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TAXATION

2 ATTY. LIM
Transcribed Lecture
I
2 [TAXATION 2 ATTY. LIM] 3B 2016-2017

TAXATION 2 Kasi hindi tinitignan ang decedent, ang
Dr. Virginia Jeannie P. Lim, LLM, Ed. D. tinitignan yung mga recipient ng properties.

January 27, 2017 What is the justification for the imposition of
estate tax?
ON ESTATE TAX
The government helps the decedent in the
How do we transfer properties? accumulation of the properties belonging to the
decedent when he dies.
Time Element: The government is a passive, hidden, silent partner in
During our lifetime – Donation the course of the accumulation of wealth; as a result,
Upon the death of the decedent the government is entitled to a share in the
properties that you left behind.
If during lifetime- donor’s tax
If upon death- estate tax What are the contributions of the government as
a silent partner?
But there are instances wherein a person transfers
properties during his lifetime but the effectivity of Protection, Peace and Order, Resources,
the transfer will take effect upon his death. Incentives, Maintains conducive climate

Example: If a person has income-generating SALIENT FEATURES OF THE ESTATE TAX UNDER
properties and he wants to avert tax THE TAX CODE
implications, and he transfer the properties to
his heir during his lifetime with the condition 20, 000
that the transferor will continue to enjoy the 200, 000
income derived from the properties during 2,000,000
his lifetime and the heir will only get
everything upon his death. (this transaction 20, 000
will not include the imposition of donor’s tax
but estate tax.) GENERAL RULE: Anybody who dies leaving behind
properties valued at PHP 20, 000 and more, their
What if the donor’s tax has already been paid? family is required to submit to the BIR a notice of
death within 30 days from death. (Mandatory)
Then the donor’s tax already paid will be
considered as advance payment of the estate tax due. You can have an extension of another 30 days but this
must be asked within the original 30-day period.
TWO KINDS OF DONATION
Consequence in case of failure to submit notice of
1. Donation Mortis Causa- Donation made during death:
the lifetime of the donor but the effectivity of the
donation will be upon the death of the donor. (estate There will be additional penalties at the time
tax) of payment. (PHP 1000 minimum)

2. Donation Inter Vivos- Donation during the EXCEPTION: Notice of death is required
lifetime of the donor and effective immediately upon notwithstanding the fact that properties left behind is
donation subject only to the conditions provided by less than PHP 20, 000 if and when the properties
law. (donor’s tax) left behind is a registrable property (ex. Certificate
of Shares of stocks, bank deposits, intangible
*Bakit mahal ang estate tax? personal properties)


Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 3

What is a registrable property? EXCEPTION
Local taxes and real property taxes in which
A property that cannot be transferred the local government code provided for prescriptive
without a tax clearance. periods.

*Estate tax is payable within 6 months from death. When is an estate tax return due?

*Upon the death of the decedent all his properties Within 6 months from death.
cannot be moved without tax clearance including his
bank deposits (except for funeral expenses but only What will be included in the tax return?
in the amount of 20, 000).
All the properties left behind including their
200, 000 fair market value.

Estate tax is an IR tax, therefore it belongs to the If you cannot comply with the 6-month period, you
national government collected through accredited can ask for an extension of another 30 days provided
banks. the extension is prayed for within the original 6-
month period.
All IR taxes are self-assessing taxes, self-computing
taxes. Increments when estate tax return is submitted
beyond the prescribed period:
Computation and assessment must be submitted to
the BIR in a prescribed form (TAX RETURN). Surcharge, interest, other penalties.

*Tax returns- are self-serving documents and *Estate tax is payable only when the properties left
therefore the government is not bound by it. behind are more than 200, 000.

The Commissioner is empowered to amend Requirements: If properties left behind are less
the tax return. than 200, 000:

In the event of failure to submit a tax return: 1. Notice of death
2. Estate tax return
The Commissioner has the authority to
prepare a tax return in behalf of that taxpayer. Requirements: If properties left behind are more
than 200, 000:
*IR TAXES LANG ANG MAY TAX RETURN,
LOCAL TAXES, REAL PROPERTY TAXES AND 1. Notice of death
IMPORT EXPORT TAXES WALANG TAX 2. Estate tax return
RETURNS YAN. 3. Tax payment

What is the materiality of knowing whether or 2 MILLION
not a tax is payable with or without a tax return?
Requirements: If the gross estate left behind is
GENERAL RULE more than 2 Million:
If payable with a tax return- it has a prescriptive
period. 1. Notice of death
2. Estate tax return
If payable without a tax return- usually 3. Tax payment
imprescriptible. 4. CPA certificate (Financial reports duly
audited by an accountant)

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
4 [TAXATION 2 ATTY. LIM] 3B 2016-2017

ON TAX SITUS Presumption that the decedent, during his
lifetime, did not properly pay all his taxes or there
Where to pay the estate tax? were some taxes unpaid, hence the deficiencies must
be settled through estate tax collection.
Where the decedent last resided prior to his
death. c. Re-Distribution of Wealth Theory
Where the properties of a non-resident is
located. Disparity between the rich and the poor-
equalize the playing field.
SC IN ONE CASE: It can be paid also at the place Taxes are converted to basic services.
identified in the death certificate where the
decedent last domiciled. d. Ability-to-pay Principle

SC IN ANOTHER CASE: Intention to reside is also Looking at the heirs- considering that they
considered. are inheriting something, that means they have the
*No double taxation when the taxing authorities are capacity to pay and therefor they should share the
different. cost of government.

*Absence of debtor is not a bad debt-- the debtor e. State-Taxpayer Partnership Theory
must be insolvent, and there must be an earnest
effort to collect the debt. Government is a hidden, silent, passive
partner in the accumulation of wealth by the
*Recapture rule- bad debts that were written off but decedent, hence, the government is entitled to
subsequently paid are subject to tax as fresh income. receive a share of the same upon the death of the
decedent.
Requisites:
1. The debt must be included in the gross *Right of succession- the corporation is not affected
income. by all the changes happening involving the
2. There must be proof that the debtor can no incorporators.
longer pay because of insolvency.
Two kinds of taxpayers that will be covered by
Theories that will justify the collection of estate estate tax:
tax:
Benefit-Received Theory a. Resident decedent- RA, NRC, RA
Back Tax Theory b. Non-resident decedent- NRA
Re-Distribution of Wealth Theory
Ability-to-pay Principle Resident Alien
State-taxpayer Partnership Theory
Alien that permanently resides in the Philippines.
a. Benefit-Received Theory Subject to income tax and Philippine estate tax.
Being taxed for income earned only within the
The relationship of government and taxpayer Philippines.
(Symbiotic: mutual reciprocal support and protection) Properties within and without the Philippines are
subject to estate tax (including those abroad).
The family receives some benefits from the
government such as when there is a will left and the What should be included in the estate tax return
will must subject to probate, the services rendered by of a decedent?
the government to effect the will must be
compensated. RESIDENT- all properties wherever situated. (peso
value)
b. Back Tax Theory
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 5

NON RESIDENT- properties located within the 1. Transfers in contemplation of death
Philippines. (peso value) The decedent has a positive and clear
knowledge of his impending death. To avoid the
*The intangible personal properties of a non-resident payment of estate tax, he transferred his properties,
decedent is subject to taxation in the Philippines only during his lifetime, in the name of those whoever he
when there is NO recognition of the principle of desires. If he dies, the value of the properties still
reciprocity. forms part of the estate.

*Principle of reciprocity has no application to resident Reason: The primary purpose is to avoid estate tax.
decedents.
2. Transfers with reservation of certain rights and
*Shares of stocks issued by a domestic corporation interests
are always considered properties within the When only naked title is transferred, and
Philippines. control is still with the transferor, estate tax must
still be applied.
Example: There is a Japanese national
looking for possible business ventures, he Example: A wealthy old woman who
went to the Philippine stock exchange, he transferred her income generating properties
decided to buy. Foreigners buying stocks in to her children with a condition
domestic corporations, will always be taxed (conditional transfer) that upon transfer,
regardless of the residence of the foreigner, she will still enjoy the income from the
regardless of the location of the certificates. transferred properties, that she will still be in
full control of the income until she departs.
But if the shares are foreign, the principle of That when she dies, the transferees will now
reciprocity applies. enjoy full ownership (the usufruct plus the
naked title).
FEBRUARY 3, 2017
3. Revocable Transfers
RECAP: Transfers where the person has still the right
to revoke the transfer.
If a decedent is a RESIDENT DECEDENT, which
refers to a RESIDENT CITIZEN, NON-RESIDENT Example: When a parent transferred an
CITIZEN, and a RESIDENT ALIEN, all his properties income generating property to his child who
wherever situated will form part of his gross estate. is about to take the BAR. However, there is a
condition that when the child fails to pass the
What is indicated in the Estate Tax Return is the peso BAR, the parent will revoke the transferred
value of all the properties left behind, current fair property.
market value.
Assuming that the parent died before the
The sum total of the properties left behind, which is release of the results of the BAR, the value of the
inclusive of real properties, personal properties, and transferred property will still form part of his gross
intangible properties, forms part of the gross estate. estate, notwithstanding the fact that the power to
revoke is not exercised.
TESTAMENTARY DISPOSITIONS – Situation
wherein the value of the transferred properties, Regardless of the exercise of the power to
those that are no longer in the name of the decedent, revoke, the value of transferred property will still
still form part of the estate of the decedent. form part of the gross estate of the decedent.
Intervivos transfers.
4. Transfers for insufficient consideration
INTER VIVOS TRANSFERS / TESTAMENTARY
DISPOSITIONS SUBSTITUTES – CR2IG
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
6 [TAXATION 2 ATTY. LIM] 3B 2016-2017

The decedent, during his lifetime, transferred Estate Tax Payment). Under the D3YP, the
his properties without knowing that he is dying. An BIR is authorized to look back three years
impending death under this situation is not an issue. PRIOR to death and determine if any of the
four happened.
The fact is he sold the property for a
considerably very low price. The BIR is allowed to look back if any of the
CR2I happened within three years PRIOR to the
If you sold the property below its fair market death of the decedent.
value, the law will impose more taxes which the
taxpayer will have to pay. If any of the four happened, the value of the
properties will form part of the gross estate. But if
Example: You have a property worth Php 5 Million any of them happened beyond the three-year period
(fair current market value of the property) prior, it is not included anymore.

FMV= Php5M Remember! Government is allowed to move back
X 30% only for three years.
Php 1.5M
5. Properties passing under a general power of
Php 5M – Php 1.5M = Php 3.5M appointment (GPA)

Any value lower than Php 3.5M is an insufficient Example: I have a piece of land, and I am
consideration. going out of the country. And so I gave my son
If the owner of the property is no longer a authority to manage the property, which is
Filipino citizen and the property is located in the income generating. I gave him the authority
Philippines, the property is still subject to estate tax that the income derived from the property
for the reason that the property is within the will be used to pay taxes and those who are
Philippines. working in the land and the building. I
prepared a GPA.
If the owner of the property is a Filipino
citizen, the property wherever situated is subject to My son, who is holding this kind of
estate tax. authority, is practically the owner of the
property. He can sell this, he can mortgage
NOTE! For these four CR2I (transfers in this, he can donate this, he can burn this, he
contemplation of death, transfers with reservation of can destroy this, he can remove my name
certain rights and interests, revocable transfers, and there, cancel it, and write his own name there
transfers for insufficiency of funds) the DOCTRINE because he has the full authority. GENERAL
OF THREE YEAR PRESUMPTION (D3YP) applies. means you can do anything. IN TAXATION,
YOU ARE THE OWNER by reason of this
D3YP – The government will determine if these four authority.
transactions happened three years PRIOR TO death.
All the taxes of the property will be on the HOLDER of
If they did, the value will form part of the the GPA.
inclusion.
For example: A very wealthy person named
If they did not, the inclusion of the value of U, has several assets, some are capital assets
the property will not be considered anymore. and some are ordinary assets. They are all
registered in his name. Now he is going
Example: The decedent died 3 February abroad.
2017. Within six months, the family will pay
the Estate Tax Return. (Requirements upon He prepared an authority, a GPA, and then he
death: Notice of Death; Estate Tax Return, left. He gave the GPA to his nephew.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 7

Non- Within Within Within
The nephew holds the authority. Resident
Subsequently the nephew died. The value of Decedent
all the properties will form part of his
gross estate because he is a holder of a
GPA. Because FOR TAX PURPOSES, he is ON BANK DEPOSITS
considered to be the owner of those
properties. H and W. H died. The W was advised to settle
the estate within 6 months and she did. She asked an
(For tax purposes, a person holding a GPA is accountant to help her because the assets left behind
considered as the owner. And when he died, the value is more than Php 2M. You have to submit and ETR
of the property under his authority will form part of his with the assistance of an accountant because the
gross estate because he is considered as the owner of accountant has to certify the validity of the Return.
the said properties.) There should be a CPA Certificate.

WHAT IF: The nephew did not cancel the name of W indicated that H has a deposit in
U. He merely holds the authority. The one who Metrobank worth Php 50K. The BIR then reviewed
died first was U. What will happen to the the said amount. The BIR then asked if W is in fact
properties? Metrobank’s depositor. Then, BIR asked the amount.
The value of the properties will form part of Metrobank then invoked RA 1405 The Bank Secrecy
the gross estate of U. Law.

Why? There is a GPA, right? BIR shall invoke that the one involved is an
REASON: The written authority is ESTATE TAX.
extinguished upon the death of the principal.
NOTE: ESTATE TAX IS EXEMPT FROM BANK
(Written authority is extinguished upon the death of SECRECY LAW.
the principal. GPA will be automatically revoked /
extinguished. The property will then form part of the IF the BIR found out that the taxpayer has
principal’s gross estate.) MORE THAN 30% of deficiency in tax payment.
Then the taxpayer is deemed to have submitted a
COMPOSITION OF THE GROSS ESTATE OF THE FRAUDULENT RETURN.
DECEDENT
RESULT: Additional 50% over and above all other
REAL PERSONAL INTANGIBLE( penalties. The 50% is FRAUD PENALTY.
Shares of
stocks; (IF the tax paid is lower than 30% of the tax supposed
Obligations( to be paid, then the return is a fraudulent return.
includes bank Consequence: plus 50% fraud penalty)
deposits;
Bonds) What will happen to the fraudulent return?
Resident
Decedent ALL PROPERTIES WHEREVER The BIR will just consider the amount paid as
-Resident SITUATED advance payment.
Citizen; The CIR is going to amend the return and
Non- include the fraud penalty.
Resident
Citizen; When may the CIR look into a bank deposit:
Resident
Alien 1. If it involves an estate tax.

Javier, Landayan, Macalintal, Mercado


UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
8 [TAXATION 2 ATTY. LIM] 3B 2016-2017

2. If there is a compromise proposal from a Life insurance has a tax implication. The
taxpayer and the reason for that proposal is financial money which will be given to you upon the
inability to settle. happening of the eventuality is called a life insurance
proceeds. Income tax or estate tax may be imposed.
Under this situation, the government will
accept the compromise proposal ONLY WHEN the In INCOME tax: The decedent himself bought the
taxpayer WAIVES the Bank Secrecy Law. insurance policy. It is not a company insurance. It is
an insurance which he bought personally. He named
3. When there is a waiver. his W and his 2 kids as beneficiaries. It has a face
With consent of the depositor. value of Php 600K.

During the tax investigation of the BIR, the If he dies, what will happen?
BIR does not have the authority to demand to look
into your bank deposits. Because looking into bank The 600k will be divided equally among the
deposits is not part of the power of BIR. beneficiaries.

Whether or not a bank deposit is included Are these beneficiaries subject to income tax?
in the gross estate will be determined based on
the classification of the bank deposit. NO. It is an inclusion. The money, which they
received, does not form part of the fruit of capital,
If the bank deposit maintained by a H and W their labor, or their labor and fruit capital combined.
is a SURVIVOR’S ACCOUNT OR WINNER TAKES ALL IT IS NOT SUBJECT TO INCOME TAX.
ACCOUNT (in bank practices it is written as H
and/or W account), it will NOT form part of the When is life insurance proceeds taxable to the
gross estate. beneficiaries?

REASON: When the H dies, all the money will go to If they use such proceeds as capital or
the W. You cannot charge the W an estate tax because business, and they have acquired a gain. The gain
she is still alive. now is from the use of the capital and is taxable. The
gain is taxable, but never the capital.
(A Survivor’s Account or an AND/OR Account will not
form part of the gross estate of the decedent. Because If you are inheriting a property, that is not
all the money when one spouse dies goes to the other. subject to income tax.
And the other who is still alive is not subject to estate
tax.) Inheritance is not subject to income tax.

