tax administration)
outrun any human calculation, so the
power to meet those needs by taxation BASIC PRINCIPLES OF A SOUND TAX SYSTEM
must not be limited even though taxes (KEY: FAT)
become burdensome or confiscatory. 1. Fiscal Adequacy sufficiency to
meet government expenditures and
2. Power to tax is not the power to other public needs.
destroy while the Supreme Court sits 2. Administrative Feasibility/
(Holmes Dictum) the power to tax Convenience capability of being
knows no limit except those expressly effectively enforced.
stated in the Constitution. 3. Theoretical Justice based on the
taxpayers ability to pay; must be
Marshall and Holmes Dictum Reconciled progressive. (Ability to Pay Theory)
Although the power to tax is almost
unlimited, it must not be exercised in an POLICE EMINENT
TAXATION
arbitrary manner. If the abuse is so POWER DOMAIN
great so as to destroy the natural and 1. Purpose
fundamental rights of people, it is the To raise To promote To facilitate
duty of the judiciary to hold such an act revenue public the States
purpose need of
unconstitutional. through property for
regulations public use
PURPOSES AND OBJECTIVES OF TAXATION 2. Amount of Exaction
1. Revenue basically, the purpose of No limit Limited to No exaction;
taxation is to provide funds or the cost of but private
property with which the State regulation, property is
promotes the general welfare and issuance of taken by the
the license or State for
protection of its citizens. surveillance public purpose
2. Non-Revenue (Key: PR2EP)
a. Promotion of general welfare
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth 3. Benefits Received
e. Protectionism No special No direct A direct
or direct benefit is benefit results
benefit is received; a in the form of
POWER OF JUDICIAL REVIEW IN TAXATION received by healthy just
As long as the legislature, in the economic compensation
imposing a tax, does not violate taxpayer; standard of to the
applicable constitutional limitations or merely society is property
general attained owner
restrictions, it is not within the province
benefit of
of the courts to inquire into the wisdom protection
or policy of the exaction, the motives
behind it, the amount to be raised or the 4. Non-impairment of Contracts

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Contracts Contracts Contracts may

may not be may be be impaired b. The tax imposed on videogram
impaired impaired
establishments is not only regulatory but
5. Transfer of Property Rights a revenue measure because the earnings
Taxes paid No transfer Transfer is of such establishments have not been
become part but only effected in
subject to tax depriving the government
of public restraint in favor of the
funds its exercise State of an additional source of income. (Tio
v. Videogram Regulatory Board, 151
6. Scope
All persons, All persons, Only upon a
SCRA 208)
property and property, particular
excises rights and property c. The coconut levy funds were
privileges all raised under the states taxing and
police powers.
SYSTEMS OF TAXATION The states concern to make it a
Global System Schedular System strong and secure source not only in the
livelihood of the significant segment of
A system A system employed the population, but also of export
employed where where the income tax earnings, the sustained growth of which
the tax system treatment varies and is one of the imperatives of the
views is made to depend on economic growth. Philippine Coconut
indifferently the the kind or category of
tax base and taxable income of the
Producers Federation, Inc. Cocofed v.
generally treats in taxpayer. Presidential Commission on Good
common all Government (178 SCRA 236, 252)
categories of
taxable income of CONSTRUCTION OF TAX LAWS
the individual. 1. Public purpose is always presumed.
A system which A system which 2. If the law is clear, apply the law in
taxes all itemizes the different accordance to its plain and simple
categories of incomes and provides tenor.
income except for varied percentages
3. A statute will not be construed as
certain passive of taxes, to be applied
incomes and thereto. imposing a tax unless it does so
capital gains. It clearly, expressly and
prescribes a unambiguously.
unitary but 4. In case of doubt, it is construed most
progressive rate strongly against the Government,
for the taxable and liberally in favor of the
aggregate incomes taxpayer.
and flat rates for 5. Provisions of a taxing act are not to
certain passive
be extended by implication.
incomes derived
by individuals. 6. Tax laws operate prospectively
unless the purpose of the legislature
EXAMPLES OF TAXES LEVIED WITH A to give retrospective effect is
REGULATORY PURPOSE, OR COMBINED expressly declared or may be
EXERCISE OF POLICE POWER AND THE POWER implied from the language used.
OF TAXATION. 7. Tax laws are special laws and
prevail over a general law.
a. Motor vehicle registration fees
are now considered revenue or tax NATURE OF TAX LAWS
measures.(Pal v. Edu, G.R No. L-41383, 1. Not political in character
August 15,1988) 2. Civil in nature, not subject to ex
This case reversed the doctrine post facto law prohibitions
previously held in Republic v. Philippine 3. Not penal in character
Rabbit Bus Lines, Inc., 32 SCRA 211, to
the effect that motor vehicle TAXES ARE PERSONAL TO THE TAXPAYER
registration fees are regulatory 1. A corporations tax delinquency
exactions and not revenue measures. cannot be enforced against its

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stockholders. (Corporate Entity 3. As to purpose:

Doctrine) a. General Tax levied for the
Exception: Stockholders may be general or ordinary purposes of
held liable for unpaid taxes of a the Government
dissolved corporation: b. Special Tax levied for special
a. if it appears that the corporate purposes
assets have passed into their 4. As to manner of computation:
hands or a. Specific Tax the computation
b. when the stockholders have of the tax or the rates of the tax
unpaid subscriptions to the is already provided for by law.
capital of the corporation b. Ad Valorem Tax tax upon the
value of the article or thing
2. Estate taxes are obligations that subject to taxation; the
must be paid by the executor or intervention of another party is
administrator out of the net assets needed for the computation of
and cannot be assessed against the the tax.
heirs. 5. As to taxing authority:
Exception: If prior to the payment a. National Tax levied by the
of the estate tax due, the properties National Government
of the deceased are distributed to b. Local Tax levied by the local
the heirs, then the latter is government
subsidiary liable for the payment of 6. As to rate:
such portion of the estate tax as his a. Progressive Tax rate or
distributive share bears to the total amount of tax increases as the
value of the net estate. (Sec. 9, amount of the income or earning
Rev. Regs. No. 2-2003; see CIR vs. to be taxed increases.
Pineda G.R. No. L-22734. b. Regressive Tax tax rate
September 15, 1967)) decreases as the amount of
income to be taxed increases.
CLASSIFICATION OF TAXES c. Proportionate Tax based on a
1. As to subject matter: fixed proportion of the value of
a. Personal Tax taxes are of fixed the property assessed.
amount upon all persons of a
certain class within the IMPOSITIONS NOT STRICTLY CONSIDERED AS
jurisdiction without regard to TAXES
property, occupation or business 1. Toll amount charged for the cost
in which they may be engaged. and maintenance of the property
b. Property Tax assessed on used.
property of a certain class 2. Penalty punishment for the
c. Excise Tax imposed on the commission of a crime.
exercise of a privilege 3. Compromise Penalty amount
d. Customs Duties duties charged collected in lieu of criminal
upon the commodities on their prosecution in cases of tax
being imported into or exported violations.
from a country. 4. Special Assessment levied only on
2. As to burden: land based wholly on benefit
a. Direct Tax both the incidence accruing thereon as a result of
of or liability for the payment of improvements or public works
the tax as well as the impact or undertaken by government within
burden of the tax falls on the the vicinity.
same person. 5. License or Fee regulatory
b. Indirect Tax - The incidence of imposition in the exercise of the
or liability for the payment of police power.
the tax falls on one person but 6. Margin Fee exaction designed to
the burden thereof can be stabilize the currency.
shifted or passed on to another.

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7. Debt a sum of money due upon the start of a before

contract or one which is evidenced business commencement of
by judgment. business
8. Subsidy a legislative grant of
Taxes, being the License fee may be
money in aid of a private enterprise
lifeblood of the with or without
deemed to promote the public State, cannot be consideration
welfare. surrendered except
9. Customs duties and fees duties for lawful
charged upon commodities on their consideration
being transported into or exported
from a country. Non-payment does Non-payment makes
10. Revenue a broad term that not make the the business illegal
includes taxes and income from business illegal but
other sources as well. maybe a ground for
criminal
11. Impost in its general sense, it
prosecution
signifies any tax, tribute or duty. In
its limited sense, it means a duty on
TEST IN DETERMINING IF THE IMPOSITION IS A
imported goods and merchandise.
TAX OR A LICENSE FEE
If the purpose is primarily revenue
Tax Special
or if revenue is, at least, one of the real
Assessment
and substantial purposes, then the
Imposed on persons, Levied only on land exaction is a tax. If the purpose is
property and excises regulatory in nature, it is a license.
(PAL v. Edu)
Personal liability Cannot be made a
attaches on the personal liability of Tax Debt
person assessed in the person assessed
case of non-payment
An obligation Created by contract
imposed by law
Not based on any Based wholly on
special or direct benefit
benefit Due to the May be due to the
government in its government but in
Levied and paid Exceptional both as sovereign capacity its corporate
annually to time and locality capacity
Exemption granted Exemption does not Payable in money Payable in money,

is applicable (Art. apply. property or services
VI, Sec. 28(3) 1987 N.B. If property is
Constitution) exempt from Real Does not draw Draws interest if
Property Tax, it is interest except in stipulated or
also exempt from case of delinquency delayed
Special Assessment.
Not assignable Assignable
Tax License Fee
Not subject to Subject to
compensation or compensation or
Based on the power Emanates from
set-off set-off
of taxation police power
Non-payment is No imprisonment in
To generate Regulatory
punished by case of non-payment
revenue
imprisonment (Art. III, Sec. 20
except in poll tax 1987 Constitution)
Amount is unlimited Amount is limited
to the cost of (1)
Imposed only by Can be imposed by
issuing the license,
public authority private individual
and (2) inspection
and surveillance TEST IN DETERMINING IF THE IMPOSITION IS A
TAX OR A LICENSE FEE
Normally paid after Normally paid

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If the purpose is primarily revenue or DOCTRINE OF EQUITABLE RECOUPMENT NOT

if revenue is, at least, one of the real FOLLOWED IN THE PHILIPPINES
and substantial purposes, then the A tax presently being assessed
exaction is a tax. If the purpose is against a taxpayer which has prescribed
regulatory in nature, it is a license. may not be recouped or set-off against
(PAL v. Edu) an overpaid tax the refund of which is
also barred by prescription. It is against
Tax Debt public policy since both parties are
guilty of negligence.
An obligation Created by contract
imposed by law Tax Toll
Due to the May be due to the Enforced A sum of money for
government in its government but in proportional the use of
sovereign capacity its corporate contributions from something, a
capacity persons and property consideration which
is paid for the use of
Payable in money Payable in money, a property which is
property or services of a public nature;
e.g. road, bridge
Does not draw Draws interest if
interest except in stipulated or A demand of A demand of
case of delinquency delayed sovereignty proprietorship
No limit as to the Amount of toll

Not assignable Assignable
amount of tax depends upon the
cost of construction
Not subject to Subject to or maintenance of
compensation or compensation or the public
set-off set-off improvement used
Non-payment is No imprisonment in Imposed only by the May be imposed by:

punished by case of non- State (1) Government
imprisonment payment (Art. III, (2) Private
except in poll tax Sec. 20 1987 individuals or
Constitution) entities
Imposed only by Can be imposed by Tax Penalty

public authority private individual
Enforced Sanction imposed as
COMPENSATION OR SET-OFF proportional a punishment for
General Rule: Taxes cannot be the contributions from violation of a law
subject of compensation or set-off. persons and or acts deemed
Reasons: property injurious; violation
of tax laws may give
1. lifeblood theory
rise to imposition of
2. taxes are not contractual penalty
obligation but arise out of duty
to the government Intended to raise Designed to regulate
3. the government and the revenue conduct
taxpayer are not mutually
creditors and debtors of each May be imposed May be imposed by:
other. (Francia v. IAC) only by the (1) Government
Exception: When both obligations are government (2) Private
due and demandable as well as fully individuals or
entities
liquidated and all the requisites for a
valid compensation are present,
compensation takes place by operation Tax Tariff
of law. (Domingo v. Garlitos)
All embracing term A kind of tax
to include various imposed on articles

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kinds of enforced which are traded the legislature. (See Scope of

contributions upon internationally Legislative Taxing Power, supra)
persons for the - refers to tax legislation
attainment of Exceptions to Non-delegability:
public purposes
1. Flexible Tariff Clause: Authority of
the President to fix tariff rates,
TAXPAYERS SUIT import and export quotas, tonnage
A case where the act complained of and wharfage dues, and other duties
directly involves the illegal disbursement or imposts. (Art. VI, Sec.28(2), 1987
of public funds derive from taxation Constitution)
(Justice Melo, dissenting in Kilosbayan, 2. Power of local government units to
Inc vs Guingona, Jr.) levy taxes, fees, and charges. (Art.
X, Sec. 5, 1987 Constitution)
TAXPAYERS AND PUBLIC OFFCIALS HAVE 3. Delegation to administrative
LOCUS STANDI agencies for implementation and
REQUISITES FOR TAXPAYERS SUIT collection.
a. The tax money is being - merely refers to tax administration
extracted and spent in violation of or implementation
specific constitutional protections
against abuses of legislative power.
(3) SITUS OR TERRITORIALITY OF TAXATION
b. That public money is being
deflected to any improper purpose The power to tax is limited only to
(Pascual vs Secretary of Public persons, property or businesses within
Works) the jurisdiction or territory of the taxing
c. That the petitioner seeks to power.
restrain respondents from wasting
public funds through the enforcement FACTORS THAT DETERMINE THE SITUS:
of an invalid or unconstitutional law a. Kind or classification of the tax
being levied
b. Situs of the thing or property
LIMITATIONS ON THE TAXING taxed
POWER c. Citizenship of the taxpayer
d. Residence of the taxpayer
A. INHERENT LIMITATIONS (KEY: SPINE) e. Source of the income taxed
1. Territoriality or Situs of taxation f. Situs of the excise, privilege,
2. Public purpose of taxes business or occupation being taxed
3. International comity
4. Non-delegability of the taxing power APPLICATION OF SITUS OF TAXATION
5. Tax Exemption of the government Kind of Tax Situs
(1) TESTS IN DETERMINING PUBLIC PURPOSE Personal or Residence or

a. Duty Test whether the thing to be Community tax domicile of the
furthered by the appropriation of taxpayer
public revenue is something, which
is the duty of the State, as a Real property tax Location of property
government, to provide. (Lex rei sitae)
Personal property -tangible: where it is

b. Promotion of General Welfare Test tax physically located or
whether the proceeds of the tax permanently kept
will directly promote the welfare of (Lex rei sitae)
the community in equal measure. -intangible: subject
to Sec. 104 of the
(2) NON-DELEGABILITY OF THE TAXING NIRC and the
POWER principle of mobilia
General Rule: The power of taxation is sequuntur personam
peculiarly and exclusively exercised by

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Business tax Place of business established in the Philippines.

(Sec. 104, 1997 NIRC).
Excise or Privilege Where the act is
tax performed or where (4) EXEMPTION OF THE GOVERNMENT
occupation is As a matter of public policy,
pursued
property of the State and of its
Sales tax Where the sale is municipal subdivisions devoted to
consummated government uses and purposes is
deemed to be exempt from taxation
Income Tax Consider although no express provision in the law
(1) citizenship, is made therefor.
(2) residence, and
(3) source of income General Rule: The Government is tax
(Sec. 42, 1997 NIRC) exempt.
- However, it can also tax itself.
Transfer tax Residence or
citizenship of the
taxpayer or location RULES:
of property 1. Administrative Agencies
a. Governmental function - tax
Franchise Tax State which granted exempt unless when the law
the franchise expressly provides for tax. (Sec.
32 B7)
SITUS OF TAXATION OF INTANGIBLE PERSONAL b. Proprietary function taxable
PROPERTY unless exempted by law. (Sec.
General Rule: Domicile of the owner 27C)
pursuant to the principle of the mobilia 2. GOCCs
sequuntur personam or movables follow General Rule: Income is taxable at
the person. the rate imposed upon corporations
Exceptions: or associations engaged in a similar
1. When the property has acquired a business, industry, or activity.
business situs in another jurisdiction; Exception: GSIS, SSS, PHIC, PCSO
2. When an express provision of the and PAGCOR. (Sec. 27(C), NIRC)
statute provide for another rule. 3. Government Educational Institutions
Illustration: For purposes of estate a. Property or real estate tax
and donors taxes, the following property actually, directly and
intangible properties are deemed exclusively used for educational
with a situs in the Philippines: purposes exempt but income
(1) franchise which must be of whatever kind and character
exercised in the Philippines; from any of their properties,
(2) shares, obligations or bonds real or personal, regardless of
issued by any corporation the disposition, is taxable. (Sec.
organized or constituted in the 30, last par., NIRC)
Philippines in accordance with b. Income received by them as
its laws; such are exempt from taxes.
(3) shares, obligations or bonds by However, their income from any
any foreign corporation eighty- of their activities conducted for
five percent (85%) of the profit regardless of the
business of which is located in disposition, is taxable. (Sec. 30,
the Philippines; last par., NIRC)
(4) shares, obligations or bonds 4. Income derived from any public
issued by any foreign corporation utility or from the exercise of any
if such shares, obligations or essential governmental function
bonds have acquired a business accruing to the Government of the
situs in the Philippines; and Philippines or to any political
(5) shares or rights in any subdivision thereof is not included in
partnership, business or industry

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gross income and exempt from the territory of another, there is an

taxation. (Sec. 32(B)(7)(b), NIRC) implied understanding that the former
5. Donations in favor of governmental does not thereby submit itself to the
institutions are considered as income authority and jurisdiction of the other.
on the part of the donee. However,
it is not considered as taxable B. CONSTITUTIONAL LIMITATIONS
income because it is an exclusion A. GENERAL OR INDIRECT
from the computation of gross CONSTITUTIONAL LIMITATIONS
income. (Sec.32 (B)(3), NIRC)
6. The amount of all bequests, 1. Due Process Clause (Art. III, Sec. 1,
legacies, devises or transfers to or 1987 Constitution)
for the use of the Government or Requisites:
any political subdivision for a. The interests of the public as
exclusively public purposes is distinguished from those of a
deductible from the gross estate. particular class require the
(Sec.86 (A)(3), NIRC) intervention of the State.
7. Gifts made to or for the use of the (Substantive limitation)
National Government or any entity b. The means employed must be
created by any of its agencies which reasonably necessary to the
is not conducted for profit, or to any accomplishment of the purpose
political subdivision of the said and not unduly oppressive.
Government are exempt from (Procedural limitation)
donors tax. (Sec. 101(A)(2), NIRC) The constitutionality of a legislative
8. Local government units are taxing act questioned on the ground of
expressly prohibited by the LGC denial of due process requires the
from levying tax upon National existence of an actual case or
Government, its agencies, and controversy.
instrumentalities, and local
government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly c. not limited to existing conditions
registered under RA No. 6938, non- only
stock and non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the 3. Freedom Of Speech And Of The
Republic of the Philippines or any of Press (Art. III, Sec. 4, 1987
its political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)
These principles limit the authority
of the government to effectively impose 4. Non-Infringement Of Religious
taxes on a sovereign state and its Freedom And Worship (Art. III, Sec.
instrumentalities, as well as on its 5, 1987 Constitution)
property held and activities undertaken A license tax or fee constitutes a
in that capacity. Even where one enters curtailment of religious freedom if

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imposed as a condition for its , be given

exercise. (American Bible Society in case of
vs. City of Manila, GR No. L-9637, failure to
April 30, 1957) pay taxes
5. Non-Impairment Of Contracts (Art. B. SPECIFIC OR DIRECT

III, Sec. 10, 1987 Constitution) CONSTITUTIONAL LIMITATIONS
No law impairing the obligation
of contract shall be passed. (Sec. 1. Non-Imprisonment For Debt Or Non-
10, Art. III, 1987 Constitution) Payment Of Poll Tax (Art. III, Sec.
The rule, however, does not 20, 1987 Constitution)
apply to public utility franchises or
right since they are subject to 2. Rule Requiring That Appropriations,
amendment, alteration or repeal by Revenue And Tariff Bills Shall
the Congress when the public Originate Exclusively From The
interest so requires. (Cagayan House Of Representatives (Art. VI,
Electric & Light Co., Inc. v. Sec. 24, 1987 Constitution)
Commissioner, GR No. 60216,
September 25, 1985) 3. Uniformity, Equitability And
Progressivity Of Taxation (Art. VI,
RULES: Sec. 28(1), 1987 Constitution)
a. When the exemption is bilaterally Uniformity all taxable articles or
agreed upon between the kinds of property of the same class
government and the taxpayer it are taxed at the same rate.
cannot be withdrawn without Equitability the burden falls to
violating the non-impairment those who are more capable to pay.
clause. Progressivity rate increases as the
b. When it is unilaterally granted by tax base increases.
law, and the same is withdrawn by
virtue of another law no violation. Q: Is a tax law adopting a regressive
c. When the exemption is granted system of taxation valid?
under a franchise it may be A: Yes. The Constitution does not
withdrawn at any time thus, not a really prohibit the imposition of indirect
violation of the non-impairment of taxes which, like the VAT, are
contracts regressive. The Constitutional provision
means simply that indirect taxes shall be
6. Presidential power to grant minimized. The mandate to Congress is
reprieves, commutations and not to prescribe, but to evolve, a
pardons and remit fines and progressive tax system. (EVAT En Banc
forfeitures after conviction (ART. Resolution, Tolentino, et al vs Secretary
VII, SEC. 19, 1987 CONSTITUTION) of Finance, October 30, 1995)
Due Equal
Uniformity 4. Limitations On The Congressional
Process Protection
Taxpayer Taxpayers Taxable Power To Delegate To The
may not shall be articles, or President The Authority To Fix
be treated alike kinds of Tariff Rates, Import And Export
deprived under like property of Quotas, Etc. (Art. VI, Sec. 28(2),
of life, circumstances the same 1987 Constitution)
liberty or and conditions class, shall
property both in the be taxed at
without privileges the same
5. Tax Exemption Of Properties
due conferred and rate. There Actually, Directly And Exclusively
process of liabilities should Used For Religious, Charitable And
law. imposed. therefore, Educational Purposes. (Art. VI,
Notice be no direct Sec. 28(3) 7, 1987 Constitution)
must, double The constitutional provision
therefore taxation (above cited) which grants tax

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exemption applies only to property In Tax Cases (Art. VIII, Sec. 2 And
or realty taxes assessed on such 5(2)(B), 1987 Constitution)
properties used actually, directly
exclusively for religious, charitable 8. Exemption From Taxes Of The
and educational purposes. (Lladoc Revenues And Assets Of
vs. Commissioner, GR No. L-19201, Educational Institutions, Including
June 16, 1965) Grants, Endowments, Donations
The present Constitution And Contributions. (Art. XIV, Sec.
required that for the exemption of 4(3) And (4), 1987 Constitution)
lands, buildings and
improvements, they should not only OTHER SPECIFIC TAX PROVISIONS IN
be exclusively but also actually THE CONSTITUTION
and directly used for religious and 1. Power of the President to veto any
charitable purposes. (Province of particular item or items in an
Abra vs. Hernando, GR No. L-49336, appropriation, revenue, or tariff bill.
August 31, 1981) (Art VI, Sec. 27(2), 1987
The test of exemption from Constitution)
taxation is the use of the property 2. Necessity of an appropriation before
for the purposes mentioned in the money may be paid out of the public
Constitution. (Abra Valley College treasury. (Art. VI, Sec. 29 (1), 1987
Inc. vs. Aquino, GR No. L-39086, Constitution)
June 15, 1988) 3. Non-appropriation of public money
or property for the use, benefit, or
EXCLUSIVE BUT NOT ABSOLUTE USE support of any sect, church, or
The term exclusively used does system of religion. (Art. VI, Sec. 29
not necessarily mean total or absolute (2), 1987 Constitution)
use for religious, charitable and 4. Treatment of taxes levied for a
educational purposes. If the property is special purpose. (Art. VI, Sec. 29
incidentally used for said purposes, the (3), 1987 Constitution)
tax exemption may still subsist. (Abra 5. Internal revenue allotments to local
Valley College Inc. vs. Aquino, Gr No. L- government units. (Art. X, Sec. 6,
39086, June 15, 1988) 1987 Constitution)
Corollarily, if a property, although
actually owned by a religious, charitable
and educational institution is used for a DOUBLE TAXATION
non- exempt purpose, the exemption
from tax shall not attach DOUBLE TAXATION taxing the same
property twice when it should be taxed
ART. XIV, ART. VI, but once.
SEC 4(3) SEC 28(3)
Grantee Non- stock, Religious, IS DOUBLE TAXATION PROHIBITED IN THE
non profit educational, PHILIPPINES?
educational charitable No. There is no constitutional
institution institutions
prohibition against double taxation. It is
Taxes Income tax Property tax
not favored but permissible. (Pepsi Cola
covered Custom
Duties Bottling Co. v. City of Butuan, 1968).
Property tax
(DECS Order KINDS OF DOUBLE TAXATION
No. 137-187) (1) Direct Duplicate Taxation /
Obnoxious double taxation in the
6. Voting Requirement In Connection objectionable or prohibited sense.
With The Legislative Grant Of Tax This constitutes a violation of
Exemption (Art. VI, Sec. 28(4), substantive due process.
1987 Constitution)
7. Non-Impairment Of The Elements:
Jurisdiction Of The Supreme Court

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a. the same property or subject by citizens, including members of

matter is taxed twice when it should general professional partnerships or
be taxed only once. beneficiaries of estates or trusts
b. both taxes are levied for the (pro rata), as well as domestic
same purpose corporations.
c. imposed by the same taxing A tax credit is granted for estate
authority taxes paid to a foreign country on
d. within the same jurisdiction the estate of citizens and resident
e. during the same taxing period aliens subject to certain limitations.
f. covering the same kind or The donors tax imposed upon a
character of tax. citizen or a resident shall be
(Villanueva vs. City of Iloilo) credited with the amount of any
donors tax imposed by the authority
(2) Indirect Duplicate Taxation not of a foreign country, subject to
legally objectionable. The absence certain limitations.
of one or more of the above- 4. Tax Exemptions
mentioned elements makes the 5. Principle of Reciprocity
double taxation indirect. 6. Treaties with other states
(3) Domestic- this arises when the taxes METHODS RESORTED TO BY A TAX TREATY IN
are imposed by the local or national ORDER TO ELIMINATE DOUBLE TAXATION
government (within the same state)
(4) International- refers to the FIRST METHOD: The tax treaty sets out
imposition of comparable taxes in the respective rights to tax by the state
two or more states on the same of source or situs and by the state of
taxpayer in respect of the same residence with regard to certain classes
subject matter and for identical of income or capital. In some cases, an
periods. exclusive right to tax is conferred in one
of the contracting states; however, for
REMEDIES OF DOUBLE TAXATION other items of income or capital, both
1. Tax Sparing Rule same dividend states are given the right to tax although
earned by a NRFC within the Phil. is the amount of tax that may be imposed
reduced by imposing a lower rate of by the state of source is limited.
15% (in lieu of the 35%), on the SECOND METHOD: The state of source is
condition that the country to which given a full or limited right to tax
the NRFC is domiliced shall allow a together with the state of residence. In
credit against the tax due from the this case, the treaty makes it incumbent
NRFC, taxes deemed to have been upon the state of residence to allow
paid in the Phil. (Sec.28 B 5b) (CIR relief in order to avoid double taxation.
vs Procter & Gamble) (GR No.
66838, Dec. 2, 1991) TWO METHODS OF RELIEF ARE USED UNDER THE
2. Tax deductions SECOND METHOD:
Example: vanishing deduction under
Section 86(A)(2), NIRC 1. The exemption method- the income
3. Tax credits or capital which is taxable in the
Instances under the NIRC: state of source or situs is exempted
For VAT purposes, the tax on in the state of residence, although in
inputs or items that go into the some instances it may be taken into
manufacture of finished products account in determining the rate of
(which are eventually sold) may be tax applicable to the tax payers
credited against or deducted from remaining income or capital.(This
the output tax or tax on the finished may be done using the tax deduction
product. method which allows foreign income
Foreign income taxes may be taxes to be deducted from gross
credited against the Phil. Income income, in effect exempting the
tax, subject to certain limitations, payment from being further taxed.)

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2. The credit method- although the Illustration: Value added tax. The
income or capital which is taxed in seller is required by law to pay tax, but
the state of source is still taxable in the burden is actually shifted or passed
the state of residence. The tax paid on to the buyer.
in the former is credited against the
tax, levied in the latter. KINDS OF SHIFTING
(Commissioner of Internal Revenue a. Forward shifting- when burden of
v. S.C Johnson and Son, Inc. et al., tax is transferred from a factor of
G.R No. 127105, June 25, 1999) production through the factors of
distribution until it finally settles on
Exemption the ultimate purchaser or consumer
Credit Method b. Backward shifting- when burden is
Method
Focus is on the Focus is on the tax transferred from consumer through
income or capital factors of distribution to the factors
itself of production
c. Onward shifting- when the tax is
NOTE: Computational illustration shifted 2 or more times either
between a tax deduction and a tax forward or backward
credit:
(2) CAPITALIZATION a mere increase in
Tax deduction method the value of the property is not
Gross income income but merely an unrealized
Less: allowable deductions increase in capital. No income until
including after the actual sale or other
foreign taxes paid disposition of the property in excess
Income subject to tax of its original cost.
Multiplied by rate EXCEPT: if by reason of appraisal, the
Income tax due cost basis of property increased and the
resultant basis is used as the new tax
Tax credit method base for purposes of computing the
Gross income allowable depreciation expense, the net
Less: allowable deductions difference between the original cost
excluding basis and new basis is taxable under the
foreign taxes paid economic benefit principle. (BIR Ruling
Income subject to tax No. 029, March 19, 1998)
Multiplied by rate
Income tax due (3) TRANSFORMATION the manufacturer
Less: foreign taxes paid or producer upon whom the tax has
Net income tax due been imposed, fearing the loss of
his market if he should add the tax
to the price, pays the tax and
FORMS OF ESCAPE endeavors to recoup himself by
FROM TAXATION improving his process of production,
thereby turning out his units at a
(1) SHIFTING the process by which the lower cost.
tax burden is transferred from the
statutory taxpayer (impact of (4) TAX AVOIDANCE the exploitation by
taxation) to another (incident of the taxpayer of legally permissible
taxation) without violating the law. alternative tax rates or methods of
assessing taxable property or
IMPACT OF TAXATION point on which tax income, in order to avoid or reduce
is originally imposed. tax liability.
Example: estate planning
INCIDENCE OF TAXATION point on which (conveyance of property to a family
the tax burden finally rests or settles corporation for shares) (Delpher Trades
down. Corp. vs. IAC, 157 SCRA 349)

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(5) TAX EVASION use by the taxpayer of a. Constitutional immunities from

illegal or fraudulent means to taxation that originate from the
defeat or lessen the payment of the constitution.
tax. b. Statutory those which emanate
from legislation
FACTORS IN TAX EVASION Examples of Statutory Exemptions
1. the end to be achieved, i.e. payment Sec. 27, NIRC
of less than that known by the Sec. 105 Tariff and Customs
taxpayer to be legally due, or paying Code
no tax when it is shown that the tax Sec. 234 Local Government Code
is due; Special Laws, such as the
2. an accompanying state of mind Omnibus Investment Code of 1987
which is described as being evil, in (EO 226), Philippine Overseas
bad faith, willful, or deliberate and Shipping Act (RA 1407 as amended),
not coincidental; and Fertilizer Industry Act (RA 3050, as
3. a course of action which is unlawful. amended), Mineral Resources
Development Decree of 1974 (PD 463
INDICIA OF FRAUD IN TAX EVASION as amended), Cottage Industry Act
1. Failure to declare for taxation (RA 318, as amended) and
purposes true and actual income exemptions in Housing for Low
derived from business for 2 Income Group (PD 1205, as
consecutive years (Republic vs amended)
Gonzales, L-17962) c. Contractual- agreed to by the
2. Substantial under-declaration of taxing authority in contracts
income tax returns of the taxpayer lawfully entered into by them
for 4 consecutive years coupled with under enabling laws
intentional overstatement of d. Treaty
deductions (CIR vs Reyes, 104 PHIL e. Licensing Ordinance
1061) 2. As to form
(1) Express expressly granted by
TAX TAX organic or statute law
AVOIDANCE EVASION (2) Implied when particular
persons, property or excises are
Validity Legal and not Illegal and deemed exempt as they fall
subject to subject to outside the scope of the taxing
criminal penalty criminal provision itself.
penalty
3. As to extent
Effect Minimization of Almost (1) Total absolute immunity
taxes always (2) Partial one where a collection
results in of a part of the tax is dispensed
absence of with
tax payments 4. As to object
(1) Personal granted directly in
(6) TAX EXEMPTION a grant of favor of certain persons
immunity to particular persons or (2) Impersonal granted directly in
corporations from the obligation to favor of a certain class of
pay taxes. property
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the a. Exemptions from taxation are
concurrence of a majority of all the highly disfavored in law and are
members of Congress (ART VI. SEC 28(4) not presumed.
OF THE 1987 CONSTITUTION) b. He who claims as exemption must
be able to justify his claim by the
KINDS OF TAX EXEMPTION clearest grant of organic or statute
1. As to source law by words too plain to be

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mistaken. If ambiguous, there is no parties based on material

exemption. consideration of a mutual nature,
c. He who claims exemption should which then becomes contractual and
prove by convincing proof that he is covered by the non-impairment
is exempted. clause of the Constitution.
d. Taxation is the rule; tax exemption b. Adherence to form- if the tax
is the exception. exemption is granted by the
e. Tax exemption must be strictly Constitution, its revocation may be
construed against the taxpayer and effected through Constitutional
liberally in favor of the taxing amendment only
authority. c. Where the tax exemption grant is in
f. Tax exemptions are not presumed. the form of a special law and not by
g. Constitutional grants of tax a general law even if the terms of
exemption are self-executing. the general act are broad enough to
h. Tax exemptions are personal. include the codes in the general law
unless there is manifest intent to
THE FOLLOWING PARTAKE THE NATURE OF repeal or alter the special law
TAX EXEMPTION (Province of Misamis Oriental vs
1. Deductions for income tax purposes Cagayan Electric Power and Light
2. Claims for refund Co. Inc)
3. Tax amnesty
4. Condonation of unpaid tax liabilities NATURE OF TAX AMNESTY
NOTE: must be strictly construed 1. General or intentional overlooking by
against the taxpayer the state of its authority to impose
penalties on persons otherwise guilty
WHEN EXEMPTIONS ARE CONSTRUED of evasion or violation of a revenue
LIBERALLY IN FAVOR OF GRANTEE or tax law.
1. When the law so provides for such 2. Partakes of an absolute forgiveness of
liberal construction. waiver of the government of its right
2. Exemptions from certain taxes, to collect.
granted under special circumstances 3. To give tax evaders, who wish to
to special classes of persons. relent and are willing to reform a
3. Exemptions in favor of the chance to do so.
government, its political subdivisions
or instrumentalities. RULES ON TAX AMNESTY
4. Exemptions to traditional 1. Tax amnesty
exemptees, such as those in favor of a) like tax exemption, it is never
religious and charitable institutions. favored nor presumed
5. If exemptions refer to the public b) construed strictly against the
property taxpayer (must show complete
compliance with the law)
Q: May a tax exemption be revoked?
A: Yes. It is an act of liberality which 2.Government not estopped from
could be taken back by the government questioning the tax liability even if
unless there are restrictions. Since amnesty tax payments were already
taxation is the rule and exemption received.
therefrom is the exception, the Reason: Erroneous application and
exemption may be withdrawn by the enforcement of the law by public
taxing authority. (Mactan Cebu officers do not block subsequent
International Airport Authority vs. correct application of the statute. The
Marcos, 261 SCRA 667) government is never estopped by
mistakes or errors of its agents.
RESTRICTIONS ON REVOCATION OF TAX Basis: Lifeblood Theory
EXEMPTIONS
a. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity,
exemption was granted to private is a personal defense.

