Taxation Law - Odt

San Beda College of Law
MEMORY AID IN TAXATION LAW
TAXATION LAW
6. levied for a public purpose.

I. GENERAL PRINCIPLES
REQUISITES OF A VALID TAX
POWER OF TAXATION 1. should be for a public purpose
TAXATION – power by which the 2. the rule of taxation shall be uniform
sovereign through its law-making body 3. that either the person or property
raises revenue to defray the necessary taxed be within the jurisdiction of
expenses of government from among the taxing authority
those who in some measure are 4. that the assessment and collection
privileged to enjoy its benefits and must of certain kinds of taxes guarantees
bear its burdens. against injustice to individuals,
especially by way of notice and
Two Fold Nature of the Power of opportunity for hearing be provided
Taxation 5. the tax must not impinge on the
1. It is an inherent attribute of inherent and Constitutional
sovereignty limitations on the power of taxation
2. It is legislative in character
THEORIES AND BASES OF TAXATION
Extent of Taxing Power 1. Lifeblood Theory
Subject to constitutional and Taxes are what we pay for civilized
inherent restrictions, the power of society. Without taxes, the government
taxation is regarded as comprehensive, would be paralyzed for lack of the
unlimited, plenary and supreme. motive power to activate and operate it.
Hence, despite the natural reluctance to
SCOPE OF LEGISLATIVE TAXING POWER surrender part of one's hard-earned
1. Amount or rate of tax income to the taxing authorities, every
2. Apportionment of the tax person who is able to must contribute
3. Kind of tax his share in the running of the
4. Method of collection government. (CIR v. Algue, Inc.)
5. Purpose/s of its levy, provided it is
for public purpose 2. Necessity Theory
The power to tax is an attribute of
6. Subject to be taxed, provided it is sovereignty emanating from necessity. It
within its jurisdiction is a necessary burden to preserve the
7. Situs of taxation State's sovereignty and a means to give
the citizenry an army to resist an
TAXES – enforced proportional aggression, a navy to defend its shores
contributions from the persons and from invasion, a corps of civil servants to
property levied by the law-making body serve, public improvements designed for
of the State by virtue of its sovereignty the enjoyment of the citizenry and those
in support of government and for public which come within the State's territory,
needs. and facilities and protection which a
government is supposed to provide.
CHARACTERISTICS OF TAXES (Phil. Guaranty Co., Inc. v. CIR)
1. forced charge;
2. pecuniary burden payable in money; 3. Benefits-Protection / Reciprocity
3. levied by the legislature; Theory
4. assessed with some reasonable rule Taxation is described as a symbiotic
of apportionment; (see theoretical relationship whereby in exchange of the
justice) benefits and protection that the citizens
5. imposed by the State within its get from the Government, taxes are
jurisdiction; paid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE
 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS:
Jemina Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian
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Note: While taxes are intended for behind it, the amount to be raised or the
general benefits, special benefits to persons, property or other privileges to
taxpayers are not required. The be taxed.
Government renders no special or The court’s power in taxation is
commensurate benefit to any particular limited only to the application and
person or property. interpretation of the law.
IS THE POWER TO TAX THE POWER TO Note: The principle of judicial non-
DESTROY? interference extends to the
1. “Power to tax is the power to administrative realm.
destroy” (Marshall Dictum) – refers
to the unlimitedness and the degree ASPECTS OF TAXATION
or vigor with which the taxing power 1. Levy or imposition of the tax (tax
may be employed to raise revenue. legislation)
- the financial needs of the State may 2. Enforcement or tax administration
outrun any human calculation, so the (tax administration)
power to meet those needs by taxation
must not be limited even though taxes BASIC PRINCIPLES OF A SOUND TAX SYSTEM
become burdensome or confiscatory. (KEY: FAT)
1. Fiscal Adequacy – sufficiency to
2. “Power to tax is not the power to meet government expenditures and
destroy while the Supreme Court sits” other public needs.
(Holmes Dictum) – the power to tax 2. Administrative Feasibility/
knows no limit except those expressly Convenience – capability of being
stated in the Constitution. effectively enforced.
Marshall and Holmes Dictum Reconciled
3. Theoretical Justice – based on the
taxpayer’s ability to pay; must be
Although the power to tax is almost
progressive. (Ability to Pay Theory)
unlimited, it must not be exercised in an
arbitrary manner. If the abuse is so
great so as to destroy the natural and TAXATIO POLICE EMINENT
fundamental rights of people, it is the N POWER DOMAIN
1. Purpose
duty of the judiciary to hold such an act To raise To promote To facilitate
unconstitutional. revenue public the State’s
purpose need of
PURPOSES AND OBJECTIVES OF TAXATION through property for
1. Revenue – basically, the purpose of regulations public use
taxation is to provide funds or 1. Amount of Exaction
property with which the State No limit Limited to No exaction;
promotes the general welfare and the cost of but private
protection of its citizens. regulation, property is
issuance of taken by the
2. Non-Revenue (Key: PR2EP)
the license State for
a. Promotion of general welfare or public
b. Regulation surveillance purpose
c. Reduction of social inequality
d. Encourage economic growth
e. Protectionism
2. Benefits Received
No special No direct A direct
POWER OF JUDICIAL REVIEW IN TAXATION or direct benefit is benefit
As long as the legislature, in benefit is received; a results in the
imposing a tax, does not violate received by healthy form of just
applicable constitutional limitations or the economic compensatio
restrictions, it is not within the province taxpayer; standard of n to the
merely society is property
of the courts to inquire into the wisdom general attained owner
or policy of the exaction, the motives
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benefit of This case reversed the doctrine
protection previously held in Republic v. Philippine
Rabbit Bus Lines, Inc., 32 SCRA 211, to
4. Non-impairment of Contracts
Contracts Contracts Contracts
the effect that motor vehicle
may not be may be may be registration fees are regulatory
impaired impaired impaired exactions and not revenue measures.
5. Transfer of Property Rights
Taxes paid No transfer Transfer is b. The tax imposed on videogram
become but only effected in establishments is not only regulatory but
part of restraint in favor of the a revenue measure because the earnings
public its exercise State of such establishments have not been
funds subject to tax depriving the government
6. Scope
of an additional source of income. (Tio
All persons, All persons, Only upon a
property property, particular v. Videogram Regulatory Board, 151
and excises rights and property SCRA 208)
privileges
c. The “coconut levy funds” were
SYSTEMS OFTAXATION all raised under the state’s taxing and
Global System Schedular System police powers.
The state’s concern to make it a
A system A system employed strong and secure source not only in the
employed where where the income livelihood of the significant segment of
the tax system tax treatment varies the population, but also of export
views and is made to earnings, the sustained growth of which
indifferently the depend on the kind
is one of the imperatives of the
tax base and or category of
generally treats taxable income of economic growth.” Philippine Coconut
in common all the taxpayer. Producers Federation, Inc. Cocofed v.
categories of Presidential Commission on Good
taxable income Government (178 SCRA 236, 252)
of the individual.
A system which A system which CONSTRUCTION OF TAX LAWS
taxes all itemizes the 1. Public purpose is always presumed.
categories of different incomes 2. If the law is clear, apply the law in
income except and provides for accordance to its plain and simple
certain passive varied percentages
incomes and of taxes, to be
tenor.
capital gains. It applied thereto. 3. A statute will not be construed as
prescribes a imposing a tax unless it does so
unitary but clearly, expressly and
progressive rate unambiguously.
for the taxable 4. In case of doubt, it is construed most
aggregate strongly against the Government,
incomes and flat and liberally in favor of the
rates for certain taxpayer.
passive incomes
5. Provisions of a taxing act are not to
derived by
individuals. be extended by implication.
6. Tax laws operate prospectively
EXAMPLES OF TAXES LEVIED WITH A unless the purpose of the legislature
REGULATORY PURPOSE, OR COMBINED to give retrospective effect is
EXERCISE OF POLICE POWER AND THE POWER expressly declared or may be
OF TAXATION. implied from the language used.
7. Tax laws are special laws and
a. Motor vehicle registration fees prevail over a general law.
are now considered revenue or tax
measures.(Pal v. Edu, G.R No. L-41383, NATURE OF TAX LAWS
August 15,1988) 1. Not political in character

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2. Civil in nature, not subject to ex commodities on their
post facto law prohibitions being imported into or
3. Not penal in character exported from a
country.
TAXES ARE PERSONAL TO THE TAXPAYER 1. As to burden:
1. A corporation’s tax delinquency a. Direct Tax – both the incidence
cannot be enforced against its of or liability for the payment of
stockholders. (Corporate Entity the tax as well as the impact or
Doctrine) burden of the tax falls on the
Exception: Stockholders may be same person.
held liable for unpaid taxes of a b. Indirect Tax - The incidence of
dissolved corporation: or liability for the payment of
a. if it appears that the the tax falls on one person but
corporate assets have the burden thereof can be
passed into their hands or shifted or passed on to another.
b. when the stockholders have 1. As to purpose:
unpaid subscriptions to the a. General Tax – levied for the
capital of the corporation general or ordinary
purposes of the
1. Estate taxes are obligations that Government
must be paid by the executor or b. Special Tax – levied for
administrator out of the net assets special purposes
and cannot be assessed against the 1. As to manner of computation:
heirs. a. Specific Tax – the computation
Exception: If prior to the payment of the tax or the rates of the tax
of the estate tax due, the properties is already provided for by law.
of the deceased are distributed to b. Ad Valorem Tax – tax upon the
the heirs, then the latter is value of the article or thing
subsidiary liable for the payment of subject to taxation; the
such portion of the estate tax as his intervention of another party is
distributive share bears to the total needed for the computation of
value of the net estate. (Sec. 9, the tax.
Rev. Regs. No. 2-2003; see CIR vs. 1. As to taxing authority:
Pineda G.R. No. L-22734. a. National Tax – levied by the
September 15, 1967)) National Government
b. Local Tax – levied by the local
CLASSIFICATION OF TAXES government
1. As to subject matter: 1. As to rate:
a. Personal Tax – taxes are of a. Progressive Tax – rate or
fixed amount upon all amount of tax increases as the
persons of a certain amount of the income or earning
class within the to be taxed increases.
jurisdiction without b. Regressive Tax – tax rate
regard to property, decreases as the amount of
occupation or business income to be taxed increases.
in which they may be c. Proportionate Tax – based on a
engaged. fixed proportion of the value of
b. Property Tax – assessed on the property assessed.
property of a certain
class IMPOSITIONS NOT STRICTLY CONSIDERED AS
c. Excise Tax – imposed on TAXES
the exercise of a 1. Toll – amount charged for the cost
privilege and maintenance of the property
d. Customs Duties – duties used.
charged upon the
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2. Penalty – punishment for the Exemption granted Exemption does

commission of a crime. is applicable (Art. not apply.
VI, Sec. 28(3) 1987 N.B. If property is
3. Compromise Penalty – amount Constitution) exempt from Real
collected in lieu of criminal Property Tax, it is
prosecution in cases of tax also exempt from
violations. Special
4. Special Assessment – levied only on Assessment.
land based wholly on benefit
accruing thereon as a result of Tax License Fee
improvements or public works
undertaken by government within Based on the Emanates from
power of taxation police power
the vicinity.
5. License or Fee – regulatory To generate Regulatory
imposition in the exercise of the revenue
police power.
6. Margin Fee – exaction designed to Amount is Amount is limited
stabilize the currency. unlimited to the cost of (1)
issuing the
7. Debt – a sum of money due upon license, and (2)
contract or one which is evidenced inspection and
by judgment. surveillance
8. Subsidy – a legislative grant of
money in aid of a private enterprise Normally paid Normally paid
after the start of a before
deemed to promote the public
business commencement of
welfare. business
9. Customs duties and fees – duties
charged upon commodities on their Taxes, being the License fee may
being transported into or exported lifeblood of the be with or without
from a country. State, cannot be consideration
10. Revenue – a broad term that surrendered
except for lawful
includes taxes and income from consideration
other sources as well.
11. Impost – in its general sense, it Non-payment does Non-payment
signifies any tax, tribute or duty. In not make the makes the
its limited sense, it means a duty on business illegal business illegal
imported goods and merchandise. but maybe a
ground for
criminal
Tax Special prosecution
Assessment
Imposed on Levied only on land TEST IN DETERMINING IF THE IMPOSITION IS A

persons, property TAX OR A LICENSE FEE
and excises If the purpose is primarily revenue
or if revenue is, at least, one of the real
Personal liability Cannot be made a and substantial purposes, then the
attaches on the personal liability of exaction is a tax. If the purpose is
person assessed in the person assessed
case of non- regulatory in nature, it is a license.
payment (PAL v. Edu)
Not based on any Based wholly on Tax Debt

special or direct benefit
benefit An obligation Created by
imposed by law contract
Levied and paid Exceptional both as
annually to time and locality
Due to the May be due to the
government in its government but in
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sovereign capacity its corporate Non-payment is No imprisonment
capacity punished by in case of non-
imprisonment payment (Art. III,
Payable in money Payable in money, except in poll tax Sec. 20 1987
property or Constitution)
services
Imposed only by Can be imposed by
Does not draw Draws interest if public authority private individual
interest except in stipulated or
case of delayed COMPENSATION OR SET-OFF
delinquency
General Rule: Taxes cannot be the
Not assignable Assignable subject of compensation or set-off.
Reasons:
Not subject to Subject to 1. lifeblood theory
compensation or compensation or 2. taxes are not contractual
set-off set-off obligation but arise out of duty
to the government
Non-payment is No imprisonment in 3. the government and the
punished by case of non-
taxpayer are not mutually
imprisonment payment (Art. III,
except in poll tax Sec. 20 1987 creditors and debtors of each
Constitution) other. (Francia v. IAC)
Exception: When both obligations are
Imposed only by Can be imposed by due and demandable as well as fully
public authority private individual liquidated and all the requisites for a
TEST IN DETERMINING IF THE IMPOSITION IS A valid compensation are present,
TAX OR A LICENSE FEE compensation takes place by operation
If the purpose is primarily revenue or of law. (Domingo v. Garlitos)
if revenue is, at least, one of the real
and substantial purposes, then the DOCTRINE OF EQUITABLE RECOUPMENT NOT
exaction is a tax. If the purpose is FOLLOWED IN THE PHILIPPINES
regulatory in nature, it is a license. A tax presently being assessed
(PAL v. Edu) against a taxpayer which has prescribed
may not be recouped or set-off against
Tax Debt an overpaid tax the refund of which is
also barred by prescription. It is against
An obligation Created by public policy since both parties are
imposed by law contract guilty of negligence.
Due to the May be due to the Tax Toll
government in its government but
sovereign capacity in its corporate Enforced A sum of money for
capacity proportional the use of
contributions from something, a
Payable in money Payable in money, persons and consideration
property or property which is paid for
services the use of a
property which is
Does not draw Draws interest if of a public nature;
interest except in stipulated or e.g. road, bridge
case of delayed
delinquency A demand of A demand of
sovereignty proprietorship
Not assignable Assignable
No limit as to the Amount of toll
amount of tax depends upon the
Not subject to Subject to
cost of construction
compensation or compensation or or maintenance of
set-off set-off the public
improvement used
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purpose (Pascual vs
Imposed only by the May be imposed by: Secretary of Public Works)
State (1) Government
c. That the petitioner seeks to
(2) Private
individuals or restrain respondents from
entities wasting public funds through
the enforcement of an invalid
Tax Penalty or unconstitutional law
Enforced Sanction imposed LIMITATIONS ON THE TAXING

proportional as a punishment POWER
contributions from for violation of a
persons and law or acts
property deemed injurious; A. INHERENT LIMITATIONS (KEY: SPINE)
violation of tax 1. Territoriality or Situs of
laws may give rise taxation
to imposition of 2. Public purpose of taxes
penalty 3. International comity
4. Non-delegability of the taxing
Intended to raise Designed to power
revenue regulate conduct 5. Tax Exemption of the
government
May be imposed May be imposed
only by the by:
government (1) Government (1) TESTS IN DETERMINING PUBLIC PURPOSE
(2) Private A. Duty Test – whether the thing to be
individuals or furthered by the appropriation of
entities public revenue is something, which
is the duty of the State, as a
Tax Tariff government, to provide.
All embracing A kind of tax B. Promotion of General Welfare Test

term to include imposed on articles – whether the proceeds of the tax
various kinds of which are traded will directly promote the welfare of
enforced internationally the community in equal measure.
contributions upon
persons for the (1) NON-DELEGABILITY OF THE TAXING
attainment of
POWER
public purposes
General Rule: The power of taxation is
peculiarly and exclusively exercised by
TAXPAYERS’ SUIT
the legislature. (See Scope of
A case where the act complained of
Legislative Taxing Power, supra)
directly involves the illegal disbursement
- refers to tax legislation
of public funds derive from taxation
Exceptions to Non-delegability:
(Justice Melo, dissenting in Kilosbayan,
1. Flexible Tariff Clause: Authority of
Inc vs Guingona, Jr.)
the President to fix tariff rates,
import and export quotas, tonnage
TAXPAYERS AND PUBLIC OFFCIALS HAVE
and wharfage dues, and other duties
LOCUS STANDI
or imposts. (Art. VI, Sec.28(2), 1987
REQUISITES FOR TAXPAYERS’ SUIT
Constitution)
a. The tax money is being
2. Power of local government units to
extracted and spent in
levy taxes, fees, and charges. (Art.
violation of specific
X, Sec. 5, 1987 Constitution)
constitutional protections
3. Delegation to administrative
against abuses of legislative
agencies for implementation and
power.
collection.
b. That public money is being
- merely refers to tax administration
deflected to any improper
or implementation

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(1) SITUS OR TERRITORIALITY OF TAXATION Transfer tax Residence or

The power to tax is limited only to citizenship of the
taxpayer or
persons, property or businesses within
location of
the jurisdiction or territory of the taxing property
power.
Franchise Tax State which
FACTORS THAT DETERMINE THE SITUS: granted the
a. Kind or classification of the franchise
tax being levied
b. Situs of the thing or property SITUS OF TAXATION OF INTANGIBLE PERSONAL
taxed PROPERTY
c. Citizenship of the taxpayer General Rule: Domicile of the owner
d. Residence of the taxpayer pursuant to the principle of the mobilia
e. Source of the income taxed sequuntur personam or movables follow
f. Situs of the excise, privilege, the person.
business or occupation being Exceptions:
taxed 1. When the property has acquired a
business situs in another jurisdiction;
APPLICATION OF SITUS OF TAXATION 2. When an express provision of the
Kind of Tax Situs statute provide for another rule.
Illustration: For purposes of estate
Personal or Residence or and donor’s taxes, the following
Community tax domicile of the intangible properties are deemed
taxpayer with a situs in the Philippines:
(1) franchise which must be
Real property tax Location of
property (Lex rei
exercised in the
sitae) Philippines;
(2) shares, obligations or bonds
Personal property -tangible: where it issued by any
tax is physically corporation organized
located or or constituted in the
permanently kept Philippines in
(Lex rei sitae) accordance with its
-intangible: laws;
subject to Sec. 104
of the NIRC and
the principle of by any foreign
mobilia sequuntur corporation eighty-five
personam percent (85%) of the
business of which is
located in the
Business tax Place of business Philippines;
Excise or Privilege Where the act is issued by any foreign
tax performed or corporation if such
where occupation
shares, obligations or
is pursued
bonds have acquired a
Sales tax Where the sale is business situs in the
consummated Philippines; and
(5) shares or rights in any
Income Tax Consider partnership, business or
(1) citizenship, industry established in
(2) residence, and the Philippines. (Sec.
(3) source of 104, 1997 NIRC).
income (Sec. 42,
1997 NIRC)
(1) EXEMPTION OF THE GOVERNMENT

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As a matter of public policy, on the part of the donee. However,
property of the State and of its it is not considered as taxable
municipal subdivisions devoted to income because it is an exclusion
government uses and purposes is from the computation of gross
deemed to be exempt from taxation income. (Sec.32 (B)(3), NIRC)
although no express provision in the law 3. The amount of all bequests,
is made therefor. legacies, devises or transfers to or
for the use of the Government or
General Rule: The Government is tax any political subdivision for
exempt. exclusively public purposes is
- However, it can also tax itself. deductible from the gross estate.
(Sec.86 (A)(3), NIRC)
RULES: 4. Gifts made to or for the use of the
1. Administrative Agencies National Government or any entity
A. Governmental function - created by any of its agencies which
tax exempt unless when is not conducted for profit, or to any
the law expressly political subdivision of the said
provides for tax. (Sec. Government are exempt from
32 B7) donor’s tax. (Sec. 101(A)(2), NIRC)
B. Proprietary function – taxable 5. Local government units are
unless exempted by law. (Sec. expressly prohibited by the LGC
27C) from levying tax upon National
1. GOCCs Government, its agencies, and
General Rule: Income is taxable at instrumentalities, and local
the rate imposed upon corporations government units. [Sec. 133 (o),
or associations engaged in a similar LGC]
business, industry, or activity. 6. Unless otherwise provided in the
Exception: GSIS, SSS, PHIC, PCSO Local Government Code (LGC), tax
and PAGCOR. (Sec. 27(C), NIRC) exemptions granted to all persons,
2. Government Educational Institutions whether natural or juridical,
A. Property or real estate tax – including GOCC, except local water
property actually, directly and districts, cooperatives duly
exclusively used for educational registered under RA No. 6938, non-
purposes – exempt but income stock and non-profit institutions, are
of whatever kind and character withdrawn upon effectivity of the
from any of their properties, LGC. (Sec. 193, LGC)
real or personal, regardless of 7. Real property owned by the
the disposition, is taxable. (Sec. Republic of the Philippines or any of
30, last par., NIRC) its political subdivisions except when
B. Income received by them as the beneficial use thereof has been
such are exempt from taxes. granted, for consideration or
However, their income from any otherwise, to a taxable person shall
of their activities conducted for be exempt from payment of real
profit regardless of the property tax. (Sec. 234, LGC)
disposition, is taxable. (Sec. 30,
last par., NIRC) (1) INTERNATIONAL COMITY
1. Income derived from any public These principles limit the authority
utility or from the exercise of any of the government to effectively impose
essential governmental function taxes on a sovereign state and its
accruing to the Government of the instrumentalities, as well as on its
Philippines or to any political property held and activities undertaken
subdivision thereof is not included in in that capacity. Even where one enters
gross income and exempt from the territory of another, there is an
taxation. (Sec. 32(B)(7)(b), NIRC) implied understanding that the former
2. Donations in favor of governmental does not thereby submit itself to the
institutions are considered as income authority and jurisdiction of the other.
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vs. City of Manila, GR No. L-9637,
A. CONSTITUTIONAL LIMITATIONS April 30, 1957)
A. GENERAL OR INDIRECT
CONSTITUTIONAL LIMITATIONS 3. Non-Impairment Of Contracts (Art.
III, Sec. 10, 1987 Constitution)
1. Due Process Clause (Art. III, Sec. 1, No law impairing the obligation
1987 Constitution) of contract shall be passed. (Sec.
Requisites: 10, Art. III, 1987 Constitution)
A. The interests of the public as The rule, however, does not
distinguished from those of a apply to public utility franchises or
particular class require the right since they are subject to
intervention of the State. amendment, alteration or repeal by
(Substantive limitation) the Congress when the public
B. The means employed must be interest so requires. (Cagayan
reasonably necessary to the Electric & Light Co., Inc. v.
accomplishment of the Commissioner, GR No. 60216,
purpose and not unduly September 25, 1985)
oppressive. (Procedural
limitation) RULES:
The constitutionality of a legislative A. When the exemption is
taxing act questioned on the ground of bilaterally agreed upon
denial of due process requires the between the government and
existence of an actual case or the taxpayer – it cannot be
controversy. withdrawn without violating
the non-impairment clause.
1. Equal Protection Clause (Art. III, B. When it is unilaterally granted by
Sec. 1, 1987 Constitution law, and the same is
Requisites of a Valid Classification: withdrawn by virtue of
a. based upon substantial another law – no violation.
distinctions C. When the exemption is granted
b. germane to the purposes of the under a franchise – it may be
law withdrawn at any time thus,
C. not limited to existing conditions not a violation of the non-
only impairment of contracts
d. apply equally to all members of
the class 1. Presidential power to grant
reprieves, commutations and
1. Freedom Of Speech And Of The pardons and remit fines and
Press (Art. III, Sec. 4, 1987 forfeitures after conviction (ART.
Constitution) VII, SEC. 19, 1987 CONSTITUTION)
There is curtailment of press Due Equal Uniformit
freedom and freedom of thought and Process Protection y
expression if a tax is levied in order Taxpayer Taxpayers Taxable
to suppress this basic right and may not shall be articles, or
impose a prior restraint. (Tolentino be treated alike kinds of
vs. Secretary of Finance, GR No. deprived under like property of
of life, circumstance the same
115455, August 25, 1994)
liberty or s and class, shall
property conditions be taxed at
2. Non-Infringement Of Religious without both in the the same
Freedom And Worship (Art. III, Sec. due privileges rate. There
5, 1987 Constitution) process conferred should
A license tax or fee constitutes a of law. and liabilities therefore,
curtailment of religious freedom if Notice imposed. be no
imposed as a condition for its must, direct
exercise. (American Bible Society therefore double
, be taxation

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given in The constitutional provision
case of (above cited) which grants tax
failure to exemption applies only to property
pay taxes or realty taxes assessed on such
properties used actually, directly
B. SPECIFIC OR DIRECT exclusively for religious, charitable
CONSTITUTIONAL LIMITATIONS and educational purposes. (Lladoc
vs. Commissioner, GR No. L-19201,
1. Non-Imprisonment For Debt Or Non- June 16, 1965)
Payment Of Poll Tax (Art. III, Sec. The present Constitution
20, 1987 Constitution) required that for the exemption of
“lands, buildings and
2. Rule Requiring That Appropriations, improvements”, they should not only
Revenue And Tariff Bills Shall be “exclusively” but also “actually”
Originate Exclusively From The and “directly” used for religious and
House Of Representatives (Art. VI, charitable purposes. (Province of
Sec. 24, 1987 Constitution) Abra vs. Hernando, GR No. L-49336,
August 31, 1981)
1. Uniformity, Equitability And The test of exemption from
Progressivity Of Taxation (Art. taxation is the use of the property
VI, Sec. 28(1), 1987 for the purposes mentioned in the
Constitution) Constitution. (Abra Valley College
Uniformity – all taxable articles or Inc. vs. Aquino, GR No. L-39086,
kinds of property of the same class June 15, 1988)
are taxed at the same rate.
Equitability – the burden falls to EXCLUSIVE BUT NOT ABSOLUTE USE
those who are more capable to pay. The term “ exclusively used” does
Progressivity – rate increases as the not necessarily mean total or absolute
tax base increases. use for religious, charitable and
educational purposes. If the property is
Q: Is a tax law adopting a regressive incidentally used for said purposes, the
system of taxation valid? tax exemption may still subsist. (Abra
A: Yes. The Constitution does not Valley College Inc. vs. Aquino, Gr No. L-
really prohibit the imposition of indirect 39086, June 15, 1988)
taxes which, like the VAT, are Corollarily, if a property, although
regressive. The Constitutional provision actually owned by a religious, charitable
means simply that indirect taxes shall be and educational institution is used for a
minimized. The mandate to Congress is non- exempt purpose, the exemption
not to prescribe, but to evolve, a from tax shall not attach
progressive tax system. (EVAT En Banc
Resolution, Tolentino, et al vs Secretary ART. XIV, ART. VI,
of Finance, October 30, 1995) SEC 4(3) SEC 28(3)
Grantee Non- stock, Religious,
2. Limitations On The Congressional non profit educational
Power To Delegate To The educational , charitable
President The Authority To Fix institution institutions
Tariff Rates, Import And Export Taxes Income tax Property
Quotas, Etc. (Art. VI, Sec. 28(2), covered Custom tax
Duties
1987 Constitution)
Property tax
(DECS Order
3. Tax Exemption Of Properties No. 137-
Actually, Directly And Exclusively 187)
Used For Religious, Charitable And
Educational Purposes. (Art. VI, 4. Voting Requirement In Connection
Sec. 28(3) 7, 1987 Constitution) With The Legislative Grant Of Tax

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Exemption (Art. VI, Sec. 28(4), This constitutes a violation of
1987 Constitution) substantive due process.
5. Non-Impairment Of The
Jurisdiction Of The Supreme Court Elements:
In Tax Cases (Art. VIII, Sec. 2 And a. the same property or subject
5(2)(B), 1987 Constitution) matter is taxed twice when
it should be taxed only once.
6. Exemption From Taxes Of The b. both taxes are levied for the
Revenues And Assets Of same purpose
Educational Institutions, Including c. imposed by the same taxing
Grants, Endowments, Donations authority
And Contributions. (Art. XIV, Sec. d. within the same jurisdiction
4(3) And (4), 1987 Constitution) e. during the same taxing
period
OTHER SPECIFIC TAX PROVISIONS IN f. covering the same kind or
THE CONSTITUTION character of tax.
1. Power of the President to veto any (Villanueva vs. City of Iloilo)
particular item or items in an
appropriation, revenue, or tariff bill. (1) Indirect Duplicate Taxation – not
(Art VI, Sec. 27(2), 1987 legally objectionable. The absence
Constitution) of one or more of the above-
2. Necessity of an appropriation before mentioned elements makes the
money may be paid out of the public double taxation indirect.
treasury. (Art. VI, Sec. 29 (1), 1987
Constitution) (2) Domestic- this arises when the taxes
3. Non-appropriation of public money are imposed by the local or national
or property for the use, benefit, or government (within the same state)
support of any sect, church, or (3) International- refers to the
system of religion. (Art. VI, Sec. 29 imposition of comparable taxes in
(2), 1987 Constitution) two or more states on the same
4. Treatment of taxes levied for a taxpayer in respect of the same
special purpose. (Art. VI, Sec. 29 subject matter and for identical
(3), 1987 Constitution) periods.
5. Internal revenue allotments to local
government units. (Art. X, Sec. 6, REMEDIES OF DOUBLE TAXATION
1987 Constitution) 1. Tax Sparing Rule – same
dividend earned by a NRFC
within the Phil. is reduced
Double taxation by imposing a lower rate of
15% (in lieu of the 35%), on
DOUBLE TAXATION – taxing the same the condition that the
property twice when it should be taxed country to which the NRFC
but once. is domiliced shall allow a
credit against the tax due
IS DOUBLE TAXATION PROHIBITED IN THE from the NRFC, taxes
PHILIPPINES? deemed to have been paid
No. There is no constitutional in the Phil. (Sec.28 B 5b)
prohibition against double taxation. It is (CIR vs Procter & Gamble)
not favored but permissible. (Pepsi Cola (GR No. 66838, Dec. 2,
Bottling Co. v. City of Butuan, 1968). 1991)
2. Tax deductions
KINDS OF DOUBLE TAXATION Example: vanishing deduction under
(1) Direct Duplicate Taxation / Section 86(A)(2), NIRC
Obnoxious – double taxation in the 3. Tax credits
objectionable or prohibited sense. Instances under the NIRC:

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 For VAT purposes, the tax on inputs state of source or situs is exempted
or items that go into the in the state of residence, although in
manufacture of finished products some instances it may be taken into
(which are eventually sold) may be account in determining the rate of
credited against or deducted from tax applicable to the tax payer’s
the output tax or tax on the finished remaining income or capital.(This
product. may be done using the tax deduction
method which allows foreign income
Foreign income taxes may be taxes to be deducted from gross
credited against the Phil. Income
income, in effect exempting the
tax, subject to certain limitations,
payment from being further taxed.)
by citizens, including members of
2. The credit method- although the
general professional partnerships or
income or capital which is taxed in
beneficiaries of estates or trusts
the state of source is still taxable in
(pro rata), as well as domestic
the state of residence. The tax paid
corporations.
in the former is credited against the
A tax credit is granted for estate tax, levied in the latter.
taxes paid to a foreign country on (Commissioner of Internal Revenue
the estate of citizens and resident v. S.C Johnson and Son, Inc. et al.,
aliens subject to certain limitations. G.R No. 127105, June 25, 1999)
The donor’s tax imposed upon a
citizen or a resident shall be Exemption
Credit Method
credited with the amount of any Method
donor’s tax imposed by the authority Focus is on the Focus is on the tax
of a foreign country, subject to income or capital
itself
certain limitations.
1. Tax Exemptions
NOTE: Computational illustration
2. Principle of Reciprocity
between a tax deduction and a tax
3. Treaties with other states
credit:
METHODS RESORTED TO BY A TAX TREATY IN
Tax deduction method
ORDER TO ELIMINATE DOUBLE TAXATION
Gross income
Less: allowable deductions
FIRST METHOD: The tax treaty sets out
including
the respective rights to tax by the state
foreign taxes paid
of source or situs and by the state of
Income subject to tax
residence with regard to certain classes
Multiplied by rate
of income or capital. In some cases, an
Income tax due
exclusive right to tax is conferred in one
of the contracting states; however, for
Tax credit method
other items of income or capital, both
Gross income
states are given the right to tax although
Less: allowable deductions
the amount of tax that may be imposed
excluding
by the state of source is limited.
foreign taxes paid
SECOND METHOD: The state of source is
Income subject to tax
given a full or limited right to tax
Multiplied by rate
together with the state of residence. In
Income tax due
this case, the treaty makes it incumbent
Less: foreign taxes paid
upon the state of residence to allow
Net income tax due
relief in order to avoid double taxation.
TWO METHODS OF RELIEF ARE USED UNDER THE

SECOND METHOD: Forms of Escape from
TAxation
1. The exemption method- the income
or capital which is taxable in the
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(1) SHIFTING – the process by which the thereby turning out his units at a
tax burden is transferred from the lower cost.
statutory taxpayer (impact of
taxation) to another (incident of (3) TAX AVOIDANCE – the exploitation by
taxation) without violating the law. the taxpayer of legally permissible
alternative tax rates or methods of
IMPACT OF TAXATION – point on which tax assessing taxable property or
is originally imposed. income, in order to avoid or reduce
tax liability.
INCIDENCE OF TAXATION – point on which Example: “estate planning”
the tax burden finally rests or settles (conveyance of property to a family
down. corporation for shares) (Delpher Trades
Illustration: Value added tax. The Corp. vs. IAC, 157 SCRA 349)
seller is required by law to pay tax, but (4) TAX EVASION – use by the taxpayer of
the burden is actually shifted or passed illegal or fraudulent means to
on to the buyer. defeat or lessen the payment of the
tax.
KINDS OF SHIFTING
A. Forward shifting- when burden of FACTORS IN TAX EVASION
tax is transferred from a factor of 1. the end to be achieved, i.e.
production through the factors of payment of less than that known by
distribution until it finally settles on the taxpayer to be legally due, or
the ultimate purchaser or consumer paying no tax when it is shown that
B. Backward shifting- when burden is the tax is due;
transferred from consumer through 2. an accompanying state of mind
factors of distribution to the factors which is described as being evil, in
of production bad faith, willful, or deliberate and
C. Onward shifting- when the tax is not coincidental; and
shifted 2 or more times either 3. a course of action which is unlawful.
forward or backward
INDICIA OF FRAUD IN TAX EVASION
(1) CAPITALIZATION – a mere increase in 1. Failure to declare for taxation
the value of the property is not purposes true and actual income
income but merely an unrealized derived from business for 2
increase in capital. No income until consecutive years (Republic vs
after the actual sale or other Gonzales, L-17962)
disposition of the property in excess 2. Substantial under-declaration of
of its original cost. income tax returns of the taxpayer
EXCEPT: if by reason of appraisal, the for 4 consecutive years coupled with
cost basis of property increased and the intentional overstatement of
resultant basis is used as the new tax deductions (CIR vs Reyes, 104 PHIL
base for purposes of computing the 1061)
allowable depreciation expense, the net
difference between the original cost TAX TAX
basis and new basis is taxable under the AVOIDANCE EVASION
economic benefit principle. (BIR Ruling
No. 029, March 19, 1998) Validity Legal and not Illegal and
subject to subject to
(2) TRANSFORMATION – the manufacturer criminal penalty criminal
penalty
or producer upon whom the tax has
been imposed, fearing the loss of
Effect Minimization of Almost
his market if he should add the tax taxes always
to the price, pays the tax and results in
endeavors to recoup himself by absence of
improving his process of production, tax payments

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(1) TAX EXEMPTION – a grant of (1) Personal – granted directly in
immunity to particular persons or favor of certain persons
corporations from the obligation to (2) Impersonal – granted directly in
pay taxes. favor of a certain class of
property
LEGAL BASIS: No law granting any tax
exemption shall be passed without the PRINCIPLES GOVERNING TAX EXEMPTION
concurrence of a majority of all the A. Exemptions from taxation are
members of Congress (ART VI. SEC 28(4) highly disfavored in law and are
OF THE 1987 CONSTITUTION) not presumed.
B. He who claims as exemption must
KINDS OF TAX EXEMPTION be able to justify his claim by the
1. As to source clearest grant of organic or statute
A. Constitutional – immunities from law by words too plain to be
taxation that originate from the mistaken. If ambiguous, there is no
constitution. exemption.
B. Statutory – those which emanate C. He who claims exemption should
from legislation prove by convincing proof that he
Examples of Statutory Exemptions is exempted.
Sec. 27, NIRC D. Taxation is the rule; tax exemption
Sec. 105 Tariff and Customs is the exception.
Code E. Tax exemption must be strictly
Sec. 234 Local Government Code construed against the taxpayer and
Special Laws, such as the liberally in favor of the taxing
Omnibus Investment Code of 1987 authority.
(EO 226), Philippine Overseas f. Tax exemptions are not presumed.
Shipping Act (RA 1407 as amended), G. Constitutional grants of tax
Fertilizer Industry Act (RA 3050, as exemption are self-executing.
amended), Mineral Resources H. Tax exemptions are personal.
Development Decree of 1974 (PD 463
as amended), Cottage Industry Act THE FOLLOWING PARTAKE THE NATURE OF
(RA 318, as amended) and TAX EXEMPTION
exemptions in “Housing for Low 1. Deductions for income tax purposes
Income Group” (PD 1205, as 2. Claims for refund
amended) 3. Tax amnesty
C. Contractual- agreed to by the 4. Condonation of unpaid tax liabilities
taxing authority in contracts NOTE: must be strictly construed
lawfully entered into by them against the taxpayer
under enabling laws
d. Treaty WHEN EXEMPTIONS ARE CONSTRUED LIBERALLY
e. Licensing Ordinance IN FAVOR OF GRANTEE
1. As to form 1. When the law so provides for such
(1) Express – expressly granted by liberal construction.
organic or statute law 2. Exemptions from certain taxes,
(2) Implied – when particular granted under special circumstances
persons, property or excises are to special classes of persons.
deemed exempt as they fall 3. Exemptions in favor of the
outside the scope of the taxing government, its political subdivisions
provision itself. or instrumentalities.
1. As to extent 4. Exemptions to traditional
(1) Total – absolute immunity exemptees, such as those in favor of
(2) Partial – one where a collection religious and charitable institutions.
of a part of the tax is dispensed 5. If exemptions refer to the public
with property
1. As to object
Q: May a tax exemption be revoked?
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A: Yes. It is an act of liberality which 2.Government not estopped from
could be taken back by the government questioning the tax liability even if
unless there are restrictions. Since amnesty tax payments were already
taxation is the rule and exemption received.
therefrom is the exception, the Reason: Erroneous application and
exemption may be withdrawn by the enforcement of the law by public
taxing authority. (Mactan Cebu officers do not block subsequent
International Airport Authority vs. correct application of the statute. The
Marcos, 261 SCRA 667) government is never estopped by
mistakes or errors of its agents.
RESTRICTIONS ON REVOCATION OF TAX Basis: Lifeblood Theory
EXEMPTIONS
A. Non impairment clause. Where the 3.Defense of tax amnesty, like insanity,
exemption was granted to private is a personal defense.
parties based on material Reason: Relates to the circumstances
consideration of a mutual nature, of a particular accused and not the
which then becomes contractual and character of the acts charged in the
is covered by the non-impairment information.
clause of the Constitution.
B. Adherence to form- if the tax Tax amnesty Tax exemption
exemption is granted by the
Constitution, its revocation may be Immunity from all Immunity from
effected through Constitutional criminal, civil and civil liability only
amendment only administrative
liabilities arising
C. Where the tax exemption grant is in
from non payment
the form of a special law and not by of taxes
a general law even if the terms of
the general act are broad enough to Applies only to Prospective
include the codes in the general law past tax periods, application
unless there is manifest intent to hence retroactive
repeal or alter the special law application
(Province of Misamis Oriental vs
Cagayan Electric Power and Light
Co. Inc) DOCTRINE OF IMPRESCRIPTIBILTY
As a rule, taxes are imprescriptible
NATURE OF TAX AMNESTY as they are the lifeblood of the
1. General or intentional overlooking by government. However, tax statutes may
the state of its authority to impose provide for statute of limitations.
penalties on persons otherwise guilty The rules that have been adopted
of evasion or violation of a revenue are as follows:
or tax law. a.) National Internal Revenue Code
2. Partakes of an absolute forgiveness of The statute of limitation for
waiver of the government of its right assessment of tax if a return is filed is
to collect. within three (3) years from the last day
3. To give tax evaders, who wish to prescribed by law for the filling of the
relent and are willing to reform a return or if filed after the last day,
chance to do so. within three years from date of actual
filling. If no return is filed or the return
RULES ON TAX AMNESTY filed is false or fraudulent, the period to
1. Tax amnesty assess is within ten years from discovery
a) like tax exemption, it is never of the omission, fraud or falsity.
favored nor presumed The period to collect tax is within
b) construed strictly against the three years from date of assessment. In
taxpayer (must show complete the case, however, of omission to file or
compliance with the law) if the return filed is false or fraudulent,
the period to collect is within ten years
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1

from discovery without need of an NOTE: Administrative regulations must
assessment. always be in harmony with the
provisions of the law. In case of
b.) Tariff and customs code discrepancy between the basic law and
It does not express any general the implementing rule or regulation, the
statute of limitation; it provided, former prevails.
however, that ‘’ when articles have
entered and passed free of duty or final NON-RETROACTIVITY OF BIR RULINGS
adjustment of duties made, with General Rule: Rulings are not
subsequent delivery, such entry and retroactive if they are prejudicial to the
passage free of duty or settlement of taxpayer. (Sec. 246, NIRC)
duties will, after the expiration of one Exceptions:
(1) year, from the date of the final 1. Where the taxpayer deliberately
payment of duties, in the absence of misstates or omits material facts
fraud or protest, be final and conclusive from his return or any document
upon all parties, unless the liquidation required of him by the BIR.
of import entry was merely tentative.” 2. Where the facts subsequently
(Sec 1603,TCC) gathered by the BIR is materially
different from the facts on which
c.) Local Government Code the ruling is based.
Local Taxes, fees, or charges shall 3. Where the taxpayer acted in bad
be assessed within five (5) years from faith.
the date they became due. In case of
fraud or intent to evade the payment of PRINCIPLE OF LEGISLATIVE APPROVAL OF AN
taxes, fees or charges the same may be ADMINISTRATIVE INTERPRETATION THROUGH
assessed within ten (10) years from REENACTMENT
discovery of the fraud or intent to Where a statute is susceptible of the
evade payment. They shall also be meaning placed upon it by a ruling of
collected either by administrative or the government agency charged with its
judicial action within five (5) years enforcement and the legislature
from date of assessment (Sec. 194. LGC) thereafter reenacts the provision
without substantial change, such action
is to some extent confirmatory that the
Tax enforcement and ruling carries out the legislative purpose.
Administration
RULE OF NO ESTOPPEL AGAINST THE
SOURCES OF TAX LAWS (Key: SPEC TRA 2 GOVERNMENT
BLT) General Rule: The Government is not
1. Statutes estopped by the mistakes or errors of its
2. Presidential Decrees agents; erroneous application and
3. Executive Orders enforcement of law by public officers do
4. Constitution not bar the subsequent correct
5. Court Decisions application of statutes. (E. Rodriguez,
6. Tax Codes Inc. vs. Collector, L-23041, July 31,
7. Revenue Regulations 1969)
8. Administrative Issuances Exception: In the interest of justice and
9. BIR Rulings fair play, as where injustice will result
10. Local Tax Ordinance to the taxpayer. (see CIR vs. CA, GR No.
11. Tax Treaties and Conventions 117982, Feb. 6, 1997; CIR vs. CA, GR No.
107135, Feb. 3, 1999)
REQUISITES OF TAX REGULATIONS
1. Reasonable AGENCIES INVOLVED IN TAX ADMINISTRATION
2. Within the authority conferred 1. Bureau of Internal Revenue
3. Not contrary to law – internal revenue taxes
4. Must be published Agents of the CIR