If it is a JOINT ACCOUNT ( H AND W ), if the But if you use your inheritance to produce an income,
H dies, ½ of the deposit will be subject to estate tax. the income is taxable, but never the inheritance.
Inheritance is considered a capital, and capital is
ON LIFE INSURANCE PROCEEDS never taxable. It is the fruit of the capital that is
taxable.
IF there is a problem in insurances, find out what
kind of insurance is given. In ESTATE tax: Same scenario as above. The
decedent bought an insurance policy by himself. He
If it is an accident insurance, it has no tax implication. got one with a face value of Php 800K. The W and the
Why? 3 kids were named as beneficiaries. H died so the
Because the money that you will receive is proceeds were distributed among the beneficiaries.
compensation for injuries sustained, this is an
inclusion. If it is property insurance, it is a mere For estate tax purposes, since money is property, it
return of capital and there is also no tax implication. is considered to form part of the gross estate of the

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 9

decedent. Will it form part of the ETR as properties left Example: Cash dividend- 5% FWT; Stock
behind? dividend- normally exempt but with XPNs
(there in the book)
When is LIFE INSURANCE POCEEDS forming part
of the gross estate of the decedent? If the decedent is a RESIDENT DECEDENT and he
owns FOREIGN shares of stocks, those which are
1. When the insurance policy is a revocable policy. issued by corporations that are outside the
country, will he be taxable on said shares?
What if the policy is ambiguous? YES. FOREIGN shares of stocks are subject
Under the Insurance Code, when the ONLY TO ESTATE TAX.
policy is ambiguous, it is always considered a
revocable policy. NRD refers to a NON-RESIDENT ALIEN - will be
subject to Philippine Estate tax if he has properties
2. When there is a court-appointed administrator WITHIN the Philippines.
who will take charge of all the properties left behind.
The proceeds will automatically form part of Example: A Japanese who went to the
the gross estate. Philippines, fell in love with a Filipina, and
bought a condominium unit. Since he used his
3. There is an executor. money, the unit is registered in his name. He
Decedent during his lifetime has named has property within the Philippines.
someone who will take charge over his property.
If the Japanese dies regardless whether within or
4. Money goes to back his estate. The estate will be outside the Philippines, because he owns property
the taxpayer. within the Philippines, the property will be subject to
estate tax. (the property is subject to estate tax
Example: If the money is used as an because of location)
additional capital of the business.
NRD’s personal properties will be subject to
COMPOSITION OF THE GROSS ESTATE OF THE Philippine Estate Tax if they are WITHIN the
DECEDENT Philippines.

Shares of Stocks of NRD:

A. If issued by a DOMESTIC CORPORATION –
Subject to Philippine Estate Tax

B. If issued by a FOREIGN CORPORATION – apply
Intangible Personal Properties (IPR): Shares of the PRINCIPLE OF RECIPROCITY
stocks; obligations (includes bank deposits,
promissory notes, credits); and bonds. Bank Deposits:

Shares of Stocks: A. Within – Subject to Estate Tax
B. Without – NOT
If the decedent is a RESIDENT DECEDENT, and he
owns shares of stocks of a DOMESTIC Shares of stocks issued by a domestic corporation are
CORPORATION, these are ALWAYS subject to considered as properties within the Philippines.
Philippine taxes (ALL KINDS of taxes including Where the owner is located or where the certificate is
ESTATE TAX). located are immaterial. For as long as the S/S is
issued by a domestic corporation, it is always
considered as properties within the Philippines.

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
10 [TAXATION 2 ATTY. LIM] 3B 2016-2017

SITUATION:
There was this Japanese guy who brought an attaché IF THE PRINCIPLE OF RECIPROCITY APPLIES, IT IS
case filled with certificate of foreign shares of stocks. NOT TAXABLE.
He cohabited with a Filipina. He left his attaché case
under his table and then he died. TWO LAYER ANALYSIS:

The certificates are physically within the Philippines. Are shares of stocks considered properties
located in the Philippines?
Are they subject to Philippine Estate Tax?
Apply the principle of reciprocity. First Layer: If YES, determine next

An XPN to this answers the question: WHEN ARE Second Layer: W/N the Principle of
FOREIGN SHARES SUBJECT TO PHILIPPINE ESATE Reciprocity applies. If it applies, it is NOT
TAX. taxable.

WHEN ARE FOREIGN SHARES SUBJECT TO
PHILIPPINE ESTATE TAX (owned by a NON- How do you determine the recognition of the
RESIDENT DECEDENT): principle of reciprocity?
2 FACTORS:
1. If the shares were used in the Philippines in 1. The presence of same or similar
furtherance of profit. kind of tax.
2. Are Filipinos in the said country
Illustration: these S/S may be used as also allowed to enjoy the same benefits which
collateral in loans. The loanable value of the are given/extended to foreigners in the
S/S will be 40% of the current FMV of the Philippines?
property.
February 10, 2017 (No Class)
If the loan proceeds are used in the business, the February 17, 2017 (Quiz)
certificates will be under chattel mortgage, and the
same will be registered in the RD. February 24, 2017 - Transcription (Taxation)

2. When it has acquired business situs in the QUIZ ANSWER
Philippines- registered in any government
agency. Number 1 talks about properties left behind by a
decedent and whether or not these properties will be
When the certificates of S/S are already covered by estate tax, so the composition of the gross
registered, then the certificates has acquired estate is very material here. When it comes to shares
BUSINESS SITUS. of stocks of a non-resident alien, principle of
reciprocity will come in. Emphasize on that. Alright.
Acquiring business situs in the Philippines means
that the property was registered, for whatever Number 2 we said that when you renounce an
purpose, in the Philippines. inheritance that is not subject to donor’s tax but it
is subject to estate tax because if it is still an
3. If the foreign corporation that issued the inheritance the presumption here is it has not yet
subject shares has more than 85% of his business been transferred because the facts did not state that
activities in the Philippines. Then the shares estate tax has been paid already so the property even
issued are considered properties within the if you don’t get your share on that it’s not yet yours.
Philippines. Donor’s tax will not come in if what you’re giving is
not your property so that is still subject to estate tax,
Example: Foreign corporations operating in there is no donor’s tax there.
the Import/Export processing Zone.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 11

And then. X’s marriage was legally annulled and she threshold, basta you are selling excisable items,
was awarded alimony by the court of 50k per month, you are always subject to excise taxes.
is the alimony subject to donor’s tax?
The contract of lease is entered into in the
NO. because the amount is less than 100k. Philippines xxx xxx is the transaction subject to
Didn’t we say that donor’s tax will come in if the gift VAT, why or why not.
is more than 100k. Income tax will not also come in
because that 50k was not source from capital, labor, The transaction is not subject to VAT because
or combined. the property subject matter of this question is
abroad. Find out the requisites of the VAT, the
During the lifetime of X’s parent xxx xxx. property is abroad, so there is no VAT there.

There will be an estate tax there, if you If property is involved in the question, the first
renounce an inheritance. Tax implication: Estate tax thing to do is what kind of property is involved, is
is payable under the given facts. this an ordinary asset or a capital asset. After that
find out where the property is located. After that find
X is engaged in selling construction materials xxx out who is the taxpayer.
xxx.
A capital asset, a property that is not used in
Dacion, there is no CGT here because what business, papasukan ito ng CCGT unang-una if the
has been transferred is an ordinary asset or property is located in the Philippines because a CGT
properties for sale. CGT will come in only when the is in the nature of a withholding tax.
property is not used in business, so apparently under
the given facts, condominium units subject of Withholding tax applies only in the Philippines.
business transaction are moving from one person to
another so walang CGT, ordinary income tax ang So if the property is abroad, walang CGT yan.
papasok dyan.
Let us say, I own a condominium in Singapore
Confidentiality of tax return, so we said a tax and I am a Filipino, CGT will not come in under the
return is highly confidential and the only time you doctrine of territoriality.
can open it is upon court order, by order of the
president of the republic, by order of the sec of So wala akong CGT dyan, but because I am a
finance, or by order of the CIR when the tax return is Filipino kung kumita ako doon dun sa benta ko na
a subject matter of an investigation, and upon yon, then that money earned by way of income
consent of the taxpayer. taxation now is subject to Philippine income tax. Pero
walang CGT dyan.
X inherited an agricultural land in the province
xxx xxx. Is the BIR correct? Ngayon kung ang binebenta mo ay ordinary asset
naman, dun sa CGT insufficiency of consideration is
NO. the BIR is not correct because what has not material.
been transferred is a capital asset so sa capital asset
hindi pumapasok ang insufficient consideration, Even if you sold it at 1peso, papasukan ka ba?
papasok lang yan sa ordinary asset.
Yes. Even if you sold the property sustaining a
Six. Just find out whether the amount involved is loss. CGT will come in. Maski nalugi magbabayad.
more than 1,919,500 if more than that, the sale is Maski ilagay mo piso, hindi susundin yung piso mo
always vatable. If 1,919,500 or less, percentage tax kasi the computation of a CGT is based on the
yan. And then what kind of item is being sold, if the consideration or zonal value whichever is higher,
item being sold is excisable goods, papasok ang so kung piso nilagay mo pero yung zonal value e 50
excise tax. Excise tax will not depend on the million, 50 million yung susundin.

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
12 [TAXATION 2 ATTY. LIM] 3B 2016-2017

Doon sa Capital asset walang insufficiency of
consideration doon lang yan sa ordinary asset kasi We will just look at the donor, is this donor donating
yung ordinary asset pag binenta mo yan, income a property? Is he Filipino? So if he donates a property
tax ang papasok diyan pag may income. Pag wala wherever located, that donation for as long as it is
naman, wala kang babayaran na income tax. more than 100k will be subject to donor’s tax.

Ngayon, kung ang ordinary asset nasa ibang If the donor is an alien, he will be covered to
bansa, papasukan yan ng income tax, because donor’s tax only if the property donated is within the
income tax is not withholding tax. Papasukan yan Philippines.
dahil Filipino ka na nagbebenta. Diba Filipinos are
subject to income tax wherever earned. Estate tax payable in the place where the
decedent last resided. Location of the property is
Yung estate tax, a Filipino has or owned not material.
properties in the Philippines then he went abroad,
still a Filipino, he died abroad. Estate tax will come The donor’s tax, however is always paid wherever
in because he is a Filipino. the donor is residing.

Granting that he was naturalized abroad, so If he is a non-resident alien, the
yung mga properties nya dito nasa pangalan pa rin donor’s tax is payable directly to the office of
nya, papasukan pa rin ng estate tax yan yes the CIR, that is the tax situs. Paano niya
because yung properties are located in the babayaran kung wala siya dito, well, that will
Philippines. be the responsibility of the donee. The
donor’s tax is normally payable by the
So if Filipino, estate tax is payable because of donor, but if the donor cannot be located
citizenship. government can enforce the payment of the
tax against the donee. So donee sometimes
If foreigner, estate tax is payable by reason end up paying the donor’s tax.
of the location of the property.
Donation in favor of government, for public use,
If the decedent is a Filipino, all properties whether national or local is always exempt from
wherever located (within/without) is subject to donor’s tax.
Philippine estate tax.
Donations to GOCC is taxable because GOCCs are
If the decedent is a foreigner, estate tax will government in business. They are not existing for
be owed provided that properties are within the public purposes.
Philippines.
Donation to traditional exemptees will also be
DONOR’S TAX exempt from donor’s tax.
This should be entities that are operating
Donor’s Tax is imposable if the amount of the within the Philippines (domestic corporations).
property donated is more than 100k.
So if you donate to an international civic
This tax is payable within 30 days. organization, your donation is not exempt from
donor’s tax.
Payable by the donor.
Splitting of donation to avoid donor’s tax.
The recipient of the donation is immaterial.
First donation 80k, second donation 70k.
Even if the donee is an unborn child, that First donation exempt from donor’s tax but
transaction is subject to donor’s tax because not exempt from filing a donor’s tax return.
the donee is immaterial. Because donation is a transaction that is
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 13

taxable under the tax code whether or not the original one. The second one will be
there are taxes to be paid, a donor’s exempt.
return/tax return is mandatory. Second
donation is taxable. The computation of Donor’s tax is imposable only in
donor’s tax is cumulative. Meaning add all cases of valid donations.
donation within the year. Donor’s tax return
is still required. But the first donation (80k) Void donation is not subject to
should be added to the second donation donor’s tax.
because they were made within the year. Gift
splitting is void. Gift splitting is breaking the Example: donation between husband and
gift into small pieces for purposes of avoiding wife. As a rule this kind of donation is void,
the payment of donor’s tax. Gift splitting is except when there is family rejoicing, valid
illegal and not allowed. donation yan, papasukan yan ng donor’s tax.

When is gift splitting valid? 2. Condonation of debt is subject to donor’s tax.
Consequences of debt condoned.
90k given on Dec. 31, 2016, and then 60k
given on Jan. 1, 2017. No need to add the two Remember, debt condoned is not a gift. Gift is
because they were made in two different tax something given out of pure generosity, pure
period. liberality, debt condoned is not. If D (debtor) is
solvent, it is considered as a remuneratory donation.
1. Gifts subject to donor’s tax. It is subject to income tax. If D is insolvent, it is
exempt from income tax.
All kinds of gift, whether real,
personal or intangible. Giving a right is 3. Sale of ordinary asset for insufficient
also a taxable transaction. consideration is also subject to donor’s tax.
No donating intent here.
Example: Right to put up a business
inside a mall given to your brother is Ordinary asset lang, pag capital asset, walang
taxable. donor’s tax kasi pag binenta mo yan kahit piso lang
ang consideration, papasukan ka ng CGT hindi ng
Indirect donations are also taxable. donor’s tax, miski palugi, CGT ang papasok. Hindi
apektado ang gobierno kung ang binebenta mo ay
Example: X has a son S (3y/o). X capital asset kasi CGT is always payable based on the
transfers his property to Y, both zonal value or consideration whichever is higher.
during their lifetime but with the
condition that when S reaches the age Example: Sale of ordinary asset. Property
of 21, Y has to transfer the property in worth 7M multiply by 30 percent = 2.1M,
the name of the son. So there is a ibawas sa 7M = 4.9M. I am not allowed to sell
transfer now, and there will be this property below that amount. For
another transfer. example I sell this property for 3.5M that is
selling an ordinary asset for insufficient
Only the first transfer is taxable, the consideration. So the difference of 1.4M is
second is not because this is a conditional subject to donor’s tax.
transfer, an indirect transfer.
4. The creation of an Irrevocable Trust is subject
Pinahawakan lang nya. Pero hindi to donor’s tax.
talaga sa kanya yun, itatransfer din nya
paglaki ng bata. This is still a taxable Parties:
transaction but only one transaction is taxable, Grantor
Trustee
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
14 [TAXATION 2 ATTY. LIM] 3B 2016-2017

Beneficiaries. Condonation, sale (of ordinary asset) for
insufficient consideration, and irrevocable trust =
Irrevocable when the bene cannot be substituted. By no donating intent but there is donor’s tax.
all means sila lang ang tatanggap ng fruit of the
money. And at the end of the contract, the money When you want to donate but don’t want to be
subject of the irrevocable trust must be distributed to covered by a donor’s tax, ask the recipient to go to
the bene. the BIR and ask for a certificate of tax exemption as a
donee, kasi pag binigyan mo ng walang ganun na
Tax implication: certificate, the donation is taxable.

The bank will be subject to income tax, based on the Tax exemption is not self-executing. It is not
commission it gets. automatic.

The bene will be subject to income tax based on their Example: Red Cross, IBP, Radio Veritas,
separate distributive share. The income of the money ABSCBN foundation = exempt.
will be taxable in the name of this money. Because if
this is irrevocable, the money is considered an Church’s collection for Christmas Evening Mass
artificial person subject to income tax. amounted to 300K = not subject to donor’s tax.
Hindi totality, but the individual donation.
All income is taxed in the name of that money if it is
an irrevocable trust. At the time that the money is Pag may nagbigay doon ng more than 100K,
given to the bene (at the end of the contract), the papasukan ba ng donor’s tax?
donor’s tax will be payable at the time that the money NO. Hindi pa rin kasi you are donating to a
is distributed. traditional exemptee.

Contra, a revocable trust, yung income divided It is not the totality that will determine whether
between the grantor and the bene, or with a the transaction is covered by a donor’s tax but the
condition na at the end of the contract, the money individual donation.
will be returned to the grantor.
TWO SETS OF RATE:
If this happens, all income will be taxed in the
name of the grantor, the money is not a taxpayer, the 1. If donation is in favor of persons within the 4th
bank will be taxed on the commission, the bene will civil degree, the rate is 2-15% (2, 4, 6, 8, 10, 12, and
be taxed based on their distributive share. 15.)

If the trust is revocable, all parties will be 2. If donation is in favor of persons outside the 4th
subject to income tax. civil degree, referred to as donation to strangers
= 13% flat.
And the money will be subject to donor’s
tax if the money will be distributed at the end of the Are corporations donating properties subject to
period to the bene. donor’s tax?