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Reason: Relates to the circumstances fraud or protest, be final and conclusive

of a particular accused and not the upon all parties, unless the liquidation
character of the acts charged in the of import entry was merely tentative.
information. (Sec 1603,TCC)
Tax amnesty Tax exemption c.) Local Government Code

Local Taxes, fees, or charges shall
Immunity from all Immunity from civil be assessed within five (5) years from
criminal, civil and liability only the date they became due. In case of
administrative fraud or intent to evade the payment of
liabilities arising taxes, fees or charges the same may be
from non payment
of taxes
assessed within ten (10) years from
discovery of the fraud or intent to
Applies only to past Prospective evade payment. They shall also be
tax periods, hence application collected either by administrative or
retroactive judicial action within five (5) years
application from date of assessment (Sec. 194. LGC)
DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

As a rule, taxes are imprescriptible ADMINISTRATION
as they are the lifeblood of the
government. However, tax statutes may SOURCES OF TAX LAWS (Key: SPEC2TRA
provide for statute of limitations. BLT)
The rules that have been adopted 1. Statutes
are as follows: 2. Presidential Decrees
a.) National Internal Revenue Code 3. Executive Orders
The statute of limitation for 4. Constitution
assessment of tax if a return is filed is 5. Court Decisions
within three (3) years from the last day 6. Tax Codes
prescribed by law for the filling of the 7. Revenue Regulations
return or if filed after the last day, 8. Administrative Issuances
within three years from date of actual 9. BIR Rulings
filling. If no return is filed or the return 10. Local Tax Ordinance
filed is false or fraudulent, the period to 11. Tax Treaties and Conventions
assess is within ten years from discovery
of the omission, fraud or falsity. REQUISITES OF TAX REGULATIONS
The period to collect tax is within 1. Reasonable
three years from date of assessment. In 2. Within the authority conferred
the case, however, of omission to file or 3. Not contrary to law
if the return filed is false or fraudulent, 4. Must be published
the period to collect is within ten years
from discovery without need of an NOTE: Administrative regulations must
assessment. always be in harmony with the
provisions of the law. In case of
b.) Tariff and customs code discrepancy between the basic law and
It does not express any general the implementing rule or regulation, the
statute of limitation; it provided, former prevails.
however, that when articles have
entered and passed free of duty or final NON-RETROACTIVITY OF BIR RULINGS
adjustment of duties made, with General Rule: Rulings are not
subsequent delivery, such entry and retroactive if they are prejudicial to the
passage free of duty or settlement of taxpayer. (Sec. 246, NIRC)
duties will, after the expiration of one Exceptions:
(1) year, from the date of the final 1. Where the taxpayer deliberately
payment of duties, in the absence of misstates or omits material facts

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1
from his return or any document BUREAU OF INTERNAL REVENUE (BIR)

required of him by the BIR. BIR shall be under the supervision
2. Where the facts subsequently and control of the Dept. of Finance (Sec.
gathered by the BIR is materially 2, NIRC)
different from the facts on which
the ruling is based. POWERS AND DUTIES OF THE BIR
3. Where the taxpayer acted in bad Assessment and collection of all
faith. national internal revenue taxes, fees,
and charges
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN 1. Enforcement of all forfeitures,
ADMINISTRATIVE INTERPRETATION THROUGH penalties, and fines connected
REENACTMENT therewith
Where a statute is susceptible of the 2. Execution of judgments in all cases
meaning placed upon it by a ruling of decided in its favor by the Court of
the government agency charged with its Tax Appeals (CTA) and the ordinary
enforcement and the legislature courts
thereafter reenacts the provision 3. Give effect to and administer the
without substantial change, such action supervisory and police powers
is to some extent confirmatory that the conferred to it by the Code or other
ruling carries out the legislative laws
purpose.
ASSESSMENT a finding by the taxing
RULE OF NO ESTOPPEL AGAINST THE authority that the taxpayer has not paid
GOVERNMENT the correct taxes. It is also a written
General Rule: The Government is not notice to a taxpayer to the effect that
estopped by the mistakes or errors of its the amount stated therein is due as a
agents; erroneous application and tax and containing a demand for the
enforcement of law by public officers do payment thereof.
not bar the subsequent correct General rule: Taxes are self-assessing
application of statutes. (E. Rodriguez, and thus, do not require the issuance of
Inc. vs. Collector, L-23041, July 31, an assessment notice in order to
1969) establish the tax liability of a taxpayer.
Exception: In the interest of justice and
fair play, as where injustice will result Exceptions:
to the taxpayer. (see CIR vs. CA, GR No. 1. Tax period of a taxpayer is
117982, Feb. 6, 1997; CIR vs. CA, GR No. terminated [Sec. 6(D), NIRC]
107135, Feb. 3, 1999) 2. Deficiency tax liability arising from a
tax audit conducted by the BIR [Sec.
AGENCIES INVOLVED IN TAX ADMINISTRATION 56(B), NIRC]
1. Bureau of Internal Revenue 3. Tax lien [Sec. 219, NIRC]
internal revenue taxes 4. Dissolving corporation [Sec. 52(c),
Agents of the CIR NIRC]
a. Commissioner of Customs with
respect to taxes on imported goods SIGNIFICANCE OF ASSESSMENT
b. head of the appropriate A. In the proper pursuit of judicial and
government office with respect to extrajudicial remedies to enforce
energy tax taxpayer liabilities and certain
c. banks duly accredited by the CIR matters that relate to it, such as the
(Sec. 12, 1997 NIRC) imposition of surcharges and
2. Bureau of Customs customs law interests,
enforcement B. In the application of statute of
3. Provincial, city and municipal limitations,
assessors and treasurers local and C. In the establishment of tax liens,
real property taxes and
D. In estimating the revenues that may
ORGANIZATION AND FUNCTION OF THE be collected by government in the

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1
coming year. (Mamalateo, 3. It is discretionary on the part of the

Victorino. Reviewer on Taxation, Commissioner.
2004)
KINDS
1. SELF- ASSESSMENT- one in which the 4. The authority of the Commissioner
tax is assessed by the taxpayer to assess taxes may be delegated,
himself except the power to make final
2. DEFICIENCY ASSESSMENT- made by the assessments.
tax assessor himself whereby the 5. It must be directed to the right
correct amount of the tax is party.
determined after an examination or
investigation is conducted. The Authority of a Revenue Officer -
liability is determined and assessed pursuant to a Letter of Authority issued
for the following reason: by the Regional Director
a. amount ascertained exceeds that a. To examine taxpayers within
which is shown as the tax by the the jurisdiction of the district in
taxpayer in his return order to collect the correct
b. no amount of tax is shown in the amount of tax;
return b. To recommend the assessment of
c. taxpayer did not file any return any deficiency tax due in the
at all same manner that the said acts
3. ILLEGAL AND VOID ASSESSMENT- could have been performed by the
assessment wherein tax assessor has Revenue Regional Director.
no power to assess at all General Rule: income tax returns are
4. ERRONEOUS ASSESSMENT- assessor has confidential.
power to assess but errs in the Exception: inquiry into income tax
exercise thereof returns may be authorized-
BURDEN OF PROOF IN PRE-ASSESSMENT 1. inspection is authorized upon

PROCEEDINGS written order of the President of the
There is a presumption of Philippines;
correctness and good faith on the part of 2. inspection is authorized under
the CIR; thus, the burden lies on the Finance Regulations No. 33 of the
taxpayer. Otherwise, the finding of the Secretary of Finance;
CIR will be conclusive and he will assess 3. production of the tax return is
the taxpayer. The same is true even if material evidence in a criminal case
the CIR is wrong, if the taxpayer does wherein the government is
not controvert. (Cagayan Robina Sugar interested in the result; or
Milling Co. vs. Court of Appeals, GR. 4. production or inspection thereof is
No. 122451, October 12, 2000) authorized by the taxpayer himself.
Reasons: a. lifeblood theory
b. presumption of regularity in Networth Method- inventory method of
performance of public income tax verification.
functions
NOTE: Assessments by the BIR must have Applies the accounting principle:
on its face the law and facts upon which assets liabilities = networth
the presumption is made. Condition for its use:
1. taxpayers books do not clearly
PRINCIPLES GOVERNING TAX ASSESSMENTS reflect his income or the taxpayer
1. Assessments are prima facie has no books, or if he has books, he
presumed correct and made in good refuses to produce them;
faith. 2. there is evidence of possible source
2. It should be based on actual facts. or sources of income to account for
increases in networth;

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1
3. there is a fixed starting point or 3. to Summon

opening networth; and i. the person liable for tax or
4. there must be proper adjustments to required to file a return or
conform with the income tax laws. ii. any officer or employee of such
person or
iii. any person having in his
POWERS AND DUTIES OF THE COMMISSIONER possession/custody/care
I. SECTION 4 (power to interpret tax law -- the books of accounts,
and decide tax cases) -- accounting records of entries
relating to the business of the
1. Interpret provisions of this Code and person liable for tax or any other
other tax laws subject to review of the person
Secretary of Finance -- to produce such books,
(Quasi-legislative) papers, records, and other data
2. Decide: (Quasi-judicial) and to give testimony
a) disputed assessment 4. to take the Testimony of the person
b) refunds of internal concerned, under oath as may be
revenue taxes, fees and charges relevant to the inquiry
c) penalties imposed in 5. to cause revenue officers and
relation thereto employees to make a Canvass of any
d) other matters arising revenue district or region
from this Code or other laws or
portions thereof administered by Nothing in Section 5 shall be
the BIR subject to the exclusive construed as granting the Commissioner
appellate jurisdiction of the CTA the authority to inquire into bank
(Sec. 4) deposits other than as provided for
under sec. 6 (F) of the Code.
II. SECTION 5 (power to obtain
information, summon, examine and take III. SECTION 6 (power to make
testimony of persons) assessments, prescribe additional
requirements for tax administration
3. For the Commissioner to and enforcement)
ascertain:
(a) correctness of any return or in 4. Examination of returns and
making a return where none has determination of tax due
been made A. After a return has been filed the
(b) liability of any person for any Commissioner or his
internal revenue tax or in representative may authorize
correcting such liability i.
(c) tax compliance the Examination of any taxpayer
and
The Commissioner is authorized: ii.
1. to Examine any relevant Book, paper, the Assessment of the correct
record or other data amount of tax;
2. to Obtain any information (costs, B. F
volume of production, receipts, sales, ailure to file a return shall not
gross income, etc), on a regular basis prevent the commissioner from
from: authorizing the examination of
i. any person other than the person any taxpayer;
under investigation or * Any tax or deficiency tax so
ii. any office or officer of the assessed shall be paid upon
national/local government, govt notice and demand from the
agencies and instrumentalities Commissioner or his
(Bangko Sentral, govt owned and representative
controlled corporations) (e.g. LTO, * Any return, statement or
Register of Deeds) declaration filed in any

Cabrera, Jhundee
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1
authorized office shall not be sec.113 (Invoice requirements

withdrawn; but within three for VAT-registered persons)
years from date of filing, the and Sec. 237 (Issuance of
same may be modified, Receipts or Commercial
changed or amended; Invoices) or
provided that no notice for ii. When the books of accounts
audit or investigation of such or records do not correctly
return, has in the meantime, reflect the declarations made
been actually served upon the or required to be made in a
taxpayer. return,
Such minimum amount shall
5.Failure to submit required returns and be considered correct.
other documents 7. Terminate taxable period
If a person Commissioner shall declare the tax
i. fails to file a required return or period of a taxpayer Terminated and
report at the time prescribed or send notice to the taxpayer of such
ii. willfully or otherwise files a decision with a request for immediate
false or fraudulent return, payment of the tax when it has come to
The Commissioner shall Make or the knowledge of the Commissioner:
Amend the return from a) that a taxpayer is retiring from
i. his own knowledge or business subject to tax or
ii. from such b) is intending to leave the Phils.
information as he can obtain or
through testimony or otherwise c) to remove his property
which shall be prima facie therefrom or
correct and sufficient for all d) to hide or conceal his property
legal purposes or
e) is performing any act tending to
6.Inventory-taking, Surveillance, obstruct the proceedings for
Presumptive Gross Sales the collection of tax
A. Commissioner may, at any time
during the taxable year 8. Prescribe Real Property Values
(a) order the inventory taking of The Commissioner is authorized to:
goods of any taxpayer or a. Divide the Phils. into different
(b) may place the business zones or areas and
operations of any person b. Determine the fair market value
(natural/juridical) under of real properties located in each
observation or Surveillance, zone or area
if there is reason to
believe that such is not For tax purposes, the value of
declaring his correct income, the property shall be whichever is
sales or receipts for tax higher of:
purposes. a) Fair market value as
The findings may be used determined by the
as basis for assessing the Commissioner; or
taxes and shall be deemed b) Fair market value as shown in
prima facie correct. the schedule of values of the
provincial and city assessors.
B. Commissioner may prescribe a
Minimum amount of gross 9. Authority to Inquire into Bank
receipts, sales and taxable base Deposit
(taking into account the sales and Notwithstanding R.A. 1405 (Bank
income of other persons engaged Secrecy Law) the Commissioner is
in similar business): authorized to inquire into the Bank
i. When a person has failed to deposits of:
issue receipts as required by

Cabrera, Jhundee
Guillermo
1
(a) a decedent to determine his gross regulations by the Sec. of

estate Finance
(b) a taxpayer who has filed an b) power to Issue rulings of first
application to compromise impression or to Reverse, revoke
payment of tax liability by reason modify any existing rule of the
of financial incapacity BIR
c) power to Compromise or Abate
The taxpayers application for any tax liability
compromise shall not be considered
unless he waives in writing his
privilege under RA 1405 and other
general or special laws. Such waiver
shall authorize the Commissioner to
inquire into his bank deposits.
10. Authority to Register tax agents provided however that the
(a) The Commissioner shall accredit regional evaluation board may
and Register, individuals and compromise:
general professional partnerships 1. assessments issued by
and their rep. who prepare and regional offices involving
file tax returns and other papers deficiency taxes of P500,000
or who appear before the BIR or less and
(b) The Commissioner shall create 2. minor criminal violations as
national and regional may be determined by the
accreditation boards. rules and regulations
3. discovered by regional and
Those who are denied district officials
accreditation may appeal the same
to the Sec. Of Finance who shall Regional Evaluation Board is
rule on the appeal within 60 days composed of:
from receipt of such appeal. Failure i. Regional Director as Chairman
to do so within the prescribed ii. Asst. Regional Director
period shall be deemed as approval iii. Heads of the Legal, Assessment
for accreditation. and Collection Div.
iv. Revenue District Officer having
11. Authority to Prescribe Additional jurisdiction over the taxpayer
Requirements
The Commissioner may prescribe d) power to Assign or reassign
the manner of compliance with any internal revenue officers to
documentary or procedural establishments where
Requirement for the submission or articles subject to excise tax
preparation of financial statements are kept.
accompanying tax returns.
V. SECTIONS 8, 14, 15, 16, 17 (Other
IV. SECTION 7 (Authority to Delegate Powers)
Power ) 13. Duty to ensure the provision and
12. The Commissioner may delegate the distribution of forms, receipts,
powers vested in him to certificates, and appliances, and
- subordinate officials with rank the acknowledgment of payment of
equivalent to Division Chief or taxes (Sec. 8)
higher, subject to
limitations/restrictions imposed 14. Authority to administer oaths and to
under the rules and regulations take testimony (Sec. 14)
EXCEPT, (the following powers
shall NOT be delegated) 15. Authority to make arrests and
a) power to Recommend the seizures (Sec. 15)
promulgation of rules and

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1
16. Authority to employ, assign or trade or business, or as a tax on a

reassign internal revenue officers persons income, emoluments,
involved in excise tax functions to profits and the like (61 CJS 1559)
establishments where articles tax on income,
subject to excise tax are produced whether gross or net. (27 Am. Jur.
or kept (Sec. 16) 308)
17. Authority to assign or reassign INCOME all wealth, which flows into the
internal revenue officers and taxpayer other than as a mere
employees of the BIR to other or return of capital.
special duties connected with the
enforcement or administration of CAPITAL resource of person, which can
the revenue laws (Sec. 17) be used in producing goods and
services.
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED Income Capital
TO INSTITUTE APPEAL PROCEEDINGS WITHOUT
THE PARTICIPATION OF THE SOLICITOR All wealth, which Fund or property
GENERAL? flows into the which can be used
NO. The institution or taxpayer other than in producing goods
commencement before a proper court of as a mere return of or services
civil and criminal actions and capital.
proceedings arising under the Tax
Flow of Wealth Fund or property
Reform Act which shall be conducted by
legal officers of the BIR is not in dispute. Source of wealth Wealth
An appeal from such court, however, is
not a matter of right. It is still the
Solicitor General who has the primary REQUISITES FOR INCOME TO BE TAXABLE
responsibility to appear for the 1. There must be a gain or profit.
government in appellate proceedings. 2. The gain must be realized or
(Commissioner vs. La Suerte Cigar and received.
Cigarette Factory, GR No. 144942, July 3. The gain must not be excluded by
4, 2002) law or treaty from taxation.
SOURCES OF REVENUE TESTS ON TAXABILITY OF INCOME

The following taxes, fees and 1. Flow of Wealth Test The
charges are deemed to be national determining factor for the
internal revenue taxes. (Sec. 21, NIRC) imposition of income tax is
1. Income tax whether any gain was derived
2. Estate and donor's taxes from the transaction.
3. Value-added tax 1. Realization Test - unless the
4. Other percentage taxes income is deemed "realized,"
5. Excise taxes there is no taxable income.
6. Documentary stamp taxes 2. Economic-Benefit Principle
7. Such other taxes as are or hereafter Test
may be imposed and collected by -flow of wealth realized is
the Bureau of Internal Revenue. taxable only to the extent that
the taxpayer is economically
benefited.
II. NATIONAL TAXATION CRITERIA IN IMPOSING INCOME TAX

1. Citizenship Principle A citizen of
A. INCOME TAXATION the Philippines is subject to Philippine
income tax (a.) on his worldwide
DEFINITIONS income, if he resides in the Philippines,
INCOME TAX tax on all yearly profits or (b.) only on his income from sources
arising from property, possessions,

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1
within the Philippines, if he qualifies as b. who leaves the Philippines

nonresident citizen. during the taxable year to reside
2. Residence Principle resident alien abroad, either as an immigrant
is liable to pay income tax on his income or for employment on a
from sources within the Philippines but permanent basis;
exempt from tax on his income from c. who works and derives income
sources outside the Philippines. from abroad and whose
3. Source Principle An alien is subject employment thereat requires
to Philippine income tax because he him to be physically present
derives income from sources within the abroad most of the time during
Philippines. Thus, a nonresident alien is the taxable year;
liable to pay Philippine income tax on d. who is previously considered as a
his income from sources within the non-resident and who arrives in
Philippines such as dividend, interest, the Philippines at anytime during
rent, or royalty, despite the fact that he the taxable year to reside
has not set foot in the Philippines. thereat permanently shall be
CLASSIFICATION OF TAXPAYERS considered non-resident for the
taxable year in which he arrives
Individuals in the Philippines with respect to
a. citizens his income derived from sources
(1) resident citizens (RC) abroad until the date of his
(2) non-resident citizens (NRC) arrival [Sec.22 (E), NIRC]
b. aliens
(1) resident aliens (RA) NOTE: An overseas contract worker
(2) non-resident aliens (NRA) (OCW) is taxable only on income
(a) engaged in trade or derived from sources within the
business within the Philippines. [Sec. 23 (B)(C)]
Phils. (NRAETB) A seaman is considered as an
(b) not engaged in trade or OCW provided the following
business within the requirements are met:
Philippines (NRANETB) 1. receives compensation for services
rendered abroad as a member of
Corporations the complement of a vessel; and
a. Domestic (DC) 2. such vessel is engaged exclusively
b. Foreign in international trade.
(1) resident foreign corporation
(RFC) Based on the above provisions,
(2) non-resident foreign there are three (3) types of
corporation (NRFC) nonresident citizens, namely: (1)
Estates immigrants; (2) employees of a foreign
Trusts entity on a permanent basis; and
Partnerships (3) overseas contract workers.
Immigrants and employees of a foreign
A. INDIVIDUALS entity on a permanent basis are
treated as nonresident citizens from
WHO ARE TAXABLE? the time they depart from the
1. Resident Citizen Philippines. However, overseas
2. Non-resident Citizen contract workers must be physically
A non-resident citizen means, a present abroad most of the time
Filipino citizen: during the calendar year to qualify as
a. who establishes to the nonresident citizens.
satisfaction of the Commissioner 3. Resident alien - means an individual
the fact of his physical presence whose residence is within the
abroad with a definite intention Philippines and who is not a citizen
to reside therein; thereof. [Sec.22 (F, NIRC)]

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4. Non-resident alien engaged in 4. Associations; or

trade or business within the 5. Insurance companies [Sec. 22(B),
Philippines. (NRAETB) NIRC].
A non-resident alien means an
individual whose residence is not Excludes:
within the Philippines and who is not 1. General professional
a citizen thereof. [Sec.22 (G)] partnerships;
The term trade or business 2. Joint venture or consortium
includes the performance of the formed for the purpose of
functions of a public office. [Sec. 22 undertaking construction projects or
(S)] engaging in petroleum, coal,
The term trade, business or geothermal and other energy
profession shall not include operations pursuant to an operating
performance of services by the or consortium agreement under a
taxpayer as an employee. [Sec. 22 service contract with the
(CC)] Government.
A non-resident alien individual
who shall come to the Philippines CORPORATIONS EXEMPT FROM INCOME
and stay therein for an aggregate TAXATION (FOR INCOME REALIZED AS SUCH)
period of more than 180 days during UNDER NIRC
any calendar year shall be deemed a 1. Those enumerated under Sec. 30.
non-resident alien doing business in Exempt corporations are subject
the Philippines Section 22(G) to income tax on their income from
notwithstanding [Sec. 25(A)(1)] any of their properties, real or
5. Non-resident alien not engaged in personal, or from any other activities
trade or business within the conducted for profit, regardless of
Philippines. (NRANETB) the disposition made of such income.
2. With respect to GOCCs, the general
ONLY RESIDENT CITIZENS are taxable rule is that these corporations are
for income derived from sources within taxable as any other corporation
and without the Philippines. All other except:
individual income taxpayers are taxable a. GSIS
only for income derived from sources b. SSS
within the Philippines. c. PHIC
d. PCSO
Tax Rates: Please refer to Annex A. e. PAGCOR [Sec. 27 (C)]
3. Regional or Area Headquarters
B. CORPORATIONS under Sec. 22 (DD) not subject to
income tax
WHO ARE TAXABLE?
1. Domestic Corporation created or Regional operating headquarters
organized in the Phils. or under its under Sec. 22(EE) shall pay a tax of
law [Sec. 22(C), NIRC] 10% of their taxable income.
2. Resident Foreign Corporation
engaged in trade or business within ONLY DOMESTIC CORPORATIONS are
the Philippines [Sec. 22(H), NIRC] taxable for income derived from sources
3. Non-resident Foreign Corporation within and without the Philippines. All
not engaged in trade or business other corporate income taxpayers are
within the Philippines [Sec. 22(I), taxable only for income derived from
NIRC] sources within the Philippines.
A Corporation Includes:
1. Partnerships, no matter how Tax Rates: Please refer to Annex B.
created or organized;
2. Joint-stock companies; C. ESTATES AND TRUSTS
3. Joint accounts (cuentas en
participacion)

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ESTATE refers to the mass of properties the profits between/among

left by a deceased person. themselves, an unregistered
partnership is created and the
RULES ON TAXABILITY OF ESTATE estate becomes liable for the
When a person who owns property payment of corporate income
dies, the following taxes are payable tax. (Evangelista vs. Collector,
under the provisions of the income tax GR No. L-9996, October 15,
law: 1957; Oa vs. Commissioner, GR
1. Income tax for individual under Sec. No. L-19342, May 25, 1972)
24 and 25 (to cover the period 2. If the heirs, without contributing
beginning January to the time of money, property or industry to
death); improve the estate, simply
2. Estate income tax under Sec. 60 if divide the fruits thereof
the estate is under administration or between/among themselves, a
judicial settlement. co-ownership is created, and
individual income tax is imposed
on the income received by each
of the heirs, payable in their
ESTATES UNDER JUDICIAL SETTLEMENT separate and individual
A. During the Pendency of the capacity. (Pascual vs.
Settlement Commissioner, GR No. L-78133,
General Rule: An estate under October 18, 1988; Obillos vs.
judicial settlement is subject to Commissioner, GR No. L-68118,
income tax in the same manner as October 29, 1985)
individuals. Its status is the same as
the status of the decedent prior to ESTATES NOT UNDER JUDICIAL SETTLEMENT
his death. Pending the extrajudicial
Exceptions: settlement, either of the following
1. The entitlement to personal situations may arise:
exemption is limited only to 1. If the heirs contribute money,
P20,000. property, or industry to the estate
2. No additional exemption is with the intention of dividing the
allowed. profits between/among themselves,
3. The distribution to the heirs an unregistered partnership is
during the taxable year of estate created and the estate becomes
income is deductible from the liable for the payment of corporate
taxable income of the estate. income tax; or
Such distributed income shall 2. If the heirs, without contributing
form part of the respective money, property or industry to the
heirs taxable income. estate, simply divide the fruits
Where no such thereof between/among themselves,
distribution to the heirs is made a co-ownership is created and
during the taxable year that the income tax is imposed on the income
income is earned, and such received by each of the heirs,
income is subjected to income payable in their separate and
tax payment by the estate, the individual capacity.
subsequent distribution thereof
is no longer taxable on the part TRUST A right to the property, whether
of the recipient. real or personal, held by one person for
the benefit of another.
B. TERMINATION OF THE JUDICIAL
SETTLEMENT (WHERE THE HEIRS STILL WHEN TRUSTS ARE TAXABLE ENTITIES
DO NOT DIVIDE THE PROPERTY) 1. A trust, the income of which is to be
1. If the heirs contribute to the accumulated
estate money, property, or
industry with intention to divide

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2. A trust in which the fiduciary may, at 1. the employees trust must be part of
his discretion, either distribute or a pension, stock bonus or profit
accumulate the income. sharing plan of the employer for the
benefit of some or all of his
RULES ON TAXABILITY OF THE INCOME OF A employees;
TRUST 2. contributions are made to the trust
1. The income of the trust for the by such employer, or such
taxable year which is to be employees, or both;
distributed to the beneficiaries 3. such contributions are made for the
filing and payment of tax lie on the purpose of distributing to such
beneficiaries. employees both the earnings and
2. The income of the trust which is to principal of the fund accumulated by
be accumulated or held for future the trust, and
distribution whether consisting of 4. that the trust instrument makes it
ordinary income or gain from the impossible for any part of the trust
sale of assets included in the corpus or income to be used for, or
"corpus" of the estate filing of diverted to, purposes other than the
return and payment of tax become exclusive benefit of such employees.
the burden of the trustee or (Sec. 60B, NIRC)
fiduciary.
Exceptions: Tax exemption is likewise to be
a. In the case of a revocable trust, enjoyed by the income of the pension
the income of the trust will be trust; otherwise, taxation of those
returned by the grantor. earnings would result in a diminution of
b. In a trust where the income is accumulated income and reduce
held for the benefit of the whatever the trust beneficiaries would
grantor, the income of the trust receive out of the trust fund.
becomes income to the grantor. (Commissioner vs. Court of Appeals,
c. In the case of trust Court of Tax Appeals and GCL
administered in a foreign Retirement Plans, GR No. 95022, March
country, the income of the trust; 23, 1992)
undiminished by any amount
distributed to the beneficiaries D. PARTNERSHIPS
shall be taxed to the trustee.
KINDS OF PARTNERSHIP FOR TAX PURPOSES
IRREVOCABLE TRUSTS (irrevocable both as UNDER THE NIRC
to corpus and as to income) 1. General Professional Partnerships
(GPP) - formed by persons for:
Trust itself, through the trustee or a. the sole purpose of exercising a
fiduciary, is liable for the payment of common profession and
income tax. Taxed exactly in the same b. no part of the income of which is
way as estates under judicial settlement derived from engaging in any
and its status as an individual is that of trade or business. [Sec. 22(B),
the trustor. It is entitled to the NIRC].
minimum personal exemption (P20,000) 2. Taxable or Business Partnership
and distribution of trust income during All other partnerships except
the taxable year to the beneficiaries is general professional partnerships no
deductible from the trusts taxable matter, how created or organized.
income. It includes unregistered joint
ventures and business partnerships.
REVOCABLE TRUSTS the trustor, not the However, joint ventures are not
trust itself, is subject to the payment of taxables as corporations when it is;
income tax on the trust income. (a) undertaking construction projects
(b) engaged in petroleum, coal and
EXEMPTION OF EMPLOYEES TRUST other energy operation under a
Provided:

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1
service contract with the a. Each partner shall report as

government gross income (business income)
General co-partnerships (GCP) his distributed share actually or
are partnerships, which are by law constructively received in the
assimilated to be within the context net income of the partnership.
of, and so legally contemplated as, (Sec. 26, NIRC) [The same share
corporations. The partnership itself shall be subject to creditable
is subject to corporate taxation. The withholding tax of 10%.] They
individual partners are considered are liable in their separate and
stockholders and, therefore, profits individual capacity.
distributed to them by the
partnership are taxable as dividends. b. Share of a partner in the loss
The taxable income for a taxable of a general professional
year, after deducting the corporate partnership may be taken by the
income tax imposed therein, shall be individual partner in his return
deemed to have been actually or of income.
constructively received by the
partners in the same taxable year
and shall be taxed to them in their c. Each partner in a general
individual capacity whether actually professional partnership shall,
distributed or not. [Sec. 73(D), report as gross income his
NIRC] distributed share in the net
income of the GPP, based on his
LIABILITY OF A PARTNERSHIP agreed ratio, whether he, avails
1. General Professional Partnership .- of itemized or optional standard
They are not subject to income tax, deduction.
but are required to file returns of
their income for the purpose of d. Payments made to a partner of
furnishing information as to the a GPP for services rendered shall
share of each partner in the net gain be considered as ordinary
or profit, which each partner shall business income subject to Sec.
include in his individual return. The 24A (Effective January 1, 1982)
partnership shall act as the
withholding agent. 2. Share of a partner in Taxable or
The net income (income for Business partnership
distribution) shall be computed in a. Share of a partner in the net
the same manner as a corporation. income of a taxable or business
Date of filing of the return is April partnership (dividend) shall be
15 of each year. subject to a final tax as follows.
2. Taxable or Business Partnership - Resident Citizen, Non-
The income tax of this type of resident Citizen and
Partnership is computed and taxed Resident Alien (2000 and
like that of a corporation. This kind onward) 10% (Sec. 24B2)
of partnership, like a regular Non-resident Alien engaged
corporation, is also required to file a in trade or business 20%
quarterly corporate income tax (Sec. 25 A2)
return. Filing and payment of Non-resident alien not
quarterly return is within 60 days engaged in trade or business
after the end of each quarter while 25% (Sec. 25B)
the annual return is on or before b. Share of a partner in the loss
April 15 of the following year. of a taxable or business
partnership maybe taken by the
LIABILITY OF A PARTNER individual partner in his return
Rules: of income.
1. Share of a partner in general c. Payments made to a partner of
professional Partnership a business or taxable partnership

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for services rendered shall be k. Partners share in the net income of

considered as compensation the general professional partnership
income subject to sec. 24A.
See Annex D for detailed discussion
KINDS OF INCOME TAXES of items.
UNDER THE NIRC KINDS OF DIVIDENDS
1. Cash and Property Dividends
1. Net Income Tax Individual Taxpayer
2. Optional Corporate Income tax a. From Domestic Corporations
3. Minimum Corporate Income Tax RC, NRC, RA 10% (Sec.
4. Improperly Accumulated Earnings 24A)
Tax NRAETB 20% (Sec. 25A2)
5. Preferential Rates or Special Rates NRANETB 25% on gross
of Income Tax income (Sec. 25B)
6. Gross Income Tax b. From Foreign Corporations
7. Final Income Tax RC, NRC, RA, NRAETB 5-
8. Fringe Benefits Tax 32% (Sec. 24, 25A1)
9. Capital Gains Tax NRANETB 25% on gross
(1) NET INCOME TAX income (Sec. 25B)
DEFINITION: Means gross income less Corporate Taxpayer

deductions and/or personal and a. Foreign to Domestic Corp. 32%
additional exemptions (Sec. 31, NIRC) (Sec. 32A)
b. Domestic to Domestic Corp.
NET INCOME TAX FORMULA Exempt; intercorporate
Entire Income dividends (Sec. 27D)
Less: Exclusions and Income subject c. Domestic to Foreign Corp. -
to Final Tax (e.g. Passive Resident Foreign Corp.
Income) Exempt (Sec. 28 [A] 7d)
Gross Income Nonresident Foreign Corp.
Less: Deductions (and/or additional 15% subject to the condition
exemptions, if applicable) stated in Sec. 28 [B] 5.
Net Taxable Income Otherwise, it shall be taxed
Multiply by: Tax Rate (%) at 32%. (See Commissioner
vs. Procter and Gamble, GR
Net Income Tax Due No. 66838, December 2,
Less: Tax Credit, if any 1991)
Tax Still due, if any
2. Stock Dividends
GROSS INCOME General rule: Not subject to tax
because it does not constitute
DEFINITION: Means all income derived income; it represents transfer of
from whatever source, including but not surplus to capital account. (Sec.
limited to the following (Sec. 32) 73B, 1997 NIRC)
a. Compensation; Exceptions:
b. Gross income from profession, trade a. Sec. 73B, 1997 NIRC
or business; (1) there is redemption or
c. Gains form dealings in property; cancellation
d. Interests; (2) the transaction involves
e. Rents; stock dividends, and
f. Royalties; (3) the time and manner of
g. Dividends; the transaction makes it
h. Annuities; essentially equivalent to a
i. Prizes and winnings; distribution of taxable
j. Pensions; dividends. (see

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1
Commissioner vs. Court of the taxable year under such

Appeals, Court of Tax contracts) exceed the aggregate
Appeals & ANSCOR, GR No. premiums or considerations paid
108576, Jan. 30, 1999) (whether or not paid during the
b. the recipient is other than the taxable year), then the excess shall
shareholder (Bachrach vs. be included in the gross income.
Seifert, GR No. L-2659, October However, in the case of a transfer for
12, 1950) a valuable consideration, by
c. change in the stockholders assignment or otherwise, of a life
equity results by virtue of the insurance, endowment or annuity
stock dividend issuance. contract, or any interest therein,
only the actual value of such
3. Liquidating Dividends When a consideration and the amount of the
corporation distributes all of its premiums and other sums
assets in complete liquidation or subsequently paid by the transferee
dissolution, the gain realized or are exempt from taxation. No loss is
loss sustained by the realized on surrender of a life
stockholder, whether individual insurance policy for its surrender
or corporation, is taxable value.
income or deductible loss, as the
case may be. (Sec. 73A) 3. Gift, bequest or devise
A liquidating dividend is not Gifts, bequests, and devises
a dividend income. The (which are subject to estate or gift
transaction is considered a sale taxes) are excluded, but not the
or exchange of property income from such property. If the
between the corporation and the amount received is on account of
stockholder. services rendered, whether
constituting a demandable debt or
EXCLUSIONS FROM GROSS INCOME not, or the use of the opportunity to
NOTE: Under the 1997 Tax Code, the use of capital, the receipt is income
term exclusions refers to items that (Pirovano vs. Commissioner, 14
are not included in the determination of SCRA 832)
gross income either because:
(a) they represent return of capital 4. Compensation for personal injuries
or are not income, gain or profit; or or sickness, whether by suit or
(b) they are subject to another kind agreement
of internal revenue tax; or NOTE: The phrase personal
(c) they are income, gain or profit injuries should be given a
that are expressly exempt form income restrictive meaning to refer only to
tax under the constitution, tax treaty, physical injuries. The theory for this
Tax Code, or a general or special law. is that recoupment on account of
such losses is not income, since it is
1. Proceeds of life insurance paid by not derived from capital, from labor
reason of the death of the insured to or from both combined. And the
his estate or to any beneficiary fact that the payment of
(individual, partnership, or compensation for such loss was
corporation, but not a transferee for voluntary does not change its
a valuable consideration), directly or exempt status. It was in fact
in trust. compensation for a loss, which
NOTE: if the proceeds are impaired petitioners capital.
retained by the insurer, the interest
thereon is taxable; 5. Income exempt under Treaty;
2. Return of insurance premium; 6. Retirement benefits, pension,

NOTE: if such amounts (when added gratuities, etc.
to amounts already received before

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1
a. those derived under R.A. 7641 b. Income derived from any

(pertains to private firms public utility or from the
without retirement trust fund); exercise of any governmental
b. those received by officials and function;
employees of private employers c. Prizes and awards made
in accordance with a reasonable primarily in recognition of
private benefit plan; religious, charitable, scientific,
Requisites: educational, artistic, literary, or
(1) in the service of the same civic achievement
employer for at least 10 Requisites:
years; (1) recipient was selected
(2) at least 50 years old; without any action on his
(3) must be availed of only once part; and
(4) plan approved by the BIR (2) recipient is not required to
(R.R.2-98); render substantial future
c. separation pay because of services.
death, sickness, or other d. Prizes and awards granted to
physical disability or for any athletes in sports competitions
cause beyond the control of the and sanctioned by their national
official or employee (e.g. sports association ;
retrenchment, redundancy or e. 13th month pay and other
cessation of business); benefits up to P30,000.00;
for any cause beyond the f. GSIS,SSS, Medicare and union
control of said official or dues of individuals;
employee connotes g. Gains derived from debt
involuntariness on the part of securities with a maturity of
the official or employee; more than 5 years;
separation must not be asked or h. Gains from redemption of shares
initiated by the official or in Mutual Fund.
employee.
d. social security benefits, EXCLUSIONS VS. DEDUCTIONS
retirement gratuities, pensions
and other similar benefits Exclusions Deductions
received by citizens and aliens [Sec. 32(B)] [Sec. 34]
who come to reside permanently
here from foreign sources Refer to flow of Refer to the amounts
private or public; wealth which are not which the law allows
e. benefits due to residents under treated as part of to be subtracted
the laws of the U.S. gross income from gross income in
administered by the U.S. because: order to arrive at net
(1) exempted by the income
Veterans Administration
fundamental law; (2)
f. SSS benefits; and exempted by statute;
g. GSIS benefits. (3) do not come
within the definition
7. Miscellaneous items of income
a. Passive income derived in the
Philippines by: Pertain to the Pertain to the
(1) Foreign governments; computation of gross computation of the
(2) Financing institutions income net income
owned, controlled or
Something earned or Something spent or
enjoying refinancing from received by the paid in earning of
foreign governments taxpayer which do gross income
(3) International or regional not form part of gross
financial institutions income
established by foreign
governments

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1
DEDUCTIONS (2) personal additional

exemptions
DEFINITION: Items or amounts which the b. gross income from business or
law allows to be deducted from gross practice of profession
income in order to arrive at the taxable (1) Optional Standard Deduction
income. (OSD)
(2) Itemized deductions
BASIC PRINCIPLES GOVERNING DEDUCTIONS (3) premium payments on health
a. The taxpayer seeking a deduction and/or hospitalization
must point to some specific insurance
provisions of the statute authorizing (4) personal additional
the deduction; and exemptions
b. He must be able to prove that he is 2. Corporations
entitled to the deduction authorized Itemized Deductions
or allowed. (Atlas Consolidated
Mining & Dev. Corp. vs.
Commissioner, GR No. L-26911, KINDS OF DEDUCTIONS
January 21, 1981) a. Optional standard deductions (OSD)
c. Any amount paid or payable which is 10% of the gross income.
otherwise deductible from, or taken The OSD may be availed of
into account in computing gross only by individuals (except
income or for which depreciation or nonresident alien) who are not
amortization may be allowed, shall purely compensation income
be allowed as deduction only if it is earners.
shown that the tax required to be b. Personal and additional exemptions
deducted and withheld therefrom Available only to individuals
has been paid to the BIR. [Sec. (business income and compensation
34(K), NIRC] income earners).
NOTE: Deductions for income tax NRAETB may be entitled to

purposes partake of the nature of tax personal exemptions (only) subject
exemptions; hence, if tax exemptions to reciprocity, i.e.,
are to be strictly construed, then it a. the country of which he is a
follows that deductions must also be subject or citizen has an income
strictly construed. tax law; and
b. the income tax law of his
TAXPAYERS WHO CANNOT AVAIL OF country allows personal
DEDUCTIONS FROM GROSS INCOME exemption to citizens of the
1. Citizens and resident aliens whose Philippines not residing therein,
income is purely compensation but deriving income therefrom
income (except for premium and not to exceed the amount
payments on health and/or allowed in NIRC.
hospitalization insurance);
2. Non-resident aliens not engaged in The personal exemption shall be
trade or business in the Philippines; equal to that allowed by the income
and tax law of his country to a citizen of
3. Non-resident foreign corporation the Philippines not residing therein,
or the amount provided in the NIRC,
CLASSES OF DEDUCTIONS whichever is lower.
1. Individuals
a. with gross compensation income Individuals not entitled to these
from employer-employee exemptions:
relationship only a. Non-resident Alien not engaged
(1) premium payments on health in trade or business
and/or hospitalization
insurance

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1
b. Alien individual employed by 1. Unmarried or legally separated

Regional or Area Headquarters person with one or both parents,
of Multinational Companies or one or more brothers or
c. Alien individual employed by sisters, or one or more
Offshore Banking Units legitimate, recognized natural or
d. Alien individual employed by legally adopted children living
Petroleum Service Contractor with and dependent upon the
and Subcontractor taxpayer for their chief support;
and
c. Itemized deductions Chief support means more
a. ordinary and necessary than one-half of the
expenses requirements for support.
b. interests 2. Where such brother / sister or
c. taxes children are not more than 21
d. losses years of age, unmarried and not
e. bad debts gainfully employed, or where
f. depreciation of property; such dependents regardless of
g. depletion of oil and gas wells age, are incapable of self
and mines; support because of mental or
h. charitable and other physical defect.
contributions;
i. research and development; Parents, brothers, sisters and senior
j. pension trust contributions of citizen with the tax payer, whether
employees; and relative or not, may qualify the
k. premium payments on health taxpayer, to the personal exemption of
and/or hospitalization insurance. P25,000 as head of the family but not to
(This is the only deduction which the additional exemption of P8,000.
a compensation income earner
may claim as a deduction.) B. Additional Exemption for
Dependents [Sec. 35, NIRC]
d. Special deductions P 8,000 For each of the qualified
a. private proprietary educational dependent children not
institutions and hospitals that exceeding four (4) in
are non-profit (Sec. 34 A, 2) number.
b. insurance companies (Sec. 37) The additional exemption refers
c. estates and trusts (Sec. 61) only to qualified dependent children
such as legitimate, recognized natural,
PERSONAL EXEMPTIONS illegitimate and legally adopted.
The proper claimant of the
A. Amounts of Personal Exemptions additional exemption is the husband
[Sec. 35, NIRC] being the head of the family except
1. P 20,000 Single individual or under the following cases:
married individual judicially 1. Husband is unemployed
decreed legally separated 2. Husband is working abroad like
without qualified dependent an OFW or a seaman
children. 3. Husband explicitly waived his
2. P 25,000 Head of the family or right of the exemption in favor
married individual judicially of his wife in the withholding
decreed legally separated exemption certificate.
with qualified dependent
children. A Senior Citizen is:
3. P 32,000 For each legally 1. any
married individual. resident citizen of the
Philippines
Head of the Family 2. at least
sixty 60 years old, including

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those who have retired from shall determine his exemptions.