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a. Commissioner of Customs with 4. Dissolving corporation [Sec. 52(c),
respect to taxes on imported goods NIRC]
b. head of the appropriate
government office with respect to SIGNIFICANCE OF ASSESSMENT
energy tax a. In the proper pursuit of judicial and
c. banks duly accredited by the CIR extrajudicial remedies to enforce
(Sec. 12, 1997 NIRC) taxpayer liabilities and certain
2. Bureau of Customs – customs law matters that relate to it, such as the
enforcement imposition of surcharges and
3. Provincial, city and municipal interests,
assessors and treasurers – local and b. In the application of statute of
real property taxes limitations,
c. In the establishment of tax liens,
ORGANIZATION AND FUNCTION OF THE and
BUREAU OF INTERNAL REVENUE (BIR) d. In estimating the revenues that may
BIR shall be under the supervision be collected by government in the
and control of the Dept. of Finance (Sec. coming year. (Mamalateo,
2, NIRC) Victorino. Reviewer on Taxation,
2004)
POWERS AND DUTIES OF THE BIR
Assessment and collection of all
national internal revenue taxes, fees, KINDS
and charges 1. SELF- ASSESSMENT- one in which the
1. Enforcement of all forfeitures, tax is assessed by the taxpayer
penalties, and fines connected himself
therewith
2. Execution of judgments in all cases
2. DEFICIENCY ASSESSMENT- made by the
tax assessor himself whereby the
decided in its favor by the Court of
correct amount of the tax is
Tax Appeals (CTA) and the ordinary
determined after an examination or
courts
investigation is conducted. The
3. Give effect to and administer the
liability is determined and assessed
supervisory and police powers
for the following reason:
conferred to it by the Code or other
a. amount ascertained exceeds that
laws
which is shown as the tax by the
taxpayer in his return
ASSESSMENT – a finding by the taxing
b. no amount of tax is shown in the
authority that the taxpayer has not paid
return
the correct taxes. It is also a written
c. taxpayer did not file any return
notice to a taxpayer to the effect that
at all
the amount stated therein is due as a
tax and containing a demand for the 3. ILLEGAL AND VOID ASSESSMENT-
payment thereof. assessment wherein tax assessor has
General rule: Taxes are self-assessing no power to assess at all
and thus, do not require the issuance of 4. ERRONEOUS ASSESSMENT- assessor has
an assessment notice in order to power to assess but errs in the
establish the tax liability of a taxpayer. exercise thereof
Exceptions: BURDEN OF PROOF IN PRE-ASSESSMENT
1. Tax period of a taxpayer is PROCEEDINGS
terminated [Sec. 6(D), NIRC] There is a presumption of
correctness and good faith on the part of
2. Deficiency tax liability arising from a
the CIR; thus, the burden lies on the
tax audit conducted by the BIR [Sec.
taxpayer. Otherwise, the finding of the
56(B), NIRC]
CIR will be conclusive and he will assess
3. Tax lien [Sec. 219, NIRC] the taxpayer. The same is true even if
the CIR is wrong, if the taxpayer does
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not controvert. (Cagayan Robina Sugar 2. inspection is authorized under
Milling Co. vs. Court of Appeals, GR. Finance Regulations No. 33 of the
No. 122451, October 12, 2000) Secretary of Finance;
Reasons: a. lifeblood theory 3. production of the tax return is
b. presumption of regularity in material evidence in a criminal case
performance of public wherein the government is
functions interested in the result; or
NOTE: Assessments by the BIR must have 4. production or inspection thereof is
on its face the law and facts upon which authorized by the taxpayer himself.
the presumption is made.
Networth Method- inventory method of
PRINCIPLES GOVERNING TAX ASSESSMENTS income tax verification.
1. Assessments are prima facie
presumed correct and made  Applies the accounting principle:
in good faith. assets – liabilities = networth
2. It should be based on actual Condition for its use:
facts. 1. taxpayer’s books do not clearly
3. It is discretionary on the reflect his income or the taxpayer
part of the Commissioner. has no books, or if he has books, he
refuses to produce them;
2. there is evidence of possible source
or sources of income to account for
increases in networth;
4. The authority of the 3. there is a fixed starting point or
Commissioner to assess taxes opening networth; and
may be delegated, except 4. there must be proper adjustments to
the power to make final conform with the income tax laws.
assessments.
5. It must be directed to the
right party. POWERS AND DUTIES OF THE COMMISSIONER
I. SECTION 4 (power to interpret tax law
Authority of a Revenue Officer - and decide tax cases)
pursuant to a Letter of Authority issued
by the Regional Director 1. Interpret provisions of this Code
a. To examine taxpayers and other tax laws subject to
within the jurisdiction review of the Secretary of
of the district in order Finance
to collect the correct (Quasi-legislative)
amount of tax; 2. Decide: (Quasi-judicial)
b. To recommend the a) disputed assessment
assessment of any b) refunds of internal
deficiency tax due in revenue taxes, fees
the same manner that and charges
the said acts could c) penalties imposed in
have been performed relation thereto
by the Revenue d) other matters arising
Regional Director. from this Code or
General Rule: income tax returns are other laws or
confidential. portions thereof
Exception: inquiry into income tax administered by the
returns may be authorized- BIR subject to the
exclusive appellate
1. inspection is authorized upon jurisdiction of the
written order of the President of the CTA (Sec. 4)
Philippines;

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1

II. SECTION 5 (power to obtain
information, summon, examine and take III. SECTION 6 (power to make
testimony of persons) assessments, prescribe additional
requirements for tax administration
1. For the Commissioner to and enforcement)
ascertain:
(a) correctness of any return or in 2. Examination of returns and
making a return where none has determination of tax due
been made A. After
(b) liability of any person for any a
internal revenue tax or in r
correcting such liability e
(c) tax compliance t
u
The Commissioner is authorized: r
1. to Examine any relevant Book, paper, n
record or other data h
2. to Obtain any information (costs, a
volume of production, receipts, sales, s
gross income, etc), on a regular basis b
from: e
i. any person other than the person e
under investigation or n
ii. any office or officer of the f
national/local government, gov’t il
agencies and instrumentalities e
(Bangko Sentral, gov’t owned and d
controlled corporations) (e.g. LTO, t
Register of Deeds) h
3. to Summon e
i. the person liable for tax or C
required to file a return or o
ii. any officer or employee of such m
person or m
iii. any person having in his i
possession/custody/care s
-- the books of accounts, s
-- accounting records of entries i
relating to the business of the o
person liable for tax or any other n
person e
-- to produce such books, r
papers, records, and other data o
and to give testimony r
4. to take the Testimony of the person h
concerned, under oath as may be i
relevant to the inquiry s
5. to cause revenue officers and r
employees to make a Canvass of any e
revenue district or region p
r
Nothing in Section 5 shall be e
construed as granting the Commissioner s
the authority to inquire into bank e
deposits other than as provided for n
under sec. 6 (F) of the Code. t
Cabrera, Jhundee
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1

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Cabrera, Jhundee
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1

n The Commissioner shall Make or
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* Any tax or deficiency tax so ca
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notice and demand from the o
Commissioner or his bt
representative ai
* Any return, statement or n
declaration filed in any th
authorized office shall not be ro
withdrawn; but within three ug
years from date of filing, the h
same may be modified, te
changed or amended; st
provided that no notice for i
audit or investigation of such m
return, has in the meantime, o
been actually served upon the ny
taxpayer. or
ot
2. Failure to submit required h
returns and other documents er
If a person wi
i. fails to file a required return or se
report at the time prescribed or w
ii. willfully or otherwise files a hi
false or fraudulent return, ch
sh
Cabrera, Jhundee
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al of any
l perso
b n
e (natur
pr al/jur
i idical)
m under
a obser
fa vation
ci or
e Survei
co llance
rr ,
ec if there is reason to
t believe that such is not
a declaring his correct income,
n sales or receipts for tax
d purposes.
su The findings may be used
ffi as basis for assessing the
ci taxes and shall be deemed
e prima facie correct.
nt
fo B. Commissioner may prescribe a
r Minimum amount of gross
al receipts, sales and taxable base
l (taking into account the sales and
le income of other persons engaged
ga in similar business):
l i. When a person
p has failed to
ur issue
p receipts as
os required by
es sec.113
(Invoice
1. Inventory-taking, Surveillance, requirement
Presumptive Gross Sales s for VAT-
A. Commissioner may, at any time registered
during the taxable year persons) and
(a) order the Sec. 237
inven (Issuance of
tory Receipts or
taking Commercial
of Invoices) or
goods
ii. When the books
of any
of accounts
taxpa
or records
yer or
do not
(b) may correctly
place reflect the
the declarations
busin made or
ess required to
opera be made in a
tions return,
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Such minimum amount shall application to
be considered correct. compromise
1. Terminate taxable period payment of tax
Commissioner shall declare the tax liability by reason
period of a taxpayer Terminated and of financial
send notice to the taxpayer of such incapacity
decision with a request for immediate
payment of the tax when it has come to The taxpayer’s application for
the knowledge of the Commissioner: compromise shall not be considered
a) that a taxpayer is unless he waives in writing his
retiring from privilege under RA 1405 and other
business subject to general or special laws. Such waiver
tax or shall authorize the Commissioner to
b) is intending to leave the inquire into his bank deposits.
Phils. or 2. Authority to Register tax agents
c) to remove his property (a) The Commissioner shall accredit
therefrom or and Register, individuals and
d) to hide or conceal his general professional partnerships
property or and their rep. who prepare and
e) is performing any act file tax returns and other papers
tending to obstruct or who appear before the BIR
the proceedings for (b) The Commissioner shall create
the collection of national and regional
tax accreditation boards.
1. Prescribe Real Property Values Those who are denied

The Commissioner is authorized to: accreditation may appeal the same
a. Divide the Phils. into different to the Sec. Of Finance who shall
zones or areas and rule on the appeal within 60 days
b. Determine the fair market value from receipt of such appeal. Failure
of real properties located in each to do so within the prescribed
zone or area period shall be deemed as approval
for accreditation.
For tax purposes, the value of
the property shall be whichever is 3. Authority to Prescribe Additional
higher of: Requirements
a) Fair market value as The Commissioner may prescribe
determined by the the manner of compliance with any
Commissioner; or documentary or procedural
b) Fair market value as Requirement for the submission or
shown in the preparation of financial statements
schedule of values of accompanying tax returns.
the provincial and
city assessors. IV. SECTION 7 (Authority to Delegate
Power )
1. Authority to Inquire into Bank 1. The Commissioner may delegate
Deposit the powers vested in him to
Notwithstanding R.A. 1405 (Bank - subordinate officials with rank
Secrecy Law) the Commissioner is equivalent to Division Chief or
authorized to inquire into the Bank higher, subject to
deposits of: limitations/restrictions imposed
(a) a decedent to under the rules and regulations
determine his EXCEPT, (the following powers
gross estate shall NOT be delegated)
(b) a taxpayer who has a) power to Recommend
filed an the promulgation of
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rules and
regulations by the d) power to Assign or reassign
Sec. of Finance internal revenue officers to
b) power to Issue rulings of establishments where
first impression or articles subject to excise tax
to Reverse, revoke are kept.
modify any existing
rule of the BIR V. SECTIONS 8, 14, 15, 16, 17 (Other
c) power to Compromise or Powers)
Abate any tax 1. Duty to ensure the provision and
liability distribution of forms,
receipts, certificates, and
appliances, and the
acknowledgment of
payment of taxes (Sec. 8)
2. Authority to administer oaths

provided however that the and to take testimony (Sec.
regional evaluation board may 14)
compromise:
1. assessments
issued by
3. Authority to make arrests and
seizures (Sec. 15)
regional
offices
involving 4. Authority to employ, assign or
deficienc reassign internal revenue
y taxes officers involved in excise
of tax functions to
P500,000 establishments where
or less articles subject to excise
and tax are produced or kept
2. minor (Sec. 16)
criminal
violations 5. Authority to assign or reassign
as may internal revenue officers
be and employees of the BIR to
determin other or special duties
ed by the connected with the
rules and enforcement or
regulatio administration of the
ns revenue laws (Sec. 17)
3. discovered
by ARE LEGAL OFFICERS OF THE BIR AUTHORIZED
regional TO INSTITUTE APPEAL PROCEEDINGS WITHOUT
and THE PARTICIPATION OF THE SOLICITOR
district GENERAL?
officials NO. The institution or
commencement before a proper court of
Regional Evaluation Board is civil and criminal actions and
composed of: proceedings arising under the Tax
i. Regional Director as Chairman Reform Act which shall be conducted by
ii. Asst. Regional Director legal officers of the BIR is not in dispute.
iii. Heads of the Legal, Assessment An appeal from such court, however, is
and Collection Div. not a matter of right. It is still the
iv. Revenue District Officer having Solicitor General who has the primary
jurisdiction over the taxpayer responsibility to appear for the
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government in appellate proceedings. 2. The gain must be realized or
(Commissioner vs. La Suerte Cigar and received.
Cigarette Factory, GR No. 144942, July 3. The gain must not be excluded by
4, 2002) law or treaty from taxation.
SOURCES OF REVENUE TESTS ON TAXABILITY OF INCOME

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

1. Citizenship Principle – A citizen of
A. INCOME TAXATION the Philippines is subject to Philippine
income tax (a.) on his worldwide
DEFINITIONS income, if he resides in the Philippines,
INCOME TAX – tax on all yearly profits or (b.) only on his income from sources
arising from property, possessions, within the Philippines, if he qualifies as
trade or business, or as a tax on a nonresident citizen.
person’s income, emoluments, 2. Residence Principle – resident alien
profits and the like (61 CJS 1559) is liable to pay income tax on his income
– tax on income, from sources within the Philippines but
whether gross or net. (27 Am. Jur. exempt from tax on his income from
308) sources outside the Philippines.
3. Source Principle – An alien is subject
INCOME – all wealth, which flows into the to Philippine income tax because he
taxpayer other than as a mere derives income from sources within the
return of capital. Philippines. Thus, a nonresident alien is
liable to pay Philippine income tax on
CAPITAL – resource of person, which can his income from sources within the
be used in producing goods and Philippines such as dividend, interest,
services. rent, or royalty, despite the fact that he
Income Capital has not set foot in the Philippines.
CLASSIFICATION OF TAXPAYERS
All wealth, which Fund or property
flows into the which can be used Individuals
taxpayer other in producing a. citizens
than as a mere goods or services (1) resident citizens (RC)
return of capital.
(2) non-resident citizens (NRC)
Flow of Wealth Fund or property a. aliens
(1) resident aliens (RA)
Source of wealth Wealth (2) non-resident aliens (NRA)
(a) engaged in
REQUISITES FOR INCOME TO BE TAXABLE
trade
1. There must be a gain or profit.
or
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busines d. who is previously
s considered as a non-resident and
within who arrives in the Philippines at
the anytime during the taxable year
Phils. to reside thereat permanently
(NRAE shall be considered non-resident
TB) for the taxable year in which he
(b) not arrives in the Philippines with
engage respect to his income derived
d in from sources abroad until the
trade date of his arrival [Sec.22 (E),
or NIRC]
busines
s NOTE: An overseas contract worker
within (OCW) is taxable only on income
the derived from sources within the
Philippi Philippines. [Sec. 23 (B)(C)]
nes A seaman is considered as
(NRAN an OCW provided the following
ETB) requirements are met:
1. receives compensation
Corporations for services
a. Domestic (DC) rendered abroad as
b. Foreign a member of the
complement of a
(1) resident foreign vessel; and
corporation (RFC) 2. such vessel is engaged
(2) non-resident foreign exclusively in
corporation (NRFC) international trade.
Estates
Trusts Based on the above provisions,
Partnerships there are three (3) types of
nonresident citizens, namely: (1)
A. INDIVIDUALS immigrants; (2) employees of a foreign
entity on a permanent basis; and
WHO ARE TAXABLE? (3) overseas contract workers.
1. Resident Citizen Immigrants and employees of a foreign
2. Non-resident Citizen entity on a permanent basis are
A non-resident citizen means, a treated as nonresident citizens from
Filipino citizen: the time they depart from the
a. who establishes to the Philippines. However, overseas
satisfaction of the Commissioner contract workers must be physically
the fact of his physical presence present abroad most of the time
abroad with a definite intention during the calendar year to qualify as
to reside therein; nonresident citizens.
b. who leaves the 1. Resident alien - means an
Philippines during the taxable individual whose residence is within
year to reside abroad, either as the Philippines and who is not a
an immigrant or for employment citizen thereof. [Sec.22 (F, NIRC)]
on a permanent basis; 2. Non-resident alien engaged
c. who works and derives in trade or business within the
income from abroad and whose Philippines. (NRAETB)
employment thereat requires A non-resident alien means an
him to be physically present individual whose residence is not
abroad most of the time during within the Philippines and who is not
the taxable year; a citizen thereof. [Sec.22 (G)]
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The term trade or business 1. General professional
includes the performance of the partnerships;
functions of a public office. [Sec. 22 2. Joint venture or consortium
(S)] formed for the purpose of
The term trade, business or undertaking construction
profession shall not include projects or engaging in
performance of services by the petroleum, coal, geothermal
taxpayer as an employee. [Sec. 22 and other energy operations
(CC)] pursuant to an operating or
A non-resident alien individual consortium agreement under
who shall come to the Philippines a service contract with the
and stay therein for an aggregate Government.
period of more than 180 days during
any calendar year shall be deemed a CORPORATIONS EXEMPT FROM INCOME
non-resident alien doing business in TAXATION (FOR INCOME REALIZED AS SUCH)
the Philippines Section 22(G) UNDER NIRC
notwithstanding [Sec. 25(A)(1)] 1. Those enumerated under
3. Non-resident alien not Sec. 30.
engaged in trade or business within Exempt corporations are
the Philippines. (NRANETB) subject to income tax on their
income from any of their properties,
ONLY RESIDENT CITIZENS are taxable real or personal, or from any other
for income derived from sources within activities conducted for profit,
and without the Philippines. All other regardless of the disposition made of
individual income taxpayers are taxable such income.
only for income derived from sources 2. With respect to GOCCs, the
within the Philippines. general rule is that these
corporations are taxable as any
 Tax Rates: Please refer to other corporation except:
Annex A. a. GSIS
b. SSS
A. CORPORATIONS c. PHIC
d. PCSO
WHO ARE TAXABLE? e. PAGCOR [Sec. 27
1. Domestic Corporation – (C)]
created or organized in the Phils. or 3. Regional or Area
under its law [Sec. 22(C), NIRC] Headquarters under Sec. 22 (DD) –
2. Resident Foreign not subject to income tax
Corporation – engaged in trade or
business within the Philippines [Sec. Regional operating
22(H), NIRC] headquarters under Sec. 22(EE) shall
3. Non-resident Foreign pay a tax of 10% of their taxable
Corporation – not engaged in trade income.
or business within the Philippines
[Sec. 22(I), NIRC] ONLY DOMESTIC CORPORATIONS are
A Corporation Includes: taxable for income derived from sources
1. Partnerships, no matter how within and without the Philippines. All
created or organized; other corporate income taxpayers are
2. Joint-stock companies; taxable only for income derived from
3. Joint accounts (cuentas en sources within the Philippines.
participacion)
4. Associations; or  Tax Rates: Please refer to
5. Insurance companies [Sec. Annex B.
22(B), NIRC].
A. ESTATES AND TRUSTS
Excludes:
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1

ESTATE – refers to the mass of properties
left by a deceased person. B. TERMINATION OF THE JUDICIAL
SETTLEMENT (WHERE THE HEIRS STILL
RULES ON TAXABILITY OF ESTATE DO NOT DIVIDE THE PROPERTY)
When a person who owns property 1. If the heirs contribute to
dies, the following taxes are payable the estate money,
under the provisions of the income tax property, or industry
law: with intention to
1. Income tax for divide the profits
individual under between/among
Sec. 24 and 25 themselves, an
(to cover the unregistered
period beginning partnership is created
January to the and the estate
time of death); becomes liable for the
2. Estate income payment of corporate
tax under Sec. income tax.
60 if the estate (Evangelista vs.
is under Collector, GR No. L-
administration or 9996, October 15,
judicial 1957; Oña vs.
settlement. Commissioner, GR No.
L-19342, May 25,
1972)
2. If the heirs, without
ESTATES UNDER JUDICIAL SETTLEMENT contributing money,
A. During the Pendency of the property or industry to
Settlement improve the estate,
General Rule: An estate under simply divide the fruits
judicial settlement is subject to thereof
income tax in the same manner as between/among
individuals. Its status is the same as themselves, a co-
the status of the decedent prior to ownership is created,
his death. and individual income
Exceptions: tax is imposed on the
1. The entitlement to income received by
personal exemption is limited each of the heirs,
only to P20,000. payable in their
2. No additional exemption separate and
is allowed. individual capacity.
3. The distribution to the (Pascual vs.
heirs during the taxable year of Commissioner, GR No.
estate income is deductible from L-78133, October 18,
the taxable income of the 1988; Obillos vs.
estate. Such distributed income Commissioner, GR No.
shall form part of the respective L-68118, October 29,
heirs’ taxable income. 1985)
Where no such distribution to
the heirs is made during the ESTATES NOT UNDER JUDICIAL SETTLEMENT
taxable year that the income is Pending the extrajudicial
earned, and such income is settlement, either of the following
subjected to income tax situations may arise:
payment by the estate, the 1. If the heirs contribute
subsequent distribution thereof money, property,
is no longer taxable on the part or industry to the
of the recipient. estate with the
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intention of consisting of ordinary
dividing the profits income or gain from the sale
between/among of assets included in the
themselves, an "corpus" of the estate – filing
unregistered of return and payment of
partnership is tax become the burden of
created and the the trustee or fiduciary.
estate becomes Exceptions:
liable for the a. In the case of a revocable
payment of trust, the income of
corporate income the trust will be
tax; or returned by the
2. If the heirs, without grantor.
contributing b. In a trust where the
money, property or income is held for the
industry to the benefit of the grantor,
estate, simply the income of the trust
divide the fruits becomes income to the
thereof grantor.
between/among c. In the case of trust
themselves, a co- administered in a
ownership is foreign country, the
created and income of the trust;
income tax is undiminished by any
imposed on the amount distributed to
income received the beneficiaries shall
by each of the be taxed to the
heirs, payable in trustee.
their separate and
individual IRREVOCABLE TRUSTS (irrevocable both as
capacity. to corpus and as to income) –
TRUST – A right to the property, whether Trust itself, through the trustee or
real or personal, held by one person for fiduciary, is liable for the payment of
the benefit of another. income tax. Taxed exactly in the same
way as estates under judicial settlement
WHEN TRUSTS ARE TAXABLE ENTITIES and its status as an individual is that of
1. A trust, the income of which is to be the trustor. It is entitled to the
accumulated minimum personal exemption (P20,000)
2. A trust in which the fiduciary may, at and distribution of trust income during
his discretion, either distribute or the taxable year to the beneficiaries is
accumulate the income. deductible from the trust’s taxable
income.
RULES ON TAXABILITY OF THE INCOME OF A
TRUST REVOCABLE TRUSTS – the trustor, not the
1. The income of the trust for trust itself, is subject to the payment of
the taxable year which is to income tax on the trust income.
be distributed to the
beneficiaries – filing and EXEMPTION OF EMPLOYEES’ TRUST
payment of tax lie on the Provided:
beneficiaries. 1. the employee’s trust
must be part of a
2. The income of the trust pension, stock
which is to be accumulated bonus or profit
or held for future sharing plan of the
distribution whether employer for the
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benefit of some or or business. [Sec.
all of his 22(B), NIRC].
employees; 1. Taxable or Business
2. contributions are made Partnership –
to the trust by All other partnerships except
such employer, or general professional partnerships no
such employees, or matter, how created or organized.
both; It includes unregistered joint
3. such contributions are ventures and business partnerships.
made for the However, joint ventures are not
purpose of taxables as corporations when it is;
distributing to such (a) undertaking construction projects
employees both (b) engaged in petroleum, coal and
the earnings and other energy operation under a
principal of the service contract with the
fund accumulated government
by the trust, and General co-partnerships (GCP)
4. that the trust are partnerships, which are by law
instrument makes assimilated to be within the context
it impossible for of, and so legally contemplated as,
any part of the corporations. The partnership itself
trust corpus or is subject to corporate taxation. The
income to be used individual partners are considered
for, or diverted to, stockholders and, therefore, profits
purposes other distributed to them by the
than the exclusive partnership are taxable as dividends.
benefit of such The taxable income for a taxable
employees. (Sec. year, after deducting the corporate
60B, NIRC) income tax imposed therein, shall be
deemed to have been actually or
Tax exemption is likewise to be constructively received by the
enjoyed by the income of the pension partners in the same taxable year
trust; otherwise, taxation of those and shall be taxed to them in their
earnings would result in a diminution of individual capacity whether actually
accumulated income and reduce distributed or not. [Sec. 73(D),
whatever the trust beneficiaries would NIRC]
receive out of the trust fund.
(Commissioner vs. Court of Appeals, LIABILITY OF A PARTNERSHIP
Court of Tax Appeals and GCL 1. General Professional
Retirement Plans, GR No. 95022, March Partnership .- They are not
23, 1992) subject to income tax, but
are required to file returns
A. PARTNERSHIPS of their income for the
purpose of furnishing
KINDS OF PARTNERSHIP FOR TAX PURPOSES information as to the share
UNDER THE NIRC of each partner in the net
1. General Professional gain or profit, which each
Partnerships (GPP) - formed partner shall include in his
by persons for: individual return. The
a. the sole purpose of partnership shall act as the
exercising a common withholding agent.
profession and The net income (income for
b. no part of the income of distribution) shall be computed in
which is derived from the same manner as a corporation.
engaging in any trade Date of filing of the return is April 15
of each year.
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1
2. Taxable or Business he, avails of itemized

Partnership - The income or optional standard
tax of this type of deduction.
Partnership is computed and
taxed like that of a d. Payments made to a
corporation. This kind of partner of a GPP for
partnership, like a regular services rendered shall
corporation, is also required be considered as
to file a quarterly corporate ordinary business
income tax return. Filing and income subject to Sec.
payment of quarterly return 24A (Effective January
is within 60 days after the 1, 1982)
end of each quarter while
the annual return is on or 1. Share of a partner in
before April 15 of the Taxable or Business
following year. partnership
a. Share of a partner in the
LIABILITY OF A PARTNER net income of a
Rules: taxable or business
1. Share of a partner in partnership (dividend)
general professional shall be subject to a
Partnership final tax as follows.
a. Each partner shall report  Resident
as gross income Citizen,
(business income) his Non-
distributed share resident
actually or Citizen
constructively received and
in the net income of Resident
the partnership. (Sec. Alien (2000
26, NIRC) [The same and
share shall be subject onward) –
to creditable 10% (Sec.
withholding tax of 24B2)
10%.] They are liable  Non-
in their separate and resid
individual capacity. ent
Alien
b. Share of a partner in the enga
loss of a general ged
professional in
partnership may be trad
taken by the individual e or
partner in his return of busin
income. ess –
20%
(Sec.
c. Each partner in a general 25
professional A2)
partnership shall,  Non-
report as gross income resid
his distributed share in ent
the net income of the alien
GPP, based on his not
agreed ratio, whether enga
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ged Tax Still due, if any
in
trad GROSS INCOME
e or
busin DEFINITION: Means all income derived
ess – from whatever source, including but not
25% limited to the following (Sec. 32)
(Sec. a. Compensation;
25B) b. Gross income from
a. Share of a partner in the profession, trade or
loss of a taxable or business;
business partnership c. Gains form dealings in
maybe taken by the property;
individual partner in d. Interests;
his return of income. e. Rents;
b. Payments made to a f. Royalties;
partner of a business g. Dividends;
or taxable partnership h. Annuities;
for services rendered i. Prizes and winnings;
shall be considered as j. Pensions;
compensation income k. Partner’s share in the
subject to sec. 24A. net income of the
general professional
KINDS OF INCOME TAXES partnership
UNDER THE NIRC
 See Annex D for detailed
1. Net Income Tax discussion of items.
2. Optional Corporate Income tax
3. Minimum Corporate Income Tax KINDS OF DIVIDENDS
4. Improperly Accumulated 1. Cash
Earnings Tax and
5. Preferential Rates or Special Prop
Rates of Income Tax erty
6. Gross Income Tax Divid
7. Final Income Tax ends
8. Fringe Benefits Tax Individual Taxpayer
9. Capital Gains Tax a. Fro
m
(1) NET INCOME TAX
Do
me
DEFINITION: Means gross income less sti
deductions and/or personal and c
additional exemptions (Sec. 31, NIRC) Co
rp
NET INCOME TAX FORMULA ora
Entire Income tio
Less: Exclusions and Income subject ns
to Final Tax (e.g. Passive
 RC, NRC, RA – 10% (Sec.
Income)
24A)
Gross Income
 NRAETB – 20% (Sec.
Less: Deductions (and/or additional
25A2)
exemptions, if applicable)
 NRANETB – 25% on gross
Net Taxable Income
income (Sec. 25B)
Multiply by: Tax Rate (%)
a. Fro
Net Income Tax Due m
Less: Tax Credit, if any For
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eig equivalent to
n a distribution
Co of taxable
rpo dividends”.
rat (see
ion Commissioner
s vs. Court of
 RC, NRC, RA, NRAETB – Appeals,
5-32% (Sec. 24, 25A1) Court of Tax
 NRANETB – 25% on gross Appeals &
income (Sec. 25B) ANSCOR, GR
No. 108576,
Corporate Taxpayer Jan. 30, 1999)
a. Foreign to Domestic Corp. – 32% a. the recipient is other than
(Sec. 32A) the shareholder
b. Domestic to Domestic Corp. – (Bachrach vs. Seifert,
Exempt; intercorporate GR No. L-2659, October
dividends (Sec. 27D) 12, 1950)
c. Domestic to Foreign Corp. - b. change in the stockholder’s
 Resident Foreign Corp. – equity results by virtue
Exempt (Sec. 28 [A] 7d) of the stock dividend
 Nonresident Foreign issuance.
Corp. – 15% subject to
the condition stated in 2. Liquidating Dividends – When a
Sec. 28 [B] 5. corporation distributes all of its
Otherwise, it shall be assets in complete liquidation or
taxed at 32%. (See dissolution, the gain realized or
Commissioner vs. loss sustained by the
Procter and Gamble, GR stockholder, whether individual
No. 66838, December 2, or corporation, is taxable
1991) income or deductible loss, as the
case may be. (Sec. 73A)
1. Stoc A liquidating dividend is not
k a dividend income. The
Divi transaction is considered a sale
dend or exchange of property
s between the corporation and the
General rule: Not subject to tax stockholder.
because it does not constitute
income; it represents transfer of EXCLUSIONS FROM GROSS INCOME
surplus to capital account. (Sec. NOTE: Under the 1997 Tax Code, the
73B, 1997 NIRC) term “exclusions” refers to items that
Exceptions: are not included in the determination of
a. Sec. 73B, 1997 NIRC gross income either because:
(1) there is (a) they represent return of capital
redemption or or are not income, gain or profit; or
cancellation (b) they are subject to another kind
(2) the transaction of internal revenue tax; or
involves stock (c) they are income, gain or profit
dividends, and that are expressly exempt form income
(3) the “time and tax under the constitution, tax treaty,
manner” of Tax Code, or a general or special law.
the
transaction 1. Proceeds of life insurance
makes it paid by reason of the death of the
“essentially insured to his estate or to any
Cabrera, Jhundee
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beneficiary (individual, partnership, fact that the payment of
or corporation, but not a transferee compensation for such loss was
for a valuable consideration), voluntary does not change its
directly or in trust. exempt status. It was in fact
NOTE: if the proceeds are compensation for a loss, which
retained by the insurer, the interest impaired petitioner’s capital.
thereon is taxable;
5. Income exempt under
2. Return of insurance Treaty;
premium;
NOTE: if such amounts (when added 6. Retirement benefits,
to amounts already received before pension, gratuities, etc.
the taxable year under such a. those derived under R.A.
contracts) exceed the aggregate 7641 (pertains to
premiums or considerations paid private firms without
(whether or not paid during the retirement trust fund);
taxable year), then the excess shall b. those received by officials
be included in the gross income. and employees of
However, in the case of a transfer for private employers in
a valuable consideration, by accordance with a
assignment or otherwise, of a life reasonable private
insurance, endowment or annuity benefit plan;
contract, or any interest therein, Requisites:
only the actual value of such (1) in the service of the
consideration and the amount of the same employer for at
premiums and other sums least 10 years;
subsequently paid by the transferee (2) at least 50 years old;
are exempt from taxation. No loss is (3) must be availed of only
realized on surrender of a life once
insurance policy for its surrender (4) plan approved by the BIR
value. (R.R.2-98);
a. separation pay because of
3. Gift, bequest or devise death, sickness, or
Gifts, bequests, and devises other physical
(which are subject to estate or gift disability or for any
taxes) are excluded, but not the cause beyond the
income from such property. If the control of the official
amount received is on account of or employee (e.g.
services rendered, whether retrenchment,
constituting a demandable debt or redundancy or
not, or the use of the opportunity to cessation of business);
use of capital, the receipt is income “for any cause beyond the
(Pirovano vs. Commissioner, 14 control of said official or
SCRA 832) employee” – connotes
involuntariness on the part of
4. Compensation for personal the official or employee;
injuries or sickness, whether by separation must not be asked or
suit or agreement initiated by the official or
NOTE: The phrase “personal employee.
injuries” should be given a b. social security benefits,
restrictive meaning to refer only to retirement gratuities,
physical injuries. The theory for this pensions and other
is that recoupment on account of similar benefits
such losses is not income, since it is received by citizens
not derived from capital, from labor and aliens who come
or from both combined. And the to reside permanently
Cabrera, Jhundee
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1

here from foreign sanctioned by their
sources private or national sports
public; association ;
c. benefits due to residents b. 13th month pay and other
under the laws of the benefits up to
U.S. administered by P30,000.00;
the U.S. Veterans c. GSIS,SSS, Medicare and
Administration union dues of
d. SSS benefits; and individuals;
e. GSIS benefits. d. Gains derived from debt
securities with a
1. Miscellaneous items maturity of more than
a. Passive income derived in 5 years;
the Philippines by: e. Gains from redemption of
(1) Foreign shares in Mutual Fund.
governments
; EXCLUSIONS VS. DEDUCTIONS
(2) Financing
institutions Exclusions Deductions
owned, [Sec. 32(B)] [Sec. 34]
controlled or
enjoying Refer to flow of Refer to the
refinancing wealth which are amounts which the
from foreign not treated as part law allows to be
governments of gross income subtracted from
because: gross income in
(3) International or
(1) exempted by the order to arrive at
regional fundamental law; net income
financial (2) exempted by
institutions statute; (3) do not
established come within the
by foreign definition of income
governments
a. Income derived from any Pertain to the Pertain to the
public utility or from computation of computation of the
the exercise of any gross income net income
governmental
Something earned or Something spent or
function; received by the paid in earning of
b. Prizes and awards made taxpayer which do gross income
primarily in not form part of
recognition of gross income
religious, charitable,
scientific, educational,
artistic, literary, or DEDUCTIONS
civic achievement
Requisites: DEFINITION: Items or amounts which the
(1) recipient was law allows to be deducted from gross
selected without income in order to arrive at the taxable
any action on his income.
part; and
(2) recipient is not BASIC PRINCIPLES GOVERNING DEDUCTIONS
required to render a. The taxpayer seeking a
substantial future deduction must point to
services. some specific provisions of
a. Prizes and awards granted the statute authorizing the
to athletes in sports deduction; and
competitions and
Cabrera, Jhundee
Guillermo
1

b. He must be able to prove u
that he is entitled to the m
deduction authorized or
allowed. (Atlas p
Consolidated Mining & Dev. a
Corp. vs. Commissioner, GR y
No. L-26911, January 21, m
1981) e
c. Any amount paid or payable n
which is otherwise t
deductible from, or taken s
into account in computing o
gross income or for which n
depreciation or amortization h
may be allowed, shall be e
allowed as deduction only if a
it is shown that the tax l
required to be deducted and t
withheld therefrom has been h
paid to the BIR. [Sec. 34(K), a
NIRC] n
d
NOTE: Deductions for income tax /
purposes partake of the nature of tax o
exemptions; hence, if tax exemptions r
are to be strictly construed, then it h
follows that deductions must also be o
strictly construed. s
p
TAXPAYERS WHO CANNOT AVAIL OF i
DEDUCTIONS FROM GROSS INCOME t
1. Citizens and resident aliens a
whose income is purely l
compensation income i
(except for premium z
payments on health and/or a
hospitalization insurance); t
2. Non-resident aliens not i
engaged in trade or business o
in the Philippines; and n
3. Non-resident foreign i
corporation n
s
CLASSES OF DEDUCTIONS u
1. Individuals r
a. with gross a
compensation n
income from c
employer- e
employee (2) p
relationship only e
(1) p r
r s
e o
m n
i a
Cabrera, Jhundee
Guillermo
1

l D
a )
d (2) I
d t
i e
t m
i i
o z
n e
a d
l
e d
x e
e d
m u
p c
t t
i i
o o
n n
s s
b. gross income (3) p
from business or r
practice of e
profession m
(1) O i
p u
t m
i
o p
n a
a y
l m
S e
t n
a t
n s
d o
a n
r h
d e
a
D l
e t
d h
u a
c n
t d
i /
o o
n r
h
( o
O s
S p
i
Cabrera, Jhundee
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1

t The OSD may be availed of only by
a individuals (except nonresident
l alien) who are not purely
i compensation income earners.
z b. Personal and additional
a exemptions
t Available only to individuals
i (business income and compensation
o income earners).
n
NRAETB may be entitled to
i personal exemptions (only) subject
n to reciprocity, i.e.,
s a. the
u coun
r try
a of
n whic
c h he
e is a
(4) p subje
e ct or
r citiz
s en
o has
n an
a inco
l me
a tax
d law;
d and
i b. the
t inco
i me
o tax
n law
a of
l his
e coun
x try
e allow
m s
p pers
t onal
i exem
o ption
n to
s citiz
2. Corporations ens
 Itemized Deductions of
the
Phili
KINDS OF DEDUCTIONS ppin
a. Optional standard es
deductions (OSD) –10% of the gross not
income. resid
Cabrera, Jhundee
Guillermo
1

ing e. bad
ther debt
ein, s
but f. deprecia
deriv tion
ing of
inco prop
me erty;
ther g. depletio
efro n of
m oil
and and
not gas
to wells
exce and
ed mine
the s;
amo h. charitabl
unt e
allow and
ed in other
NIRC contr
. ibuti
ons;
The personal exemption shall be i. research
equal to that allowed by the income and
tax law of his country to a citizen of deve
the Philippines not residing therein, lopm
or the amount provided in the NIRC, ent;
whichever is lower. j. pension
trust
Individuals not entitled to these contr
exemptions: ibuti
a. Non-resident Alien not ons
engaged in trade or business of
b. Alien individual employed by empl
Regional or Area oyee
Headquarters of s;
Multinational Companies and
c. Alien individual employed by k. premium
Offshore Banking Units paym
d. Alien individual employed by ents
Petroleum Service on
Contractor and healt
Subcontractor h
and/
a. Itemized deductions or
a. ordinary hospi
and taliz
nece ation
ssary insur
expe ance
nses .
b. interests (This
c. taxes is
d. losses the
Cabrera, Jhundee
Guillermo
1

only c.
dedu 37)
ction c. estates
whic and
ha trus
comp ts
ensat (Se
ion c.
inco 61)
me
earn PERSONAL EXEMPTIONS
er
may A. Amounts of Personal Exemptions
clai [Sec. 35, NIRC]
m as 1. P 20,000 –
a Single
dedu individua
ction l or
.) married
individua
a. Special deductions l
a. private judicially
pro decreed
prie legally
tary separate
edu d
cati without
ona qualified
l depende
inst nt
itut children.
ions
and
2. P 25,000 – Head
hos of the
pita family or
ls married
tha individua
t l
are judicially
non decreed
- legally
pro separate
fit d with
(Se qualified
c. depende
34 nt
A, children.
2) 3. P 32,000 – For
b. insuran each
ce legally
co married
mp individua
ani l.
es
(Se Head of the Family