Pag irrevocable, the grantor is exempt from Yes, they are. Donor’s tax is both applicable
income tax. Again money will be subject to donor’s to natural and juridical persons, whereas estate tax
tax at the time of distribution. Money is considered as is applicable only to a natural person.
an artificial taxpayer only when the trust is
irrevocable. Under the Omnibus Election Code, donations to
politicians, pol parties and/or political
Example: The irrevocable trust of G for the candidates are exempt from donor’s tax.
account of 1234 - name of the tax payer.

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 15

However, the donation is subject to 5% withholding Husband and wife donating a conjugal
tax. property valued at 2M to their child (LILA) who is
getting married. The title will be transferred in the
Example: Donation of 200pcs t-shirt worth name of their child together with their daughter in
17K = pay only 95% in cash and remit to BIR law. 2 donors and 2 donees. (Whenever a husband
5% and give the receipt to the person. The and wife is donating a conjugal property, the two have
5% receipt can be used to credit other IR to split the donation into 2 equal halves, as if one party
taxes. It is a creditable withholding tax. gave half of donation and the other party gave the
other half, if it is a conjugal property.)
A politician who receives so much donations but
were not consumed at the end of the campaign ILLUSTRATION:
period, will be considered as income to the politician
subject to income tax. Husband 1M Wife 1M
Son Daughter-in- Son Daughter-in-law
law
ALLOWABLE DEDUCTIONS 500K 500K 500K 500K
-10K No dowry -10K No dowry
All taxes under the tax code, meron allowable dowry dowry
deductions dyan. Apply the substantiation rule. -100K -100 FSE -100K -100K FSE
Pero meron ding mga items na di na kailangan ng FSE FSE
receipts, like standard deduction. That is given under 390K 400K 390K 400K
the law, you can deduct 1M outright from the gross
estate, and there is no need of supporting documents Donor’s Tax rate:
there because that deduction is provided under the
law. Son: 2-15% (gift to a person within 4th civil degree)
Daughter-in-law: 13% flat (gift to a stranger)
1. Dowry deduction (Max amount 10K)
Given by a parent to a child who is getting Donation given by a non-resident alien (coming
married. This is a wedding gift. If the wedding gift is from abroad) is not subject to donor’s tax, because
valued more than 100K papasukan ng donor’s tax yan the property is not within the Philippines.
pero meron syang dowry deduction na 10K.
2. Encumbrances attached to the properties
What kind of child? donated.

LILA (legitimate, Illegitimate, Legally Obligations attached to the property given
Adopted.)
Example: A car bought payable on
The gift is given only on occasion of marriage. installment, which is not yet fully paid, is
Given before the marriage or 1 year after the donated; the remaining balance is an
marriage. allowable deduction from the donor’s tax
payable.
Example: A father giving a piece of land valued at
400K as a wedding gift to his LILA son.
How to compute the donor’s tax:

PHP 400K -Value of the gift
-PHP 10K -Dowry deduction (allowable Declare the whole amount of the car, minus
deduction) the obligation attached to the property, minus the
PHP 390K First Sum Exempted (FSE) what remains is subject to
-PHP100K -First Sum Exempted (first a donor’s tax.
100K is always exempt from
donor’s tax) Question: My brother is getting married, I gave him a
290K SUBJECT TO DONOR’S TAX vacant lot as a wedding gift (property clean, walang
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
16 [TAXATION 2 ATTY. LIM] 3B 2016-2017

utang) but I also gave him the burden to pay the Bad orders, spoiled delivery, wrong orders,
donor’s tax. I passed the donor’s tax to him. Is the damages or kung ano ano, lahat yan deductible yan sa
donor’s tax payable an allowable deduction? business expenses.

When the donee assumes the donor’s tax, the In income taxation, there are also allowable
amount assumed is not an allowable deduction deductions depending upon who taxpayer is, there is
because donor’s tax is not an encumbrance attached personal exemption, additional exemption, allowable
to the property (rate 2-15% brother is within 4th deductions.
degree)
ON ESTATE TAX
AMENDMENT IN VAT:
Flash Report: Current Events
The completion of document must be made within
the original 2-year period. Secretary Alvarez on planning to tax religious
organizations, educational institutions, because they
March 3, 2017 (No Class) are collecting so much tuition fees from students,
Ateneo, UST, San Beda, bakit daw hindi i-tax ang
March 10, 2017 tuition fees.

Remedies will depend on the due date. Nag post ako sa facebook, sabi ko these institutions
are run by sectarian, run by religious organization,
Estate Tax is an IR tax. There are 44 IR Taxes (one is and therefore the DOCTRINE OF INCIDENTAL
very insignificant) so there are 44 in all. EXEMPTION applies, tapos sinasabi ko, yung mga
schools that are public, UP, PUP, and other
All of these taxes will accommodate deductions. government run institutions, non-stock, non-profit.
Constitutional mandate, Tax Code mandate, they are
Example: The decedent left behind a will. So exempt from property taxes and income tax.
you have to submit that will to the court. If the school is run by a religious organization, they
Because you cannot distribute properties if are also exempt from property taxes and income tax.
you have a will on your own. You have to
bring in the participation of the government. But if the school is a private school, like FEU, UE, not
That is mandatory. But if you submit that will run by religious organization. Then these institutions
to the court, you have to pay the filing fees will apply the PREDOMINANT TEST RULE.
(because there is a hearing involved like an
ordinary trial). You have hire yourself a So iba ibang entities yan ah with different rules that
lawyer, so you have to pay for the acceptance will apply. And pinagpipilitan ni Alvarez na I produce
fee, publication, payment of taxes, etc. etc. So daw ni Commissioner of Internal Revenue yung
there are expenses that are necessary in the income tax payment ng mga eskwelahan na ganito, na
process of partitioning the properties, SO collecting so much tuition fee. Sa loob loob ko, mag
THESE ARE ALLOWABLE DEDUCTIONS. tax nga ito sa akin, nakakainis, nakakainis.

So all taxes, like in businesses, you bought Sa post ko sa facebook sabi ko, Excuse me Sir,
supplies, a lot of them and you are engaged say in a pinapatawag niyo yung BIR Comissioner, eh wala
grocery and you sell soy, toyo etc., and when naman magagawa si BIR Commissioner kung wala
delivered, many of them are broken (basag), yung siya ma i-produce na income tax return kasi nga,
mga basag nay an as long as yung ulo niya at yung WALA NAMAN INCOME PAYMENT YANG MGA YAN.
tansan andoon pa, di pa nabubuksan, yung mga basag Ang meron sila, ANNUAL INFORMATION RETURN,
na ulo nay an pwede pang palitan yan, basta wag mo but never an income tax return.
aalisin yung tansan don sa ulo niya, papalitan nila
yan. ANNUAL INFORMATION RETURN is a return that is
submitted by a tax exempt entity showing in that
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 17

return who within the year ang binayaran ng pera so Whatever you arrive at will be the AMOUNT OF TAX
that the BIR could check who among these recipients PAYABLE.
of payment if nag withhold naman itong mga taong
ito upon receipt of that payment for income tax Formula:
purposes.
Gross Estate
ANNUAL INFORMATION RETURN is a return that is -Allowable Deductions
submitted by a tax exempt entity showing in that Net Taxable Estate
return who persons whom it paid so that the BIR can X (applicable rate %)
check whether these recipients withheld upon Amount of Tax Payable
receipt of that payment for income tax purposes.
ALLOWABLE DEDUCTIONS
Sabi ng mga comments sa facbook post ko “yes Page 580
Ma’am, basic in taxation, we learned that from you”
and some of them are already judges “yes we still 1. Standard Deduction (max Php 1.0 Million)
remember what you are emphasizing on the board. 2. Share of surviving spouse in the net conjugal
property (1/2 of the net estate)
And eto naman BIR Commissioner said yes we will 3. Family Home (max Php 1.0 Million)
look for the return, eh saan ka maghahanap? Eh wala 4. Ordinary Deductions (MUST BE SUPPORTED
naman return, Annual Information Return ang meron BY RECEIPTS; SUBSTANTIATION RULE
sila. APPLIES)
4.1. Funeral Expenses
In fact these institutions are exempt from property 4.2. Claims against the estate (decedent is the
tax for as long as the property is used in line with debtor)
their main objectives. They exempt from income tax 4.3. Claims against insolvent persons
on income earned from the use of the property. (decedent is the creditor)
4.4. Unpaid mortgage indebtedness
This school, University of Santo Tomas, madaming 4.5. Judicial expenses of the testamentary or
tindahan diyan, kainan diyan, pinapaupa, so yung extra-judicial expenses of the intestate
mga umuupa nay an, they will be paying their own proceedings
income tax BUT AS FAR AS THIS SCHOOL IS 4.6. Losses
CONCERNED, the school has to pay RENT INCOME. So 4.7. Unpaid taxes
yon and taxable. BUT NEVER INCOME FROM 5. Medical Expenses (max Php 500k)
TUITION FEES. Income from commercial activities -those incurred within one year from date of
under the YMCA CASE. death
-substantiated with receipts
ALLOWABLE DEDUCTIONS 6. Vanishing deductions
7. Amounts received by heirs under RA 4917
Gross Estate- is the peso value of all the properties 8. Transfers for public use
left behind by the decedent. Just add them together. 9. Estate tax paid abroad
Sum total of that is the gross estate.
Example:
From these, you have to first deduct the allowable
deductions. The decedent left behind Php 4 Million worth
of properties (peso value 4 Million).
After deducting the allowable deductions, you arrive
at the Net Taxable Estate. First Deduction will be standard deduction (Php 1
Million pesos) no need of supporting receipts. That is
You now multiply with the applicable rates. given under the law.

Javier, Landayan, Macalintal, Mercado


UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
18 [TAXATION 2 ATTY. LIM] 3B 2016-2017

Then you leave the share of the surviving spouse,
don’t touch that. Of those three, the LOWEST FIGURE is what you can
claim.
Now you deduct from this point to that point.
EXAMPLE:
After that, you deduct, granting, Family Home (max
Php 1 Million pesos). 5% of the Gross Estate is Php 7 Million
Actual Expenses Php 395, 000.00
You can deduct Family Home provided it was the Maximum allowed by Law is Php 200K.
principal residence of the decedent prior to his
death. And therefore, to deduct this, you have to Of those three, the lowest figure is what to
secure a BARANGAY CERTIFICATE. The barangay be claimed as a funeral expense.
captain will attest to the fact that during the lifetime
of the decedent, he’s been staying at that place and The BIR is very strict with the funeral
that it was his principal residence. THERE MUST BE expenses as deduction. Because most lawyers or the
BARANGAY CERTIFICATE TO THAT EFFECT. accountant deduct Php 200K automatically as funeral
expenses. THAT IS NOT AUTOMATIC. You have to
If the decedent has several houses, he has one in determine the three figures.
Baguio, another here in Manila and another one for
example in Pampanga, HE CAN ONLY DEDUCT ONE. You have to be very careful with Estate Tax.
That place where he last resided prior to his death. So The government is very serious and very strict as far
that is the Family Home, ONE ONLY, with BARANGAY as Estate Tax is concerned because that is the last tax
CERTIFICATE. If you do not have the Barangay that this government can collect. After that, after
Cerificate, tyou cannot deduct the Php 1 Million. partition, mahihirapan na ang gobyerno maghabol.

Next deduction is the funeral expenses. In the CLAIMS AGAINST THE ESTATE
deduction of Funeral Expenses, you should have thee These are the debts of the decedent during
figures. his lifetime that weren’t paid. So all the creditors
would now come forward to file their claim before
HOW TO DETERMINE FUNERAL EXPENSES AS the estate, before the probate court. Present
DEDUCTIBLE: documents and the court will determine whether or
not those claims are still demandable, still valid and
FIRST: is the 5% of the Gross Estate (estimate on the subsisting. So the court will determine.
value of the gross estate at the time of death and
multiply it by 5% and that is the Estimated 5% of the CASE:
Gross Estate).
Decedent, during his lifetime, was a big
SECOND: Compute the Actual Expenses incurred businessman; he has a lot of business. He left behind
directly by the family (includes the coffin, the burial a will and he died. And when he died, he has a lot of
plaque, all expenses from the time of death, during outstanding obligations in his businesses so the court
the wake and on the day of the interment. EXPENSES called all his creditors BY WAY OF PUBLICATION. So
AFTER THE BURIAL ARE NO LONGER ALLOWED TO that is notice to the world. If you are the creditor ad
BE INCLUDED. Only expenses directly incurred, so if you weren’t able to read that article, are you
someone donated the coffin, the same cannot be exempted? NO YOU ARE NOT EXEMPTED.
included anymore. If also, there is already a burial Publication is notice to the world. So you cannot
plaque in the memorial park and the family did not claim that you did not receive any notice.
incur any expenses for that, it is not included
anymore. The court will then determine, and when
everything was done with, here now is the court
THIRD: The maximum allowed by law for purposes ordering payment of those creditors. Because the
of funeral expenses is Php 200,000.00 (Php 200K). creditors should always be paid. Be they a sole
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 19

proprietor, partnership, corporation, everytime they peso value of all the properties and they deducted all
close or go bankrupt, ang unang masasatisfy dapat the unpaid debts. Because debts unpaid are
ang mga creditors. deductible. BIR accepted it without any question
asked.
After paying the creditors, the court now
ordered that the Estate Tax be paid. After that, the If the government accepted your payment
court then should order the partition of the without any question, is the government
properties to the qualified heirs. estopped thereafter to run after you under that
return?
Then after so many months, the BIR ran after NO. Because the DOCTRINE OF ESTOPPEL
the estate claiming that during the lifetime of the DOES NOT APPLY TO THE GOVERNMENT.
decedent, he has so many taxes left unpaid. BIR was
enforcing its claims from the heirs contending that The fact of admitting your return,
the heirs have some properties in their possession accepting your payment does not mean that the
belonging to the decedent and therefore, all these government is estopped to run after you. WALANG
heirs should share in the payment, settlement of that DOCTRINE OF ESTOPPEL SA TAXATION AS FAR AS
tax left unpaid proportionately based on their THE GOVERNMENT IS CONCERNED. Pag may
distributive share. diperensya, balikan ka.

The heirs opposed arguing that the BIR was in fact a So after many months, the BIR run after the
creditor questioning the BIR why did it not file its administrator because the BIR found out that some of
claim in the court. And under the Rules of Court, if the obligations were condoned. So the BIR argued
you are a creditor, and if you are not able to file your that when the obligations were condoned, you should
claim seasonably, your claim is barred. have not deducted it. Because you deducted them,
kulang na ngayon yung bayad niyo sa estate tax.
RULING: THE DOCTRINE OF NON-CLAIM DOES NOT
APPLY TO THE BIR IN TAXATION. The Dizons opposed.

So does this mean that the BIR can collect RULING: DATE OF DEATH VALUATION RULE
anytime thereafter? What should be deducted for purposes of estate tax
NO. Collection should always be acted upon are those that are existing at the time of death. POST
WITHIN A PRESCRIPTIVE PERIOD. TAX DEVELOPMENT WILL NOT AFFECT THE TAX
PAID.
So even if the Doctrine of non-claim does not
apply to the BIR in taxation, the claim must, however In this case, after deducting those that were
be within the period. existing at the time of death, here comes the creditor
saying “bayaan mo na, wala naman na si kumpare,
If there is a conflict between the doctrine of non- sige na okay na yan, okay na yan.”
claim and prescriptive period, PRSCRIPTIVE
PERIOD WILL PREVAIL. The court ruled, post tax development will
not affect the tax paid. What happened after the
CASE: DIZON CASE payment will no longer affect the tax payment as long
as the circumstances are not within the knowledge of
The decedent during his lifetime was a the administrator or the heirs at the time of death of
businessman, so he had a lot of properties, some of the decedent. At the time of the preparation of the
theme are income generating some of them are estate tax return, they do not have the knowledge
capital asset, so they are all in his name. He also left that the creditor would be condoning the obligations
behind obligations left unpaid. so they should not be faulted by deducting said sums.
Had they known of it, perhaps they would not have
What the administrator did in preparation for deducted them.
the payment of the estate tax, they identified all the
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
20 [TAXATION 2 ATTY. LIM] 3B 2016-2017

The claims against the estate sa unpaid debts aggrieved with the partition, the mother can readjust
ginagamit yan, hindi sa kung saan saan. That applies the donated property among them.
only to unpaid debts.
So back in the case, there was this wealthy
CLAIMS AGAINST INSOLVENT PERSON family from up north, they have a lot of agricultural
lands. So the last parent died, so all of them came as
The decedent during his lifetime, marami some of them are already abroad, the attended the
siyang pautang. He is now the creditor. There are a wake and the last rites. And the parent was buried
lot of people borrowing money from him. During his with no discussion whatsoever on property
lifetime, he was not able to collect from them partitions. Eventually, the caretaker have been calling
anymore because these persons became insolvent them to send money because the properties are still
and then he died. subject to expenses. May mga taxes pa na babayaran
diyan. Hindi porke namatay yung may ari wala na din
Now, the family should include all these debts taxes. Real property tax is one of them. That comes
as part of the gross estate. Collectibles, account every year.
receivables, all of them, they have to be included
there. The amounts then, in this case, are allowable So during the first few years, okay lang
deductions. walang problema. Eventually nagaaway away na
yung mga magkakapatid kasi sabi ikaw naman na
REMEMBER: NO INCLUSION, NO DEDUCTION. laging ako, last year ako. Ikaw naman na magbigay.
Nagututuruan na. Ayaw na magbigay and because of
Insolvency is the criteria. The debtor must be that nag aaway away na talaga sila.
insolvent for claims against insolvent persons.
Include first and deduct. Finally, nung third death anniversary nung
last parent, they all decided to go home to attend na
UNPAID MORTGAGE INDEBTEDNESS to the properties and do the partition of the
During the presentation of the gross estate, properties. The parent did not leave behind a will. So
even properties mortgaged are part of the gross they talked among themselves. There were so many
estate. All unpaid mortgage indebtedness. properties scattered everywhere. Some were in
Manila, there is a condo, maron sa Makati, meron sa
EXPENSES FOR JUDICIAL TESTEMENTARY province, meron sa kung saan saan. Hindi ngayon sila
PROCEEDINGS magkaintindihan sa valuation ng properties. And
properties in the province are valued way lower than
CASE: those in the city. So there is a big difference in
pricing. They then hired the services of an accredited
Typical of a Filipino family, during the wake, appraiser to determine the fair market value of the
hindi pinag-uusapan yung mga ari-ariaan ng properties left behind. Mahal yan. Mahal ang bayad
namatay. You don’t discuss in front of the cadaver diyan.
how you will divide the properties. Parang hindi yata
maganda yon. Pero passé na yan yung ganyan na Because the properties were above Php
ugali. Dapat nga pinag uusapan yan before the person 2Million, they have to hire the services of an
dies. accountant.