both government offices and (strictly construed against the
private enterprises, and taxpayer)
3. has an Examples:
income of not more than Sixty became legally separated
thousand pesos (60,000) per can only claim P 20,000
annum subject to the review of 25 years old child became
the National Economic incapacitated cannot claim
Development Authority (NEDA) additional exemption
every three years.
ITEMIZED DEDUCTIONS
Parents and dependents qualify
the taxpayer, to the personal A. ORDINARY AND NECESSARY
exemption of P25,000 as head of the
EXPENSES
family but not to the additional
exemption of P8,000.
NECESSARY EXPENSE appropriate and
helpful in the development of taxpayer's
NOTE: NRAETB may deduct personal
business and are intended to minimize
exemption (not additional
losses or to increase profits. These are
exemption), but only to the extent
the day-to-day expenses.
allowed by his country to Filipinos
ORDINARY EXPENSE normal or usual in
not residing therein, and shall not
relation to the taxpayers business and
exceed the aforementioned
the surrounding circumstance.
amounts. NRANETB cannot claim
any personal or additional
REQUISITES OF BUSINESS EXPENSE TO BE
exemptions.
DEDUCTIBLE
1. ordinary and necessary;
C. Change of Status [Sec. 35, NIRC]
2. paid or incurred w/in the taxable
1. If the taxpayer should marry or
year;
should have additional
3. paid or incurred in carrying on a
dependents during the taxable
trade or business;
year, he may claim the
4. substantiated with official receipts
corresponding exemptions in full
or other adequate records.
for such year.
5. if subject to withholding taxes proof
2. If the taxpayer should die during
of payment to the Bureau of Internal
the taxable year, his estate may
Revenue must be shown.
claim the corresponding
6. must be reasonable (when the
exemptions as if he died at the
expense is not lavish, extravagant or
close of such year.
excessive under the circumstances)
3. If the spouse or any dependent
7. must not be contrary to law, public
should die or any dependent
policy or morals.
should marry or become twenty-
one years old during the year, or
NOTE: While illegal income will form
should become gainfully
part of income of the taxpayer,
employed, the taxpayer may
expenses which constitute bribe,
claim the exemptions as if the
kickback and other similar payment,
spouse or dependent died or as
being against law and public policy are
if such dependent married,
not deductible from gross income.
became twenty one years old or
(Subsec. A, 1, c)
became gainfully employed at
the close of such year.
CAPITAL EXPENDITURE An expenditure
4. For any other event and for
that benefits not only the current period
which there are no specific rules
but also future periods. It is not
applicable from the above-
deductible but depreciable, except, if
mentioned, the status of the
the taxpayer is a non-profit proprietary
taxpayer at the end of the year

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educational institution which may elect connection with the taxpayer's trade
either to deduct the capital expense or business or exercise of profession, shall
depreciate it. be allowed as a deduction from the
taxpayer's gross income.
See Annex E Business Expenses
Limitation - The amount of interest
See Annex F Ceiling on expense paid incurred by a taxpayer in
Entertainment, Amusement and connection with his trade, business or
Recreational Expenses exercise of a profession from an existing
indebtedness shall be reduced by an
B. INTEREST amount equal the following percentages
of interest income earned which had
INTEREST shall refer to the payment for been subjected to final withholding
the use or forbearance or detention of depending on the year when the interest
money, regardless of the name it is income earned, viz:
called or denominated. It includes the 38% - beginning January 1, 2000 and
amount paid for the borrower's use of, thereafter
money during the term of the loan, as
well as for his detention of money after Aim of Limitation: To discourage so-
the due date for its repayment. called back-to-back loans where a
taxpayer secures a loan from a bank,
REQUISITES FOR DEDUCTIBILITY (REV. REG. turns around and invests the loan
NO. 13-2000) proceeds in money market placements.
1. There must be an indebtedness; By imposing a limit as to the amount of
2. There should be an interest interest expense that can be deducted
expense paid or incurred upon from gross income, the previous practice
such indebtedness; of tax arbitrage was absolutely nullified.
3. The indebtedness must be that of
the taxpayer; Tax Arbitrage is a method of
4. The indebtedness must be connected borrowing without entering into a
with the taxpayer's trade, business debtor/creditor relationship, often to
or exercise of profession; resolve financing and exchange control
5. The interest expense must have been problems. In tax cases, back-to-back
paid or incurred during the taxable loan is used to take advantage of the
year; lower of tax on interest income and a
6. The interest must have been higher rate of tax on interest expense
stipulated in writing; deduction.
7. The interest must be legally due;
8. The interest arrangement must not Illustration:
be between related taxpayers; On June 1, 2000 Company X has:
9. The interest must not be incurred to 1. Obtained a loan from ABC Financing
finance petroleum operations; and Corporation in connection with the
10. In case of interest incurred to operation of its business and its
acquire property used in trade, interest expense on the loan
business or exercise of profession, amounted to P 120,000.
the same, was not treated as a 2. Deposit account in DEF Bank and
capital expenditure. derived interest income thereof
11. The interest is not expressly amounting to P200,000 on which the
disallowed by law to be deducted final tax of P40,000 has been
from gross income of the taxpayer. withheld.
Assume that Company Xs net
RULES ON DEDUCTIBILITY OF INTEREST income before the deduction of
EXPENSE interest expense is P500,000.
General Rule - In general, the amount of
interest expense paid or incurred within The deductible expense shall be
a taxable year of indebtedness in computed as follows:

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2. Interest paid on indebtedness

Year 2000 between related taxpayer
3. If the indebtedness is incurred to
Net Income before finance petroleum exploration
interest expense P500,000 4. Interest on preferred stock, which
Less: Interest Expense P120,000 in reality is dividend
Less: 38% of interest 5. Interest on unpaid salaries and
income from deposit bonuses
(38% x P200,000) 76,000 6. Interest calculated for cost keeping
Deductible Interest on account of capital or surplus
Expense 44,000 invested in business which does not
Taxable Income P456,000 represent charges arising under
interest-bearing obligation.
7. Interest paid when there is no
Deductible Interest Expense stipulation for the payment thereof.
1. Interest on taxes, such as those paid
for deficiency or delinquency, since OPTIONAL TREATMENT OF INTEREST EXPENSE
taxes are considered indebtedness At the option of the taxpayer,
(provided that the tax is a interest incurred to acquire property
deductible tax, except in the case of used in trade or business may be
income tax). However, fines, allowed as a deduction or treated as
penalties, and surcharges on account capital expenditure. [Sec 34 (B)(3),
of taxes are not deductible. The NIRC]
interest on unpaid business tax shall
not be subjected to the limitation C. TAXES
on deduction.
2. Interest paid by a corporation on Taxes mean TAXES PROPER, and
scrip dividends therefore no deductions are allowed for:
3. Interest-on deposits paid by 1. interest
authorized banks of the Bangko 2. surcharges
Sentral ng Pilipinas to depositors, 3. penalties or fines incident to
if it is shown that the tax on such delinquency (Sec. 80, Rev. Reg. 2)
interest was withheld.
4. Interest paid by a corporate taxpayer REQUISITES FOR DEDUCTIBILITY
who is liable on a mortgage upon real 1. must be in connection with
property of which the said taxpayers business;
corporation is the legal or equitable 2. tax must be imposed by law on, and
owner, even though it is not directly payable by taxpayer (direct tax);
liable for the indebtedness. and
3. paid or incurred during the taxable
NON-DEDUCTIBLE INTEREST EXPENSE year.
1. An individual taxpayer reporting
income on the cash basis incurs an TAXES NOT DEDUCTIBLE
indebtedness on which an interest is 1. income tax;
paid in advance through discount or 2. estate and donors tax;
otherwise: 3. special assessments;
allowed as a deduction in the 4. excess electric consumption tax;
year the indebtedness is paid 5. foreign income tax, war profits and
if the indebtedness is payable excess profits tax, if the taxpayer
periodic amortization on, the makes use of tax credit; and
amount of interest which 6. final taxes, being in the nature of
corresponds to the amount of income tax.
the principal amortized or paid
during the year shall be allowed NOTE: Taxes allowed as deductions,
as deduction in such taxable when refunded or credited, shall be
year. included as part of gross income in the

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year of receipt to the extent of the Taxable

income tax benefit of said deduction. income from
(Tax Benefit Rule) foreign country X Phil. = Tax Credit
Taxable income income tax Limit
For NRAETB and RFC, taxes paid or from all sources
incurred are allowed as deductions only
if and to the extent that they are 2. Over-all limitation
connected from income within the Taxable
income from
Philippines. outside sources X Phil. = Tax Credit
Taxable income income tax Limit
EXCEPTIONS to requirement that only from all sources
such persons on whom the tax is
imposed by law can claim deduction The allowable tax credit is the lower
thereof: amount between the tax credit
1. Taxes of shareholder upon his computed under No. 1 and No. 2.
interest as such and paid by the
corporation without reimbursement WHEN CREDIT FOR TAXES MAY BE TAKEN
from him, can be claimed by the The credit for taxes provided by
corporation as deduction. Section 30(C)(3) to (9) may ordinarily be
2. A corporation paying the tax for the taken either in the return for the year in
holder its bonds or other obligation which the taxes accrued or on which the
containing a tax-free covenant taxes were paid, dependent upon
clause cannot claim deduction for whether the accounts of the taxpayer
such taxes paid by it pursuant to are kept and his returns filed upon the
such covenant. accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer 1) The amount of credit in respect to
to deduct from income tax payable the the taxes paid or accrued to any
foreign income tax he has paid to his country shall not exceed the same
foreign country subject to limitation. proportion of the tax against which
such credit is taken, which the
WHO CAN CLAIM TAX CREDIT taxpayers net income from sources
1. resident citizens of the Philippines within such country taxable under
2. resident aliens under the principle of Title II (income Tax) bears to his
reciprocity entire net income for the same
3. domestic corporations which include taxable year; and
partnerships except general 2) The total amount of the credit shall
professional partnership not exceed the same proportion of
4. beneficiaries of estates and trusts the tax against which such credit is
5. members of beneficiaries of local taken, which the taxpayers net
partnerships income from sources without the
Philippines taxable under Title II
WHO ARE NOT ENTITLED TO TAX CREDIT (Income Tax) bears to his entire net
1. non-resident citizens income for the same taxable year.
2. resident aliens, if without
reciprocity D. LOSSES
3. resident aliens whose income is
derived solely from sources within LOSSES refer to such losses which do
the Philippines not come under the category of bad
4. foreign corporations (resident and debts, inventory losses, depreciation,
non-resident) etc., and which arise in taxpayer's
profession, trade or business.
FORMULA FOR COMPUTING LIMITATION
1. Per country limitation REQUISITES FOR DEDUCTIBILITY

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1. Actually sustained during the taxable (3) There has been no

year substantial change in the
2. Connected with the trade, business ownership of the business or
or profession enterprise.
3. Evidenced by a close and completed There is no substantial
transaction change in the ownership of
4. Not compensated for by insurance or the business when:
other form of indemnity (a) not less than 75% in
5. Not claimed as a deduction for nominal value of the
estate tax purposes outstanding issued shares
6. Notice of loss must be filed with the is held by or on behalf of
Bureau of Internal Revenue within the same persons; or
45 days from the date of discovery (b) not less than 75% of the
of the casualty or robbery, theft or paid up capital is held by
embezzlement. or on behalf of the same
person.
NOTE: The taxpayers failure to record
in his books the alleged loss proves that NOTE: The 3 year period shall
the loss had not been suffered, hence, continue to run notwithstanding
not deductible. (City Lumber vs. that the corporation paid its taxes
Domingo and Court of Tax Appeals, GR under MCIT, or that the individual
No. L-18611, January 30, 1964) availed the 10% OSD.
CATEGORY AND TYPES OF LOSSES
See Annex S for illustration.
1. ORDINARY LOSSES
a. Incurred in trade or business, or
b. Of property connected, with the
practice of profession
trade, business or profession, if
Net operating loss carry-over
the loss arises from fires,
(NOLCO)
Refers to the excess of storms, shipwreck or other
allowable deductions over gross casualties, or from robbery,
income of the business for any theft, or embezzlement.
taxable year, which had not (1) Total destruction
been previously offset as The replacement cost to
deduction from gross income. restore the property to its
Can be carried over as a normal operating condition,
deduction from gross income for but in no case shall the
the next 3 consecutive years deductible loss be more than
immediately following the year the net book value of the
of such loss. property as a whole,
For mines, other that oil and immediately before
gas well, net operating loss casualty.
incurred in any of the first ten (2) Partial Destruction
years of operation may be The excess over the net
carried over for the next 5 book value immediately
years. before the casualty should
be capitalized, subject to
depreciation over the
Requirements: remaining useful life of the
(1) The taxpayer was not property.
exempt from income tax in
the year of such net 2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE
operating loss; ONLY TO THE EXTENT OF CAPITAL
(2) The loss was not incurred in GAINS)
a taxable year during the a. Losses from sale or exchange of
taxpayer was exempt from capital assets
income tax; and

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b. Losses resulting from securities expenditures pertaining thereto

becoming worthless and which shall be allowed as a deduction.
are capital assets. (2) In case a producing well is
c. Losses from short sales of abandoned, the unamortized cost
property. thereof, as well as the
d. Losses due to failure to exercise undepreciated cost of equipment
privilege or option to buy or sell directly used therein, shall be
property. allowed as deduction in the year
the well, equipment or facility is
3. SPECIAL KINDS OF LOSSES abandoned.
a. Wagering losses - deductible only to
the extent of gain or winnings. [Sec. d. Losses due to voluntary removal of
34 (D)(6)]; deemed to apply only to building incident to renewal or
individuals replacements - deductible expense
b. Losses on wash sales of stocks - not from gross income.
deductible because these are
considered to be artificial loss. e. Loss of useful value of capital
assets due to charges in business
Wash sales a sale or other conditions - deductible expense only
disposition of stock or securities to the extent of actual loss sustained
where substantially identical (after adjustment for improvement,
securities are acquired or purchased depreciation and salvage value)
within 61-day period, beginning 30
days before the sale and ending 30
days after the sale. [Sec. 38]
General rule: Losses from wash sales f. Losses from sales or exchanges of
are not deductible. property between related
Exception: When the sale is made by taxpayers -losses of this nature is not
a dealer in stock or securities and deductible but gains are taxable.
with respect to a transaction made in
the ordinary course of the business of g. Losses of farmers - if incurred in the
such dealer, losses from such sale is operation of farm business, it is
deductible. deductible.
Elements of Wash Sales:
(1) The sale or other disposition of h. Loss in shrinkage in value of stock
stock resulted to a loss; if the stock of the corporation becomes
(2) There was an acquisition or worthless, the cost or other basis may be
contract or option for acquisition deducted by the owner in the taxable
of stock or securities within 30 year in which the stock of its
days before the sale or 30 days worthlessness is made. Any amount
after the sale; and claimed as a loss on account of shrinkage
(3) The stock or securities sold were in value of the stock through fluctuation
substantially the same as those in the market or otherwise cannot be
acquired within the 61-day deducted from gross income.
period.
E. BAD DEBTS
c. Abandonment losses
in petroleum operation and producing BAD DEBTS shall refer to those debts
well. resulting from the worthlessness or
(1) In case a contract area where uncollectibility, in whole or in part, of
petroleum operations are amounts due the taxpayer by others,
undertaken is partially or wholly arising from money lent or from
abandoned, all accumulated uncollectible amounts of income from
exploration and development goods sold or services rendered.

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REQUISITES FOR DEDUCTIBILITY International Rubber, GR No. L-

1. Existing indebtedness due to the 22265, Dec. 22, 1967)
taxpayer which must be valid and Depends upon the particular facts and
legally demandable; the circumstances of the case.
2. Connected with the taxpayer's Good faith does not require that the
trade, business or practice of taxpayer be an incorrigible optimist
profession; but on the other hand, he may not be
3. Must not be sustained in a unduly pessimistic.
transaction entered into between
related parties; F. DEPRECIATION
4. Actually ascertained to be worthless
and uncollectible as of the end of DEPRECIATION the gradual diminution in
the taxable year.; and the service or useful value of tangible
5. Actually charged off in the books of property due from exhaustion, wear and
accounts of the taxpayer as of the tear and normal obsolescence.
end of the taxable year. The term also applies to
amortization of intangible assets, the
EQUITABLE DOCTRINE OF TAX BENEFIT use of which in trade or business i s of
A recovery of bad debts previously limited duration.
deducted from gross income constitutes
taxable income if in the year the REQUISITES FOR DEDUCTIBILITY
account was written off, the deduction 1. The allowance for depreciation
resulted in a tax benefit. (Tax Benefit must be reasonable.
Rule) 2. It must be for property use or
employment in trade or business or
out of its not being used
Illustration: temporarily during the year.
Case A Case B Case C 3. The allowance must be charged off
Net within the taxable, year.
income
(loss) 4. Schedule on the allowance must be
before attached to the return.
write off
for bad P10,000 (P 9,000) P 5,000 PROPERTY HELD BY ONE PERSON FOR LIFE
debts
Less: WITH THE REMAINDER TO ANOTHER PERSON
Accounts The deduction shall be computed as
written off if the life tenant was the absolute owner
as bad of the property and, as such the expense
debts 3,000 2,000 6,000
Final Net shall accrue to him.
Income
(Loss) P 7,000 (P11,000) (P1,000) PROPERTY HELD IN TRUST
Bad debts Allowable deduction shall be
recovery
in a subse- apportioned between the income
quent year 3,000 2, 000 6, 000 beneficiaries, and the trustees in
TAXABLE accordance with the pertinent provisions
INCOME of the instrument creating or in the
upon the
bad debt absence of such provisions, on the basis
recovery P3,000 P -0- P5,000 of the trust income allowable to each.
ASCERTAINMENT OF WORTHLESSNESS METHODS OF DEPRECIATION

Proof of Two Facts: The term "reasonable allowance"
1. taxpayer did in fact ascertain the shall include (but not limited to) an
debt to be worthless, in the year allowance computed in accordance,
for which deduction is sought, with the regulations prescribed by the
2. that in so doing, he acted in good Department of Finance, under any of the
faith. (Collector vs. Goodrich following methods.
1. Straight-line method

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2. Declining-balance method 1. Petroleum Operations

3. Sum of the years-digit method Depreciation of all properties
4. Any other method which may be directly related to production of
prescribed by the Department of petroleum shall be allowed
Finance upon recommendation of under straight-line (SL) or
the Commissioner of Internal declining balance (DB) method
Revenue. May shift from DB to SL method
Useful life: 10 years or shorter
METHODS OF DEPRECIATION life as allowed by the
Kind Formula Commissioner
1)Straight-line cost- salvage value Useful life of property not
estimated life
2)Declining cost depreciation x Rate directly related to production: 5
balance estimated life years under straight line method
3)Sum of the years nth period x cost- salvage 2. Mining Operations
digits (SYD) SYD Depreciation on all properties in
mining operations other than
Illustration: A machine is used in the petroleum operations at the
manufacturing department of normal rate if expected life is
Corporation A, compute the depreciation less than 10 years.
per annum with the following facts: If expected life is more than 10
Cost = P15,000 Salvage years, depreciation shall be any
Value= P5,000 number of years between 5
years and the expected life.
3. Depreciation deductible by non-

1. Straight Line Method with estimated resident aliens engaged in
life = 5 years trade/business or non-resident
15,000 5,000 = P2,000 corporation
5 years a. Only when such property is
located in the Philippines.
2. Declining balance with rate of 200%
Year 1: 15,000 0 x 200% = P6,000 G. DEPLETION OF OIL AND GAS
5 WELLS AND MINES
Year 2:15,0006,000 x 200% =P3,600
5 DEPLETION - exhaustion of natural
resources as in mines, oil, and gas
3. Sum of the years digits wells. The natural resources are called
SYD for 5 years = 5+4+3+2+1 or 15 wasting assets. As the physical units
Year 1: 5/15 x (15,000 5,000) representing such resources are
= P3,333.33 extracted and sold, such assets move
Year 2: 4/15 x (15,000 5,000) towards exhaustion.
= P2,666.67 Known as cost of depletion
allowance for mines, oil gas wells and
AGREEMENT AS TO USEFUL LIFE ON WHICH other natural deposits starting calendar
DEPRECIATION RATE IS BASED year 1976 and fiscal year beginning July
The Bureau of Internal Revenue and 1,1975
the taxpayer may agree in writing on the
useful life of the property to be
depreciated. The agreed rate may be TO WHOM ALLOWED
modified if justified by facts or Only mining entities owning
circumstances. The change shall not be economic interest in mineral deposits.
effective before the taxable year on Economic interest means interest in
which notice in writing by certified mail minerals in place investment therein or
or registered mail is served by the party secured by operating or contract
initiating. agreement for which income is derived,
SPECIAL TYPES OF DEPRECIATION

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and return of capital expected, from the

extraction of mineral. 1) Recipient is: 1) Recipient is:
Mere economic or pecuniary (a) Government (a) Government
advantage to be derived by production of the of the
Philippines; Philippines;
by one who has no capital investment in
(b) Any of its (b) Any of its
the mineral deposit does not amount to agencies or agencies or
economic interest. political political
subdivisions; subdivisions
FEATURES or
1. Intangible Exploration and (c) Any fully- For a non-priority
development drilling cost in owned activity in any of the
petroleum exploration shall be government areas mentioned in
treated either as: corporation A, and exclusively for
a public purpose.
a. revenue expenditures; or
For priority
b. capital expenditures activity in:
2. The total amount deductible for 1. Science;
exploration and development 2. Education
expenditures shall not exceed 50% of 3. Culture
net income from mining operation. 4. Health
The excess shall be carried forward 5. Economic
to the succeeding year until fully Development
deducted. 6. Human
Settlement
7. Youth and
H. CHARITABLE AND OTHER Sports
CONTRIBUTIONS Development
TAX TREATMENT 2) Recipient is a 2) Non-government

foreign or organizations
international
A. Deductible B. Deductible organization
In Full Subject To with an
Limitation agreement with
the Philippine
Government on
deductibility, or
in accordance
with special law.
3) Recipient is an 3) Recipient is an
accredited non- accredited
government domestic
organization, corporation or
organized/ operated association
for (purposes): organized/opera
ted for
(purposes):

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I. RESEARCH AND DEVELOPMENT

(a) Scientific; (a) Scientific (R&D)
(b) Educational; (b) Educational;
(c) Cultural; (c) Cultural;
(d) Character (d) Youth and sports TAX TREATMENT
building/you development Either as:
th and sports (e) Charitable 1. Revenue Expenditures
development (f) Social welfare Requisites:
(e) Charitable (g) Religious a. Paid or incurred during
(f) Social (h) Rehabilitation of the taxable year
welfare Veterans b. Ordinary and necessary
(g) Health expenses in connection with
(h) Research If the conditions
trade business or profession
in Table A is not
And satisfying complied with: c. Not chargeable to
the following capital account
conditions: Subject to limitation: 2. Deferred Expenses
1. The donation (a) Individual - Requisites:
must be 10% taxable a. Paid or incurred in
utilized not income from connection with trade, business,
later than the trade or profession
15th day of business or b. Not treated as expense
the 3rd month profession
c. Chargeable to capital
following the before
close of its contribution account but not chargeable to
taxable year. (b) Corporation - property subject to depreciation
2. The 5% taxable or depletion.
administrativ income from
e expense trade Amount deductible:
must not business or Amount ratably distributed over
exceed 30% of profession a period of 60 months beginning with
total before the month taxpayer realized
expenses. contribution benefits from such expenditures.
3. Upon
dissolution,
assets must EXCLUSION FROM RESEARCH AND
be distributed DEVELOPMENT EXPENDITURES
to another 1. Any expenditure for the acquisition
non-profit or improvement of land or for the
domestic improvement of property to be used
corporation in connection with research and
or to the development subject to depreciation
state. and depletion.
2. Any expenditure paid or incurred for
the purpose of ascertaining the
REQUISITES FOR DEDUCTIBILITY
existence, location, extent or
1. The contribution or gift must be
quality of any deposit of ore or other
actually paid.
mineral including oil or gas.
2. It must be given to the organizations
specified in the code.
3. The net income of the institution
J. PENSION TRUST CONTRIBUTIONS
must not inure to the benefit of any
PENSION TRUST CONTRIBUTIONS a
private stockholder or individual.
deduction applicable only to the
employer on account of its contribution
VALUATION
to a private pension plan for the benefit
Charitable contribution of property
of its employee. This deduction is purely
other than money shall be based on the
business in character.
acquisition cost of said property.

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Guillermo
1
REQUISITES FOR DEDUCTIBILITY REQUISITES FOR DEDUCTIBILITY

1. The employer must have established 1. Insurance must have actually been
a pension or retirement plan to taken
provide for the payment of 2. The amount of premium deductible
reasonable pensions to his does not exceed P2,400 per family
employees; or P200 per month during the
2. The pension plan is reasonable and taxable ear.
actuarially sound; 3. That said family has a gross income
3. It must be funded by the employer; of not more than P250,000 for the
4. The amount contributed must be no taxable year.
longer subject to the control and 4. In case of married individual, only
disposition of the employer; the spouse claiming additional
5. The payment has not yet been exemption shall be entitled to this -
allowed as a deduction; and deduction.
6. The deduction is apportioned in
equal parts over a period of 10 WHO MAY AVAIL OF THE DEDUCTION
consecutive years beginning with the 1. Individual taxpayers earning purely
year in which the transfer or compensation income during the
payment is made. year.
2. Individual taxpayer earning business
SUMMARY OF RULES ON RETIREMENT BENEFITS income or in practice of his
PLAN / PENSION TRUST profession whether availing of
1. Exempt from Income Tax itemized or optional standard
employees trust under Sec. 60(B) deductions during the year.
2. Exclusion from Gross Income 3. Individual taxpayer earning both
amount received by the employee compensation, and business or
from the fund upon compliance of practice of profession during the
certain conditions under Sec. 32(B) year.
(6)
3. Deduction from Gross Income NON-DEDUCTIBLE EXPENSES
A. Amounts contributed by the
employer during the taxable REASONS FOR NON-DEDUCTIBILITY
year into the pension plan to 1. Personal expenses
cover the pension liability 2. Capital expenditures
accruing during the year 3. Items not normally subject to
considered as ordinary and income tax and therefore are not
necessary expenses under Sec. deductible.
34(A)(1) 4. Items taken advantage of by the
B. 1/10 of the reasonable amount taxpayer to avoid payment of
paid by the employer to cover income tax.
pension liability applicable to
the years prior to the taxable SPECIFIC ITEMS (SECTION 36)
year, or so paid to place the 1. Personal, living or family expenses;
trust in a sound financial basis 2. Amount paid out for new buildings or
deductible under Sec. 34(J) for permanent improvements, or
betterment made to increase the
K. PREMIUM PAYMENTS value of any property or estate,
ON HEALTH AND/OR Except that intangible drilling
HOSPITALIZATION INSURANCE and development cost incurred in
petroleum operations are
DEFINITION: It is an amount of premium deductible;
on health and/or hospitalization paid by 3. Amount expended in restoring
an individual taxpayer (head of family or property or in making good the
married), for himself and members of his exhaustion thereof for which an
family during the taxable year. allowance has been made;

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Guillermo
1
4. Premiums paid on any life insurance (2) OPTIONAL CORPORATE

policy covering the life of any officer INCOME TAX
or employee, or of any person SECTION 27 (A)
financially interested in any trade or
business carried on by the taxpayer, APPLIES TO:
individual or corporate, when the 1. Domestic corporations (DC)
taxpayer is directly or indirectly a 2. Resident foreign corporations (RFC)
beneficiary under such policy. [Sec.
36] RATE OF TAX AND DATE OF EFFECTIVITY
5. Losses from sales or exchanges of 15% of the Gross Income effective
property between related January 1, 2000
taxpayers. [S ec. 36]
CONDITIONS OR REQUIREMENTS
TRANSACTIONS BETWEEN RELATED PARTIES 1. A tax effort ratio of 20% of Gross
1. Between members of the family; National Product
Family includes only the 2. A ratio of 40% income tax collection
brothers, sisters (whether by the to total tax revenues
whole or half blood), spouse, 3. A VAT tax effort of 4% of GNP
ancestors, and lineal 4. A 0.9% ratio of Consolidated Public
descendants of the taxpayer. Sector Financial Position (CPSFP) to
2. Except in the case of distributions in GNP
liquidation:
a. between an individual and a OTHER FEATURES
corporation more than 50% in 1. Available only to firms whose
value of the outstanding stock of ratio of:
which is owned, directly or
indirectly, by or for such Cost of sales
individual; <=55%
b. between two corporations more Gross sales or receipts from all
than 50% in value of the sources
outstanding stock of each of
which is owned, directly or 2. The election shall be irrevocable
indirectly, by or for the same for three (3) consecutive years
individual, if either one of such
corporations, with respect to the MEANING OF GROSS INCOME
taxable year of the corporation General concept
preceding the date of the sale of Gross sales
exchange was a personal holding Less:
company or a foreign personal (1) Sales Return;
holding company; or (2) Discount and allowances
3. Between the grantor and a fiduciary (3) Cost of goods sold - means
of any trust; all business expenses
4. Between the fiduciary of a trust and directly incurred to produce
the fiduciary of another trust if the the merchandise to bring
same person is a grantor with them to their present
respect to each trust; location and use.
5. Between a fiduciary of a trust and a
beneficiary of such trust. (3) MINIMUM CORPORATE
TAX CONSEQUENCES
INCOME TAX (MCIT)
The following are not deductible: SECTION 27 (E)
1. Interest expense [Sec. 34 (B)(2)]
2. Bad debts [Sec. 34 (E)(1)] WHO ARE COVERED?
3. Losses from sales or exchanges of MCIT is imposed on domestic and
property [Sec 36 (B)] resident foreign corporations

Cabrera, Jhundee
Guillermo
1
1. Whenever such corporation has zero

or negative taxable income; or RELIEF FROM MCIT
2. Whenever the amount of
MCIT is greater than the normal The Secretary of Finance is
income tax due from such authorized to suspend the imposition of
corporation determined under the MCIT on any corporation which
Section 27[A]. suffers losses because of:
a. prolonged labor dispute;
LIMITATIONS b. force majeure; or
c. legitimate business reverses.
1. The MCIT shall apply only to
domestic and resident foreign Substantial losses from a prolonged
corporations subject to the normal labor dispute" means losses arising from a
corporate income tax (income tax strike staged by the employees which
rates under Sec 27[A] of the CTRP). lasted for more than six (6) months
2. In the case of a domestic within a taxable period and which has
corporation whose operations or caused the temporary shutdown of
activities are partly covered by the business operations.
regular income tax system and partly Force majeure" means a cause due
covered under a special income tax to an irresistible force as by "Act of God"
system, the MCIT shall apply on like lightning, earthquake, storm, flood
operations covered by the regular and the like. This term shall also
corporate income tax system. include armed conflicts like war and
3. In computing for the MCIT due from insurgency.
a resident foreign corporation, only Legitimate business reverses" shall
the gross income from sources within include substantial losses sustained due
the Philippines shall be considered to fire, robbery, theft, or
for such purpose. embezzlement, or for other economic
reason as determined by the Secretary
WHEN DOES A CORPORATION BECOME of Finance.
LIABLE UNDER THE MCIT?
TAX RATE: 2% of gross income or
MCIT is imposed beginning on taxable base pertinent to a
the fourth taxable year immediately trading/merchandising concern or a
following the year in which such service entity
corporation commenced its business.
The taxable year in which the business TAX BASE: Gross Income
operations commenced shall be the year MEANING OF GROSS INOME
when the corporation registers with the
BIR. General concept - gross income means:
Gross sales
CARRY FORWARD OF THE EXCESS Less:
MINIMUM TAX (1) Sales Return;
(2) Discount and allowances
Any excess of MCIT over the normal (3) Cost of goods sold - means
income tax can be carried forward all business expenses
on an annual basis. directly incurred to produce
The excess can be credited against the merchandise to bring
the normal income tax due in the them to their present
next 3 immediately succeeding location and use.
taxable years.
Any amount of the excess MCIT KINDS OF BUSINESS
which cannot be credited against the
normal income tax due in the next A. Trading or Merchandising Concern
3-year period shall be forfeited. Gross Income = Cost of Sales =
gross sales/ 1. Invoice cost

Cabrera, Jhundee
Guillermo
1
receipts less sales of the goods sold; Other income and Extraordinary
returns, discounts 2. import Income are included since RR 9-98
and allowances and duties; provides that gross sales include
cost of goods sold 3. freight in sales contributory to income taxable
transporting the under the regular corporate tax.
goods to the place
where the goods See Annex T for interplay of normal
are actually sold; tax, optional corporate income tax
4. insurance and MCIT.
while the goods
are in transit.
B. Manufacturing Cost of Sales = All (4) IMPROPERLY ACCUMULATED
Gross Income cost of production of EARNINGS (IAE) TAX
(Same) finished goods, such
as
SECTION 29
1. raw materials
used; (REVENUE REGULATIONS NO. 2 2001)
2. direct labor;
3. manufacturin DEFINITION: Improperly accumulated
g overhead; earnings (IAE) are the profits of a
4. freight cost; corporation that are permitted to
5. insurance accumulate instead of being distributed
premiums; by a corporation to its shareholders for
6. other costs the purpose of avoiding the income tax
incurred to bring with respect to its shareholders or the
the raw materials shareholders of another corporation.
to the factory or
warehouse. TAX RATE: 10% of the Improperly
C. Services Cost of Services = All Accumulated Taxable Income (in
Gross Income = direct costs and addition to other taxes).
Gross receipts less expenses necessarily Rationale behind IAET
sales returns, incurred to provide If the earnings and profits were
allowances, the services required distributed, the shareholders would then
discounts and costs by the customers and be liable to income tax thereon,
of services clients including: whereas if the distribution were not
a. Salaries and made to them, they would incur no tax
employee benefits in respect to the undistributed earnings
of personnel, and profits of the corporation. Thus, a
consultants and tax is being imposed;
specialists directly a. in the nature of a penalty to the
rendering the corporation for the improper
service; accumulation of its earnings, and
b. Cost of facilities b. as a form of deterrent to the
directly utilized in avoidance of tax upon
providing the shareholders who are supposed
service. to pay dividends tax on the
It shall not earnings distributed to them by
include interest the corporation.
expense except for
banks and other IMPROPERLY ACCUMULATED TAXABLE
financial INCOME
institutions.
Taxable income for the year
Gross income excludes passive Add:
income subject to final tax. Income exempt from tax;
Income excluded from gross income;

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Guillermo
1
Income subject to final tax; Domestic corporations not

Net operating loss carry-over (NOLCO) falling under the aforesaid
Total definition are, therefore,
Less: publicly-held corporations.
Income tax paid/payable for the taxable
year Exception: The said tax shall not apply
Dividends actually or constructively to:
paid/issued from the applicable years 1. Publicly held corporations (Sec. 29)
taxable income 2. Banks and other non-banks Financial
Amount reserved for the reasonable intermediaries (Sec. 29)
needs of the business as defined in the 3. Insurance companies (Sec. 29)
Regulations 4. Taxable partnerships (deemed to
Tax base of improperly accumulated have actually or constructively
earnings tax received the taxable income under
Sec. 73D)
EXCLUSIONS 5. General professional partnerships
(exempt; taxable against the
For corporations using the calendar partners)
basis the accumulated earnings tax 6. Non- taxable joint ventures and
shall not apply on IAE as of Dec. 31, 7. Enterprises duly registered with the
1997. Philippine Economic Zone Authority
For fiscal year basis, the tax shall (PEZA) under R.A. 7916, and
not apply to the 12-month period of enterprises registered pursuant to
fiscal year 1997-1998. the Bases Conversion and
Development Act of 1992 under R.A.
IAE as of the end of a calendar 7227, as well as other enterprises
or fiscal year period on or after Dec. duly registered under special
31, 1998 shall be subject to the 10% economic zones declared by law
tax. which enjoy payment of special tax
rate on their registered operations
WHO ARE COVERED? or activities in lieu of other taxes,
national or local.
General Rule: The IAE tax shall apply to 8. Foreign corporations [RR No. 02-
every corporation formed or availed 2001]
for the purpose of avoiding the
income tax with respect to its EVIDENCE OF PURPOSE TO AVOID
shareholders or the shareholders of INCOME TAX
any other corporation, by permitting
earnings and profits to accumulate 1. The fact that any corporation is a
instead of being divided or mere holding company or investment
distributed. These are: company shall be prima facie
1. Domestic corporations as evidence of a purpose to avoid the
defined under the Tax Code; tax upon its shareholders or
2. Corporations which are classified members.
as closely-held corporations.
those corporations at least Instances indicative of purpose to
fifty percent (50%) in value avoid income tax upon
of the outstanding capital shareholders:
stock or at least fifty 1. Investment of substantial
percent (50%) of the total earnings and profits of the
combined voting power of all corporation in unrelated
classes of stock entitled to business or in stock or
vote is owned directly or securities of unrelated
indirectly by or for not more business;
than twenty (20) individuals. 2. Investment in bonds and other
long-term securities;

Cabrera, Jhundee
Guillermo
1
3. Accumulation of earnings in
excess of 100% of paid-up The controlling intention of the
capital, not otherwise taxpayer is that which is manifested at
intended for the reasonable the time of accumulation, not
needs of the business as subsequently declared intentions, which
defined in these Regulations. are merely the product of afterthought.
A speculative and indefinite purpose will
2. The fact that the earnings or profits not suffice.
of a corporation are permitted to Definiteness of plan/s coupled with
accumulate beyond the reasonable action/s taken towards its
needs of the business shall be consummation is essential.
determinative of the purpose to
avoid the tax upon its shareholders PERIOD FOR PAYMENT OF DIVIDEND/
or members unless the corporation, PAYMENT OF IAET
by the clear preponderance of Dividends must be declared and paid
evidence, shall prove the contrary. or issued not later than one year
following the close of the taxable year,
Reasonable needs of the otherwise, the IAET, if any, should be
business includes the reasonably paid within fifteen (15) days thereafter.
anticipated needs of the business
such as:
a. Allowance for the increase in the (5) INCOME SUBJECT TO
accumulation of earnings up to
PREFERENTIAL OR SPECIAL
100% of the paid-up capital of
the corporation as of Balance RATES
Sheet date, inclusive of
accumulations taken from other Pertains to income derived by a
years; particular individual or corporation
b. Earnings reserved for definite belonging to a class of income taxpayer
corporate expansion projects or that is subject to either a preferential or
programs as approved by the special rate.
Board of Directors or equivalent
body; Tax Rates: Please refer to Annex C.
c. Reserved for building, plants or
equipment acquisition as (6) GROSS INCOME TAX (GIT)
approved by the Board of
Directors or equivalent body; GROSS INCOME TAX (GIT) FORMULA
d. Reserved for compliance with
any loan covenant or pre- Entire Income
existing obligation established Less: Exclusions and Income subject
under a legitimate business to Final Tax (e.g. Passive
agreement; Income)
e. Earnings required by law or Gross Income
applicable regulations to be Multiply by: Tax Rates (%)
retained by the corporation or in
respect of which there is legal Net Income Tax Due
prohibition against its
distribution; GIT APPLIES TO
f. In the case of subsidiaries of
foreign corporations in the 1. Non-resident alien not engaged in
Philippines, all undistributed trade or business (25%); and
earnings intended or reserved 2. Non-resident foreign corporation.
for investments within the (32%)
Philippines as can be proven by
corporate records and/or Tax Rates: Please refer to Annex A
relevant documentary evidence. and B.