Cabrera, Jhundee
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1
1. Unmarried or legally e
separated person with one m
or both parents, or one or p
more brothers or sisters, or l
one or more legitimate, o
recognized natural or legally y
adopted children living with e
and dependent upon the d
taxpayer for their chief 2. H
support; and u
“Chief support” means more s
than one-half of the b
requirements for support. a
2. Where such brother / sister n
or children are not more d
than 21 years of age,
unmarried and not gainfully i
employed, or where such s
dependents regardless of w
age, are incapable of self – o
support because of mental r
or physical defect. k
i
Parents, brothers, sisters and senior n
citizen with the tax payer, whether g
relative or not, may qualify the a
taxpayer, to the personal exemption of b
P25,000 as head of the family but not to r
the additional exemption of P8,000. o
a
B. Additional Exemption for d
Dependents [Sec. 35, NIRC]
P 8,000 – For each of the qualified l
dependent children not i
exceeding four (4) in k
number. e
The additional exemption refers a
only to qualified dependent children n
such as legitimate, recognized natural, O
illegitimate and legally adopted. F
The proper claimant of the W
additional exemption is the husband
being the head of the family except o
under the following cases: r
1. H a
u s
s e
b a
a m
n a
d n
3. H
i u
s s
u b
n a
Cabrera, Jhundee
Guillermo
1

n s
d w
i
e f
x e
p i
l n
i t
c h
i e
t w
l i
y t
w h
a h
i o
v l
e d
d i
n
h g
i e
s x
r e
i m
g p
h t
t i
o o
f n
t c
h e
e r
t
e i
x f
e i
m c
p a
t t
i e
o .
n
A Senior Citizen is:
i 1. a
n n
y
f r
a e
v s
o i
r d
o e
f n
h t
i c
Cabrera, Jhundee
Guillermo
1

i t
t h
i o
z s
e e
n w
h
o o
f h
t a
h v
e e
r
P e
h t
i i
l r
i e
p d
p
i f
n r
e o
s m
2. a
t b
l o
e t
a h
s g
t o
s v
i e
x r
t n
y m
6 e
0 n
y t
e o
a f
r f
s i
o c
l e
d s
, a
i n
n d
c
l p
u r
d i
i v
n a
g t
Cabrera, Jhundee
Guillermo
1

e a
n
e d
n
t p
e e
r s
p o
r s
i (
s 6
e 0
s ,
, 0
a 0
n 0
d )
p
3. h e
a r
s a
a n
n n
u
i m
n
c s
o u
m b
e j
e
o c
f t
n t
o o
t t
m h
o e
r r
e e
v
t i
h e
a w
n
o
S f
i t
x h
t e
y N
t a
h t
o i
u o
s n
Cabrera, Jhundee
Guillermo
1

a exemption of P25,000 as head of the
l family but not to the additional
E exemption of P8,000.
c
o NOTE: NRAETB may deduct personal
n exemption (not additional
o exemption), but only to the extent
m allowed by his country to Filipinos
i not residing therein, and shall not
c exceed the aforementioned
D amounts. NRANETB cannot claim
e any personal or additional
v exemptions.
e
l C. Change of Status [Sec. 35, NIRC]
o 1. I
p f
m t
e h
n e
t t
A a
u x
t p
h a
o y
r e
i r
t s
y h
( o
N u
E l
D d
A
) m
e a
v r
e r
r y
y o
t r
h s
r h
e o
e u
l
y d
e
a h
r a
s v
. e
a
Parents and dependents qualify d
the taxpayer, to the personal d
Cabrera, Jhundee
Guillermo
1

i c
t o
i r
o r
n e
a s
l p
d o
e n
p d
e i
n n
d g
e e
n x
t e
s m
d p
u t
r i
i o
n n
g s
t i
h n
e f
u
t l
a l
x f
a o
b r
l s
e u
c
y h
e y
a e
r a
, r
h .
e 2. I
f
m t
a h
y e
c t
l a
a x
i p
m a
y
t e
h r
e s
h
Cabrera, Jhundee
Guillermo
1

o o
u r
l r
d e
s
d p
i o
e n
d
d i
u n
r g
i e
n x
g e
t m
h p
e t
i
t o
a n
x s
a a
b s
l i
e f
h
y e
e d
a i
r e
, d
h
i a
s t
e t
s h
t e
a c
t l
e o
s
m e
a o
y f
c s
l u
a c
i h
m y
e
t a
h r
e .
3. I
c f
Cabrera, Jhundee
Guillermo
1

t
h m
e a
r
s r
p y
o o
u r
s b
e e
c
o o
r m
a e
n t
y w
d e
e n
p t
e y
n -
d o
e n
n e
t y
s e
h a
o r
u s
l o
d l
d
d
i d
e u
r
o i
r n
a g
n t
y h
d e
e y
p e
e a
n r
d ,
e o
n r
t s
s h
h o
o u
u l
l d
d
Cabrera, Jhundee
Guillermo
1

b i
e o
c n
o s
m a
e s
i
g f
a t
i h
n e
f s
u p
l o
l u
y s
e e
m o
p r
l d
o e
y p
e e
d n
, d
t e
h n
e t
d
t i
a e
x d
p
a o
y r
e a
r s
m i
a f
y s
c u
l c
a h
i d
m e
p
t e
h n
e d
e
e n
x t
e m
m a
p r
t r
Cabrera, Jhundee
Guillermo
1

i
e a
d t
, t
b h
e e
c c
a l
m o
e s
e
t o
w f
e s
n u
t c
y h
o y
n e
e a
r
y .
e 4. F
a o
r r
s a
o n
l y
d o
t
o h
r e
b r
e e
c v
a e
m n
e t
a
g n
a d
i
n f
f o
u r
l w
l h
y i
e c
m h
p t
l h
o e
y r
e e
d a
Cabrera, Jhundee
Guillermo
1

r e
e s
t
n a
o t
s u
p s
e o
c f
i t
f h
i e
c t
r a
u x
l p
e a
s y
a e
p r
p a
l t
i t
c h
a e
b e
l n
e d
f o
r f
o t
m h
e
t y
h e
e a
r
a s
b h
o a
v l
e l
- d
m e
e t
n e
t r
i m
o i
n n
e e
d h
, i
t s
h e
Cabrera, Jhundee
Guillermo
1

x cannot claim additional
e exemption
m
p ITEMIZED DEDUCTIONS
t
i A. ORDINARY AND NECESSARY
o EXPENSES
n
s
NECESSARY EXPENSE – appropriate and
.
helpful in the development of taxpayer's
(
business and are intended to minimize
s
losses or to increase profits. These are
t
the day-to-day expenses.
r
ORDINARY EXPENSE – normal or usual in
i
relation to the taxpayer’s business and
c
the surrounding circumstance.
t
l
REQUISITES OF BUSINESS EXPENSE TO BE
y
DEDUCTIBLE
1. ordinary and necessary;
c
2. paid or incurred w/in the
o
taxable year;
n
3. paid or incurred in carrying
s
on a trade or business;
t
4. substantiated with official
r
receipts or other adequate
u
records.
e
5. if subject to withholding
d
taxes proof of payment to
the Bureau of Internal
a
Revenue must be shown.
g
6. must be reasonable (when
a
the expense is not lavish,
i
extravagant or excessive
n
under the circumstances)
s
7. must not be contrary to law, public
t
policy or morals.
t
h
NOTE: While illegal income will form
e
part of income of the taxpayer,
expenses which constitute bribe,
t
kickback and other similar payment,
a
being against law and public policy are
x
not deductible from gross income.
p
(Subsec. A, 1, c)
a
y
CAPITAL EXPENDITURE – An expenditure
e
that benefits not only the current period
r
but also future periods. It is not
)
deductible but depreciable, except, if
Examples:
the taxpayer is a non-profit proprietary
 became legally educational institution which may elect
separated – can only either to deduct the capital expense or
claim P 20,000 depreciate it.
 25 years old child
became incapacitated –
Cabrera, Jhundee
Guillermo
1
 See Annex E – Business Expenses taxp

ayer;
 See Annex F – Ceiling on 4. The
“Entertainment, Amusement and inde
Recreational Expenses” bted
ness
A. INTEREST must
be
INTEREST – shall refer to the payment for conn
the use or forbearance or detention of ecte
money, regardless of the name it is d
called or denominated. It includes the with
amount paid for the borrower's use of, the
money during the term of the loan, as taxp
well as for his detention of money after ayer'
the due date for its repayment. s
trad
REQUISITES FOR DEDUCTIBILITY (REV. REG. e,
NO. 13-2000) busin
1. Ther ess
e or
must exer
be cise
an of
inde prof
bted essio
ness; n;
5. The
2. Ther inter
e est
shoul expe
d be nse
an must
inter have
est been
exp paid
ense or
paid incur
or red
incur durin
red g the
upon taxa
such ble
inde year;
bted 6. The
ness; inter
3. The est
inde must
bted have
ness been
must stipu
be lated
that in
of writi
the ng;

Cabrera, Jhundee
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1

7. The trad
inter e,
est busin
must ess
be or
legal exer
ly cise
due; of
8. The prof
inter essio
est n,
arra the
nge same
ment , was
must not
not treat
be ed as
betw a
een capit
relat al
ed expe
taxp nditu
ayer re.
s; 11. The interest is not expressly
9. The disallowed by law to be deducted
inter from gross income of the taxpayer.
est
must RULES ON DEDUCTIBILITY OF INTEREST
not EXPENSE
be General Rule - In general, the amount of
incur interest expense paid or incurred within
red a taxable year of indebtedness in
to connection with the taxpayer's trade
finan business or exercise of profession, shall
ce be allowed as a deduction from the
petr taxpayer's gross income.
oleu
m Limitation - The amount of interest
oper expense paid incurred by a taxpayer in
ation connection with his trade, business or
s; exercise of a profession from an existing
and indebtedness shall be reduced by an
10. In amount equal the following percentages
case of interest income earned which had
of been subjected to final withholding
inter depending on the year when the interest
est income earned, viz:
incur 38% - beginning January 1, 2000 and
red thereafter
to
acqu Aim of Limitation: To discourage so-
ire called “back-to-back” loans where a
prop taxpayer secures a loan from a bank,
erty turns around and invests the loan
used proceeds in money market placements.
in By imposing a limit as to the amount of
Cabrera, Jhundee
Guillermo
1

interest expense that can be deducted on account of taxes are not
from gross income, the previous practice deductible. The interest on
of tax arbitrage was absolutely nullified. unpaid business tax shall not be
subjected to the limitation on
Tax Arbitrage – is a method of deduction.
borrowing without entering into a 2. Interest paid by a corporation on
debtor/creditor relationship, often to scrip dividends
resolve financing and exchange control 3. Interest-on deposits paid by
problems. In tax cases, back-to-back authorized banks of the Bangko
loan is used to take advantage of the Sentral ng Pilipinas to
lower of tax on interest income and a depositors, if it is shown that
higher rate of tax on interest expense the tax on such interest was
deduction. withheld.
Illustration:
4. Interest paid by a corporate
taxpayer who is liable on a
On June 1, 2000 Company X has:
mortgage upon real property of
1. Obtained a loan from ABC
which the said corporation is the
Financing Corporation in
legal or equitable owner, even
connection with the operation
though it is not directly liable
of its business and its interest
for the indebtedness.
expense on the loan amounted
to P 120,000.
NON-DEDUCTIBLE INTEREST EXPENSE
2. Deposit account in DEF Bank and
derived interest income 1. An individual taxpayer reporting
thereof amounting to P200,000 income on the cash basis incurs an
on which the final tax of indebtedness on which an interest is
P40,000 has been withheld. paid in advance through discount or
Assume that Company X’s net otherwise:
income before the deduction of  allowed as a
interest expense is P500,000. deduction in the
year the
The deductible expense shall be indebtedness is
computed as follows: paid
 if the indebtedness
Year 2000 is payable
periodic
Net Income before amortization on,
interest expense P500,000 the amount of
Less: Interest Expense P120,000 interest which
Less: 38% of interest corresponds to
income from deposit the amount of
(38% x P200,000) 76,000 the principal
Deductible Interest amortized or
Expense 44,000 paid during the
Taxable Income P456,000 year shall be
allowed as
deduction in
Deductible Interest Expense such taxable
1. Interest on taxes, such as those year.
paid for deficiency or 1. Interest paid on indebtedness
delinquency, since taxes are between related taxpayer
considered indebtedness 2. If the indebtedness is incurred to
(provided that the tax is a finance petroleum exploration
deductible tax, except in the 3. Interest on preferred stock, which
case of income tax). However, in reality is dividend
fines, penalties, and surcharges
Cabrera, Jhundee
Guillermo
1

4. Interest on unpaid salaries and
bonuses For NRAETB and RFC, taxes paid or
5. Interest calculated for cost keeping incurred are allowed as deductions only
on account of capital or surplus if and to the extent that they are
invested in business which does not connected from income within the
represent charges arising under Philippines.
interest-bearing obligation.
6. Interest paid when there is no EXCEPTIONS to requirement that only
stipulation for the payment thereof. such persons on whom the tax is imposed
by law can claim deduction thereof:
OPTIONAL TREATMENT OF INTEREST EXPENSE 1. Taxe
At the option of the taxpayer, s of
interest incurred to acquire property shar
used in trade or business may be ehol
allowed as a deduction or treated as der
capital expenditure. [Sec 34 (B)(3), upon
NIRC] his
inter
A. TAXES est
as
Taxes mean TAXES PROPER, and such
therefore no deductions are allowed for: and
1. interest paid
2. surcharges by
the
3. penalties or fines corp
incident to
orati
delinquency (Sec.
on
80, Rev. Reg. 2)
with
out
REQUISITES FOR DEDUCTIBILITY
reim
1. must be in connection with
burs
taxpayer’s business;
eme
2. tax must be imposed by law on, and
nt
payable by taxpayer (direct tax);
from
and
him,
3. paid or incurred during the taxable
can
year.
be
clai
TAXES NOT DEDUCTIBLE
med
1. income tax;
by
2. estate and donor’s tax;
the
3. special assessments;
corp
4. excess electric consumption tax;
orati
5. foreign income tax, war profits and
on as
excess profits tax, if the taxpayer
dedu
makes use of tax credit; and
ction
6. final taxes, being in the nature of .
income tax. 2. A
corp
NOTE: Taxes allowed as deductions,
orati
when refunded or credited, shall be
on
included as part of gross income in the
payi
year of receipt to the extent of the
ng
income tax benefit of said deduction.
the
(Tax Benefit Rule)
tax
Cabrera, Jhundee
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1

for
the WHO ARE NOT ENTITLED TO TAX CREDIT
hold 1. non-resident citizens
er its 2. resident aliens, if without
bond reciprocity
s or 3. resident aliens whose income is
othe derived solely from sources within
r the Philippines
oblig 4. foreign corporations (resident and
ation non-resident)
cont
ainin FORMULA FOR COMPUTING LIMITATION
g a 1. Per country limitation
tax- Taxable
free income from
cove foreign country X Phil. = Tax Credit
nant Taxable income income tax Limit
claus from all sources
e
cann 2. Over-all limitation
ot Taxable
clai income from
m outside sources X Phil. = Tax Credit
Taxable income income tax Limit
dedu from all sources
ction
for The allowable tax credit is the “lower
such amount” between the tax credit
taxe computed under No. 1 and No. 2.
s
paid WHEN CREDIT FOR TAXES MAY BE TAKEN
by it The credit for taxes provided by
purs Section 30(C)(3) to (9) may ordinarily be
uant taken either in the return for the year in
to which the taxes accrued or on which the
such taxes were paid, dependent upon
cove whether the accounts of the taxpayer
nant are kept and his returns filed upon the
. accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer 1) The amount of credit in respect
to deduct from income tax payable the to the taxes paid or accrued
foreign income tax he has paid to his to any country shall not
foreign country subject to limitation. exceed the same proportion
of the tax against which such
WHO CAN CLAIM TAX CREDIT credit is taken, which the
1. resident citizens of the Philippines taxpayer’s net income from
2. resident aliens under the principle of sources within such country
reciprocity taxable under Title II
3. domestic corporations which include (income Tax) bears to his
partnerships except general entire net income for the
professional partnership same taxable year; and
4. beneficiaries of estates and trusts 2) The total amount of the credit
5. members of beneficiaries of local shall not exceed the same
partnerships proportion of the tax against
Cabrera, Jhundee
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1

which such credit is taken,  Net
which the taxpayer’s net op
income from sources without er
the Philippines taxable under ati
Title II (Income Tax) bears to ng
his entire net income for the los
same taxable year. s
car
A. LOSSES ry-
ov
LOSSES – refer to such losses which do er
not come under the category of bad (N
debts, inventory losses, depreciation, OL
etc., and which arise in taxpayer's CO)
profession, trade or business.  Refers to the excess of
allowable
REQUISITES FOR DEDUCTIBILITY deductions over
1. Actually sustained during the gross income of the
taxable year business for any
2. Connected with the trade, business taxable year, which
or profession had not been
3. Evidenced by a close and completed previously offset as
transaction deduction from gross
4. Not compensated for by insurance income.
or other form of indemnity  Can be carried over as a
5. Not claimed as a deduction for deduction from gross
estate tax purposes income for the next
3 consecutive years
6. Notice of loss must be filed with the
immediately
Bureau of Internal Revenue
following the year of
within 45 days from the date of
such loss.
discovery of the casualty or
 For mines, other that oil
robbery, theft or
and gas well, net
embezzlement.
operating loss
incurred in any of
NOTE: The taxpayer’s failure to record
the first ten years of
in his books the alleged loss proves that
operation may be
the loss had not been suffered, hence,
carried over for the
not deductible. (City Lumber vs.
next 5 years.
Domingo and Court of Tax Appeals, GR
No. L-18611, January 30, 1964)
CATEGORY AND TYPES OF LOSSES  Requirements:
1. ORDINARY LOSSES (1) The taxpayer was not
a. Incurred in trade exempt from income tax
or business, or in the year of such net
practice of operating loss;
profession (2) The loss was not incurred in
a taxable year during
the taxpayer was
exempt from income
tax; and
(3) There has been no
substantial change in the
ownership of the
business or enterprise.

Cabrera, Jhundee
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There is no substantial an
change in the ownership of 75
the business when: %
(a) not of
les th
s e
th pa
an id
75 up
% ca
in pit
no al
mi is
na he
l ld
va by
lu or
e on
of be
th ha
e lf
ou of
tst th
an e
di sa
ng m
iss e
ue pe
d rs
sh on
ar .
es
is NOTE: The 3 year period shall
he continue to run notwithstanding
ld that the corporation paid its taxes
by under MCIT, or that the individual
or availed the 10% OSD.
on
be  See Annex S for illustration.
ha
lf a. Of property
of connected,
th with the trade,
e business or
sa profession, if
m the loss arises
e from fires,
pe storms,
rs shipwreck or
on other
s; casualties, or
or from robbery,
(b) not theft, or
les embezzlement
s .
th (1) Total destruction
Cabrera, Jhundee
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1

The replacement to be artificial
cost to restore the property loss.
to its normal operating
condition, but in no case Wash sales – a sale or other
shall the deductible loss be disposition of stock or securities
more than the net book where substantially identical
value of the property as a securities are acquired or purchased
whole, immediately before within 61-day period, beginning 30
casualty. days before the sale and ending 30
(2) Partial Destruction days after the sale. [Sec. 38]
The excess over the
net book value immediately General rule: Losses from wash sales
before the casualty should are not deductible.
be capitalized, subject to Exception: When the sale is made by
depreciation over the a dealer in stock or securities and
remaining useful life of the with respect to a transaction made in
property. the ordinary course of the business of
such dealer, losses from such sale is
1. CAPITAL LOSSES (LOSSES ARE deductible.
DEDUCTIBLE ONLY TO THE EXTENT Elements of Wash Sales:
OF CAPITAL GAINS) (1) The sale or other disposition
a. Losses from sale or of stock resulted to a
exchange of loss;
capital assets (2) There was an acquisition or
b. Losses resulting contract or option for
from securities acquisition of stock or
becoming securities within 30 days
worthless and before the sale or 30 days
which are after the sale; and
capital assets. (3) The stock or securities sold
c. Losses from short were substantially the
sales of same as those acquired
property. within the 61-day period.
d. Losses due to
failure to c. Abandonment losses
exercise in petroleum
privilege or operation and
option to buy producing well.
or sell (1) In case a contract area where
property. petroleum operations are
undertaken is partially or
1. SPECIAL KINDS OF LOSSES wholly abandoned, all
accumulated exploration
a. Wagering losses - and development
deductible only expenditures pertaining
to the extent of thereto shall be allowed
gain or winnings. as a deduction.
[Sec. 34 (D)(6)]; (2) In case a producing well is
deemed to apply abandoned, the
only to unamortized cost thereof,
individuals as well as the
b. Losses on wash undepreciated cost of
sales of stocks - equipment directly used
not deductible therein, shall be allowed
because these as deduction in the year
are considered
Cabrera, Jhundee
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1

the well, equipment or uncollectibility, in whole or in part, of
facility is abandoned. amounts due the taxpayer by others,
arising from money lent or from
c. Losses due to uncollectible amounts of income from
voluntary removal goods sold or services rendered.
of building incident
to renewal or REQUISITES FOR DEDUCTIBILITY
replacements - 1. Existing indebtedness due to the
deductible expense taxpayer which must be valid and
from gross income. legally demandable;
2. Connected with the taxpayer's
d. Loss of useful value trade, business or practice of
of capital assets profession;
due to charges in 3. Must not be sustained in a
business conditions - transaction entered into between
deductible expense related parties;
only to the extent of 4. Actually ascertained to be worthless
actual loss sustained and uncollectible as of the end of
(after adjustment the taxable year.; and
for improvement, 5. Actually charged off in the books of
depreciation and accounts of the taxpayer as of the
salvage value) end of the taxable year.
EQUITABLE DOCTRINE OF TAX BENEFIT

A recovery of bad debts previously
deducted from gross income constitutes
e. Losses from sales or taxable income if in the year the
exchanges of account was written off, the deduction
property between resulted in a tax benefit. (Tax Benefit
related taxpayers Rule)
-losses of this nature
is not deductible but
gains are taxable. Illustration:
Case A Case B Case C
Net
f. Losses of farmers - if income
incurred in the (loss)
operation of farm before
write off
business, it is for bad P10,000 (P 9,000) P 5,000
deductible. debts
Less:
h. Loss in shrinkage in value of stock – Accounts
written
if the stock of the corporation becomes off as bad
worthless, the cost or other basis may be debts 3,000 2,000 6,000
deducted by the owner in the taxable Final Net
year in which the stock of its Income
(Loss) P 7,000 (P11,000) (P1,000)
worthlessness is made. Any amount Bad debts
claimed as a loss on account of shrinkage recovery
in value of the stock through fluctuation in a
in the market or otherwise cannot be subse- 3,000 2, 000 6, 000
quent
deducted from gross income. year
TAXABLE
BAD DEBTS INCOME
upon the
bad debt
BAD DEBTS – shall refer to those debts recovery P3,000 P -0
resulting from the worthlessness or - P5,000

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4. Schedule on the allowance must be
ASCERTAINMENT OF WORTHLESSNESS attached to the return.
 Proof of Two Facts:
1. taxpayer did in PROPERTY HELD BY ONE PERSON FOR LIFE
fact ascertain the WITH THE REMAINDER TO ANOTHER PERSON
debt to be The deduction shall be computed as
worthless, in the if the life tenant was the absolute owner
year for which of the property and, as such the expense
deduction is shall accrue to him.
sought,
2. that in so doing, PROPERTY HELD IN TRUST
he acted in good Allowable deduction shall be
faith. (Collector apportioned between the income
vs. Goodrich beneficiaries, and the trustees in
International accordance with the pertinent provisions
Rubber, GR No. of the instrument creating or in the
L-22265, Dec. 22, absence of such provisions, on the basis
1967) of the trust income allowable to each.
 Depends upon
METHODS OF DEPRECIATION
the particular
The term "reasonable allowance"
facts and the
shall include (but not limited to) an
circumstances
allowance computed in accordance,
of the case.
with the regulations prescribed by the
 Good faith does Department of Finance, under any of the
not require following methods.
that the 1. St
taxpayer be ra
an ig
“incorrigible ht
optimist” but -
on the other li
hand, he may n
not be unduly e
pessimistic. m
et
DEPRECIATION h
o
DEPRECIATION – the gradual diminution in d
the service or useful value of tangible 2. D
property due from exhaustion, wear and e
tear and normal obsolescence. cl
The term also applies to in
amortization of intangible assets, the in
use of which in trade or business i s of g-
limited duration. b
al
REQUISITES FOR DEDUCTIBILITY a
1. The allowance for depreciation n
must be reasonable. c
2. It must be for property use or e
employment in trade or business or m
out of its not being used et
temporarily during the year. h
3. The allowance must be charged off o
within the taxable, year. d
Cabrera, Jhundee
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1

3. S of
u Fi
m n
of a
th n
e c
y e
e u
ar p
s- o
di n
gi re
t c
m o
et m
h m
o e
d n
4. A d
n at
y io
ot n
h of
er th
m e
et C
h o
o m
d m
w is
hi si
c o
h n
m er
a of
y In
b te
e rn
pr al
es R
cr e
ib v
e e
d n
b u
y e.
th
e METHODS OF DEPRECIATION
D Kind Formula
e 1)Straight-line cost- salvage value
p estimated life
2)Declining cost – depreciation x
ar
balance Rate
t estimated life
m 3)Sum of the nth period x cost-
e years digits salvage
nt (SYD) SYD

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1

shall
Illustration: A machine is used in the be
manufacturing department of allowe
Corporation A, compute the depreciation d
per annum with the following facts: under
Cost = P15,000 Salvage straigh
Value= P5,000 t-line
(SL) or
declini
ng
1. Straight Line Method with balanc
estimated life = 5 years e (DB)
15,000 – 5,000 = P2,000 metho
5 years d
 May
2. Declining balance with rate of 200% shift
Year 1: 15,000 – 0 x 200% = P6,000 from
5 DB to
Year 2:15,000–6,000 x 200% =P3,600 SL
5 metho
d
3. Sum of the years digits  Useful
SYD for 5 years = 5+4+3+2+1 or 15 life: 10
Year 1: 5/15 x (15,000 – 5,000) years
= P3,333.33 or
Year 2: 4/15 x (15,000 – 5,000) shorter
= P2,666.67 life as
allowe
AGREEMENT AS TO USEFUL LIFE ON WHICH d by
DEPRECIATION RATE IS BASED the
The Bureau of Internal Revenue and Commi
the taxpayer may agree in writing on the ssioner
useful life of the property to be  Useful
depreciated. The agreed rate may be life of
modified if justified by facts or proper
circumstances. The change shall not be ty not
effective before the taxable year on directl
which notice in writing by certified mail y
or registered mail is served by the party relate
initiating. d to
SPECIAL TYPES OF DEPRECIATION produc
1. Petroleum Operations tion: 5
 Deprec years
iation under
of all straigh
proper t line
ties metho
directl d
y 1. Mining Operations
relate  Depreciation on all properties in
d to mining operations other than
produc petroleum operations at the
tion of normal rate if expected life is
petrol less than 10 years.
eum  If expected life is more than 10
years, depreciation shall be any
Cabrera, Jhundee
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1

number of years between 5 succeeding year until fully
years and the expected life. deducted.
1. Depreciation deductible by non- A. CHARITABLE AND OTHER

resident aliens engaged in CONTRIBUTIONS
trade/business or non-resident
corporation TAX TREATMENT
a. Only when such property is
located in the Philippines. A. Deductible B. Deductible
In Full Subject To
A. DEPLETION OF OIL AND GAS Limitation
WELLS AND MINES
1) Recipient is: 1) Recipient is:
DEPLETION - exhaustion of natural (a) Govern (a) Government
men of the
resources as in mines, oil, and gas
t of Philippines;
wells. The natural resources are called the (b) Any of its
“wasting assets”. As the physical units Phili agencies or
representing such resources are ppin political
extracted and sold, such assets move es; subdivisions
towards exhaustion. (b) Any of
Known as cost of depletion its For a non-priority
allowance for mines, oil gas wells and age activity in any of the
other natural deposits starting calendar ncie areas mentioned in A,
s or and exclusively for a
year 1976 and fiscal year beginning July
poli public purpose.
1,1975 tical
sub
divis
TO WHOM ALLOWED ions
Only mining entities owning ; or
economic interest in mineral deposits. (c) Any
Economic interest means interest in fully
minerals in place investment therein or -
own
secured by operating or contract
ed
agreement for which income is derived, gov
and return of capital expected, from the ern
extraction of mineral. men
Mere economic or pecuniary t
advantage to be derived by production corp
by one who has no capital investment in orat
the mineral deposit does not amount to ion
economic interest.
For priority
activity in:
FEATURES 1. S
1. Intangible Exploration and
development drilling cost in 2. E
petroleum exploration shall be
treated either as: 3. C
a. revenue expenditures; or
4. H
b. capital expenditures
2. The total amount deductible for 5. E
exploration and development
expenditures shall not exceed 6. H
50% of net income from mining
operation. The excess shall be 7. Youth and
Sports
carried forward to the
Cabrera, Jhundee
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1

Development
(a) Scientific; (a) Scientific
2) Recipient is a 2) Non-government (b) Educational;(b) Educational;
foreign or organizations (c) Cultural; (c) Cultural;
international (d) Character (d) Youth and sports
organization building development
with an /youth (e) Charitable
agreement and (f) Social welfare
with the sports (g) Religious
Philippine develop
Government on ment (h) Rehabilitation
deductibility, (e) Charitable of Veterans
or in (f) Social
accordance welfare If the
with special (g) Health conditions in
law. (h) Research Table A is not
complied
And satisfying with:
3) Recipient is an 3) Recipient is an the following
accredited non- accredited conditions: Subject to
government domestic limitation:
1. The (a
organization, corporation or donation
organized/ association ) I
must be
operated for organized/operat utilized
(purposes): ed for (purposes): (b
not later ) C
than the
15th day
of the 3rd
month
following
the close
of its
taxable
year.
2. The
administr
ative
expense
must not
exceed
30% of
total
expenses.
3. Upon
dissolutio
n, assets
must be
distribute
d to
another
non-profit
domestic
corporati
on or to
the state.
REQUISITES FOR DEDUCTIBILITY

1. The contribution or gift must be
actually paid.

Cabrera, Jhundee
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1

2. It must be given to the EXCLUSION FROM RESEARCH AND
organizations specified in the DEVELOPMENT EXPENDITURES
code. 1. Any expenditure for the acquisition
3. The net income of the institution or improvement of land or for
must not inure to the benefit of the improvement of property to
any private stockholder or be used in connection with
individual. research and development
subject to depreciation and
VALUATION depletion.
Charitable contribution of property 2. Any expenditure paid or incurred
other than money shall be based on the for the purpose of ascertaining
acquisition cost of said property. the existence, location, extent
or quality of any deposit of ore
A. RESEARCH AND DEVELOPMENT or other mineral including oil or
(R&D) gas.
TAX TREATMENT A. PENSION TRUST CONTRIBUTIONS

Either as:
1. Revenue Expenditures PENSION TRUST CONTRIBUTIONS – a
Requisites: deduction applicable only to the
a. Paid or incurred employer on account of its contribution
during the to a private pension plan for the benefit
taxable year of its employee. This deduction is purely
b. Ordinary and business in character.
necessary
expenses in
connection with
trade business or REQUISITES FOR DEDUCTIBILITY
profession 1. The employer must
c. Not chargeable have established a
to capital pension or
account retirement plan to
2. Deferred Expenses provide for the
Requisites: payment of
a. Paid or reasonable pensions
incurred in to his employees;
connection with 2. The pension plan is
trade, business, reasonable and
or profession actuarially sound;
b. Not treated as 3. It must be funded by
expense the employer;
c. Chargeable to 4. The amount
capital account contributed must be
but not no longer subject to
chargeable to the control and
property subject disposition of the
to depreciation employer;
or depletion. 5. The payment has not
yet been allowed as
Amount deductible: a deduction; and
Amount ratably distributed 6. The deduction is
over a period of 60 months beginning apportioned in equal
with the month taxpayer realized parts over a period
benefits from such expenditures. of 10 consecutive
years beginning with
the year in which
Cabrera, Jhundee
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1

the transfer or DEFINITION: It is an amount of premium
payment is made. on health and/or hospitalization paid by
an individual taxpayer (head of family or
SUMMARY OF RULES ON RETIREMENT BENEFITS married), for himself and members of his
PLAN / PENSION TRUST family during the taxable year.
1. Exempt from
Income Tax – REQUISITES FOR DEDUCTIBILITY
employees’ trust 1. Insurance must have actually been
under Sec. 60(B) taken
2. Exclusion from 2. The amount of premium deductible
Gross Income – does not exceed P2,400 per
amount received by family or P200 per month during
the employee from the taxable ear.
the fund upon 3. That said family has a gross income
compliance of of not more than P250,000 for
certain conditions the taxable year.
under Sec. 32(B)(6) 4. In case of married individual, only
3. Deduction from the spouse claiming additional
Gross Income – exemption shall be entitled to
a. Amounts this deduction.
contributed by
the employer WHO MAY AVAIL OF THE DEDUCTION
during the 1. Individual taxpayers earning purely
taxable year into compensation income during the
the pension plan year.
to cover the 2. Individual taxpayer earning business
pension liability income or in practice of his
accruing during profession whether availing of
the year – itemized or optional standard
considered as deductions during the year.
ordinary and 3. Individual taxpayer earning both
necessary compensation, and business or
expenses under practice of profession during the
Sec. 34(A)(1) year.
b. 1/10 of the
reasonable NON-DEDUCTIBLE EXPENSES
amount paid by
the employer to REASONS FOR NON-DEDUCTIBILITY
cover pension 1. Personal expenses
liability 2. Capital expenditures
applicable to the 3. Items not normally subject to
years prior to income tax and therefore are not
the taxable deductible.
year, or so paid 4. Items taken advantage of by the
to place the taxpayer to avoid payment of
trust in a sound income tax.
financial basis –
deductible under SPECIFIC ITEMS (SECTION 36)
Sec. 34(J) 1. Personal, living or family
expenses;
A. PREMIUM PAYMENTS 2. Amount paid out for new
ON HEALTH AND/OR buildings or for permanent
HOSPITALIZATION INSURANCE improvements, or
betterment made to

Cabrera, Jhundee
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1

increase the value of any stock
property or estate, of
Except that intangible whic
drilling and development cost h is
incurred in petroleum operations are own
deductible; ed,
3. Amount expended in direc
restoring property or in tly
making good the exhaustion or
thereof for which an indir
allowance has been made; ectly
4. Premiums paid on any life , by
insurance policy covering the or
life of any officer or for
employee, or of any person such
financially interested in any indiv
trade or business carried on idual
by the taxpayer, individual ;
or corporate, when the b. betw
taxpayer is directly or een
indirectly a beneficiary two
under such policy. [Sec. 36] corp
5. Losses from sales or orati
exchanges of property ons
between related taxpayers. more
[S ec. 36] than
50%
TRANSACTIONS BETWEEN RELATED PARTIES in
1. Between members of the family; valu
“Family” includes only the e of
brothers, sisters (whether by the the
whole or half blood), spouse, outst
ancestors, and lineal andi
descendants of the taxpayer. ng
2. Except in the case of distributions in stock
liquidation: of
a. betw each
een of
an whic
indiv h is
idual own
and ed,
a direc
corp tly
orati or
on indir
more ectly
than , by
50% or
in for
valu the
e of same
the indiv
outst idual
andi , if
ng eithe
Cabrera, Jhundee
Guillermo
1

r one TAX CONSEQUENCES
of The following are not deductible:
such 1. Interest expense [Sec. 34 (B)
corp (2)]
orati 2. Bad debts [Sec. 34 (E)(1)]
ons,
with
3. Losses from sales or
exchanges of property [Sec
resp
36 (B)]
ect
to
the (2) OPTIONAL CORPORATE
taxa INCOME TAX
ble SECTION 27 (A)
year
of APPLIES TO:
the 1. Domestic corporations (DC)
corp 2. Resident foreign corporations (RFC)
orati
on RATE OF TAX AND DATE OF EFFECTIVITY
prec 15% of the Gross Income effective
edin January 1, 2000
g the
date CONDITIONS OR REQUIREMENTS
of 1. A tax effort ratio of 20% of Gross
the National Product
sale 2. A ratio of 40% income tax collection
of to total tax revenues
exch 3. A VAT tax effort of 4% of GNP
ange 4. A 0.9% ratio of Consolidated Public
was Sector Financial Position (CPSFP) to
a GNP
pers
onal OTHER FEATURES
holdi 1. Available only to firms whose
ng ratio of:
com
pany Cost of sales
or a <=55%
forei Gross sales or receipts from all
sources
gn
pers 2. The election shall be irrevocable
onal for three (3) consecutive years
holdi
ng MEANING OF GROSS INCOME
com General concept –
pany Gross sales
; or Less:
1. Between the grantor and a fiduciary (1) Sales Return;
of any trust; (2) Discount and
2. Between the fiduciary of a trust and allowances
the fiduciary of another trust if the (3) Cost of goods sold -
same person is a grantor with means all business
respect to each trust; expenses directly
3. Between a fiduciary of a trust and a incurred to produce
beneficiary of such trust. the merchandise to
bring them to their
Cabrera, Jhundee
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1

present location and Carry Forward of the Excess Minimum
use. Tax
(3) MINIMUM CORPORATE Any excess of MCIT over the normal