Like example, a mother with four children. Note: If the estate is more than Php 2
She now wants to donate all her properties to her Million, the estate return should include financial
children because apparently donor’s tax is cheaper statements of the decedent.
than estate tax. Now, if they are not happy with the
partition, they can ask the mother and she will still be Back to the case. Because the decedent did
there to answer them. So that is a child questions the not leave behind a will, they have to hire the services
partition and the mother feels that the child is really of a lawyer for the extrajudicial settlement of
partition of properties. So they incurred a lot of
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 21

expenses. Publication. At the end of the day they RULE: The loss should occur within six months from
deducted everything. death and the fact of loss should have been recorded
in the concerned government agency.
When they were ready to pay, they submitted
the return to the BIR. The BIR however denied the Example:
return contending that under the Tax Code, only
JUDICIAL EXPENSES for testamentary proceedings. The decedent during his lifetime, had a
Ibig sabihin dapat may will. Eh walang will, so sabi ng bakery. He died. And within six months that
BIR non-deductible. bakery got burned. Now the fact of loss
should be recorded in the fire department,
Felt aggrieved, the heir fought it out and the barangay, the BIR.
nakarating sa Supreme Court.
NO RECORDING, NO DEDUCTION. (The same goes
RULING: EVEN EXTRA-JUDICIAL EXPENSES SHOULD true with income taxation, there must be proper
BE DEDUCTIBLE. Extra-judicial expenses incurred in documentation, otherwise, it is not a deductible loss.)
relation to the distribution of the properties (no will
left behind) are also deductible. KINDS OF LOSSES DEDUCTIBLE: TRECUSO
Story of Atty. Lim’s family. Regarding the bunso na
lalake… And their mom gave bulk of her properties to Loss occasioned by:
the bunso. Atty. Lim protested arguing that there
should be equal partition. Theft
Robbery
LESSON: You don’t put premium to Embezzlement
irresponsibility. Calamity
Unexpected Sudden Occurrence
Atty. Lim said that you should advice your
clients to divide the property during his lifetime kasi These are called casualty (TRECUSO) losses.
problema palagi ang partition. They are deductible.

In the event na magka problema ang heirs sa The value of the loss can be deducted
partition, PUT UP A CORPORATION. And those provided it occurred within 6 months from death
properties will be used as a contribution of the with proper documentation with the proper
parents to that corporation and in return for the government agencies.
payment of the properties, you give the parents share
of stocks AND THEN THE SHARE OF STOCKS WILL TAXES
BE DIVIDED EQUALLY. In the event na ibenta ang
property, pantay pantay ang hati. CORPORATION IS Those that the decedent paid during his
ALWAYS A SOLUTION TO DISTRIBUTION OF lifetime, they can be deducted from the gross estate
PROPERTIES AMONG HEIRS na hindi because those taxes must be paid.
nagkakaintindihan.
MEDICAL EXPENSES
NOTE: When you exchange properties with shares of
stocks, for as long as they are of equal value, it is not Max is Php 500k incurred within 1 year prior
a taxable transaction. No taxation is involved there. to death.
Substantiation Rule applies.
LOSSES
Example:
Losses are deductible for income tax A wealthy family and a member thereof has
purposes, and it is likewise deductible for estate tax cancer. They really wanted to prolong hi life.
purposes. So they had the member undergo gamma
knife. It costs millions of pesos. The family,
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
22 [TAXATION 2 ATTY. LIM] 3B 2016-2017

one year prior to death incurred Php 7 deduction is for the government to collect more
Million pesos all supported with receipts. taxes.

Under the rule, only Php 500k is deductible as DONATIONS IN FAVOR OF GOVERNMENT FOR
medical expense. The Php 6.5 Million, you can place PUBLIC USE
that under claims against the estate. Because that is The government can be a national
an obligation incurred during the lifetime of the government or a local government. The amount
decedent. donated is an allowable deduction.

AMOUNT RECEIVED BY HEIRS UNDER RA 4917. REMEMBER: PLEGEDES ARE NON DEDUCTIBLE.
But DONATIONS are deductible from the gross
RA 4917-The law requires the employer to estate and in fact the donation is even exempt
give financial assistance to the family of the employee from donor’s tax.
who met an accident or died while in active duty.
That is now mandatory. The heirs now will receive DONATIONS:
money under this law. The heirs now are required to
include such money as part of the gross estate and Deductible from gross estate.
after inclusion, they are allowed to deduct. INCLUDE Exempt from donor’s tax
AND DEDUCT.
TAXES PAID ABROAD
History of the passage of RA 4917.
Refers only to estate tax. Estate taxes paid
There’s this employee from a paper factory, abroad on those properties left behind is considered
which makes boxes and puts an indention in these as an allowable deduction.
boxes. The factory was full of reminders “mag-ingat”
everywhere within its premises. And this employee Reason: Estate tax is a universal imposition. Every
was assigned there to make the indentions, there state has its own estate tax. Say a person has a
was an accident and the employee died. The condominium in Singapore; the title thereto cannot
employee who died had many children. The wife be transferred to the son without paying estate taxes
came to the employer asking for some financial there. Whatever estate taxes paid abroad, they are
assistance because the husband died while at work. deductible on Philippine taxes.
The employer refused contending that it had
reminded the employees sufficiently with the the VANISHING DEDUCTIONS
“mag-ingat” posted everywhere. That it was the
employee’s negligence. The wife aired her situation in Here is decedent, during his lifetime, he
the radio and asked for help for her to bury her acquired properties and they are all registered in his
husband and a congressman heard her situation. So name. some of them are income generating, some of
that is the offshoot of that law. them are not. If he dies, say the WIFE gets the
properties. So the wife, cannot cancel the name of the
Why is it that you’ve been hearing this rule in decedent T here, without paying estate taxes. If you
taxation? Include and Deduct, Include and are holding a property that is not under your name,
Deduct. you cannot mortgage that, you cannot sell that, you
cannot capitalize on that property. Once cannot
This is not an exercise in futility because the maximize the earning capacity of that property if it is
more you include the higher is your tax rate. So after not under his name. The estate tax should be paid
you have included all, the amount of the gross estate before she can cancel the name of T on those
will determine the tax rate. After determining the tax properties. Say she already settled it. Now the
rate, you hold on to that. You now deduct the properties can be registered in her name.
allowable deductions and whatever the amount you
arrive at, you will multiply with the tax rate you’ve The problem is, the wife also died. And the
determined a while ago. The purpose of inclusion and two deaths occurred within a period of five years. So
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 23

who will get the property? Let’s say the Son (S) will The second heir will enjoy the vanishing deduction.
get the properties. Again, S cannot cancel the name W So S will enjoy the vanishing deduction but not W.
without paying estate tax. (Note: Movements of
properties create tax events). So S has to settle the TAX REMEDIES
estate tax before he can cancel the name of W in the
properties. Remedies are both important to both the
government and the taxpayer.
Please note that S here will enjoy a special
discount called the Vanishing deduction. For the government, it needs remedies for the
reason that money has to be with it as soon as
VANISHING DEDUCTION: possible otherwise all its projects and activities will
be jeopardized.
Is a special discount that will be enjoyed by
the second heir inheriting the same property. Legal Basis: LIFEBLOOD DOCTRINE

Purpose: It reduces the harshness of successive For the taxpayer, remedies are needed because of
taxation involving the same property passing from the right to due process.
one heir to the other heir within a short period of Consultation with the people in the local level is
time (within a span of five years). mandatory are proposed to be introduced.

It is S who will be enjoying the discount. Si W, wala. If people will not agree and has strong objection, THE
POWER OF TAXATION WILL STILL PREVAIL.
REQUISITES OF VANISHING DEDUCTION:
Consultation is needed for the sanggunian to
There must be two sets of transfer taxes be aware of the plight of these constituents.
and the two deaths occurred within a period
of five years. In the national level, there is no need to
consult with the people. A congressman was already
Example: chosen to be the representative of the people to the
T died 04 December 2009 lawmaking body. He is the voice of the people.
W died 11 January 2014
FOUR REMEDIES
Determine whether the two deaths occurred
within 5 years. If it is a Local Tax, like business permit,
business licenses, apply the Local Tax Code.
The two deaths occurred: 4 years 1 month 7
days. If it is a property tax, then apply the
remedies under the real property tax code.
Within 5 years therefore, Vanishing Deductions
will apply? If it is an import-export tax, then apply the
Tariff and Customs Code.
NOT YET!
If it is an IR tax, then apply the Tax Code.
TAKE NOTE: There should be two sets of estate
taxes paid. Only the Tax Code requires a Tax Return.

First Transfer, can be by way of DONATION IR taxes are self-assessing.
or by way of SUCCESSION.
The computation must be in a prescribed
Second Transfer should ONLY AND form called the tax return .
ABSOLUTELY be by way of SUCCESSION.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
24 [TAXATION 2 ATTY. LIM] 3B 2016-2017

Tax Returns are considered self-serving CASE:
documents. If you submit that, the BIR is not bound There was this corporation, and they
by that tax return. submitted their return. Several months later, they
noticed errors in the return. They caused the
If the CIR does not believe your gross income, correction of that erroneous return by submitting
the BIR can amend your return. and amended return. They were able to do that
because there was no investigation yet. After
The CIR is empowered to amend a return. submission, several months have passed. And here
now is an investigation. Tax audit. To cut the story
If somebody reported that he gave you money short, when the taxpayer is already facing the BIR, T
but you did not report it in your return, then the noticed that what the BIR was holding was the old
government can prepare your tax return for failure to return and not the new return.
submit one when one is required.
So T argued that they have already amended
BIR CAN AMEND. BIR CAN PREPARE. that return and requested the BIR to look into the
new return. But the BIR argued that the old return
Tax returns are highly confidential. Once will still be considered because it is part of its
submitted, the same cannot be withdrawn from the records.
BIR. You are bound by all the mistakes you
committed in that return. RULING: All papers and documents submitted will be
included in the investigation including those
There is no mandate under the Tax Code that amended return to be looked into because they form
the Taxpayer should prepare his own tax return. The part of the records.
preparation of the return can be delegated to
somebody who understands math, accountant or THIRD PARTY VERIFICATION RULE:
bookkeeper.
BIR is authorized to gather evidence
The preparation of a tax return by a taxpayer wherever, whenever in support of tax audit and tax
is a delegable authority. examination, with or without the knowledge or
consent of the taxpayer.
But when delegated, principal-agent
relationship comes in, therefore, one is bound by all PEOPLE REQUIRED TO SUBMIT A TAX RETURN:
the mistakes of the agent. (Please refer to the book)

If once submitted but noticed errors upon PEOPLE EXEMPT FROM SUBMISSION OF TAX
submission, there two remedies for erroneous RETURN:
return: (Please refer to the book)

1. Submit an amended the return to correct If you have only one employer, you are exempt
the error (Amended return) from submitting an income tax return because the
employer will do that for you. (Only for income tax
2. Submit a supplemental return to complete return but not for other returns)
an incomplete return (Supplemental return)
Period: you can amend or supplement a The employer will prepare that for you and
return within 3 years from submission of that on the part of the employer, that is called the ALPHA
erroneous return provided there is no LIST, listing down all the names of the employees,
investigation yet. their tax account number, their exemptions, the
number of children, and their compensation and the
Once investigation begins, you cannot touch that withholding taxes.
return anymore and no remedies are available
anymore.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 25

MATERIALITY OF TAX RETURN:
HOW THE BIR ESTABLISHES FRAUD:
Tax return is a stepping-stone to a full-blown
tax investigation. Example:

When a tax return is submitted, the government is The employer submitted a return showing
only given 3 years to look into that return. that your salary for the whole year amounting
to Php 3 Million pesos, but the employee
Prescriptive period to assess, investigate, audit, submitted a return of only Php 500K gross
examine, compute: income. Now between the employer’s and
employee’s return, the EMPLOYER’S RETURN
Generally, the government has 3 years to go over the WILL PREVAIL because that is supported
tax return. If within the 3-year period, the with a payroll and acknowledgement
government finds something in your return, they will voucher.
call your attention.
Over claiming of deductions is also a proof of
RECKONING POINT OF THE 3-YEAR PERIOD TO fraudulent return.
ASSESS:
Fraud penalty will then apply which is 50% of
EARLY PAYMENT: the 3year period to assess the main tax.
commences to run one day after the due date
if the tax was paid early. Other charges
Surcharge is 25 %.
LATE PAYMENT: the 3-year period to assess Interest is 20% per annum.
commences to run from actual payment if it
was paid late. How will the BIR get in touch with the taxpayer?

TWO-YEAR PERIOD TO CLAIM INVALID PAYMENT The BIR will send a Notice of Informal Conference
UNDER SECTION 229 OF THE TAX CODE. (NIC).
NIC is an invitation for you to appear there
EARLY PAYMENT: Two-year period and also an avenue to present supporting documents
commences to run from payment if paid to the alleged deductions. No assessed tax liability yet
early. in this stage.

LATE PAYMENT: Two-year period Example:The BIR is investigating you for the
commences to run from due date if paid late. year 2012. You received the notice today
(March 10, 2017), is that a valid
10-a-w are the exceptions to the 3 year period within investigation?
which the government can assess. NO. Because the 3-year period already lapsed.

(10) When during the 3-year period for the Explanation:
government to go over the return, fraud is discovered
or there is failure or omission to file a return when 2012 is the year sought to be investigated. Tax return
one is required to be filed, the right of the for that year is payable April 15, 2013. Today, March
government to assess the taxpayer is automatically 10, 2017, you received a letter. Because the 3-year
extended to 10 years and the 10-year period period already lapsed.
commences to run from discovery.
REMEMBER: An UNCONTESTED ASSESSMENT
Fraud cannot be presumed. Fraud must be ripens into a collection case.
established concrete, valid, acceptable, legal
evidence.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
26 [TAXATION 2 ATTY. LIM] 3B 2016-2017

During the hearing, the uncontested If the taxpayer does not agree with the PAN, he has
assessment can no longer be assailed because the 15 days from receipt to dispute the PAN.
failure to dispute it seasonably, means that you have
waived all you defenses against the validity of that NOTE: Prospective Assessment is not appealable
assessment. What you can only question is the to the CTA because that is interlocutory.
VALIDITY OF THE COLLECTION but never now the
validity of the assessment. The NIC and PAN with the Prospective Assessment
should be within the original 3-year period within
ASSESSMENT NOTICE which the government may assess.
Is an assessment sent to the taxpayer,
showing a fixed and determined tax liability. The prospective assessment should provide the legal
basis for the alleged tax liability. It should provide the
Purpose: It fixes, shows and determines a tax particular law or provision of the Tax Code that is
liability. violated, otherwise, it is a violation of the taxpayer’s
right to due process.
DEFENSES WHEN THERE IS A JUDICIAL CASE FOR
COLLECTION UNDER AN UNCONTESTED REQUISITES OF A VALID ASSESSMENT
ASSESSMENT:
It must be within the 3-year period.
1. The court is without jurisdiction It must state the facts and the law as legal
basis for the alleged tax liability.
2. The right of the government to collect has
prescribed. If the taxpayer would dispute the assessment,
it must also present and cite the legal basis of the
3. The collection was not approved by the CIR dispute. “I do not agree” would not suffice.
or by the Regional Director.
The next will be the Final Assessment Notice (FAN).
After receiving the NIC, one can dispute the same The taxpayer has 30 days from receipt to dispute the
within 15 days. FAN.