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Guillermo
1
between the market rate and actual

(7) FINAL INCOME TAX rate granted.
6. Membership fees, dues and other
GENERAL PRINCIPLES expenses borne by the employer for
the employee in social and athletic
1. It is constituted as a full and final clubs and similar organizations
payment of the income tax due from 7. Expenses for foreign travel
the payee on a particular type of 8. Holiday and vacation expenses
income subject to final withholding 9. Educational assistance to the
tax (FWT). employee or his dependents; and
The finality of the withholding 10. Life or health insurance and other
tax is limited only to the payees non-lire insurance premiums or
income tax liability and does not similar amounts on excess of what
extend to other taxes that may be the law allows.
imposed on said income.
2. The income subjected to final PERSONS LIABLE
income tax is no longer subject to
the net income tax; otherwise, there The EMPLOYER (as a withholding
would be a violation of prohibited agent), whether individual, professional
double taxation. partnership or a corporation, regardless
3. The liability for the payment of the of whether the corporation is taxable or
tax rests primarily on the payor as not, or the government and its
withholding agent. instrumentalities
4. The payee is not required to file an
income tax return for the particular TAX RATE: 32% (from January 1, 2000
income subjected to FWT. It is the onwards) of the Grossed up Monetary
withholding agent who files the Value (GMV) of fringe benefits.
return. In the case of aliens, the tax rates to
5. The rate of the final tax is be applied on fringe benefit shall be as
multiplied to the gross income. follows:
Thus, deductions and/or personal 1. NRANEBT 25%
and additional exemptions are not 2. Aliens employed by regional HO
allowed. 15 %
3. Aliens employed by OBU 15%
(8) FRINGE BENEFIT TAX (FBT) 4. Aliens employed by Petroleum
Service Contractors and
FRINGE BENEFIT TAX is a final income Subcontractors 15%
tax on the employee which shall be
withheld and paid by the employer on a GMV OF THE FRINGE BENEFIT
quarterly basis. REPRESENTS
FRINGE BENEFIT means any good, 1. The whole amount of income

service, or other benefit furnished or realized by the employee which
granted by an employer, in cash or in includes the net amount of money or
kind, in addition to basic salaries, to an net monetary value of property
individual employee (except rank and which has been received; plus
file employees) such as, but not limited 2. The amount of fringe benefit tax
to the following: thereon otherwise due from the
1. Housing employee but paid by the employer
2. Expense Account for and in behalf of the employee.
3. Vehicle of any kind
4. Household personnel, such as maid, GMV of the fringe benefit
driver and others shall be determined by dividing the
5. Interest on loan at less than market monetary value of the fringe benefit by
rate to the extent of the difference the Grossed up divisor. The Grossed up

Cabrera, Jhundee
Guillermo
1
divisor is the difference between 100% DEDUCTIBILITY TO THE TAXABLE

and the applicable rates. INCOME OF THE EMPLOYER
GROSSED UP General Rule: The amount of taxable

YEAR RATE
DIVISOR fringe benefit and the fringe benefits tax
1998 66% 34% FWT shall constitute allowable deductions
1999 67% 33% FWT from gross income of the employer.
2000 Exception:
68% 32% FWT
onwards If the basis for computation of the
fringe benefits tax is the depreciation
FRINGE BENEFITS NOT SUBJECT TO FBT value, the zonal value or the fair market
value, only the actual fringe benefits tax
1. Fringe benefits not considered as paid shall constitute a deductible
gross income expense for the employer. The value of
a. if it is required or necessary to the fringe benefit shall not be
the business of employer deductible and shall be presumed to
b. if it is for the convenience or have been tacked on or actually claimed
advantage of employer as depreciation expense by the
2. Fringe Benefit that is not taxable employer. Provided, however, that if the
under Sec. 32 (B) Exclusions from aforesaid zonal value or fair market
Gross Income value of the said property is greater
3. Fringe benefits not taxable under than its cost subject to depreciation, the
Sec. 33 Fringe Benefit Tax: excess amount shall be allowed as a
a. Fringe Benefits which are deduction from the employer's gross
authorized and exempted under income as fringe benefit expense. (Sec.
special laws, such as the 13th 2.33[D], Rev. Reg. No. 3-98)
month Pay and Other Benefits
with the ceiling of P30,000. EXAMPLE OF DE MINIMIS BENEFITS NOT
b. Contributions of the employer SUBJECT TO FBT (RR NO. 8-2000 AND
for the benefit of the employee 10-2000)
to retirement, insurance and
hospitalization benefit plans; 1. Monetized unused vacation leave
c. Benefits given to the Rank and credits of PRIVATE employees not
File Employees, whether granted exceeding (10) days during the year
under a collective bargaining and the monetized value of leave
agreement or not; and credits paid to government officials
d. The De minimis benefits and employees
benefits which are relatively 2. Medical cash allowance to
small in value offered by the dependents of employees not
employer as a means of exceeding P750.00 per employee per
promoting goodwill, semester or P125 per month;
contentment, efficiency of 3. Rice subsidy of P1,000.00 or one (1)
Employees sack of 50kg. rice per month
The term Rank and File amounting to not more than
Employees shall mean all P1,000:00,
employees who are holding 4. Uniform and clothing allowance not
neither managerial nor exceeding P3,000 per annum;
supervisory position as defined 5. Actual yearly medical benefits not
in the Labor Code exceeding P10,000 per annum;
In the case of rank and file 6. Laundry allowance not exceeding
employees, fringe benefits other P300 per month;
than those excluded from gross 7. Employees achievement awards e. g.
income under the Tax Code and for length of service or safety
other special laws, are taxable achievement, which must be in the
under the individual normal tax form of a tangible personal property
rate. other than cash or gift certificate,

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Guillermo
1
with an annual monetary value of On the Net Capital Gain

not exceeding P10,000 received by Not over P100,000 FT of
the employee under an established 5%
written plan which does not Amount in excess
of P100,000 FT of 10%
discriminate in favor paid
b. On sale of land/building held as
employees;
capital asset
8. Gifts given during Christmas and On the gross selling price, or the
major anniversary celebrations not current fair market value at the
exceeding P3, 000 per employee per time of sale, whichever is higher
annum; FT of 6%
9. Flowers, fruits, books or similar (Reyes, Virgilio. Income Tax Law and
items given to employees under Accounting A New Approach, 2002)
special circumstances
10. Daily meal allowance for overtime CAPITAL GAINS AND LOSSES
work not exceeding 25% of the basic IN GENERAL
minimum wage.
CONCEPT OF CAPITAL ASSETS
Time for filing of quarterly remittance
return of final income taxes withheld Under the tax code, there is no
The tax imposed under Sec. 33 shall definition for the term "capital assets".
be treated as a final income tax on the What it gives is the meaning of ordinary
employee that shall be withheld and assets:
paid by the employer, whether a large
taxpayer or non-large taxpayer, on or a. Ordinary assets (Sec. 39, NIRC)
before the 10th day of the month a. Stock in trade of the taxpayer or
following the calendar quarter in which other properties of a kind which
the fringe benefits were granted (RR 04- would properly be included in
2002). the inventory of the taxpayer;
For Additional Rules on Fringe b. Property held by the taxpayer

Benefits, refer to Annex H. primarily for sale to customers in
the ordinary course of business;
(9) CAPITAL GAINS TAX
c. Property used in trade or
SUMMARY OF TAX RATES business and subject to
depreciation; and
1. Individuals
a. On sale of shares of stock of a d. Real property used in trade or
domestic corporation not listed business.
and traded thru a local stock
exchange, held as capital asset b. Capital Assets include all property
On the Net Capital Gain held by the taxpayer whether or not
Not over P100,000 FT connected in trade or business but
of 5% not including those enumerated
Amount in excess of P100,000 FT above (#1) as ordinary assets.
of 10%
b. On sale of real property in the
Philippines held as capital asset CAPITAL GAIN CAPITAL LOSS
On the gross selling price, or the
current fair market value at the The gain derived The loss incurred
time of sale, whichever is higher from the sale or from the sale or
FT of 6% exchange of capital exchange of capital
2. Corporations assets. assets.
a. On sale of shares of stock of a
domestic corporation not listed
and traded thru a local stock
exchange, held as capital asset

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Guillermo
1
NET CAPITAL NET CAPITAL

GAIN LOSS Non- Capital losses
deductibility of are allowed only
The excess of the The excess of the Net Capital to extent of the
gains from sales/ losses from sales or losses capital gains;
exchanges of capital exchanges of capital Capital losses hence, the net
assets over the assets over the gains are allowed only capital loss is
gains from such from such sales or to extent of the not deductible.
sales/ exchanges. exchanges. capital gains; Exception: If any
hence, the net domestic bank or
capital loss is trust company, a
not deductible. substantial part of
TRANSACTION RESULTING IN TAXABLE whose business is
GAINS BUT NON-RECOGNITION OF LOSSES the receipt of
a. Sale or exchange between deposits, sells any
related parties; bond, debenture,
b. Wash sales by non-dealers of note or certificate
or other evidence
securities and when not subject
of indebtedness
to the stock transfer tax; issued by any
c. Exchanges not solely in kind in corporation
merger and consolidation; and (including one
d. Sales or exchanges that are not issued by a
at arms length. government or
political
REQUISITES FOR RECOGNITION OF subdivision)
CAPITAL GAIN/LOSS
Net Capital Loss Not allowed
Carry Over
1. The transaction must involve
Allowed
property classified as capital The net capital loss
asset; and (in an amount not in
excess of the taxable
2. The transaction must be a sale income before
or exchange or one considered as personal exemption for
equivalent to a sale or exchange. such year) shall be
treated in the
RULES ON THE RECOGNITION OF succeeding year (but
not beyond 12 months)
CAPITAL GAINS OR LOSSES
as a deduction as
short-term capital loss
(at 100%) from the net
INDIVIDUAL CORPORATION capital gains.
Holding Capital gains and

Period losses are See Annex U for illustration.
The percentages recognized to the
of gain or loss to be extent of 100%. SALE OR EXCHANGE OF CAPITAL ASSETS
taken into account (There is no
shall be the holding period) The following are considered as sale
following:
or exchange of capital assets:
a.100% - if the
1. Retirement of bonds
capital assets has
2. Short sales of property
been held for 12
mos. or less; and 3. Failure to exercise privilege or
b.50% - if the option to buy or sell property
capital asset has 4. Securities becoming worthless
been held for 5. Distribution in liquidation of
more than 12 corporations
mos.

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Guillermo
1
6. Readjustment of interest in a a. Exchange solely in kind in

general professional partnership. legitimate mergers and
TAX FREE EXCHANGES consolidation
Sales or exchanges resulting in non- b. Transfer to a controlled
recognition of gains or losses: corporation [Sec. 40(C, 2)]
1. Exchange solely in kind in legitimate 1. Transactions where
mergers and consolidation; gain is recognized
includes: but not the loss
a. Between the corporations which A. Transactions between related
are parties to the merger or taxpayers [Sec. 36]
consolidation (property for B. Illegal transactions [Sec. 96,
stocks); Rev. Reg. 2]
b. Between a stockholder of a C. Exchanges of property, not
corporation party to a merger or solely in kind, in pursuance of
consolidation and the other corporate mergers and
party corporation (stock for consolidations [Sec. 40, (C, 3)]
stock);
c. Between a security holder of a IMPORTANT DISTINCTION
corporation party to a merger or If it is an ordinary asset, the
consolidation and the other ordinary gains and losses are considered
party corporation (securities for in determining income or loss from
securities) trade, business or profession. (See Secs.
32A, 34D)
2. Transfer to a controlled corporation If it is a capital asset, determine
exchange of property for stocks further whether or not it is a real
resulting in acquisition of corporate property located in the Philippines. If it
control by a person, alone or is, then it is subject to capital gains tax.
together with others not exceeding (See Secs. 24D, 27D5) (See also Sec s.
four. 24C, 27D2) If not, the capital gains and
Control means ownership of losses are considered in determining the
stocks in a corporation amounting to taxable income. (Sec. 39)
at least 51% of the total voting
power of all classes of stocks CAPITAL GAINS AND LOSSES
entitled to vote. SHARES OF STOCK
SALE OR EXCHANGE OF ORDINARY ASSETS The taxation of shares of stock

whether or not listed and traded in the
General rules of income taxation stock exchange is subject to final tax.
apply to both gain and loss.
WHO ARE LIABLE TO THE TAX
See Annex D (Gross Income Gains 1. Individual taxpayer, citizen or alien
from dealings in property) 2. Corporate taxpayer, domestic or
foreign
SUMMARY OF TAX TREATMENT OF 3. Other taxpayers such as estate,
GAINS/LOSSES IN THE EXCHANGE OF trust, trust funds and pension among
PROPERTIES others.
General Rule: Upon the sale or RATES OF TAX

exchange of property, the entire gain or
loss, as the case may be, shall be 1. Shares of stock not traded through
recognized. [Sec. 40 (C, 1)] a local stock exchange Net capital
gains derived during the taxable
Exceptions: year from sale, exchange, or
1. Transactions where gains and losses transfer shall be taxed as follows (on
are not recognized a per transaction basis):
Not over P 100,000 - 5%

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Over P 100,000 - 10%

2. Shares of stock listed through a 1. Listed and Traded in the Stock
local stock exchange of 1% of Exchange - The stockbroker shall
the gross selling price of the stock. turn over the tax collected to the
EXCEPTIONS TO THE TAX B.I.R. within five (5) banking days
1. Gains derived by dealers in from the date of collection.
securities.
2. All other gains which are specifically 2. Not traded through the stock exchange
exempt from income tax under - It shall be paid by the seller on a per
existing investment incentives and transaction basis upon filing of the
other special laws. required return within 30 days
following each sale or other
BASIS FOR COMPUTING GAIN OR LOSS (BIR disposition of shares of stock.
RULING 146-98)
CAPITAL GAINS AND LOSSES
The fair market value (FMV) of the
sale of shares not traded but listed
(REAL PROPERTY)
in the stock exchange is the highest
PERSONS LIABLE AND TRANSACTIONS
closing price on the day the shares
AFFECTED
were sold, transferred or exchanged.
When no sale is made in the stock
1. Individual taxpayers, estates and
exchange, the FMV shall be the
trusts
highest selling price on the day
Sale or exchange or other
nearest to the day of sale, transfer
disposition of real property
or exchange.
considered as capital assets.
For shares not listed in the
The said sale shall include "pacto
exchange, the FMV shall be the book
de retro sale" and other conditional
value nearest the valuation date
sale.
2. Domestic Corporation
The above rules shall be used in
Sale or exchange or disposition
computing for the net capital gain/loss
of lands and/or building which are
for disposition of shares.
not actually used in business and are
treated as capital asset.
IMPORTANT FEATURES
EXCEPTIONS TO THE TAX
1. Sale of shares of stock of a domestic
1. Gains derived by dealers in real
corporation listed and traded in a
estate
local stock exchange and that of
initial public offering shall be subject
RATE AND BASIS OF TAX
to Percentage tax (Business Tax)
A final tax of 6% is based on the
2. Capital losses sustained during the
gross selling price or fair market value
year (not listed and traded in a local
or zonal value whichever is higher.
stock exchange) shall be allowed as
Note: Gain or loss is immaterial,
a capital loss deductible on the same
there being a conclusive presumption of
taxable year only (no carry-over)
gain.
3. The entire amount of capital gain
and capital loss (not listed and
See Annex G Guidelines in
traded in a local stock exchange)
Determining Whether a Real
shall be considered without taking
Property is a Capital or an Ordinary
into account holding period
Asset.
irrespective of who is the taxpayer
(all 100%)
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE
4. Non-deductibility of losses on wash
CAPITAL GAINS TAX ON THE SALE OR
sales.
DISPOSITION OF A PRINCIPAL RESIDENCE
FILING AND PAYMENT OF TAX

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Conditions: 1. accounting period is other

a. Sale or disposition of the old than a fiscal year
principal residence; 2. taxpayer has no accounting
b. By natural persons - citizens or aliens period
provided that they are residents 3. taxpayer does not keep
taxable under Sec. 24 of the Code books
(does not include an estate or a 4. taxpayer is an individual
trust); Fiscal year: accounting period of
c. The proceeds of which is fully 12 months ending on the last day
utilized in (a) acquiring or (b) of any month other than
constructing a new principal December
residence within eighteen (18) Calendar year: accounting period
calendar months from date of sale or from January 1 to December 31
disposition;
d. Notify the Commissioner within B. Periods in which items of gross
thirty (30) days from the date of sale income included (Sec. 44)
or disposition through a prescribed Amount of all items of gross
return of his intention to avail the income shall be included in the
tax exemption; gross income for the taxable
e. Can only be availed of only once year in which received by the
every ten (10) years; taxpayer, unless, any such
f. The historical cost or adjusted basis amounts are to be properly
of his old principal residence sold, accounted for in a different
exchanged or disposed shall be period under methods of
carried over to the cost basis of his accounting permitted
new principal residence In case of death of taxpayer:
g. If there is no full utilization, the include for the taxable year in
portion of the gains presumed to which falls the date of his death,
have been realized shall be subject all amounts which accrued up to
to capital gains tax. the date of his death; if not
otherwise properly includible in
GROSS INCOME FROM DIFFERENT SOURCES respect of such period or a prior
(SEC. 42) period
Please refer to Annex I.
C. Period for which deduction and
ACCOUNTNG PERIODS AND METHODS OF credits taken (Sec. 45)
ACCOUNTING Deductions provided in this Title
shall be taken for the taxable
I. ACCOUNTING PERIODS year in which paid or incurred,
A. General rule (Sec. 43) dependent upon the method of
Taxable income is computed accounting upon the basis of
upon the basis of taxpayers which the net income is
annual accounting period (fiscal or computed, unless, in order to
calendar year) in accordance with reflect the income, deductions
the method of accounting should be taken as of a different
employed. period.
If no method of accounting In case of death of taxpayer:
employed or method does not deductions allowed for the
clearly reflect the income, taxable period in which falls the
computation shall be made in date of his death, amounts
accordance w/ such method as accrued up to the date of his
the opinion of the Commissioner death if not otherwise properly
clearly reflects the income. allowable in respect of such
Taxable income is computed period or a prior period.
based on calendar year if:

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D. Change of accounting period on account of a change in

(Sec.46) accounting period
Kinds of changes: b. In all other cases where a
- from fiscal year to calendar separate final or
year adjustment return is
- from calendar year to fiscal require or permitted by
year R&R prescribed by Sec. of
- from one fiscal year to Finance. upon
another recommendation of
Effect of change: Net income, Commissioner
shall, with the approval of the Both shall be made for a
Commissioner, be computed on fractional part of a year.
the basis of the new accounting Then income is computed on the
period, subject to Sec. 47. basis of the short period for
which separate final or
E. Final or adjustment returns for a adjustment return is made.
period of less than 12 months
(1) Returns for short period II. METHODS OF ACCOUNTING
resulting from change of
accounting period A. Cash method
taxpayer is other than an Recognition of income
individual and expense dependent on
with the approval of the inflow or outflow of cash.
Commissioner
If change is from fiscal year to 1. Accrual method
calendar year: Method under which
- separate final or adjustment income, gains and profits are
return be made for the included in gross income when
period between the close of earned whether received or not,
the last fiscal year for which and expenses are allowed as
return was made and the deductions when incurred:
following December 31 although not yet paid. It is the
If change is from calendar year right to receive and not the
to fiscal year: actual receipt that determines
- separate final or adjustment the inclusion of the amount in
return be made for the gross income
period between the close of Examples
the last calendar for which :
return was made and the 1. interest or rent income
date designated as the close earned but not yet
of the fiscal year received
If change is from one fiscal year 2. rent expense accrued
to another: but not yet paid
- separate final or adjustment 3. wages due to workers
return be made for the but remaining unpaid
period between the close of
the former fiscal year and 2. Accounting for
the date designated as the long-term contracts
close of the new fiscal year Long-term contracts:
(2) Income computed on basis of building, installation or
short period construction contracts
In what cases? covering a period in excess
a. Where a separate final or of 1 yr
adjustment return is made Persons whose gross income
is derived in whole or in part
from such contracts shall

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report such income upon the Gross profit (GP) 50,000

basis of percentage of
completion Installments payable in 2
The return is accompanied equal annual installments
by a return certificate of GP/CP ratio
architects or engineers = 50,000/200,000 = 25%
showing the percentage of Collections in 2000=P100,000
completion during the Income for 2000
taxable year of the entire = P100,000 x 25% = P25,000
work performed under the
contract (2) Sales of realty and casual
Deductions from gross sales of Personalty
income: all expenditures In cases of:
made during the taxable a. casual sale or other
year on account of the casual disposition of
contract: account being personal property
taken of the material and (other than
supplies on hand at the inventory on hand of
beginning and end of the the taxpayer at the
taxable period for use in close of the taxable
connection with the work year) for a price >
under the contract but not P1,000, or
yet so applied. b. sale or other
Amended return may be disposition of real
permitted /required by the property, if in either
Commissioner: if upon case the initial
completion of contract, payments do not
taxable income has not been exceed 25% of the
clearly reflected for any selling price
year(s). How may income be
returned: same as in
3. Installment sales of dealer in
basis personal property above
(1) Sales of dealers in personal Initial payments:
property payments received in
Under rules and cash or property other
regulations prescribed by than evidences of
the Sec. of Finance, a person indebtedness of the
who regularly sells or purchaser during the
otherwise disposes of taxable period in which
personal property on the the sale or other
installment plan may return disposition is made.
as income there from in any
taxable year that proportion (3) Sales of real
of the installment payments property considered as
actually received in that capital asset by individuals
year, which the gross profit Individual who sells of
realized or to be realized disposes of real
when payment is completed, property, considered as
bears to the contract price. capital asset and is
otherwise qualified to
Example: Sale in 2000 report the gain under (2)
Contract price (CP) above may pay the
(installments capital gains tax in
receivable) P200, 000 installments under rules
Cost 150,000 and regulations to be

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promulgated by the Sec. income tax still to be paid or

of Finance. refundable.
(4) Change from accrual to

installment basis
PERSONS REQUIRED TO FILE INCOME TAX
taxpayer must be RETURN
entitled to benefits
under (1) hereof sales of a. Individual
dealers in personal 1. Resident citizen;
property 2. Non-resident citizen on income
in computing income for from within the Phil.;
the year of change or 3. Resident alien on income from
any subsequent year: within the Phil.;
amounts actually 4. NRAETB on income from within
received during any such the Phil.
year on account of sales 5. An individual (citizens / aliens)
or other dispositions of engaged in business or practice
property made in any of a profession within the Phil.
prior year shall not be regardless of the amount of
excluded. gross income;
6. Individual deriving compensation
4. Allocation of income concurrently from two or
income and deductions more employers at any time
Applicable to: cases of 2 or during the taxable year;
more organizations, trades 7. Individual whose pure
or businesses (incorporated compensation income derived
and organized within the from sources within the Phil.
Philippines) owned or exceeds P60,000.
controlled directly b. Taxable Estate and Trust
/indirectly by the same c. General Professional Partnership
interest d. Corporation
Commissioner is authorized 1. Not exempt from income tax;
to distribute, apportion or 2. Exempt from income tax under
allocate gross income or Sec. 30 of NIRC but has not
deductions between or shown proof of exemption.
among such organization,
trade or business, if he INDIVIDUALS EXEMPT FROM FILING INCOME TAX
determines that such RETURN
distribution, apportionment
or allocation is necessary in 1. Individual whose gross income does
order to prevent evasion of not exceed total personal and
taxes or to clearly reflect additional exemptions;
the income of any such 2. Individual with respect to pure
organization, trade or compensation income derived from
business. sources within the Philippines, the
income tax on which has been
FILING OF TAX RETURN AND PAYMENT OF TAX correctly withheld;
3. Individual whose sole income has
TAX RETURN This is a report made by been subjected to final withholding
the taxpayer to the BIR of all gross income tax;
income received during the taxable 4. Individual who is exempt from
year, the allowable deductions including income tax.
exemptions, the net taxable income, the
income tax rate, the income tax due, SUBSTITUTED FILING is when the
the income tax withheld, if any, and the employers annual return may be

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considered as the substitute Income 5. The employer files the annual

Tax Return (ITR) of employee inasmuch information return (BIR Form No.
as the information provided in his 1604-CF)
income tax return would exactly be the 6. The employer issues BIR Form 2316
same information contained in the (Oct 2002 ENCS) version to each
employers annual return. employee
HOW IS SUBSTITUTED FILING DIFFERENT INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED

FROM NON-FILING? FILING (STILL REQUIRED TO FILE)
Substituted Filing an individual 1. Individuals deriving compensation

taxpayer although required from two or more employers
under the law to file his income concurrently or successively during
tax return, will no longer have the taxable year.
to personally file his own income 2. Employees deriving compensation
tax return. income, regardless of the amount,
but instead the whether from a single or several
employers annual information employers during the calendar year,
return filed is the considered the income tax of which has not
substitute income tax return been withheld correctly (i.e. tax due
of the employee inasmuch as the is not equal to the tax withheld)
information in the employers resulting to collectible or refundable
return is exactly the same return.
information contained in the 3. Employees whose monthly gross
employees return. compensation income does not
exceed P5,000 or the statutory
Non-filing applicable to certain minimum wage, whichever is higher,
types of individual taxpayers and opted for non-withholding of tax
who are not required under the on said income.
law to file an income tax return. 4. Individuals deriving other non-
Example: employee whose business, non-profession-related
pure compensation income does income in addition to compensation
not exceed P60,000 and has only income not otherwise subject to
one employer for the taxable final tax.
year and whose tax withheld is 5. Individuals receiving purely
equivalent to his tax due. compensation income from a single
employer although the income tax of
SUBSTITUTED FILING OF INCOME TAX RETURNS which has been correctly withheld,
BY EMPLOYEES RECEIVING PURELY but whose spouse falls under 1 to 4
COMPENSATION INCOME. [SECTION 4, RR 3- above.
2002; RMC 01-03] 6. Non-resident aliens engaged in trade
or business in the Philippines
Requisites: deriving purely compensation
1. The employee receives purely income, or compensation income
compensation income (regardless of and other non-business, non-
amount) during the taxable year. profession-related income.
2. The employee receives the income
only from one employer during the NOTE: Non-filing of ITR, for employees
taxable year. who are qualified for the substituted
3. The amount of tax due from the filing shall be OPTIONAL for the taxable
employee at the end of the year year 2001, the returns for which shall be
equals the amount of tax withheld filed on or before April 15, 2002.
by the employer. Thereafter, substituted filing where
4. The employee's spouse also complies applicable shall be MANDATORY. [Sec 5
with all three (3) conditions stated RR 3-2002)
above.

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REQUIREMENT OF BANKS FOR SUBMISSION OF Time For Filing (Pay as you file system)
AN ITR FOR LOAN O R CREDIT CARD
APPLICATIONS April 15 for those earning sole
compensation income or solely business,
Banks may require the submission of practice of profession or combination of
BIR Form No. 1700 (for employees not business and compensation.
entitled to substituted filing of ITR).
However, for employees entitled to RETURN AND PAYMENT OF ESTIMATED INCOME
substituted filing of ITR, the submission TAX BY INDIVIDUAL (SELF-EMPLOYED OR
of the Joint Certification will suffice. PRACTICE OF PROFESSION)
JOINT CERTIFICATION - It is a sworn 1. First quarter - April 15 of current year

statement made by the employer and 2. Second quarter -August 15 of current
employee, which serve the following year
purposes: 3. Third quarter November 15 of current
1. It contains the employee's consent year
that BIR Form No. 1604CF may be 4. Final quarter - April 15 of the following
considered his substituted return, in year.
lieu of BIR Form No. 1700, which the
employee no longer filed. Note: When the tax due is in excess of P2,
2. It contains the employer's 000 - the taxpayer may elect to pay in two
certification that he has reported (2) equal installments:
the employee's income to the BIR 1st installment - April 15
and that he has remitted the taxes 2nd installment - on or before July 15
on the employee's income, as
indicated in BIR Form No. 1604-CF. EXTENSION OF TIME TO FILE RETURN
3. It serves as proof of financial
capacity in case the employee The Commissioner may on
decides to apply for a bank loan or a meritorious cases grant a reasonable
credit-card, or for any other extension of time for filing income tax
purpose, as if he had in fact filed a return and may subject the imposition of
BIR Form No. 1700. twenty (20) percent interest per annum
from the original due date.
INDIVIDUALS REQUIRED TO FILE AN
INFORMATION RETURN Return Of Husband And Wife
Individuals not required to file an File one (1) return for the taxpayer
income tax return may nevertheless be year if following requisites
required to file an information return complied;
pursuant to rules and, regulations a. Married individuals (citizens,
prescribed by the Secretary of Finance resident or nonresident aliens)
upon recommendation of the b. Do not derived income purely
Commissioner. from compensation.
If impracticable to file one return:
PLACE OF FILING each spouse file a separate return of
income but the return so filed shall
1. Legal residence - authorized agent be consolidated by the Bureau for
bank; Revenue District Officer; the purposes of verification for the
Collection agent or duly authorized year.
treasurer
2. Principal place of business UNMARRIED MINOR
3. With the Office of the Commissioner
Income of unmarried minors derived
from property received by the living

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Filing of return (Pay as you file system)

parent shall be included in the Quarterly returns for the first three
return of the parent, except: (3) quarters on a strictly sixty (60) day
a. when donors tax has been paid basis and the final or adjusted return on
on such property, or the 15th day of the fourth (4th) month
b. when transfer of such property is following the close of either a-fiscal on
exempt from donors tax calendar year.
PERSONS UNDER DISABILITY See Annex V for Illustration.
If a taxpayer is unable to make his Who shall file?

own return, it may be made by his The return shall be filed by the
1. duly authorized agents; president, vice-president, or other
2. representative; principal officer, and shall be sworn to by
3. by guardian; such officer and by the treasurer or
4. other person charged with the care assistant treasurer.
of his person or property;
who will assume the responsibility of WITHHOLDING TAXES
making the return and incurring
penalties provided for erroneous, Withholding Taxes
false or fraudulent return. Kinds:
1. Withholding Tax at Source:
RETURN OF ESTATE, TRUST AND PARTNESHIP a. Final Withholding Tax
b. Creditable Withholding Tax
Estate and Trust with gross income (Expanded withholding tax)
of P20,000 or more and partnership 2. Withholding Tax on Compensation
(whether professional or business) shall (Wages)
file their income tax return on or before 3. Withholding Tax on Creditable
April 15. Value-Added Tax
4. Withholding of Percentage Tax
TAX RETURNS OF GENERAL PROFESSIONAL
PARTNERSHIPS (GPP) FINAL CREDITABLE
Each GPP shall file in duplicate, a WITHHOLDING WITHHOLDING
return of its income (except those TAX SYSTEM TAX SYSTEM
income exempt)
Shall set forth: The amount of Taxes withheld on
a. items of gross income and income tax withheld certain income
by the withholding payments are
deductions allowed
agent is constituted intended to equal or
b. names of partners as a full and final at least approximate
c. TIN payment of the the tax due from the
d. address and share of each income due from the payee on the said
partner payee on the said income.
income. [Sec. 2.57
Tax Return of a Corporation (a), Rev. Reg. 2-98]
Those required to file:
1. Corporation subject to tax having The liability for The income
payment of the tax recipient is still
existed during the taxable year,
rests primarily on required to file an
whether with income or not. the payor or the income tax return
2. Corporation in the process of withholding agent. and/or pay the
liquidation or receivership. The payee is not difference between
3. Insurance company doing business in required to file an the tax withheld and
the Philippines or deriving income income tax return the tax due on the
therein for the particular income. [Sec.
4. Foreign corporation having income income. 2.57(B), Rev. Regs.
from within the Philippines 2-98]

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Time to Withhold Tax at Source 3. There must be a payroll period.

COMPENSATION EXEMPTED
- arises at the time an income is paid
or payable, whichever comes first. The 1. Remunerations received as an
term payable refers to the date the incident of employment
obligation becomes due, demandable or 2. Remunerations paid for agriculture
legally enforceable. (Sec. 2.54.4 Rev. labor
Regs. 2.98) 3. Remunerations paid for domestic
services
Nature of Withholding Agents Liability 4. Remunerations for casual not in the
The withholding agent is directly course of an employer's trade or
and independently liable for the correct business.
amount of the tax that should be 5. Compensation for services of a
withheld from the dividend remittance. citizen, resident of the Philippines,
(Commissioner vs. Procter and Gamble, for a foreign government or an
GR No. 66838, December 2, 1991) international organization
6. Damages
CONSEQUENCES FOR FAILURE TO WITHHOLD: 7. Life insurance
1. liable for surcharges and 8. Amount received by the insured as
penalties; return of premium
2. liable upon conviction to a penalty 9. Compensation for injuries and
equal to the total amount of the sickness
tax not withheld, or not accounted 10. Income exempt under treaty
for and remitted. (Sec. 251, 1997 11. Thirteenth (13th) month pay and
NIRC) other benefits
3. any income payment which is 12. GSIS; SSS; Philhealth and other
otherwise deductible from the contributions,
payors gross income will not be
allowed as a deduction if it is Tax-Free Covenant BOND [Sec. 57(C)]
shown that the income tax
required to be withheld is not paid COVENANT BONDS bonds, mortgages,
to the BIR. (Sec. 2.58.5, Rev. Reg. deeds of trust and other similar
2-98) obligations of domestic/resident foreign
corporation, which contain a
Withholding Tax On Compensation contract/provision by which the obligor
Every employer must withhold agrees;
from compensation paid, an amount 1. to pay any portion of the tax
computed in accordance with the imposed upon the obligee;
regulations. 2. to reimburse the obligee for any
portion of the tax; or
Exception: 3. to pay the interest without
Where such compensation deduction for any tax which the
income of an individual: obligor may be required/permitted
1. Does not exceed the statutory to pay or to retain therefrom.
minimum wages; or
2. Five thousand (P5,000) monthly Obligor shall deduct and withhold a
(P60,000 a year) tax = 30% of the interest and other
whichever is higher. payments whether interest or other
payments are payable annually or at
ELEMENTS OF WITHHOLDING ON a shorter period; whether bonds,
COMPENSATION securities, obligations had been/will
1. There must be an employer- be issued/ marketed and the
employee relationship interest and other payments paid
2. There must be payment of within and without the Philippines if
compensation or wages for services the interest or other payment is
rendered

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1
payable to a non-resident alien or a (2)Net share of the SS in the CPP

citizen or resident of the Philippines Net Taxable Estate
Income of Recipient [Sec. 58 (d)] Multiply by: Tax rate (Sec. 84)
Estate Tax due
Income which any creditable tax is Less: Tax Credit [if any] (Sec. 86[E] or
required to be withheld at source 110[B]
shall be included in the return of its
Estate Tax Due, if any
recipient.
The excess of the amount of tax
withheld over the tax due on his
return shall be refunded to him, GROSS ESTATE
subject to Section 204 (abatement,
refund/credit taxes). A decedents gross estate includes
(Sec. 85)
If amount withheld at source is less
than the tax due on his return, the
RESIDENT & NON-
difference is paid in accordance with
RESIDENT
Section 56 (payment and assessment NON-RESIDENT
CITIZEN,
of income tax). ALIEN DECEDENT
RESIDENT ALIEN
All taxes withheld shall be
DECEDENT
considered as trust funds and
maintained in a separate account 1. Real property 1. Real property
and not commingled with any other wherever situated in the
funds of the withholding agent. situated Philippines.
B. TRANSFER TAXES 2. Personal

property
2. Personal property
a) Tangible
wherever property
situated situated in the
TRANSFER TAX INCOME TAX a) Tangible, Philippines
and b) Intangible
Tax on transfer of Tax on income b) Intangible personal
property. property with
a situs in the
Rates are lower Rates are higher Philippines
--5% to 20% - -- 5% to 32% unless
estate tax exempted on
-- 2% to 15 % or the basis of
30% - donors reciprocity.
tax
The law that governs the imposition of
Lesser exemptions More exemptions estate tax
The statute in force at the time of

death of the decedent shall govern
(1) ESTATE TAXES estate taxation.
DEFINITION: an excise tax on the right of
Intangible personal properties with a
transmitting property at the time of
situs in the Phil. (Sec. 104, 1997
death and on the privilege that a person
NIRC)
is given in controlling to a certain extent
the disposition of his property to take
1. Franchise which must be exercised
effect upon death.
in the Philippines;
2. Shares, obligations or bonds issued
Estate Tax Formula
by any corporation or sociedad
anonima organized or constituted in
Gross Estate (Sec. 85)
the Philippines in accordance with
Less: (1) Deductions (Sec. 86)
its laws;

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1
3. Shares, obligations or bonds issued provincial and city

by any foreign corporation eighty- assessors
five per centum (85%) of the WHICHEVER IS HIGHER
business of which is located in the
2) Shares of Stock
Philippines;
Unlisted
4. Shares, obligations or bonds issued Common Shares -book value
by any foreign corporation, if such Preferred -par value
shares, obligations or bonds have Shares -arithmetic mean
acquired a business situs in the between the highest and
Philippines; Listed lowest quotation at a
5. Shares or rights in any partnership, date nearest the date of
business or industry established in death, if none is
the Philippines. available on the date of
death itself.
3)Right to - shall be taken into

Intangible personal property, with a usufruct, use or account the probable
situs in the Philippines, of a decedent habitation, as life of the beneficiary in
who is a non-resident alien shall not well as that of accordance with the
form part of the gross estate if annuity latest basic standard
(reciprocity clause) (Sec. 104) mortality table, to be
approved by the
1. the decedent at the time of his Secretary of Finance,
death was a citizen and resident of a upon recommendation of
the Insurance
foreign country which at the time of
Commissioner.
his death
a. did not impose a transfer tax or 4) Personal - whether tangible or
death tax of any character property intangible, appraised at
1. in respect of intangible personal FMV. Sentimental
property of citizens of the value is practically
Philippines not residing in that disregarded.
foreign country; or
2. the laws of the foreign country of
which the decedent was a citizen Inclusions in the Gross Estate (Sec. 85)
and resident at the time of his death
a. allow a similar exemption from 1. DECEDENTS INTEREST
transfer taxes or death taxes of To the extent of the interest in
every character property of the decedent at the time of
b. in respect of intangible personal his death.
property owned by citizens of
the Philippines not residing in 2. TRANSFER IN CONTEMPLATION OF
that foreign country DEATH
(Reciprocity). 1. A transfer motivated by the thought
of impending death although death
Valuation of the gross estate may not be imminent; or
The properties comprising the gross 2. A transfer by which the decedent

estate shall be valued based on their fair retained for his life or for any period
market value as of the time of death. which does not in fact end before his
death:
PROPERTY VALUATION a. the possession or enjoyment of,
or the right to the income from
1) Real Property - fair market value the property, or
a) as determined by the b. the right, either alone or in
Commissioner or conjunction with any person, to
b) as shown in the designate the person who shall
schedule of values
fixed by the

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1
possess or enjoy the property or included in the gross estate if the

the income therefrom. beneficiary is:
a. the estate of the decedent, his
Exception: bona fide sale for an executor or administrator
adequate and full consideration in (regardless whether the designation
money or moneys worth. is revocable or irrevocable); or
b. a third person other than the estate,
3. REVOCABLE TRANSFER executor or administrator where the
A transfer whereby the terms of designation of the beneficiary is
enjoyment of the property may be revocable.
altered, amended, revoked or
terminated by the decedent alone or in 6. TRANSFERS FOR INSUFFICIENT
conjunction with any other person, or CONSIDERATION
where any such power is relinquished in The value to be included in the gross
contemplation of the decedents death. estate is the excess of the fair market
It is enough that the decedent had the value of the property at the time of the
power to alter, amend or revoke though decedents death over the consideration
he did not exercise such power. received. This is applicable in cases of
transfer in contemplation of death,
Exception: bona fide sale for an revocable transfer and transfer under
adequate and full consideration in general power of appointment made for
money or moneys worth. a consideration but is not a bona fide
sale for an adequate and full
4. TRANSFER UNDER GENERAL POWER consideration in money or moneys
OF APPOINTMENT worth.
A power of appointment is the right
to designate the person or persons who 7. PRIOR INTERESTS
will succeed to the property of the prior All transfers, trusts, estates,
decedent. interests, rights, powers and
The general power of appointment relinquishment of powers made,
may be exercised by the decedent: created, arising, existing, exercised or
1. by will; or relinquished before or after the
2. by deed executed in contemplation effectivity of the NIRC.
of his death; or
3. by deed under which he has retained Property relations between Husband
for his life or for any period not and Wife
ascertainable without reference to The property relations between the
his death or for any period which spouses shall be governed by contract
does not in fact end before his (marriage settlement) executed before
death: the marriage.
a. the possession or enjoyment of,
or the right to the income from In the absence of such contract, or if
the property; or the contract is void:
b. the right, either alone or in On marriages contracted before August
conjunction with any person, to 3, 1988, the system of conjugal
designate the persons who shall partnership of gains shall govern;
possess or enjoy the property or On marriages contracted on or after
the income therefrom. August 3, 1988 (effectivity of the
Family Code of the Philippines), the
Exception: bona fide sale for an system of absolute community of
adequate and full consideration in property shall govern.
money or moneys worth.
Exempt Transmissions (Sec. 87)
5. PROCEEDS OF LIFE INSURANCE 1. The merger of usufruct in the owner
Proceeds of life insurance taken by of the naked title;
the decedent on his own life shall be 2. Fideicommisary substitution;