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

Cabrera, Jhundee
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General concept - gross income means: the
Gross sales goods
Less: are in
(1) Sales Return; transit.
(2) Discount B. Cost of Sales = All
and Manufacturing cost of production
allowanc Gross Income of finished goods,
es (Same) such as
(3) Cost of 1. raw
goods materia
sold - ls used;
means 2. direct
all labor;
business 3. manufact
expenses uring
directly overhea
incurred d;
to 4. freight
produce cost;
the 5. insurance
merchan premiu
dise to ms;
bring 6. other
them to costs
their incurre
present d to
location bring
and use. the raw
materia
KINDS OF BUSINESS ls to the
factory
A. Trading or Merchandising Concern or
Gross Income = Cost of Sales = wareho
gross sales/ 1. Invoice use.
receipts less cost of
sales returns, the
discounts and goods
allowances and sold;
cost of goods 2. import
sold duties;
3. freight in
transpo
rting
the
goods
to the
place
where
the
goods
are
actually
sold;
4. insurance
while
Cabrera, Jhundee
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C. Services Cost of Services = DEFINITION: “Improperly accumulated

Gross Income = All direct costs earnings (IAE)” are the profits of a
Gross receipts and expenses corporation that are permitted to
less sales necessarily accumulate instead of being distributed
returns, incurred to by a corporation to its shareholders for
allowances, provide the the purpose of avoiding the income tax
discounts and services required with respect to its shareholders or the
costs of services by the customers shareholders of another corporation.
and clients
including: TAX RATE: 10% of the Improperly
a. Salaries and Accumulated Taxable Income (in
employee addition to other taxes).
benefits of Rationale behind IAET
personnel, If the earnings and profits were
consultants distributed, the shareholders would then
and be liable to income tax thereon,
specialists whereas if the distribution were not
directly made to them, they would incur no tax
rendering in respect to the undistributed earnings
the service; and profits of the corporation. Thus, a
b. Cost of tax is being imposed;
facilities a. in the nature of a
directly penalty to the
utilized in corporation for the
providing improper
the service. accumulation of its
It shall not earnings, and
include interest b. as a form of deterrent to
expense except for the avoidance of tax
banks and other upon shareholders
financial who are supposed to
institutions. pay dividends tax on
the earnings
 Gross income excludes distributed to them
passive income subject to by the corporation.
final tax.
 Other income and “IMPROPERLY ACCUMULATED TAXABLE
Extraordinary Income are INCOME”
included since RR 9-98
provides that gross sales Taxable income for the year
include sales contributory to Add:
income taxable under the Income exempt from tax;
regular corporate tax. Income excluded from gross income;
Income subject to final tax;
 See Annex T for interplay of Net operating loss carry-over (NOLCO)
normal tax, optional corporate Total
income tax and MCIT. Less:
Income tax paid/payable for the taxable
year
(4) IMPROPERLY ACCUMULATED Dividends actually or constructively
paid/issued from the applicable year’s
EARNINGS (IAE) TAX
taxable income
SECTION 29 Amount reserved for the reasonable
needs of the business as defined in the
(REVENUE REGULATIONS NO. 2 – 2001) Regulations
Tax base of improperly accumulated
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1
earnings tax
Exception: The said tax shall not apply
EXCLUSIONS to:
1. Publicly held corporations
 For corporations using the (Sec. 29)
calendar basis the 2. Banks and other non-banks
accumulated earnings tax Financial intermediaries
shall not apply on IAE as of (Sec. 29)
Dec. 31, 1997. 3. Insurance companies (Sec.
 For fiscal year basis, the tax 29)
shall not apply to the 12- 4. Taxable partnerships
month period of fiscal year (deemed to have actually
1997-1998. or constructively received
the taxable income under
IAE as of the end of a calendar Sec. 73D)
or fiscal year period on or after Dec.
31, 1998 shall be subject to the 10%
5. General professional
tax. partnerships (exempt;
taxable against the
WHO ARE COVERED? partners)
6. Non- taxable joint
General Rule: The IAE tax shall apply to ventures and
every corporation formed or availed 7. Enterprises duly registered
for the purpose of avoiding the with the Philippine
income tax with respect to its Economic Zone Authority
shareholders or the shareholders of (PEZA) under R.A. 7916,
any other corporation, by permitting and enterprises registered
earnings and profits to accumulate pursuant to the Bases
instead of being divided or Conversion and
distributed. These are: Development Act of 1992
under R.A. 7227, as well as
1. Domestic corporations as other enterprises duly
defined under the Tax Code; registered under special
2. Corporations which are classified economic zones declared
as closely-held corporations. by law which enjoy
• those corporations payment of special tax
at least fifty percent rate on their registered
(50%) in value of the operations or activities in
outstanding capital lieu of other taxes,
stock or at least fifty national or local.
percent (50%) of the 8. Foreign corporations [RR
total combined No. 02-2001]
voting power of all
classes of stock EVIDENCE OF PURPOSE TO AVOID
entitled to vote is INCOME TAX
owned directly or
indirectly by or for
not more than
1. The fact that any corporation is a
twenty (20) mere holding company or investment
individuals. company shall be prima facie
evidence of a purpose to avoid the
 Domestic corporations
tax upon its shareholders or
not falling under the
members.
aforesaid definition
are, therefore,
publicly-held
corporations.
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Instances indicative of purpose to Directors or
avoid income tax upon equivalent body;
shareholders: c. Reserved for
1. Investment of building, plants
substantial earnings and or equipment
profits of the corporation in acquisition as
unrelated business or in stock approved by the
or securities of unrelated Board of
business; Directors or
2.Investment in bonds and equivalent body;
other long-term securities; d. Reserved for
3.Accumulation of earnings in compliance with
excess of 100% of paid-up any loan
capital, not otherwise covenant or pre-
intended for the reasonable existing
needs of the business as obligation
defined in these Regulations. established
under a
1. The fact that the earnings or profits legitimate
of a corporation are permitted to business
accumulate beyond the reasonable agreement;
needs of the business shall be e. Earnings
determinative of the purpose to required by law
avoid the tax upon its shareholders or applicable
or members unless the corporation, regulations to be
by the clear preponderance of retained by the
evidence, shall prove the contrary. corporation or in
respect of which
“Reasonable needs of the there is legal
business” includes the reasonably prohibition
anticipated needs of the business against its
such as: distribution;
a. Allowance for f. In the case of
the increase in subsidiaries of
the foreign
accumulation of corporations in
earnings up to the Philippines,
100% of the all undistributed
paid-up capital earnings
of the intended or
corporation as of reserved for
Balance Sheet investments
date, inclusive within the
of accumulations Philippines as
taken from other can be proven by
years; corporate
b. Earnings records and/or
reserved for relevant
definite documentary
corporate evidence.
expansion
projects or The controlling intention of the
programs as taxpayer is that which is manifested at
approved by the the time of accumulation, not
Board of subsequently declared intentions, which
are merely the product of afterthought.
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A speculative and indefinite purpose will
not suffice. 1.It is constituted as a full and final
Definiteness of plan/s coupled with payment of the income tax due
action/s taken towards its from the payee on a particular
consummation is essential. type of income subject to final
withholding tax (FWT).
PERIOD FOR PAYMENT OF DIVIDEND/ The finality of the
PAYMENT OF IAET withholding tax is limited only to the
Dividends must be declared and paid payee’s income tax liability and does
or issued not later than one year not extend to other taxes that may
following the close of the taxable year, be imposed on said income.
otherwise, the IAET, if any, should be 2.The income subjected to final
paid within fifteen (15) days thereafter. income tax is no longer subject
to the net income tax;
otherwise, there would be a
(5) INCOME SUBJECT TO violation of prohibited double
PREFERENTIAL OR SPECIAL taxation.
RATES 3.The liability for the payment of
the tax rests primarily on the
Pertains to income derived by a payor as withholding agent.
particular individual or corporation 4.The payee is not required to file
belonging to a class of income taxpayer an income tax return for the
that is subject to either a preferential or particular income subjected to
special rate. FWT. It is the withholding agent
who files the return.
 Tax Rates: Please refer to 5.The rate of the final tax is
Annex C. multiplied to the gross income.
Thus, deductions and/or
(6) GROSS INCOME TAX (GIT) personal and additional
exemptions are not allowed.
GROSS INCOME TAX (GIT) FORMULA
(8) FRINGE BENEFIT TAX (FBT)
Entire Income
Less: Exclusions and Income subject FRINGE BENEFIT TAX is a final income
to Final Tax (e.g. Passive tax on the employee which shall be
Income) withheld and paid by the employer on a
Gross Income quarterly basis.
Multiply by: Tax Rates (%)
FRINGE BENEFIT means any good,
Net Income Tax Due service, or other benefit furnished or
granted by an employer, in cash or in
GIT APPLIES TO kind, in addition to basic salaries, to an
individual employee (except rank and
1. Non-resident alien not file employees) such as, but not limited
engaged in trade or business to the following:
(25%); and 1. Housing
2. Non-resident foreign 2. Expense Account
corporation. (32%) 3. Vehicle of any kind
4. Household personnel, such as maid,
 Tax Rates: Please refer to driver and others
Annex A and B. 5. Interest on loan at less than market
rate to the extent of the difference
(7) FINAL INCOME TAX between the market rate and actual
rate granted.
GENERAL PRINCIPLES
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6. Membership fees, dues and other Grossed up divisor. The Grossed up
expenses borne by the employer for divisor is the difference between 100%
the employee in social and athletic and the applicable rates.
clubs and similar organizations
7. Expenses for foreign travel GROSSED UP
YEAR RATE
8. Holiday and vacation expenses DIVISOR
9. Educational assistance to the 1998 66% 34% FWT
employee or his dependents; and 1999 67% 33% FWT
10. Life or health insurance and other 2000
68% 32% FWT
non-lire insurance premiums or onwards
similar amounts on excess of what
the law allows. FRINGE BENEFITS NOT SUBJECT TO FBT
PERSONS LIABLE 1. Fringe benefits not considered as

gross income –
The EMPLOYER (as a withholding a. if it is required or necessary to
agent), whether individual, professional the business of employer
partnership or a corporation, regardless b. if it is for the convenience or
of whether the corporation is taxable or advantage of employer
not, or the government and its 1. Fringe Benefit that is not taxable
instrumentalities under Sec. 32 (B) – Exclusions from
Gross Income
TAX RATE: 32% (from January 1, 2000 2. Fringe benefits not taxable under
onwards) of the Grossed up Monetary Sec. 33 Fringe Benefit Tax:
Value (GMV) of fringe benefits. a. Fringe Benefits which are
In the case of aliens, the tax rates to authorized and
be applied on fringe benefit shall be as exempted under special
follows: laws, such as the 13th
1. NRANEBT 25% month Pay and Other
2. Aliens employed by regional Benefits with the ceiling
HO 15 % of P30,000.
3. Aliens employed by OBU 15% b. Contributions of the
4. Aliens employed by employer for the
Petroleum Service benefit of the employee
Contractors and to retirement,
Subcontractors 15% insurance and
hospitalization benefit
“GMV” OF THE FRINGE BENEFIT plans;
REPRESENTS c. Benefits given to the Rank
and File Employees,
1. The whole amount of income whether granted under
realized by the employee a collective bargaining
which includes the net agreement or not; and
amount of money or net d. The De minimis benefits –
monetary value of property benefits which are
which has been received; relatively small in value
plus offered by the employer
2. The amount of fringe benefit as a means of
tax thereon otherwise due promoting goodwill,
from the employee but paid contentment, efficiency
by the employer for and in of Employees
behalf of the employee. The term “Rank and File
Employees” shall mean all
“GMV” of the fringe benefit shall employees who are holding
be determined by dividing the monetary neither managerial nor
value of the fringe benefit by the
Cabrera, Jhundee
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supervisory position as defined 5. Actual yearly medical benefits not
in the Labor Code exceeding P10,000 per annum;
In the case of rank and file 6. Laundry allowance not exceeding
employees, fringe benefits other P300 per month;
than those excluded from gross 7. Employees achievement awards e. g.
income under the Tax Code and for length of service or safety
other special laws, are taxable achievement, which must be in the
under the individual normal tax form of a tangible personal property
rate. other than cash or gift certificate,
DEDUCTIBILITY TO THE TAXABLE with an annual monetary value of
INCOME OF THE EMPLOYER not exceeding P10,000 received by
the employee under an established
General Rule: The amount of taxable written plan which does not
fringe benefit and the fringe benefits tax discriminate in favor paid
shall constitute allowable deductions employees;
from gross income of the employer. 8. Gifts given during Christmas and
Exception: major anniversary celebrations not
If the basis for computation of the exceeding P3, 000 per employee per
fringe benefits tax is the depreciation annum;
value, the zonal value or the fair market 9. Flowers, fruits, books or similar
value, only the actual fringe benefits tax items given to employees under
paid shall constitute a deductible special circumstances
expense for the employer. The value of 10. Daily meal allowance for overtime
the fringe benefit shall not be work not exceeding 25% of the basic
deductible and shall be presumed to minimum wage.
have been tacked on or actually claimed
as depreciation expense by the Time for filing of quarterly remittance
employer. Provided, however, that if the return of final income taxes withheld
aforesaid zonal value or fair market The tax imposed under Sec. 33 shall
value of the said property is greater than be treated as a final income tax on the
its cost subject to depreciation, the employee that shall be withheld and
excess amount shall be allowed as a paid by the employer, whether a large
deduction from the employer's gross taxpayer or non-large taxpayer, on or
income as fringe benefit expense. (Sec. before the 10th day of the month
2.33[D], Rev. Reg. No. 3-98) following the calendar quarter in which
the fringe benefits were granted (RR 04-
EXAMPLE OF DE MINIMIS BENEFITS NOT 2002).
SUBJECT TO FBT (RR NO. 8-2000 AND
10-2000)  For Additional Rules on
Fringe Benefits, refer to Annex H.
1. Monetized unused vacation leave
credits of PRIVATE employees not (9) CAPITAL GAINS TAX
exceeding (10) days during the year
and the monetized value of leave SUMMARY OF TAX RATES
credits paid to government officials
and employees 1. Individuals
2. Medical cash allowance to a. On sale of shares
dependents of employees not of stock of a
exceeding P750.00 per employee per domestic
semester or P125 per month; corporation not
3. Rice subsidy of P1,000.00 or one (1) listed and traded
sack of 50kg. rice per month thru a local
amounting to not more than stock exchange,
P1,000:00, held as capital
4. Uniform and clothing allowance not asset
exceeding P3,000 per annum; On the Net Capital Gain
Cabrera, Jhundee
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Not over P100,000 –
FT of 5% b. Property held by the
Amount in excess of P100,000 – taxpayer primarily
FT of 10% for sale to customers
b. On sale of real in the ordinary
property in the course of business;
Philippines held
as capital asset c. Property used in
On the gross selling price, or the
trade or business
current fair market value at the
time of sale, whichever is higher –
and subject to
FT of 6% depreciation; and
2. Corporations
a. On sale of shares d. Real property used
of stock of a in trade or business.
domestic
corporation not a. Capital Assets include all
listed and traded property held by the
thru a local taxpayer whether or not
stock exchange, connected in trade or
held as capital business but not including
asset those enumerated above
On the Net Capital Gain – (#1) as ordinary assets.
Not over P100,000 – FT of
5%
Amount in excess CAPITAL GAIN CAPITAL LOSS
of P100,000 – FT of
10% The gain derived The loss incurred
b. On sale of from the sale or from the sale or
land/building exchange of exchange of
held as capital capital assets. capital assets.
asset
On the gross selling price, or the
current fair market value at the
time of sale, whichever is higher
– FT of 6%
NET CAPITAL NET CAPITAL
(Reyes, Virgilio. Income Tax Law and
GAIN LOSS
Accounting – A New Approach, 2002)
The excess of the The excess of the
CAPITAL GAINS AND LOSSES – gains from sales/ losses from sales or
IN GENERAL exchanges of exchanges of
capital assets over capital assets over
CONCEPT OF CAPITAL ASSETS the gains from the gains from
such sales/ such sales or
exchanges. exchanges.
Under the tax code, there is no
definition for the term "capital assets".
What it gives is the meaning of ordinary
assets:  TRANSACTION RESULTING IN TAXABLE
GAINS BUT NON-RECOGNITION OF LOSSES
a. Ordinary assets (Sec. 39, a. Sale or exchange between
NIRC) related parties;
a. Stock in trade of the b. Wash sales by non-dealers of
taxpayer or other securities and when not
properties of a kind subject to the stock transfer
which would tax;
properly be included
in the inventory of
the taxpayer;
Cabrera, Jhundee
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c. Exchanges not solely in kind hence
in merger and consolidation; , the
and net
d. Sales or exchanges that are capita
l loss
not at arms length.
is not
deduc
REQUISITES FOR RECOGNITION OF tible.
CAPITAL GAIN/LOSS Exception: If any
domestic bank or
1. The transaction must trust company, a
involve property substantial part of
classified as capital whose business is
asset; and the receipt of
deposits, sells any
bond, debenture,
2. The transaction must be a note or certificate
sale or exchange or or other evidence
one considered as of indebtedness
equivalent to a sale or issued by any
exchange. corporation
(including one
Rules on the recognition of capital issued by a
gains or losses government or
political
subdivision)
INDIVIDUAL CORPORATION  Net Capital  Not

 Loss allo
 Holding Capital gains and Carry – wed
Period losses are Over
The percentages recognized to  Allowed
of gain or loss to be the extent of The net capital loss
taken into account 100%. (in an amount not in
shall be the (There is no excess of the taxable
following: holding period) income before
a. 1 personal exemption
for such year) shall
b. 50% - if be treated in the
the succeeding year (but
capital not beyond 12
months) as a
asset
deduction as short-
has
term capital loss (at
been 100%) from the net
held for capital gains.
more
than 12
mos.
 See Annex U for illustration.
 Non-  Capital SALE OR EXCHANGE OF CAPITAL ASSETS

deduc losses
tibilit are The following are considered as sale
y of allowe or exchange of capital assets:
Net d only 1. Retirement of bonds
Capita to 2. Short sales of property
l extent 3. Failure to exercise privilege
losses of the or option to buy or sell
 C capita
property
l
gains;
Cabrera, Jhundee
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4. Securities becoming SUMMARY OF TAX TREATMENT OF
worthless GAINS/LOSSES IN THE EXCHANGE OF
5. Distribution in liquidation of PROPERTIES
corporations
6. Readjustment of interest in General Rule: Upon the sale or
a general professional exchange of property, the entire gain or
partnership. loss, as the case may be, shall be
TAX FREE EXCHANGES recognized. [Sec. 40 (C, 1)]
Sales or exchanges resulting in non-
recognition of gains or losses: Exceptions:
1. Exchange solely in kind in legitimate 1. Transactions where gains and losses
mergers and consolidation; are not recognized –
includes: a. Exchange solely in kind in
a. Between the legitimate mergers and
corporations which consolidation
are parties to the b. Transfer to a controlled
merger or corporation [Sec. 40(C, 2)]
consolidation 1. Transactions where
(property for stocks); gain is recognized
b. Between a stockholder but not the loss –
of a corporation party a. T
to a merger or r
consolidation and the a
other party n
corporation (stock for s
stock); a
c. Between a security c
holder of a t
corporation party to a i
merger or o
consolidation and the n
other party s
corporation (securities b
for securities) e
t
2. Transfer to a controlled corporation w
– exchange of property for stocks e
resulting in acquisition of corporate e
control by a person, alone or n
together with others not exceeding r
four. e
“Control” means ownership of l
stocks in a corporation amounting to a
at least 51% of the total voting t
power of all classes of stocks e
entitled to vote. d
t
SALE OR EXCHANGE OF ORDINARY ASSETS a
x
General rules of income taxation p
apply to both gain and loss. a
y
e
 See Annex D (Gross Income – Gains r
from dealings in property)
s
[
Cabrera, Jhundee
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1

S o
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. r
3 t
6 y
] ,
b. Il n
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Cabrera, Jhundee
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1

o 2. Corporat
n e
s taxpayer
o ,
li domestic
d or
a foreign
t 3. Other
i taxpayer
o s such as
n estate,
s trust,
[ trust
S funds
e and
c pension
. among
4 others.
0
, RATES OF TAX
(
C 1. Shares of stock not traded through
, a local stock exchange – Net capital
3 gains derived during the taxable
) year from sale, exchange, or
] transfer shall be taxed as follows (on
a per transaction basis):
IMPORTANT DISTINCTION Not over P 100,000 - 5%
If it is an ordinary asset, the Over P 100,000 - 10%
ordinary gains and losses are considered 2. Shares of stock listed through a
in determining income or loss from local stock exchange – ½ of 1% of
trade, business or profession. (See Secs. the gross selling price of the stock.
32A, 34D) EXCEPTIONS TO THE TAX
If it is a capital asset, determine
further whether or not it is a real
1. Gains derived by dealers in
securities.
property located in the Philippines. If it
is, then it is subject to capital gains tax. 2. All other gains which are specifically
(See Secs. 24D, 27D5) (See also Sec s. exempt from income tax under
24C, 27D2) If not, the capital gains and existing investment incentives and
losses are considered in determining the other special laws.
taxable income. (Sec. 39)
BASIS FOR COMPUTING GAIN OR LOSS (BIR
CAPITAL GAINS AND LOSSES – RULING 146-98)
SHARES OF STOCK
 The fair market value (FMV)
The taxation of shares of stock of the sale of shares not
whether or not listed and traded in the traded but listed in the stock
stock exchange is subject to final tax. exchange is the highest
closing price on the day the
WHO ARE LIABLE TO THE TAX shares were sold,
1. Individua transferred or exchanged.
l  When no sale is made in the
taxpayer stock exchange, the FMV
, citizen shall be the highest selling
or alien price on the day nearest to

Cabrera, Jhundee
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the day of sale, transfer or
exchange. 2. Not traded through the stock exchange
 For shares not listed in the - It shall be paid by the seller on a per
exchange, the FMV shall be transaction basis upon filing of the
the book value nearest the required return within 30 days
valuation date following each sale or other
disposition of shares of stock.
The above rules shall be used in
computing for the net capital gain/loss
for disposition of shares.
CAPITAL GAINS AND LOSSES
(REAL PROPERTY)
IMPORTANT FEATURES
PERSONS LIABLE AND TRANSACTIONS
1. Sale of shares of AFFECTED
stock of a domestic
1. Individual taxpayers, estates and
corporation listed
trusts
and traded in a local
Sale or exchange or other
stock exchange and
disposition of real property
that of initial public
considered as capital assets.
offering shall be
The said sale shall include "pacto
subject to
de retro sale" and other conditional
Percentage tax
sale.
(Business Tax)
2. Domestic Corporation
2. Capital losses Sale or exchange or disposition
sustained during the of lands and/or building which are
year (not listed and not actually used in business and are
traded in a local treated as capital asset.
stock exchange)
shall be allowed as a  EXCEPTIONS TO THE TAX
capital loss 1. Gains derived by dealers in real
deductible on the estate
same taxable year
only (no carry-over) RATE AND BASIS OF TAX
3. The entire amount A final tax of 6% is based on the
of capital gain and gross selling price or fair market value
capital loss (not or zonal value whichever is higher.
listed and traded in Note: Gain or loss is immaterial,
a local stock there being a conclusive presumption of
exchange) shall be gain.
considered without
taking into account  See Annex G – Guidelines in
holding period Determining Whether a Real
irrespective of who Property is a Capital or an Ordinary
is the taxpayer (all Asset.
100%)
4. Non-deductibility of EXEMPTION OF CERTAIN INDIVIDUALS FROM THE
losses on wash sales. CAPITAL GAINS TAX ON THE SALE OR
DISPOSITION OF A PRINCIPAL RESIDENCE
FILING AND PAYMENT OF TAX
Conditions:
1. Listed and Traded in the Stock a. Sale or disposition of the old
Exchange - The stockbroker shall principal residence;
turn over the tax collected to the b. By natural persons - citizens
B.I.R. within five (5) banking days or aliens provided that they
from the date of collection. are residents taxable under
Cabrera, Jhundee
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Sec. 24 of the Code (does opinion of the
not include an estate or a Commissioner clearly
trust); reflects the income.
c. The proceeds of which is  Taxable income is
fully utilized in (a) acquiring computed based on
or (b) constructing a new calendar year if:
principal residence within 1. accounting period is
eighteen (18) calendar other than a fiscal year
months from date of sale or 2. taxpayer has no
disposition; accounting period
d. Notify the Commissioner 3. taxpayer does not keep
within thirty (30) days from books
the date of sale or 4. taxpayer is an individual
disposition through a
prescribed return of his
 Fiscal year: accounting
period of 12 months
intention to avail the tax
ending on the last
exemption;
day of any month
e. Can only be availed of only other than December
once every ten (10) years;
 Calendar year:
f. The historical cost or accounting period
adjusted basis of his old from January 1 to
principal residence sold, December 31
exchanged or disposed shall
be carried over to the cost A. Periods in which items of
basis of his new principal gross income included (Sec.
residence 44)
g. If there is no full utilization,
 Amount of all items of
the portion of the gains
gross income shall be
presumed to have been
included in the gross
realized shall be subject to
income for the
capital gains tax.
taxable year in which
received by the
GROSS INCOME FROM DIFFERENT SOURCES
taxpayer, unless, any
(SEC. 42)
such amounts are to
 Please refer to Annex I. be properly
accounted for in a
ACCOUNTNG PERIODS AND METHODS OF different period
ACCOUNTING under methods of
accounting permitted
I.ACCOUNTING PERIODS  In case of death of
A. General rule (Sec. 43) taxpayer: include for
Taxable income is computed the taxable year in
upon the basis of taxpayer’s which falls the date
annual accounting period (fiscal or of his death, all
calendar year) in accordance with amounts which
the method of accounting accrued up to the
employed. date of his death; if
 If no method of not otherwise
accounting employed properly includible in
or method does not respect of such
clearly reflect the period or a prior
income, computation period
shall be made in
accordance w/ such A. Period for which deduction
method as the and credits taken (Sec. 45)
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 Deductions provided in (1) Returns for short period

this Title shall be resulting from change of
taken for the taxable accounting period
year in which ‘paid or  taxpayer is other than
incurred, dependent an individual
upon the method of  with the approval of
accounting upon the the Commissioner
basis of which the net  If change is from fiscal
income is computed, year to calendar
unless, in order to year:
reflect the income, - separate
deductions should be final or
taken as of a adjustme
different period. nt return
 In case of death of be made
taxpayer: deductions for the
allowed for the period
taxable period in between
which falls the date the close
of his death, amounts of the
accrued up to the last fiscal
date of his death if year for
not otherwise which
properly allowable in return
respect of such was
period or a prior made
period. and the
following
A. Change of accounting period Decembe
(Sec.46) r 31
 Kinds of changes:  If change is from
- from fiscal year to calendar calendar year to
year fiscal year:
- from - separate
calendar final or
year to adjustme
fiscal nt return
year be made
- from one for the
fiscal period
year to between
another the close
 Effect of change: Net of the
income, shall, with last
the approval of the calendar
Commissioner, be for which
computed on the return
basis of the new was
accounting period, made
subject to Sec. 47. and the
date
A. Final or adjustment returns designat
for a period of less than 12 ed as the
months close of
the fiscal
year
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1
 If change is from one ge

fiscal year to in
another: ac
- separate co
final or un
adjustme tin
nt return g
be made pe
for the rio
period d
between b. In
the close all
of the ot
former he
fiscal r
year and cas
the date es
designat wh
ed as the er
close of ea
the new se
fiscal pa
year rat
(2) Income computed on basis of e
short period fin
 In what cases? al
a. Wh or
er adj
ea ust
se me
pa nt
rat ret
e ur
fin n
al is
or re
ad qui
jus re
tm or
en pe
t rm
ret itt
ur ed
n by
is R&
ma R
de pr
on esc
ac rib
co ed
un by
t Se
of c.
a of
ch Fin
an an
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ce. 3. wages due to
up workers but
on remaining
rec unpaid
om
me 1. Accounting for
nd long-term contracts
ati  Long-term
on contracts:
of building,
Co installation or
m construction
mi contracts
ssi covering a period
on in excess of 1 yr
er
 Persons whose
 Both shall be made for
gross income is
a fractional part of a
derived in whole
year.
or in part from
 Then income is such contracts
computed on the shall report such
basis of the short income upon the
period for which basis of
separate final or percentage of
adjustment return is completion
made.
 The return is
accompanied by
I. METHODS OF
a return
ACCOUNTING
certificate of
architects or
A. Cash method engineers
Recognition of income showing the
and expense dependent on percentage of
inflow or outflow of cash. completion
during the
1. Accrual method taxable year of
Method under which the entire work
income, gains and profits are performed under
included in gross income when the contract
earned whether received or not,  Deductions from
and expenses are allowed as gross income: all
deductions when incurred: expenditures
although not yet paid. It is the made during the
right to receive and not the taxable year on
actual receipt that determines account of the
the inclusion of the amount in contract:
gross income account being
 Examples: taken of the
1. interest or rent material and
income earned supplies on hand
but not yet at the beginning
received and end of the
2. rent expense taxable period
accrued but not for use in
yet paid connection with
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the work under (2) Sales of
the contract but realty
not yet so and
applied. casual
 Amended return sales of
may be Personal
permitted ty
/required by the  In cases
Commissioner: if of:
upon completion a. cas
of contract, ual
taxable income sal
has not been e
clearly reflected or
for any year(s). oth
er
1. Installment cas
basis ual
(1) Sales of dis
dealers po
in siti
personal on
property of
Under rules and pe
regulations prescribed by the rso
Sec. of Finance, a person nal
who regularly sells or pr
otherwise disposes of op
personal property on the ert
installment plan may return y
as income there from in any (ot
taxable year that proportion he
of the installment payments r
actually received in that tha
year, which the gross profit n
realized or to be realized inv
when payment is completed, en
bears to the contract price. tor
y
Example: Sale in 2000 on
Contract price (CP) ha
(installments nd
receivable) P200, 000 of
Cost 150,000 th
Gross profit (GP) 50,000 e
tax
Installments payable in 2 pa
equal annual installments yer
GP/CP ratio at
= 50,000/200,000 = th
25% e
Collections in 2000=P100,000 clo
Income for 2000 se
= P100,000 x 25% = P25,000 of
th
e
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tax g
abl pri
e ce
ye  How may
ar) incom
for e be
a return
pri ed:
ce same
> as in
P1, sales
00 of
0, dealer
or in
b. sal person
e al
or proper
oth ty
er above
dis
po
 Initial
payme
siti
nts:
on
payme
of
nts
rea
receiv
l
ed in
pro
cash or
pe
proper
rty
ty
, if
other
in
than
eit
eviden
her
ces of
cas
indebt
e
edness
th
of the
e
purcha
ini
ser
tia
during
l
the
pa
taxabl
ym
e
en
period
ts
in
do
which
not
the
ex
sale or
ce
other
ed
disposi
25
tion is
%
made.
of
th
(3) Sales of
e
real
sel
propert
lin
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y amounts
conside actually
red as received
capital during any
asset such year on
by account of
individ sales or
uals other
 Individual who dispositions
sells of of property
disposes of made in any
real prior year
property, shall not be
considered excluded.
as capital
asset and is 1. Allocation of
otherwise income and deductions
qualified to  Applicable
report the to: cases of
gain under 2 or more
(2) above organizatio
may pay the ns, trades
capital gains or
tax in businesses
installments (incorporat
under rules ed and
and organized
regulations within the
to be Philippines)
promulgated owned or
by the Sec. controlled
of Finance. directly
/indirectly
(3) Change by the
from same
accrual interest
to  Commission
install er is
ment authorized
basis to
distribute,
 taxpayer must apportion
be entitled or allocate
to benefits gross
under (1) income or
hereof sales deductions
of dealers in between or
personal among such
property organizatio
 in computing n, trade or
income for business, if
the year of he
change or determines
any that such
subsequent distribution
year: ,
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apportionm c. Corporation
ent or 1. Not exempt from income tax;
allocation 2. Exempt from income tax under
is necessary Sec. 30 of NIRC but has not
in order to shown proof of exemption.
prevent
evasion of INDIVIDUALS EXEMPT FROM FILING INCOME TAX
taxes or to RETURN
clearly
reflect the 1. Individual whose gross income does
income of not exceed total personal and
any such additional exemptions;
organizatio 2. Individual with respect to pure
n, trade or compensation income derived from
business. sources within the Philippines, the
income tax on which has been
FILING OF TAX RETURN AND PAYMENT OF TAX correctly withheld;
3. Individual whose sole income has
TAX RETURN – This is a report made by been subjected to final withholding
the taxpayer to the BIR of all gross income tax;
income received during the taxable
year, the allowable deductions including
4. Individual who is exempt from
income tax.
exemptions, the net taxable income, the
income tax rate, the income tax due,
SUBSTITUTED FILING – is when the
the income tax withheld, if any, and the
employer’s annual return may be
income tax still to be paid or
considered as the “substitute” Income
refundable.
Tax Return (ITR) of employee inasmuch
as the information provided in his
income tax return would exactly be the
same information contained in the
PERSONS REQUIRED TO FILE INCOME TAX
employer’s annual return.
RETURN
HOW IS “SUBSTITUTED FILING” DIFFERENT
a. Individual
FROM “NON-FILING”?
1. Resident citizen;
2. Non-resident citizen on income
from within the Phil.;  Substituted Filing – an individual
3. Resident alien on income from taxpayer although required
within the Phil.; under the law to file his
4. NRAETB on income from within income tax return, will no
the Phil. longer have to personally file
5. An individual (citizens / aliens) his own income tax return.
engaged in business or practice – but instead the
of a profession within the Phil. employer’s annual information
regardless of the amount of return filed is the considered
gross income; “substitute” income tax return
of the employee inasmuch as the
6. Individual deriving compensation information in the employer’s
income concurrently from two or
return is exactly the same
more employers at any time
information contained in the
during the taxable year;
employee’s return.
7. Individual whose pure
compensation income derived
 Non-filing – applicable to certain
from sources within the Phil.
types of individual taxpayers
exceeds P60,000.
who are not required under
a. Taxable Estate and Trust
b. General Professional Partnership
Cabrera, Jhundee
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the law to file an income tax exceed P5,000 or the
return. statutory minimum wage,
Example: employee whose whichever is higher, and opted
pure compensation income does for non-withholding of tax on
not exceed P60,000 and has only said income.
one employer for the taxable 4. Individuals deriving other non-
year and whose tax withheld is business, non-profession-
equivalent to his tax due. related income in addition to
compensation income not
SUBSTITUTED FILING OF INCOME TAX RETURNS otherwise subject to final tax.
BY EMPLOYEES RECEIVING PURELY 5. Individuals receiving purely
COMPENSATION INCOME. [SECTION 4, RR 3- compensation income from a
2002; RMC 01-03] single employer although the
income tax of which has been
Requisites: correctly withheld, but whose
1. The employee receives purely spouse falls under 1 to 4
compensation income (regardless of above.
amount) during the taxable year. 6. Non-resident aliens engaged in
2. The employee receives the income trade or business in the
only from one employer during the Philippines deriving purely
taxable year. compensation income, or
compensation income and
3. The amount of tax due from the other non-business, non-
employee at the end of the year profession-related income.
equals the amount of tax withheld
by the employer. NOTE: Non-filing of ITR, for employees
4. The employee's spouse also complies who are qualified for the substituted
with all three (3) conditions stated filing shall be OPTIONAL for the taxable
above. year 2001, the returns for which shall be
5. The employer files the annual filed on or before April 15, 2002.
information return (BIR Form No. Thereafter, substituted filing where
1604-CF) applicable shall be MANDATORY. [Sec 5
6. The employer issues BIR Form 2316 RR 3-2002)
(Oct 2002 ENCS) version to each
employee
INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED REQUIREMENT OF BANKS FOR SUBMISSION OF

FILING (STILL REQUIRED TO FILE) AN ITR FOR LOAN O R CREDIT CARD
APPLICATIONS
1. Individuals deriving compensation
from two or more employers Banks may require the submission of
concurrently or successively BIR Form No. 1700 (for employees not
during the taxable year. entitled to substituted filing of ITR).
2. Employees deriving compensation However, for employees entitled to
income, regardless of the substituted filing of ITR, the submission
amount, whether from a of the Joint Certification will suffice.
single or several employers
during the calendar year, the JOINT CERTIFICATION - It is a sworn
income tax of which has not statement made by the employer and
been withheld correctly (i.e. employee, which serve the following
tax due is not equal to the tax purposes:
withheld) resulting to 1. It contains the employee's consent
collectible or refundable that BIR Form No. 1604CF may be
return. considered his substituted return, in
3. Employees whose monthly gross lieu of BIR Form No. 1700, which the
compensation income does not employee no longer filed.
Cabrera, Jhundee
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2. It contains the employer's RETURN AND PAYMENT OF ESTIMATED INCOME
certification that he has reported TAX BY INDIVIDUAL (SELF-EMPLOYED OR
the employee's income to the BIR PRACTICE OF PROFESSION)
and that he has remitted the taxes
on the employee's income, as 1. First quarter - April 15 of current year
indicated in BIR Form No. 1604-CF. 2. Second quarter -August 15 of current
3. It serves as proof of financial year
capacity in case the employee 3. Third quarter – November 15 of current
decides to apply for a bank loan or a year
credit-card, or for any other 4. Final quarter - April 15 of the following
purpose, as if he had in fact filed a year.
BIR Form No. 1700.
Note: When the tax due is in excess of P2,
INDIVIDUALS REQUIRED TO FILE AN 000 - the taxpayer may elect to pay in two
INFORMATION RETURN (2) equal installments:
1st installment - April 15
Individuals not required to file an 2nd installment - on or before July 15
income tax return may nevertheless be
required to file an information return EXTENSION OF TIME TO FILE RETURN
pursuant to rules and, regulations
prescribed by the Secretary of Finance The Commissioner may on
upon recommendation of the meritorious cases grant a reasonable
Commissioner. extension of time for filing income tax
return and may subject the imposition of
PLACE OF FILING twenty (20) percent interest per annum
from the original due date.
1. Legal
residence - RETURN OF HUSBAND AND WIFE
authorized
agent bank;  File one (1) return for the
Revenue taxpayer year if following
District requisites complied;
Officer; a. Married individuals (citizens,
Collection resident or nonresident
agent or duly aliens)
authorized b. Do not derived income
treasurer purely from compensation.
2. Principal
place of
 If impracticable to file one
return: each spouse file a
business
separate return of income
3. With the
but the return so filed shall
Office of the
be consolidated by the
Commissione
Bureau for the purposes of
r
verification for the year.
UNMARRIED MINOR
TIME FOR FILING (PAY AS YOU FILE SYSTEM)

 Income of unmarried minors
derived from property
April 15 – for those earning sole received by the living
compensation income or solely business,
practice of profession or combination of parent shall be included in the
business and compensation. return of the parent, except:
a. when donor’s tax has been
paid on such property, or