(A). Agreement. If the taxpayer would request the If no agreement is arrived at under the FAN, it will be
BIR for another meeting and bring with him his the FAN that is appealable to the CTA.
accountant or bookkeeper, the BIR can accommodate
him for that. However, the taxpayer MUST SIGN an REMEMBER: Any issue regarding the FAN is
agreement that the taxpayer will not apply the 3 year appealable to the CTA.
prescriptive period.
If the taxpayer received the FAN outside the 3-
If there is an agreement between the BIR and the year period, can the government enforce
taxpayer to give more time for the taxpayer to collection?
explain and substantiate his position, then the 3-year YES. Because a FAN without a PAN is void.
prescriptive period will not apply. However, the PAN is mandatory before a FAN.
agreement must be in writing.
Good Luck!
After NIC comes now the Preliminary Assessment
Notice (PAN). April 21, 2017

PAN- a notice showing an alleged tax liability. -NIRC: there are no less than 43 taxes scattered there.

Prospective Assessment- the alleged tax liability -Local Taxes: aside from the major 2 taxes (business
mentioned in the PAN. permits and land taxes) there are other fees and
regulatory impositions (ex. weighing scale).
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 27

-Import/Export Taxes: collector will compute from 2. Delinquency Assessment
the entry report of the goods the amount of dues and
other fees like storage fees, and wharfage (for the use PROCEDURE:
of the bridge during the loading and unloading of
goods). Notice of Informal Conference (NIC) -> Preliminary
Assessment Notice (PAN) -> Formal/Final
REMEDIES UNDER THE TAX CODE: Assessment Notice FAN)

Pay as You File System NIC
– payment should always come with a – an invitation for you to come, maybe
tax return. It is the system we follow to explain some thing in your return
in paying our IR taxes. etc. You can go if you like, or you can
disregard it if you want.
Tax Return
– is a prescribed form where you will PAN
show the BIR how you arrive at your – there’s already a computation of the
amount of tax payable. alleged tax liability. The BIR has to
give you the facts, the laws
Relocation of tax situs should be reported to the supporting the computation,
BIR, otherwise the taxpayer will be bound to all revenue regulations which you have
communications sent to his old address. allegedly failed to comply with and
jurisprudence, should there be any.
-Non-receipt of the assessment notice will not
invalidate the assessment. PAN is not appealable to the CTA because it is an
interlocutory order (it is not a final order of the CIR).
TWO KINDS OF ASSESSMENT
After the PAN has been terminated, a FAN will be
1. Deficiency Assessment issued.

When is there Deficiency Assessment? PERIODS TO REMEMBER

1. You have submitted a return with a TAXPAYER
payment but upon investigation it was
established that the payment was not correct. -15-day period to answer NIC and 15-day
period to dispute a PAN.
2. You submitted a tax return showing that
you are not liable for any payment. -15-day period to appeal to the Supreme
Court.
Example: return showing a loss, but
the BIR disallowed your claimed -In between these two periods, the period is
expenses because some of them are 30 days.
not authorized by the law, fictitious,
cannot be justified, or not related to GOVERNMENT
your business operation. When the
BIR recomputed your tax liability, it -120-day period to act on the administrative
appears that you should pay claim for unutilized input tax in VAT
something, hence a deficiency
assessment will be issued. -180-day period to act on the disputed
assessment.
3. You did not file a return when in fact, one
should be filed.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
28 [TAXATION 2 ATTY. LIM] 3B 2016-2017

REQUISITES FOR A FORMAL ASSESSMENT NOTICE ruling with well-established precedents, it can be
(FAN) TO BE VALID delegated to the regional director.

1. It should be preceded by a PAN (mandatory); 4. The power to assign tax personnel to areas where
excisable goods are kept or manufactured.
2. The PAN should have been undertaken within the 3-
year period to assess; and NOTE: Excisable goods are the goods we can live
without. Sin products like cigars, liquor, perfume etc.
3. The FAN must state the facts of what transpired 5. (not mentioned).
during the preliminary assessment, law you have
allegedly violated, revenue regulation not complied The power to assess is both DELEGABLE and
with, and jurisprudence should there be any. DISCRETIONARY power. Hence, MANDAMUS will not
lie to compel the CIR to assess.
SERVICE OF ASSESSMENT NOTICE
WHEN ASSESSMENT MANDATORY
1. Personal Service (very ideal type of service) or
1. When it involves a deficiency tax;
2. Constructive Service:
2. When it involves prescriptive period;
a. By Registered Mail; or
3. When there is a finding that taxpayer submitted a
b. Taxpayer’s Refusal to Accept - personal fraudulent return;
service but the taxpayer refuse to accept -
must be accompanied by an affidavit executed 4. When there is a finding of failure to file a tax
by 2 witnesses (usually 1 police and 1 return;
barangay official).
5. When there is imposition of surcharge and
NON-DELEGABLE POWERS OF THE CIR interest;

1. To accept compromise from the taxpayer when the 6. When there is a need to terminate a tax period (If
amount of tax involved is between 500 thousand to 1 the BIR terminate your tax period, there will be an
million. outright demand for tax payment); and

NOTE: Surcharges, penalties and interests are not 7. When there is an imposition of a special tax lien.
included in the computation of the main tax. ASSESSMENT here means the mathematical
computation of the tax liability.
2. The power to cancel tax liability.
When is an Assessment deemed made?
2 SITUATIONS WHERE THE CIR HAS THE
POWER TO CANCEL TAX LIABILITY: -According to the Tax Code, an Assessment is
deemed made “when one (notice) is released, sent, or
1. The assessment is unjustifiable. mailed to the taxpayer’s at his given address per his
2. When the cost of collection is more than tax return,” PLUS (by virtue of a jurisprudence)
the amount sought to be collected. supporting documents i.e. two sworn affidavits from
the (1) Post-Master General showing the fact that an
3. The power to recommend Revenue Regulation to assessment notice was received by his office and this
the Secretary of Finance in support of tax laws. notice has to be forwarded to the taxpayer-
addressee, and (2) from the process service that
NOTE: BIR Rulings are not revenue regulations for indeed he brought that notice to the post office to be
these are mere opinions of the CIR. If the BIR ruling is sent to the taxpayer.
a ruling of first impression, it is not delegable. If it is a
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 29

ELEGADO DOCTRINE - Prescriptive period when days since it involves 3 years. The government has
several notices are received by the taxpayer - when until Oct. 8, 2017 to assess X’s estate tax return.
the second notice is a mere reiteration of the first, the (Primetown Doctrine applies in years, not in
reckoning period is on the first, but if the second months).
notice is materially or substantially different from the
first, the prescriptive period is on the second. Formal Assessment Notice (FAN) was issued on May
26, 2016, the taxpayer has 30 days to dispute the
May the CIR amend an assessment pending FAN. Failure to dispute it within that period, the FAN
appeal to the CTA? be called now as FINAL Assessment Notice (F1)
which will ripen into a collection case.
GR: CIR not authorized to amend tax assessment
pending appeal to the CTA because it violates NO DISPUTE, NO APPEAL – Failure to dispute a FAN
taxpayer’s right to due process. ripens into a collection case.

EXCEPTION: If the amendment involves only the Jurisdiction of the CTA: Disputed Assessment –
computation of the surcharge or interest, and not the never an UNDISPUTED assessment.
main tax.
After you have disputed the assessment, you are
TIPS ON COUNTING THE 30-DAY PERIOD given 60 days to submit documentary evidence in
support of the dispute. The 60-day period is counted
If the month is composed of 31 days, move one day AFTER the dispute, not after the expiration
back. For instance December is composed of 31 days, of the 30-day period. 60-day period is mandatory.
to get the 30-day period, if the assessment is made on Failure to do so will dissolve the dispute, as if no
5 December, just move 1 day back, hence the 30-day dispute at all was made (F2).
period will end on 4 January.
If you have done both, BIR has 180 days from the
EXCEPTION: When the assessment is received on the expiration of the 60-day period to act or not to act on
first day of the month, 30-day period will expire on the disputed assessment.
the last day of the month.
During the 180-day period, several things may
If the month is composed of 30 days, just copy happen.
the date and move to the next month. Example April
is composed of 30 days, if assessment is made on 5 FIRST: Taxpayer’s dispute is denied. In which case,
April, just copy the date and move to the next month you have 30 days from receipt of the denial to appeal
hence, 5 May is the end of the 30-day period. to the CTA. Subject that denial to a Petition for
Review before the CTA. If taxpayer fails to comply
GRAPHICAL ILLUSTRATION OF A DISPUTED within the 30 day period, that denial will ripen into a
ASSESSMENT collection case (F3).
Please see Annex 1.
SECOND: Issuance of a warrant in lieu of an answer is
X died on April 22, 2014 leaving behind substantial an Implied Denial (ID) of the taxpayer’s dispute.
amount of properties. The family should settle the Implied denial is a decision. The taxpayer is given 30
estate tax within 6 months from death (October 22, days from receipt of the warrant, to go to the CTA to
2104). subject the same to a Petition for Review. Failure to
do so will make the assessment final (F4).
Supposed the family paid the estate tax on time (Oct.
22, 2014), the right of the government to asses THIRD: There is no denial nor was there issuance of
commences the following day, Oct. 23, 2014. a warrant, but the BIR sent a Final Demand Letter
(FDL) reiterating that the taxpayer have to pay the
Add 3 years, Oct. 23, 2017. Applying the Primetown amount indicated in the notice. The Supreme Court
Doctrine, deduct 5 years per year, or a total of 15 held that an FDL is an implied denial of the taxpayer’s
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
30 [TAXATION 2 ATTY. LIM] 3B 2016-2017

dispute. Hence it can be subjected to a Petition for The second assessment should come within 1 year, 4
Review to the CTA within 30 days from receipt of the months and 27 days from the day the taxpayer
FDL. Failure to do so seasonably will bring about receives that the request is granted. Any assessment
finality of the assessment (F5) and that ripens into a beyond that point is a void assessment.
collection case.
SIXTH: There is inaction on the part of the CIR, and
FOURTH: There is no denial, no warrant, no FDL, but the 180-day period has already lapsed. The taxpayer
the BIR files a judicial collection in court. The has 30 days from the expiration of the 180-day
Supreme Court held that, filing a judicial collection in period to appeal to the CTA the inaction of the CIR.
court within the 180-day period is an implied denial Failure of the taxpayer to appeal within the 30-day
of the dispute. The regular court will then issue period will make the assessment final (F8).
summons which must be answered to within 15 days
otherwise the taxpayer will be in default, and also THREE MODES OF COLLECTION:
within 30 days, the taxpayer may file a Petition for
Review with the CTA. Failure to file an appeal with 1. Administrative – ex. issuance of a warrant
the CTA will make the assessment final (F6).
2. Judicial – done if the taxpayer is a flight-risk, and
PRACTICAL ADVICE: Try to perfect your appeal with there’s a possibility that the taxpayer will flee, in
the CTA within 15 days and all you have to do with which case the BIR will file a judicial collection in
the collection case is to file a motion to dismiss, court and ask for a hold-departure order (HDO)
because when CTA takes cognizance of a case, the because only courts can issue an HDO.
regular court is automatically divested of its
jurisdiction over the case. 3. Administrative-Judicial

FIFTH: No denial, no warrant, no FDL, no judicial PERIODS TO ENFORCE COLLECTION:
collection, and the dispute is GRANTED. If it was
granted, there will be a second assessment sent to the 1. If there is no assessment, collection should be done
taxpayer. Once the taxpayer receives the second within 3 years from the due date.
assessment, the taxpayer gains a fresh 30-day period
within which to dispute the second assessment. 2. There is an assessment but the taxpayer did not
Failure to dispute the second assessment on time will dispute, collection is 5 years from assessment.
bring about the finality of the second assessment
(F7). 3. There is an assessment and the taxpayer disputed
it, the period to collect is 5 years from the finality of
IF THE TAXPAYER’S DISPUTE IS GRANTED, how the assessment.
much time will the BIR have for the second
assessment? The BIR will send you the second CTA En Banc and CTA in Division
assessment within the remaining time frame.
-When you are going on appeal to the CTA for the
first time, your pleading is CTA in DIVISION. If the
decision of the CTA in division is adverse to your
interest, within 15 days, file a Motion for
Reconsideration (MR) before the same division. If the
motion is denied, file a Petition for Review before the
CTA En Banc. After En Banc, go to the Supreme Court.

-Decision of the CTA in division that has attained
-period within which the BIR may issue the second finality can no longer be modified by the CTA En
assessment. Banc.

Javier, Landayan, Macalintal, Mercado


UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 31

-CTA En Banc and CTA Division are considered as yan sa Secretary of Finance, may connivance na
ONE UNIT only. There is no hierarchy of court since naman between the Sec. of Finance and the
they are ONE and THE SAME court. Commissioner, wala nang mangyayari sayo. Hence,
the more time is involved when you are prohibited
April 28, 2017 from operating and the more losses you sustain. So
that your case will be acted with dispatch, go to the
TAX REMEDIES Office of the President.

Is an action available to either the government or a For extrajudicial remedy naman for the government
taxpayer whether judicial or extra-judicial to enforce para maka collect ng maaga, go down the level and
tax collection on the part of the former or to prevent explain taxation. Explain it in such a way that they
the arbitrary collection of taxes, abuses, or harassment will appreciate Philippine taxes. Kasi ngayon, masakit
by those enforcing the tax and payment of illegal taxes na masakit ang magbayad kasi hindi nila
on the part of the latter. maintindihan nasaan ang pera nila.

Remedies are both available to the government and Another remedy that is available as far as taxpayer is
the taxpayer. concerned is TAX AVOIDANCE.

Government needs remedies because of the lifeblood TAX AVOIDANCE V. TAX EVASION
doctrine.
Tax Avoidance is, you use legal means to lessen the
Taxpayers need the remedies for the reason that the burden of taxation.
Constitution mandates due process.
Example: If you have on dependent
There are remedies before payment and there are and you are an income earner, you can deduct
remedies after payment. 25,000 for your dependent from your gross
income. So kung may deduction ka, bababa
The government has administrative remedies, it has ang computation ng tax mo.
also judicial remedies and it has also special
remedies. The same goes true with the taxpayer. The Kung gusto mo ng madaming deduction eh di mag-
special remedy is an extrajudicial special. An example anak ka ng madami. Intead of one, have two, have
of this is when you have a business and you violate three but no more than four. That is tax avoidance.
the VAT law. We said that when you violate the VAT Hindi naman pinagbabawal. So what you should do is
law, the BIR could padlock your store. That is the to avail of legal means.
only one that will authorize the BIR to padlock the
business. Another example: If you are a big
income earner, you know that their tax rate is
If you did not pay your income tax, you did not 32% if you are big income tax payer, correct.
pay your business permit, or you did not pay your So kung meron ka lang din puhunan na
income tax or estate tax, can the BIR padlock your ganon, I deposit mo na lang yon di ba. Wala ka
store? pang pagod, kumikita ng interest and yung
interest non 20% lang. Kung gusto mo ng mas
NO. Because BIR can only padlock in violation of the mababa pa, palitan mo yung peso mo ng
VAT Law. dollars, and ideposito mo as dollars and the
rate is only 7.5%. So no BIR will tell you, you
So arbitrarily pinadlock nila yung tindahan mo, are not allowed to do that! Why? Because the
san ka pupunta? availment of legal remedies is your absolute
right.
Para madali, you go to the Office of the President and
file a Motion for Reconsideration because BIR is To deduct expenses that are related to your business
under the Office of the President. Pag dinala mo pa operation is also you right. BIR cannot say you are
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
32 [TAXATION 2 ATTY. LIM] 3B 2016-2017

not allowed to do that! No, what BIR will do is to You do not know what the law is talking about. To be
determine whether or not your deduction is indeed guided accordingly, you write to the BIR and seek BIR
in furtherance or in line with your business Ruling.
operation. And, if you have supporting receipts, okay,
you can deduct the full amount, no BIR will tell you 3. Amendment of the Return.
cannot do it! Because those are available remedies.
You submitted a return, okay, and then you did not
Another word for tax avoidance is tax pay because according to your computation there’s
minimization scheme. no payment due from you. So wala kang babayaran
but you have to submit that return. And then you are
Tax Evasion is very obvious you are cheating the reviewing that return, may mga pagkakamali, you
government of taxes. The means adopted is illegal. amend that return before payment.
Iyon ang tax eveasion. Another name for tax evasion
is tax dodging. 4. Disputing an Assessment under the Tax Code.