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3. The transmission from the first heir, 5. Cost of burial plot. Tombstone
legatee or donee in favor of another monument or mausoleum but not
beneficiary, in accordance with the their upkeep. In case deceased
will of the predecessor; and owns a family estate or several
All bequests, devices, legacies or burial lots, only the value
transfers to social welfare, cultural and corresponding to the plot where he
charitable institutions no part of the net is buried is deductible.
income of which inures to the benefit of 6. Interment fees and charges.
any individual; Provided, that not more 7. All other expenses incurred for the
than 30% of the said bequests, legacies performance of the ritual and
or transfers shall be used by such ceremonies incident to the
institutions for administration purposes. interment.
Expenses incurred after the
DEDUCTIONS ON GROSS ESTATE interment, such as for prayers, masses,
APPLICABLE TO entertainment, or the like are not
RESIDENT ALIENS AND CITIZENS deductible.
(REVENUE REGULATIONS 2-2003) Any portion of the funeral and burial
expenses borne or defrayed by relatives
The following are deductible from and friends of the deceased are not
the gross estate of citizens and resident deductible.
aliens:
1. Expenses, losses, indebtedness, B.JUDICIAL EXPENSES OF THE TESTAMENTARY
taxes, etc. (ordinary deductions) OR INTESTATE PROCEEDINGS
2. Transfer for public use Expenses allowed as deduction under
3. Vanishing deduction this category are those:
4. Family home 1. incurred in the inventory-taking
5. Standard deduction equivalent to of assets comprising the gross
one million pesos (P1,000,000) estate,
6. Medical expenses 2. administration,
7. Amounts received by heirs under RA 3. payment of debts of the estate,
4917 (Retirement Benefits) as well as the distribution of the
8. Net share of the surviving spouse in estate among the heirs.
the conjugal or community property In short, these deductible items are
expenses incurred during the settlement
of the estate but not beyond the last day
1. ORDINARY
prescribed by law, or the extension
DEDUCTIONS thereof, for the filing of the estate tax
return.
A. Funeral Expenses
The amount deductible is the lowest C.CLAIMS AGAINST THE ESTATE
among the following: The word "claims" is generally
1. actual funeral expenses construed to mean debts or demands of
2. 5% of the gross estate a pecuniary nature which could have
3. P200,000. been enforced against the deceased in
his lifetime and could have been
It includes the following: reduced to simple money judgments.
1. Mourning apparel of the surviving
spouse and unmarried minor children Claims against the estate or
of the deceased, bought and used in indebtedness in respect of property may
the occasion of the burial. arise out of:
2. Expenses of the wake preceding the 1. Contract;
burial including food and drinks. 2. Tort; or
3. Publication charges for death 3. Operation of Law.
notices.
4. Telecommunication expenses in
informing relatives of the deceased. Requisites:

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1. The liability represents a decedent's interest therein, should

personal obligation of the always form part of the gross
deceased existing at the time of taxable estate.
his death except unpaid
obligations incurred incident to F.TAXES
his death such as unpaid funeral Taxes which have accrued as of the
expenses (i.e., expenses death of the decedent which were
incurred up to the time of unpaid as of the time of death.
interment) and unpaid medical
expenses which are classified The following are not deductible:
under a different category of 1. income tax on income received
deductions; after death
2. The liability was contracted in 2. property taxes not accrued
good faith and for adequate and before death
full consideration in money or 3. estate tax
money's worth;
3. The claim must be a debt or G.LOSSES
claim which is valid in law and Requisites:
enforceable in court; 1. It should arise from fire, storm,
4. The indebtedness must not have shipwreck, or other casualty,
been condoned by the creditor robbery, theft or embezzlement;
or the action to collect from the 2. Not compensated by insurance
decedent must not have or otherwise;
prescribed. 3. Not claimed as deduction in an
income tax return of the taxable
D.CLAIMS AGAINST INSOLVENT PERSONS estate;
4. Occurring during the settlement
Requisites: of the estate; and
1. The amount thereof has been 5. Occurring before the last day for
initially included as part of his gross the payment of the estate tax
estate (for otherwise they would (last day to pay: six months after
constitute double deductions if they the decedents death).
were to be deducted)
2. The incapacity of the debtors to pay 2. TRANSFER FOR PUBLIC USE
their obligation is proven.
Requisites:
C.UNPAID MORTGAGE 1. The disposition is in a last will and
In case unpaid mortgage payable is testament
being claimed by the estate, 2. To take effect after death
verification must be made as to who 3. In favor of the government of the
was the beneficiary of the loan Phil., or any political subdivision
proceeds. thereof
If the loan is found to be merely an 4. For exclusive public purposes.
accommodation loan where the loan
proceeds went to another person, Note: This should also include bequests,
the value of the unpaid loan must be devices, or transfers to social welfare,
included as a receivable of the cultural and charitable institutions.
estate.
If there is a legal impediment to 3. VANISHING DEDUCTION
recognize the same as receivable of
the estate, said unpaid obligation/ DEFINITION: The deduction allowed from
mortgage payable shall not be the gross estate for properties that were
allowed as a deduction from the subject to donors or estate taxes. It is
gross estate. called vanishing deduction because the
In all instances, the mortgaged deduction allowed diminishes over a
property, to the extent of the period of five years. The rate of

Cabrera, Jhundee
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deduction depends on the period from A deduction in the amount of One

the date of transfer to the death of the Million Pesos (P1,000,000) shall be
decedent, as follows: allowed as an additional deduction
without need of substantiation.
PERIOD DEDUCTION The full amount of P1,000,000 shall
1 year or less 100% be allowed as deduction for the benefit
1 year 2 years 80% of the decedent.
2 years 3 years 60%
3 years 4 years 40% 6. MEDICAL EXPENSES
4 years 5 years 20%
Any amount of medical expenses
Requisites: incurred within one year from death
1. the present decedent died within 5 in excess of Five Hundred Thousand
years from transfer of the property Pesos (P500,000) shall no longer be
from a prior decedent or donor. allowed as a deduction under this
2. The property must be located in the subsection.
Phils. Neither can any unpaid amount
3. The property formed part of the thereof in excess of the P500,000
taxable estate of the prior decedent, threshold nor any unpaid amount for
or of the taxable gift of the donor. medical expenses incurred prior to
4. The estate tax or donors tax on the the one-year period from date of
gift must have been finally death be allowed to be deducted
determined and paid. from the gross estate as claim
5. The property must be identified as against the estate.
the one received from the prior
decedent, or something acquired in 7. AMOUNT RECEIVED BY HEIRS
exchange therefor. UNDER REPUBLIC ACT NO.
6. No vanishing deduction on the 4917
property was allowable to the estate
of the prior decedent. Any amount received by the heirs
from the decedent's employer as a
4. FAMILY HOME consequence of the death of the
decedent-employee in accordance with
Conditions: Republic Act No. 4917 is allowed as a
1. The family home must be the actual deduction provided that the amount of
residential home of the decedent the separation benefit is included as
and his family at the time of his part of the gross estate of the decedent.
death, as certified by the Barangay
Captain of the locality where the 8. NET SHARE OF THE
family home is situated; SURVIVING SPOUSE IN THE
2. The total value of the family home CONJUGAL PARTNERSHIP OR
must be included as part of the gross
COMMUNITY PROPERTY
estate of the decedent; and
3. Allowable deduction must be in an
amount equivalent to After deducting the allowable
1. the current fair market value of deductions (only the ordinary
the family home as declared or deductions) appertaining to the conjugal
included in the gross estate, or or community properties included in the
2. the extent of the decedent's gross estate, the share of the surviving
interest (whether spouse must be removed to ensure that
conjugal/community or exclusive only the decedent's interest in the
property), whichever is lower, estate is taxed.
but not exceeding P1,000,000
5. STANDARD DEDUCTION

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DEDUCTIONS ON GROSS Limit B. Whichever is lower

ESTATE APPLICABLE TO between:
Total of estate taxes paid to all
NON-RESIDENT ALIENS foreign countries
Tax Credit Limit =
The following are deductible from the gross
estate of non-resident aliens: NTE outside Phil. X Phil. estate
NTE, world Tax
1. Expenses, losses, indebtedness and
taxes (ELIT) (ordinary deductions)
SETTLEMENT OF THE
Formula:
Tax = Phil. Gross
ESTATE TAX
Credit Estate X World
Limit World Gross ELIT A. FILING
Estate
Notice Of Death To Be Filed
2. Transfer for public use In all cases of transfers subject to
tax, or where, though exempt from tax,
3. Vanishing deduction on property in the gross value of the estate exceeds
the Philippines. P20,000, the executor, administrator or
any of the legal heirs, within two
4. Conjugal share of the surviving months after the decedents death, or
spouse within a like period after qualifying as
such executor or administrator, shall
ESTATE TAX CREDIT give a written notice thereof to the
Commissioner. (Sec. 89)
A tax credit is granted for estate
taxes paid to a foreign country on the An Estate Tax Return Is Required To Be
estate of citizens and resident aliens Filed
subject to the following limitations 1. when the estate is subject to estate
tax; or
1. One foreign country only 2. when the estate is not subject to
The tax credit is whichever is estate tax but the gross estate
lower between: exceeds P 200,000; or
4. Estate tax paid to the foreign 3. regardless of the amount of the
country gross estate, where the gross estate
5. Tax Credit Limit = consists of registered or registrable
NTE, foreign country X Phil. estate property such as motor vehicle or
NTE, world Tax shares of stock or other similar
property for which clearance from
(NTE - Net Taxable Estate) the BIR is required as a condition
precedent for the transfer of
2. More than one foreign country ownership thereof in the name of
The credit shall be that which is the transferee.
the lower amount between Limit A
and Limit B. Time for Filing of the estate tax return
The estate tax return shall be filed
within six (6) months after the death of
Limit A. Whichever is lower
between: the decedent.
Estate tax paid to a foreign
Extension: The BIR may, in meritorious
country
cases, grant an extension of not
Tax Credit Limit =
exceeding thirty (30) days for the filing
NTE, foreign country X Phil. estate
of the estate tax return.
NTE, world Tax

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When The Gross Estate Exceeds there is a judicial settlement of

P2,000,000, The Estate Tax Return the estate; or
Shall Be Accompanied By A Statement b. the payment of the estate tax
Which Is Certified By An Independent may be extended for a period
Certified Public Accountant Stating not to exceed two (2) years if
1. the itemized assets of the decedent there is an extra-judicial
with its corresponding gross value at settlement of the estate.
the time of his death, or in the case NOTE: In case the available cash is not
of a non-resident, not citizen of the sufficient to pay its total estate tax
Philippines, that part of his gross liability, the estate may be allowed to
estate situated in the Philippines; pay tax by installment. (Sec. 9F, Rev.
2. the itemized deductions from the Reg. 2-2003)
gross estate;
3. the amount of tax due, whether paid Liability for Payment
or still due and outstanding. The estate tax shall be paid by the
executor or administrator before delivery
Place Where to File the Estate Tax to any beneficiary of his distributive share
Return of the estate.
Such beneficiary to the extent of his
1. Resident Citizen distributive share of the estate shall be
- with the Accredited Agent Bank subsidiarily liable for the payment of
(AAB), Revenue District Officer, such portion of the estate tax as his
Collection Officer or duly authorized distributive share bears to the value of
Treasurer of the city or municipality the total net estate. (Sec. 9G, Rev. Reg.
where the decedent was domiciled at 2-2003)
the time of his death. No judge shall authorize the
distribution of the estate unless a
2. Non-resident (citizen or alien) certification from the Commissioner that
a. has registered executor or tax has been paid is shown. (Sec. 94)
administrator No shares or other forms of securities
- with the Revenue District shall be transferred in the books of any
Office where such executor or corporation, partnership, business or
administrator is registered industry organized in the Philippines,
b. executor or administrator is not unless a similar certification by the
registered Commissioner is shown. (Sec. 97)
- with the Revenue District When a bank has knowledge of the
Office having jurisdiction over death of a person who maintained a
the executor or administrators joint account, it shall not allow any
residence withdrawal by the surviving depositor
c. no executor or administrator without the above certification. (Sec.
- with the Office of the 97)
Commissioner (Sec. 9C, Rev. Reg. Provided: that the administrator of
2-2003) the estate or any one (1) of the heirs of
the decedent may, upon authorization
B. PAYMENT by the Commissioner, withdraw an
amount not exceeding twenty thousand
Payment of the estate tax due pesos (P20,000) without the said
The estate tax due shall paid at the certification.
time when the estate tax return is filed.
When the Commissioner finds that
the payment of the estate tax on the
due date would impose undue hardships
upon the estate or any heir:
a. the payment of the estate tax
may be extended for a period
not to exceed five (5) years if

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There is nothing in the Tax Code and (2) DONORS TAXES

in the pertinent remedial law that
implies the necessity of the probate DEFINITION: A tax on the privilege of
court or estate settlement of courts transmitting ones property or property
approval of the States claim for estate rights to another or others without
taxes before the same can be enforced adequate and full valuable
and collected by the BIR. On the consideration.
contrary, under Section 94, it is the
probate or settlement court which is Coverage Of The Tax (SEC. 104)
bidden not to authorize the delivery of
the distributive share to any interested
RESIDENT & NON-
party without a certification from the
RESIDENT CITIZEN, NON-RESIDENT
CIR showing the payment of the estate
RESIDENT ALIEN ALIEN DONOR
tax. (Marcos II vs. Court of Appeals, GR
DONOR
No. 120880, June 5, 1997)
1. Real property 1. Real property
COLLECTION OF TAX FROM THE HEIRS wherever situated situated in the
An estate or inheritance tax, Philippines.
whether assessed before or after the
death of the deceased, can be collected 2. Personal property 2. Personal property
from the heirs even after the wherever situated a. Tangible property
distribution of the properties of the a. Tangible, and situated in the
decedent. (Palanca vs. Commissioner of Intangible Philippines
b. Intangible personal
Internal Revenue, GR No. 16661,
property with a
January 31, 1962) situs in the
Philippines unless
The Government has two ways of exempted on the
collecting taxes due from the estate. basis of
a. By going after all the heirs and reciprocity.
collecting from each one of
them the amount of the tax Requisites
proportionate to the inheritance
received, or 1. Capacity of the donor
b. Pursuant to the lien created by 2. Donative Intent
Section 219 of the Tax Code 3. Delivery, whether actual or
upon all property and rights to constructive, of the subject gift
property belonging to the 4. Acceptance by the donee
taxpayer for unpaid income tax,
is by subjecting said property of Law that governs the imposition of
the estate which is in the hands Donors Tax
of an heir or transferee to the
payment of the tax due the The donors tax shall not apply
estate. (Commissioner of unless and until there is a completed
Internal Revenue vs. Pineda, GR gift. The transfer is perfected from the
No. L 22734, September 15, moment the donor knows of the
1967) acceptance by the donee; it is
completed by the deliver, either
actually or constructively, of the
donated property to the donee. Thus,
the law in force at the time of the
perfection/completion of the donation
shall govern the imposition of the
donors tax.

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A gift that is incomplete because of Intangible personal properties with a

reserved powers, becomes complete situs in the Phil. (same as in estate tax
when either: subject to the reciprocity rule) (Sec.
1. the donor renounces the power; or 104)
2. his right to exercise the reserved
power ceases because of the Formula: (On a cumulative basis over a
happening of some event or period of one calendar year)
contingency or the fulfillment of
some condition, other than because 1. On the 1st donation of a year
of the donor's death.
Renunciation by the surviving Gross gifts xxx
spouse of his/her share in the Less: Deductions from gross xxx
conjugal partnership or absolute gifts
community after the dissolution Net gifts xxx
of the marriage in favor of the Multiply by: Tax Rate xxx
heirs of the deceased spouse or Donors tax on the net gifts xxx
any other person/s is subject to
donor's tax. 2. On donation of a subsequent
Whereas general renunciation date during the year
by an heir, including the
surviving spouse, of his/her Gross gifts made on this date XX
share in the hereditary estate Less: Deductions from gross gifts XX
left by the decedent is not Net gifts XX
subject to donor's tax, unless Add: All prior net gifts within the XX
specifically and categorically year
done in favor of identified heir/s Aggregate net gifts XX
to the exclusion or disadvantage Multiply by: Tax Rate XX
of the other co-heirs in the Donors tax on aggregate net gifts XX
hereditary estate. (Sec. 11, Rev. Less: Donors tax on all prior net XX
Reg. 2-2003) gifts
Donors tax on the net gifts on this XX
STRANGER - a person who is not a date
brother, sister, spouse, ancestor and
lineal descendant, or of a relative by
consanguinity in the collateral within the Exemption of certain gifts
4th civil degree.
A legally adopted child is entitled to 1. Gifts made by a resident
all the rights and obligations a. Dowries or gifts made on
provided by law to legitimate account of marriage and before
children, and therefore, donation to its celebration or within one
him shall not be considered as year thereafter by parents to
donation made to stranger. each of their legitimate,
illegitimate or adopted children
Donation made between business
to the extent of the first P10,
organizations and those made
000.
between an individual and a business
b. Gifts made to or for the use of
organization shall be considered as
the National Government or any
donation made to a stranger.
entity created by any of its
agencies which is not conducted
Valuation of gifts of property
for profit, or to any political
The fair market value of the
subdivision of the said
property given at the time of the gift
government.
shall be the value of the gift.
c. Gifts in favor of educational,
charitable, religious, cultural or
social welfare corporation,
institutions, foundations, trust

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1
or philanthropic organization, 2. The total amount of the credit shall

research institution or not exceed the same proportion of
organization, accredited non- the tax against which such credit is
government organization (NGO). taken, which the decedents net gift
Provided, that no more than 30% situated outside the Philippines
of said gifts shall be used by taxable under the NIRC bears to his
such donee for administration entire net gift.
purposes.
2. Gifts made by a non-resident not Formula of Tax Credit Limit
a citizen of the Phil.
a. same as (b) 1. For donors taxes paid to one
b. same as (c) except accredited foreign country
non-government organization
(NGO) NG situated Tax
in a foreign country X PDT = Credit
A non-profit educational and/or Entire net gift Limit
charitable corporation, institution,
accredited non-government (NG - Net Gifts; PDT - Phil. Donor's Tax)
organization, trust or philantrophic
organization, research institution or 2. For donors taxes paid to two or
organization is more foreign country
1. one incorporated as a non-stock NG outside the Phil. X PDT = Tax

entity Entire net gifts Credit
2. paying no dividends Limit
3. governed by trustees who receive no
compensation, and The allowable tax credit is the
4. devoting all its income whether lower amount between the tax credit
students fees or gifts, donations, limit under (a) and (b).
subsidies or other forms of
philantrophy to the accomplishment
and promotion of the purposes SETTLEMENT OF THE DONORS TAX
enumerated in its Articles of
Incorporation. Time for Filing of Return and payment
of the Donors Tax
Tax credit for donors taxes paid to a The donors tax return is filed and
foreign country the donors tax due is paid within thirty
(30) days after the date the gift is made.
1. Donor was a Filipino citizen or The return shall be under oath in
resident alien duplicate setting forth:
2. At time of foreign donation 1. Each gift made during the calendar
3. Donors taxes of any character and year which is to be included in
description computing net gifts;
4. Are imposed and paid by the 2. The deductions claimed and
authority of a foreign country. allowable;
3. Any previous net gifts made during
Limitations on tax credit the same calendar year;
4. The name of the donee;
1. The amount of the credit in respect 5. Relationship of the donor to the
to the tax paid to any country shall donee; and
not exceed the same proportion of 6. Such further information as may be
the tax against which such credit is required by rules and regulations
taken, which the decedents net made pursuant to law.
gifts situated within such country
taxable under the NIRC bears to his
entire net gift; and

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1
NOTE: The filing of a notice of donation Exception: Injunction may be issued by

is not required, unlike in estate tax the CTA in aid of its appellate
where notice of death is required. jurisdiction under RA 1125 (as amended
by RA 9282).
Place for Filing of Return and payment
of the Donors Tax Conditions for the Issuance of an
Injunction by the Court of Tax Appeals
1. Resident The CTA may enjoin collection of
With an authorized agent bank, the taxes:
Revenue District Officer, Revenue a. If in its opinion the same may
Collection Officer or duly jeopardize the interest of the
authorized Treasurer of the city or government and/or the taxpayer.
municipality where the donor was b. In this instance, the court may
domiciled at the time of the require the taxpayer either to deposit
transfer, or if there be no legal the amount claimed or file a surety bond
residence in the Philippines, with for not more than double the amount
the Office of the Commissioner. with the court.
2. Non-resident
Filed with the Philippine Embassy * Before enforcement of remedies,
or Consulate in the country where assessment is necessary to trigger the
he is domiciled at the time of the process. If no return is filed, the
transfer, or directly with the Commissioner is empowered to obtain
Office of the Commissioner. information, and to summon/examine,
and take testimony of persons to
Tax rate determine the amount of tax due. (Sec.
5, 1997 NIRC)
If the donee is a stranger, the rate of
tax shall be 30% of the net gifts. TAX REMEDIES UNDER THE 1997 TAX CODE:
If the donee is not a stranger,
the rate shall be from 2% to 15% of the 1. Summary remedies at the
net gifts. administrative level or regulation that
are executed without ceremony or
See Annex W - Donors Tax delay; short or concise
2. Substantive remedies provided for
by law or regulation; an essential part or
C. TAX REMEDIES constituent or relating to what is
UNDER THE NIRC essential
3. Procedural remedies involving law of
pleading, evidence, jurisdiction, etc.
I. TAX REMEDIES OF THE 4. Administrative remedies available at
GOVERNMENT the administration (BIR) level
5. Judicial remedies that are
enforced through judicial action,
Importance which may be civil or criminal
1. They enhance and support the tax remedies of the government to
governments tax collection. effect collection of taxes
2. They are safeguards of taxpayers
rights against arbitrary action. 1. Compromise (Sec. 204)
2. Distraint (Actual and
Tax collection cannot be restrained by Constructive) (Secs. 205-208)
court injunction (Sec. 218, 1997 NIRC) 3. Levy (Sec. 207B)
4. Tax Lien (Sec. 219)
Justification: Lifeblood Theory 5. Civil Action (Sec. 221)
6. Criminal Action (Secs. 221, and
222)

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1
7. Forfeiture of Property (Sec. c. the Revenue District Officer

224-225) having jurisdiction over the
8. Suspension of business taxpayer, as members;
operations in violation of VAT on assessments issued by the
(Sec. 115) regional offices involving basic
9. Enforcement of Administrative taxes of P500,000 or less, and
Fine minor criminal violations.
The remedies of distraint and levy as Cases which may be compromised

well as collection by civil and criminal
actions may, in the discretion of the 1. Delinquent accounts
Commissioner, be pursued singly or 2. Cases under administrative protests
independently of each other, or all of 3. Civil tax cases being disputed before
them simultaneously. the courts
4. Collection cases filed in courts
5. Criminal violations, other than those
(1) COMPROMISE already filed in court or those
involving criminal tax fraud; and,
DEFINITION: A contract whereby the 6. Cases covered by pre-assessment
parties, by reciprocal concessions, avoid notices but taxpayer is not agreeable
litigation or put an end to one already to the findings of the audit office as
commenced (Art. 2028, New Civil Code). confirmed by the review office.
(Sec.2, Rev. Reg. 7-2001)
Requisites
1. The taxpayer must have a tax Exceptions
liability.
2. There must be an offer (by the 1. Withholding tax cases;
taxpayer of an amount to be paid by 2. Criminal tax fraud cases;
the taxpayer) 3. Criminal violations already filed in
3. There must be an acceptance (by court;
the Commissioner or taxpayer as the 4. Delinquent accounts with duly
case may be) of the offer in the approved schedule of installment
settlement of the original claim. payments;
5. Cases where final reports of
Officers authorized to compromise reinvestigation or reconsideration
have been issued resulting to
1. The Commissioner of Internal reduction in the original assessment
Revenue (CIR) with respect to and the taxpayer is agreeable to
criminal and civil cases arising from such decision.
violations of the Tax Code [Secs. 6. Cases which become final and
7(C) and 204, 1997 NIRC]. This executory after final judgment of a
power of the CIR is discretionary and court, where compromise is
once exercised by him cannot be requested on the ground of doubtful
reviewed or interfered with by the validity of the assessment (RR. 30
Courts. (Koppel, Philippines vs. 2002);
Commissioner, GR No. L-1977, 7. Estate tax cases where compromise
September 21, 1950) is requested on the ground of
2. By the Regional Evaluation Board financial incapacity of the taxpayer.
composed of: (RR. 302002)
a. the Regional Director as
Chairman, Commissioner may compromise the
b. Assistant Regional Director, payment of any internal revenue tax
the heads of the Legal, when
Assessment and Collection
Divisions, and

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1
1. A reasonable doubt as to the authenticity of which is being

validity of the claim against the questioned or at issue and there
taxpayer exists; or is strong reason to believe and
a. The delinquent account or evidence to prove that it is not
disputed assessment is one authentic. (RR. 30 2002)
resulting from a jeopardy i. The assessment is based on an
assessment. issue where a court of
b. The assessment seems to be competent jurisdiction made an
arbitrary in nature, appearing adverse decision against the
to be based on presumptions, Bureau, but for which the
and there is reason to believe Supreme Court has not decided
that its is lacking in legal upon with finality. (RR. 08-
and/or factual basis; or 2004).
c. The taxpayer failed to file an
administrative protest on 2. The financial position of the
account of the alleged failure taxpayer demonstrates a clear
to receive notice of assessment inability to pay the assessed tax
or preliminary assessment and [Sec. 204(A), 1997 NIRC). In such
there is reason to believe that case, the taxpayer should waive the
its is lacking in legal and/or confidentiality privilege on bank
factual basis; or deposits under RA No. 1405 [Sec.
d. The taxpayer failed to file a 6(F)(2), NIRC].
request for Financial Incapacity. The offer
reinvestigation/reconsideration to compromise based on financial
within 30 days from receipt of incapacity may be accepted upon
final assessment notice and showing that:
there is reason to believe that a. The corporation ceased operation
its is lacking in legal and/or or is already dissolved. Provided,
factual basis; or that tax liabilities corresponding
e. The taxpayer failed to elevate to the Subscription Receivable or
to the CTA an adverse decision Assets distributed/distributable to
of the Commissioner, or his the stockholders representing
authorized representative, in return of capital at the time of
some cases, within 30 days from cessation of operation or
receipt thereof and there is dissolution of business shall not be
reason to believe that its is considered for compromise; or
lacking in legal and/or factual
basis; or b. The taxpayer, as reflected in its
f. The assessment were issued on latest Balance Sheet supposed to
or after Jan. 1, 1998, where the be filed with the Bureau of
demand notice allegedly failed Internal Revenue, is suffering from
to comply with the formalities surplus or earnings deficit
prescribed under Sec. 228 of resulting to impairment in the
the 1997 NIRC; or original capital by at least 50%,
g. Assessments made based on the provided that amounts payable or
Best Evidence Obtainable due to stockholders other than
Rule and there is reason to business-related transactions
believe that the same can be which are properly includible in
disputed by sufficient and the regular "accounts payable" are
competent evidence. by fiction of law considered as
h. The assessment was issued part of capital and not liability,
within the prescriptive period and provided further that the
for assessment as extended by taxpayer has no sufficient liquid
the taxpayer's execution of asset to satisfy the tax liability; or
Waiver of the Statute of
Limitations the validity or

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Minimum Compromise Rates (MCR) of

c. The taxpayer is suffering from a any tax liability
networth deficit (total liabilities a. In case of financial incapacity:
exceed total assets) computed by MCR = 10% of the basic assessed tax
deducting total liabilities (net of b. Other cases:
deferred credits and amounts MCR = 40% of the basic assessed tax
payable to stockholders/owners [Sec. 204(A), 1997 NIRC]
reflected as liabilities, except
business-related transactions) Approval of the compromise by the
from total assets (net of prepaid Evaluation Board is required when
expenses, deferred charges, pre- a. the basic tax involved exceeds
operating expenses, as well as P1,000,000.00, or
appraisal increases in fixed b. the settlement offered is less than
assets), taken from the latest the MCR.
audited financial statements,
provided that in the case of an NOTE: The MCR may be less than the
individual taxpayer, he has no prescribed rates of 10% or 40%, as the
other leviable properties under case may be, provided it is approved by
the law other than his family the Evaluation Board (composed of the
home; (Sec. 3, RR. 302002). BIR Commissioner and the four BIR
Deputy Commissioners).
c. The taxpayer is a compensation
earner with no other source of Compromise of Criminal Violations
income and the familys gross General Rule: All criminal violations
monthly compensation does not under the CTRP may be compromised.
exceed (P10,500/month if single;
P21,000/month if married), and Exceptions:
that it appears that the taxpayer 1. Those already filed in court
possesses no other leviable/ 2. Those involving fraud [Sec. 204(B),
distrainable assets, other than his 1997 NIRC].
family home; or
Extent of the Commissioners
d. The taxpayer has been granted by Discretion to Compromise Criminal
the SEC or by any competent Violations
tribunal a moratorium or
suspension of payments to 1. Before the complaint is filed with
creditors, or otherwise declared the Prosecutors Office: The CIR
bankrupt or insolvent. (Sec. 3, RR. has full discretion to compromise
07-2001) except those involving fraud.
The Congressional Oversight 2. After the complaint is filed with

Committee, under Section 290 of the the Prosecutors Office but before
1997 NIRC is empowered to require the the information is filed with the
BIR: court: The CIR can still compromise
1. The submission of all provided the prosecutor must give
pertinent information, including consent.
but not limited to industry
audits, collection performance 3. After information is filed with the
data, status reports on criminal court: The CIR is no longer
actions initiated against permitted to compromise with or
persons; and without the consent of the
2. The submission of taxpayer Prosecutor. (People vs. Magdaluyo,
returns. GR No. L-16235, April 20, 1961)

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1
This is more so, when the court

has rendered a final judgment. As a Compromise involves a reduction of
mere agent of the Government, the the taxpayers liability, while
Commissioner is not authorized to abatement means that the entire tax
accept anything less than what is liability of the taxpayer is cancelled.
adjudicated in favor of the ABATEMENT
Government. By virtue of such final
judgment, the Government has The Commissioner may abate or cancel
already acquired a vested right. a tax liability when
Nature of a Compromise in 1. The tax or any portion thereof

Extrajudicial Settlement of the appears to be unjustly or
Taxpayers Criminal Liability for his excessively assessed; [Sec. 204(B),
Violation 1997 NIRC].
a. When the filing of the
It is consensual in character, hence, return/payment is made at the
may not be imposed on the taxpayer wrong venue;
without his consent. The BIR may only b. When the taxpayers mistake in
suggest settlement of his tax liability payment of his tax is due to
through a compromise. The extra- erroneous written official advice
judicial settlement and the amount of of a revenue officer;
the suggested compromise penalty c. When the taxpayer fails to file the
should conform with the schedule of return and pay the tax on time
compromise penalties provided under due to substantial losses from
the relevant BIR regulations or orders. prolonged labor dispute, force
majeure, legitimate business
Remedy in case the taxpayer refuses reverses, provided, however, the
or fails to abide the tax compromise abatement shall only cover the
surcharge and the compromise
1. Enforce the compromise penalty and not the interest
a. If it is a judicial compromise, it imposed under Sec. 249 of the
can be enforced by mere Code;
execution. A judicial compromise d. When the assessment is brought
is one where a decision based on about or the result of taxpayers
the compromise agreement is non-compliance with the law due
rendered by the court on request to a difficult interpretation of said
of the parties. law.
b. Any other compromise is e. When the taxpayer fails to file the
extrajudicial and like any other return and pay the correct tax on
contract can only be enforced by time due to circumstances beyond
court action. his control, provided, however,
2. Regard it as rescinded and insist the abatement shall only cover
upon original demand (Art. 2041, the surcharge and the compromise
Civil Code). penalty and not the interest
imposed under Sec. 249 of the
Compromise Penalty Code;
f. Late payment of the tax under
It is an amount of money that the meritorious circumstances (ex.
taxpayer pays to compromise a tax Failure to beat bank cut-off time,
violation. This is paid in lieu of criminal surcharge erroneously imposed,
prosecution. A taxpayer cannot be etc.) (Sec. 2, Rev. Reg. 13-2001)
compelled to pay a compromise penalty.
If he does not want to pay, the CIR must 2. The administration and collection
institute a criminal action. costs involved do not justify the
collection of the amount due [Sec.
COMPROMISE VS. ABATEMENT 204(B), 1997 NIRC].

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1
a. Abatement of penalties on shall be added, a statement of

assessment confirmed by the the sum demanded and note of
lower court but appealed by the the time and place of sale;
taxpayer to a higher court 3. Leave either with the owner or
b. Abatement of penalties on person from whose possession
withholding tax assessment under such personal properties were
meritorious circumstances taken, or at the dwelling or
c. Abatement of penalties on place of business of such person
delayed installment payment with someone of suitable age
under meritorious circumstances and discretion (Sec. 208, CTRP)
d. Abatement of penalties on
assessment reduced after Two types of Distraint
reinvestigation but taxpayer is
still contesting reduced 1. Actual: there is taking of
assessment; and possession of the personal
e. Such other circumstances which property from the taxpayer by
the Commissioner may deem the government. Physical
analogous to the enumeration transfer of possession is not
above. (Sec. 3, Rev. Reg. 13-2001) always required. This is true in
the case of intangible property
3. The Commissioner may also, even such as stocks and credits.
without a claim therefor, refund or 2. Constructive: the owner is
credit any tax where on the face of merely prohibited from disposing
the return upon which payment was of his property.
made such payment appears clearly
to have been erroneously paid Actual vs. Constructive Distraint
(Sec. 229, 1997 NIRC)).
ACTUAL CONSTRUCTIVE
DISTRAINT DISTRAINT
(2) DISTRAINT
Made only on the Made on the property
DEFINITION: It is the seizure by the property of a of any taxpayer,
delinquent taxpayer whether delinquent
government of personal property,
or not
tangible or intangible, to enforce the
payment of taxes. The property may be There is taking of The taxpayer is
offered in a public sale, if taxes are not possession merely prohibited
voluntarily paid. It is a summary remedy. from disposing of his
property
Nature of the Warrant of Distraint or
Levy Effected by leaving a Effected by requiring
list of distrained the taxpayer to sign
The warrant is a summary procedure property or by a receipt of the
service of a warrant property or by the
forcing the taxpayer to pay. The
of distraint or revenue officer
receipt of a warrant may or may not garnishment preparing and leaving
partake the character of a final decision. a list of such
If it is an indication of a final decision, property
the taxpayer may appeal to the CTA
within 30 days from service of the An immediate step Not necessarily so
warrant. for collection of
taxes
Duties of the officer serving the
warrant of distraint:
1. Make an account of the personal
properties distrained;
2. Sign the list of personal
properties distrained to which

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1
ACTUAL CONSTRUCTIVE
DISTRAINT DISTRAINT I
Commencement of distraint
Both
proceedings
Are summary remedies for the collection of
taxes;
NOTE: Refer only to personal property; and
cannot be availed of where the amount of Either by the CIR or his duly authorized
the tax involved is not more than P100 representative; or by the Revenue
District Officer
Requisites for the exercise of the

remedy of distraint
II
1. The taxpayer must be delinquent Service of Warrant of Distraint
(except in constructive distraint) in (Sec. 208)
the payment of tax;
2. There must be a subsequent demand
for its payment (assessment); With respect to:
3. The taxpayer must fail to pay the tax 1. Personal property
at the time required; and (a) upon the owner of the goods,
4. The period within which to assess or chattels, or other personal
collect the tax has not yet property; or
prescribed. (b) upon the person from whose
possession such properties are
Persons who shall seize and distraint taken.
personal property (actual distraint) 2. Stocks and other securities
(a) upon the taxpayer; and
1. Amount of delinquent tax is more (b) upon the president, manager,
than P1,000,000 Commissioner or treasurer or other responsible
his duly authorized representatives. officer of the corporation,
2. Amount of delinquent tax is company or association which
P1,000,000 or less Revenue District issued the said stock and
Officer. (Sec. 207(A), 1997 NIRC) securities.
3. Bank accounts shall be garnished by
AUTHORITY OF THE COMMISSIONER TO serving a warrant of distraint
INQUIRE INTO BANK DEPOSIT ACCOUNTS (a) upon the taxpayer; and
(b) upon the president, manager,
Distraint includes garnishment of treasurer, or other responsible
money even in bank deposits because RA officer of the bank.
1405 (Bank Secrecy Law) covers only Note: Upon receipt of the warrant of
divulging of information of deposits. No distraint, the bank shall turn over to the
inquiry is made on garnishment for it Commissioner so much of the bank
only earmarks a portion of the deposits. accounts as may be sufficient to satisfy
Notwithstanding any contrary the claim of the government.
provision of RA 1405, the Commissioner 4. Debts and credits
is authorized to inquire into the bank (a) persons owing or having in his
deposits of: possession the debts;
1. a decedent to determine his gross (b) or under his control such credits;
estate or
2. a taxpayer who waives his right by (c) upon his agent.
reason of financial incapacity to pay his
tax liability (Sec.5, NIRC) Note: The warrant of distraint shall be
sufficient authority to the person owing
the debts or having in his possession or
Procedures for the Actual Distraint or under his control any credits belonging
Garnishment

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to the taxpayer to pay to the Taxpayers obligation to preserve

Commissioner the amount of such debts
or credits.
CIR shall require the taxpayer or any
person having possession or control of
such property to
(a) sign a receipt covering the property
Taxpayer must sign distrained and
receipt (b) obligate himself to
1. preserve the same intact and
unaltered and
2. not to dispose of the same in any
manner whatsoever without the
express authority of the
III Commissioner of Internal
Posting of Notice Revenue.
(Sec. 209, NIRC)
Notice specifying the time and place

of sale and the articles distrained. The
posting shall be made in not less than Remedy when taxpayer didnt sign
two (2) public places in the city or muni- receipt
cipality where the distraint is made.
One place for posting of such notice is at
the Office of the Mayor of such city or If the taxpayer or person in possession of
municipality. the property refuses or fails to sign the
receipt referred to, the revenue officer
effecting the constructive distraint shall
(a) proceed to prepare a list of such
property and
(b) in the presence of two (2) witnesses
IV
leave a copy thereof in the premises
Sale of Property Distrained
where the property distrained is located,
after which the said property shall be
deemed to have been placed under
The taxpayers property may be placed constructive distraint.
under constructive distraint when he
(3) LEVY
1. is retiring from any business subject
to tax; DEFINITION: It refers to the act of seizure
2. is intending to of real property in order to enforce the
a. leave the Philippines, payment of taxes. The property may be
b. remove his property therefrom, offered in a public sale, if after seizure,
c. hide or conceal his property, the taxes are not voluntarily paid.
3. is performing any act tending to
obstruct the proceeding for REQUISITES FOR THE EXERCISE OF THE REMEDY
collecting the tax due or which may OF LEVY
be due from him (Sec. 223, 1997
NIRC). Same as in the remedy of distraint.
Procedure for the Constructive

Distraint of Personal Property When may Levy be Effected?

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1
Real property may be levied upon The advertisement shall be made

before, simultaneously, or after the within 20 days after the levy, and the
distraint of personal property belonging same shall be for a period of at least 30
to the delinquent [Sec. 207(B), 1997 NIRC]; days. It shall be effectuated by:
and the remedy by distraint and levy a. posting a notice at the main entrance
may be repeated if necessary until the of the municipal building or city hall
full amount, including all expenses, is and in a public and conspicuous
collected (Sec. 217, 1997 NIRC). place in the barrio or district in which
the real property lies; and
Procedure of Levy on Real Property b. by publication once a week for 3
weeks in a newspaper of general
I circulation in the municipality or city
Prepare Certificate of Levy where the property is located (Sec.
213, CTRP).
I
Preparation of a duly authen-ticated
certificate containing:
(a) description of the property levied;
(b) name of the taxpayer, and IV
(c) the amounts of tax and penalty due Sale
from him. This certificate shall
operate with the force of a legal
execution throughout the Philippines
(Sec. 207B, 1997 NIRC). Distraint vs. Levy
DISTRAINT LEVY
Refers to personal Refers to real

II property property
Service of Notice
Forfeiture by the Forfeiture is
government is not authorized
Service of written notice to: provided
(a) the delinquent taxpayer; or
(b) if he is absent from the Philippines, The taxpayer is not The right of
given the right of redemption is
to his agent or manager of the business
redemption with granted in case of
in respect to which the liability arose; or respect to distrained real property levied
c. to the occupant of the property. personal property. upon and sold, or
d. the proper Register of Deeds shall forfeited to the
also be notified of the levy (Sec. government.
207B, 1997 NIRC).
Both
Are summary remedies for the collection of
taxes; and
Cannot be availed of where the amount of
the tax involved is not more than P100
III
Advertisement of the Time and Redemption of Property Sold
Place of Sale
Within 1 year from the date of sale,
The advertisement shall contain: the property may be redeemed by the
1. the amount of tax and penalties due; delinquent taxpayer or anyone from him,
2. name of the taxpayer against whom upon payment of the taxes, penalties
taxes are levied; and interest thereon from the date of
3. short description the property to be delinquency to the date of sale,
sold. together with interest on purchase price
at 15% per annum from the date of sale

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1
to the date of redemption. (Sec. 214, Not only from the service of the
NIRC). warrant of distraint but from the time
tax became due and payable.
Forfeiture to the Government
Lien vs. Distraint
If there is no bidder in the public
sale or if the amount of the highest bid LIEN DISTRAINT
is insufficient to pay the taxes, penalties
and costs, the real property shall be Directed against Need not be
forfeited to the Government. the property directed against the
subject to the tax property subject to
Further Distraint and Levy tax
Regardless of the Property seized

The remedy of distraint and levy
owner of the must be owned by
may be repeated if necessary until the property the taxpayer
full amount of the tax delinquency due
including all expenses is collected from
the taxpayer. Otherwise, a clever
taxpayer who is able to conceal most of (5) CIVIL ACTIONS
the valuable part of his property would
escape payment of his tax liability by DEFINITION: For tax remedy purposes,
sacrificing an insignificant portion of his these are actions instituted by the
holdings. government to collect internal revenue
taxes. It includes filing by the
(4) TAX LIEN government with the probate court
claims against the deceased taxpayer.
DEFINITION: It is a legal claim or charge
on property, either real or personal, When resorted to?
established by law as a security in
default of the payment of taxes (51 1. When a tax is assessed but the
AmJur 881). Generally, it attaches to assessment becomes final and
the property irrespective of ownership unappealable because the taxpayer
or transfer thereof. fails to file an administrative
protest with the CIR within 30 days
Extent and nature from receipt; or
2. When a protest against assessment is
The tax, together with interests, filed and a decision of the CIR was
penalties, and costs that may accrue in rendered but the said decision
addition thereto is a lien upon all becomes final, executory, and
property and rights to property demandable for failure of the
belonging to the taxpayer. taxpayer to appeal the decision to
the CTA within 30 days from
The lien shall not be valid against receipt of the decision.
any mortgagee, purchaser, or judgment
creditor until notice of such lien shall be NOTE: Judicial action may be resorted
filed by the Commissioner of Internal to even before assessment although
Revenue in the Office of the Register of impractical, as stated in Sec. 203, 1997
Deeds of the province or city where the NIRC, and no proceeding in court
property of the taxpayer is situated or without assessment for the collection of
located (Sec. 219, 1997 NIRC). such taxes shall be begun after the
expiration of such (3year) period.
It should be noted that no civil
or criminal action for the recovery of
When does it Attach?
taxes shall be filed in court without the
approval of the Commissioner.