Cabrera, Jhundee
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b. when transfer of such basis and the final or adjusted return on
property is exempt from the 15th day of the fourth (4th) month
donor’s tax following the close of either a-fiscal on
calendar year.
PERSONS UNDER DISABILITY
 See Annex V for Illustration.
If a taxpayer is unable to make his
own return, it may be made by his WHO SHALL FILE?
1. duly authorized agents; The return shall be filed by the
2. representative; president, vice-president, or other
3. by guardian; principal officer, and shall be sworn to by
4. other person charged with the care such officer and by the treasurer or
of his person or property; assistant treasurer.
 who will assume the responsibility of
making the return and incurring WITHHOLDING TAXES
penalties provided for erroneous,
false or fraudulent return. WITHHOLDING TAXES
Kinds:
RETURN OF ESTATE, TRUST AND PARTNESHIP 1. Withholding Tax at Source:
a. Final Withholding Tax
Estate and Trust with gross income b. Creditable
of P20,000 or more and partnership Withholding Tax
(whether professional or business) shall (Expanded
file their income tax return on or before withholding tax)
April 15. 2. Withholding Tax on
Compensation (Wages)
TAX RETURNS OF GENERAL PROFESSIONAL 3. Withholding Tax on Creditable
PARTNERSHIPS (GPP) Value-Added Tax
 Each GPP shall file in 4. Withholding of Percentage Tax
duplicate, a return of its
income (except those FINAL CREDITABLE
income exempt) WITHHOLDING WITHHOLDING
 Shall set forth: TAX SYSTEM TAX SYSTEM
a. items of gross income and
deductions allowed The amount of Taxes withheld on
b. names of partners income tax certain income
c. TIN withheld by the payments are
withholding agent intended to equal
d. address and share of each
is constituted as a or at least
partner full and final approximate the
payment of the tax due from the
TAX RETURN OF A CORPORATION income due from payee on the said
Those required to file: the payee on the income.
1. Corporation subject to tax having said income. [Sec.
existed during the taxable year, 2.57 (a), Rev. Reg.
whether with income or not. 2-98]
2. Corporation in the process of
liquidation or receivership. The liability for The income
payment of the tax recipient is still
3. Insurance company doing business in
rests primarily on required to file an
the Philippines or deriving income the payor or the income tax return
therein withholding agent. and/or pay the
4. Foreign corporation having income The payee is not difference
from within the Philippines required to file an between the tax
income tax return withheld and the
FILING OF RETURN (PAY AS YOU FILE SYSTEM) for the particular tax due on the
Quarterly returns for the first three income. income. [Sec.
(3) quarters on a strictly sixty (60) day 2.57(B), Rev. Regs.
Cabrera, Jhundee
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2-98] gross
income
will not be
allowed as
a
deduction
if it is
shown that
the income
tax
TIME TO WITHHOLD TAX AT SOURCE required to
be
- arises at the time an income is paid withheld is
or payable, whichever comes first. The not paid to
term “payable” refers to the date the the BIR.
obligation becomes due, demandable or (Sec.
legally enforceable. (Sec. 2.54.4 Rev. 2.58.5,
Regs. 2.98) Rev. Reg.
2-98)
NATURE WITHHOLDING AGENT’S LIABILITY
OF
The withholding agent is directly WITHHOLDING TAX ON COMPENSATION
and independently liable for the correct Every employer must withhold
amount of the tax that should be from compensation paid, an amount
withheld from the dividend remittance. computed in accordance with the
(Commissioner vs. Procter and Gamble, regulations.
GR No. 66838, December 2, 1991)
Exception:
CONSEQUENCES FOR FAILURE TOWITHHOLD: Where such compensation
1. liable for income of an individual:
surcharges 1. Does not exceed the statutory
and minimum wages; or
penalties; 2. Five thousand (P5,000) monthly
2. liable upon (P60,000 a year)
conviction  whichever is higher.
to a
penalty ELEMENTS OF WITHHOLDING ON
equal to COMPENSATION
the total 1. There must be an employer-
amount of employee relationship
the tax not 2. There must be payment of
withheld, compensation or wages for
or not services rendered
accounted 3. There must be a payroll
for and
period.
remitted.
COMPENSATION EXEMPTED
(Sec. 251,
1997 NIRC)
1. Remunerations received as
3. any an incident of employment
income 2. Remunerations paid for
payment agriculture labor
which is 3. Remunerations paid for
otherwise domestic services
deductible
4. Remunerations for casual
from the
not in the course of an
payor’s
employer's trade or business.
Cabrera, Jhundee
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1
5. Compensation for services of subject to Section 204 (abatement,

a citizen, resident of the refund/credit taxes).
Philippines, for a foreign  If amount withheld at source is less
government or an than the tax due on his return, the
international organization difference is paid in accordance with
6. Damages Section 56 (payment and assessment
7. Life insurance of income tax).
8. Amount received by the  All taxes withheld shall be
insured as return of premium considered as trust funds and
9. Compensation for injuries maintained in a separate account
and sickness and not commingled with any other
10. Income exempt under treaty funds of the withholding agent.
11. Thirteenth (13th) month pay
and other benefits
12. GSIS; SSS; Philhealth and
B. TRANSFER TAXES
other contributions,
TAX-FREE COVENANT BOND [SEC. 57(C)] TRANSFER TAX INCOME TAX
Tax on transfer of Tax on income

COVENANT BONDS – bonds, mortgages, property.
deeds of trust and other similar
obligations of domestic/resident foreign Rates are lower Rates are higher
corporation, which contain a --5% to 20% - -- 5% to 32%
contract/provision by which the obligor estate tax
agrees; -- 2% to 15 % or
1. to pay any portion of the tax 30% - donor’s
imposed upon the obligee; tax
2. to reimburse the obligee for any
Lesser exemptions More exemptions
portion of the tax; or
3. to pay the interest without
deduction for any tax which the
obligor may be required/permitted (1) ESTATE TAXES
to pay or to retain therefrom.
DEFINITION: an excise tax on the right of
 Obligor shall deduct and withhold a transmitting property at the time of
tax = 30% of the interest and other death and on the privilege that a person
payments whether interest or other is given in controlling to a certain extent
payments are payable annually or at the disposition of his property to take
a shorter period; whether bonds, effect upon death.
securities, obligations had been/will
be issued/ marketed and the ESTATE TAX FORMULA
interest and other payments paid
within and without the Philippines if Gross Estate (Sec. 85)
the interest or other payment is Less: (1) Deductions (Sec. 86)
payable to a non-resident alien or a (2)Net share of the SS in the CPP
citizen or resident of the Philippines Net Taxable Estate
INCOME OF RECIPIENT [SEC. 58 (D)] Multiply by: Tax rate (Sec. 84)
Estate Tax due
 Income which any creditable tax is Less: Tax Credit [if any] (Sec. 86[E] or
required to be withheld at source 110[B]
shall be included in the return of its
Estate Tax Due, if any
recipient.
 The excess of the amount of tax
withheld over the tax due on his GROSS ESTATE
return shall be refunded to him,
Cabrera, Jhundee
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A DECEDENT’S GROSS ESTATE INCLUDES (SEC. acquired a business situs in the
85) Philippines;
5. Shares or rights in any partnership,
RESIDENT & NON- business or industry established in
NON-RESIDENT
RESIDENT CITIZEN, the Philippines.
ALIEN
RESIDENT ALIEN
DECEDENT
DECEDENT
INTANGIBLE PERSONAL PROPERTY, WITH A
1. Real property 1. Real property SITUS IN THE PHILIPPINES, OF A DECEDENT
wherever situated in the WHO IS A NON-RESIDENT ALIEN SHALL NOT
situated Philippines. FORM PART OF THE GROSS ESTATE IF
(RECIPROCITY CLAUSE) (SEC. 104)
2. Personal property 2. Personal
wherever property
situated a) Tangible 1. the decedent at the time of his
a) Tangible, property death was a citizen and resident of a
and situated in foreign country which at the time of
b) Intangible the his death
Philippine a. did not impose a transfer
s
tax or death tax of any
b) Intangible
personal character
property 1. in respect of
with a intangible personal property of
situs in the citizens of the Philippines not
Philippine residing in that foreign country;
s unless or
exempted 1. the laws of the foreign country of
on the which the decedent was a citizen
basis of
and resident at the time of his death
reciprocity
. a. allow a similar exemption
from transfer taxes or
THE LAW THAT GOVERNS THE IMPOSITION OF death taxes of every
ESTATE TAX character
b. in respect of intangible
The statute in force at the time of personal property owned
death of the decedent shall govern by citizens of the
estate taxation. Philippines not residing in
that foreign country
INTANGIBLE PERSONAL PROPERTIES WITH A (Reciprocity).
SITUS IN THE PHIL. (SEC. 104, 1997 NIRC)
VALUATION OF THE GROSS ESTATE
1. Franchise which must be exercised
in the Philippines; The properties comprising the gross
2. Shares, obligations or bonds issued estate shall be valued based on their fair
by any corporation or sociedad market value as of the time of death.
anonima organized or constituted in
the Philippines in accordance with PROPERTY VALUATION
its laws;
3. Shares, obligations or bonds issued 1) Real Property - fair market value
by any foreign corporation eighty- a) as determined
by the
five per centum (85%) of the
Commissio
business of which is located in the ner or
Philippines; b) as shown in
4. Shares, obligations or bonds issued the
by any foreign corporation, if such schedule
shares, obligations or bonds have of values

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fixed by b. the right, either alone or
the in conjunction with any
provincial person, to designate the
and city person who shall possess
assessors
or enjoy the property or
WHICHEVER IS HIGHER
the income therefrom.
2) Shares of
Stock Exception: bona fide sale for an
Unlisted -book value adequate and full consideration in
Common -par value money or money’s worth.
Shares -arithmetic mean
Preferred between the highest 3. REVOCABLE TRANSFER
Shares and lowest quotation A transfer whereby the terms of
at a date nearest the enjoyment of the property may be
Listed date of death, if none
altered, amended, revoked or
is available on the date
of death itself. terminated by the decedent alone or in
conjunction with any other person, or
3)Right to - shall be taken into where any such power is relinquished in
usufruct, use or account the probable contemplation of the decedent’s death.
habitation, as life of the beneficiary It is enough that the decedent had the
well as that of in accordance with the power to alter, amend or revoke though
annuity latest basic standard he did not exercise such power.
mortality table, to be
approved by the Exception: bona fide sale for an
Secretary of Finance,
adequate and full consideration in
upon recommendation
of the Insurance money or money’s worth.
Commissioner.
4. TRANSFER UNDER GENERAL POWER
4) Personal - whether tangible or OF APPOINTMENT
property intangible, appraised A power of appointment is the right
at FMV. “Sentimental to designate the person or persons who
value” is practically will succeed to the property of the prior
disregarded. decedent.
A. The general power of appointment
may be exercised by the decedent:
INCLUSIONS IN THE GROSS ESTATE (SEC. 85) 1. by will; or
2. by deed executed in contemplation
1. DECEDENT’S INTEREST of his death; or
To the extent of the interest in 3. by deed under which he has retained
property of the decedent at the time of for his life or for any period not
his death. ascertainable without reference to
his death or for any period which
2. TRANSFER IN CONTEMPLATION OF does not in fact end before his
DEATH death:
1. A transfer motivated by the thought a. the possession or enjoyment of,
of impending death although death or the right to the income from
may not be imminent; or the property; or
b. the right, either alone or in
2. A transfer by which the decedent conjunction with any person, to
retained for his life or for any period designate the persons who shall
which does not in fact end before his possess or enjoy the property or
death: the income therefrom.
a. the possession or
enjoyment of, or the Exception: bona fide sale for an
right to the income from adequate and full consideration in
the property, or money or money’s worth.
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EXEMPT TRANSMISSIONS (SEC. 87)
5. PROCEEDS OF LIFE INSURANCE 1. The merger of usufruct in the owner
Proceeds of life insurance taken by of the naked title;
the decedent on his own life shall be 2. Fideicommisary substitution;
included in the gross estate if the 3. The transmission from the first heir,
beneficiary is: legatee or donee in favor of another
a. the estate of the decedent, his beneficiary, in accordance with the
executor or administrator will of the predecessor; and
(regardless whether the designation All bequests, devices, legacies or
is revocable or irrevocable); or transfers to social welfare, cultural and
b. a third person other than the estate, charitable institutions no part of the net
executor or administrator where the income of which inures to the benefit of
designation of the beneficiary is any individual; Provided, that not more
revocable. than 30% of the said bequests, legacies
or transfers shall be used by such
6. TRANSFERS FOR INSUFFICIENT institutions for administration purposes.
CONSIDERATION
The value to be included in the gross B. DEDUCTIONS ON GROSS
estate is the excess of the fair market ESTATE APPLICABLE TO
value of the property at the time of the C. RESIDENT ALIENS AND
decedent’s death over the consideration CITIZENS
received. This is applicable in cases of D. (REVENUE REGULATIONS 2-
transfer in contemplation of death,
2003)
revocable transfer and transfer under
general power of appointment made for
The following are deductible from
a consideration but is not a bona fide
the gross estate of citizens and resident
sale for an adequate and full
aliens:
consideration in money or money’s
worth. 1. Expenses, losses, indebtedness,
taxes, etc. (ordinary deductions)
7. PRIOR INTERESTS 2. Transfer for public use
All transfers, trusts, estates, 3. Vanishing deduction
interests, rights, powers and 4. Family home
relinquishment of powers made, 5. Standard deduction equivalent to
created, arising, existing, exercised or one million pesos (P1,000,000)
relinquished before or after the 6. Medical expenses
effectivity of the NIRC. 7. Amounts received by heirs under RA
4917 (Retirement Benefits)
PROPERTY RELATIONS BETWEEN HUSBAND AND 8. Net share of the surviving spouse in
WIFE the conjugal or community property
The property relations between the
spouses shall be governed by contract 1. ORDINARY
(marriage settlement) executed before DEDUCTIONS
the marriage.
A. FUNERAL EXPENSES
In the absence of such contract, or if The amount deductible is the lowest
the contract is void: among the following:
On marriages contracted before August 1. actual funeral expenses
3, 1988, the system of conjugal 2. 5% of the gross estate
partnership of gains shall govern; 3. P200,000.
On marriages contracted on or after
August 3, 1988 (effectivity of the It includes the following:
Family Code of the Philippines), the 1. Mourning apparel of the surviving
system of absolute community of spouse and unmarried minor children
property shall govern.

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of the deceased, bought and used in Claims against the estate or
the occasion of the burial. indebtedness in respect of property may
2. Expenses of the wake preceding the arise out of:
burial including food and drinks. 1. Contract;
3. Publication charges for death 2. Tort; or
notices. 3. Operation of Law.
4. Telecommunication expenses in
informing relatives of the deceased.
5. Cost of burial plot. Tombstone Requisites:
monument or mausoleum but not 1. The liability represents a
their upkeep. In case deceased personal obligation of the
owns a family estate or several deceased existing at the time of
burial lots, only the value his death except unpaid
corresponding to the plot where he obligations incurred incident to
is buried is deductible. his death such as unpaid funeral
6. Interment fees and charges. expenses (i.e., expenses
7. All other expenses incurred for the incurred up to the time of
performance of the ritual and interment) and unpaid medical
ceremonies incident to the expenses which are classified
interment. under a different category of
Expenses incurred after the deductions;
interment, such as for prayers, masses, 2. The liability was
entertainment, or the like are not contracted in
deductible. good faith and
Any portion of the funeral and burial for adequate and
expenses borne or defrayed by relatives full consideration
and friends of the deceased are not in money or
deductible. money's worth;
3. The claim must be a
B. JUDICIAL EXPENSES OF THE debt or claim
TESTAMENTARY OR INTESTATE which is valid in
PROCEEDINGS law and
Expenses allowed as deduction under enforceable in
this category are those: court;
1. incurred in the inventory-taking 4. The indebtedness
of assets comprising the gross must not have
estate, been condoned
2. administration, by the creditor
3. payment of debts of the estate, or the action to
as well as the distribution of the collect from the
estate among the heirs. decedent must
In short, these deductible items are not have
expenses incurred during the settlement prescribed.
of the estate but not beyond the last day
prescribed by law, or the extension D. CLAIMS AGAINST INSOLVENT PERSONS
thereof, for the filing of the estate tax
return. Requisites:
1. The amount thereof has been
C. CLAIMS AGAINST THE ESTATE initially included as part of his gross
The word "claims" is generally estate (for otherwise they would
construed to mean debts or demands of constitute double deductions if they
a pecuniary nature which could have were to be deducted)
been enforced against the deceased in
2. The incapacity of the debtors to pay
his lifetime and could have been
their obligation is proven.
reduced to simple money judgments.

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C. UNPAID MORTGAGE
 In case unpaid mortgage 2. TRANSFER FOR PUBLIC USE
payable is being
claimed by the Requisites:
estate, verification 1. The disposition is in a last will and
must be made as to testament
who was the 2. To take effect after death
beneficiary of the 3. In favor of the government of the
loan proceeds. Phil., or any political subdivision
 If the loan is found to be merely an thereof
accommodation loan where the loan 4. For exclusive public purposes.
proceeds went to another person,
the value of the unpaid loan must be Note: This should also include bequests,
included as a receivable of the devices, or transfers to social welfare,
estate. cultural and charitable institutions.
 If there is a legal impediment to
recognize the same as receivable of 3. VANISHING DEDUCTION
the estate, said unpaid obligation/
mortgage payable shall not be DEFINITION: The deduction allowed from
allowed as a deduction from the the gross estate for properties that were
gross estate. subject to donor’s or estate taxes. It is
 In all instances, the mortgaged called vanishing deduction because the
property, to the extent of the deduction allowed diminishes over a
decedent's interest therein, should period of five years. The rate of
always form part of the gross deduction depends on the period from
taxable estate. the date of transfer to the death of the
decedent, as follows:
F. TAXES
Taxes which have accrued as of the PERIOD DEDUCTION
death of the decedent which were  1 year or 100%
unpaid as of the time of death. less
 1 year – 2 80%
The following are not deductible: years
1. income tax on income received  2 years – 3 60%
after death years
 3 years – 4 40%
2. property taxes not accrued
years
before death
 4 years – 5 20%
3. estate tax years
G. LOSSES
Requisites:
Requisites:
1. the present decedent died
1. It should arise from fire, storm, within 5 years from transfer
shipwreck, or other casualty, of the property from a prior
robbery, theft or embezzlement; decedent or donor.
2. Not compensated by insurance 2. The property must be located in
or otherwise; the Phils.
3. Not claimed as deduction in an 3. The property formed part of the
income tax return of the taxable taxable estate of the prior
estate; decedent, or of the taxable
4. Occurring during the settlement gift of the donor.
of the estate; and 4. The estate tax or donor’s tax on
5. Occurring before the last day for the gift must have been
the payment of the estate tax finally determined and paid.
(last day to pay: six months after 5. The property must be identified
the decedent’s death). as the one received from the
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prior decedent, or something the one-year period from date of
acquired in exchange death be allowed to be deducted
therefor. from the gross estate as claim
6. No vanishing deduction on the against the estate.
property was allowable to
the estate of the prior AMOUNT RECEIVED BY HEIRS UNDER
decedent. REPUBLIC ACT NO. 4917
E. 4. FAMILY HOME Any amount received by the heirs

from the decedent's employer as a
Conditions: consequence of the death of the
1. The family home must be the actual decedent-employee in accordance with
residential home of the decedent Republic Act No. 4917 is allowed as a
and his family at the time of his deduction provided that the amount of
death, as certified by the Barangay the separation benefit is included as
Captain of the locality where the part of the gross estate of the decedent.
family home is situated;
2. The total value of the family home NET SHARE OF THE SURVIVING
must be included as part of the gross SPOUSE IN THE CONJUGAL
estate of the decedent; and PARTNERSHIP OR COMMUNITY
3. Allowable deduction must be in an
PROPERTY
amount equivalent to
1. the current fair market
value of the family home as After deducting the allowable
declared or included in the gross deductions (only the ordinary
estate, or deductions) appertaining to the conjugal
or community properties included in the
2. the extent of the decedent's
gross estate, the share of the surviving
interest (whether
spouse must be removed to ensure that
conjugal/community or exclusive
only the decedent's interest in the
property), whichever is lower,
estate is taxed.
but not exceeding P1,000,000
F. 5. STANDARD
DEDUCTION
H. DEDUCTIONS ON GROSS
I. ESTATE APPLICABLE TO
A deduction in the amount of One J. NON-RESIDENT ALIENS
Million Pesos (P1,000,000) shall be
allowed as an additional deduction The following are deductible from the gross
without need of substantiation. estate of non-resident aliens:
The full amount of P1,000,000 shall 1. Expenses, losses, indebtedness and
be allowed as deduction for the benefit taxes (ELIT) (ordinary deductions)
of the decedent.
Formula:
G. 6. MEDICAL Tax = Phil. Gross
EXPENSES Credit Estate X World
Limit World Gross ELIT
 Any amount of medical expenses Estate
incurred within one year from death
in excess of Five Hundred Thousand 2. Transfer for public use
Pesos (P500,000) shall no longer be
allowed as a deduction under this 3. Vanishing deduction on property in
subsection. the Philippines.
 Neither can any unpaid amount
thereof in excess of the P500,000 4. Conjugal share of the surviving
threshold nor any unpaid amount for spouse
medical expenses incurred prior to
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K. ESTATE TAX CREDIT give a written notice thereof to the

Commissioner. (Sec. 89)
A tax credit is granted for estate
taxes paid to a foreign country on the AN ESTATE TAX RETURN IS REQUIRED TO BE
estate of citizens and resident aliens FILED
subject to the following limitations 1. when the estate is subject to estate
tax; or
1. One foreign country 2. when the estate is not subject to
only estate tax but the gross estate
The tax credit is whichever is exceeds P 200,000; or
lower between: 3. regardless of the amount of the
1. Estate tax paid to the foreign country gross estate, where the gross estate
2. Tax Credit Limit = consists of registered or registrable
NTE, foreign country X Phil. estate property such as motor vehicle or
NTE, world Tax shares of stock or other similar
property for which clearance from
(NTE - Net Taxable Estate) the BIR is required as a condition
precedent for the transfer of
2. More than one foreign country ownership thereof in the name of
The credit shall be that the transferee.
which is the lower amount between
Limit A and Limit B. TIME FOR FILING OF THE ESTATE TAX RETURN
The estate tax return shall be filed
Limit A. Whichever is lower within six (6) months after the death of
between: the decedent.
 Estate tax paid to a foreign country
 Tax Credit Limit = Extension: The BIR may, in meritorious
NTE, foreign country X Phil. estate cases, grant an extension of not
NTE, world exceeding thirty (30) days for the filing
Tax of the estate tax return.
Limit B. Whichever is lower WHEN THE GROSS ESTATE EXCEEDS

between: P2,000,000, THE ESTATE TAX RETURN
SHALL BE ACCOMPANIED BY A STATEMENT
 Total of estate taxes paid to all
WHICH IS CERTIFIED BY AN INDEPENDENT
foreign countries
CERTIFIED PUBLIC ACCOUNTANT STATING
 Tax Credit Limit =
1. the itemized assets of the decedent
NTE outside Phil. X Phil. estate
with its corresponding gross value at
NTE, world Tax
the time of his death, or in the case
of a non-resident, not citizen of the
Philippines, that part of his gross
A. SETTLEMENT OF THE estate situated in the Philippines;
B. ESTATE TAX 2. the itemized deductions from the
gross estate;
A. FILING 3. the amount of tax due, whether paid
or still due and outstanding.
NOTICE OF DEATH TO BE FILED
In all cases of transfers subject to PLACE WHERE TO FILE THE ESTATE TAX
tax, or where, though exempt from tax, RETURN
the gross value of the estate exceeds
P20,000, the executor, administrator or 1. Resident Citizen
any of the legal heirs, within two - with the Accredited Agent
months after the decedent’s death, or Bank (AAB), Revenue District Officer,
within a like period after qualifying as Collection Officer or duly authorized
such executor or administrator, shall Treasurer of the city or municipality

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where the decedent was domiciled at the total net estate. (Sec. 9G, Rev. Reg.
the time of his death. 2-2003)
No judge shall authorize the
2. Non-resident (citizen or alien) distribution of the estate unless a
a. has registered executor or certification from the Commissioner that
administrator tax has been paid is shown. (Sec. 94)
- with the Revenue District No shares or other forms of securities
Office where such executor or shall be transferred in the books of any
administrator is registered corporation, partnership, business or
b. executor or administrator is not industry organized in the Philippines,
registered unless a similar certification by the
- with the Revenue District Commissioner is shown. (Sec. 97)
Office having jurisdiction over When a bank has knowledge of the
the executor’ or administrator’s death of a person who maintained a
residence joint account, it shall not allow any
c. no executor or administrator withdrawal by the surviving depositor
- with the Office of the without the above certification. (Sec.
Commissioner (Sec. 9C, Rev. Reg. 97)
2-2003) Provided: that the administrator of
the estate or any one (1) of the heirs of
B. PAYMENT the decedent may, upon authorization
by the Commissioner, withdraw an
PAYMENT OF THE ESTATE TAX DUE amount not exceeding twenty thousand
The estate tax due shall paid at the pesos (P20,000) without the said
time when the estate tax return is filed. certification.
When the Commissioner finds that
the payment of the estate tax on the
due date would impose undue hardships
upon the estate or any heir:
a. the payment of the estate tax
may be extended for a period
not to exceed five (5) years if
there is a judicial settlement of There is nothing in the Tax Code and
the estate; or in the pertinent remedial law that
b. the payment of the estate tax implies the necessity of the probate
may be extended for a period court or estate settlement of court’s
not to exceed two (2) years if approval of the State’s claim for estate
there is an extra-judicial taxes before the same can be enforced
settlement of the estate. and collected by the BIR. On the
NOTE: In case the available cash is not contrary, under Section 94, it is the
sufficient to pay its total estate tax probate or settlement court which is
liability, the estate may be allowed to bidden not to authorize the delivery of
pay tax by installment. (Sec. 9F, Rev. the distributive share to any interested
Reg. 2-2003) party without a certification from the
CIR showing the payment of the estate
LIABILITY FOR PAYMENT tax. (Marcos II vs. Court of Appeals, GR
The estate tax shall be paid by the No. 120880, June 5, 1997)
executor or administrator before delivery
to any beneficiary of his distributive share COLLECTION OF TAX FROM THE HEIRS
of the estate. An estate or inheritance tax,
Such beneficiary to the extent of his whether assessed before or after the
distributive share of the estate shall be death of the deceased, can be collected
subsidiarily liable for the payment of from the heirs even after the
such portion of the estate tax as his distribution of the properties of the
distributive share bears to the value of decedent. (Palanca vs. Commissioner of

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Internal Revenue, GR No. 16661, situated property situated
January 31, 1962) a. Tangible, and in the Philippines
Intangible b. Intangible
The Government has two ways of personal property
with a situs in
collecting taxes due from the estate.
the Philippines
a. By going after all the heirs and unless exempted
collecting from each one of on the basis of
them the amount of the tax reciprocity.
proportionate to the inheritance
received, or REQUISITES
b. Pursuant to the lien created by
Section 219 of the Tax Code 1. Capacity of the donor
upon all property and rights to 2. Donative Intent
property belonging to the 3. Delivery, whether actual or
taxpayer for unpaid income tax, constructive, of the subject gift
is by subjecting said property of 4. Acceptance by the donee
the estate which is in the hands
of an heir or transferee to the LAW THAT GOVERNS THE IMPOSITION OF
payment of the tax due the DONOR’S TAX
estate. (Commissioner of
Internal Revenue vs. Pineda, GR The donor’s tax shall not apply
No. L –22734, September 15, unless and until there is a completed
1967) gift. The transfer is perfected from the
moment the donor knows of the
acceptance by the donee; it is
completed by the deliver, either
actually or constructively, of the
donated property to the donee. Thus,
the law in force at the time of the
perfection/completion of the donation
shall govern the imposition of the
donor’s tax.
(2) DONOR’S TAXES A gift that is incomplete because of

reserved powers, becomes complete
when either:
DEFINITION: A tax on the privilege of
1. the donor renounces the
transmitting one’s property or property power; or
rights to another or others without 2. his right to exercise the reserved
adequate and full valuable power ceases because of the
consideration. happening of some event or
contingency or the fulfillment of
COVERAGE OF THE TAX (SEC. 104) some condition, other than
because of the donor's death.
RESIDENT & NON-
RESIDENT  Renunciation by the surviving spouse
NON-RESIDENT of his/her share in the conjugal
CITIZEN,
ALIEN DONOR partnership or absolute
RESIDENT ALIEN
DONOR community after the dissolution
of the marriage in favor of the
1. Real property 1. Real property heirs of the deceased spouse or
wherever situated in the any other person/s is subject to
situated Philippines. donor's tax.
 Whereas general renunciation by
2. Personal 2. Personal an heir, including the
property property
wherever a. Tangible
surviving spouse, of his/her
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share in the hereditary Gross gifts made on this date XX
estate left by the decedent Less: Deductions from gross gifts XX
is not subject to donor's tax, Net gifts XX
unless specifically and Add: All prior net gifts within XX
categorically done in favor the year
of identified heir/s to the Aggregate net gifts XX
exclusion or disadvantage of Multiply by: Tax Rate XX
the other co-heirs in the Donor’s tax on aggregate net XX
hereditary estate. (Sec. 11, gifts
Rev. Reg. 2-2003) Less: Donor’s tax on all prior net XX
gifts
STRANGER - a person who is not a brother, Donor’s tax on the net gifts on XX
sister, spouse, ancestor and lineal this date
descendant, or of a relative by
consanguinity in the collateral within the EXEMPTION OF CERTAIN GIFTS
4th civil degree.
 A legally adopted child is entitled to 1. Gifts made by a resident
all the rights and obligations a. Dowries or gifts
provided by law to legitimate made on
children, and therefore, donation to account of
him shall not be considered as marriage and
donation made to stranger. before its
 Donation made between business celebration or
organizations and those made within one
between an individual and a business year
organization shall be considered as thereafter by
donation made to a stranger. parents to
each of their
VALUATION OF GIFTS OF PROPERTY legitimate,
The fair market value of the illegitimate
property given at the time of the gift or adopted
shall be the value of the gift. children to
the extent of
the first P10,
000.
INTANGIBLE PERSONAL PROPERTIES WITH A b. Gifts made to or
SITUS IN THE PHIL. (SAME AS IN ESTATE TAX for the use of
SUBJECT TO THE RECIPROCITY RULE) (SEC. the National
104) Government
or any entity
Formula: (On a cumulative basis over a created by
period of one calendar year) any of its
agencies
1. On the 1st donation of a year which is not
conducted for
Gross gifts xxx profit, or to
Less: Deductions from gross xxx any political
gifts subdivision of
Net gifts xxx the said
Multiply by: Tax Rate xxx government.
Donor’s tax on the net gifts xxx c. Gifts in favor of
educational,
2. On donation of a subsequent charitable,
date during the year religious,
cultural or
social welfare
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corporation, 1. Donor was a Filipino citizen or
institutions, resident alien
foundations, 2. At time of foreign donation
trust or 3. Donor’s taxes of any character and
philanthropic description
organization, 4. Are imposed and paid by the
research authority of a foreign country.
institution or
organization, LIMITATIONS ON TAX CREDIT
accredited
non- 1. The amount of the credit in
government respect to the tax paid to
organization any country shall not exceed
(NGO). the same proportion of the
Provided, tax against which such credit
that no more is taken, which the
than 30% of decedent’s net gifts situated
said gifts within such country taxable
shall be used under the NIRC bears to his
by such donee entire net gift; and
for 2. The total amount of the credit
administratio shall not exceed the same
n purposes. proportion of the tax against
1. Gifts made by a non-resident not which such credit is taken,
a citizen of the Phil. which the decedent’s net
a. same as (b) gift situated outside the
b. same as (c) Philippines taxable under the
except NIRC bears to his entire net
accredited gift.
non-
government FORMULA OF TAX CREDIT LIMIT
organization
(NGO) 1. For donor’s taxes paid to one
foreign country
A NON-PROFIT EDUCATIONAL AND/OR
CHARITABLE CORPORATION, INSTITUTION, NG situated Tax
ACCREDITED NON-GOVERNMENT ORGANIZATION, in a foreign country X PDT = Credit
TRUST OR PHILANTROPHIC ORGANIZATION, Entire net gift Limit
RESEARCH INSTITUTION OR ORGANIZATION IS
(NG - Net Gifts; PDT - Phil. Donor's Tax)
1. one incorporated as a non-stock
entity 2. For donor’s taxes paid to two or
2. paying no dividends more foreign country
3. governed by trustees who receive no
compensation, and NG outside the Phil. X PDT = Tax
4. devoting all its income whether Entire net gifts Credit
students’ fees or gifts, donations, Limit
subsidies or other forms of
philantrophy to the accomplishment The allowable tax credit is the
and promotion of the purposes lower amount between the tax credit
enumerated in its Articles of limit under (a) and (b).
Incorporation.
TAX CREDIT FOR DONOR’S TAXES PAID TO A SETTLEMENT OF THE DONOR’S TAX
FOREIGN COUNTRY

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TIME FOR FILING OF RETURN AND PAYMENT OF  See Annex W - Donor’s Tax
THE DONOR’S TAX
The donor’s tax return is filed and
the donor’s tax due is paid within thirty C. TAX REMEDIES
(30) days after the date the gift is made. UNDER THE NIRC
The return shall be under oath in
duplicate setting forth:
1. Each gift made during the calendar I.TAX REMEDIES OF THE
year which is to be included in GOVERNMENT
computing net gifts;
2. The deductions claimed and
allowable; IMPORTANCE
3. Any previous net gifts made during
the same calendar year; 1. They enhance and support the
4. The name of the donee; government’s tax collection.
5. Relationship of the donor to the 2. They are safeguards of taxpayer’s
donee; and rights against arbitrary action.
6. Such further information as may be
required by rules and regulations TAX COLLECTION CANNOT BE RESTRAINED BY
COURT INJUNCTION (SEC. 218, 1997 NIRC)
made pursuant to law.
NOTE: The filing of a notice of donation Justification: Lifeblood Theory

is not required, unlike in estate tax
where notice of death is required. Exception: Injunction may be issued by
the CTA in aid of its appellate
PLACE FOR FILING OF RETURN AND PAYMENT jurisdiction under RA 1125 (as amended
OF THE DONOR’S TAX by RA 9282).
1. Resident Conditions for the Issuance of an

Injunction by the Court of Tax Appeals
 With an authorized agent bank, The CTA may enjoin collection of
the Revenue District Officer, taxes:
Revenue Collection Officer or a. If in its opinion the same may
duly authorized Treasurer of jeopardize the interest of the
the city or municipality where government and/or the taxpayer.
the donor was domiciled at the b. In this instance, the court may
time of the transfer, or if require the taxpayer either to deposit
there be no legal residence in the amount claimed or file a surety bond
the Philippines, with the for not more than double the amount
Office of the Commissioner. with the court.
2. Non-resident
 Filed with the Philippine * Before enforcement of remedies,
Embassy or Consulate in the assessment is necessary to trigger the
country where he is domiciled process. If no return is filed, the
at the time of the transfer, or Commissioner is empowered to obtain
directly with the Office of the information, and to summon/examine,
Commissioner. and take testimony of persons to
determine the amount of tax due. (Sec.
TAX RATE 5, 1997 NIRC)
If the donee is a stranger, the rate of TAX REMEDIES UNDER THE 1997 TAX CODE:
tax shall be 30% of the net gifts.
If the donee is not a stranger, 1. Summary – remedies at the
the rate shall be from 2% to 15% of the administrative level or regulation that
net gifts. are executed without ceremony or
delay; short or concise
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2. Substantive – remedies provided for case may be) of the offer in the
by law or regulation; an essential part or settlement of the original claim.
constituent or relating to what is
essential OFFICERS AUTHORIZED TO COMPROMISE
3. Procedural – remedies involving law of
pleading, evidence, jurisdiction, etc. 1. The Commissioner of Internal
4. Administrative – remedies available at Revenue (CIR) with respect
the administration (BIR) level to criminal and civil cases
1. Judicial – remedies that are arising from violations of the
enforced through judicial action, Tax Code [Secs. 7(C) and
which may be civil or criminal 204, 1997 NIRC]. This power
of the CIR is discretionary
TAX REMEDIES OF THE GOVERNMENT TO EFFECT and once exercised by him
COLLECTION OF TAXES cannot be reviewed or
interfered with by the
1. Compromise (Sec. 204) Courts. (Koppel, Philippines
2. Distraint (Actual and vs. Commissioner, GR No. L-
Constructive) (Secs. 205- 1977, September 21, 1950)
208) 2. By the Regional Evaluation
3. Levy (Sec. 207B) Board composed of:
4. Tax Lien (Sec. 219) a. the Regional Director as
5. Civil Action (Sec. 221) Chairman,
6. Criminal Action (Secs. 221, and b. Assistant Regional Director,
222) the heads of the Legal,
7. Forfeiture of Property (Sec. Assessment and Collection
224-225) Divisions, and
8. Suspension of business a. the Revenue
operations in violation of VAT District
(Sec. 115) Officer having
9. Enforcement of Administrative jurisdiction
Fine over the
taxpayer, as
The remedies of distraint and levy as members;
well as collection by civil and criminal  on assessments issued by the
actions may, in the discretion of the regional offices involving
Commissioner, be pursued singly or basic taxes of P500,000 or
independently of each other, or all of less, and minor criminal
them simultaneously. violations.
CASES WHICH MAY BE COMPROMISED

(1) COMPROMISE
1. Delinquent accounts
DEFINITION: A contract whereby the 2. Cases under administrative protests
parties, by reciprocal concessions, avoid 3. Civil tax cases being disputed before
litigation or put an end to one already the courts
commenced (Art. 2028, New Civil Code). 4. Collection cases filed in courts
5. Criminal violations, other than those
REQUISITES already filed in court or those
1. The taxpayer must have a tax involving criminal tax fraud; and,
liability. 6. Cases covered by pre-assessment
2. There must be an offer (by the notices but taxpayer is not agreeable
taxpayer of an amount to be paid by to the findings of the audit office as
the taxpayer) confirmed by the review office.
3. There must be an acceptance (by (Sec.2, Rev. Reg. 7-2001)
the Commissioner or taxpayer as the
EXCEPTIONS
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assessment and
1. Withholding tax cases; there is reason to
2. Criminal tax fraud cases; believe that its is
3. Criminal violations already filed in lacking in legal
court; and/or factual
4. Delinquent accounts with duly basis; or
approved schedule of installment d. The taxpayer failed to
payments; file a request for
5. Cases where final reports of reinvestigation/rec
reinvestigation or reconsideration onsideration within
have been issued resulting to 30 days from
reduction in the original assessment receipt of final
and the taxpayer is agreeable to assessment notice
such decision. and there is reason
6. Cases which become final and to believe that its is
executory after final lacking in legal
judgment of a court, where and/or factual
compromise is requested on basis; or
the ground of doubtful e. The taxpayer failed to
validity of the assessment elevate to the CTA
(RR. 30–2002); an adverse decision
7. Estate tax cases where of the
compromise is requested on Commissioner, or
the ground of financial his authorized
incapacity of the taxpayer. representative, in
(RR. 30–2002) some cases, within
30 days from
COMMISSIONER MAY COMPROMISE THE PAYMENT receipt thereof and
OF ANY INTERNAL REVENUE TAX WHEN there is reason to
believe that its is
1. A reasonable doubt as to the lacking in legal
validity of the claim against the and/or factual
taxpayer exists; or basis; or
a. The delinquent account or f. The assessment were
disputed assessment is one issued on or after
resulting from a jeopardy Jan. 1, 1998, where
assessment. the demand notice
b. The assessment seems to allegedly failed to
be arbitrary in comply with the
nature, appearing formalities
to be based on prescribed under
presumptions, and Sec. 228 of the
there is reason to 1997 NIRC; or
believe that its is g. Assessments made based
lacking in legal on the “Best
and/or factual Evidence
basis; or Obtainable Rule”
c. The taxpayer failed to and there is reason
file an to believe that the
administrative same can be
protest on account disputed by
of the alleged sufficient and
failure to receive competent
notice of evidence.
assessment or h. The assessment was
preliminary issued within the
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prescriptive period Internal Revenue, is suffering from
for assessment as surplus or earnings deficit
extended by the resulting to impairment in the
taxpayer's original capital by at least 50%,
execution of Waiver provided that amounts payable or
of the Statute of due to stockholders other than
Limitations the business-related transactions
validity or which are properly includible in
authenticity of the regular "accounts payable" are
which is being by fiction of law considered as
questioned or at part of capital and not liability,
issue and there is and provided further that the
strong reason to taxpayer has no sufficient liquid
believe and asset to satisfy the tax liability; or
evidence to prove
that it is not
authentic. (RR. 30–
2002)
i. The assessment is based
on an issue where a c. The taxpayer is suffering from a
court of competent networth deficit (total liabilities
jurisdiction made exceed total assets) computed by
an adverse decision deducting total liabilities (net of
against the Bureau, deferred credits and amounts
but for which the payable to stockholders/owners
Supreme Court has reflected as liabilities, except
not decided upon business-related transactions)
with finality. (RR. from total assets (net of prepaid
08-2004). expenses, deferred charges, pre-
operating expenses, as well as
2. The financial position of the appraisal increases in fixed
taxpayer demonstrates a clear assets), taken from the latest
inability to pay the assessed tax audited financial statements,
[Sec. 204(A), 1997 NIRC). In such provided that in the case of an
case, the taxpayer should waive the individual taxpayer, he has no
confidentiality privilege on bank other leviable properties under
deposits under RA No. 1405 [Sec. the law other than his family
6(F)(2), NIRC]. home; (Sec. 3, RR. 30–2002).
Financial Incapacity. — The offer
to compromise based on financial a. The taxpayer is a compensation
incapacity may be accepted upon earner with no other source of
showing that: income and the family’s gross
a. The corporation ceased operation monthly compensation does not
or is already dissolved. Provided, exceed (P10,500/month if single;
that tax liabilities corresponding P21,000/month if married), and
to the Subscription Receivable or that it appears that the taxpayer
Assets distributed/distributable to possesses no other leviable/
the stockholders representing distrainable assets, other than his
return of capital at the time of family home; or
cessation of operation or
dissolution of business shall not be b. The taxpayer has been granted by
considered for compromise; or the SEC or by any competent
tribunal a moratorium or
b. The taxpayer, as reflected in its suspension of payments to
latest Balance Sheet supposed to creditors, or otherwise declared
be filed with the Bureau of
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bankrupt or insolvent. (Sec. 3, RR. 2. Those involving fraud [Sec. 204(B),
07-2001) 1997 NIRC].
The Congressional Oversight EXTENT OF THE COMMISSIONER’S DISCRETION