Example: You are underdeclaring You receive an assessment, sabi ng law, if it is an IR
your income. You’re a bank manager and your tax, there is no need to pay and you are allowed to
annual income is P 680,000.00. May payroll dispute. Again, what are the kind of taxes that are not
ka na pinipirmahan every month na allowed to be disputed without payment, there are
tinatanggap mo yung sweldo mo. At the end two: 1. Property Taxes and 2. Import/Export Taxes
of the year, ang dineclare mo na sweldo mo (Duties). You cannot dispute these two without
P250,000.00 lang. Madali kang mahuli kasi payment.
yung employer mo mag s submit yan ng
annual return. Iyong payroll na iyon ipapakita The rule is PAY FIRST BEFORE PROTEST.
gaano ba kalaki ang tinatanggap ng manager
na ito from the bank including allowances etc. Now ang ginagawa doon sa ating import taxes ano,
Naka declare iyon. the Collector will call your attention, so you have to
be there, pay your taxes, don’t be late because the
Tax Aviodance is Tax Minimization: Tax Evasion longer you delay, the higher the storage fee. So
is Tax Dodging. pagdating, may notice ka na agad that the vessel
arrived. So be there as soon as possible.
REMEDY OF A TAXPAYER BEFORE PAYMENT:
Kung minsan, naka compute na. What about if you
ADMINISTRATIVE REMEDIES OF TAXPAYER paid, but after payment, you noticed na meron atang
Page 676 mga additional taxes doon or impositions which are
BEFORE PAYMENT: not of your concern. So you have to protest, eh
nakabayad ka na.
1. Tax minimization
2. Secure BIR Ruling or opinion of the CIR If the payment came ahead of the protest, your
3. Amendment of the Tax Reaturn- within 3 years from protest can come after 15 days from payment.
submission of that which is to be amended provided
there is no investigation/audit or assessment yet. Ordinarily sa import taxes, when you are paying and
4. Disputing an assessment. you do not agree, you have to indicate in that
5. Compromise of the civil and/or criminal liability. payment that this is paid under protest.
6. Abatement of tax liability
7. Abandonment of imported goods. But if you were not able to protest upon payment,
pwede ka pa bang mag protest?
1. Tax Avoidance. Yes, within 15 days from payment.

2. Seek BIR Ruling 5. Compromise Proposal

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 33

Lets say you receive today a PAN from the BIR and proposal. Now the BIR after you have defaulted and
there is an amount there indicated which is lets say there is proof already for that non payment will
only P180,000.00 tax liability. Ngayon if you dispute enforce judicial collection now.
that, you have to hire yourself a lawyer. Ang
acceptance fee ng tax practitioner walang bababa ng What will be filed in court is the original amount
dalawang daan. May hearing pa may documentation and those which you have already paid will be
pa. So kung konti lang amount and alam mo naman forfeited in favor of the government.
na may kasalanan ka din naman at hindi ka
nagbabayad ng tama. Ang solution mo diyan is to Now for example, you are questioning the
enter into a tax compromise agreement. The collection here, the compromise proposal that
compromise proposal must be in writing and you have agreed, is that appealable to the CTA?
addressed to the Commissioner.
NO. A compromise proposal is not a disputed
Can your compromise proposal be addressed to assessment.
the Regional Director?
Where do you appeal then?
YES. Because the Regional Director is an alter ego of
the Commissioner. Regular Court. Then Court of Appeals.

What should be noted here and needs to be What are the cases under the Tax Code that are
emphasized are the minimum compromise rates. appealable to the CTA?

Example: Ang hinihingi sa iyo ay Disputed Assessment.
P380,000.00 and you want to compromise
this because you no longer want to hire a Lets say, today I received an assessment from the
lawyer. BIR at naiinis ako kasi apparently wala naman
akong utang sa gobyerno na 7M. Can I subject that
P380,000.00 x .40 = P 152,000.00 for a review before the CTA?

Huwag kang tatawad ng lower than P No. Because you did not dispute the assessment.
152, 000.00.
Assessment per se is not appealable to the CTA.
Ang tawad mo should be higher than
that. You have to dispute it and wait for a resolution. A
resolution can come to you by way of express
Let’s say tumawad ka ng 300K which is almost resolution or by way of inaction. If you have already a
double already the minimum. Is that acceptable? resolution by way of express or implied, you can
Will the BIR automatically say okay, okay? already appeal because that is already a disuted
assessment.
NO. Because whatever proposal you submit, that will
be subjected to investigation. Refund of IR Taxes. How about if it is a refund for
local taxes. Is that case appealable to the CTA?
Compromise proposal, if it is accepted is a
contract. Yes. Under the expanded jurisdiction of the Tax
Court.
Lets say you agreed already and you even asked for
installment payment. Pinagbigyan ka rin para So you paid your local taxes and then asks for refund
matapos na. So that was accepted and you promised but there is inaction from the Local Treasurer. Then
to pay within 10 months. 30K per month, okay. Lets you can go for appeal because Local Taxes now are
say you paid 3 months already, on the 4th month you appealable to the CTA.
defaulted na. You reneged on your compromise
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
34 [TAXATION 2 ATTY. LIM] 3B 2016-2017

Other matters in relation thereto found in other laws. 3. Payment of the assessed tax without disputing the
Penalties imposed in relation thereto. same and claim for tax refund or credit within 2 years
from payment.
CURRENT EVENTS: MIGHTY CORPORATION 4. Question the validity of the forfeiture.
CIGARETTE 5. Redemption of real property levied upon within 1
year from sale or forefeiture.
Excise Stamps should be bought from the BIR. But
this Cigarette Company, nagpapa print siya ng sarili 1. Tax Refund.
niyang stamps imported from Taiwan. Is that
appealable to the CTA? The use of fake documentary 2. Amend Return After Payment.
stamps tax.
Concepcion Doctrine.
It’s a criminal case. The BIR will file that in the CTA Lets say there is this PAN issued by the government
but the CTA has no criminal jurisdiction. If filed preceded by NIC ano.
before the CTA, the CTA will refer the case to the DOJ. Yung final assessment ditto, after sending you PAN, is
the one you cn dispute within 30 days. On the other
6. Abatement of tax liability. hand, the final assessment here ay meron ng
resolution sa dispute mo and hindi ka nag appeal so
So you received an assessment. And then you have yung assessment nay an tatawagin ding final
prof of payment already. You go the BIR and present assessment. And pag final na siya, after the resolution
your proof of payment. So andaming computation that is the one that ripens into collection.
computation diyan kasi nga wala silang proof of
payment mo. So they will just cancel your tax liability So what happened in the Concepcion case, nagkaroon
based on your proof of payment. ng assessment and dinispute niya yung assessment.
Pagkatapos niyang dinispute, sinubmit niya yung
7. Abandonment (Involves importation). mga requirements and evidence and then he started
counting already the 180 day period and indeed
Lets say you are an importer and you bring in goods within the six month period, naka receive siya ng
and based on your belief those goods are essential, denial. So ang sabi natin the next move is to appeal to
say you are importing powder for food or food the CTA within 30 days. Now etong taong ito, hindi
preservatives. Nung dumating yang mga yan, pinipilit nag appeal. Hindi siya pumunta sa CTA. Binayaran
ng tax collector na non-essential yang mga yan. Eh niya yung tax. Now after payment, he is now claiming
ang computation ng non essential sa essential ay that the payment was an invalid payment and he was
napakalaki. Kung non-essential, napakalaki ng tax working for the refund of that payment within 2
diyan kumpara sa essential na murang mura minsan years from payment.
halos wala na. So naiinis ka, ang ginawa mo, sa inyo
na lang yan! So pagka na forfeit iyang mga yan, it is as SC: No. Please remember disputing an assessment
if you have paid taxes. Hindi ka na hahabulin ng and tax refund are not continuing remedies. You
government. cannot use both simultaneously. It is one without the
other. So after you have paid, walang tax refund yan.
REMEDIES AFTER PAYMENT: Perhaps what you have paid was the right tax. Sabin
g SC, what you are trying to do Mr. Taxpayer is that
ADMINISTRATIVE REMEDIES OF A TAXPAYER you are trying to circumvent the law. If there is an
Page 677 intention on your part to pay the tax, you should have
AFTER PAYMENT paid that within the disputing time. Because
disputing and refund cannot come together. Pag
1. Tax refund nagbayad ka without a dispute, you can claim that
2. Amendment of Return with payment and claim for under an invalid payment. But if your payment comes
refund or credit within 2 years from payment. after the 30 day period, whether or not there is
dispute, any payment after the 30 day period is

Javier, Landayan, Macalintal, Mercado


UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 35

considered a valid payment and valid payment is not
subject to tax refund. 4. Exercise the Right of Redemption of Real
Properties that were already subjected to public
Payment done within the 30 day period disputing sale
time may be considered an invalid payment
subject to tax refund provided there is no dispute. 1 year redemption and questioning the validity of the
forfeiture.
However, payment done after the 30 day
disputing time is considered valid payment and is JUDICIAL REMEDIES OF A TAXPAYER
not subject to refund. Section 229 does not cover
that because the provision applies only to invalid CIVIL REMEDIES
payment. Page 677-678

Island Garment Case: Somebody received an 1. Appeal to the CTA
assessment from the BIR and it took the taxpayer to 2. Secure Injunction Order from the CTA
dispute the same on the last day. Of course that is a 3. Appeal from CTA to SC
valid dispute. Please remember that the amount of 4. Sue internal revenue officer for damages caused in
time you have consumed in disputing the assessment, the performance of their duties arbitrarily.
you have to deduct that from the number of days you 5. Action to contest forfeiture of chattel, enjoin its sale
have to appeal to the CTA. or recover proceeds of sale.
6. Action to question the validity of sale of properties
Lets say it took you 14 days to dispute the under distraint, levy, garnishment or tax lien.
assessment and then submitted documents required
and you give the government 180 days to resolve it. CRIMINAL REMEDIES
During the 180 day period, they sent you a final Page 678
demand letter. So we said that a final demand letter
received within the 180 day period is also an implied Criminal action against tax officials in the ordinary
denial of your dispute and then you have 30 days courts for harassment, injury and the like.
from receipt of that letter to appeal to the CTA. But

you already consumed 14 days to dispute therefore,
1. File Answer
you have to deduct that from the 30 day period

within which to appeal. Hence you only have 16 days
Lets say I received an assessment from the BIR and I
to appeal to the CTA.
did not dispute that and I do not know the materiality

of that procedure and tinulog tulugan ko lang yan.
Island Garment Doctrine: So the number of days And we said that an undisputed assessment ripens
you have consumed in disputing the assessment will into a collection case. After several months, the BIR
have to be deducted from your 30-day period to now files a collection case. Now, pag nag file siya ng
appeal. collection case, that is an implied denial of the
request. So from receipt of the summons you have 30
So if you consumed 30 days to dispute the days to appeal to the CTA. I perfected an appeal in
assessment, you only have 1 day to appeal to the CTA. good time and I am now before the Tax Court and the
BIR enforces collection while you have a pending
RULE: Appeal to the CTA is 30 days from receipt of appeal before the Tax Court. Hindi ba sabi natin once
an express or implied denial of a dispute. In the the CTA assumes jurisdiction, of tax case, the regular
Island Garment Case, the Supreme Court ruled that court is automatically divested of that case. Now you
the number of days consumed in disputing the are before the Tax Court, can the BIR now enforce
assessment will have to be deducted from the tax collection pending appeal?
number of days to appeal to the CTA.

3. Question the Validity of the Forfeiture
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
36 [TAXATION 2 ATTY. LIM] 3B 2016-2017

YES. Because nothing can stop the BIR from tax NO. That is discretionary on the part of the CTA.
collection. BIR is authorized to enforce collection of
IR Taxes pending appeal. So that is now a collection case pending appeal. If the
CTA in division decided the case, and you do not
How will the BIR collect when there is a pending agree, you file a Motion for Reconsideration before
appeal? Hindi naman pwedeng mag file ang BIR the same division. If again that is denied, you file a
before the regular court. Di ba? Petition for Review before the CTA en banc.

BIR enforces collection by praying in that Answer in Can the CTA en banc reverse the decision of the
that Petition for Review filed by you for you to pay CTA on division?
your tax.
It depends.
Ikaw naman as taxpayer, para hindi matuloy iyong
collection na iyon, mag file ka ng Injunction before If the petition is filed before CTA en banc within 15
the CTA. days, then there is a possibility that the CTA en banc
will reverse the decision of the CTA on division.
What are the Requisites for an Injunction that
will stop the BIR from collecting? If the Petition for Review before the en banc is filed
And remember injunction is only filed before the beyond the 15 day period, the CTA can no longer
CTA. NEVER BEFORE A REGULAR COURT. And reverse nor amend the decision of the CTA division.
remember this statement applies only in an IR Tax. Because the decision becomes final and executory.

1. You have a pending appeal seasonably filed before There was this taxpayer claiming unutilized input
the CTA. No appeal no injunction. taxes. It was denied by the BIR because according to
2. The appeal is not frivolous, meaning it is not a the BIR, the documents of the BIR were incomplete.
dilatory tactic to delay tax collection. So the taxpayer appealed to the CTA. Now CTA
3. That you will mention there that if you are forced to ordered BIR to answer the petition. BIR did not
pay, your interest or that of the government might be answer. Hindi sumagot ang BIR. The CTA then
jeopardized. decided the case and ordered the BIR to refund the
unutilized input tax. Then the BIR filed a Motion to
Jeopardize as to the Taxpayer: That might not be the CTA en banc asking that the decision of the
the tax due from you. division be reversed.

Jeopardize as to the Government: That might not Hindi na pwede because the decision is already final
be the tax due from the government. and executory.

So premature payment will affect both. REMEDIES AVAILABLE TO THE GOVERNMENT

4. Willingness to submit a bond if required by ADMINISTRATIVE OR EXTRA-JUDICIAL
Court. REMEDIES:
Page 679-680
If cash bond is required, the amount shall be
equivalent to the amount of the tax to be collected. 1. Assessment
Kasali mga interest and surcharges.
2. Compromise
If property or surety bond will be submitted, then
the value of the property should be double the 3. Tax Lien
amount of the tax liability.
4. Distraint (Actual or Constructive)
Is bond mandatory if you file for an Injunction?
5. Levy
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 37


6. Garnishment Pwede ba iyong compromise proposal is to be
initiated by the government?
7. Forfeiture of property
YES. Government can also initiate compromise
8. Public sale of forfeited properties proposal.

9. Suspension of business operation in violation of the Two Instances when Compromise Proposal can
VAT Law be initiated by the government:

10. Enforcement of administrative fines (surcharge 1. When the assessed tax is found to be unreasonable
and interest) without legal basis.
11. Requiring the filing of bond to secure tax liability. 2. When there is really financial inability to pay taxes
on the part of the taxpayer.
12. Requiring proof of filing income tax return
3. Tax Lien
13. Deportation of aliens
Is converting your property into a security for your
14. Use of national tax registry tax liability and this tax lien is superior to all kinds of
tax liens. But it is superior only if the CIR registered
15. Use of authorized cash machines by business that to the Register of Deeds.
establishments
Because, a lien, lets say this property is mortgaged,
16. Requiring printers to secure authority from BIR to alright, before the government acted on this
print receipts/invoices property. Which will prevail, your tax lien or the
security deposit?
17. Obtaining information from others about subject
taxpayer The mortgagee will prevail in this situation kasi
nauna naman siya.
18. Abatement
Lets say na register na yung tax lien and here
19. Inventroy taking/surveillance comes the judgment creditors,which will prevail,
the judgment in favor of the creditors or the tax
20. Prescribing presumptive gross sales or gross lien?
receipts
Tax lien will prevail.
21. Prescribing real estate values
Lets say you own a property and you have not been
22. Termination of tax period paying your realty taxes. Maski Tax Declaration
palang ang hawak mo liable ka na for taxes. For as
23. Arrest, search and seizure in certain cases long as you can already enter the property, utilize,
develop you are already liable. Once the beneficial
24. Giving informer’s reward use is transferred to you already, you are liable to pay
taxes already.
25. Inquiring into bank deposits I certain cases.
The property is idle, are you liable?
1. Assessment Of course!

Fastest remedy for the government to collect taxes. If the property is mortgaged, are you liable?
Of course! Because you are still the owner.
2. Compromise Proposal
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
38 [TAXATION 2 ATTY. LIM] 3B 2016-2017

Please remember, sa estate tax, maski isinanla ng one of the requirements is to secure a tax
decedent yung property, the value of that property clearance from the BIR.
will still form part of the gross estate.
Dati dati, during the time of Marcos, you cannot go
Example: Hindi ka nagbayad ng tax out of the country without securing a tax clearance
mo for five years and there is proof of non but that has been already abandoned.
payment, the local government now will send
you a letter for you to update your real Non issuance of tax clearance to a dissolving
property tax. corporation.