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1
Where to file there is no specified amount

claimed. (Sec. 7, RA No. 9282)
1. Court of Tax Appeals where the
principal amount of taxes and fees, IMPORTANT CONSIDERATIONS
exclusive of charges and penalties
claimed is One million pesos and 1. No criminal action shall be
above. begun without the approval of the
2. Regional Trial Court, Municipal Commissioner. (Sec. 220, 1997 NIRC)
Trial Court, Metropolitan Trial 2. It shall be brought in the
Court where the principal amount name of the Government and shall
of taxes and fees, exclusive of be conducted by the legal officers of
charges and penalties claimed is less the BIR.
than One million pesos. (Sec. 7, RA
No. 9282) EFFECT OF ACQUITTAL OF THE
TAXPAYER IN A CRIMINAL ACTION
THE APPROVAL OF THECIR IS ESSENTIAL IN
CIVIL CASES. However,under Sec. 7, 1997 It does not necessarily result in the
NIRC, the Commissioner may delegate exoneration of said taxpayer from his
such power to a Regional Director. civil liability to pay taxes.
Rationale: The duty to pay tax is
Defenses which are precluded by final imposed by statute prior to and
and executory assessments independent of any attempt on the part
of the taxpayer to evade payment. It is
1. Invalidity or illegality of the not a mere consequence of the felonious
assessment; and acts charged, nor is it a mere civil
2. Prescription of the governments liability derived from a crime. (Republic
right to assess. vs. Patanao, GR No. L-14142, May 30,
1961)
(6) CRIMINAL ACTIONS
EFFECT OF SUBSEQUENT SATISFACTION
The judgment in the criminal case OF CIVIL LIABILITY
shall not only impose the penalty but
shall also order the payment of taxes The subsequent satisfaction of civil
subject of the criminal case as finally liability by payment or prescription does
decided by the Commissioner (Sec. 205, not extinguish the taxpayers criminal
NIRC). liability.
Where to file NO SUBSIDIARY IMPRISONMENT
1. Court of Tax Appeals on criminal In case of insolvency on the part of

offenses arising from violations of the taxpayer, subsidiary imprisonment
the NIRC or TCC and other laws cannot be imposed as regards the tax
administered by the BIR and the which he is sentenced to pay.
BOC, where the principal amount of However, it may be imposed in cases
taxes and fees, exclusive of charges of failure to pay the fine imposed. (Sec.
and penalties claimed is One million 280, 1997 NIRC)
pesos and above.
2. Regional Trial Court, Municipal
Trial Court, Metropolitan Trial
Court on criminal offenses arising
from violations of the NIRC or TCC
and other laws administered by the CRIMINAL ACTION MAY BE FILED
BIR and the BOC, where the principal DURING THE PENDENCY OF AN
amount of taxes and fees, exclusive ADMINISTRATIVE PROTEST IN THE BIR
of charges and penalties claimed is
less than One million pesos or where

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1
It is not a requirement for the revenue stamps and labels Upon

filing thereof that there be a precise forfeiture may be sold or destroyed
computation and assessment of the tax, at the discretion of the
since what is involved in the criminal Commissioner. Forfeited property
action is not the collection of tax but a shall not be destroyed until at least
criminal prosecution for the violation 20 days from seizure.
of the NIRC. Provided, however, that
there is a prima facie showing of a EFFECT OF THE FORFEITURE OF
willful attempt to evade taxes. (See PROPERTY
Ungab vs. Cusi, GR Nos. L-41919-24, May
30, 1980 in relation to Commissioner vs. The effect is to transfer the title to
Court of Appeals, GR No. 119322, June the specific thing from the owner to the
4, 1996) government. All the proceeds in case of
a sale go to the coffers of the
(7) FORFEITURE government (U.S. vs. Surla, GR No.
6536, September 2, 1911). In seizure for
DEFINITION: divestiture of property the enforcement of a tax lien, the
without compensation, in consequence residue, after deducting the tax liability
of a default or offense. and expenses will go to the taxpayer
(Bank of the Phil. Island vs. Trinidad,
ENFORCEMENT OF THE REMEDY OF GR No. 16014, October 4, 1941).
FORFEITURE
INFORMERS REWARD (Sec 282)
a. In case of personal property The A. For violations of the NIRC, a reward
forfeiture of chattels and removable of 10% of the revenues, surcharges,
fixtures of any sort is enforced by or fees recovered and/or fine or
seizure and sale or destruction of penalty imposed and collected or P 1
the specific forfeited property. M per case, whichever is lower shall
b. In case of real property The be given to:
forfeiture of real property is 1. any person who voluntarily gives
enforced by a judgment of definite and sworn information
condemnation and sale in a legal not yet in the possession of the
action or proceeding, civil or BIR leading to the discovery of
criminal, as the case may require. fraud upon the Internal Revenue
c. In case of distilled spirits, liquors, Laws and/or any violations thereof
cigars, cigarettes manufactured, 2. an informer where the offender
products of tobacco and apparatus has offered to compromise the
used for their production Upon violation of law comiited by him
forfeiture, may be destroyed by and his offer has been accepted
order of the Commissioner where the and collected by the CIR . This
sale may be injurious to public excludes an Internal Revenue
health or prejudicial to law Officer/employee or other public
enforcement. official/employee, or his relative
within the sixth degree
* This shall not refer to a case already

pending or examined by the CIR
B. For the discovery and seizure of

smuggled goods
- a reward of 10% of the FMV of the
smuggled and confiscated goods or
d. Other articles subject to excise tax P 1 M per case, whichever is
which have been manufactured or lower, shall be given to persons
removed in violation of the Code, instrumental in the discovery and
dies for printing or making fake seizure of such smuggled goods.

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1
discovery of the omission to file

* This does not apply to all public the return (Sec.222[A]);
officials whether incumbent or retired, 2. False or fraudulent return with
who acquired the information in the intention to evade the tax: ten
course of performance of their duties (10) years from the date of the
during their incumbency. discovery of the falsity or fraud
(Sec.222 [A]);
Note: Nothing in Section 222(A)
PRESCRIPTIVE PERIODS FOR shall be construed to authorize the
examination and investigation or
THE ASSESSMENT AND inquiry into any tax return filed in
COLLECTION OF TAXES accordance with the provisions of
any tax amnesty law or decree.
RATIONALE OF PRESCRIPTIVE PERIODS Fraud must be alleged and

proved as a fact. It must be the
Such periods are designated to product of a deliberate intent to
secure the taxpayers against evade taxes. It may be
unreasonable investigation after the established by the:
lapse of the period prescribed. They are a. Intentional and substantial
also beneficial to the government understatement of tax
because tax officers will be obliged to liability by the taxpayer;
act promptly. b. Intentional and substantial
overstatement of deductions
RULES ON PRESCRIPTION of exemptions; and/or
c. Recurrence of the above
1. When the tax law itself is silent circumstances
on prescription, the tax is Falsity constitutes a deviation
imprescriptible; from the truth due to mistake,
2. When no return is required, tax carelessness or ignorance.
is imprescriptible;
Note: Remedy of taxpayer is to file a There is fraud in the following decided
return. cases:
3. Defense of prescription is 1. Fraud must be the product of a
waivable; deliberate intent to evade taxes
(Jalandoni vs. Republic)
WHAT CONSTITUTES ASSESSMENT? 2. Simple statement that return filed
was not fraudulent does not disprove
An assessment contains not only existence of fraud (Tayengco vs.
a computation of tax liabilities but also Collector)
a demand for payment within a 3. Substantial under-declarations of
prescribed period. income for six consecutive five years
demonstrate fraudulence of return
(Perez vs. CTA)
PRESCRIPTIVE PERIOD FOR THE 4. Presence of fictitious expenses, with
ASSESSMENT OF TAXES no evidence presented, proves
existence of fraud (Tan Guan vs.
General Rule: Commissioner)
Three (3) years after the date
the return is due or filed, whichever is However, the courts did not consider
later (Sec. 203, 1997 NIRC). the tax returns filed as false or
fraudulent with intent to evade payment
Exceptions: of tax in the following cases:
1. Failure to file a return: ten (10) a. Mere understatement in the tax
years from the date of the return will not necessarily imply
fraud (Jalandoni vs. Republic)

Cabrera, Jhundee
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1
b. Sale of a real property for a price the same is sufficiently complete to

less than its fair market value is enable the Commissioner to make a
not necessarily a false return proper assessment. (Commissioner vs.
(Commissioner vs. Ayala Phoenix Assurance Co., GR No. L-19727,
Securities) May 20, 1965)
c. Fraud is a question of fact and the When Substantive:
circumstances constituting fraud a. substantial under declaration
must be alleged and proved in the (exceeding 30% of that
trial court (Commissioner vs. declared) of taxable sales,
Ayala Securities) receipts or income,
d. Fraud is never imputed and the b. or a substantial overstatement
courts never sustain findings of (exceeding 30% of deductions)
fraud upon circumstances that (Sec. 248)
only create suspicion
(Commissioner vs. Javier) PRESCRIPTIVE PERIOD FOR THE
e. Mistakes of revenue officers on COLLECTION OF TAXES
three different occasions remove
element of fraud (Aznar vs. CTA General Periods:
and Collector) Five (5) years from assessment
or within period for collection agreed
3. Agreement in writing to the upon in writing before expiration of the
extension of the period to assess 5-year period (Sec. 222, 1997 NIRC).
between the CIR and the Ten (10) years without
taxpayer before the expiration assessment in case of false or fraudulent
of the 3-year period. NB: The return with intent to evade or failure to
extended period agreed upon file return (Sec. 222, 1997 NIRC).
can further be extended by a
subsequent written agreement WHAT IS THE PRESCRIPTIVE PERIOD
made before the expiration of WHERE THE GOVERNMENTS ACTION IS
the extended period previously ON A BOND WHICH THE TAXPAYER
agreed upon (Sec. 222[b]). EXECUTES IN ORDER TO SECURE THE
4. Written waiver of renunciation PAYMENT OF HIS TAX OBLIGATION?
of the original three (3) year
limitation, signed by the Ten (10) years under Art.
taxpayer (Sambrano vs. Court of 1144(1) of the Civil Code and not three
Tax Appeals, GR No. L-8652, (3) years under the NIRC. In this case,
March 30, 1957). the Government proceeds by court
action to forfeit a bond. The action is
Note: Notice of the assessment is for the enforcement of a contractual
released, mailed or sent to the taxpayer obligation. (Republic vs. Araneta, GR
also within the 3 year period. It is not No. L-14142, May 30, 1961)
required that the notice be received by
the taxpayer within the prescribed GROUNDS FOR SUSPENSION OF THE
period. But the sending of the notice RUNNING OF THE STATUTE OF
must clearly be proven. (Basilan Estate, LIMITATIONS
Inc. vs. Commissioner, GR No. L-22492,
September 5, 1967) a. When the CIR is prohibited from
making the assessment or
AMENDMENT OF RETURN beginning the distraint or levy or
a proceeding in court, and for
If the amended return is sixty (60) days thereafter;
substantially different from the original b. When the taxpayer requests for
return, the prescriptive period shall be a reconsideration which is
counted from the filing of the amended granted by the CIR;
return. But the said period shall run c. When the taxpayer cannot be
from the filing of the original return if located in the address given by

Cabrera, Jhundee
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1
him in the return, unless he there must be a judicial

informs the CIR of any change in proceeding for the investigation
his address. and punishment of the tax
d. When the warrant of distraint or offense before the 5 year
levy is duly served, and no prescriptive period begins to
property is located; and run.
e. When the taxpayer is out of the
Philippines (Sec. 223, 1997
NIRC). II. TAX REMEDIES OF THE
A TAX RETURN IS CONSIDERED FILED TAXPAYER
FOR PURPOSES OF STARTING THE
RUNNING OF THE PERIOD OF
LIMITATIONS IF General Remedies
a. The return is valid it has complied A. ADMINISTRATIVE

substantially with the requirements Before Payment
of the law; and a. Protest filing a petition for
reconsideration or
b. The return is appropriate it is a reinvestigation within 30
return for the particular tax required days from receipt of
by law. assessment Within 60 days
from filing of protest, all
Note: A defective tax return is the relevant supporting
same as if no return was filed at all. documents should have been
submitted, otherwise, the
assessment shall become
PRESCRIPTIVE PERIOD FOR THE final cannot be appealed
VIOLATION OF ANY PROVISION OF THE (Sec. 228, 1997 NIRC).
TAX CODE (SEC. 281, 1997 NIRC)
Note: Submission of documents
1. Should be filed within five (5) years within the 60 day period is
from the (a) day of the commission optional to the taxpayer.
of the violation of the law, and if
the same be not known, from the (b) "That the relevant
discovery thereof and the supporting documents
institution of the judicial mentioned in the law refers
proceedings for its investigation and to such documents which the
punishment. taxpayer feels would be
necessary to support his
2. Illustrative case: (Lim vs. Court of protest and not what the
Appeals GR Nos. 48134-37, Ocober Commissioner feels should
18 , 1990) be submitted, otherwise,
a. charge is failure or refusal to taxpayer would always be at
pay deficiency income tax the mercy of the BIR which
committed only after the finality may require production of
of the assessment coupled with such documents which
the taxpayers willful refusal to taxpayer could not produce."
pay the taxes within the allotted (Standard Chartered Bank
period. (i.e. cannot be vs. CIR, CTA Case No. 5696,
committed upon filing the August 16, 2001)
return) A protest is a vital
b. charge is filing of false or document which is a formal
fraudulent return with intent declaration of resistance of
to evade the assessment in the taxpayer. It is a
addition to the fact of discovery, repository of all arguments.

Cabrera, Jhundee
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1
It can be used in court in 2. Non-retroactivity of rulings (Sec.246,

case administrative remedies NIRC)
have been exhausted. It is 3. Failure to inform the taxpayer in
also the formal act of the writing of the legal and factual bases
taxpayer questioning the of assessment makes it void (Sec.
official actuation of the CIR. 228, NIRC)
This is equivalent to a 4. Preservation of books of accounts and
pleading. once a year examination (Sec. 235,
b. Entering into a compromise NIRC)
(Sec. 204, 1997 NIRC).
After Payment ASSESSMENT AND PROTEST
Filing of claim for refund Assessment
or tax credit within 2 years from General rule: Taxes are self assessing
date of payment regardless of and thus, do not require the issuance of
any supervening cause (Sec. 229, an assessment notice in order to
1997 NIRC). establish the tax liability of a taxpayer.
Exceptions:
B. JUDICIAL 1. Tax period of a taxpayer is
Civil Action terminated (Sec. 6(D), NIRC)
a.Appeal to the Court of Tax 2. Deficiency tax liability arising
Appeals within 30 days from from a tax audit conducted by
receipt of decision on the protest the BIR (Sec. 56(B), NIRC)
or from the lapse of 180 days due 3. Tax lien (Sec. 219, NIRC)
to inaction of the Commissioner 4. Dissolving Corporation (Sec.
(Sec. 228, 1997 NIRC). 52(c), NIRC)
b.Action to contest forfeiture of
chattel, at any time before the Protest
sale or destruction thereof, to 1. Direct denial of protest
recover the same, and upon giving Admnistrative decision on a disputed
proper bond, enjoin the sale; or assessment - The decision of the
after the sale and within 6 Commissioner or his duly authorized
months, an action to recover the representative shall (a) state the facts,
net proceeds realized at the sale the applicable law, rules and regulation
(Sec. 231, 1997 NIRC); and or jurisprudence on which such decision
c. Action for damages against a is based otherwise, the decision shall be
revenue officer by reason of any void, in which case the same shall not be
act done in the performance of considered a decision a disputed
official duty (Sec. 227, 1997 assessment and (b) that the same is his
NIRC). final decision (Sec. 3.1.5, Rev. Regs. No.
Criminal Action 12-99)
a. Filing of criminal complaint
against erring BIR officials and 2. Indirect denial of protest
employees. a. Commissioner did not rule on the
b. Injunction when the CTA in its taxpayers motion for
opinion, the collection by the BIR reconsideration of the
may jeopardize taxpayer. assessment it was only when
respondent received the
Note: With the enactment of the new summons on
CTA law (RA No. 9282) amending RA No.
1125, CTA now has jurisdiction over the civil action for the
criminal cases. (See Chapter VI - Court collection of deficiency income
of Tax Appeals.) tax that the period to appeal
commenced to run
Substantive Remedies (Commissioner vs. Union
1. Questioning the constitutionality or Shipping Corp.)
validity of tax statutes or regulations

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1
b. Referral by the Commissioner of 1. Tax is collected erroneously or

request for reinvestigation to illegally.
the Solicitor General (Republic 2. Penalty is collected without
vs Lim Tian Teng Sons) authority.
c. Reiterating the demand for 3. Sum collected is excessive.
immediate payment of the
deficiency tax due to taxpayers TAX REFUND VS. TAX CREDIT
continued refusal to execute
waiver (Commissioner vs. Ayala TAX REFUND TAX CREDIT
Securities Corp.)
d. Preliminary collection letter may The taxpayer asks for The taxpayer asks
serve as assessment notice restitution of the that the money so
(United International Pictures money paid as tax paid be applied to his
existing tax liability
vs. Commissioner)
Two-year period to Two-year period
ACTS OF BIR COMMISSIONER file claim with the starts from the date
CONSIDERED AS DENIAL OF PROTEST CIR starts after the such credit was
WHICH SERVE AS A BASIS FOR APPEAL payment of the tax allowed (in case
TO THE COURT OF TAX APPEALS or penalty credit is wrongly
made).
1. filing by the BIR of a civil suit for
collection of the deficiency tax REQUISITES OF TAX REFUND OR TAX
(Commissioner vs. Union Shipping CREDIT
Corporation, GR No. 66160, May 21,
1990) 1. Claim must be in writing;
2. indication to the taxpayer by the 2. It must be filed with the
Commissioner in clear and Commissioner within two (2) years
unequivocal language of his final after the payment of the tax or
denial. (Commissioner vs. Union penalty.
Shipping Corporation, GR No. 66160, Note: No suit or proceeding shall be
May 21, 1990) begun after the expiration of the
3. BIR demand letter reiterating his said two (2) years regardless of any
previous demand to pay, sent to the supervening cause that may arise
taxpayer after his protest of the after payment.
assessment. (Surigao Electric Co., 3. Show proof of payment.
Inc. vs. CTA, GR No. L-25289, June
28, 1974; Commissioner vs. Ayala COMMENCEMENT OF THE TWO (2) YEAR
Securities Corporation, GR No. L- PERIOD (JURISPRUDENCE)
29485, March 31, 1976)
4. The actual issuance of a warrant of 1. Tax sought to be refunded is
distraint and levy in certain cases illegally or erroneously collected
cannot be considered a final decision - from the date the tax was paid.
on a disputed settlement. (Commissioner vs. Victorias Milling,
(Commissioner vs. Union Shipping GR No. L-24108, January 31, 1968)
Corporation, GR No. 66160, May 21, 2. Tax is paid only in installments or
1990) only in part
- from the date the last or final
installment or payment because for
tax purposes, there is no payment
until the whole or entire tax liability
FILING OF CLAIM FOR is fully paid. (Collector vs. Prieto,
TAX REFUND OR TAX CREDIT GR No. L-11976, August 29, 1961)
3. Taxpayer merely made a deposit
GROUNDS FOR FILING A CLAIM FOR TAX - counted from the conversion of
REFUND OR TAX CREDIT the deposit to payment (Union

Cabrera, Jhundee
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1
Garment vs. Collector, CTA Case No. entitled to refund because of

416, November 17, 1958) supervening circumstances
- Merely making a deposit is not - from the date the taxpayer
equivalent to payment until the becomes entitled to refund and not
amount is actually applied to the from the date of payment.
specific purpose for which it was (Commissioner vs. Don Pedro
deposited. Central Azucarera, GR No. L-28467,
4. Tax has been withheld from source Feb. 28, 1973)
(through the withholding tax PAYMENT UNDER PROTEST IS NOT
system) NECESSARY UNDER NIRC
- counted from the date it falls due
at the end of the taxable year A suit or proceeding for tax refund
- A taxpayer who contributes to the may be maintained whether or not such
withholding tax system does not tax, penalty or sum has been paid under
really deposit an amount to the protest or duress (Sec. 229, NIRC).
government, but in truth, performs
and extinguishes his tax obligation Note: Similarly, payment under protest
for the year concerned. (Gibbs vs. is not necessary in refund for local
Commissioner, GR No. L-17406, taxes. (See Sec. 196, LGC).
November 29, 1965)
5. End of taxable year vs. date of the However, payment under protest is
filing of the final adjusted return necessary in claim for refund for real
- from the date when the final property taxes (Sec. 252, LGC) and for
adjusted return was filed. customs duties (Sec. 2308, TCC).
- the rationale in computing this
period is the fact that it is only then SUSPENSION OF THE TWO-YEAR
the corporation can ascertain PRESCRIPTIVE PERIOD
whether it made profits or incurred
losses in its business operations. 1. There is a pending litigation
(ACCRA Investments vs. Court of between the Government and the
Appeals, GR No. 96322, December taxpayer; and
20, 1991) 2. CIR in that litigated case agreed to
6. Date when quarterly income tax abide by the decision of the SC as to
was paid vs. date when final the collection of taxes relative
adjusted return was filed thereto (Panay Electric Co. vs.
- from the date when final adjusted Collector, GR No. L-10574, May 28,
return was filed 1958).
- The filing of the quarterly income
tax return (Sec. 68) and payment of INTEREST ON TAX REFUNDS
quarterly income tax should only be
considered mere installments of the General Rule:
annual tax due. (Commissioner vs. Government cannot be required
TMX Sales, GR No. 83736, January to pay interest on taxes refunded to the
15, 1992) taxpayer in the absence of a statutory
7. Date when the final adjustment provision clearly or expressly directing
return was actually filed (ex. Apr. or authorizing such payment.
2) vs. Last day when the (Commissioner vs. Sweeney, GR No. L-
adjustment return could still be 12178, August 29, 1959)
filed (ex. Apr. 15)
- from the date the final adjustment
return was actually filed. Exceptions:
(Commissioner vs. Court of Appeals, 1. When the CIR acted with patent
GR No 117254, January 21, 1999) arbitrariness. Arbitrariness
8. Tax was not erroneously or illegally presupposes inexcusable or obstinate
paid but the taxpayer became disregard of legal provisions.

Cabrera, Jhundee
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(Commissioner vs. Victorias Milling, decision of the CIRs duly authorized

GR No. L-19667, Nov. 29, 1966) representative officer
2. Under Sec. 79(C)(2) with respect to
income taxes withheld on the wages Appeal to the Division of the Court of
of the employees. Tax Appeals (CTA) within 30 days from
receipt of final decision of CIR or his
TAX CREDIT CERTIFICATE duly authorized representative (the
taxpayer has the option to appeal
1. May be applied against any internal straight to the CTA upon receipt of the
revenue tax except withholding decision of the CIRs duly authorized
taxes, representative)
2. Original copy is surrendered to the
revenue office,
3. No tax refund will be given resulting If the CIR or his duly authorized
from availment of incentives granted representative fails to act on the
by law where no actual payment was protest within 180 days from date of
made (Sec. 204C, 1997 NIRC). submission by taxpayer, the latter may
appeal within 30 days from lapse of the
FORFEITURE OF CASH REFUND/TAX 180-day period with the CTA Division
CREDIT
The Party adversely affected by the CTA
1. Forfeiture of refund in favor of the Divisions decision may file one motion
government when a refund check or for reconsideration/new trial within 15
warrant remains unclaimed or days from receipt of decision. If the MR
uncashed within five (5) years from is denied file a petition for review with
date of mailing or delivery. the CTA en banc
2. Forfeiture of Tax Credit a tax
credit certificate which remains Appeal to the Supreme Court within 15
unutilized after five (5) years from days from receipt of the CTA en banc
date of issue, shall be invalid, unless decision under Rule 45 of the Rules of
revalidated (Sec. 230, 1997 NIRC). Court
Pre-Assessment Notice, When Not

REGLEMENTARY PERIODS Required (Sec. 228, NIRC)
IN INCOME TAX IMPOSED
BY LAW UPON THE TAXPAYER 1. When the finding for any
(PURSUANT TO REV. REG. NO. 12-99, deficiency tax is the result of
SEC. 228 OF THE 1997 NIRC, AND RA mathematical error in the
NO. 1125 AS AMENDED BY RA NO. computation of the tax as
9282) appearing on the face of the
return; or
BIR makes a tax assessment 2. When a discrepancy has been
determined between the tax
withheld and the amount
If taxpayer is not satisfied with the actually remitted by the
assessment file a protest within 30 days withholding agent; or
from receipt thereof 3. When a taxpayer who opted to
claim a refund or tax credit of
Submit supporting documents within excess creditable withholding
60 days from date of the filing of the tax for a taxable period was
protest determined to have carried over
and automatically applied the
If protest is denied, elevate the matter same amount claimed against
to the Commissioner of Internal Revenue the estimated tax liabilities for
(CIR) within 30 days from receipt of the the taxable quarter or quarters

Cabrera, Jhundee
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1
of the succeeding taxable year; rules and regulations on the

or date prescribed; or
4. When the excise tax due on b. Unless otherwise authorized
excisable articles has not been by the Commissioner, filing a
paid; return with an internal
5. When an article locally revenue officer other than
purchased or imported by an those with whom the return
exempt person, such as, but not is required to be filed; or
limited to, vehicles, capital c. Failure to pay the deficiency
equipment, machineries and tax within the time
spare parts, has been sold, prescribed for its payment in
traded or transferred to non- the notice of assessment; or
exempt persons. d. Failure to pay the full or
part of the amount of tax
Notes: shown on any return
As a general rule, payment required to be filed under
under protest is not required the provisions of this Code
under the NIRC, except when or rules and regulations, or
partial payment of the full amount of tax due
uncontroverted taxes is for which no return is
required under RR 12-99. required to be filed, on or
The Commissioner may, even before the date prescribed
without a written claim for its payment. (Sec. 248)
therefor, refund or credit 2. 50% surcharge
any tax, where on the face a. in case of willful neglect to
of the return upon which file the return within the
payment was made, such period prescribed by the
payment appears clearly to Code, or
have been erroneously paid. will not apply in case a
In case of the CIRs final taxpayer, without notice
denial of the claim for from the Commissioner,
refund, the 30-day period to or his duly authorized
appeal with the CTA must be representative,
within the 2-year peremptory voluntarily files the said
period for instituting judicial return (only 25% shall be
action. imposed)
50% surcharge shall be
See Annex N Assessment imposed in case the
Process and Appeal taxpayer files the return
only after prior notice in
writing from the
ADDITIONS TO THE TAX Commissioner or his duly
(SECS. 247-252 NIRC) authorized representa-
tive (Sec. 4.2, Rev. Reg.
12-99)
DEFINITION: increments to the basic tax
incident due to the taxpayers non-
compliance with certain legal
requirements.
1. CIVIL PENALTY / SURCHARGE b. in case a false or fraudulent
1. 25% surcharge return is willfully made
a. Failure to file any return and Prima Facie evidence
pay the tax due thereon as
substantial underdeclaration
required under the
(exceeding 30% of that
provisions of this Code or
declared) of taxable sales,
receipts or income,

Cabrera, Jhundee
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1
or a substantial
overstatement (exceeding Nature of the Taxing Power
30% of actual deductions) of a. Not inherent;
deductions (Sec. 248) b. Exercised only if delegated to
them by law or Constitution;
2. INTEREST c. Not absolute; subject to
- 20% per annum or such higher rate limitations provided for by law.
as may be prescribed by the rules
and regulations Under the present constitutional
rule, where there is neither a grant nor
a. Deficiency interest (Sec. 249B) a prohibition by statute, the tax power
b. Delinquency interest (Sec. 249C) must be deemed to exist although
c. Interest on Extended Payment Congress may provide statutory
(Sec. 249D) limitations and guidelines. The basic
rationale for the current rule is to
3. OTHER CIVIL PENALTIES OR safeguard the viability and self-
ADMINISTRATIVE FINES sufficiency of local government units by
directly granting them general and broad
A. Failure to file certain tax powers. (Manila Electric Co. vs.
information returns (Sec. 250) Province of Laguna, G.R. No. 131359)
B. Failure of a withholding agent to
collect and remit tax (Sec. 251) Aspects of Local Taxing Power
C. Failure of a withholding agent of a. local taxation
refund excess withholding tax b. real property taxation
(Sec. 252)
Fundamental Principles governing
Local Taxation (Sec. 130, lgc)
a. Shall be uniform in each local
III. LOCAL TAXATION sub-unit
b. Shall be equitable and based as
POWERS AND LIMITATIONS much as possible on the
taxpayers ability to pay
NATURE AND SOURCE OF LOCAL c. Levied for public purposes
TAXING POWER (SEE. SEC 5, ART. X, d. Shall not be unjust, excessive,
1987 CONSTITUTION AND SEC. 129, oppressive, or confiscatory
LGC) e. Shall not be contrary to law,
public policy, national
The Local Government Unit has the economic policy, or in restraint
power: of trade
a. to create its own sources of f. Collection of local taxes and
revenue and other impositions shall not be
b. to levy taxes, fees and charges. let to any person
g. The revenues collected under
the Code shall inure solely to
the benefit of, and subject to
disposition by, the LGU levying
the tax or other imposition
unless otherwise specifically
provided therein
Congress cannot enact laws h. Each LGU shall, as far as
depriving LGU from exercising such practicable, evolve a
power to tax but it may set guidelines progressive system of taxation.
and limitations for the exercise.
Such taxes, fees, and charges Local Taxing Authority (Sec. 132, lgc)
shall accrue exclusively to the local
government units.

Cabrera, Jhundee
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1
Shall be exercised by the Sanggunian 10. educational institutions.

of the LGU concerned through an
appropriate ordinance. The power to grant tax exemptions,
tax incentives and tax reliefs shall not
Power to prescribe Penalties for Tax apply to regulatory fees which are
Violations and Limitations thereon levied under the police power of the
(Sec. 516, lgc) LGU.
1. The Sanggunian is authorized to Tax exemptions shall be conferred
prescribe fines or other penalties through the issuance of a non-
for violations of tax ordinances. transferable tax exemption certificate.
a. in no case shall fines be less
than P1,000 nor more than Guidelines for the Granting of Tax
P5,000 Exemptions, Tax Incentives and Tax
b. nor shall the imprisonment be Reliefs (Art. 282[b], Rules and
less than one (1) month nor Regulations Implementing the Lgc)
more than six (6) month.
2. Such fine or other penalty shall be 1. On the grant of tax exemptions or
imposed at the discretion of the tax reliefs:
court. a. the same may be granted in
3. The Sangguniang Barangay may cases of natural calamities, civil
prescribe a fine of not less than disturbance, general failure of
P100 nor more than P1,000. crops, or adverse economic
conditions such as substantial
Power to Adjust Local Tax Rate (Sec. decrease in prices of agricultural
191, lgc) or agri-based products.
Adjustment of the tax rates as b. The grant shall be through an
prescribed herein should not be oftener ordinance.
than once every five (5) years, and in no c. Any exemption or relief granted
case shall such adjustment exceed ten to a type or kind of business shall
percent (10%) of the rates fixed under apply to all business similarly
the LGC. situated.
D. The same shall take effect only
Power to Grant Local Tax Exemptions during the next calendar year for
(Sec. 192, lgc) a period not exceeding 12
Local government units may, months as may be provided in
through ordinances duly approved, the ordinance.
grant tax exemptions, incentives or E. In the case of shared revenues,
reliefs under such terms and conditions, the exemption or relief shall only
as they may deem necessary. extend to the LGU granting such
exemption or relief.
Tax Exemptions Existing Before the 2. On the grant of tax incentives:
Effectivity of the LGC has been a. The same shall be granted only
Abolished (Sec. 193, lgc) to new investments in the
Unless otherwise provided in this locality and the ordinance shall
Code, tax exemptions or incentives prescribe the terms and
granted to, or presently enjoyed by all conditions therefore.
persons, whether natural or juridical, b. The grant shall be for a definite
including government-owned or period of not exceeding 1
controlled corporations are hereby calendar year.
withdrawn upon the effectively of the c. The grant shall be by ordinance
LGC passed prior to the 1 st day of
except the following: January of any year.
8. local water districts, d. Any grant to a type or kind of
9. cooperatives duly registered under business shall apply to all
R.A. No. 6938, non-stock and non- businesses similarly situated.
profit hospitals and

Cabrera, Jhundee
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1
LEVYING OF LOCAL TAXES (LOCAL TAX taxing power of the LGUs

ORDINANCE) prescribed under Sec. 130 of
Requisites: the LGC
1. The procedure applicable to local 4. The ordinance levying such
government ordinances in general residual taxes shall not be
should be observed (Sec. 187, LGC) enacted without any prior
2. Procedural details (Secs. 54, 55, and public hearing conducted for
59, LGC): the purpose and
a. necessity of a quorum 5. The principle of preemption.
b. submission for approval by the
local chief executive Principle of Preemption or
c. he matter of veto and overriding Exclusionary doctrine
the same Where the National Government
d. the publication and affectivity elects to tax a particular area, it
3. Public hearings are required before impliedly withholds from the local
any local tax ordinance is enacted government the delegated power to tax
(Sec.187, LGC) the same field. This doctrine principally
4. Within 10 days after their approval, rests on the intention of the Congress.
publication in full for 3 consecutive
days in a newspaper of general Excluded impositions (pursuant to the
circulation. In absence of such doctrine of preemption):
newspaper in the province, city or a. Taxes which are levied under the
municipality, then the ordinances NIRC, unless otherwise provided
may be posted in at least 2 by LGC of 1991;
conspicuous and publicly accessible b. Taxes, fees, etc. which are
places (Sec. 189, LGC) imposed under the Tariffs and
Customs Code;
Residual Taxing Powers of the Local c. Taxes, fees, etc., the imposition
government units (Sec. 186, lgc) of which contravenes existing
To levy taxes, fees or charges on any governmental policies or which
base or subject NOT: violates the fundamental
1. Specifically enumerated in LGC principles of taxation;
2. Taxed under the provisions of d. Taxes, fees and other charges
the NIRC, as amended, and imposed under special law.
3. Other applicable laws
COMMON LIMITATIONS ON LOCAL
Conditions: TAXING POWER (SEC. 133, LGC)
1. That the taxes, fees, or charges shall Local government units cannot levy:
not be unjust, excessive, oppressive, 1. Income tax, except on banks and
confiscatory or contrary to declared other financial institutions;
national policy 2. Documentary stamp tax;
3. Estate tax, inheritance, gifts,
2. The ordinance levying such taxes, legacies and other acquisitions
fees or charges shall not be enacted mortis causa except as
without any prior public hearing otherwise provided
conducted for the purpose. 4. Customs duties, registration fees
of vessels and wharfage on
wharves, tonnage dues and all
other kinds of customs fees,
LIMITATIONS OF THE RESIDUAL POWER charges and dues except
1. Constitutional limitations on wharfage on wharves
taxing power constructed and maintained by
2. Common limitations prescribed the local government unit
in Sec. 133 of the LGC concerned;
3. Fundamental principles 5. Taxes, fees, charges and other
governing the exercise of the impositions upon goods carried

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into or out of, or passing CLASSIFICATION OF COMMON

through, the territorial LIMITATIONS
jurisdictions of local government 1. Taxes which are levied under the
units in the guise of charges for NIRC unless otherwise provided by
wharfage, tolls for bridges or the LGC
otherwise. Numbers 1, 2, 3, 8, 9, 10
6. Taxes, fees or charges on 2. Taxes, fees, etc. which are imposed
agricultural and aquatic products under the Tariffs and Customs Code
when sold by marginal farmers Number 4
or fishermen; 3. Taxes, fees and charges where the
7. Taxes on business enterprises imposition of which contravenes
certified by the Board of existing governmental policies or
Investments as pioneer or which are violative of the
non-pioneer for a period of 6 fundamental principles of taxation
and 4 years, respectively, from Numbers 5, 6, 7, 11, 13, 14, 15
the date of registration; 4. Taxes, fees, and charges imposed
8. Excise taxes on articles under special laws.
enumerated under the NIRC, as Number 12
amended, and taxes, fees or
charges on petroleum products; TAXES AND OTHER IMPOSITIONS THAT
9. Percentage or value-added tax THE LOCAL GOVERNMENT MAY LEVY
(VAT) on sales, barters or
exchanges or similar transactions (A)PROVINCES
on goods or services except as (SECS. 134-141, LGC)
otherwise provided herein; 1. Tax on Transfer of Real Property
10. Taxes on the gross receipts of 2. Tax on Business of Printing and
transportation contractors and Publication
persons engaged in the 3. Franchise Tax
transportation of passengers or 4. Tax on Sand, Gravel and other
freight by hire and common Quarry Resources extracted from
carriers by air, land or water, Public Land
except as provided in the Code; 5. Professional Tax
11. Taxes on premiums paid by way 6. Amusement Tax
of Reinsurance or retrocession; 7. Annual Fixed Tax for every
12. Taxes, fees or charges for the Delivery Truck or Van of
registration of motor vehicles Manufacturers or Producers,
and for the issuance of all kinds Wholesalers of, Dealers, or
of licenses or permits for the Retailers in, certain products
driving thereof, except tricycle;
13. Taxes, fees or other charges on See Annex J for the rates and
Philippine products actually details.
exported, except as otherwise
provided in the Code;
14. Taxes, fees or charges on
Countryside and barangay
business enterprises and
cooperatives duly registered
under R.A. 6810 and R.A. 6938, (B) MUNICIPALITIES
(Cooperatives Code of the (SEC. 143, LGC)
Philippines) ; and
15. Taxes, fees or charges of any 1. Municipal Taxes- taxes on the
kind on the National businesses of the following:
Government, its agencies and a. On manufacturers, assemblers,
instrumentalities, and local repackers, processors, brewers,
government units. distillers, rectifiers, and
compounders of liquors, distilled

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spirits, and wines or some other business for which

manufacturers of any article of such tax has been paid.
commerce of whatever kind or b. The tax on a business must be
b. On wholesalers, distributors, or paid by the person conducting
dealers in any article of the same.
commerce of whatever kind or c. In cases where a person
c. On exporters, and on conducts or operates 2 or more
manufacturers, millers, of the businesses mentioned in
producers, wholesalers, Section 143 of LGC
distributors, dealers or retailers - which are subject to the
of essential commodities same rate of tax, the tax shall be
d. On retailers computed on the combined total
e. On contractors and other gross sales or receipts of the said 2
independent or more related businesses.
f. On banks and other financial - which are subject to
g. On peddlers engaged in the sale different rates of tax, the gross
of any merchandise or article of sales or receipts of each business
commerce shall be separately reported for the
h. On any business, not otherwise purpose of computing the tax due
specified in the preceding from each business.
paragraphs, which the
sanggunian concerned may deem See Annex K for the rates and
proper to tax. details.
2. Municipal non-revenue fees and (C)CITIES

charges (SEC. 151, LGC)
The municipality may impose
and collect such reasonable fees and The city may levy the taxes, fees,
charges on business and occupation and charges which the province or
except professional taxes reserved for municipality may impose.
provinces. (Sec. 147. LGC) The tax rates that the city may levy
may exceed the maximum rates
Rates of Tax within the Metropolitan allowed for the province or
Manila Area (sec. 144, lgc) municipality by not more than 50%
except the rates of professional and
- Not to exceed by 50% the amusement taxes.
maximum rates prescribed in the
preceding Section. (D) BARANGAYS
(SEC. 152, LGC)
Barangays may levy the following taxes,

fees, and charges which shall accrue
exclusively to them:
a. Taxes On stores or retailers

with fixed business
Payment of Business Taxes establishments with the gross
a. It shall be payable for every sales or receipts for the
separate or distinct preceding calendar year of
establishment or place where P50,000 or less (for barangays in
business subject to the tax is the cities) and P30,000 or less
conducted and one line of (for barangays in municipalities)
business does not become b. Rate = not exceeding 1% of such
exempt by being conducted with gross sales or receipts.