Committee, under Section 290 of the TO COMPROMISE CRIMINAL VIOLATIONS
1997 NIRC is empowered to require the
BIR: 1. Before the complaint is filed with
1.The submission of the Prosecutor’s Office: The CIR
all pertinent has full discretion to compromise
information, except those involving fraud.
including but
not limited to 2. After the complaint is filed with
industry audits, the Prosecutor’s Office but before
collection the information is filed with the
performance court: The CIR can still compromise
data, status provided the prosecutor must give
reports on consent.
criminal actions
initiated against 3. After information is filed with the
persons; and court: The CIR is no longer
2.The submission of permitted to compromise with or
taxpayer without the consent of the
returns. Prosecutor. (People vs. Magdaluyo,
GR No. L-16235, April 20, 1961)
This is more so, when the court
has rendered a final judgment. As a
MINIMUM COMPROMISE RATES (MCR) OF ANY mere agent of the Government, the
TAX LIABILITY Commissioner is not authorized to
a. In case of financial incapacity: accept anything less than what is
MCR = 10% of the basic assessed tax adjudicated in favor of the
b. Other cases: Government. By virtue of such final
MCR = 40% of the basic assessed tax judgment, the Government has
[Sec. 204(A), 1997 NIRC] already acquired a vested right.
APPROVAL OF THE COMPROMISE BY THE NATURE OF A COMPROMISE IN EXTRAJUDICIAL

EVALUATION BOARD IS REQUIRED WHEN SETTLEMENT OF THE TAXPAYER’S CRIMINAL
a. the basic tax involved LIABILITY FOR HIS VIOLATION
exceeds P1,000,000.00,
or It is consensual in character, hence,
b. the settlement offered is may not be imposed on the taxpayer
less than the MCR. without his consent. The BIR may only
suggest settlement of his tax liability
NOTE: The MCR may be less than the through a compromise. The extra-
prescribed rates of 10% or 40%, as the judicial settlement and the amount of
case may be, provided it is approved by the suggested compromise penalty
the Evaluation Board (composed of the should conform with the schedule of
BIR Commissioner and the four BIR compromise penalties provided under
Deputy Commissioners). the relevant BIR regulations or orders.
COMPROMISE OF CRIMINAL VIOLATIONS REMEDY IN CASE THE TAXPAYER REFUSES OR

General Rule: All criminal violations FAILS TO ABIDE THE TAX COMPROMISE
under the CTRP may be compromised.
1. Enforce the compromise
Exceptions: a. If it is a judicial compromise, it
1. Those already filed in court can be enforced by mere
execution. A judicial compromise
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is one where a decision based on d. When the assessment is brought
the compromise agreement is about or the result of taxpayer’s
rendered by the court on request non-compliance with the law due
of the parties. to a difficult interpretation of said
b. Any other compromise is law.
extrajudicial and like any other e. When the taxpayer fails to file the
contract can only be enforced by return and pay the correct tax on
court action. time due to circumstances beyond
1. Regard it as rescinded and insist his control, provided, however,
upon original demand (Art. 2041, the abatement shall only cover
Civil Code). the surcharge and the compromise
penalty and not the interest
COMPROMISE PENALTY imposed under Sec. 249 of the
Code;
It is an amount of money that the f. Late payment of the tax under
taxpayer pays to compromise a tax meritorious circumstances (ex.
violation. This is paid in lieu of criminal Failure to beat bank cut-off time,
prosecution. A taxpayer cannot be surcharge erroneously imposed,
compelled to pay a compromise penalty. etc.) (Sec. 2, Rev. Reg. 13-2001)
If he does not want to pay, the CIR must
institute a criminal action. 1. The administration and
collection costs involved do
COMPROMISE VS. ABATEMENT not justify the collection of
the amount due [Sec. 204(B),
Compromise involves a reduction of 1997 NIRC].
the taxpayer’s liability, while a. Abatement of penalties on
abatement means that the entire tax assessment confirmed by the
liability of the taxpayer is cancelled. lower court but appealed by the
ABATEMENT taxpayer to a higher court
b. Abatement of penalties on
THE COMMISSIONER MAY ABATE OR CANCEL A withholding tax assessment under
TAX LIABILITY WHEN meritorious circumstances
c. Abatement of penalties on
1. The tax or any portion delayed installment payment
thereof appears to be under meritorious circumstances
unjustly or excessively d. Abatement of penalties on
assessed; [Sec. 204(B), 1997 assessment reduced after
NIRC]. reinvestigation but taxpayer is
a. When the filing of the still contesting reduced
return/payment is made at the assessment; and
wrong venue; e. Such other circumstances which
b. When the taxpayer’s mistake in the Commissioner may deem
payment of his tax is due to analogous to the enumeration
erroneous written official advice above. (Sec. 3, Rev. Reg. 13-2001)
of a revenue officer;
c. When the taxpayer fails to file the 1. The Commissioner may also,
return and pay the tax on time even without a claim
due to substantial losses from therefor, refund or credit any
prolonged labor dispute, force tax where on the face of the
majeure, legitimate business return upon which payment
reverses, provided, however, the was made such payment
abatement shall only cover the appears clearly to have
surcharge and the compromise been erroneously paid (Sec.
penalty and not the interest 229, 1997 NIRC)).
imposed under Sec. 249 of the
Code;
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(1) DISTRAINT ACTUAL CONSTRUCTIVE

DISTRAINT DISTRAINT
DEFINITION: It is the seizure by the
government of personal property, Made only on the Made on the
property of a property of any
tangible or intangible, to enforce the
delinquent taxpayer taxpayer, whether
payment of taxes. The property may be delinquent or not
offered in a public sale, if taxes are not
voluntarily paid. It is a summary remedy. There is taking of The taxpayer is
possession merely prohibited
NATURE OF THE WARRANT OF DISTRAINT OR from disposing of
LEVY his property
The warrant is a summary procedure Effected by leaving Effected by

“forcing” the taxpayer to pay. The a list of distrained requiring the
property or by taxpayer to sign a
receipt of a warrant may or may not
service of a warrant receipt of the
partake the character of a final decision. of distraint or property or by the
If it is an indication of a final decision, garnishment revenue officer
the taxpayer may appeal to the CTA preparing and
within 30 days from service of the leaving a list of
warrant. such property
 Duties of the officer serving the An immediate step Not necessarily so

warrant of distraint: for collection of
taxes
1. Make an account of the personal
properties distrained;
2. Sign the list of personal properties
distrained to which shall be
added, a statement of the sum
demanded and note of the time
and place of sale; Both
3. Leave either with the owner or Are summary remedies for the collection
person from whose possession of taxes;
NOTE: Refer only to personal property;
such personal properties were
and
taken, or at the dwelling or cannot be availed of where the amount of
place of business of such person the tax involved is not more than P100
with someone of suitable age
and discretion (Sec. 208, CTRP)
REQUISITES FOR THE EXERCISE OF THE REMEDY
TWO TYPES OF DISTRAINT OF DISTRAINT
1. Actual: there is taking of 1. The taxpayer must be delinquent

possession of the personal (except in constructive
property from the taxpayer by distraint) in the payment of
the government. Physical tax;
transfer of possession is not 2. There must be a subsequent
always required. This is true in demand for its payment
the case of intangible property (assessment);
such as stocks and credits. 3. The taxpayer must fail to pay the
2. Constructive: the owner is tax at the time required; and
merely prohibited from disposing 4. The period within which to
of his property. assess or collect the tax has
not yet prescribed.
ACTUAL VS. CONSTRUCTIVE DISTRAINT
PERSONS WHO SHALL SEIZE AND DISTRAINT
PERSONAL PROPERTY (ACTUAL DISTRAINT)

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2. Stocks and other securities
1. Amount of delinquent tax is more (a) upon the
than P1,000,000 – Commissioner or taxpayer;
his duly authorized representatives. and
2. Amount of delinquent tax is (b) upon the
P1,000,000 or less – Revenue District president
Officer. (Sec. 207(A), 1997 NIRC) ,
manager,
AUTHORITY OF THE COMMISSIONER TO treasurer
INQUIRE INTO BANK DEPOSIT ACCOUNTS or other
responsib
Distraint includes garnishment of le officer
money even in bank deposits because RA of the
1405 (Bank Secrecy Law) covers only corporati
divulging of information of deposits. No on,
inquiry is made on garnishment for it company
only earmarks a portion of the deposits. or
Notwithstanding any contrary associati
provision of RA 1405, the Commissioner on which
is authorized to inquire into the bank issued
deposits of: the said
1. a decedent to determine his gross stock and
estate securities
2. a taxpayer who waives his right by .
reason of financial incapacity to pay his 3. Bank accounts shall be garnished by
tax liability (Sec.5, NIRC) serving a warrant of distraint –
(a) upon the
taxpayer;
PROCEDURES FOR THE ACTUAL DISTRAINT OR and
GARNISHMENT (b) upon the
president
I ,
Commencement of distraint manager,
proceedings treasurer
, or other
responsib
Either by the CIR or his duly authorized le officer
representative; or by the Revenue of the
District Officer bank.
Note: Upon receipt of the warrant of
distraint, the bank shall turn over to the
Commissioner so much of the bank
accounts as may be sufficient to satisfy
II the claim of the government.
Service of Warrant of Distraint 4. Debts and credits –
(Sec. 208) (a) persons owing
or having in
his
With respect to:
possession
1. Personal property –
the debts;
(a) upon the owner of the goods,
(b) or under his
chattels, or other personal
control such
property; or
credits; or
(b) upon the person from
(c) upon his agent.
whose possession such
properties are taken.

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Note: The warrant of distraint shall be
sufficient authority to the person owing
the debts or having in his possession or PROCEDURE FOR THE CONSTRUCTIVE
under his control any credits belonging DISTRAINT OF PERSONAL PROPERTY
to the taxpayer to pay to the
Commissioner the amount of such debts Taxpayer’s obligation to preserve
or credits.
CIR shall require the taxpayer or any

person having possession or control of
such property to
Taxpayer must sign (a) sign a receipt covering the property
receipt distrained and
(b) obligate himself to
1. preserve the same intact and
unaltered and
2. not to dispose of the same in
any manner whatsoever
III without the express
Posting of Notice authority of the
(Sec. 209, NIRC) Commissioner of Internal
Revenue.
Notice specifying the time and place
of sale and the articles distrained. The
posting shall be made in not less than
two (2) public places in the city or muni-
cipality where the distraint is made. Remedy when taxpayer didn’t sign
One place for posting of such notice is at receipt
the Office of the Mayor of such city or
municipality.
If the taxpayer or person in possession of
the property refuses or fails to sign the
receipt referred to, the revenue officer
effecting the constructive distraint shall
(a) proceed to prepare a list of such
IV property and
Sale of Property Distrained (b) in the presence of two (2) witnesses
leave a copy thereof in the premises
where the property distrained is located,
after which the said property shall be
THE TAXPAYER’S PROPERTY MAY BE PLACED deemed to have been placed under
UNDER CONSTRUCTIVE DISTRAINT WHEN HE constructive distraint.
1. is retiring from any business (3) LEVY

subject to tax;
2. is intending to – DEFINITION: It refers to the act of seizure
a. leave the Philippines, of real property in order to enforce the
b. remove his property payment of taxes. The property may be
therefrom, offered in a public sale, if after seizure,
c. hide or conceal his the taxes are not voluntarily paid.
property,
1. is performing any act tending to REQUISITES FOR THE EXERCISE OF THE REMEDY
obstruct the proceeding for OF LEVY
collecting the tax due or
which may be due from him Same as in the remedy of distraint.
(Sec. 223, 1997 NIRC).
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The advertisement shall contain:
1. the amount of tax and penalties due;
2. name of the taxpayer against whom
WHEN MAY LEVY BE EFFECTED? taxes are levied;
3. short description the property to be
Real property may be levied upon sold.
before, simultaneously, or after the
distraint of personal property belonging The advertisement shall be made
to the delinquent [Sec. 207(B), 1997 NIRC]; within 20 days after the levy, and the
and the remedy by distraint and levy same shall be for a period of at least 30
may be repeated if necessary until the days. It shall be effectuated by:
full amount, including all expenses, is a. posting a notice at the main entrance
collected (Sec. 217, 1997 NIRC). of the municipal building or city hall
and in a public and conspicuous
PROCEDURE OF LEVY ON REAL PROPERTY place in the barrio or district in which
the real property lies; and
b. by publication once a week for 3
I weeks in a newspaper of general
Prepare Certificate of Levy circulation in the municipality or city
I where the property is located (Sec.
Preparation of a duly authen-ticated 213, CTRP).
certificate containing:
(a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due
from him. This certificate shall
operate with the force of a legal IV
execution throughout the Philippines Sale
(Sec. 207B, 1997 NIRC).
DISTRAINT VS. LEVY
DISTRAINT LEVY
II
Refers to personal Refers to real
Service of Notice
property property
Forfeiture by the Forfeiture is

Service of written notice to: government is not authorized
(a) the delinquent taxpayer; or provided
(b) if he is absent from the Philippines,
to his agent or manager of the business The taxpayer is not The right of
in respect to which the liability arose; or given the right of redemption is
c. to the occupant of the property. redemption with granted in case of
d. the proper Register of Deeds shall respect to real property levied
also be notified of the levy (Sec. distrained personal upon and sold, or
property. forfeited to the
207B, 1997 NIRC). government.
Both
 Are summary remedies for the
collection of taxes; and
III  Cannot be availed of where the
Advertisement of the Time and amount of the tax involved is not
more than P100
Place of Sale
REDEMPTION OF PROPERTY SOLD
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Deeds of the province or city where the
Within 1 year from the date of sale, property of the taxpayer is situated or
the property may be redeemed by the located (Sec. 219, 1997 NIRC).
delinquent taxpayer or anyone from him,
upon payment of the taxes, penalties
and interest thereon from the date of WHEN DOES IT ATTACH?
delinquency to the date of sale,
together with interest on purchase price Not only from the service of the
at 15% per annum from the date of sale warrant of distraint but from the time
to the date of redemption. (Sec. 214, tax became due and payable.
NIRC).
LIEN VS. DISTRAINT
FORFEITURE TO THE GOVERNMENT
LIEN DISTRAINT
If there is no bidder in the public
sale or if the amount of the highest bid Directed against Need not be
is insufficient to pay the taxes, penalties the property directed against the
and costs, the real property shall be subject to the tax property subject to
forfeited to the Government. tax
FURTHER DISTRAINT AND LEVY Regardless of the Property seized

owner of the must be owned by
property the taxpayer
The remedy of distraint and levy
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from (5) CIVIL ACTIONS
the taxpayer. Otherwise, a clever
taxpayer who is able to conceal most of DEFINITION: For tax remedy purposes,
the valuable part of his property would these are actions instituted by the
escape payment of his tax liability by government to collect internal revenue
sacrificing an insignificant portion of his taxes. It includes filing by the
holdings. government with the probate court
claims against the deceased taxpayer.
(4) TAX LIEN
WHEN RESORTED TO?
DEFINITION: It is a legal claim or charge
on property, either real or personal, 1. When a tax is assessed but the
established by law as a security in assessment becomes final and
default of the payment of taxes (51 unappealable because the taxpayer
AmJur 881). Generally, it attaches to fails to file an administrative
the property irrespective of ownership protest with the CIR within 30 days
or transfer thereof. from receipt; or
2. When a protest against assessment is
EXTENT AND NATURE filed and a decision of the CIR was
rendered but the said decision
The tax, together with interests, becomes final, executory, and
penalties, and costs that may accrue in demandable for failure of the
addition thereto is a lien upon all taxpayer to appeal the decision to
property and rights to property the CTA within 30 days from
belonging to the taxpayer. receipt of the decision.
The lien shall not be valid against NOTE: Judicial action may be resorted
any mortgagee, purchaser, or judgment to even before assessment although
creditor until notice of such lien shall be impractical, as stated in Sec. 203, 1997
filed by the Commissioner of Internal NIRC, “… and no proceeding in court
Revenue in the Office of the Register of without assessment for the collection of
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such taxes shall be begun after the Trial Court – on criminal
expiration of such (3year) period.” offenses arising from
It should be noted that no civil violations of the NIRC or TCC
or criminal action for the recovery of and other laws administered
taxes shall be filed in court without the by the BIR and the BOC,
approval of the Commissioner. where the principal amount
of taxes and fees, exclusive
WHERE TO FILE of charges and penalties
claimed is less than One
1. Court of Tax Appeals – where the million pesos or where there
principal amount of taxes and fees, is no specified amount
exclusive of charges and penalties claimed. (Sec. 7, RA No.
claimed is One million pesos and 9282)
above.
2. Regional Trial Court, Municipal IMPORTANT CONSIDERATIONS
Trial Court, Metropolitan Trial
Court – where the principal amount 1. No criminal action shall be begun
of taxes and fees, exclusive of without the approval of the
charges and penalties claimed is less Commissioner. (Sec. 220, 1997 NIRC)
than One million pesos. (Sec. 7, RA 2. It shall be brought in the name of
No. 9282) the Government and shall be
conducted by the legal officers of
THE APPROVAL OF THECIR IS ESSENTIAL IN the BIR.
CIVIL CASES. However,under Sec. 7, 1997
NIRC, the Commissioner may delegate EFFECT OF ACQUITTAL OF THE
such power to a Regional Director. TAXPAYER IN A CRIMINAL ACTION
DEFENSES WHICH ARE PRECLUDED BY FINAL It does not necessarily result in the
AND EXECUTORY ASSESSMENTS exoneration of said taxpayer from his
civil liability to pay taxes.
1. Invalidity or illegality of the Rationale: The duty to pay tax is
assessment; and imposed by statute prior to and
2. Prescription of the government’s independent of any attempt on the part
right to assess. of the taxpayer to evade payment. It is
not a mere consequence of the felonious
(4) CRIMINAL ACTIONS acts charged, nor is it a mere civil
liability derived from a crime. (Republic
The judgment in the criminal case vs. Patanao, GR No. L-14142, May 30,
shall not only impose the penalty but 1961)
shall also order the payment of taxes
subject of the criminal case as finally EFFECT OF SUBSEQUENT SATISFACTION
decided by the Commissioner (Sec. 205, OF CIVIL LIABILITY
NIRC).
The subsequent satisfaction of civil
WHERE TO FILE liability by payment or prescription does
not extinguish the taxpayer’s criminal
1. Court of Tax Appeals – on criminal liability.
offenses arising from violations of
the NIRC or TCC and other laws NO SUBSIDIARY IMPRISONMENT
administered by the BIR and the
BOC, where the principal amount of In case of insolvency on the part of
taxes and fees, exclusive of charges the taxpayer, subsidiary imprisonment
and penalties claimed is One million cannot be imposed as regards the tax
pesos and above. which he is sentenced to pay.
2. Regional Trial Court, Municipal
Trial Court, Metropolitan
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However, it may be imposed in cases destroyed by order of the
of failure to pay the fine imposed. (Sec. Commissioner where the
280, 1997 NIRC) sale may be injurious to
public health or
prejudicial to law
enforcement.
CRIMINAL ACTION MAY BE FILED

DURING THE PENDENCY OF AN
ADMINISTRATIVE PROTEST IN THE BIR
It is not a requirement for the

filing thereof that there be a precise
computation and assessment of the tax,
since what is involved in the criminal d. Other articles subject to
action is not the collection of tax but a excise tax which have
criminal prosecution for the violation been manufactured or
of the NIRC. Provided, however, that removed in violation of
there is a prima facie showing of a the Code, dies for
willful attempt to evade taxes. (See printing or making fake
Ungab vs. Cusi, GR Nos. L-41919-24, May revenue stamps and
30, 1980 in relation to Commissioner vs. labels – Upon forfeiture
Court of Appeals, GR No. 119322, June may be sold or destroyed
4, 1996) at the discretion of the
Commissioner. Forfeited
(4) FORFEITURE property shall not be
destroyed until at least 20
DEFINITION: divestiture of property days from seizure.
without compensation, in consequence
of a default or offense. EFFECT OF THE FORFEITURE OF
PROPERTY
ENFORCEMENT OF THE REMEDY OF
FORFEITURE The effect is to transfer the title to
the specific thing from the owner to the
a. In case of personal property – government. All the proceeds in case of
The forfeiture of chattels a sale go to the coffers of the
and removable fixtures of government (U.S. vs. Surla, GR No.
any sort is enforced by 6536, September 2, 1911). In seizure for
seizure and sale or the enforcement of a tax lien, the
destruction of the specific residue, after deducting the tax liability
forfeited property. and expenses will go to the taxpayer
b. In case of real property – The (Bank of the Phil. Island vs. Trinidad,
forfeiture of real property GR No. 16014, October 4, 1941).
is enforced by a judgment
of condemnation and sale INFORMER’S REWARD (Sec 282)
in a legal action or A. For violations of the NIRC, a reward
proceeding, civil or of 10% of the revenues, surcharges,
criminal, as the case may or fees recovered and/or fine or
require. penalty imposed and collected or P 1
c. In case of distilled spirits, M per case, whichever is lower shall
liquors, cigars, cigarettes be given to:
manufactured, products 1. any person
of tobacco and apparatus who
used for their production voluntarily
– Upon forfeiture, may be gives
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1

definite
and sworn B. For the discovery and seizure of
informatio smuggled goods
n not yet - a reward of 10% of the FMV of the
in the smuggled and confiscated goods or
possession P 1 M per case, whichever is
of the BIR lower, shall be given to persons
leading to instrumental in the discovery and
the seizure of such smuggled goods.
discovery
of fraud * This does not apply to all public
upon the officials whether incumbent or retired,
Internal who acquired the information in the
Revenue course of performance of their duties
Laws during their incumbency.
and/or
any
violations PRESCRIPTIVE PERIODS FOR
thereof
2. an informer
THE ASSESSMENT AND
where the COLLECTION OF TAXES
offender
has
offered to RATIONALE OF PRESCRIPTIVE PERIODS
compromis
e the Such periods are designated to
violation secure the taxpayers against
of law unreasonable investigation after the
comiited lapse of the period prescribed. They are
by him also beneficial to the government
and his because tax officers will be obliged to
offer has act promptly.
been
accepted RULES ON PRESCRIPTION
and
collected 1. When the tax law itself is silent
by the CIR on prescription, the tax is
. This imprescriptible;
excludes 2. When no return is required, tax
an is imprescriptible;
Internal Note: Remedy of taxpayer is to file a
Revenue return.
Officer/e 3. Defense of prescription is
mployee waivable;
or other
public WHAT CONSTITUTES ASSESSMENT?
official/e
mployee, An assessment contains not only
or his a computation of tax liabilities but also
relative a demand for payment within a
within the prescribed period.
sixth
degree
PRESCRIPTIVE PERIOD FOR THE
* This shall not refer to a case already ASSESSMENT OF TAXES
pending or examined by the CIR
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1

General Rule: demonstrate fraudulence of return
Three (3) years after the date (Perez vs. CTA)
the return is due or filed, whichever is 4. Presence of fictitious expenses, with
later (Sec. 203, 1997 NIRC). no evidence presented, proves
existence of fraud (Tan Guan vs.
Exceptions: Commissioner)
1. Failure to file a return: ten (10)
years from the date of the However, the courts did not consider
discovery of the omission to file the tax returns filed as false or
the return (Sec.222[A]); fraudulent with intent to evade payment
2. False or fraudulent return with of tax in the following cases:
intention to evade the tax: ten a. Mere understatement in the tax
(10) years from the date of the return will not necessarily imply
discovery of the falsity or fraud fraud (Jalandoni vs. Republic)
(Sec.222 [A]); b. Sale of a real property for a price less
Note: Nothing in Section 222(A) than its fair market value is not
shall be construed to authorize the necessarily a false return
examination and investigation or (Commissioner vs. Ayala
inquiry into any tax return filed in Securities)
accordance with the provisions of
any tax amnesty law or decree.
c. Fraud is a question of fact and the
circumstances constituting fraud
must be alleged and proved in the
 Fraud must be alleged and trial court (Commissioner vs.
proved as a fact. It must be Ayala Securities)
the product of a deliberate
d. Fraud is never imputed and the courts
intent to evade taxes. It
never sustain findings of fraud
may be established by the:
upon circumstances that only
a. Intentional and
create suspicion (Commissioner
substantial
vs. Javier)
understatement of
tax liability by the e. Mistakes of revenue officers on three
taxpayer; different occasions remove
b. Intentional and element of fraud (Aznar vs. CTA
substantial and Collector)
overstatement of
deductions of 1. Agreement in writing to the
exemptions; and/or extension of the period to assess
c. Recurrence of the above between the CIR and the
circumstances taxpayer before the expiration
of the 3-year period. NB: The
 Falsity constitutes a deviation
extended period agreed upon
from the truth due to mistake, can further be extended by a
carelessness or ignorance. subsequent written agreement
made before the expiration of
There is fraud in the following decided the extended period previously
cases: agreed upon (Sec. 222[b]).
1. Fraud must be the product of a 2. Written waiver of renunciation
deliberate intent to evade taxes of the original three (3) year
(Jalandoni vs. Republic) limitation, signed by the
2. Simple statement that return filed taxpayer (Sambrano vs. Court of
was not fraudulent does not disprove Tax Appeals, GR No. L-8652,
existence of fraud (Tayengco vs. March 30, 1957).
Collector)
3. Substantial under-declarations of Note: Notice of the assessment is
income for six consecutive five years released, mailed or sent to the taxpayer
also within the 3 year period. It is not
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1

required that the notice be received by
the taxpayer within the prescribed GROUNDS FOR SUSPENSION OF THE
period. But the sending of the notice RUNNING OF THE STATUTE OF
must clearly be proven. (Basilan Estate, LIMITATIONS
Inc. vs. Commissioner, GR No. L-22492,
September 5, 1967) a. When the CIR is prohibited from
making the assessment or
AMENDMENT OF RETURN beginning the distraint or levy or
a proceeding in court, and for
If the amended return is sixty (60) days thereafter;
substantially different from the original b. When the taxpayer requests for
return, the prescriptive period shall be a reconsideration which is
counted from the filing of the amended granted by the CIR;
return. But the said period shall run c. When the taxpayer cannot be
from the filing of the original return if located in the address given by
the same is sufficiently complete to him in the return, unless he
enable the Commissioner to make a informs the CIR of any change in
proper assessment. (Commissioner vs. his address.
Phoenix Assurance Co., GR No. L-19727, d. When the warrant of distraint or
May 20, 1965) levy is duly served, and no
When Substantive: property is located; and
a. substantial under declaration e. When the taxpayer is out of the
(exceeding 30% of that declared) Philippines (Sec. 223, 1997
of taxable sales, receipts or NIRC).
income,
b. or a substantial overstatement A TAX RETURN IS CONSIDERED FILED
(exceeding 30% of deductions) FOR PURPOSES OF STARTING THE
(Sec. 248) RUNNING OF THE PERIOD OF
LIMITATIONS IF
PRESCRIPTIVE PERIOD FOR THE
COLLECTION OF TAXES a. The return is valid – it has complied
substantially with the requirements
General Periods: of the law; and
Five (5) years – from assessment
or within period for collection agreed b. The return is appropriate – it is a
upon in writing before expiration of the return for the particular tax required
5-year period (Sec. 222, 1997 NIRC). by law.
Ten (10) years – without
assessment in case of false or fraudulent Note: A defective tax return is the
return with intent to evade or failure to same as if no return was filed at all.
file return (Sec. 222, 1997 NIRC).
WHAT IS THE PRESCRIPTIVE PERIOD PRESCRIPTIVE PERIOD FOR THE

WHERE THE GOVERNMENT’S ACTION IS VIOLATION OF ANY PROVISION OF THE
ON A BOND WHICH THE TAXPAYER TAX CODE (SEC. 281, 1997 NIRC)
EXECUTES IN ORDER TO SECURE THE
PAYMENT OF HIS TAX OBLIGATION? 1. Should be filed within five
(5) years from the (a) day of
Ten (10) years under Art. the commission of the
1144(1) of the Civil Code and not three violation of the law, and if
(3) years under the NIRC. In this case, the same be not known,
the Government proceeds by court from the (b) discovery
action to forfeit a bond. The action is thereof and the institution
for the enforcement of a contractual of the judicial proceedings
obligation. (Republic vs. Araneta, GR for its investigation and
No. L-14142, May 30, 1961) punishment.
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1

to such documents which the
2. Illustrative case: (Lim vs. taxpayer feels would be
Court of Appeals GR Nos. necessary to support his
48134-37, Ocober 18 , 1990) protest and not what the
a. charge is failure or refusal to Commissioner feels should
pay deficiency income tax – be submitted, otherwise,
committed only after the finality taxpayer would always be at
of the assessment coupled with the mercy of the BIR which
the taxpayer’s willful refusal to may require production of
pay the taxes within the allotted such documents which
period. (i.e. cannot be taxpayer could not produce."
committed upon filing the (Standard Chartered Bank
return) vs. CIR, CTA Case No. 5696,
b. charge is filing of false or August 16, 2001)
fraudulent return with intent A protest is a vital
to evade the assessment – in document which is a formal
addition to the fact of discovery, declaration of resistance of
there must be a judicial the taxpayer. It is a
proceeding for the investigation repository of all arguments.
and punishment of the tax It can be used in court in
offense before the 5 year case administrative remedies
prescriptive period begins to have been exhausted. It is
run. also the formal act of the
taxpayer questioning the
official actuation of the CIR.
II. TAX REMEDIES OF THE This is equivalent to a
pleading.
TAXPAYER b. Entering into a
compromise (Sec.
204, 1997 NIRC).
GENERAL REMEDIES After Payment
Filing of claim for refund
A. ADMINISTRATIVE or tax credit within 2 years from
Before Payment date of payment regardless of
a. Protest – filing a petition any supervening cause (Sec. 229,
for reconsideration or 1997 NIRC).
reinvestigation within
30 days from receipt B. JUDICIAL
of assessment Within Civil Action
60 days from filing of a. Appeal to the Court of Tax
protest, all relevant Appeals – within 30 days from
supporting documents receipt of decision on the protest
should have been or from the lapse of 180 days due
submitted, otherwise, to inaction of the Commissioner
the assessment shall (Sec. 228, 1997 NIRC).
become final – cannot b. Action to contest forfeiture of
be appealed (Sec. chattel, at any time before the
228, 1997 NIRC). sale or destruction thereof, to
recover the same, and upon giving
Note: Submission of documents proper bond, enjoin the sale; or
within the 60 day period is after the sale and within 6
optional to the taxpayer. months, an action to recover the
net proceeds realized at the sale
"That the relevant (Sec. 231, 1997 NIRC); and
supporting documents c. Action for damages against a
mentioned in the law refers revenue officer by reason of any
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1

act done in the performance of considered a decision a disputed
official duty (Sec. 227, 1997 assessment and (b) that the same is his
NIRC). final decision (Sec. 3.1.5, Rev. Regs. No.
Criminal Action 12-99)
a. Filing of criminal complaint
against erring BIR officials and 2. Indirect denial of protest
employees. a. Commissioner did not rule on the
b. Injunction – when the CTA in its taxpayer’s motion for
opinion, the collection by the BIR reconsideration of the
may jeopardize taxpayer. assessment – it was only when
respondent received the
Note: With the enactment of the new summons on
CTA law (RA No. 9282) amending RA No.
1125, CTA now has jurisdiction over the civil action for the collection
criminal cases. (See Chapter VI - Court of deficiency income tax that
of Tax Appeals.) the period to appeal
commenced to run
Substantive Remedies (Commissioner vs. Union
1. Questioning the constitutionality or Shipping Corp.)
validity of tax statutes or regulations b. Referral by the Commissioner of
2. Non-retroactivity of rulings (Sec.246, request for reinvestigation to
NIRC) the Solicitor General (Republic
3. Failure to inform the taxpayer in vs Lim Tian Teng Sons)
writing of the legal and factual bases c. Reiterating the demand for
of assessment makes it void (Sec. immediate payment of the
228, NIRC) deficiency tax due to taxpayer’s
4. Preservation of books of accounts and continued refusal to execute
once a year examination (Sec. 235, waiver (Commissioner vs. Ayala
NIRC) Securities Corp.)
d. Preliminary collection letter may
ASSESSMENT AND PROTEST serve as assessment notice
 Assessment (United International Pictures
General rule: Taxes are self assessing vs. Commissioner)
and thus, do not require the issuance of
an assessment notice in order to ACTS OF BIR COMMISSIONER
establish the tax liability of a taxpayer. CONSIDERED AS DENIAL OF PROTEST
Exceptions: WHICH SERVE AS A BASIS FOR APPEAL
1. Tax period of a taxpayer is TO THE COURT OF TAX APPEALS
terminated (Sec. 6(D), NIRC)
2. Deficiency tax liability arising 1. filing by the BIR of a civil suit for
from a tax audit conducted by collection of the deficiency
the BIR (Sec. 56(B), NIRC) tax (Commissioner vs. Union
3. Tax lien (Sec. 219, NIRC) Shipping Corporation, GR
4. Dissolving Corporation (Sec. No. 66160, May 21, 1990)
52(c), NIRC) 2. indication to the taxpayer by the
Commissioner “in clear and
 Protest unequivocal language” of his
1. Direct denial of protest final denial. (Commissioner
Admnistrative decision on a disputed vs. Union Shipping
assessment - The decision of the Corporation, GR No. 66160,
Commissioner or his duly authorized May 21, 1990)
representative shall (a) state the facts, 3. BIR demand letter reiterating his
the applicable law, rules and regulation previous demand to pay,
or jurisprudence on which such decision sent to the taxpayer after his
is based otherwise, the decision shall be protest of the assessment.
void, in which case the same shall not be (Surigao Electric Co., Inc. vs.
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1

CTA, GR No. L-25289, June supervening cause that may arise
28, 1974; Commissioner vs. after payment.
Ayala Securities 3. Show proof of payment.
Corporation, GR No. L-
29485, March 31, 1976) COMMENCEMENT OF THE TWO (2) YEAR
4. The actual issuance of a warrant PERIOD (JURISPRUDENCE)
of distraint and levy in
certain cases cannot be 1. Tax sought to be refunded is
considered a final decision illegally or erroneously collected
on a disputed settlement. - from the date the tax was paid.
(Commissioner vs. Union (Commissioner vs. Victorias Milling,
Shipping Corporation, GR GR No. L-24108, January 31, 1968)
No. 66160, May 21, 1990) 2. Tax is paid only in installments or
only in part
- from the date the last or final
installment or payment because for
tax purposes, there is no payment
FILING OF CLAIM FOR until the whole or entire tax liability
TAX REFUND OR TAX CREDIT is fully paid. (Collector vs. Prieto,
GR No. L-11976, August 29, 1961)
GROUNDS FOR FILING A CLAIM FOR TAX 3. Taxpayer merely made a deposit
REFUND OR TAX CREDIT - counted from the conversion of
the deposit to payment (Union
1. Tax is collected erroneously or Garment vs. Collector, CTA Case No.
illegally. 416, November 17, 1958)
2. Penalty is collected without - Merely making a deposit is not
authority. equivalent to payment until the
3. Sum collected is excessive. amount is actually applied to the
specific purpose for which it was
TAX REFUND VS. TAX CREDIT deposited.
4. Tax has been withheld from source
TAX REFUND TAX CREDIT (through the withholding tax
system)
The taxpayer asks The taxpayer asks - counted from the date it falls due
for restitution of that the money so
the money paid as paid be applied to
at the end of the taxable year
tax his existing tax - A taxpayer who contributes to the
liability withholding tax system does not
really deposit an amount to the
Two-year period to Two-year period government, but in truth, performs
file claim with the starts from the date and extinguishes his tax obligation
CIR starts after the such credit was for the year concerned. (Gibbs vs.
payment of the tax allowed (in case Commissioner, GR No. L-17406,
or penalty credit is wrongly November 29, 1965)
made).
5. End of taxable year vs. date of the
filing of the final adjusted return
REQUISITES OF TAX REFUND OR TAX - from the date when the final
CREDIT adjusted return was filed.
- the rationale in computing this
1. Claim must be in writing; period is the fact that it is only then
2. It must be filed with the the corporation can ascertain
Commissioner within two (2) years whether it made profits or incurred
after the payment of the tax or losses in its business operations.
penalty. (ACCRA Investments vs. Court of
Note: No suit or proceeding shall be Appeals, GR No. 96322, December
begun after the expiration of the 20, 1991)
said two (2) years regardless of any
Cabrera, Jhundee
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1

6. Date when quarterly income tax the collection of taxes relative
was paid vs. date when final thereto (Panay Electric Co. vs.
adjusted return was filed Collector, GR No. L-10574, May 28,
- from the date when final adjusted 1958).
return was filed
- The filing of the quarterly income INTEREST ON TAX REFUNDS
tax return (Sec. 68) and payment of
quarterly income tax should only be General Rule:
considered mere installments of the Government cannot be required
annual tax due. (Commissioner vs. to pay interest on taxes refunded to the
TMX Sales, GR No. 83736, January taxpayer in the absence of a statutory
15, 1992) provision clearly or expressly directing
7. Date when the final adjustment or authorizing such payment.
return was actually filed (ex. Apr. (Commissioner vs. Sweeney, GR No. L-
2) vs. Last day when the 12178, August 29, 1959)
adjustment return could still be
filed (ex. Apr. 15)
- from the date the final adjustment Exceptions:
return was actually filed. 1. When the CIR acted with patent
(Commissioner vs. Court of Appeals, arbitrariness. Arbitrariness
GR No 117254, January 21, 1999) presupposes inexcusable or obstinate
8. Tax was not erroneously or illegally disregard of legal provisions.
paid but the taxpayer became (Commissioner vs. Victorias Milling,
entitled to refund because of GR No. L-19667, Nov. 29, 1966)
supervening circumstances 2. Under Sec. 79(C)(2) with respect to
- from the date the taxpayer income taxes withheld on the wages
becomes entitled to refund and not of the employees.
from the date of payment.
(Commissioner vs. Don Pedro TAX CREDIT CERTIFICATE
Central Azucarera, GR No. L-28467,
Feb. 28, 1973) 1. May be applied against any internal
PAYMENT UNDER PROTEST IS NOT revenue tax except withholding
NECESSARY UNDER NIRC taxes,
2. Original copy is surrendered to the
A suit or proceeding for tax refund revenue office,
may be maintained “whether or not such 3. No tax refund will be given resulting
tax, penalty or sum has been paid under from availment of incentives granted
protest or duress” (Sec. 229, NIRC). by law where no actual payment was
made (Sec. 204C, 1997 NIRC).
Note: Similarly, payment under protest
is not necessary in refund for local FORFEITURE OF CASH REFUND/TAX
taxes. (See Sec. 196, LGC). CREDIT
However, payment under protest is 1. Forfeiture of refund in favor of the

necessary in claim for refund for real government when a refund check or
property taxes (Sec. 252, LGC) and for warrant remains unclaimed or
customs duties (Sec. 2308, TCC). uncashed within five (5) years from
date of mailing or delivery.
SUSPENSION OF THE TWO-YEAR 2. Forfeiture of Tax Credit – a tax
PRESCRIPTIVE PERIOD credit certificate which remains
unutilized after five (5) years from
1. There is a pending litigation date of issue, shall be invalid, unless
between the Government and the revalidated (Sec. 230, 1997 NIRC).
taxpayer; and
2. CIR in that litigated case agreed to
abide by the decision of the SC as to REGLEMENTARY PERIODS
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1
IN INCOME TAX IMPOSED