Pag inspite of the letter hindi ka pa din sumasagot, 6. Bond
okay, then the government will now exercise the
remedy of tax lien. 7. Cash registry machine registration.
If you use an unregistered registry machine,
The government will go to the assessor’s office if this substantial ang penalty diyan. P100,000.00
only a Tax Declaration or to the Registry of Deeds if
the property is already titled and have these two 8. Obtaining information from other people
offices to annotate that this property now cannot be under the Third Party Rule
conveyed, transferred, mortaged, subject to
inheritance. Weight of the Information:

Kasi ang mangyayari, yung property na iyon ngayon Not hearsay because the BIR also needs to gather
ang magiging security sa tax liability mo. This will be evidence other than the information.
the collateral now of that tax liability.
9. Prescribing presumptive gross sales and gross
Labor Case: receipts.

There was this big corporation, okay, wherein itong Yung mga di nagbibigay ng mga receipts na yan,
mga employees nag file ng labor violations, etc., etc., percentage tax ang papasok sa mga yan.
eh nanalo itong mga employees. May claim ngayon
sila na P8M. Tapos tamang tama naman na may claim There is presumption of regularity of the
din yung BIR. Which will prevail? presumptive gross sales and gross receipts.

It depends. 10. Prescribing real estate values.

If the company is already bankrupt, wages prevail 11. Termination of Tax Period.
over taxes.
Because when the government terminates your tax
But if the company is still on going concern, meaning period, the government can already demand outright
buhay pa iyong company, taxes prevail over wages. your tax liability.

4. Issuance of Distraint, Levy or Garnishment. 12. Giving of informer’s reward.

5. Tax Clearance. 10% of the tax due but no more than P1M.

There are some activities in our life that we cannot The informer’s reward is taxable.
do it without the BIR tax clearance. Now, you go to
the BIR and secure a tax clearance. 13. Inquiring into a bank deposit.

Example: You want to borrow money If you are under assessment, it is not automatic that
from the bank. If you are a big corporation, you have to present to the BIR your bank deposit.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 39

- No penalties, no surcharge
Bank deposits are never included in an assessment.
FALSE RETURN v. FRAUDULENT RETURN
When may BIR look into a bank deposit?
- Cannot be interchanged
1. Waiver
2. Estate Tax FRAUDULENT RETURN
3. Compromise/ Settlement
- There is fraud
14. The power to take inventory and surveillance. - Ex. Under declaration of income, padding
expenses, over claiming expenses
ADMINISTRATIVE REMEDIES OF THE - Surcharge, interest, compromise penalty
GOVERNMENT TO ENFORCE TAX COLLECTION (costs of services), fraud penalty (50% of the
Page 707 main tax)
- There is criminal liability
1. Tax Lien
2. Compromise FALSE RETURN
3. Distraint of personal property of taxpayer- Actual
and Constructive. - There is no showing of tax evasion however
4. Levy of real property taxpayer. you are claiming na akala mo allowed by the
5. Garnishment of bank deposits and other intangible law pero hindi talaga
properties of taxpayer. - Mathematical error; no intention but there is
6. Civil action a mistake in the appreciation of the law
7. Criminal action - No fraud penalty, no criminal liability
8. Forfeiture and/or sale
9. Enforcement of administaive penalties and fines. If there is a law but you are not sure how to apply it,
10. Suspension of business operations in violation of the best remedy is to write the BIR a letter inquiring
the VAT Law. from them whether or not you are liable under that
law.


MAY 12, 2017
2. SECURING BIR RULING


REMEDIES UNDER THE TAX CODE
- This is related to the DOCTRINE OF

ESTOPPEL
5 GROUPS OF REMEDIES (JAPSS-- DIMAAMPAO)
- Doctrine of estoppel does not apply to the

government
JUDICIAL REMEDIES
- The government is not bound by the mistakes
ADMINISTRATIVE REMEDIES
of its employees
PROCEDURAL REMEDIES

SUBSTANTIVE REMEDIES – pleadings, protest,
3. AMENDMENT OF A TAX RETURN
validity of protest

SUMMARY REMEDIES
- Taxpayers can amend return within 3 years

from the submission of the original return
ADMINISTRATIVE
provided there is no investigation yet

- RULE ON PRESCRIPTIVE PERIOD
1. TAX AVOIDANCE
a. If there is no substantial difference
- Tax minimization scheme
between the original return and the
- Available to everyday; BIR has no right to
amended return- based on the original
deny this to the taxpayers
return
- Via the legal means (different from tax
b. If there is substantial difference- based on
evasion)
the amended return
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
40 [TAXATION 2 ATTY. LIM] 3B 2016-2017


4. DISPUTE AN ASSESSMENT WITHOUT/WITH *If the assessment notice sent is not dated, then the
PAYMENT right of the government to collect commences to run
from the day the taxpayer received the assessment
5. COMPROMISE
SIDE STORY
- Available to both the government and the The other week I was talking to the BIR about an
taxpayer assessment regarding deficiency income tax. Sabi ko
- When should the taxpayer submit: after dun sa BIR tulungan natin yung tax payer.. bumili ng
assessment malaking lupa sa alabang not knowing that there are
a lot of adverse claims. Nung ittransfer na yung nabili
PERIOD OF THE GOVERNMENT TO ASSESS—3 and nilang lupa doon sa buyer. It is the responsibility of
10 the buyer to transfer the title to himself. It is the
responsibility of the seller to pay the capital gains tax
3 years from submission of return- if taxpayer and the documentary stamps tax to the BIR then the
submitted a regular return seller will submit all the documentary requisites to
the BIR. If everything is in order, the BIR will issue a
10 years from discovery of fraud- if there is a finding certificate of authority to register (CAR), tapos yung
that the taxpayer filed a fraudulent return papel na yun ibibigay sa buyer, si buyer pupunta sa
- collection without assessment is valid local government, magbabayad ng TRANSFER TAX on
provided it is undertaken by the government real property conveyances.
within the assessment period (this rule
presupposes the absence of a tax return) TRANSFER TAX IN LOCAL GOVERNMENT
- How will the government enforce collection
without assessment? – via JUDICIAL - There is a title that will be cancelled and in
COLLECTION lieu thereof a new one is to be issued
- Usually 1% of assessed value or zonal value
JUDICIAL COLLECTION whichever is higher
- Responsibility of the buyer to the local
- Filing a collection case in court government
- Only mode of collection without an
assessment (if there is an assessment QUESTION IN THE EXAM:
government can collect via administrative or Eto si seller nagbenta ng lupa kay buyer, etong si buyer
judicial for purposes of securing hold atat na atat na itransfer yung propert sa pangalan
departure order from the courts) niya kasi aalis siya, pumunta sa BIR binayaran niya
yung CGT and DST. Syempere tahimik ang seller pero
IF THERE IS AN ASSESSMENT – The government has nalaman ni buyer na hindi pala siya dapat ang
5 years to collect nagbayad noon. Si buyer nagrerequest ng tax refund sa
BIR. Will BIR accept the claim of the buyer erroneously
RECKONING POINT OF THE 5-YEAR PERIOD OF paid?
COLLECTION
ANSWER:
a. ASSESSMENT IS DISPUTED iba ang erroneous payment sa mistaken payment. Ang
- Taxpayer disputed the assessment within 30 erroneous payment sa tax situs (wrong district, wrong
days from receipt of assessment director). Ang mistaken payment ay ikaw ang
- Reckoned from the finality of the assessment nagbayad pero hindi naman pala ikaw ang may tax
burden. Pag erroneous payment, 2 years ang
b. NO DISPUTE prescriptive period dyan pag mistaken payment, 6
- Reckoned from date of assessment years. HINDI IREREFUND kasi hindi naman erroneous
payment yan.

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 41

BUT WHAT IS THE REMEDY OF THE BUYER? - Other than the situations above, tax liabilities
- File a case against the seller can NEVER be cancelled

*Promissory Notes, I owe you documents, cash LOCAL TAXES
advances are all subject to DST (DO NOT FORGET!!!)
ANNUAL REAL PROPERTY TAX
*YOU DEDUCT EXPENSES ONLY INCURRED DURING
THE YEAR, THERE IS NO CARRY OVER OF EXPENSES - Does not require that the taxpayer should
have a title to the property. As long as you are
COMPROMISE (continuation) already in the possession of the property or
you are allowed the beneficial use of the
- What is looked into is the main tax property, you are already liable.
- You want to propose but you cannot show - The property owner pays the real property
proof of insolvency, your assessed tax tax (normally)
liability is 4 Million, divide 4 Million by 40%-- - If there is no title—the beneficial user is liable
you cannot peg the value of your proposal - If you are not paying and the government will
less than that amount. already foreclose the property, the
- If you fail to submit documents that are government should personally serve the
required by the government, BIR may compel notice to the person concerned because
you to submit by issuing subpoena duces foreclosure in taxation is a proceeding IN
tecum. PERSONAM
- Not all taxes are subject to compromise
agreement POWER TO ABATE (LOCAL GOVERNMENT)
Ex. You are inheriting a house and lot from
your parents but you cannot pay tax because - LOCAL GOVERNMENT DOES NOT HAVE THE
you do not have the money to pay the tax, can POWER TO ABATE AN EXISTING TAX
you submit a compromise proposal? NO, not LIABILITY INVOLVING LOCAL TAXES—local
available in TRANSFER TAXES. treasurer may only give discount but they
- 10% -taxpayer is INSOLVENT cannot cancel (even though there is calamity,
- You can include the criminal liability no power to condone)
- This remedy is available BEFORE PAYMENT - The CIR cannot cancel or abate local tax
liability (IR taxes only)
6. ABATEMENT OF TAXES - As an exception, Local Government may
cancel local tax liability involving real
- The power to cancel tax liability belongs only property provided there is calamity and what
to the COMMISSIONER OF INTERNAL could be condoned is only 1 year liability.
REVENUE - CONDONATION IS AVAILABLE ONLY WHEN
- This is a non delegable authority; Regional THERE IS CALAMITY
director do not have the power to abate tax
liability *LOCAL GOVERNMENT MAY GRANT TAX
- President cannot condone tax liability INCENTIVES BUT IT CANNOT GRANT TAX
EXEMPTION
2 SITUATIONS WHERE ABATEMENT IS
ALLOWED: - Tax exemption is exercised by the law-
making bodies only (Congress, Sanggunian)
1. The assessed tax is found to be
unreasonable or found to be without legal TAX INCENTIVE
basis
2. When the cost of collection is more than - Tax exemptions granted before the business
the tax to be collect begins

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
42 [TAXATION 2 ATTY. LIM] 3B 2016-2017

- Akin to a tax exemption; the only difference is
the time granted A void decision will not invalidate an assessment. The
remedy is subject the assessment to review.
***PAGCOR CASE
In case the taxpayer questions the validity of
SPECIAL REMEDIES COLLECTION, can the BIR garnish the properties of
the taxpayer? NO because warrant of garnishment is
1. TAX AMNESTY not allowed when there is pending appeal
questioning the validity of the right of the
2. SECURE A FAVORABLE LEGISLATION government to collect.

3. PEOPLE’S POWER 3. ENFORCEMENT OR ADMINISTRATIVE
FINES
4. ELECTION OF PUBLIC OFFICERS - Surcharge and interest

REMEDIES OF THE GOVERNMENT 4. NON ISSUANCE OF CLEARANCES

- The government is looking for the different - Juridical entities desiring to dissolve the
kinds of taxpayers corporation should secure clearance from the
BIR otherwise, the corporation will not be
1. DEPORTATION of Alien violators considered dissolved.
- File criminal case and after serving the
required period of imprisonment, the 5. HOLD DEPARTURE ORDER
government will automatically deport the
alien violator. - If the taxpayer really needs to go out of the
country, the taxpayer may secure a bond.
2. COLLECTION PENDING APPEAL - Filing of a bond converts the liability to a civil
- While the CIR is divested of the jurisdiction liability
over the tax case pending appeal, CIR can
move for the collection of the tax liability by 6. THIRD PARTY RULE
praying the same in its answer before the
CTA. - Securing information from colleagues,
- If the taxpayer is unwilling to pay the liability friends, relatives, neighbors about the
pending appeal, the taxpayer may petition the taxpayer’s personal business activities.
CTA for the issuance of an injunction to enjoin - BIR can conduct ocular inspection
the BIR from collecting the tax liability - If you have a residential property that you are
using for business, that property is
NOTE: As a general rule, no court may enjoin the considered an ordinary asset because it is a
collection of tax. However, the CTA, in the exercise of property used in business and if you sell this
its APPELLATE JURISDICTION may issue an property you are not liable to pay capital
injunction to prevent the BIR from collecting. gains tax but you are required to pay INCOME
TAX.
- BIR will not file an independent case against
the taxpayer if there is a pending appeal duly 7. TERMINATION OF TAX PERIOD
filed before the CTA but BIR can enforce
payment by praying the payment of that - Outright demand for tax settlement
liability before the tax court.
8. ARREST, SEARCH, SEIZE GOODS WITHOUR
If there is already a final decision on the disputed A WARRANT
assessment, and you believe it is void, the assessment
remains to be valid.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 43

- Not a violation of the Constitution because • For as long as the elements of a valid tax
the power to tax is never unreasonable. collection are present, you cannot claim that
- Applicable only to excisable goods the collection is void.)
- Doctrine of possession applies—whoever is
in the possession of these goods must show Q: What will happen if the BIR really pursue the
proof of tax payment otherwise, the excisable collection but you did not receive the
goods will be confiscated. assessment?
- BIR officers are authorized to flag down a
moving vehicle if there is a belief that it A: Move for the suspension of the collection. Move
contains excisable goods for purposes of that the collection be held in abeyance because
determining payment of excise tax. apparently, there is a violation of a taxpayer’s right to
- If the motor vehicle used in importing due process as far as the assessment is concerned.
excisable goods is a vehicle-for-hire, the
Bureau of Customs cannot impound the REMEMBER:
vehicle. However, if the vehicle is a private • You cannot invoke that the collection is void.
vehicle, the Bureau of Customs can impound
the vehicle. • The TP will be given a chance to dispute the
assessment. The collection is still there, but it
*Can the government look into the taxpayer’s bank will be held in abeyance.
deposits?
• If it becomes fixed and determined because
- During assessment, the BIR cannot look into the TP did not dispute the same, or has failed
bank deposits (BANK SECRECY LAW) to submit the documents required by the BIR,
- Take note of exceptions (consent of the assessment will be determined and the
depositor, in estate tax assessment) collection case will pursue.
- BIR cannot look into FOREIGN CURRENCY
DEPOSITS • Nothing stops the BIR from tax collection. No
court is authorized to issue an injunction
May 26, 2017 to stop the BIR from collection. This applies
only when the tax is an Internal Revenue
RECAP Tax.

Q: Is collection without assessment valid? • In Local Tax, Real Property Tax, there is
injunction.)
(NOTE:
• If the BIR files a case against you and you did
not receive the assessment, you cannot claim Example: The TP received an assessment and disputed
that the collection is invalid. The collection it, however it was denied. The TP will then go to the
case is different to the assessment CTA via petition for review.
undertaken by the government.
Q: Pending appeal, can the BIR still enforce
• IF the BIR filed an assessment and you did not collection?
receive it, you cannot claim that the
assessment is void. The assessment will A: YES. Because nothing stops the BIR from
remain valid for as long as it is filed within collecting.
the prescriptive period, with approval and
consent of the CIR, and that there is already a Q: How will the BIR then file a collection case
determination of your tax liabilities. when the TP has already filed an appeal before
the CTA?

Javier, Landayan, Macalintal, Mercado


UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
44 [TAXATION 2 ATTY. LIM] 3B 2016-2017

A: The BIR, in answer to the TP’s petition for 3. That the taxpayer shows that the appeal is
review will invoke in the PRAYER portion that the TP not frivolous nor for the purpose of merely to
should: PAY that tax assessed or submit a BOND. delay the collection of the tax; and
Move for payment of the tax before the tax court. The 4. That the taxpayer is willing to deposit the
BIR will not file an independent case before the amount claimed or file a surety bond for not
regular court to enforce collection because once the more than double the amount of the tax with
CTA takes cognizance of the case, the regular the court when required.
courts are divested of their authority to continue
with the collection case. MOVEMENT TO THE CTA

• Because the TP knew of such possibility, the Situation 1: The TP received an assessment from the
TP upon filing of his petition for review Regional Director (RD) because he is staying in the
should invoke therein that: province. The RD sent an assessment notice.

a) He is praying for an injunction. It Q: Is that valid?
must be stated in the petition that if
the BIR enforces collection, such A: YES. Because the RD is an alter ego of the CIR. The
collection might jeopardize the power of the CIR to assess is a delegable authority.
interest of the government and the
TP. How? Both will be prejudiced if Other persons, other than the RD, cannot assess. Such
the TP will pay prematurely. assessment made by another person, not the RD, will
constitute ILLEGAL ASSESSMENT, which is an
b) The appeal was seasonably made. It assessment made by one person who has no
was not made for purposes of dilatory authority. Illegal assessment is VOID.
tactics.
If one has authority, but the assessment is not correct
c) The TP is willing to submit a bond. on the ground that the amount stated is too much
where in fact no such amount is due against the TP,
• If the CTA finds that such claim of the TP is that is an ERRONEOUS ASSESSMENT. What is
meritorious, then the injunction may be appealed to the CTA is the erroneous assessment, not
granted. the illegal assessment.