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c. Service Fees or Charges For Branch or sales office a fixed place in

services rendered in connection the locality which conducts the
with the regulation or the use of operation of the business as an extension
barangay-owned properties or of the principal office
service facilities such as palay,
copra or tobacco dryers Principal office- the head or the main
d. Barangay Clearance No city or office of the business; the city or the
municipality may issue any municipality specifically mentioned in
license or permit fee for any the Articles of Incorporation or official
business or activity unless a registration papers as being the official
clearance is first obtained from address of said principal office shall be
the barangay where such considered the situs thereof.
business or activity is located or
conducted. 1. Place of sale (with branch or sales
e. Other Fees and Charges The outlet therein):
barangay may levy reasonable Municipality or city where the
fees and charges: branch or outlet is located.
1. On Commercial breeding of 2. Place of sale (no branch or sales
fighting cocks, cockfights outlet):
and cockpits; Municipality or city of principal
2. On places of Recreation office (not in the place of sale)
which charge admission fees; 3. If manufacturer, assembler,
and contractor, producer, or exporter
3. On Billboards, signboards, (MACPE) with factory, project office,
neon signs and outdoor plant or plantation (FPPP)
advertisements. 4. 30% of recorded sales in the principal
office: city or municipality where
SITUS OF LOCAL TAXATION the principal office is located
5. 70% of recorded sales in the
A. Situs According to the Cases principal office: city or municipality
With respect to excise tax, the where the FPPP is located
tax is upon the performance of an act, pro rata if FPPP are located in
enjoyment of a privilege or the engaging different municipalities or cities
in an occupation. The power to levy such in proportion to their respective
tax is not dependent on the domicile of volumes of production.
the taxpayer, but on the place in which 6. If plantation is located in some other
the act is performed or the occupation is place than where the factory is
engaged in; not upon the location of the located, the foregoing 70% shall be
office, but the place where the sale is subdivided as follows:
perfected. (Allied Thread Co., Inc. v. 60% to the city or municipality
City Mayor of Manila, L-40296) where the factory is located
40% to the city or municipality
With respect to sale, it is the where the plantation is located.
place of the consummation of the sale,
associated with the delivery of the COMMON REVENUE-RAISING POWERS
things which are the subject matter of OF LGUs (SEC. 153 TO 155)
the contract that determines the situs of 1. Service fees and charges for services
the contract for purposes of taxation, rendered
and not merely the place of the 2. Public Utility Charges for the
perfection of the contract. (Shell Co., operation of public utilities owned,
Inc. v. Municipality of Sipocot, operated and maintained by LGUs
Camarines Sur 105 Phil 1263) within their jurisdiction.
3. Toll fees or charges for the use of
B. Situs According to Sec. 150, LGC any public road, pier or wharf,
waterway, bridge, ferry or
telecommunication system funded

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and constructed by the local Every corporation no matter how

government unit concerned created or organized, whether
Exceptions: domestic or resident foreign,
a. Officers and enlisted men of the engaged in or doing business in the
AFP and PNP; Philippines shall pay an annual
b. Post office personnel delivering community tax.
mail; and
c. Physically handicapped and Tax Rate = P500 and an annual
disabled citizens who are additional tax which in no case shall
sixty-five (65) years or older. exceed P10,000 in accordance with the
(Sec. 152, LGC) following schedule:
1. For every P5,000 worth of real
When public safety and welfare so property owned by it during the
requires, the sanggunian concerned may preceding year based on the
discontinue the collection of the tolls, valuation used for the payment
and thereafter the said facility shall be of the real property tax - P2.00;
free and open for public use. and
2. For every P5,000 of gross
COMMUNITY TAX receipts or earnings derived by
Cities or municipalities may levy a it from its business in the
community tax. Philippines during the preceding
year - P2.00.
A.Individuals Liable (Sec. 157)
a. every inhabitant of the The dividends received by a
Philippines; corporation shall, for the purpose of the
b. eighteen (18) years of age or additional tax, be considered as part of
over; the gross receipts or earnings of said
c. under any of the following corporation.
instances:
d. who has been regularly THE FOLLOWING ARE EXEMPT FROM
employed on a wage or salary THE COMMUNITY TAX (SEC. 159)
basis for at least thirty (30) 1. Diplomatic and consular
consecutive working days representatives; and
during any calendar year; or 2. Transient visitors when their stay in
e. who is engaged in business or the Philippines does not exceed
occupation; or three (3) months.
f. who owns real property with
an aggregate assessed value PLACE OF PAYMENT: place of residence
of P1,000 or more; or of the individual, or in the place where
g. who is required by law to file the principal office of the juridical
an income tax return entity is located.
Tax Rate = P5.00 and an annual TIME OF PAYMENT: accrues on the 1st
additional tax of P1.00 for every day of January of each year which shall
P1,000 of income regardless of be paid not later than the last day of
whether from business, exercise of February of each year.
profession or from property which in
no case shall exceed P5,000. PENALTIES FOR DELINQUENCY: an
In case of husband and wife, interest of 24% per annum from the due
the additional tax herein imposed date until it is paid shall be added to the
shall be based upon the total amount due.
property owned by them and the
total gross receipts or earnings A community tax certificate may
derived by them. also be issued to any person or
corporation not subject to the
B. Juridical Persons (Sec. 158)

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community tax upon payment of P1.00 50% accrues to the general fund
(Sec. 162, LGC). of the city or municipality
concerned; and
Presentation of Community Tax 50% accrues to the barangay
Certificate on Certain Occasions (Sec. where the tax is collected.
163)
A. Individual Collection Of Local Taxes
1. When an individual subject to
the community tax Tax Period and Manner of Payment
acknowledges any document (Sec. 165, LGC)
before a notary public; Unless otherwise provided, the
2. takes the oath of office upon tax period shall be the calendar
election or appointment to year.
any position in the Such taxes, fees, and charges
government service; may be paid in quarterly
3. receives any license, installments.
certificate or permit from any
public authority; pays any tax Accrual of Tax (Sec. 166, LGC)
or fee; Unless otherwise provided, shall
4. receives any money from any accrue on the first day of January of
public fund; each year.
5. transacts other official However, new taxes, fees or
business; or charges, or changes in the rates
6. receives any salary or wage thereof, shall accrue on the first
from any person or day of the quarter next following
corporation. the effectivity of the ordinance
The presentation of the community tax imposing such new levies or rates.
certificate shall not be required in
connection with the registration of a Time of Payment (Sec. 167, LGC)
voter. Unless otherwise provided shall
be paid within the first twenty (20)
B. Corporation days of January or of each
1. receives any license, certificate subsequent quarter as the case may
or permit from any public be.
authority; May, for a justifiable reason or
2. pays any tax or fee; cause, be extended without
3. receives money from public surcharges or penalties, but only for
funds; or a period not exceeding six (6)
4. transacts other official business. months.
The city of municipal treasurer
deputizes the barangay treasurer to Surcharges and Penalties on Unpaid
collect the community tax in their Taxes, Fees or Charges (Sec. 168,
respective jurisdictions. (Sec. 164, LCG) LGC)
Surcharge not exceeding 25% of
The proceeds of the community tax the amount of taxes, fees or charges
actually and directly collected by the including surcharges, until such
city or municipal treasurer shall accrue amount is fully paid.
entirely to the general fund of the city or But in no case shall the total
municipality concerned. interest on the unpaid amount or
Proceeds of the community tax portion thereof exceed thirty-six
collected through the barangay (36) months.
treasurers shall be apportioned as
follows: Interests on Other Unpaid Revenues
(Sec. 169, LGC)
An interest thereon at the rate
not exceeding 2% per month from the

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date it is due until it is paid, but in no

case shall the total interest on the JURISDICTION OF COURTS OVER LOCAL
unpaid amount or portion thereof TAXATION CASES
exceed thirty-six (36) months.
a. With the amendment brought by
Collection of Local Revenues by the RA No. 9282, the Court of Tax
Treasurer (Sec. 170 LGC) Appeals now has appellate
All local taxes, fees and charges jurisdiction over local taxation
shall be collected by the provincial, city, cases decided by the Regional
municipal or barangay treasurer, or their Trial Court in the exercise of its
duly authorized deputies. appellate or original jurisdiction.
The provincial, city or municipal b. Regular judicial courts are not
treasurer may designate the barangay prohibited from enjoining the
treasurer or his deputy to collect local collection of local taxes, subject
taxes, fees or charges. to Rule 58 (Preliminary
In case a bond is required for the Injunction) of the Rules of Court.
purpose, the provincial, city or
municipal government shall pay the Note: Unlike the NIRC, the Local Tax
premiums thereon in addition to the Code does not contain any specific
premiums of the bond that may be provision prohibiting courts from
required under the Code. enjoining the collection of local taxes.
Such statutory lapse or intent may have
allowed preliminary injunction where
LOCAL TAX REMEDIES local taxes are involved. But it cannot
UNDER THE LGC negate the procedural rules and
requirements under Rule 58 of the Rules
of Courts. (Valley Trading Co. vs. CFI of
1. TAX REMEDIES OF THE Isabela, GR No. 49529, March 31, 1989)
LOCAL GOVERNMENT UNITS (LGUs)
Civil Remedies Of The Local PRESCRIPTIVE PERIODS FOR THE ASSESSMENT

AND COLLECTION
Government Units (LGU) To Effect
OF LOCAL TAXES
Collection Of Taxes
(1) Local Governments Lien Local PRESCRIPTIVE PERIODS OF ASSESSMENT
taxes, fees, charges and other 1. Local taxes, fees, or charges five
revenues constitute a lien, superior (5) years from the date they became
to all liens, charges or due. (Sec. 194, LGC).
encumbrances in favor of any 2. When there is fraud or intent to
person, enforceable by any evade the payment of taxes, fees
appropriate administrative or or charges ten (10) years from
judicial action. discovery of the fraud or intent to
evade the payment (Sec. 194, LGC).
(2) Civil Remedies
PRESCRIPTIVE PERIOD OF COLLECTION
(a) by administrative action through Local taxes, fees, or charges
distraint of personal property may be collected within five (5) years
and by levy upon real property from the date of assessment by
administrative or judicial action. No
(b) by judicial action such action shall be instituted after the
expiration of such period (Sec. 194,
LGC).
Either of these remedies or all may GROUNDS FOR THE SUSPENSION OF
be pursued concurrently or THE RUNNING OF THE PRESCRIPTIVE
simultaneously at the discretion of the PERIODS
LGU concerned.

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a. The treasurer is legally within 30 days after receipt of

prevented from the assessment decision or lapse of 60 days of
or collection of the tax; Secretary of Justices inaction
b. The taxpayer requests for a (Sec. 187 LGC)
reinvestigation and executes a within 30 days from receipt
waiver in writing before the when protest of assessment is
expiration of the period within denied (Sec. 195 LGC)
which to assess or collect; and if no action is taken by the
c. The taxpayer is out of the treasurer in refund cases and the
country or otherwise cannot be two year period is about to lapse
located (Sec. 194, LGC). (Sec. 195 LGC)
if remedies available does not
2. TAX REMEDIES OF provide plain, speedy and
THE TAXPAYER adequate remedy.
2. Action for declaratory relief
Remedies Of The Taxpayer In Local 3. Injunction if irreparable damage
Taxation would be caused to the taxpayer and
no adequate remedy is available.
A.ADMINISTRATIVE
Before assessment
a. Appeal any question on IV. REAL PROPERTY
constitutionality or legality of tax
ordinance within 30 days from TAXATION
effectivity thereof to Secretary of
Justice (Sec. 187 LGC)
b. Declaratory relief whenever Definitions:
applicable. REAL PROPERTY TAXATION A direct
tax on ownership of lands and
After assessment buildings or other improvements
a. Protest within 60 days from receipt thereon payable regardless of
of assessment (Sec. 195 LGC). whether the property is used or
Payment under protest is not not, although the value may vary
necessary. in accordance with such factor.
Under the LGC, it covers
b. Payment & subsequent refund or the administration, appraisal,
tax credit within 2 years from assessment, levy and collection
payment of tax to local treasurer of Real Property Tax, i.e. tax on
(Sec. 196 LGC). It is to be noted land and building and other
that, unlike in internal revenue structures and improvements on
taxes, the supervening cause applies it, including machineries.
in local taxation because the period
for the filing of claims for refund or REAL PROPERTY subject to the
credit of local taxes is counted not definition given by Art. 415 of
necessarily from the date of the Civil Code.
payment but from the date the
taxpayer is entitled to a refund or IMPROVEMENT valuable addition made
credit. to a property or amelioration in
its condition amounting to more
c. Right of redemption 1 year from than a mere replacement of
the date of sale or from the date of parts involving capital
forfeiture (Sec. 179, LGC). expenditures and labor.
B. JUDICIAL
1. Court action
NATURE AND CLASSES

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CHARACTERISTICS OF REAL PROPERTY within its territorial jurisdiction

TAX specially benefited by public
1. Direct tax on the Ownership of works, projects or improvements
real property funded by the local government
2. Ad valorem tax. The value is unit concerned.
based on the tax base. Provided:
3. Proportionate the tax is Special levy shall not exceed
calculated on the basis of a 60% of the actual cost of
certain percentage of the value such projects and
assessed. improvements, including the
4. Indivisible single obligation costs of acquiring land and
5. Local tax such other real property in
connection therewith
TAXING AUTHORITIES (SEC. 233, LGC) not apply to lands exempt
from basic real property tax
Rate of Basic Real and the remainder of the
LGU
Property Tax land have been donated to
the local government unit
1. Province not exceeding 1% of concerned for the
assessed value construction of said
projects. (Sec. 240, LGC).
2. City not exceeding 2%
FOR PURPOSES OF REAL PROPERTY
3. Municipality not exceeding 2%.
within Metro
TAXATION IDLE LANDS SHALL INCLUDE:
Manila (SEC. 237, LGC)
1. Agricultural lands more than one
hectare in area one-half of which
FUNDAMENTAL PRINCIPLES GOVERNING remain uncultivated or unimproved by
REAL PROPERTY TAXATION (SEC. 198, the owner of the property or person
LGC) having legal interest therein.
1. Real property shall be appraised at Agricultural lands planted to
its current and Fair market value; permanent or perennial crops with
2. Real property shall be classified for at least 50 trees to a hectare shall
assessment purposes on the basis of not be considered idle lands.
actual Use. Lands actually used for grazing
3. Real property shall be assessed on purposes shall likewise not be
the basis of Uniform classification considered idle lands; and
within each LGU 2. Lands other than agricultural
4. The appraisal, assessment, levy and located in a city or municipality
more than one thousand square meters
collection of RP Tax shall not be let
to any Private person in area one-half of which remain
unutilized or unimproved by the
5. The appraisal and assessment of real
property shall be Equitable. owner of the property or person
having legal interest therein.
EXTENT OF THE POWER TO LEVY
IDLE LANDS EXEMPT FROM TAX (SEC.
Basic real property tax;
238, LGC)
1% additional real estate tax to
finance the Special Education By reason of:
Fund; (Sec. 236) 1. force majeure
5% additional ad valorem tax on 1. civil disturbance
Idle lands; (Sec. 236, LGC) and 2. natural calamity
Special levy or special 3. or any cause which physically or
assessments (may be imposed legally prevents the owner of
even by municipalities outside the property or person having
Metro Manila) on lands comprised legal interest therein from

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improving, utilizing or 4. Real property owned by duly

cultivating the same. registered cooperatives as
provided for in RA 6938; and
CLASSIFICATION OF LANDS FOR PURPOSES 5. Machinery and equipment used
OF ASSESSMENT SEC. 218 (A) for pollution control and
environmental protection.
a. Commercial
b. Agricultural ACTUAL USE OF PROPERTY AS BASIS
c. Residential FOR ASSESSMENT (SEC. 217 LGC)
d. Mineral
e. Industrial Real property shall be classified,
f. Timberland valued and assessed on the basis of
g. Special actual use regardless of where located,
whoever owns it, and whoever uses it.
SPECIAL CLASSES OF REAL PROPERTY
(SEC. 216, LGC) Unpaid realty taxes attach to the
property and is chargeable against the
1. Hospitals person who had actual or beneficial use
2. Cultural and Scientific purposes and possession of it regardless of
3. owned and used by Local water whether or not he is the owner. To
districts impose the real property tax on the
4. GOCCs rendering essential public subsequent owner which was neither the
services in the supply and owner nor the beneficial user of the
distribution of water and/or property during the designated periods
generation or transmission of would not only be contrary to law but
electric power. also unjust. (Estate of Lim vs. City of
Manila, GR No. 90639, February 21,
PROPERTIES EXEMPT FROM REAL 1990)
PROPERTY TAX (SEC. 234, LGC)
Exemption is limited only to the PROCEDURE
following:
1. Real property owned by the
government except when the STEP 1: DECLARATION OF REAL
beneficial use thereof has been PROPERTY
granted to a taxable person;
2. Charitable institutions, DECLARATION BY OWNER OR ADMINISTRATOR
churches, personages or (SEC. 202-203)
convents appurtenant thereto, File a sworn declaration with the
mosques, non-profit or religious assessor
cemeteries and all lands, - once every 3 years during
buildings and improvements the period from January 1
actually, directly and to June 30.
exclusively used for religious, For newly acquired property
charitable or educational WHEN: Must file with the assessor within
purposes (Art. VI, Sec. 28, 60 days from date of transfer
Constitution); WHAT: Sworn statement containing the
3. Machineries and equipment that fair market value and description of the
are actually, directly and property.
exclusively used by local water For improvement on property
utilities and GOCCs engaged in WHEN: Must file within 60 days upon
the supply and distribution of completion or occupation (whichever
water and/or electric power; comes earlier)
WHAT: Sworn statement containing the
fair market value and description of the
property.

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DECLARATION BY PROVINCIAL / CITY / concerning the property, its

MUNICIPAL ASSESSOR (SEC. 204) ownership, amount, nature and
value (Sec. 213, LGC)
WHEN: Only when the person under Sec. Assessor prepares a schedule of
202 refuses or fails to make a FMV for different classes of
declaration within the prescribed time. properties.
Sanggunian enacts an ordinance
No oath by the assessor is required. The schedule of FMV is
published in a newspaper of
Notes: Proof of Exemption of Real general circulation in the
Property from Taxation - (Sec. 206) province, city or municipality
concerned or in the absence
WHO: By any person or for whom real thereof, shall be posted in the
property is declared. provincial capitol, city or
municipal hall and in two other
Claim for exemption must be filed conspicuous public places
with the assessor together with therein (Sec. 212, LGC)
sufficient documentary evidence to
support claim For machinery
1. For Brand new machinery: FMV is the
WHEN: within 30 days from the date of acquisition cost
declaration of property. 2. In all other cases: FMV
= Remaining eco. life X Replacement
IF PROPERTY IS DECLARED FOR THE FIRST Estimated Eco.Life Cost
TIME (SEC.222)
If Declared for the first time, real STEP 4: DETERMINE ASSESSED
property shall be assessed for back VALUE (SEC. 218)
taxes:
For not more than 10 years prior to Determine Assessed Value
date of initial assessment Procedure
Taxes shall be computed on the basis 1. Take the schedule of FMV
of applicable schedule of values in force 2. Assessed Value = FMV x
during the corresponding period. Assessment level
3. Tax = Assessed value x Tax rate
STEP 2: LISTING OF REAL
PROPERTY IN THE ASSESSMENT STEP 5: PAYMENT AND COLLECTION
ROLLS (SECS. 205, 207) OF TAX
All declarations shall be kept and (a) Accrual of Tax: January of every
filed under a uniform year and such will constitute as
classification system to be a superior lien. (Sec. 246)
established by the provincial, city
or municipal assessor. (b) Time and Manner of Payment:
(Sec. 250)
STEP 3: APPRAISAL AND 1. basic real property tax in 4 equal
VALUATION OF REAL PROPERTY installments (March 31, June 30,
(SECS. 212-214, 224-225) September 30, December 30)
2. special levy governed by
Determination of fair market value ordinance
(FMV)
For land (c) Interest for Late Payment (Sec. 255)
Assessor of the province/city or 1. two percent (2%) for each month
municipality may summon the on unpaid amount until the
owners of the properties to be delinquent amount is paid
affected and may take depositions

Cabrera, Jhundee
Guillermo
1
2. provided in no case shall the B. JUDICIAL

total interest exceed thirty-six Civil Action ( Sec. 266, 270 LGC)
(36) months.
PRESCRIPTIVE PERIODS FOR THE
(d) For Advance and Prompt Payment COLLECTION OF REAL
1. Advance payment discount not PROPERTY TAXES
exceeding 20% of annual tax (Sec.
251, LCG)
2. Prompt payment discount not 1. Basic real property tax and any
exceeding 10% of annual tax due other tax levied under the title on
(Art 342 IRR) Real Property Taxation five (5)
years from the date they became
Collection of Tax (Sec. 247) due. (Sec. 270, LGC).
It shall be the responsibility of the 2. When there is fraud or intent to
city or municipal treasurer concerned. evade the payment of taxes ten
The city or municipal treasurer may (10) years from discovery of the
deputize the barangay treasurer to fraud or intent to evade the
collect all taxes on real property located payment (Sec. 270, LGC).
in the barangay; provided, the barangay
treasurer is properly bonded. GROUNDS FOR THE SUSPENSION OF
THE RUNNING OF THE PRESCRIPTIVE
Period to Collect (Sec. 270) PERIODS
1. within five (5) years from the
date they become due 1. The treasurer is legally prevented
2. within ten (10) years from from the assessment or collection of
discovery of fraud, in case there the tax;
is fraud or intent to evade 2. The taxpayer requests for a
reinvestigation and executes a
Suspension of Prescriptive Period (Sec. waiver in writing before the
270) expiration of the period within
1. local treasurer is legally which to assess or collect; and
prevented to collect tax. 3. The taxpayer is out of the country or
2. the owner or property requests otherwise cannot be located (Sec.
for reinvestigation and writes a 270, LGC).
waiver before expiration of
period to collect. 2. TAX REMEDIES OF THE
3. the owner of property is out of
TAXPAYER
the country or cannot be
located.
A. ADMINISTRATIVE
REAL PROPERTY TAX Protest payment under protest is
REMEDIES UNDER THE LGC required within 30 days to provincial,
city, or municipal treasurer. No protest
1. TAX REMEDIES OF THE LOCAL shall be entertained unless the tax is
GOVERNMENT TO EFFECT first paid. (Sec. 252 LGC)
COLLECTION OF TAXES
Claim for Tax Refund or Credit (Sec.
A. ADMINISTRATIVE 253)
1. Real Property tax lien (Secs. 257, a) the taxpayer may file a written
LGC) superior to all liens, charges claim for refund or credit with
or encumbrances; the provincial or city treasurer
2. Distraint (Sec. 254[B], LGC); within two years from the date
3. Levy (Sec. 254[A], 258 LGC); the taxpayer is entitled to such
4. Purchase of property by local reduction or adjustment.
treasurer for want of bidder (Sec.
263, LGC).

Cabrera, Jhundee
Guillermo
1
b) in case of denial of refund or B. JUDICIAL

credit, appeal to LBAA as in 1. Court Action appeal of CBAAs
protest case. decision to Court of Tax Appeals en
banc.
Redemption of real property (Sec. 261 2. Suit assailing validity of tax;
LGC) recovery of refund of taxes paid
(Sec. 64 PD 464).
Remedy against the Assessment/Appeal 3. Suit to declare invalidity of tax due
1st: within 60 days from notice of to irregularity in assessment and
assessment of provincial, city or collection (Sec. 64 PD 464)
municipal assessor to LBAA (Sec. 226 4. Suit assailing the validity of tax sale
LGC) (Sec. 83 PD 464) (Sec. 267 LGC)
2nd: within 30 days from receipt of
decision of LBAA to CBAA (Sec. 230 Condonation of Real Property Taxes
LGC) 1. By the Sanggunian
3rd: within 30 days from receipt of Real property taxes may be
decision of CBAA to Court of Tax condoned wholly or partially in a
Appeals en banc given local government unit when:
4th: within 15 days from receipt of a. There is general failure of crops;
decision of Court of Tax Appeals en b. There is substantial decrease in
banc to the Supreme Court the price of agricultural or agri-
based products; or
APPEALS IN REAL PROPERTY c. There is calamity.
TAXATION 2. By the President of the Philippines
when public interest so requires.
PROVINCIAL, CITY OR MUNICIPAL

ASSESSOR
V. TARIFF AND
within 60 days CUSTOMS CODE
Owner/Person with legal interest
must file:
1) Written Petition under Oath DEFINITIONS
2) With Supporting Documents TARIFF: Customs duties, toll or tribute
payable upon merchandise to the
Government.
LOCAL BOARD OF ASSESSMENT APPEALS
(LBAA should decide within 120 days
from receipt of petition) CUSTOM DUTIES: Tax assessed upon
merchandise from or exported to, a
within 30 days foreign country. (Garcia v. Executive
Sec., GR No. 101273, July3, 1992))
Note: Customs and tariffs are

CENTRAL BOARD OF ASSESSMENT
APPEALS synonymous with one another. They
both refer to the taxes imposed on
imported or exported wares, articles, or
within 30 days
merchandise.
Other Types of Fees Charged by the

COURT OF TAX APPEALS (EN BANC) Bureau of Customs
1. Arrastre charge
within 15 days
2. Wharfage due counterpart of
license, charged not for the use of
SUPREME COURT any wharf but for a special fund
known as the Port Works Fund.

Cabrera, Jhundee
Guillermo
1
3. Berthing fee 4. Hold possession of all imported

4. Harbor fee articles until the duties, taxes and
5. Tonnage due other charges are paid thereon.
(Sec. 1206, TCC)
Meaning and Scope of the Tariff and
Customs Laws TERRITORIAL JURISDICTION OF THE
Include not only the provisions of the BOC
Tariff and Customs Code (TCC) and 1. All seas within the jurisdiction of the
regulations pursuant thereto, but all Philippines
other laws and regulations that are 2. All coasts, ports, airports, harbors,
subject to the Bureau of Customs (BOC) bays, rivers and inland waters
or otherwise within its jurisdiction. whether navigable or not from the
As to its scope, therefore, tariff and sea. (1st par, Sec. 603, TCC)
customs laws extend not only to the
provisions of the TCC but to all other CUSTOMS DUTIES
laws as well, the enforcement of which
is entrusted to the BOC. WHEN TARIFF AND CUSTOMS APPLIED
Only after importation has begun but
THE BUREAU OF CUSTOMS before importation is terminated.
FUNCTIONS OF THE BUREAU OF Importation begins:

CUSTOMS 1) when the conveying vessel or
aircraft
1. Assessment and collection of 2) enters the jurisdiction of the
revenues from imported articles and Phil.
all other impositions under the tariff 3) with intention to unload therein
and customs laws;
2. Control smuggling and related Importation is deemed terminated:
frauds;
3. Supervision and control over the (a) upon payment of the duties, taxes
entrance and clearance of vessels and other charges due upon the articles.
and aircraft engaged in foreign
commerce; (b) and legal permit for withdrawal
4. Enforcement of TCC and related shall have been granted.
laws;
5. Supervision and control over the In case the articles are free of
handling of foreign mails arriving in duties, taxes and other charges, until
the Philippines; they have legally left the jurisdiction of
6. Supervise and control all import and the customs (Sec. 1202, TCC)
export cargoes for the protection of
government revenue; INTENTION TO UNLOAD
7. Exclusive original jurisdiction over Even if not yet unloaded, and there is
seizure and forfeiture cases under unmanifested cargo, forfeiture may take
the tariff and customs laws. place because importation has already
begun.
JURISDICTION OF COLLECTOR OF
CUSTOMS OVER IMPORTATION OF ARTICLES UNDER TCC
ARTICLES May either be:
1. Cause all articles for importation to 1. Subject to duty
be entered in the customhouse, a. Live animals and animal
2. Cause all such articles to be products;
appraised and classified, b. Vegetable products;
3. Assess and collect the duties, taxes c. Animal or vegetable fats; oils
and other charges thereon, and and their cleavage products;

Cabrera, Jhundee
Guillermo
1
prepared edible fats; animal or GR No. L-28782, September 12,

vegetable waxes; 1974)
d. Prepared foodstuffs; beverages,
spirits and vinegar; tobacco and 3. Conditionally-free from tariff and
manufactured tobacco customs duties (conditionally-free
substitutes; importation)
e. Mineral products; Those provided in Sec. 105, TCC;
f. Products of chemical or allied Those granted to government
industries; agencies, GOCCs with
g. Plastics and articles thereof; agreements with foreign
rubber and articles thereof; countries;
h. Raw hides and skins; leather, Those given to international
etc.; institutions entitled to
i. Wood and articles of wood, etc.; exemption by agreement or
j. Pulp of wood, etc.; special laws; and
k. Textiles and textile articles; Those that may be granted by
l. Articles of stone; plaster, the President upon NEDAs
cement, etc.; recommendation.
m. Footwear, headgear, etc.;
n. Natural or cultured pearls 4. Free from TC duties (duty-free)
precious/semi-precious stones; Imported goods must be
o. Base metals and articles of base entered in a customhouse at their
metals; port of entry otherwise they shall be
p. Machinery and mechanical considered as contraband and the
appliances; electric equipment; importer is liable for smuggling (See
sound recorders, etc; Sec. 101, TCC).
q. Vehicles, aircraft, vessels and All articles when imported from
associated transport equipment; any country into the Philippines shall
r. Optical, photographic, medical, be subject to duty upon each
surgical instruments, etc.; importation, even though previously
s. Arms, ammunition, parts and exported from the Philippines,
accessories; except as otherwise specifically
t. Miscellaneous manufactured provided for in the TCC or other
articles; and laws.
u. Works of art, collector's pieces
arid antiques (Sec. 104, Title 1, Liability for Customs Duties
TCC). General Rule: All importations /
exportations of goods are subject to
2. Prohibited from being imported customs duties (Sec. 105, TCC).
(Prohibited importation)
a. Absolutely prohibited such as: Exceptions:
weapons of war; gambling (1) Exemptions under the TCC;
devices; narcotics or prohibited (2) Exemptions granted to
drugs; immoral, obscene or government agencies,
insidious articles; and those instrumentalities or GOCCs with
prohibited under special laws existing contracts,
(Sec.102, TCC). commitments, agreements, or
b. Qualifiedly prohibited obligations with foreign
Where such conditions as to countries;
warrant a lawful importation do (3) Exemptions of international
not exist, the legal effects of the organizations pursuant to
importation of qualifiedly agreements or special laws; and
prohibited articles are the same (4) Exemptions granted by the Pres.
as those of absolutely prohibited of the Phil. upon
articles. (Auyong Hian vs. CTA, recommendation of NEDA (Sec.
105, TCC).

Cabrera, Jhundee
Guillermo
1
LIABILITY OF IMPORTER FOR CUSTOM DUTIES

A personal debt which can be CLASSIFICATION OF CUSTOM DUTIES
discharged only by payment in A.Regular Duties those which are
full thereof; imposed and collected merely as a
A lien upon the imported articles source of revenue.
while they are in custody or 1. Ad valorem duty: This is a duty
subject to the control of the based on the value of the
government. (Sec. 1204, TCC). imported article.
2. Specific duty: This is a duty
Extent Of Importers Liability based on the dutiable weight of
The liability of an importer is goods (either the gross weight,
limited to the value of the imported legal weight, or net weight).
merchandise. In case of forfeiture of 3. Alternating duties: This is a
the seized material, the maximum civil duty which alternates ad
penalty is the forfeiture itself. valorem and specific.
(Mendoza vs. David, GR No. L-9452, 4. Compound Duty: This is a duty
March 27, 1961) consisting of ad valorem and
specific duties.
Drawback
A device resorted to for enabling a B. Special duties those which are
commodity affected by taxes to be imposed and collected in addition to
exported and sold in foreign markets the ordinary customs duties usually
upon the same terms as if it had not to protect local industries against
been taxed at all. (Uy Chaco Sons vs. foreign competition.
Collector of Customs, GR No. 7618,
March 27, 1913) 1. Dumping duty
2. Countervailing duty
Import Entry 3. Marking duty
It is a declaration to the BOC 4. Discriminatory duty
showing particulars of the imported
article that will enable the customs NATURE OF SPECIAL CUSTOMS DUTIES
authorities to determine the correct Special customs duties are
duties. An importer is required to file an additional import duties imposed on
import entry. It must be accomplished specific kinds of imported articles under
from disembarking of last cargo from certain conditions.
vessel.
PURPOSE OF SPECIAL CUSTOMS DUTIES
Transaction value under RA NO. 8181 The special customs duties are
It is the invoice value of the imposed for the protection of consumers
goods plus freight, insurance, costs, and manufacturers, as well as Phil.
expenses and other necessary expenses. products from undue competition posed
This replaces the Home Consumption by foreign-made products.
Value as basis of valuation of goods.
SPECIAL DUTIES COMPARED

Cabrera, Jhundee
Guillermo
1
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
1. Nature Imposed upon foreign Imposed upon Imposed upon

Imposed upon goods enjoying subsidy those not goods coming
foreign products thus allowing them to properly marked from countries
with value lower sell at lower prices to as to place of that discriminate
than their fair the detriment of local origin of the against Philippine
market value to the products similarly goods. products.
detriment of local situated.
products.
2. Amount/Rate Equivalent to the 5% ad valorem Any amount not

Difference between bounty, subsidy, or of articles exceeding 100% ad
the actual price subvention. valorem of the
and the normal subject articles
value of the article.
3. Imposing Authority Secretary of Finance Commissioner of President of the

Special committee Customs Philippines
on Anti-Dumping
(composed of the
Secretary of Finance
as Chairman;
Members: the
Secretary of DTI,
and either the
Secretary of
Agriculture if article
in question is
agricultural product
or the Secretary of
labor if non-
agricultural product