BY LAW UPON THE TAXPAYER 1. When the finding for any
(PURSUANT TO REV. REG. NO. 12-99, deficiency tax is the result of
SEC. 228 OF THE 1997 NIRC, AND RA mathematical error in the
NO. 1125 AS AMENDED BY RA NO. computation of the tax as
9282) appearing on the face of the
return; or
2. When a discrepancy has been
BIR makes a tax assessment
determined between the tax
 withheld and the amount
If taxpayer is not satisfied with the actually remitted by the
assessment file a protest within 30 days withholding agent; or
from receipt thereof 3. When a taxpayer who opted to
 claim a refund or tax credit of
Submit supporting documents within excess creditable withholding
60 days from date of the filing of the tax for a taxable period was
protest determined to have carried over
and automatically applied the
 same amount claimed against
If protest is denied, elevate the matter
the estimated tax liabilities for
to the Commissioner of Internal Revenue
the taxable quarter or quarters
(CIR) within 30 days from receipt of the
of the succeeding taxable year;
decision of the CIR’s duly authorized
or
representative officer
4. When the excise tax due on
 excisable articles has not been
Appeal to the Division of the Court of paid;
Tax Appeals (CTA) within 30 days from 5. When an article locally
receipt of final decision of CIR or his purchased or imported by an
duly authorized representative (the exempt person, such as, but not
taxpayer has the option to appeal limited to, vehicles, capital
straight to the CTA upon receipt of the equipment, machineries and
decision of the CIR’s duly authorized spare parts, has been sold,
representative) traded or transferred to non-
 exempt persons.
If the CIR or his duly authorized
representative fails to act on the Notes:
protest within 180 days from date of  As a general rule, payment
submission by taxpayer, the latter may under protest is not required
appeal within 30 days from lapse of the under the NIRC, except when
180-day period with the CTA Division partial payment of
 uncontroverted taxes is
required under RR 12-99.
The Party adversely affected by the CTA
The Commissioner may, even
Division’s decision may file one motion
without a written claim
for reconsideration/new trial within 15
therefor, refund or credit
days from receipt of decision. If the MR
any tax, where on the face
is denied file a petition for review with
of the return upon which
the CTA en banc
payment was made, such
 payment appears clearly to
Appeal to the Supreme Court within 15 have been erroneously paid.
days from receipt of the CTA en banc  In case of the CIR’s final
decision under Rule 45 of the Rules of denial of the claim for
Court refund, the 30-day period to
appeal with the CTA must be
PRE-ASSESSMENT NOTICE, WHEN NOT within the 2-year peremptory
REQUIRED (SEC. 228, NIRC)
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period for instituting judicial d. Failure to pay
action. the full or
part of the
 See Annex N – Assessment amount of
Process and Appeal tax shown on
any return
required to
ADDITIONS TO THE TAX be filed
(SECS. 247-252 NIRC) under the
provisions of
this Code or
DEFINITION: increments to the basic tax rules and
incident due to the taxpayer’s non- regulations,
compliance with certain legal or the full
requirements. amount of
1. CIVIL PENALTY / SURCHARGE tax due for
1. 25% surcharge which no
a. Failure to file return is
any return required to
and pay the be filed, on
tax due or before the
thereon as date
required prescribed
under the for its
provisions of payment.
this Code or (Sec. 248)
rules and 1. 50% surcharge
regulations a. in case of willful
on the date neglect to
prescribed; file the
or return within
b. Unless otherwise the period
authorized prescribed
by the by the Code,
Commissione or
r, filing a
 will not apply in case
return with
a taxpayer,
an internal
without notice
revenue
from the
officer other
Commissioner, or
than those
his duly
with whom
authorized
the return is
representative,
required to
voluntarily files
be filed; or
the said return
c. Failure to pay
(only 25% shall
the
be imposed)
deficiency
tax within  50% surcharge shall
the time be imposed in
prescribed case the
for its taxpayer files
payment in the return only
the notice of after prior notice
assessment; in writing from
or the

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Commissioner or
his duly
authorized
representa-tive
II. LOCAL TAXATION
(Sec. 4.2, Rev.
Reg. 12-99) POWERS AND LIMITATIONS
NATURE AND SOURCE OF LOCAL

TAXING POWER (SEE. SEC 5, ART. X,
1987 CONSTITUTION AND SEC. 129,
a. in case a false or LGC)
fraudulent
return is The Local Government Unit has the
willfully made power:
Prima Facie evidence a. to create
its
 substantial underdeclaration own
(exceeding 30% of that sourc
declared) of taxable es of
sales, receipts or reve
income, nue
 or a substantial and
overstatement b. to levy
(exceeding 30% of actual taxes
deductions) of ,
deductions (Sec. 248) fees
and
2. INTEREST char
- 20% per annum or such higher rate ges.
as may be prescribed by the rules
and regulations
a. Deficiency interest (Sec. 249B)

b. Delinquency interest (Sec. 249C)
c. Interest on Extended Payment
(Sec. 249D)
Congress cannot enact laws
depriving LGU from exercising such
3. OTHER CIVIL PENALTIES OR
power to tax but it may set guidelines
ADMINISTRATIVE FINES
and limitations for the exercise.
Such taxes, fees, and charges
a. Failure to file
shall accrue exclusively to the local
certain
government units.
information
returns (Sec.
NATURE OF THE TAXING POWER
250)
a. Not inherent;
b. Failure of a
b. Exercised only if delegated to
withholding
them by law or Constitution;
agent to collect
a. Not absolute; subject to
and remit tax
limitations provided for
(Sec. 251)
by law.
c. Failure of a
withholding
Under the present constitutional
agent of refund
rule, “where there is neither a grant nor
excess
withholding tax a prohibition by statute, the tax power
(Sec. 252) must be deemed to exist although

Cabrera, Jhundee
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1

Congress may provide statutory a. in no case shall fines be less
limitations and guidelines. The basic than P1,000 nor more than
rationale for the current rule is to P5,000
safeguard the viability and self- b. nor shall the imprisonment be
sufficiency of local government units by less than one (1) month nor
directly granting them general and broad more than six (6) month.
tax powers.” (Manila Electric Co. vs. 2. Such fine or other penalty
Province of Laguna, G.R. No. 131359) shall be imposed at the
discretion of the court.
ASPECTS OF LOCAL TAXING POWER 3. The Sangguniang Barangay
a. local taxation may prescribe a fine of
b. real property taxation not less than P100 nor
more than P1,000.
FUNDAMENTAL PRINCIPLES GOVERNING LOCAL
TAXATION (SEC. 130, LGC) POWER TO ADJUST LOCAL TAX RATE (SEC.
a. Shall be uniform in each local 191, LGC)
sub-unit Adjustment of the tax rates as
b. Shall be equitable and based as prescribed herein should not be oftener
much as possible on the than once every five (5) years, and in no
taxpayer’s ability to pay case shall such adjustment exceed ten
c. Levied for public purposes percent (10%) of the rates fixed under
d. Shall not be unjust, excessive, the LGC.
oppressive, or confiscatory
e. Shall not be contrary to law, POWER TO GRANT LOCAL TAX EXEMPTIONS
public policy, national (SEC. 192, LGC)
economic policy, or in restraint Local government units may,
of trade through ordinances duly approved,
f. Collection of local taxes and grant tax exemptions, incentives or
other impositions shall not be reliefs under such terms and conditions,
let to any person as they may deem necessary.
g. The revenues collected under
the Code shall inure solely to TAX EXEMPTIONS EXISTING BEFORE THE
the benefit of, and subject to EFFECTIVITY OF THE LGC HAS BEEN
disposition by, the LGU levying ABOLISHED (SEC. 193, LGC)
the tax or other imposition Unless otherwise provided in this
unless otherwise specifically Code, tax exemptions or incentives
provided therein granted to, or presently enjoyed by all
h. Each LGU shall, as far as persons, whether natural or juridical,
practicable, evolve a including government-owned or
progressive system of taxation. controlled corporations are hereby
withdrawn upon the effectively of the
LOCAL TAXING AUTHORITY (SEC. 132, LGC) LGC
Shall be exercised by the Sanggunian except the following:
of the LGU concerned through an 1. local water districts,
appropriate ordinance. 2. cooperatives duly registered under
R.A. No. 6938, non-stock and non-
POWER TO PRESCRIBE PENALTIES FOR TAX profit hospitals and
VIOLATIONS AND LIMITATIONS THEREON (SEC. 3. educational institutions.
516, LGC)
1. The Sanggunian is authorized The power to grant tax exemptions,
to prescribe fines or tax incentives and tax reliefs shall not
other penalties for apply to regulatory fees which are
violations of tax levied under the police power of the
ordinances. LGU.

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Tax exemptions shall be conferred exceeding 1
through the issuance of a non- calendar year.
transferable tax exemption certificate. c. The grant shall
be by ordinance
GUIDELINES FOR THE GRANTING OF TAX passed prior to
EXEMPTIONS, TAX INCENTIVES AND TAX the 1st day of
RELIEFS (ART. 282[B], RULES AND January of any
REGULATIONS IMPLEMENTING THE LGC) year.
d. Any grant to a
1. On the grant of tax exemptions type or kind of
or tax reliefs: business shall
a. the same may be granted in apply to all
cases of natural calamities, civil businesses
disturbance, general failure of similarly
crops, or adverse economic situated.
conditions such as substantial
decrease in prices of agricultural LEVYING OF LOCAL TAXES (LOCAL TAX
or agri-based products. ORDINANCE)
b. The grant shall be through an Requisites:
ordinance. 1. The procedure applicable to local
c. Any exemption or relief granted government ordinances in general
to a type or kind of business shall should be observed (Sec. 187, LGC)
apply to all business similarly 2. Procedural details (Secs. 54, 55, and
situated. 59, LGC):
a. The same shall take a. necessity of a quorum
effect only b. submission for approval by the
during the next local chief executive
calendar year for c. he matter of veto and overriding
a period not the same
exceeding 12 d. the publication and affectivity
months as may 3. Public hearings are required before
be provided in any local tax ordinance is enacted
the ordinance. (Sec.187, LGC)
b. In the case of shared
revenues, the
4. Within 10 days after their
approval, publication in full
exemption or
for 3 consecutive days in a
relief shall only
newspaper of general
extend to the
circulation. In absence of
LGU granting
such newspaper in the
such exemption
province, city or
or relief.
municipality, then the
2. On the grant of tax incentives:
ordinances may be posted in
a. The same shall
at least 2 conspicuous and
be granted only
publicly accessible places
to new
(Sec. 189, LGC)
investments in
the locality and
RESIDUAL TAXING POWERS OF THE LOCAL
the ordinance
GOVERNMENT UNITS (SEC. 186, LGC)
shall prescribe
To levy taxes, fees or charges on any
the terms and
base or subject NOT:
conditions
1. Specifically enumerated in LGC
therefore.
2. Taxed under the provisions of
b. The grant shall
the NIRC, as amended, and
be for a definite
3. Other applicable laws
period of not

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Conditions: COMMON LIMITATIONS ON LOCAL
1. That the taxes, fees, or charges shall TAXING POWER (SEC. 133, LGC)
not be unjust, excessive, oppressive, Local government units cannot levy:
confiscatory or contrary to declared 1. Income tax, except on banks and
national policy other financial institutions;
2. Documentary stamp tax;
2. The ordinance levying such taxes,
fees or charges shall not be enacted
3. Estate tax, inheritance, gifts,
legacies and other acquisitions
without any prior public hearing
mortis causa except as
conducted for the purpose.
otherwise provided
4. Customs duties, registration fees
of vessels and wharfage on
LIMITATIONS OF THE RESIDUAL POWER wharves, tonnage dues and all
1. Constitutional limitations on other kinds of customs fees,
taxing power charges and dues except
2. Common limitations prescribed wharfage on wharves
in Sec. 133 of the LGC constructed and maintained by
3. Fundamental principles the local government unit
governing the exercise of the concerned;
taxing power of the LGUs 5. Taxes, fees, charges and other
prescribed under Sec. 130 of impositions upon goods carried
the LGC into or out of, or passing
4. The ordinance levying such through, the territorial
residual taxes shall not be jurisdictions of local government
enacted without any prior units in the guise of charges for
public hearing conducted for wharfage, tolls for bridges or
the purpose and otherwise.
5. The principle of preemption. 6. Taxes, fees or charges on
agricultural and aquatic products
PRINCIPLE OF PREEMPTION OR EXCLUSIONARY when sold by marginal farmers
DOCTRINE or fishermen;
Where the National Government 7. Taxes on business enterprises
elects to tax a particular area, it certified by the Board of
impliedly withholds from the local Investments as pioneer or
government the delegated power to tax non-pioneer for a period of 6
the same field. This doctrine principally and 4 years, respectively, from
rests on the intention of the Congress. the date of registration;
8. Excise taxes on articles
Excluded impositions (pursuant to the
enumerated under the NIRC, as
doctrine of preemption):
amended, and taxes, fees or
a. Taxes which are levied under the
charges on petroleum products;
NIRC, unless otherwise provided
by LGC of 1991; 9. Percentage or value-added tax
b. Taxes, fees, etc. which are (VAT) on sales, barters or
imposed under the Tariffs and exchanges or similar transactions
Customs Code; on goods or services except as
c. Taxes, fees, etc., the imposition otherwise provided herein;
of which contravenes existing 10. Taxes on the gross receipts of
governmental policies or which transportation contractors and
violates the fundamental persons engaged in the
principles of taxation; transportation of passengers or
d. Taxes, fees and other charges freight by hire and common
imposed under special law. carriers by air, land or water,
except as provided in the Code;

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11. Taxes on premiums paid by way 4. Tax on Sand, Gravel and other
of Reinsurance or retrocession; Quarry Resources extracted from
12. Taxes, fees or charges for the Public Land
registration of motor vehicles 5. Professional Tax
and for the issuance of all kinds 6. Amusement Tax
of licenses or permits for the 7. Annual Fixed Tax for every
driving thereof, except tricycle; Delivery Truck or Van of
Manufacturers or Producers,
13. Taxes, fees or other charges on Wholesalers of, Dealers, or
Philippine products actually Retailers in, certain products
exported, except as otherwise
provided in the Code;
 See Annex J for the rates and
14. Taxes, fees or charges on details.
Countryside and barangay
business enterprises and
cooperatives duly registered
under R.A. 6810 and R.A. 6938,
(Cooperatives Code of the
Philippines) ; and
15. Taxes, fees or charges of any (B) MUNICIPALITIES
kind on the National (SEC. 143, LGC)
Government, its agencies and
instrumentalities, and local 1. Municipal Taxes- taxes on the
government units. businesses of the following:
a. On manufacturers, assemblers,
CLASSIFICATION OF COMMON repackers, processors, brewers,
LIMITATIONS distillers, rectifiers, and
1. Taxes which are levied compounders of liquors, distilled
under the NIRC unless spirits, and wines or
otherwise provided by manufacturers of any article of
the LGC commerce of whatever kind or
 Numbers 1, 2, 3, 8, 9, 10 b. On wholesalers, distributors, or
2. Taxes, fees, etc. which are imposed dealers in any article of
under the Tariffs and Customs Code commerce of whatever kind or
 Number 4 c. On exporters, and on
2. Taxes, fees and charges where the manufacturers, millers,
imposition of which contravenes producers, wholesalers,
existing governmental policies or distributors, dealers or retailers
which are violative of the of essential commodities
fundamental principles of taxation d. On retailers
e. On contractors and other
 Numbers 5, 6, 7, 11, 13, 14, 15 independent
2. Taxes, fees, and charges imposed f. On banks and other financial
under special laws. g. On peddlers engaged in the sale
 Number 12 of any merchandise or article of
commerce
TAXES AND OTHER IMPOSITIONS THAT h. On any business, not otherwise
THE LOCAL GOVERNMENT MAY LEVY specified in the preceding
paragraphs, which the
(A) PROVINCES sanggunian concerned may deem
(SECS. 134-141, LGC) proper to tax.
1. Tax on Transfer of Real Property
2. Tax on Business of Printing and 2. Municipal non-revenue fees and
Publication charges
3. Franchise Tax The municipality may impose
and collect such reasonable fees and
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charges on business and occupation  The city may levy the taxes, fees,
except professional taxes reserved for and charges which the province or
provinces. (Sec. 147. LGC) municipality may impose.
 The tax rates that the city may levy
RATES OF TAX WITHIN THE METROPOLITAN may exceed the maximum rates
MANILA AREA (SEC. 144, LGC) allowed for the province or
municipality by not more than 50%
- Not to exceed by 50% the except the rates of professional and
maximum rates prescribed in the amusement taxes.
preceding Section.
(D) BARANGAYS
(SEC. 152, LGC)
Barangays may levy the following taxes,

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

PAYMENT OF BUSINESS TAXES with fixed business
a. It shall be payable for every establishments with the gross
separate or distinct sales or receipts for the
establishment or place where preceding calendar year of
business subject to the tax is P50,000 or less (for barangays in
conducted and one line of the cities) and P30,000 or less
business does not become (for barangays in municipalities)
exempt by being conducted with b. Rate = not exceeding 1% of such
some other business for which gross sales or receipts.
such tax has been paid. c. Service Fees or Charges – For
b. The tax on a business must be services rendered in connection
paid by the person conducting with the regulation or the use of
the same. barangay-owned properties or
c. In cases where a person service facilities such as palay,
conducts or operates 2 or more copra or tobacco dryers
of the businesses mentioned in
Section 143 of LGC d. Barangay Clearance – No city or
- which are subject to the municipality may issue any
same rate of tax, the tax shall be license or permit fee for any
computed on the combined total business or activity unless a
gross sales or receipts of the said 2 clearance is first obtained from
or more related businesses. the barangay where such
- which are subject to business or activity is located or
different rates of tax, the gross conducted.
sales or receipts of each business e. Other Fees and Charges – The
shall be separately reported for the barangay may levy reasonable
purpose of computing the tax due fees and charges:
from each business. 1. On Commercial breeding of
fighting cocks, cockfights
 See Annex K for the rates and and cockpits;
details. 2. On places of Recreation
which charge admission fees;
(C) CITIES and
(SEC. 151, LGC) 3. On Billboards, signboards,
neon signs and outdoor
advertisements.

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SITUS OF LOCAL TAXATION 4. 30% of recorded sales in the principal
office: city or municipality where
A. Situs According to the Cases the principal office is located
With respect to excise tax, the 1. 70% of recorded sales in the
tax is upon the performance of an act, principal office: city or
enjoyment of a privilege or the engaging municipality where the FPPP is
in an occupation. The power to levy such located
tax is not dependent on the domicile of  pro rata if FPPP are located in
the taxpayer, but on the place in which different municipalities or
the act is performed or the occupation is cities in proportion to their
engaged in; not upon the location of the respective volumes of
office, but the place where the sale is production.
perfected. (Allied Thread Co., Inc. v. 1. If plantation is located in some other
City Mayor of Manila, L-40296) place than where the factory is
located, the foregoing 70% shall
With respect to sale, it is the be subdivided as follows:
place of the consummation of the sale,  60% to the city or municipality
associated with the delivery of the where the factory is located
things which are the subject matter of  40% to the city or municipality
the contract that determines the situs of where the plantation is
the contract for purposes of taxation, located.
and not merely the place of the
perfection of the contract. (Shell Co., COMMON REVENUE-RAISING POWERS OF
Inc. v. Municipality of Sipocot, LGUs (SEC. 153 TO 155)
Camarines Sur 105 Phil 1263) 1. Service fees and
charges for services
B. Situs According to Sec. 150, LGC rendered
2. Public Utility Charges
Branch or sales office – a fixed place in for the operation of
the locality which conducts the public utilities
operation of the business as an extension owned, operated
of the principal office and maintained by
LGUs within their
Principal office- the head or the main jurisdiction.
office of the business; the city or the 3. Toll fees or charges for
municipality specifically mentioned in the use of any
the Articles of Incorporation or official public road, pier or
registration papers as being the official wharf, waterway,
address of said principal office shall be bridge, ferry or
considered the situs thereof. telecommunication
system funded and
1. Place of sale (with branch or sales constructed by the
outlet therein): local government
 Municipality or city where the unit concerned
branch or outlet is located. Exceptions:
2. Place of sale (no branch or sales a. Officers and enlisted
outlet): men of the AFP
 Municipality or city of principal and PNP;
office (not in the place of b. Post office
sale) personnel
3. If manufacturer, assembler, delivering mail;
contractor, producer, or exporter and
(MACPE) with factory, project office, c. Physically
plant or plantation (FPPP) handicapped and
disabled citizens
who are
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sixty-five (65) Tax Rate = P500 and an annual
years or older. additional tax which in no case shall
(Sec. 152, LGC) exceed P10,000 in accordance with the
following schedule:
When public safety and welfare so 1. For every P5,000 worth of real
requires, the sanggunian concerned may property owned by it during the
discontinue the collection of the tolls, preceding year based on the
and thereafter the said facility shall be valuation used for the payment
free and open for public use. of the real property tax - P2.00;
and
COMMUNITY TAX 2. For every P5,000 of gross
Cities or municipalities may levy a receipts or earnings derived by
community tax. it from its business in the
Philippines during the preceding
A.Individuals Liable (Sec. 157) year - P2.00.
a. every inhabitant of the
Philippines; The dividends received by a
b. eighteen (18) years of age or corporation shall, for the purpose of the
over; additional tax, be considered as part of
c. under any of the following the gross receipts or earnings of said
instances: corporation.
d. who has been regularly
employed on a wage or salary THE FOLLOWING ARE EXEMPT FROM
basis for at least thirty (30) THE COMMUNITY TAX (SEC. 159)
consecutive working days 1. Diplomatic and
during any calendar year; or consular
e. who is engaged in business or representatives
occupation; or ; and
f. who owns real property with 2. Transient visitors
an aggregate assessed value when their stay
of P1,000 or more; or in the
g. who is required by law to file Philippines does
an income tax return not exceed
three (3)
Tax Rate = P5.00 and an annual months.
additional tax of P1.00 for every
P1,000 of income regardless of PLACE OF PAYMENT: place of residence
whether from business, exercise of of the individual, or in the place where
profession or from property which in the principal office of the juridical
no case shall exceed P5,000. entity is located.
In case of husband and wife,
the additional tax herein imposed TIME OF PAYMENT: accrues on the 1st
shall be based upon the total day of January of each year which shall
property owned by them and the be paid not later than the last day of
total gross receipts or earnings February of each year.
derived by them.
PENALTIES FOR DELINQUENCY: an
A.Juridical Persons (Sec. 158) interest of 24% per annum from the due
Every corporation no matter how date until it is paid shall be added to the
created or organized, whether amount due.
domestic or resident foreign,
engaged in or doing business in the A community tax certificate may
Philippines shall pay an annual also be issued to any person or
community tax. corporation not subject to the
community tax upon payment of P1.00
(Sec. 162, LGC).
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The proceeds of the community tax
PRESENTATION OF COMMUNITY TAX actually and directly collected by the
CERTIFICATE ON CERTAIN OCCASIONS – (SEC. city or municipal treasurer shall accrue
163) entirely to the general fund of the city or
A. Individual municipality concerned.
1. When an individual
Proceeds of the community tax
subject to the
collected through the barangay
community tax
treasurers shall be apportioned as
acknowledges
follows:
any document
before a notary  50% accrues to the
public; general fund of the
2. takes the oath of city or municipality
office upon concerned; and
election or  50% accrues to the
appointment to barangay where the
any position in tax is collected.
the government
service; COLLECTION OF LOCAL TAXES
3. receives any license,
certificate or Tax Period and Manner of Payment –
permit from (Sec. 165, LGC)
any public Unless otherwise provided, the
authority; pays tax period shall be the calendar
any tax or fee; year.
4. receives any money Such taxes, fees, and charges
from any public may be paid in quarterly
fund; installments.
5. transacts other
official Accrual of Tax – (Sec. 166, LGC)
business; or Unless otherwise provided, shall
6. receives any salary accrue on the first day of January of
or wage from each year.
any person or However, new taxes, fees or
corporation. charges, or changes in the rates
The presentation of the community tax thereof, shall accrue on the first
certificate shall not be required in day of the quarter next following
connection with the registration of a the effectivity of the ordinance
voter. imposing such new levies or rates.
A. Corporation Time of Payment – (Sec. 167, LGC)

1. receives any license, Unless otherwise provided shall
certificate or permit be paid within the first twenty (20)
from any public days of January or of each
authority; subsequent quarter as the case may
2. pays any tax or fee; be.
3. receives money from May, for a justifiable reason or
public funds; or cause, be extended without
4. transacts other official surcharges or penalties, but only for
business. a period not exceeding six (6)
The city of municipal treasurer months.
deputizes the barangay treasurer to
collect the community tax in their Surcharges and Penalties on Unpaid
respective jurisdictions. (Sec. 164, LCG) Taxes, Fees or Charges – (Sec. 168,
LGC)

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Surcharge not exceeding 25% of (2) Civil Remedies
the amount of taxes, fees or charges
including surcharges, until such (a) by administrative action through
amount is fully paid. distraint of personal property
But in no case shall the total and by levy upon real property
interest on the unpaid amount or
portion thereof exceed thirty-six (b) by judicial action
(36) months.
Interests on Other Unpaid Revenues – Either of these remedies or all may

(Sec. 169, LGC) be pursued concurrently or
An interest thereon at the rate simultaneously at the discretion of the
not exceeding 2% per month from the LGU concerned.
date it is due until it is paid, but in no
case shall the total interest on the JURISDICTION OF COURTS OVER LOCAL
unpaid amount or portion thereof TAXATION CASES
exceed thirty-six (36) months.
a. With the amendment brought by
COLLECTION OF LOCAL REVENUES BY THE RA No. 9282, the Court of Tax
TREASURER – (SEC. 170 LGC) Appeals now has appellate
All local taxes, fees and charges jurisdiction over local taxation
shall be collected by the provincial, city, cases decided by the Regional
municipal or barangay treasurer, or their Trial Court in the exercise of its
duly authorized deputies. appellate or original jurisdiction.
The provincial, city or municipal b. Regular judicial courts are not
treasurer may designate the barangay prohibited from enjoining the
treasurer or his deputy to collect local collection of local taxes, subject
taxes, fees or charges. to Rule 58 (Preliminary
In case a bond is required for the Injunction) of the Rules of Court.
purpose, the provincial, city or
municipal government shall pay the Note: Unlike the NIRC, the Local Tax
premiums thereon in addition to the Code does not contain any specific
premiums of the bond that may be provision prohibiting courts from
required under the Code. enjoining the collection of local taxes.
Such statutory lapse or intent may have
allowed preliminary injunction where
LOCAL TAX REMEDIES local taxes are involved. But it cannot
UNDER THE LGC negate the procedural rules and
requirements under Rule 58 of the Rules
of Courts. (Valley Trading Co. vs. CFI of
Isabela, GR No. 49529, March 31, 1989)
1. TAX REMEDIES OF THE
LOCAL GOVERNMENT UNITS (LGUs)
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT
CIVIL REMEDIES OF THE LOCAL GOVERNMENT
AND COLLECTION
UNITS (LGU) TO EFFECT COLLECTION OF
OF LOCAL TAXES
TAXES
PRESCRIPTIVE PERIODS OF ASSESSMENT
(1) Local Government’s Lien – Local
1. Local taxes, fees, or charges – five
taxes, fees, charges and other
(5) years from the date they became
revenues constitute a lien, superior
due. (Sec. 194, LGC).
to all liens, charges or
2. When there is fraud or intent to
encumbrances in favor of any
evade the payment of taxes, fees
person, enforceable by any
or charges – ten (10) years from
appropriate administrative or
discovery of the fraud or intent to
judicial action.
evade the payment (Sec. 194, LGC).

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PRESCRIPTIVE PERIOD OF COLLECTION taxes is counted not
Local taxes, fees, or charges necessarily from the date of
may be collected within five (5) years payment but from the date
from the date of assessment by the taxpayer is entitled to a
administrative or judicial action. No refund or credit.
such action shall be instituted after the
expiration of such period (Sec. 194, c. Right of redemption – 1 year from
LGC). the date of sale or from the
GROUNDS FOR THE SUSPENSION OF date of forfeiture (Sec. 179,
THE RUNNING OF THE PRESCRIPTIVE LGC).
PERIODS
a. The treasurer is legally B. JUDICIAL
prevented from the assessment 1. Court action
or collection of the tax;
b. The taxpayer requests for a  within 30 days after receipt of
reinvestigation and executes a decision or lapse of 60 days of
waiver in writing before the Secretary of Justice’s inaction
expiration of the period within (Sec. 187 LGC)
which to assess or collect; and  within 30 days from receipt
c. The taxpayer is out of the when protest of assessment is
country or otherwise cannot be denied (Sec. 195 LGC)
located (Sec. 194, LGC).  if no action is taken by the
treasurer in refund cases and the
2. TAX REMEDIES OF two year period is about to lapse
THE TAXPAYER (Sec. 195 LGC)
 if remedies available does not
REMEDIES OF THE TAXPAYER IN LOCAL provide plain, speedy and
TAXATION adequate remedy.
1. Action for declaratory relief
A.ADMINISTRATIVE 2. Injunction – if irreparable damage
Before assessment would be caused to the taxpayer
a. Appeal – any question on and no adequate remedy is
constitutionality or legality of tax available.
ordinance within 30 days from
effectivity thereof to Secretary of
Justice (Sec. 187 LGC) IV. REAL PROPERTY
b. Declaratory relief whenever
applicable.
TAXATION
After assessment
DEFINITIONS:
a. Protest – within 60 days from REAL PROPERTY TAXATION – A direct
receipt of assessment (Sec. tax on ownership of lands and
195 LGC). Payment under buildings or other improvements
protest is not necessary. thereon payable regardless of
whether the property is used or
b. Payment & subsequent refund or not, although the value may vary
tax credit – within 2 years in accordance with such factor.
from payment of tax to local Under the LGC, it covers
treasurer (Sec. 196 LGC). It is the administration, appraisal,
to be noted that, unlike in assessment, levy and collection
internal revenue taxes, the of Real Property Tax, i.e. tax on
supervening cause applies in land and building and other
local taxation because the structures and improvements on
period for the filing of claims it, including machineries.
for refund or credit of local
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REAL PROPERTY – subject to the 4. The appraisal, assessment, levy and
definition given by Art. 415 of collection of RP Tax shall not be let
the Civil Code. to any Private person
5. The appraisal and assessment of real
IMPROVEMENT – valuable addition made property shall be Equitable.
to a property or amelioration in
its condition amounting to more EXTENT OF THE POWER TO LEVY
than a mere replacement of  Basic real property
parts involving capital tax;
expenditures and labor.  1% additional real
estate tax to
finance the
Special Education
NATURE AND CLASSES Fund; (Sec. 236)
 5% additional ad
CHARACTERISTICS OF REAL PROPERTY valorem tax on
TAX Idle lands; (Sec.
1. Direct tax on the Ownership of 236, LGC) and
real property  Special levy or
2. Ad valorem tax. The value is special
based on the tax base. assessments
3. Proportionate – the tax is (may be imposed
calculated on the basis of a even by
certain percentage of the value municipalities
assessed. outside Metro
4. Indivisible single obligation Manila) on lands
5. Local tax comprised within
its territorial
TAXING AUTHORITIES (SEC. 233, LGC) jurisdiction
specially
Rate of Basic Real benefited by
LGU
Property Tax public works,
projects or
1. Province not exceeding 1% of improvements
assessed value funded by the
local government
2. City not exceeding 2% unit concerned.
Provided:
3. Municipality not exceeding 2%.
 Special levy shall not exceed
within Metro
Manila 60% of the actual cost of
such projects and
improvements, including the
FUNDAMENTAL PRINCIPLES GOVERNING costs of acquiring land and
REAL PROPERTY TAXATION (SEC. 198, such other real property in
LGC) connection therewith
1. Real property shall be appraised at  not apply to lands exempt
its current and Fair market value; from basic real property tax
2. Real property shall be classified for and the remainder of the
assessment purposes on the basis of land have been donated to
actual Use. the local government unit
3. Real property shall be assessed on concerned for the
the basis of Uniform classification construction of said
within each LGU projects. (Sec. 240, LGC).

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FOR PURPOSES OF REAL PROPERTY 4. GOCCs rendering essential public
TAXATION IDLE LANDS SHALL INCLUDE: services in the supply and
(SEC. 237, LGC) distribution of water and/or
1. Agricultural lands more than one generation or transmission of
hectare in area one-half of which electric power.
remain uncultivated or unimproved by
the owner of the property or person PROPERTIES EXEMPT FROM REAL
having legal interest therein. PROPERTY TAX (SEC. 234, LGC)
Agricultural lands planted to Exemption is limited only to the
permanent or perennial crops with following:
at least 50 trees to a hectare shall 1. Real property owned by the
not be considered idle lands. government except when the
Lands actually used for grazing beneficial use thereof has been
purposes shall likewise not be granted to a taxable person;
considered idle lands; and 2. Charitable institutions,
2. Lands other than agricultural churches, personages or
located in a city or municipality convents appurtenant thereto,
more than one thousand square meters mosques, non-profit or religious
in area one-half of which remain cemeteries and all lands,
unutilized or unimproved by the buildings and improvements
owner of the property or person actually, directly and
having legal interest therein. exclusively used for religious,
charitable or educational
IDLE LANDS EXEMPT FROM TAX (SEC. purposes (Art. VI, Sec. 28,
238, LGC) Constitution);
3. Machineries and equipment that
By reason of: are actually, directly and
1. force majeure exclusively used by local water
1. civil disturbance utilities and GOCC’s engaged in
2. natural calamity the supply and distribution of
3. or any cause which physically or water and/or electric power;
legally prevents the owner of 4. Real property owned by duly
the property or person having registered cooperatives as
legal interest therein from provided for in RA 6938; and
improving, utilizing or 5. Machinery and equipment used
cultivating the same. for pollution control and
environmental protection.
CLASSIFICATION OF LANDS FOR PURPOSES
OF ASSESSMENT SEC. 218 (A)
ACTUAL USE OF PROPERTY AS BASIS
FOR ASSESSMENT (SEC. 217 LGC)
a. Commercial
b. Agricultural
Real property shall be classified,
c. Residential
valued and assessed on the basis of
d. Mineral
actual use regardless of where located,
e. Industrial
whoever owns it, and whoever uses it.
f. Timberland
g. Special
Unpaid realty taxes attach to the
property and is chargeable against the
SPECIAL CLASSES OF REAL PROPERTY
person who had actual or beneficial use
(SEC. 216, LGC)
and possession of it regardless of
whether or not he is the owner. To
1. Hospitals
impose the real property tax on the
2. Cultural and Scientific purposes
subsequent owner which was neither the
3. owned and used by Local water
owner nor the beneficial user of the
districts
property during the designated periods
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would not only be contrary to law but IF PROPERTY IS DECLARED FOR THE FIRST
also unjust. (Estate of Lim vs. City of TIME – (SEC.222)
Manila, GR No. 90639, February 21, If Declared for the first time, real
1990) property shall be assessed for back
taxes:
PROCEDURE For not more than 10 years prior to
date of initial assessment
STEP 1: DECLARATION OF REAL Taxes shall be computed on the basis
of applicable schedule of values in force
PROPERTY
during the corresponding period.
DECLARATION BY OWNER OR ADMINISTRATOR
(SEC. 202-203)
STEP 2: LISTING OF REAL
 File a sworn declaration with the PROPERTY IN THE ASSESSMENT
assessor ROLLS (SECS. 205, 207)
- once every 3 years during
the period from January 1  All declarations shall
to June 30. be kept and
 For newly acquired property – filed under a
WHEN: Must file with the assessor within uniform
60 days from date of transfer classification
WHAT: Sworn statement containing the system to be
fair market value and description of the established by
property. the provincial,
 For improvement on property city or
WHEN: Must file within 60 days upon municipal
completion or occupation (whichever assessor.
comes earlier)
WHAT: Sworn statement containing the STEP 3: APPRAISAL AND
fair market value and description of the VALUATION OF REAL PROPERTY
property. (SECS. 212-214, 224-225)
DECLARATION BY PROVINCIAL / CITY / DETERMINATION OF FAIR MARKET VALUE

MUNICIPAL ASSESSOR (SEC. 204) (FMV)
For land
WHEN: Only when the person under Sec.  Assessor of the
202 refuses or fails to make a province/city or
declaration within the prescribed time. municipality
may summon
No oath by the assessor is required. the owners of
the properties
Notes: Proof of Exemption of Real
to be affected
Property from Taxation - (Sec. 206)
and may take
depositions
WHO: By any person or for whom real
concerning the
property is declared.
property, its
ownership,
 Claim for exemption must be filed amount, nature
with the assessor together with and value (Sec.
sufficient documentary evidence to 213, LGC)
support claim  Assessor
prepares a
WHEN: within 30 days from the date of schedule of
declaration of property. FMV for
different

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classes of 2. Assessed Value = FMV x
properties. Assessment level
 Sanggunian 3. Tax = Assessed value x Tax rate
enacts an
ordinance STEP 5: PAYMENT AND
 The schedule of COLLECTION OF TAX
FMV is
published in
(a) Accrual of Tax: January of every
a
year and such will constitute as
newspaper
a superior lien. (Sec. 246)
of general
circulation
(b) Time and Manner of Payment:
in the
(Sec. 250)
province,
1. basic real property tax in 4 equal
city or
installments (March 31, June 30,
municipality
September 30, December 30)
concerned
2. special levy – governed by
or in the
ordinance
absence
thereof, (c) Interest for Late Payment (Sec. 255)
shall be
posted in
1. two percent (2%) for each month
the on unpaid amount until the
provincial delinquent amount is paid
capitol, city 2. provided in no case shall the
or total interest exceed thirty-six
municipal (36) months.
hall and in
two other (d) For Advance and Prompt Payment
1. Advance payment – discount not
conspicuous exceeding 20% of annual tax (Sec.
public 251, LCG)
places 2. Prompt payment – discount not
therein exceeding 10% of annual tax due
(Sec. 212, (Art 342 IRR)
LGC)
COLLECTION OF TAX (SEC. 247)
For machinery It shall be the responsibility of the
1. For Brand new city or municipal treasurer concerned.
machinery: The city or municipal treasurer may
FMV is the deputize the barangay treasurer to
acquisition collect all taxes on real property located
cost in the barangay; provided, the barangay
2. In all other treasurer is properly bonded.
cases:
FMV PERIOD TO COLLECT (SEC. 270)
= Remaining eco. life X Replacement 1. within five (5) years from the
Estimated Eco.Life Cost date they become due
2. within ten (10) years from
STEP 4: DETERMINE ASSESSED VALUE discovery of fraud, in case there
(SEC. 218) is fraud or intent to evade
Determine Assessed Value SUSPENSION OF PRESCRIPTIVE PERIOD (SEC.

Procedure 270)
1. Take the schedule of FMV 1. local treasurer is legally
prevented to collect tax.

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2. the owner or property requests 3. The taxpayer is out of the country or
for reinvestigation and writes a otherwise cannot be located (Sec.
waiver before expiration of 270, LGC).
period to collect.
3. the owner of property is out of 2. TAX REMEDIES OF
the country or cannot be THE TAXPAYER
located.
A. ADMINISTRATIVE
REAL PROPERTY TAX
REMEDIES UNDER THE LGC Protest – payment under protest is
required within 30 days to provincial,
1. TAX REMEDIES OF THE LOCAL city, or municipal treasurer. No protest
GOVERNMENT TO EFFECT shall be entertained unless the tax is
COLLECTION OF TAXES first paid. (Sec. 252 LGC)
Claim for Tax Refund or Credit (Sec.