Q: Which courts may grant injunction? Collection cannot be enforced in illegal assessment.
Situation 2: The RD sent an assessment notice to the
A: Only the CTA and the Supreme Court when it TP. The TP disputed the same addressed to the RD. The
involves an IR Tax. RD denied the dispute.

NOTE: Before a TP may pray for injunction, all the Q: Is there a need for the TP to go to the CIR to file
elements of a valid injunction must be present. (Refer for a motion for reconsideration?
to p. 649, question no. 1059)
A: There is nothing that will prohibit the TP to do
THE CTA IS EMPOWERED BY LAW TO GRANT such. However, the Tax Code is silent as to W/N the
INJUNCTION WHEN: TP should go before the CIR if the decision of the RD
is an adverse decision.
1. The injunction is an incident of a case over
which the CTA has jurisdiction; Remember that the RD is an alter ego of the CIR. The
2. That the collection pending appeal might TP may file within 30 days a motion for
jeopardize the interest of the government reconsideration before the CIR. But the TP should be
and/or the taxpayer; mindful that the appeal to the CTA is 30 days only
from the receipt of the adverse decision.

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 45

In practice, upon the receipt of the decision of the RD, 2. It must be signed by the TP and accepted by
there is no need to bring the same before the CIR. the CIR before the expiration of the original
period to assess or to collect;
In a recent case, the SC ruled that: Yes, the TP can ask 3. The waiver must be notarized; and
for a motion for reconsideration before the CIR, but 4. A copy of the accepted waiver must be duly
be mindful of the 30 day period to appeal to the CTA. served upon the TP.
Because the decision of the RD is already the
decision of the CIR. When the TP disputes an assessment:

NOTE: When a TP disputes a valid assessment, there FAN – within 30 days from receipt (do not
is also a need for a valid dispute. Before you dispute, include the first day, include the last day)
determine first the validity of the assessment. Failure to dispute: it becomes FINAL
assessment. The government can already
VALID ASSESSMENT: enforce collection.

1. It is preceded by a PAN which must be within Q: How much time can the government
the 3 year prescriptive period; collect when the TP did not dispute the
assessment?
2. FAN with detailed presentation of how the
government arrived at the TP’s tax liability. A: Within 5 years reckoned from assessment.
(Assessment without dispute)
• Under a Revenue Regulation: the TP is not
allowed to dispute without submitting a After dispute, submit supporting documents
waiver. The TP is waiving the prescriptive within 60 days reckoned from the day after
period to assess and to collect. NO WAIVER, the TP disputed. Failure to submit the
NO DISPUTE. supporting documents will dissolve the
dispute as if the TP have not disputed at all.
Q: When the TP disputed and submitted the
waiver, does that mean that the TP is totally Latest Ruling: TP must hold the supporting
giving up the prescriptive period, such that the documents within a period of 10 years. No
government can collect say 20 years thereafter? discarding of documents in support of tax
payments.
A: NO. That is not the essence of waiver in tax. When
you submit the waiver, it only means that the period Assessment of unreported income/delinquent
will be suspended only for a certain definite time. tax: within 10 years from discovery

For the waiver to be valid, there must be showing Assessment of deficiency tax: 3 years
that the CIR has accepted such waiver and has signed
the same. The period as to how long will the Application of Tax Rate (substantive): The law that
collection or assessment be suspended must be will apply is the one existing at the time when the
stated there. There is no indefinite waiver. liability became due.

Since that is a contract between the government and As to the procedural aspects: Apply the latest law.
the TP, it must be notarized. After it has been
notarized, a copy must be given to the TP. Q: When does the remedy of COMPROMISE not
apply?
MEMORIZE: ELEMENTS OF A VALID WAIVER
A:
1. It must be an indefinite waiver; a) when there is fraud;
b) in Estate Tax. When you are inheriting, you
cannot invoke inability to settle.
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
46 [TAXATION 2 ATTY. LIM] 3B 2016-2017

When you compromise in estate tax, use the 180 days: Disputed Assessment
40% 120 days: UIT because of export activities.

REITERATION: • If during the 120 days, the CIR DENIED, the
TP has 30 days to file a JUDICIAL claim before
On UNUTILIZED INPUT TAX the CTA. The JUDICIAL CLAIM with the CTA
need NOT be within the 2 year period.
• You can claim UIT only when you are a VAT
registered. Not VAT registered, even if in the Back On ASSESSMENT
business of exporting, you cannot claim. To
claim UIT, VAT registration is necessary. NO • In assessment, the period to resolve the
REGISTRATION, NO CLAIM. validity of dispute is 180 days. The 180 day
period commences to run 1 day after the TP
• A VAT-registered PRODUCER who sells 70% submitted the documents, not after the
of his production to one who is engaged in expiration of the 60 day period to submit.
exporting business is deemed an exporter. It
is not necessary that you do the exporting LASCONA DOCTRINE: When the 180 day
yourself, but you have to prove that no less period ends and there is inaction, the TP has
than 70% of your production was sold to one 2 options. First, is TO APPEAL within 30 days
who do the exporting. from the lapse of 180 days invoking that
silence is an implied denial. Second, WAIT,
• Export Processing Zone, for tax purposes, is which means that if the CIR decides beyond
deemed foreign territory. the 180 day period, that is still a valid
decision. After that decision, the TP has 30
• EXPORTING IS NOT VATable. It is importing days to appeal. (ABANDONED)
that is VATable.
LATEST DECISION: When there is inaction,
• Where do you file a claim for UIT? Before the the TP has only 30 days to appeal. NO
CIR. When you file such claim, it is called an WAITING. The CIR is no longer allowed to
ADMINISTRATIVE CLAIM. The TP has 2 years decide beyond the 180 day period. The
to claim reckoned from the last day of the last Lascona doctrine has been abandoned.
month of the quarter of export.
On appeal before the CTA, the CIR can no
After filing the claim, submit supporting longer decide on the case.
documents. When supporting documents are
not yet complete, PARTIAL FILING of On INVALID PAYMENTS Under Sec. 229
documents is allowed, PROVIDED you
complete the documents within 2 years. • File the claim within 2 years.
• Unlike in the UIT, when there is INVALID
NEW RULING (as of January 2017): PAYMENT there is NO period requiring the
Submission of document must be CIR to answer the TP.
completed within the original period of 2
years. If the extension is granted beyond that The TP should make sure that when there is
2 year period, the same is immaterial, the inaction, the appeal before the CTA must be
claim is time-barred. filed within the 2 year period. DOCTRINE
OF TWIN PRESCRIPTIVE PERIOD.)
• After submission of completed documents,
the CIR has 120 days to resolve the claim. EXPROPRIATION
The 120 day period is only for VAT claim,
it is not used for assessment. Expropriation is an involuntary sale.

Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 47

• If what is expropriated is a CAPITAL ASSET, a deduct the withholding tax, usually is 10%
property that is not income generating and is of what is payable to the TP, and submit the
not used in business, this activity is SUBJECT same to the BIR.
TO CAPITAL GAINS TAX (CGT), AND
DOCUMENTARY STAMP TAX (DST) Q: If the withholding agent failed to do the
deduction and the submission of the withholding
Q: Who pays? tax, as well as the delivery of the receipt of
payment to the TP, who will be responsible to pay
A: The SELLER. the tax?

• Under the Tax Code, if it is an INVOLUNTARY A: The TP will be the one responsible. The TP must
SALE and the BUYER IS THE GOVERNMENT, see to it that there is payment of withholding tax.
whether local or national, the SELLER HAS 2 During the investigation, each and every payment
OPTIONS (ALTERNATIVE TAXATION) that the TP received must be supported with
withholding tax.
1. Pay the CGT within 30 days from sale,
or Failure of the withholding agent to deduct the
2. To compute the gain, if any, and 10% and submit it to the BIR will render him
include said gain together with all his criminally liable. If the TP received the
other gains subject to the normal payment without deduction of the
Income Tax. withholding tax, he will be civilly liable. There
will be payment of interest and surcharge.
• ALTERNATIVE TAXATION: If the TP has a
choice in Taxation. LOCAL TAXES

• DBP CASE: In expropriation, a law states that Q: What are the fundamental principles
the DPWH has the right to identify properties governing local taxation?
for purposes of public use and public interest,
and they can expropriate. Upon A: (MEMORIZE: pages768-771 of the book)
expropriation, DPWH will be the one to pay
for the CGT. The amount for the payment of a) There must be an ORDINANCE levying the
CGT is deducted from the amount of money to taxes or fees;
be paid in favour of the property owner. Is b) Local taxes may be derived only from
this not a violation of the rule, that in SOURCES AUTHORIZED under the Local Tax
expropriation it is the seller who will pay the Code;
CGT? c) Local taxes, fees, charges and other
impositions shall:
SC Ruling: In this case, the alternative 1. Be EQUITABLE and based as
taxation was not applied. The DPWH deducts practicable on the TP’s ability to pay
the 6% CGT from the amount to be paid. (This 2. Be levied and collected only for
ruling is in fact in contradiction with the law. PUBLIC PURPOSES;
ALTERNATIVE TAXATION still applies.) d) The imposition must be WITHIN THE TAXING
AUTHORITY of the local government;
WITHHOLDING TAXES e) Collection shall NOT be let to ANY PRIVATE
PERSON or ENTITY;
Withholding tax is an advance payment of what is f) Should NOT be in RESTRAINT of TRADE;
due from the TP. g) Should NOT be OPPRESSIVE, EXCESSIVE,
DISCRIMINATORY, UNJUST, CONFISCATORY
• Example: TP entered into a transaction from and CONTRARY to the national economic
which income will be earned. Whoever pays policy of the government;
that money has the responsibility to
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
48 [TAXATION 2 ATTY. LIM] 3B 2016-2017

h) Should be based on ABILITY-TO-PAY government is automatically divested of its authority
Principle; to impose upon a TP business permit.
i) Should evolve a PROGRESSIVE SCHEME of
taxation in the exercise of their power of Q: Are entities enjoying PEZA registration and
taxation as mandated by the Constitution; benefits subject to local taxes?
j) Should be UNIFORM in all local political sub-
units; and A: NO. PEZA-registered businesses are exempt from
k) Collections shall inure and redound to LOCAL paying local taxes.
WELFARE, INTEREST, and BENEFITS.
When a TP is enjoying franchise, there is no local tax.
Local Tax is a shared revenue. But once that expires, local tax comes in.

• Example: Internal Revenue Allotment (IRA) - FOUR POLITICAL SUBDIVISIONS OF LGU
40% of the IR collection of the National • Provinces
Government will be divided among the LGUs. • Cities
• Municipalities
Q: Can the Local Government grant tax • Barangays
exemption?
TAXING POWER OF THE PROVINCIAL
A: NO. LocGov cannot grant tax exemption (this GOVERNMENT (MEMORIZE) (Refer to pg. 793-801
belongs to the Congress), but it CAN GRANT TAX for further discussion)
INCENTIVES. a) Tax on Transfer of Real Property Ownership
(Sec. 135)
• TAX INCENTIVE is tax exemption granted b) Tax on business of printing and publication
BEFORE a business starts operating. Tax (Sec. 136)
exemption, on the other hand, can be granted c) Franchise tax (Sec. 137)
any time after the business has started. d) Tax on sand, gravel and other query
resources (Sec. 138)
Q: Who grants tax incentive? e) Professional tax (Sec. 139)
f) Amusement tax on admission (Sec. 140)
A: The Sanggunian (the law-making body). g) Fixed annual tax on delivery trucks and vans
of manufacturers, producers, wholesalers,
dealers or retailers in certain products (Sec.
There are times when the Congress grants tax 141)
incentives to foreign investors to encourage them to h) Annual ad valorem tax on real property such
engage business in the Philippines. as land, building, machinery, and other
improvements not specifically exempted at
• For foreign investors to establish business, the rate not exceeding 1% of the assessed
they have to register with the Board of value of the real property (Sec. 232)
Investors, an entity under the Department of i) Special levies on real property (Secs. 235,
Finance. 236, and 240)
j) Toll fees or charges for the use of any public
FRANCHISE – that which you enjoy when granted tax road, pier or wharf, waterway, bridge, ferry
incentives. or telecommunication system funded and
constructed by the provincial government
Q: When a taxpayer is enjoying a franchise, can (Sec. 155)
the local government impose a business permit? k) Reasonable fees and charges for services
rendered (Sec. 153)
A: YES. Not because a TP is enjoying a legislative l) Charges for the operation of public utilities
franchise given by the Congress that the local owned, operated, and maintained by the
provincial government (Sec. 154)
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
3B 2016-2017 [TAXATION 2 ATTY. LIM] 49

m) Slaughter fees, corral fees, market fees, THE CITY GOVERNMENT CAN TAX ANYTHING
charges for holding benefits, and THAT IS TAXABLE BY THE PROVINCIAL AND
n) Tuition fees from the operation of provincial MUNICIPAL GOVERNMENT
high school, except public elementary grades,
and SCOPE OF TAXING POWER OF THE BARANGAYS
o) Those that are allowed under the common
taxing powers of the local government in a) Businesses – those that have very MINIMAL
addition to the above enumeration. CAPITAL

LGUs are allowed to adjust tax rates once every five Capital: not more than P50K in cities, and not
years only. They increase it by 50% at any given time, more than P30K in municipalities
and allowed to re-adjust once every 5 years.
Whenever there is adjustment, there must be public b) Barangay clearance
consultation (MANDATORY). c) Sign boards (indoor or outdoor)
d) Cockfights and cockpits
SHARED REVENUE CONCEPT e) Use of public utilities owned, maintained by
the barangay
• If for example the provincial government will
waive its share, the waiver will only cover Remember: Whatever the barangay can tax can no
that of its share and not the shares of the longer be taxed by the P, C, or M.
cities, municipalities, or the barangays.
The power of the LGU to tax is NOT ABSOLUTE. It is
OVERPAYMENT OF LOCAL TAXES subject to LIMITATIONS.
• Constitutional limitations
• There is NO TAX RETURN in Local taxes. Tax • Inherent limitations
return only applies to national taxes under • Contracts
the Tax Code. • Veto Power of the Mayor

Q: Can you RECOVER an overpayment or The power to tax of the LGU is subject to the VETO
an invalid payment in local taxation? POWER of the MAYOR

A: YES. You CAN RECOVER. There is also a 2 Q: Can the Congress withdraw or revoke the
year period for the TP to claim and the power of the LocGov to tax?
reckoning point is always from payment
A: Yes it can, but after such power has been revoked,
The DOCTRINE OF TWIN PRESCRIPTIVE LGUs can still exercise their local power to tax
PERIOD applies to Local Government also. because that power is ALSO PROVIDED BY THE
CONSTITUTION.
If there is denial or inaction as to the TP’s
claim, the TP can appeal that to the tax court LG POWER TO TAX IS VESTED BY:
within two years from payment. a) The Congress
b) The Constitution
SCOPE OF TAXING AUTHORITY OF THE
MUNICIPAL GOVERNMENT Q: Can the national government tax the local
government?
Whatever is not taxed under the provincial power of
taxation may be taxed in the municipal government. A: YES. No prohibition to that. The Congress grants
the taxing power to the LGU and it can also ENACT
XPN: the printing and publishing business because local taxes.
only the provincial government may tax it.
Q: Can the LG tax the national government?
Javier, Landayan, Macalintal, Mercado
UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW
50 [TAXATION 2 ATTY. LIM] 3B 2016-2017

A: NO! The spring cannot rise higher than its source.

Q: Is there double taxation in local government?

A: YES. Multiplicity of taxation. This is not prohibited
but it must be avoided. What is being avoided is the
direct imposition of local taxes, not the indirect.

Indirect – 2 different taxing authorities

GR: Anything that is in the TAX CODE and the TARIFF
CODE is beyond the taxing power of the local
government.

XPN: Income earned by the banks is subject to local
taxation. (only xpn

LATEST DECISION of SC as to PIPELINES: Local
governments CANNOT impose Common Carrier’s Tax
on the pipelines because it is already taxed under the
Tax Code.

However, the pipelines can be subject to REAL
PROPERTY Tax because it is a machinery that is
permanently attached to the ground.

ANNEX A:

Javier, Landayan, Macalintal, Mercado


UNIVERSITY OF SANTO TOMAS
FACULTY OF CIVIL LAW