Cabrera, Jhundee
Guillermo
FLEXIBLE necessary; The FUNCTIONS OF
TARIFF CLAUSE and NEDA THE TARIFF
The 3. to impose thereafter COMMISSION
President may an submits its 1. Investigativ
fix tariff rates, additional recommend e Powers
import and duty on all ation to the (Sec. 505,
export quotas, imports not President. TCC)
etc. under TCC exceeding 1. The power a. the
(See Sec. 28, ten (10%) of the administ
Art. VI, per cent ad President to ration of
Constitution valorem increase or and the
and Sec. 401, whenever decrease fiscal
TCC) necessary: the rates of and
1. to increase, import duty industri
reduce or LIMITATIONS within the al
remove IMPOSED abovementi effects
existing REGARDING oned limits of the
protective THE FLEXIBLE fixed in the tariff
rates of TARIFF CLAUSE Code shall and
import duty include the customs
(including a. Conduct by modificatio laws of
any the Tariff n in the this
necessary Commission form of country
change in of an duty. now in
classificatio investigation In such force or
n). in a public a case the which
The hearing. correspondi may
existing The ng ad hereafte
rates may Commission valorem or r be
be shall also specific enacted
increased or hear the equivalents ;
decreased views and of the duty b. the
to any recommend with respect relation
level, on ations of to the s
one or any imports between
several government from the the
stages but office, principal rates of
in no case agency or competing duty on
shall the instrumenta foreign raw
increased lity country for material
rate of concerned. the most s and
import duty The recent the
be higher Commission representati finished
than a shall submit ve period or partly
maximum of their shall be finished
one hundred findings and used as products
(100%) per recommend bases (Sec. ;
cent ad ations to 401, TCC). c. the
valorem the NEDA effects
2. to establish within thirty of ad
import (30) days valorem
quota or to after the THE TARIFF and
ban imports termination COMMISSI specific
of any of the ON (TC) duties
commodity, public and of
as may be hearings. com-
pound f. the upon regar
specific volume the dless
and ad of industri of
valorem importa es and owner
duties; tions, labor of ship,
d. all compare the while
question d with country still in
s domesti and to the
relative c pro- submit custo
to the duction reports dy or
arrange and of its contr
ment of consum investig ol of
schedul ption; ation as the
es and g. conditio pro- Gover
classific ns, vided. nmen
ation of causes, t
articles and 2. Administrat availe
in the effects ive d of
several relating Assistance when
schedul to to the the
es of competi President impor
the tion of and tation
tariff foreign Congress is
law; industri (Sec. 506, neith
e. the es with TCC) er
tariff those of prohi
relation the bited
s Philippi nor
between nes, impro
the includ- perly
Philippi ing TAX made
nes and dumping REMEDIES 2. Adminis
foreign and cost UNDER THE trative
countrie of TARIFF AND Fines
s, producti CUSTOMS and
commer on; and Forfeitu
cial h. in CODE (TCC) res
treaties, general, appl
preferen to TAX REMEDIES ied
tial investig OF THE whe
provisio ate the GOVERNMENT n
ns, operatio the
economi n of A. imp
c customs ADMINISTRATIV orta
alliance and E tion
s, the tariff 1. Tax is
effect laws, Lien unla
of includin (Sec. wful
export g their 1204 ,
bounties relation TCC) and
and to the attac it
pref- national hes may
erential rev- on be
transpor enues, the exer
tation their goods cise
rates; effect , d
eve or in raba 09,
n the nd. May
whe han The 16,
re ds com 198
the of a ple 3)
artic pers men 3. Reducti
les on tary on of
are who if customs
not is coll duties /
or awa ater compro
no re al mise
long ther use subj
er in eof of ect
Cust (Sec the to
om . Cess appr
s 253 na oval
cust 1 & plan of
ody 253 e Sec.
- 0, for of
unle TCC smu Fina
ss ) ggli nce
the und ng (Sec
imp er oper .
orta Sec. atio 709,
tion 253 n is 231
is 0(a) suffi 6
mer of cien TCC
ely the t for )
atte TCC it to
mpt , in be 4. Seizure,
ed orde dee Search,
in r to med Arrest
whic warr to (Sec.
h ant hav 2205,
case forf e 2210,
it eitu bee 2211
may re, n TCC)
be it is used
effe not in B. JUDICIAL
cted nec smu 1. this
only essa ggli rem
whil ry ng. edy
e that (Lla is
the the mad nor
goo vess o mall
ds el or vs. y
are aircr Com avai
still aft miss led
with mus ione of
in t r of whe
the itsel Cust n
Cust f oms the
oms carr , GR tax
juris y No. lien
dicti the L- is
on cont 288 lost
by A. neo nd
the ADMINISTRATIV us may
rele E or be
ase 1. Protest illeg sub
of a. Any al mitt
the imp by ed
goo orte eve by
ds r or nts the
C inte occu imp
i rest rrin orte
v ed g r in
i part afte abat
l y if r eme
A diss the nt
c atisf pay case
t ied men s on
i with t. miss
o publ b. Tax ing
n ishe pay pack
d er ages
( valu with ,
S e in defi
e with 15 cien
c in days cies
. 15 fro in
days m the
1 fro asse cont
2 m ssm ents
0 date ent. of
4 of Pay pack
, publ men ages
icati t or
T on, und shor
C or er tage
C with prot s
) in 5 est befo
C days is re
r fro nec arriv
i m essa al of
m the ry. the
i date (Sec goo
n the . ds in
a imp 230 the
l orte 8, Phili
A r is 221 ppin
c enti 0 es,
t tled TCC artic
i to ) les
o refu 2. Refund lost
n nd if a. A or
pay writ dest
TAX REMEDIES men ten roye
OF THE t is clai d
TAXPAYER rend m afte
ered for r
erro refu such
arriv allo Com 240
al, wed miss 3
dea in ione TCC
d or any r ,
inju case afte Sec.
red whe r 7
ani re noti RA
mals imp ficat 112
, orta ion 5,
and tion by as
for is Coll ame
man abso ecto nde
ifest lutel r of d by
cleri y his Sec.
cal proh deci 9
erro ibite sion RA
rs; d, (Sec 928
and or . 2)
b. Dra the 231 Sinc
wba rele 3 e
ck ase TCC Sec.
case wou ). 11
s ld of
whe be B. JUDICIAL RA
re cont 1. Appeal 1125
the rary With as
goo to in ame
ds law, 30 nde
are or days d by
re- whe fro RA
exp n m 9282
orte ther rece emp
d e is ipt owe
(Sec an of rs
. actu deci the
170 al sion Tax
1- and of Cour
170 inte the t to
8 ntio Com issu
TCC nal miss e
). frau ione inju
3. Settlem d r or ncti
ent of (Sec Secr ons,
any . etar it
seizure 230 y of wou
by 7 Fina ld
paymen TCC nce app
t of fine ). to ear
or the that
redemp 4. Appeal divis an
tion With ion imp
But in of orte
this 15 the r
shall days CTA may
not to (Sec app
be the . eal
with l g
out e o d
first o a
payi a d y
ng n s s
the
duti i o b
es, m r u
such p d. h t
as in o a
seiz r v
i
ure, t i
t
but n
not e g
in n s
prot t h
f
est r a
i
case y l
l
s. l
e
2. Action w n
d
to i o
questio t t
a
n the h n
legality i b
of n e
e
seizure
n
3. Abando 3 s
t
nment 0 o
r
(Sec.
y
1801 d e
TCC) a f
a. expr y f
f
essl s a
e
y i
c
(Sec f l
t
. r s
i
180 o v
1 m t e
TCC o
) t
u
b. impl h c n
iedl e l t
y a i
c. f d i l
a i m s
i s
o
l c w
u h i
r a d
t e
e r h
g c
i l
t e n
o a
o r
1 e
f f
5 d
i
TWO KINDS OF when the raw
b PROCEEDINGS material PROCEDURE IN
y IN THE imported is CUSTOMS
BUREAU OF utilized in the PROTEST CASES
t production of
CUSTOMS
h finished The Collector
(BOC) products acting within his
e
subsequently jurisdiction shall
A. CUSTOMS exported and a cause the
c PROTEST CASES duty drawback imported goods
o is claimed. to be entered at
l DEFINITION: the
l These are cases Requirements customhouse
e which deal for making a
c solely with protest The Collector
t liability for
o customs duties, shall assess,
1. Must be in liquidate, and
r fees, and other writing collect the
. charges. 2. Must point duties thereon,
out the or detain the
( Note: Before particular
S filing a protest, said goods if the
decision or party liable
e there must first ruling of the
c be a payment does not pay the
Collector of same
. under protest. Customs to
which
1 When customs exception is The party
8 protest taken or adversely
0 applicable objection affected (the
1 made; protestant) may
, The customs 3. Must state file a written
protest is the grounds protest on his
required to be relied upon foregoing
a
filed only in for relief; liability with the
s
case the liability 4. Must be Collector within
of the taxpayer limited to 15 days after
a for duties, paying the
m the subject
taxes, fees and matter of a liquidated
e other charges is amount (the
n single
determined and adjustment; payment under
d the taxpayer protest rule
e 5. Must be
disputes said filed when applies)
d liability. the amount
claimed is Hearing within
b When Customs paid or 15 days from
y protest NOT within 15 receipt of the
required days after duly presented
R the protest. Upon
A Where there payment; termination of
is no dispute, 6. Protestant the hearing, the
7 but the claim must furnish Collector shall
6 for refund arises samples of decide on the
5 by reason of the goods under same within 30
1 happening of protest days
) supervening when
events such as required.
appeal Ferry, Inc., GR
his own Nos. 31776-78, 2. The
If decision is adverse to If decision is adverse to
decision October 21, Philippines
the protestant
. 1993) is divided
3. Lifebloo into various
Appeal with the d SMUGGLING ports of
Commissioner within Theory 1. An act of entry
15 days from notice any entry other
B. SEIZURE AND person than port of
FORFEITURE who entry, will
Appeal with the Court CASES shall: be
of Tax Appeals Division a. Fraudul SMUGGLING
within 30 days from DEFINITION: ently .
notice These refer to import
matters any PORT OF ENTRY
involving article A
Appeal with the smuggling. It isis contrar domestic port
CTA en banc Secretary of Finance
administrative y to open to both
and civil in law, or foreign and
Appeal by certiorari nature and
appeal to the CTA and is b. Assist in coastwise trade
with the Supreme directed against so including
Court within 15 days the on
procedure resthe left.
or doing, airport of
from notice imported or entry. (Sec.
articles and c. Receive 3514, TCC)
entails a , ALL
determination conceal articles
of the legality , buy, imported into
Reasons for the of their sell, the Philippines
automatic importation. facilitat whether subject
review of These are e, to duty or not
decisions actions in rem. transpor shall be entered
adverse to the Thus, It t, through a
Government is of no defense conceal customshouse at
that the owner or sell a port of entry.
1. To of the vessel such ENTRY:
protect sought to be article in
the forfeited had no knowing Customs
interest actual its law
of the knowledge that illegal means-
Govern his property was importa 1.
ment used illegally. tion the
2. A The absence or (Sec. doc
favorabl lack of actual 3601, um
e knowledge of TCC) ents
decision such use is a d. Export file
will not defense contrar d at
be personal to the y to the
appeale owner himself, law. Cus
d by the which cannot in (Sec. tom
taxpaye any way absolve 3514, s
r and the vessel from TCC) hou
certainl the liability of se
y a forfeiture. 2.
Collecto (Commissioner the
r will of Customs vs. sub
not Manila Star mis
sion (Sec. 3514, chartered and was a
and TCC) cannot be consenting
acc confiscated. party, it
ept may also be
anc RIGHT OF forfeited.
e of EVIDENCE FOR CUSTOMS 2. If a motor
the CONVICTION IN OFFICERS TO vehicle is
doc SMUGGLING EFFECT hired to
um CASES SEIZURE & carry
ent Mere ARREST (SEC. smuggled
s possession of 2205) goods but it
3. the article in 1. May seize has no
the question - any vessel, Certificate
pro unless aircraft, of Public
ced defendant could cargo, Convenience
ure explain that his article, (CPC), it is
of possession is animal or not a
pas lawful to the other common
sing satisfaction of movable carrier. It is
goo the court (Sec. property thus subject
ds 3601, TCC). when the to
thro Payment of the same is forfeiture,
ugh tax due after subject to and lack of
the apprehension is forfeiture or personal
cust not a valid liable for knowledge
oms defense any time as of the
hou (Rodriguez vs. imposed owner or
se Court of under tariff the carrier
(Ro Appeals, GR No. and customs is not a
drig 115218, laws, rules defense to
uez September 18, & forfeiture.
vs. 1995) regulations
Cou 2. May PROPERTIES
rt THINGS exercise NOT SUBJECT
of SUBJECT TO such powers TO FORFEITURE
App CONFISCATION only in IN THE
eals IN SMUGGLING conformity ABSENCE OF
, CASES with the PRIMA FACIE
GR laws and EVIDENCE
No. Anything that provisions of The
115 was used for the TCC forfeiture of the
218 smuggling is vehicle, vessel
, subject to COMMON or aircraft shall
Sep confiscation, CARRIERS; not be effected
tem like the vessel, FORFEITURE if it is
ber plane, etc. 1. Common established that
18, (Llamado vs. carriers are the owner
199 Commissioner generally thereof or his
5) of Customs, GR not subject agent in charge
No. L-28809, to forfeiture of the means of
CONTRABAND: May 16, 1983). although if conveyance
Articles of the owner used as
prohibited Exception: has aforesaid has no
importations or Common knowledge knowledge of
exportations. carriers that are of its use in or
not privately smuggling participation
in the unlawful which b. As a dutiable
act: constitu consequ goods.
Provided, tes a ence No petitions
however, that a violation they for
prima facie of the may be certiorari,
presumption tariff pursued prohibition
shall exist and in the or
against the customs Phil. mandamus
vessel, vehicle laws c. With filed with
or aircraft under b. a jurisdict the RTC will
any of the pursuit ion over lie because
following of such them at these are in
circumstances: vessel any reality
1. If the began place attempts to
conveya within therein review the
nce has the for the Commission
been jurisdict enforce er's
used for ional ment of actuations.
smuggli waters the law. Neither
ng at which (2nd par. replevin
least (i) may Sec. filed with
twice cont 603, the RTC will
before; inue TCC) issue.
2. If the bey Rationale:
owner is ond Doctrine of
not in the REGIONAL Primary
the mari TRIAL COURTS Jurisdiction
business time (RTC) .
for zone VS. Even if a
which , BUREAU OF Customs
the and CUSTOMS (BOC) seizure is
conveya (ii) the illegal,
nce is vess The RTCs do exclusive
generall el not have jurisdiction
y used; may jurisdiction (to the
and be over seizure exclusion of
3. If the seiz and regular
owner is ed forfeiture courts) still
financial on proceedings belongs to
ly not in the conducted the Bureau
a high by the BOC of Customs
position seas and to (Jao v.
to own . interfere Court of
such with these Appeals, GR
conveya 2. Over proceedings No. 104604,
nce. Imported . The October 6,
Articles Collector of 1995).
DOCTRINE OF a. There is Customs has
HOT PURSUIT a exclusive GOODS IN
Requisites: violation jurisdiction CUSTOMS
1. Over of the over all CUSTODY
Vessels tariff questions BEYOND REACH
a. An act is and touching on OF
done in customs the seizure ATTACHMENT
Phil. laws and Goods in
Waters forfeiture of the customs
custody pending Comm. on h s
payment of Audit e p
customs duties e
are beyond the Issuance by B c
reach of the O t
attachment. As Collector of C o
long as the a warrant of , r
importation has detention s
not been d ,
terminated, the i
imported goods Notification s a
remain under to owner or t n
the jurisdiction importer r d
of the Bureau of i
Customs. Formal c g
(Viduya vs. hearing t u
Berdiago, GR e
No. L-29218, District c s
October 29, collector o t
1976) renders his l s
decisions l
ADMINISTRATIV e o
E AND JUDICIAL c f
PROCEDURES
t
If decision is not o t
RELATIVE TO
favorable to the r h
CUSTOMS
aggrieved owner or s e
SEIZURES AND
importer ,
FORFEITURES
B
Determinati Appeal by the p O
on of aggrieved owner or o C
probable importer l ;
cause and i 2)
issuance of c offic
warrant PERSONS e e
HAVING POLICE r
AUTHORITY TO o s
Actual
ENFORCE THE f
seizure of
TARIFF & f o
the articles
CUSTOMS LAWS i f
AND EFFECT c
Listing of SEARCHES, e t
description, SEIZURES AND r h
appraisal ARRESTS (SEC. s e
and 2203, TCC) ,
classificatio 1) P
n of seized offic a h
property i g i
a e l
Report of l n .
seizure to s t
the Comm. s N
of Customs o , a
and the f v
Chairman, i y
t n
a 3)
n a offic p
d g i e
e a r
o n l f
t c s o
h i r
e e o m
r s f a
n
m w t c
e h h e
m e e s
b n
e B o
r a I f
s u R
t t
o h o h
f o n e
r i
t i a r
h z l
e e l d
d c u
A a t
F b s i
P y e e
s s
a t ,
n h f
d e a w
l h
n C l e
a o i n
t m n
i m g t
o i h
n s w e
a s i
l i t p
l o h a
a n i y
w e n m
r e
e t n
n o h t
f f e
o o
r C r f
c u e
e s g i
m t u n
e o l t
n m a e
t s r r
n o c or affidavit,
a t or the
l e i wrongful
t f n making or
a f g delivery by
x e the same
e c u persons of
s t n any invoice,
d letter or
a a e paper - all
r r r touching on
e r the
e t importation
i s h or
n t e exportation
v s of
o d merchandis
l a i e.; and
v n r 2. That such
e d e declaration,
d c affidavit,
; e t invoice,
4) x i letter or
offic e o paper is
e c n false.
r u (Farolan,
s t o Jr. vs.
e f Court of
g Tax
e p t Appeals, GR
n r h No. 42204,
e o e January 21,
r c 1993)
a e C
l s o PLACES WHERE
l s l SEARCHES &
y e l SEIZURES MAY
s e BE CONDUCTED
e c (a) enclosur
m o t es
p f o (b) dwelling
o r house
w c . (there
e o must be
r u REQUIREMENTS search
e r FOR CUSTOMS warrant
d t FORFEITURE issued
s 1. The by a
b , wrongful judge)
y making by (c) vessels
w the owner, or
l h importer, aircrafts
a e exporter or and
w n consignee of persons
any or
t a declaration articles
conveye Manifests are er of the sale, the
d also required for the delinquent
therein articles found property importer may
(d) vehicles, on vessels or to the settle his
beasts aircraft engaged person obligations with
and in coastwise offering the Bureau of
persons trade. (Rigor to Customs, in
(e) persons vs. Rosales, GR redeem which case the
arriving No. L-33756, would aforesaid
from October 23, be articles may be
foreign 1982) contrary delivered upon
countrie to law, payment of the
s. UNMANIFESTED or corresponding
CARGO IS 3. when duties and taxes
Note: Burden SUBJECT TO there is and compliance
of proof in FORFEITURE fraud. with all other
seizure or whether the act (Sec. legal
forfeiture is on of smuggling is 2307, requirements
the claimant. established or TCC) (Sec. 1508,
(Sec. 2535, not under the TCC)
TCC) principle of res
ipsa loquitur. It ABATEMENT
REQUIREMENTS is enough that The
FOR MANIFEST the cargo was ACQUITTAL IN reduction or
A unmanifested CRIMINAL non-imposition
manifest in and that there CHARGE NOT of customs
coastwise trade was no showing RES JUDICATA duties on
for cargo and that payment of IN SEIZURE OR certain
passengers duties thereon FORFEITURE imported
transported had been made PROCEEDINGS materials as a
from one place for it to be Reasons: result of:
or port in the subject to 1) Criminal 1) Damage
Philippines to forfeiture. proceedings incurred
another is are actions during
required when SETTLEMENT in personam voyage;
one or both of OF FORFEITURE while 2) Deficien
such places is a CASES seizure or cy in
port of entry General Rule: forfeiture contents
(Sec. 906, TCC). Settlement of proceedings package
Manifests are cases by are actions s
also required of payment of fine in rem. 3) Loss or
vessel from a or redemption 2) Customs destruct
foreign port of forfeited compromise ion of
(Sec. 1005, property is does not articles
TCC). allowed. extinguish after
criminal arrival
IS MANIFEST Exceptions: liability. 4) Death or
REQUIRED 1. the (People vs. injury of
ONLY FOR importa Desiderio, animals
IMPORTED tion is GR No. L-
GOODS? absolute 208005, FRAUDULENT
NO. ly November PRACTICES
Articles subject prohibit 26, 1965) CONSIDERED AS
to seizure do ed or CRIMINAL
not have to be 2. the Note: At any OFFENSES
imported goods. surrend time prior to AGAINST
CUSTOMS duties on Consists of a temporarily
REVENUE LAWS the Presiding therein.
1) Unlawful exportation Justice and
importation; of mdse. five (5) POWERS
2) Entry of greater than Associate 1. to
imported or that legally Justices administ
exported due May sit en er
article by thereon. banc or in oaths;
means of (Sec. 3602, two (2) 2. to
any false or TCC) Divisions, receive
fraudulent each evidenc
practices, Division e;
invoice, VI. COUR consisting of 3. to
declaration, three (3) summon
affidavit, or T OF Justices. witnesse
other TAX The s by
documents; Presiding subpoen
3) Entry of
APPEALS Justice and a;
goods at less (RA 1125 the most 4. to
than their as Senior require
true weights Associate producti
or measures amended Justice shall on or
or upon a by RA serve as papers
classificatio chairmen of or
n as to
9282) the two docume
quality or divisions nts by
value; See ANNEX subpoen
4) Payment of O for QUORUM a duces
less than the comparison Four (4) tecum;
amount due; of CTA as Justices 5. to
5) Filing any created by shall punish
false or RA No. 1125 constitute a contem
fraudulent and the quorum for pt;
claim for amendment sessions EN 6. to
the payment s made by BANC. promulg
of drawback RA No. Two (2) ate
or refund of 9282. Justices for rules
duties upon sessions of a and
the DIVISION. regulati
exportation NATURE AND PROVIDED: in ons for
of POWERS case the the
merchandise required conduct
; or ELEVATION OF quorum cannot of its
6) Filing any RANK be had due to business
affidavit, shall be of any vacancy, ;
certificate the same level disqualification 7. to
or other as the Court of , inhibition, assess
document to Appeals, disability, or damage
secure to possessing all any other against
himself or the inherent lawful cause, appellan
others the powers of a the Presiding t if
payment of Court of Justice Justice shall appeal
any designate any to CTA
drawback, COMPOSITION Justice of other is found
allowance or Divisions of the to be
refund of Court to sit frivolous
or including of by
dilatory; stocks and Internal the
8. to other Revenu BIR;
suspend securities, e (b) Inaction
the debts, 1. in by the
collectio credits, case Commis
n of the bank s sioner
tax accounts, invo of
pending and lvin Internal
appeal; interests in g Revenu
and and rights disp e
9. to to personal uted 1. in
render property asse case
decision and/or ssm s
s on 2. levy the ents invo
cases real , lvin
brought property of refu g
before such nds disp
it persons in of uted
10. to issue sufficient inte asse
order quantity to rnal ssm
authoriz satisfy the reve ents
ing tax or nue ,
distraint charge taxe refu
of together s, nds
personal with any fees of
property increment or inte
and levy thereto othe rnal
of real incident to r reve
property delinquency char nue
. ges, taxe
DISTRAINT OF pen s,
PERSONAL This remedy altie fees
PROPERTY AND shall not be s in or
LEVY OF REAL exclusive and rela othe
PROPERTY shall not tion r
Upon the preclude the ther char
issuance of any Court from eto, ges,
ruling, order or availing of other 2. or pen
decision by the means under othe altie
CTA favorable the Rules of r s in
to the national Court. mat rela
government, the ters tion
CTA shall issue JURISDICTIO arisi ther
an order N ng eto,
authorizing the und 2. or
BIR, through the I. EXCLUSIVE er othe
Commissioner: APPELLATE the r
JURISDICTION NIRC mat
1. to seize and TO REVIEW or ters
distraint BY APPEAL othe arisi
any goods, r ng
chattels, or (a) Decision laws und
effects and s of the adm er
the personal Commis inist the
property, sioner ered NIRC
or original oth cases
othe or er involvin
r appellat pen g the
laws e alti assessm
adm jurisdict es ent and
inist ion; in taxation
ered (d) Decision rela of real
by s of the tion property
the Commis ther originall
BIR, sioner eto, y
whe of 2. or decided
re Custom oth by the
the s er provinci
NIRC 1. in mat al or
prov cas ters city
ides es arisi board of
a invo ng assessm
spec lvin und ent
ific g er appeals;
peri liab the (f) Decision
od ility Cus s of the
for for tom Secreta
acti cust s ry of
on, oms Law Finance
in duti or on
whic es, oth customs
h fees er cases
case or law elevated
the oth s to him
inac er ad automat
tion mo min ically
shall ney iste for
be cha red review
dee rges by from
med , the decision
a seiz Bur s of the
deni ure, eau Commiss
al; det of ioner of
(c) Decision enti Cus Customs
s, orders on tom which
or or s; are
resoluti rele (e) Decision adverse
ons of ase s of the to the
the RTC of Central Govern
in pro Board ment
local tax pert of under
cases y Assess Section
originall affe ment 2315 of
y cte Appeals the
decided d, in the Tariff
or fine exercise and
resolved s, of its Customs
by them forf appellat Code;
in the eitu e (g) Decision
exercise res jurisdict s of the
of their or ion over Secreta
ry of appeal and recover
Trade the penaltie y of
and decision s civil
Industr to claimed liability
y in the impose is less for
case of or not than taxes
nonagric to one and
ultural impose million penaltie
product, said pesos s shall
commod duties. (P1, at all
ity or 000, times
article, II. 000. 00) be
and the or simulta
Secretar JURISDICTI where neously
y of ON OVER there is institut
Agricult CASES no ed with,
ure in INVOLVING specifie and
the case CRIMINAL d jointly
of CASES amount determi
agricult claimed ned in
ural (a) Exclusive - the the
product, original offenses same
commod jurisdicti or proceed
ity or on over penaltie ing by
article, all s shall the
criminal be tried CTA,
cases by the the
involvin arising regular filing of
g from courts the
dumping violations and the criminal
and of the jurisdict action
counter NIRC or ion of being
vailing Tariff and the CTA deemed
duties Customs shall be to
under Code and appellat necessa
Secs. other laws e. rily
301and administe Any carry
302, red by the provisio with it
respecti BIR or the n of law the
vely, of Bureau of or the filing of
the Customs Rules of the civil
Tariff Provide Court to action,
and d the and no
Customs howeve contrar right to
Code, r, y reserve
and where notwith the
safeguar the standin filing of
d principa g, the such
measure l criminal civil
s under amount action action
RA No, of taxes and the separat
8800, and corresp ely from
where fees, onding the
either exclusiv civil criminal
party e of action action
may charges for the will be
recogni decided principa of RTC
zed. by the l in tax
Metropo amount collecti
(b) Exclusive litan of taxes on cases
appellate Trial and originall
jurisdiction Courts, fees, y
in criminal Municip exclusiv decided
offenses al Trial e of by
Over Courts, charges them,
appeals and and in their
from Municip penaltie respecti
the al s, ve
judgme Circuit claimed territori
nts, Trial is less al
resoluti Courts than jurisdict
ons or in their one ion.
orders respecti million Over
of the ve pesos (P petition
RTC in jurisdict 1, 000, s for
tax ion. 000. 00) review
cases shall of the
originall III. be tried judgem
y by the ents,
decided JURISDICTI proper resoluti
by ON OVER Municip ons or
them, TAX al Trial orders
in their COLLECTIO Court, of the
respecti N CASES Metrop RTC in
ve (a) olitan the
territori Exclusi Trial exercise
al ve Court, of their
jurisdict origina and appellat
ion. l Regiona e
Over jurisdic l Trial jurisdict
petition tion in Court. ion over
s for tax tax
review collecti (b) collecti
of the on cases Exclusi on cases
judgme involvin ve originall
nts, g final appella y
resoluti and te decided
ons, or executo jurisdic by the
orders ry tion in Metropo
of the assessm tax litan
RTC in ents for collecti Trial
the taxes, on Courts,
exercise fees, cases Municip
of their charges Over al Trial
appellat and appeals Courts
e penaltie from and
jurisdict s. the Municip
ion over In judgme al
tax collecti nts, Circuit
cases on cases resoluti Trial
originall where ons or Courts,
y the orders in their
respecti When the A. Any party
ve Within 30 Regiona adversely
jurisdict days after the l Trial affected by
ion. receipt of such Courts a ruling,
decision or this order or
In criminal ruling or after appeal decision of a
and the expiration shall be Division of
collection of the period heard the CTA may
cases, the fixed by law for by a file a motion
Government action. Division for
may directly of the reconsiderat
file the said Modes of CTA ion or new
cases with Appeal (2) By filing a trial before
the CTA (1) By filing a petition for the same
covering petition for review Division
amounts review under a within 15
within its under a procedure days from
exclusive procedure analogous notice
and original analogous to to that
jurisdiction. that provided
provided for for under
See ANNEX under Rule Rule 43 of
P 42 of 1997 1997 Rules B. Any party
Comparativ Rules on on Civil adversely
e Diagrams Civil Procedure affected by
on CTA Procedure decision a resolution
jurisdiction. decision s or of a Division
, ruling, rulings of the CTA
or of the on a motion
inaction Central for
of the Board reconsiderat
Other Commis of ion or new
Matters sioner Assessm trial may
Those of ents file a
controversies Internal Appeals petition for
which can be Revenue and the review with
considered , Regiona the CTA en
within the scope Commis l Trial banc.
of the function sioner Courts
of the BIR / BOC of in the C. Any party
under ejusdem Customs exercise adversely
generis rule , the of its affected by
(e.g. action for Secretar appellat a decision
the nullity of y of e or ruling of
distraint and Finance, jurisdict the CTA en
levy; the ion banc may
questioning the Secretar this file with the
propriety of the y of appeal Supreme
assessment; Trade shall be Court a
collection of and heard verified
compromise Industry by the petition for
penalties). or the CTA en review on
Secretar banc. certiorari
y of pursuant to
APPEAL Rule 45 of
Agricult Procedure
ure or the 1997
Rules on Only A Final Final resolution
Civil Decision Is decision wherein it was
Procedure. Appealable To cannot be held that in
The Court Of implied from the absence of
Thirty (30) day Tax Appeals issuance of explicit
Prescriptive warrant of statutory
Period for Preliminary distraint and provisions to the
Appeal collection levy, unless contrary, the
Starts to run letters, post it is issued Government
from the date reporting after a must follow the
the taxpayer notices and request for same rules of
receives the pre- reconsiderat procedure which
appealable assessment ion. bind private
decision. If the notices are GENERAL RULE: parties.
taxpayers not New issues (Commissioner
request for appealable, cannot be raised vs. Procter and
reconsideration because for the first Gamble, GR No.
(i.e., the they are not time on appeal. 66838,
protest is the final December 2,
denied or the decision of EXCEPTIONS: 1991,
original the a. Defense of Resolution)
assessment is Commission prescription
maintained, the er. Reason: This Tax collection
appealable An is a Not Suspended
decision is the assessment statutory during Appeal
decision denying can be right.
the request for appealed if (Visayan General Rule:
reconsideration. taxpayer Land No
The said does not Transportat appeal taken to
period is seek a ion vs. the CTA shall
jurisdictional reconsiderat Collector) suspend the
and non- ion. b. Errors of payment, levy
extendible. At times administrati or distraint,
Requests or there is an ve officials and/or sale of
motions for exchange of Reason: any property of
reconsideration, communicati State can the taxpayer.
however, ons between never be in
operate to taxpayer estoppel Exception: The
suspend the and and CTA is
running of the Commission lifeblood empowered to
period to er states theory. suspend the
appeal. A pro that his (Commissio collection of
forma request action is ner vs. internal revenue
for final, then, Procter and taxes and
reconsideration period for Gamble custom duties
or one which is appeal Phils. Mfg. only when there
directed to the begins to Corp, GR was a
Secretary of run. No. 66838, c) showing
Finance does Commission April 15, that
not suspend the er must 1988) collection
running of the state that of the tax
30-day his decision NOTE: However, may
reglementary is final, for this was jeopardiz
period. period of reversed in e the
appeal to Supreme Courts interest
run. subsequent of the
governme However, filing a claim for fact are
nt and / Sec. 218 of refund with the entitled to
or the the Tax Commissioner the highest
taxpayer; Code and for filing a respect.
d) deposit of provides no case with the (Raymundo
the court may CTA. The two- vs. de Joya,
amount grant year period for GR No. L-
claimed injunction both starts from 27733,
or file a to restrain the date after December
surety collection the payment of 3, 1980)
bond for of any tax, the tax or The
not more fee or penalty, or from Supreme
than charge the approval of Court will
double imposed by the application not set
the Tax Code. for credit. aside
amount of The conclusions
tax with provision in Observation: If reached by
the Court Tax Code we are not Tax Court
when refers to going to allow which by
required; courts other the taxpayer to the very
and than the file a refund nature of its
e) showing CTA. before the CTA function, is
by (Blaquera and let him wait dedicated
taxpayer vs. for the CIRs exclusively
that Rodriguez, decision, and to the
appeal is GR No. L- the latter failed consideratio
not 11295, to render a n of tax
frivolous March 29, decision within problems
nor 1958) the 2-year and has
dilatory. Appeal to period, the said developed
the CTA taxpayer can no an expertise
Can The CTA does not longer file a on the
Enjoin automatical refund before subject,
Collection of ly suspend the CTA because unless there
Taxes? collection his right to has been an
unless CTA appeal has abuse or an
Sec. 11 of issues prescribed. improvident
RA No. 1125 suspension exercise of
as amended order at any Weight of authority on
by Sec. 9 of stage of Decision of CTA its part.
RA No. 9282 proceedings (Commissio
grants CTA . Decisions of ner vs.
power to Tax Court Court of
suspend Simultaneous have Appeals &
collection filing of an persuasive Atlas
of tax if application for effect and Consolidate
such refund or may serve d, GR No.
collection credit and as judicial 86785,
works to institution of a guides. November
serious case before the They have 21, 1991)
prejudice of CTA allowed more
either persuasive
taxpayer or The law value than
VII.VALU
government fixes the same BIR Rulings. EADDED
. period of two CTAs
(2) years for findings of
TAX January imports goods importation of
1998) shall be subject course.
(VAT) to the value- The rule of
TITLE IV TRANSACTIONS added tax (VAT) regularity, to
COVERED BY imposed in
OF NIRC VAT: Sections 106 to
the contrary
notwithstanding
1. Sale of 108 of the
DEFINITION: The , services as
Commod National
value-added tax defined in this
ities or Internal
is an indirect Code rendered
Goods Revenue Code.
tax and the in the
(in the
amount of tax Philippines by
course IN THE
may be shifted non-resident
of trade COURSE OF
or passed on to foreign persons
or TRADE OR
the buyer, shall be
business BUSINESS
transferee or considered as
only) The regular
lessee of the being course of
2. Sale of conduct or
goods, trade or
Services pursuit of a
properties or business.
(in the commercial or
services. This course an economic Importation is
rule shall of trade activity, subject to VAT
likewise apply or including regardless of
to existing business transactions whether or not
contracts of sale only) incidental it is in the
or lease of 3. Exportat thereto, by any course of trade
goods, ion (in person or business
properties or the regardless of
services at the The reason
course whether or not for the rule is to
time of the of trade the person
effectivity of protect our
or engaged therein local or
Republic Act No. business is a non-stock,
7716. domestic goods
only) nonprofit or articles and
4. Importa private to regulate the
VAT replaced tion organization
Sales Tax as entry or
(whethe (irrespective of introduction of
imposed by r or not the disposition
previous Tax foreign articles
in the of its net to our local
Laws. course income and market.
of trade whether or not Regulation is
HISTORY: or it sells
a. Executiv one of the
business exclusively to purposes of
e Order ) members or
No. 273 Taxation.
their guests), or
b. Republic PERSONS LIABLE government
Act No. FOR VAT entity. Tax Rates:
7716 Any person 1. 10% - the
c. Republic Therefore if rate used in
who, in the
Act No. the disposition sale of
course of trade
8241 of goods or commodities
or business,
d. Republic services is NOT and goods,
sells barters,
Act No. in the course of sale of
exchanges,
8424 trade or services,
leases goods or
(took business then it and
properties,
effect is not subject to importation.
renders
on 1 VAT; with the 2. Zero-rated
services, and exception of (0%) - the
any person who
rate used in That where zero-rated and non-
exportation. the customs (0%) as food
duties are provided in products
determined Section are VAT-
MANNER OF on the basis 108(B) exempt as
COMPUTING of the long as
THE VAT: quantity or REGISTRATION these
A. 10% rate of volume of UNDER THE products
Tax the goods, VAT SYSTEM are in its
the value- (SECTION 236 original
1. In sale of added tax OF THE NIRC) state. The
commoditie shall be simple
s and goods, based on General Rule: process of
10% is the landed Failure to preparation
multiplied cost plus register is or
with the excise subject to preservation
Gross Selling taxes, If temporary for the
Price. any. closure of the market such
2. In sale of customs establishment as freezing,
services, duties. for 5 days as drying,
10% is provided in salting,
multiplied B. Zero-rated Section 115(b). broiling,
with the (0%) rate of roasting,
Gross tax Exception: It smoking, or
Receipts. does not apply stripping
3. In 1. Export Sales to an exporter does not
importation, as provided who fails to remove the
10% is in Section register. The product
multiplied 106(A)(2)(a) effect is, from its
with the 2. Foreign instead of category of
rates used Currency treating the being in its
by the Denominate transaction as original
Bureau of d Sale as zero-rated (0%), state.
Customs in provided in it is treated as However,
imposing Section 106 an exempt even if the
tariff and (A)(2)(b) transaction. products
customs 3. Sale to were no
duties plus persons or What is the longer in its
customs entities difference? In original
duties, which is VAT zero-rated (0%) state, it can
excise exempt transactions, still be VAT-
taxes, if under tax credit is exempt
any, and special laws available. under
other or However, in Section
charges, internationa exempt 109(r), if
such tax to l transactions, sold by
be paid by agreements tax credit is not agricultural
the to which the available. cooperative
importer Philippines s duly
prior to the is a registered
release of signatory as EXEMPT by
such goods provided in TRANSACTIONS Cooperative
from Section 106 (SECTION 109): Developmen
customs (A)(2)(c) 1. In Section t Authority.
custody: 4. Transactions 109(a) and 2. Under
Provided, subject to (c), food Section
109(m), lease of real exceed where such
private property to P550,000.00 goods are
educational be . subsequentl
institutions exempted y sold,
are exempt from VAT, 7. Section transferred
from VAT if the 109(z) or
duly transaction provides exchanged
accredited must NOT that the in the
by the DECS be sale or lease Philippines
or by the conducted of goods or to non-
CHED. In in the performanc exempt
case of ordinary es of persons or
government course of services entities, the
educational trade or other than purchasers,
institution, business. It those transferees
no complement mentioned or
accreditatio s Section in the recipients
n is 106(A)(1)(a) preceding shall be
required. where it paragraphs considered
states that are VAT the
3. in order for exempt if importers
the sale or the Gross thereof,
Transaction lease of real Annual who shall be
s in the property to Receipts do liable for
field of Arts be covered not exceed any internal
are VAT- by VAT, it P550,000.00 revenue tax
exempt must be . However, on such
only, as made in the the importation
provided in ordinary limitation of . The tax
Section course of P550,000.00 due on such
109(n), if trade or does apply importation
the seller is business. for those shall
the artist transactions constitute a
himself or 6. Revenue from lien on the
the artists Regulations Section goods
services No. 6-97 109(a) to superior to
performed adds a (y), except all charges
for the requirement (x) because or liens on
production in order for Revenue the goods,
of such the lease of Regulations irrespective
works. residential No. 6-97 of the
units with a imposes a possessor
4. Section monthly P550,000.00 thereof.
109(p) rental of limitation.
makes not more TRANSACTIONS
Regional or than In cases of DEEMED SALE:
Area P8,000.00, tax-free
Headquarte as provided importation The
rs exempt in Section of goods following
from VAT. 109(x), to into the transactions
be VAT Philippines shall be deemed
5. Under exempt, by persons, sale therefore
Section that the entities or making them
109(w) in annual gross agencies covered by VAT:
order for receipts exempt
the sale or must not from tax
(1) Transfer, Example: the "OUTPUT TAX" revenue
use or total amount means the taxes,
consumption not indicated in the value-added tax subject to
in the course of invoice is P110. due on the sale the
business of P110/11 = P10. or lease of provisions
goods or P10 is the taxable goods or of Section
properties amount of VAT. properties or 112.
originally services by any
intended for TAX CREDIT person
sale or for use AND REFUND registered or OPTIONS OF A
in the course of required to TAXPAYER AS
business; Formula for register under PROVIDED IN
(2) Distribution Tax Credit: Section 236 of SECTION 112:
or transfer to: Output the NIRC. 1. to claim for
(a) Shar Less: tax credit;
eholders or Input If at the end or
investors as VAT of any 2. to claim for
share in the due. taxable refund
profits of the quarter the
VAT-registered If Input output tax The claim,
persons; or is greater exceeds the which must be
(b) Cred than input tax, in writing, for
itors in payment Output, Tax the excess both cases,
of debt; Credit is shall be must be filed
(3) Consignment available. paid by the within 2 years
of goods if VAT- after the close
actual sale is registered of the taxable
not made within "INPUT TAX" person. If quarter when
sixty (60) days means the the input the sales were
following the value-added tax tax exceeds made for: a) the
date such goods due from or the output issuance of a
were consigned; paid by a VAT- tax, the tax credit
and registered excess shall certificate; b)
(4) Retirement person in the be carried refund of
from or course of his over to the creditable input
cessation of trade or succeeding tax due or paid
business, with business on quarter or attributable to
respect to importation of quarters. such sales.
inventories of goods or local Any input
taxable goods purchase of tax HOW TO
existing as of goods or attributable DETERMINE
such retirement services, to the CREDITABLE
or cessation. including lease purchase of INPUT TAX
or use of capital The sum of
How to property, from a goods or to the excess input
determine the VAT-registered zero-rated tax carried over
VAT: The tax person. It shall sales by a from the
shall be also include the VAT- preceding
computed by transitional registered month or
multiplying the input tax person may quarter and the
total amount determined in at his option input tax
indicated in the accordance with be refunded creditable to a
invoice by one- Section 111 of or credited VAT-registered
eleventh (1/11). the NIRC. against person during
other the taxable
internal month or
quarter shall be Remedy in Any person,
reduced case of full, or whose
partial denial, registration has
or failure on the been cancelled
reduced by the part of the in accordance
amount of claim Commissioner to with Section
for refund or act upon the 236, shall file a
tax credit for application for return and pay
value-added tax tax credit or the tax due
and other refund: the thereon within
adjustments, taxpayer 25 days from
such as affected may, the date of
purchase within thirty cancellation of
returns or (30) days from registration:
allowances and the receipt of Provided, That
input tax the decision only one
attributable to denying the consolidated
exempt sale. claim or after return shall be
the expiration filed by the
The claim of the one taxpayer for his
for tax credit hundred twenty principal place
referred to in day-period, of business or
the foregoing appeal the head office and
paragraph shall decision or the all branches.
include not only unacted claim
those filed with with the Court
the Bureau of of Tax Appeals.
Internal
Revenue but RETURN AND
also those filed PAYMENT OF
with other VAT
government
agencies, such Every
as the Board of person liable to
Investments or pay the value-
the Bureau of added tax shall
Customs. file a quarterly
return of the
The amount of his
Commissioner gross sales or
within 120 days, receipts within
in proper cases, 25 days
from the date of following the
submission of close of each
complete taxable quarter
documents in prescribed for
support of the each taxpayer:
application shall Provided,
grant a refund however, That
or issue the tax VAT-registered
credit persons shall
certificate for pay the value-
creditable input added tax on a
taxes. monthly basis.

Taxation Law: San Beda College of Law

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Taxation Law: San Beda College of Law

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San Beda College of Law

MEMORY AID IN TAXATION LAW

I. GENERAL PRINCIPLES 6. levied for a public purpose.

REQUISITES OF A VALID TAX

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Contracts Contracts Contracts may

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

stockholders. (Corporate Entity 3. As to purpose:

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

7. Debt a sum of money due upon the start of a before

Exemption granted Exemption does not Payable in money Payable in money,

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

If the purpose is primarily revenue or DOCTRINE OF EQUITABLE RECOUPMENT NOT

No limit as to the Amount of toll

Non-payment is No imprisonment in Imposed only by the May be imposed by:

Imposed only by Can be imposed by Tax Penalty

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

kinds of enforced which are traded the legislature. (See Scope of

(1) TESTS IN DETERMINING PUBLIC PURPOSE Personal or Residence or

Personal property -tangible: where it is

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Business tax Place of business established in the Philippines.

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

gross income and exempt from the territory of another, there is an

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

imposed as a condition for its , be given

5. Non-Impairment Of Contracts (Art. B. SPECIFIC OR DIRECT

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

a. the same property or subject by citizens, including members of

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

(5) TAX EVASION use by the taxpayer of a. Constitutional immunities from

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

mistaken. If ambiguous, there is no parties based on material

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Reason: Relates to the circumstances fraud or protest, be final and conclusive

Tax amnesty Tax exemption c.) Local Government Code

DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

from his return or any document BUREAU OF INTERNAL REVENUE (BIR)

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

coming year. (Mamalateo, 3. It is discretionary on the part of the

BURDEN OF PROOF IN PRE-ASSESSMENT 1. inspection is authorized upon

TAXATION LAW COMMITTEE