A. ADMINISTRATIVE
253)
1. Real Property tax lien (Secs. 257,
a) the taxpayer may file a written
LGC) – superior to all liens, charges
claim for refund or credit with
or encumbrances;
the provincial or city treasurer
2. Distraint (Sec. 254[B], LGC);
within two years from the date
3. Levy (Sec. 254[A], 258 LGC);
the taxpayer is entitled to such
4. Purchase of property by local
reduction or adjustment.
treasurer for want of bidder (Sec.
263, LGC).
b) in case of denial of refund or
B. JUDICIAL
credit, appeal to LBAA as in
Civil Action ( Sec. 266, 270 LGC)
protest case.
PRESCRIPTIVE PERIODS FOR THE Redemption of real property (Sec. 261
COLLECTION OF REAL LGC)
PROPERTY TAXES
Remedy against the Assessment/Appeal
1. Basic real property tax and any 1st: within 60 days from notice of
other tax levied under the title on assessment of provincial, city or
Real Property Taxation– five (5) municipal assessor to LBAA (Sec. 226
years from the date they became LGC)
due. (Sec. 270, LGC). 2nd: within 30 days from receipt of
2. When there is fraud or intent to decision of LBAA to CBAA (Sec. 230
evade the payment of taxes – ten LGC)
(10) years from discovery of the 3rd: within 30 days from receipt of
fraud or intent to evade the decision of CBAA to Court of Tax
payment (Sec. 270, LGC). Appeals en banc
4th: within 15 days from receipt of
GROUNDS FOR THE SUSPENSION OF decision of Court of Tax Appeals en
THE RUNNING OF THE PRESCRIPTIVE banc to the Supreme Court
PERIODS
APPEALS IN REAL PROPERTY
1. The treasurer is legally prevented TAXATION
from the assessment or collection of
the tax;
2. The taxpayer requests for a PROVINCIAL, CITY OR MUNICIPAL
reinvestigation and executes a
waiver in writing before the
expiration of the period within within 60 days
which to assess or collect; and Owner/Person with legal interest
must file:
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1) Written Petition under Oath  when public interest so
2) With Supporting Documents requires.
LOCAL BOARD OF ASSESSMENT APPEALS

(LBAA should decide within 120 days V. TARIFF AND
from receipt of petition)
CUSTOMS CODE
within 30 days
DEFINITIONS
TARIFF: Customs duties, toll or tribute
CENTRAL BOARD OF ASSESSMENT payable upon merchandise to the
APPEALS
Government.
within 30 days
CUSTOM DUTIES: Tax assessed upon
merchandise from or exported to, a
foreign country. (Garcia v. Executive
COURT OF TAX APPEALS (EN BANC) Sec., GR No. 101273, July3, 1992))
Note: Customs and tariffs are

within 15 days
synonymous with one another. They
both refer to the taxes imposed on
SUPREME COURT imported or exported wares, articles, or
merchandise.
A. JUDICIAL
OTHER TYPES OF FEES CHARGED BY THE
1.Court Action – appeal BUREAU OF CUSTOMS
of CBAA’s decision to
Court of Tax Appeals 1. Arrastre charge
en banc. 2. Wharfage due – counterpart of
2.Suit assailing validity license, charged not for the use of
of tax; recovery of any wharf but for a special fund
refund of taxes paid known as the Port Works Fund.
(Sec. 64 PD 464). 3. Berthing fee
3.Suit to declare 4. Harbor fee
invalidity of tax due 5. Tonnage due
to irregularity in
assessment and MEANING AND SCOPE OF THE TARIFF AND
collection (Sec. 64 CUSTOMS LAWS
PD 464) Include not only the provisions of the
4.Suit assailing the Tariff and Customs Code (TCC) and
validity of tax sale regulations pursuant thereto, but all
(Sec. 83 PD 464) other laws and regulations that are
(Sec. 267 LGC) subject to the Bureau of Customs (BOC)
or otherwise within its jurisdiction.
CONDONATION OF REAL PROPERTY TAXES As to its scope, therefore, tariff and
1. By the Sanggunian customs laws extend not only to the
Real property taxes may be provisions of the TCC but to all other
condoned wholly or partially in a laws as well, the enforcement of which
given local government unit when: is entrusted to the BOC.
a. There is general failure of crops;
b. There is substantial decrease in
THE BUREAU OF CUSTOMS
the price of agricultural or
agri-based products; or
FUNCTIONS OF THE BUREAU OF
c. There is calamity.
CUSTOMS
2. By the President of the Philippines
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1) when the conveying vessel or
1. Assessment and collection of aircraft
revenues from imported articles and 2) enters the jurisdiction of the
all other impositions under the tariff Phil.
and customs laws; 3) with intention to unload therein
2. Control smuggling and related
frauds; Importation is deemed terminated:
3. Supervision and control over the
entrance and clearance of vessels (a) upon payment of the duties, taxes
and aircraft engaged in foreign and other charges due upon the articles.
commerce;
4. Enforcement of TCC and related (b) and legal permit for withdrawal
laws; shall have been granted.
5. Supervision and control over the
handling of foreign mails arriving in  In case the articles are free
the Philippines; of duties, taxes and other
6. Supervise and control all import and charges, until they have legally
export cargoes for the protection of left the jurisdiction of the
government revenue; customs (Sec. 1202, TCC)
7. Exclusive original jurisdiction over
seizure and forfeiture cases under INTENTION TO UNLOAD
the tariff and customs laws. Even if not yet unloaded, and there is
unmanifested cargo, forfeiture may take
JURISDICTION OF COLLECTOR OF place because importation has already
CUSTOMS OVER IMPORTATION OF begun.
ARTICLES
1. Cause all articles for importation to ARTICLES UNDER TCC
be entered in the customhouse, May either be:
2. Cause all such articles to be 1. Subject to duty –
appraised and classified, a. Live animals and animal
3. Assess and collect the duties, taxes products;
and other charges thereon, and a. Vegetable products;
4. Hold possession of all imported b. Animal or vegetable fats; oils and
articles until the duties, taxes and their cleavage products;
other charges are paid thereon. prepared edible fats; animal
(Sec. 1206, TCC) or vegetable waxes;
c. Prepared foodstuffs; beverages,
TERRITORIAL JURISDICTION OF THE spirits and vinegar; tobacco
BOC and manufactured tobacco
1. All seas within the jurisdiction of the substitutes;
Philippines d. Mineral products;
e. Products of chemical or allied
2. All coasts, ports, airports, harbors,
industries;
bays, rivers and inland waters
f. Plastics and articles thereof;
whether navigable or not from the
rubber and articles thereof;
sea. (1st par, Sec. 603, TCC)
g. Raw hides and skins; leather,
etc.;
CUSTOMS DUTIES h. Wood and articles of wood, etc.;
i. Pulp of wood, etc.;
WHEN TARIFF AND CUSTOMS APPLIED j. Textiles and textile articles;
Only after importation has begun but k. Articles of stone; plaster,
before importation is terminated. cement, etc.;
l. Footwear, headgear, etc.;
Importation begins:

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m.Natural or cultured pearls  Those given to international
precious/semi-precious institutions entitled to
stones; exemption by agreement or
n. Base metals and articles of base special laws; and
metals;  Those that may be granted
o. Machinery and mechanical by the President upon
appliances; electric NEDA’s recommendation.
equipment; sound recorders,
etc; 1. Free from TC duties (duty-
p. Vehicles, aircraft, vessels and free)
associated transport Imported goods must be
equipment; entered in a customhouse at their
q. Optical, photographic, medical, port of entry otherwise they shall be
surgical instruments, etc.; considered as contraband and the
r. Arms, ammunition, parts and importer is liable for smuggling (See
accessories; Sec. 101, TCC).
s. Miscellaneous manufactured All articles when imported
articles; and from any country into the Philippines
t. Works of art, collector's pieces shall be subject to duty upon each
arid antiques (Sec. 104, Title importation, even though previously
1, TCC). exported from the Philippines,
except as otherwise specifically
1. Prohibited from being provided for in the TCC or other
imported (Prohibited laws.
importation)
a. Absolutely prohibited such LIABILITY FOR CUSTOMS DUTIES
as: weapons of war; General Rule: All importations /
gambling devices; exportations of goods are subject to
narcotics or prohibited customs duties (Sec. 105, TCC).
drugs; immoral, obscene
or insidious articles; and Exceptions:
those prohibited under (1) Exemptions under the TCC;
special laws (Sec.102, (2) Exemptions granted to
TCC). government agencies,
b. Qualifiedly prohibited instrumentalities or GOCCs with
Where such conditions as to existing contracts,
warrant a lawful importation do commitments, agreements, or
not exist, the legal effects of the obligations with foreign
importation of qualifiedly countries;
prohibited articles are the same (3) Exemptions of international
as those of absolutely prohibited organizations pursuant to
articles. (Auyong Hian vs. CTA, agreements or special laws; and
GR No. L-28782, September 12, (4) Exemptions granted by the Pres.
1974) of the Phil. upon
recommendation of NEDA (Sec.
1. Conditionally-free from 105, TCC).
tariff and customs duties LIABILITY OF IMPORTER FOR CUSTOM DUTIES
(conditionally-free  A personal debt which can be
importation) discharged only by payment in
 Those provided in Sec. 105, full thereof;
TCC;  A lien upon the imported articles
 Those granted to while they are in custody or
government agencies, GOCCs subject to the control of the
with agreements with government. (Sec. 1204, TCC).
foreign countries;
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EXTENT OF IMPORTER’S LIABILITY 1. Ad valorem duty: This is a duty
The liability of an importer is based on the value of the
limited to the value of the imported imported article.
merchandise. In case of forfeiture of 2. Specific duty: This is a duty
the seized material, the maximum civil based on the dutiable
penalty is the forfeiture itself. weight of goods (either the
(Mendoza vs. David, GR No. L-9452, gross weight, legal weight,
March 27, 1961) or net weight).
DRAWBACK
3. Alternating duties: This is a duty
which alternates ad valorem
A device resorted to for enabling a
and specific.
commodity affected by taxes to be
exported and sold in foreign markets 4. Compound Duty: This is a duty
upon the same terms as if it had not consisting of ad valorem and
been taxed at all. (Uy Chaco Sons vs. specific duties.
Collector of Customs, GR No. 7618,
March 27, 1913) B.Special duties – those which
are imposed and collected in
IMPORT ENTRY addition to the ordinary
It is a declaration to the BOC customs duties usually to
showing particulars of the imported protect local industries
article that will enable the customs against foreign competition.
authorities to determine the correct
duties. An importer is required to file an 1. Dumping duty
import entry. It must be accomplished 2. Countervailing duty
from disembarking of last cargo from 3. Marking duty
vessel. 4. Discriminatory duty
TRANSACTION VALUE UNDER RA NO. 8181 NATURE OF SPECIAL CUSTOMS DUTIES

It is the invoice value of the Special customs duties are
goods plus freight, insurance, costs, additional import duties imposed on
expenses and other necessary expenses. specific kinds of imported articles under
This replaces the Home Consumption certain conditions.
Value as basis of valuation of goods.
PURPOSE OF SPECIAL CUSTOMS DUTIES
CLASSIFICATION OF CUSTOM DUTIES The special customs duties are
A. Regular Duties – those which are imposed for the protection of consumers
imposed and collected and manufacturers, as well as Phil.
merely as a source of products from undue competition posed
revenue. by foreign-made products.
SPECIAL DUTIES COMPARED
DISCRIMINATOR
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
Y DUTY
1.Nat Imposed upon foreign Imposed upon Imposed upon

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

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

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

The President may fix tariff rates, necessary:
import and export quotas, etc. under
TCC (See Sec. 28, Art. VI, Constitution LIMITATIONS IMPOSED REGARDING THE
and Sec. 401, TCC) FLEXIBLE TARIFF CLAUSE
1. to increase, reduce or remove
existing protective rates of import a. Conduct by the Tariff
duty (including any necessary change Commission of an
in classification). investigation in a
The existing rates may be public hearing.
increased or decreased to any level, The Commission shall also hear
on one or several stages but in no the views and recommendations of
case shall the increased rate of any government office, agency or
import duty be higher than a instrumentality concerned.
maximum of one hundred (100%) per The Commission shall submit
cent ad valorem their findings and recommendations
2. to establish import quota or to ban to the NEDA within thirty (30) days
imports of any commodity, as may after the termination of the public
be necessary; and hearings.
3. to impose an additional duty on all The NEDA thereafter submits its
imports not exceeding ten (10%) per recommendation to the President.

Cabrera, Jhundee
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1. The power of the President to Philippines, including

increase or decrease the rates of dumping and cost of
import duty within the production; and
abovementioned limits fixed in the h. in general, to investigate the
Code shall include the modification operation of customs and
in the form of duty. tariff laws, including their
In such a case the corresponding relation to the national rev-
ad valorem or specific equivalents of enues, their effect upon the
the duty with respect to the imports industries and labor of the
from the principal competing foreign country and to submit
country for the most recent reports of its investigation as
representative period shall be used provided.
as bases (Sec. 401, TCC).
1. Administrative Assistance to the
President and Congress (Sec. 506,
TCC)
THE TARIFF COMMISSION (TC)
FUNCTIONS OF THE TARIFF
COMMISSION
1. Investigative Powers (Sec. 505,
TCC) TAX REMEDIES UNDER THE
a. the administration of and TARIFF AND CUSTOMS CODE
the fiscal and industrial (TCC)
effects of the tariff and
customs laws of this country TAX REMEDIES OF THE
now in force or which may GOVERNMENT
hereafter be enacted;
b. the relations between the A. ADMINISTRATIVE
rates of duty on raw 1. Tax Lien (Sec. 1204 TCC)
materials and the finished or
 attach
partly finished products;
es
c. the effects of ad valorem
on
and specific duties and of
the
compound specific and ad
good
valorem duties;
s,
d. all questions relative to the
rega
arrangement of schedules
rdles
and classification of articles
s of
in the several schedules of
own
the tariff law;
ershi
e. the tariff relations between p,
the Philippines and foreign whil
countries, commercial e
treaties, preferential still
provisions, economic in
alliances, the effect of the
export bounties and pref- cust
erential transportation rates; ody
f. the volume of importations, or
compared with domestic cont
production and consumption; rol
g. conditions, causes, and of
effects relating to the
competition of foreign Gove
industries with those of the
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rnm  subject to approval of Sec.
ent of Finance (Sec. 709, 2316
 availe TCC)
d of
whe 1. Seizure, Search, Arrest
n (Sec. 2205, 2210, 2211 TCC)
the
impo B. JUDICIAL
rtati 1. this remedy is normally
on is availed of when the tax
neit lien is lost by the
her release of the goods
proh  Civil Action (Sec. 1204,
ibite
TCC)
d
nor  Criminal Action
impr
oper TAX REMEDIES OF THE TAXPAYER
ly
mad A. ADMINISTRATIVE
e 1. Protest
1. Administrative Fines and a. Any importer or interested
Forfeitures party if dissatisfied with
 applied when the published value within 15
importation is unlawful, days from date of
 and it may be exercised even publication, or within 5 days
where the articles are not or from the date the importer
no longer in Custom’s is entitled to refund if
custody payment is rendered
- unless the importation is erroneous or illegal by
merely attempted in which events occurring after the
case it may be effected only payment.
while the goods are still b. Taxpayer – within 15 days
within the Customs from assessment. Payment
jurisdiction or in the hands under protest is necessary.
of a person who is aware (Sec. 2308, 2210 TCC)
thereof (Sec. 2531 & 2530, 1. Refund
TCC) a. A written claim for refund
 under Sec. 2530(a) of the may be submitted by the
TCC, in order to warrant importer in abatement cases
forfeiture, it is not necessary on missing packages,
that the vessel or aircraft deficiencies in the contents
must itself carry the of packages or shortages
contraband. The before arrival of the goods in
complementary if collateral the Philippines, articles lost
use of the Cessna plane for or destroyed after such
smuggling operation is arrival, dead or injured
sufficient for it to be animals, and for manifest
deemed to have been used clerical errors; and
in smuggling. (Llamado vs. b. Drawback cases where the
Commissioner of Customs, goods are re-exported (Sec.
GR No. L-28809, May 16, 1701-1708 TCC).
1983) 1. Settlement of any seizure
1. Reduction of customs by payment of fine or
duties / compromise redemption

Cabrera, Jhundee
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 But this shall not be allowed so effective

in any case where until so
importation is absolutely declared by
prohibited, or the release the
would be contrary to law, or collector.
when there is an actual and (Sec. 1801,
intentional fraud (Sec. 2307 as amended
TCC). by RA 7651)
1. Appeal TWO KINDS OF PROCEEDINGS IN

 Within 15 days to the THE BUREAU OF CUSTOMS (BOC)
Commissioner after
A. CUSTOMS PROTEST CASES
notification by Collector of
his decision (Sec. 2313
DEFINITION: These are cases which deal
TCC).
solely with liability for customs duties,
fees, and other charges.
B. JUDICIAL
1. Appeal
Note: Before filing a protest, there
 Within 30 days from receipt must first be a payment under protest.
of decision of the
Commissioner or Secretary of WHEN CUSTOMS PROTEST APPLICABLE
Finance to the division of the
CTA (Sec. 2403 TCC, Sec. 7 The customs protest is required to be
RA 1125, as amended by Sec. filed only in case the liability of the
9 RA 9282) taxpayer for duties, taxes, fees and
 Since Sec.11 of RA 1125 as other charges is determined and the
amended by RA 9282 taxpayer disputes said liability.
empowers the Tax Court to
issue injunctions, it would WHEN CUSTOMS PROTEST NOT REQUIRED
appear that an importer may
appeal without first paying Where there is no dispute, but the
the duties, such as in claim for refund arises by reason of the
seizure, but not in protest happening of supervening events such as
cases. when the raw material imported is
1. Action to question the utilized in the production of finished
legality of seizure products subsequently exported and a
2. Abandonment (Sec. 1801 duty drawback is claimed.
TCC)
a. expressly (Sec. 1801 REQUIREMENTS FOR MAKING A PROTEST
TCC)
1. Must be in writing
b. impliedly –
2. Must point out the particular
a. failure to file
decision or ruling of the Collector of
an import
Customs to which exception is taken
entry within
or objection made;
30 days from
3. Must state the grounds relied upon
the
for relief;
discharge of
4. Must be limited to the subject
goods or
matter of a single adjustment;
b. having filed
an entry fails
5. Must be filed when the amount
claimed is paid or within 15 days
to claim
after the payment;
within 15
6. Protestant must furnish samples of
days but it
goods under protest when required.
shall not be
Cabrera, Jhundee
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1

PROCEDURE IN CUSTOMS PROTEST 1. To protect the interest of the
CASES Government
2. A favorable decision will not be
The Collector acting within his appealed by the taxpayer and
jurisdiction shall cause the imported certainly a Collector will not
goods to be entered at the customhouse appeal his own decision.
 3. Lifeblood Theory
The Collector shall assess, liquidate, and
collect the duties thereon, or detain the B. SEIZURE AND FORFEITURE CASES
said goods if the party liable does not
pay the same DEFINITION: These refer to matters
involving smuggling. It is administrative
 and civil in nature and is directed
The party adversely affected (the against the res or imported articles and
protestant) may file a written protest on entails a determination of the legality of
his foregoing liability with the Collector their importation. These are actions in
within 15 days after paying the rem.
liquidated amount (the payment under Thus, It is of no defense that the
protest rule applies) owner of the vessel sought to be
 forfeited had no actual knowledge that
Hearing within 15 days from receipt of his property was used illegally. The
the duly presented protest. Upon absence or lack of actual knowledge of
termination of the hearing, the Collector such use is a defense personal to the
shall decide on the same within 30 days owner himself, which cannot in any way
absolve the vessel from the liability of
  forfeiture. (Commissioner of Customs
vs. Manila Star Ferry, Inc., GR Nos.
If decision is adverse to If decision is adverse to
31776-78, October 21, 1993)
the protestant the government
  SMUGGLING
Appeal with the Automatic Review by 1. An act of any person who shall:
Commissioner within the Commissioner a. Fraudulently
15 days from notice  import any
article
 Automatic review by
contrary to
Appeal with the Court the Secretary of
law, or
of Tax Appeals Division Finance
b. Assist in so
within 30 days from  doing, or
notice c. Receive,
 If decision of conceal,
Appeal with the Commissioner or buy, sell,
CTA en banc Secretary of Finance is facilitate,
adverse to the transport,
 protestant, he may conceal or
Appeal by certiorari appeal to the CTA and sell such
with the Supreme SC under the same article
Court within 15 days procedure on the left. knowing its
from notice illegal
importation
(Sec. 3601,
TCC)
d. Export contrary
REASONS FOR THE AUTOMATIC REVIEW OF
to law. (Sec.
DECISIONS ADVERSE TO THE GOVERNMENT
3514, TCC)

Cabrera, Jhundee
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1

vs.
2. The Philippines is divided into Cour
various ports of entry – entry other t of
than port of entry, will be App
SMUGGLING. eals,
GR
PORT OF ENTRY No.
A domestic port open to both 1152
foreign and coastwise trade including 18,
“airport of entry”. (Sec. 3514, TCC) Sept
ALL articles imported into the emb
Philippines whether subject to duty or er
not shall be entered through a 18,
customshouse at a port of entry. 1995
ENTRY: in Customs law means- )
1. the
docu CONTRABAND: Articles of prohibited
men importations or exportations. (Sec. 3514,
ts TCC)
filed
at
the
Cust EVIDENCE FOR CONVICTION IN
oms SMUGGLING CASES
hous Mere possession of the article in
e question - unless defendant could
2. the explain that his possession is lawful to
sub the satisfaction of the court (Sec. 3601,
missi TCC). Payment of the tax due after
on apprehension is not a valid defense
and (Rodriguez vs. Court of Appeals, GR No.
acce 115218, September 18, 1995)
ptan
ce of THINGS SUBJECT TO CONFISCATION IN
the SMUGGLING CASES
docu Anything that was used for
men smuggling is subject to confiscation, like
ts the vessel, plane, etc. (Llamado vs.
3. the Commissioner of Customs, GR No. L-
proc 28809, May 16, 1983).
edur
e of Exception: Common carriers that are
passi not privately chartered cannot be
ng confiscated.
good
s RIGHT OF CUSTOMS OFFICERS TO
thro EFFECT SEIZURE & ARREST (SEC. 2205)
ugh 1. May seize any vessel, aircraft, cargo,
the article, animal or other movable
cust property when the same is subject to
oms forfeiture or liable for any time as
hous imposed under tariff and customs
e laws, rules & regulations
(Rod 2. May exercise such powers only in
rigu conformity with the laws and
ez provisions of the TCC
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1

(ii) the vessel may be seized
COMMON CARRIERS; FORFEITURE on the high seas.
1. Common carriers are
generally not subject to 1. Over Imported Articles
forfeiture although if the a. There is a violation of the tariff
owner has knowledge of its and customs laws
use in smuggling and was a b. As a consequence they may be
consenting party, it may also pursued in the Phil.
be forfeited. c. With jurisdiction over them at
2. If a motor vehicle is hired to any place therein for the
carry smuggled goods but it enforcement of the law. (2nd
has no Certificate of Public par. Sec. 603, TCC)
Convenience (CPC), it is not
a common carrier. It is thus
subject to forfeiture, and REGIONAL TRIAL COURTS (RTC)
lack of personal knowledge VS.
of the owner or the carrier is BUREAU OF CUSTOMS (BOC)
not a defense to forfeiture.
 The RTCs do not have
PROPERTIES NOT SUBJECT TO jurisdiction over seizure and
FORFEITURE IN THE ABSENCE OF PRIMA forfeiture proceedings
FACIE EVIDENCE conducted by the BOC and to
The forfeiture of the vehicle, vessel interfere with these
or aircraft shall not be effected if it is proceedings. The Collector
established that the owner thereof or his of Customs has exclusive
agent in charge of the means of jurisdiction over all
conveyance used as aforesaid has no questions touching on the
knowledge of or participation in the seizure and forfeiture of
unlawful act: dutiable goods.
Provided, however, that a prima  No petitions for certiorari,
facie presumption shall exist against the prohibition or mandamus
vessel, vehicle or aircraft under any of filed with the RTC will lie
the following circumstances: because these are in reality
1. If the conveyance has been used
attempts to review the
for smuggling at least twice
Commissioner's actuations.
before;
Neither replevin filed with
2. If the owner is not in the
the RTC will issue.
business for which the
Rationale: Doctrine of
conveyance is generally used;
Primary Jurisdiction.
and
3. If the owner is financially not in  Even if a Customs seizure is
a position to own such illegal, exclusive jurisdiction
conveyance. (to the exclusion of regular
courts) still belongs to the
DOCTRINE OF HOT PURSUIT Bureau of Customs (Jao v.
Requisites: Court of Appeals, GR No.
1. Over Vessels 104604, October 6, 1995).
a. An act is done in Phil. Waters
which constitutes a violation of GOODS IN CUSTOM’S CUSTODY BEYOND
the tariff and customs laws REACH OF ATTACHMENT
b. a pursuit of such vessel began Goods in the custom’s custody
within the jurisdictional waters pending payment of customs duties are
which beyond the reach of attachment. As long
(i) may continue beyond the as the importation has not been
maritime zone, and terminated, the imported goods remain
under the jurisdiction of the Bureau of
Cabrera, Jhundee
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1

Customs. (Viduya vs. Berdiago, GR No. members of the AFP
L-29218, October 29, 1976) and national law
enforcement
ADMINISTRATIVE AND JUDICIAL agencies when
PROCEDURES RELATIVE TO CUSTOMS authorized by the
SEIZURES AND FORFEITURES Commissioner of
Customs
Determination of probable cause and 3) officials of the BIR
issuance of warrant on all cases falling
 within the regular
Actual seizure of the articles performances of
their duties, when
 the payment of
Listing of description, appraisal and internal taxes are
classification of seized property involved;
 4) officers generally
Report of seizure to the Comm. of empowered by law
Customs and the Chairman, Comm. to effect arrests and
on Audit execute processes of
 courts, when acting
Issuance by the Collector of a under the direction
warrant of detention of the Collector.
 REQUIREMENTS FOR CUSTOMS
Notification to owner or importer FORFEITURE
 1. The wrongful making by the
Formal hearing owner, importer,
 exporter or consignee of
District collector renders his any declaration or
decisions affidavit, or the
wrongful making or
delivery by the same
  persons of any invoice,
If decision is not If decision is not letter or paper - all
favorable to the favorable to the touching on the
aggrieved owner or government importation or
importer exportation of
  merchandise.; and
Appeal by the Automatic 2. That such declaration,
aggrieved owner or Review by the affidavit, invoice, letter
importer Commissioner or paper is false.
(Farolan, Jr. vs. Court
of Tax Appeals, GR No.
PERSONS HAVING POLICE AUTHORITY 42204, January 21,
TO ENFORCE THE TARIFF & CUSTOMS 1993)
LAWS AND EFFECT SEARCHES,
SEIZURES AND ARRESTS (SEC. 2203, PLACES WHERE SEARCHES & SEIZURES
TCC) MAY BE CONDUCTED
1) officials of the BOC, (a) enclosures
district collectors, (b) dwelling
police officers, house
agents, inspectors, (there
and guests of the must be
BOC; search
2) officers of the Phil. warrant
Navy and other
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issued by General Rule: Settlement of cases by
a judge) payment of fine or redemption of
(c) vessels or forfeited property is allowed.
aircrafts
and Exceptions:
persons 1. the importation is absolutely
or prohibited or
articles 2. the surrender of the property to
conveye the person offering to redeem
d would be contrary to law, or
therein 3. when there is fraud. (Sec. 2307,
(d) vehicles, TCC)
beasts
and
persons
(e) persons
arriving
from ACQUITTAL IN CRIMINAL CHARGE NOT
foreign RES JUDICATA IN SEIZURE OR
countrie FORFEITURE PROCEEDINGS
s. Reasons:
1) Criminal proceedings are actions in
Note: Burden of proof in seizure or personam while seizure or
forfeiture is on the claimant. (Sec. forfeiture proceedings are
2535, TCC) actions in rem.
2) Customs compromise does not
REQUIREMENTS FOR MANIFEST extinguish criminal liability. (People
A manifest in coastwise trade for vs. Desiderio, GR No. L-208005,
cargo and passengers transported from November 26, 1965)
one place or port in the Philippines to
another is required when one or both of Note: At any time prior to the sale, the
such places is a port of entry (Sec. 906, delinquent importer may settle his
TCC). Manifests are also required of obligations with the Bureau of Customs,
vessel from a foreign port (Sec. 1005, in which case the aforesaid articles may
TCC). be delivered upon payment of the
corresponding duties and taxes and
compliance with all other legal
IS MANIFEST REQUIRED ONLY FOR requirements (Sec. 1508, TCC)
IMPORTED GOODS?
NO. Articles subject to seizure ABATEMENT
do not have to be imported goods. The reduction or non-imposition of
Manifests are also required for articles customs duties on certain imported
found on vessels or aircraft engaged in materials as a result of:
coastwise trade. (Rigor vs. Rosales, GR 1) Damage incurred during voyage;
No. L-33756, October 23, 1982) 2) Deficiency in contents packages
3) Loss or destruction of articles
UNMANIFESTED CARGO IS SUBJECT TO after arrival
FORFEITURE whether the act of 4) Death or injury of animals
smuggling is established or not under the
principle of res ipsa loquitur. It is FRAUDULENT PRACTICES CONSIDERED
enough that the cargo was unmanifested AS CRIMINAL OFFENSES AGAINST
and that there was no showing that CUSTOMS REVENUE LAWS
payment of duties thereon had been 1) Unlawful
made for it to be subject to forfeiture. importation;
2) Entry of
SETTLEMENT OF FORFEITURE CASES imported or
Cabrera, Jhundee
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1

exported (Sec. 3602,
article by TCC)
means of
any false or
fraudulent V. COURT OF
practices,
invoice,
TAX APPEALS
declaration, (RA 1125 as amended
affidavit, or by RA 9282)
other
documents;
3) Entry of goods  See ANNEX O for comparison of CTA
at less than as created by RA No. 1125 and the
their true amendments made by RA No. 9282.
weights or
measures or
upon a NATURE AND POWERS
classification
as to quality ELEVATION OF RANK
or value; shall be of the same level as the
4) Payment of less Court of Appeals, possessing all the
than the inherent powers of a Court of Justice
amount due;
5) Filing any false COMPOSITION
or  Consists of a
fraudulent Presiding
claim for the Justice and
payment of five (5)
drawback or Associate
refund of Justices
duties upon
 May sit en banc or
the
in two (2)
exportation
Divisions, each
of
Division
merchandise
consisting of
; or
three (3)
6) Filing any Justices. The
affidavit, Presiding
certificate Justice and the
or other most Senior
document to Associate
secure to Justice shall
himself or serve as
others the chairmen of
payment of the two
any divisions
drawback,
allowance or QUORUM
refund of
duties on
 Four (4) Justices shall constitute a
quorum for sessions EN BANC.
the
exportation  Two (2) Justices for sessions of a
of mdse. DIVISION.
greater than PROVIDED: in case the required quorum
that legally cannot be had due to any vacancy,
due thereon. disqualification, inhibition, disability,
Cabrera, Jhundee
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1

or any other lawful cause, the Presiding satisfy the tax or
Justice shall designate any Justice of charge together
other Divisions of the Court to sit with any
temporarily therein. increment
thereto incident
POWERS to delinquency.
1. to administer oaths;
2. to receive evidence; This remedy shall not be exclusive
3. to summon witnesses by and shall not preclude the Court from
subpoena; availing of other means under the Rules
4. to require production or papers of Court.
or documents by subpoena duces
tecum; JURISDICTION
5. to punish contempt;
6. to promulgate rules and I. EXCLUSIVE APPELLATE JURISDICTION
regulations for the conduct of its TO REVIEW BY APPEAL
business;
7. to assess damage against (a) Decisions of
appellant if appeal to CTA is the
found to be frivolous or dilatory; Commission
8. to suspend the collection of the er of
tax pending appeal; and Internal
9. to render decisions on cases Revenue
brought before it 1. in cases involving
10. to issue order authorizing disputed assessments,
distraint of personal property refunds of internal
and levy of real property revenue taxes, fees or
other charges, penalties
DISTRAINT OF PERSONAL PROPERTY in relation thereto,
AND LEVY OF REAL PROPERTY 2. or other matters arising
Upon the issuance of any ruling, under the NIRC or other
order or decision by the CTA favorable to laws administered by the
the national government, the CTA shall BIR;
issue an order authorizing the BIR, (a) Inaction by
through the Commissioner: the
Commission
1. to seize and distraint er of
any goods, Internal
chattels, or Revenue
effects and the 1. in cases involving
personal disputed assessments,
property, refunds of internal
including stocks revenue taxes, fees or
and other other charges, penalties
securities, in relation thereto,
debts, credits, 2. or other matters arising
bank accounts, under the NIRC or other
and interests in laws administered by the
and rights to BIR, where the NIRC
personal provides a specific
property and/or period for action, in
2. levy the real which case the inaction
property of such shall be deemed a
persons in denial;
sufficient
quantity to
Cabrera, Jhundee
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1
(a) Decisions, Secretary

orders or of Finance
resolutions – on customs cases elevated to
of the RTC him automatically for review
– in local tax cases originally from decisions of the
decided or resolved by them in Commissioner of Customs which
the exercise of their original or are adverse to the Government
appellate jurisdiction; under Section 2315 of the Tariff
(b) Decisions of and Customs Code;
the (c) Decisions of
Commission the
er of Secretary
Customs of Trade
1. in cases and
involving Industry in
liability for the case of
customs nonagricultu
duties, fees ral product,
or other commodity
money or article,
charges, and the
seizure, Secretary of
detention or Agriculture
release of in the case
property of
affected, agricultural
fines, product,
forfeitures commodity
or other or article,
penalties in – involving dumping and
relation countervailing duties under Secs.
thereto, 301and 302, respectively, of the
2. or other matters Tariff and Customs Code, and
arising safeguard measures under RA
under the No, 8800, where either party
Customs Law may appeal the decision to
or other impose or not to impose said
laws duties.
administere
d by the II. JURISDICTION OVER CASES
Bureau of INVOLVING CRIMINAL CASES
Customs;
(a) Decisions of (a) Exclusive original jurisdiction
the Central over all criminal cases arising from
Board of violations of the NIRC or Tariff and
Assessment Customs Code and other laws
Appeals administered by the BIR or the
– in the exercise of its appellate Bureau of Customs
jurisdiction over cases involving  Provided
the assessment and taxation of however,
real property originally decided where the
by the provincial or city board of principal
assessment appeals; amount of
(b) Decisions of taxes and
the fees,

Cabrera, Jhundee
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1

exclusive with, and
of charges jointly
and determine
penalties d in the
claimed is same
less than proceeding
one by the
million CTA, the
pesos (P1, filing of
000, 000. the
00) or criminal
where action
there is no being
specified deemed to
amount necessarily
claimed - carry with
the it the
offenses or filing of
penalties the civil
shall be action,
tried by and no
the right to
regular reserve
courts and the filing
the of such
jurisdictio civil action
n of the separately
CTA shall from the
be criminal
appellate. action will
 Any provision be
of law or recognized
the Rules .
of Court to
the (b) Exclusive appellate jurisdiction
contrary in criminal offenses
notwithsta  Over appeals from the
nding, the judgments, resolutions
criminal or orders of the RTC in
action and tax cases originally
the decided by them, in
correspond their respective
ing civil territorial jurisdiction.
action for  Over petitions for review of
the the judgments,
recovery resolutions, or orders of
of civil the RTC in the exercise
liability of their appellate
for taxes jurisdiction over tax
and cases originally decided
penalties by the Metropolitan Trial
shall at all Courts, Municipal Trial
times be Courts, and Municipal
simultaneo Circuit Trial Courts in
usly their respective
instituted jurisdiction.
Cabrera, Jhundee
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1

lio
III. JURISDICTION OVER TAX n
COLLECTION CASES pes
(a) Exclusive original jurisdiction os
in tax collection cases involving (P
final and executory assessments 1,
for taxes, fees, charges and 00
penalties. 0,
 In 00
col 0.
lec 00)
tio –
n sha
cas ll
es be
wh tri
ere ed
the by
pri the
nci pro
pal per
am Mu
ou nic
nt ipa
of l
tax Tri
es al
an Co
d urt
fee ,
s, Me
ex tro
clu pol
siv ita
e n
of Tri
ch al
arg Co
es urt
an ,
d an
pe d
nal Re
tie gio
s, nal
cla Tri
im al
ed Co
is urt
les .
s
tha (b) Exclusive appellate jurisdiction
n in tax collection cases
on  Over appeals
e from the
mil judgments
Cabrera, Jhundee
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1

,  See ANNEX P – Comparative
resolutions Diagrams on CTA
or orders jurisdiction.
of RTC in
tax
collection
cases
originally “OTHER MATTERS”
decided by Those controversies which can be
them, in considered within the scope of the
their function of the BIR / BOC under ejusdem
respective generis rule (e.g. action for the nullity of
territorial distraint and levy; questioning the
jurisdictio propriety of the assessment; collection
n. of compromise penalties).
 Over petitions
for review
APPEAL
of the
judgement
WHEN
s,
Within 30 days after the receipt of
resolutions
such decision or ruling or after the
or orders
expiration of the period fixed by law for
of the RTC
action.
in the
exercise of
MODES OF APPEAL
their
(1)By filing a petition for review under a
appellate
procedure analogous to that provided
jurisdictio
for under Rule 42 of 1997 Rules on
n over tax
Civil Procedure
collection
cases  decision, ruling, or inaction
originally of the Commissioner of
decided by Internal Revenue,
the Commissioner of Customs,
Metropolit the Secretary of Finance,
an Trial the Secretary of Trade and
Courts, Industry or the Secretary of
Municipal Agriculture or the Regional
Trial Trial Courts
Courts and  this appeal shall be heard by
Municipal a Division of the CTA
Circuit (1)By filing a petition for review under a
Trial procedure analogous to that
Courts, in provided for under Rule 43 of 1997
their Rules on Civil Procedure
respective  decisions or rulings of the
jurisdictio Central Board of
n. Assessments Appeals and the
Regional Trial Courts in the
 In criminal and collection cases, the exercise of its appellate
Government may directly file the jurisdiction
said cases with the CTA covering  this appeal shall be heard by
amounts within its exclusive and the CTA en banc.
original jurisdiction.
PROCEDURE

Cabrera, Jhundee
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1

A. Any party adversely affected by a final decision
ruling, order or decision of a Division of the
of the CTA may file a motion for Commissioner.
reconsideration or new trial before  An assessment can
the same Division within 15 days be appealed if
from notice taxpayer does
not seek a
reconsideration
.
 At times there is
B. Any party adversely affected by a an exchange of
resolution of a Division of the CTA on communication
a motion for reconsideration or new s between
trial may file a petition for review taxpayer and
with the CTA en banc. Commissioner
states that his
C. Any party adversely affected by a action is final,
decision or ruling of the CTA en banc then, period
may file with the Supreme Court a for appeal
verified petition for review on begins to run.
certiorari pursuant to Rule 45 of the  Commissioner must
1997 Rules on Civil Procedure. state that his
decision is
THIRTY (30) DAY PRESCRIPTIVE PERIOD FOR final, for
APPEAL period of
Starts to run from the date the appeal to run.
taxpayer receives the appealable  Final decision
decision. If the taxpayer’s request for cannot be
reconsideration (i.e., the protest is implied from
denied or the original assessment is issuance of
maintained, the appealable decision is warrant of
the decision denying the request for distraint and
reconsideration. levy, unless it
The said period is jurisdictional and is issued after
non-extendible. Requests or motions for a request for
reconsideration, however, operate to reconsideration
suspend the running of the period to .
appeal. A pro forma request for GENERAL RULE: New issues cannot be
reconsideration or one which is directed raised for the first time on appeal.
to the Secretary of Finance does not
suspend the running of the 30-day EXCEPTIONS:
reglementary period. a. Defense of prescription
Reason: This is a statutory right.
ONLY A FINAL DECISION IS APPEALABLE TO (Visayan Land Transportation vs.
THE COURT OF TAX APPEALS Collector)
b. Errors of administrative officials
 Preliminary Reason: State can never be in
collection estoppel and lifeblood theory.
letters, post (Commissioner vs. Procter and
reporting Gamble Phils. Mfg. Corp, GR No.
notices and 66838, April 15, 1988)
pre-assessment
notices are not NOTE: However, this was reversed in
appealable, Supreme Court’s subsequent resolution
because they wherein it was held that “in the absence
are not the of explicit statutory provisions to the
Cabrera, Jhundee
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1

contrary, the Government must follow no court may
the same rules of procedure which bind grant
private parties.” (Commissioner vs. injunction to
Procter and Gamble, GR No. 66838, restrain
December 2, 1991, Resolution) collection of
any tax, fee or
TAX COLLECTION NOT SUSPENDED DURING charge
APPEAL imposed by
Tax Code.
General Rule: No appeal taken to the  The provision in
CTA shall suspend the payment, levy or Tax Code
distraint, and/or sale of any property of refers to
the taxpayer. courts other
than the CTA.
Exception: The CTA is empowered to (Blaquera vs.
suspend the collection of internal Rodriguez, GR
revenue taxes and custom duties only No. L-11295,
when there was a – March 29,
a) showing that collection of 1958)
the tax may  Appeal to the CTA
jeopardize the interest does not
of the government and automatically
/ or the taxpayer; suspend
b) deposit of the amount collection
claimed or file a unless CTA
surety bond for not issues
more than double the suspension
amount of tax with the order at any
Court when required; stage of
and proceedings.
c) showing by taxpayer that
appeal is not frivolous SIMULTANEOUS FILING OF AN APPLICATION FOR
nor dilatory. REFUND OR CREDIT AND INSTITUTION OF A CASE
BEFORE THE CTA ALLOWED
CAN THE CTA ENJOIN COLLECTION OF TAXES?
The law fixes the same period of
 Sec. 11 of RA No. two (2) years for filing a claim for refund
1125 as with the Commissioner and for filing a
amended by case with the CTA. The two-year period
Sec. 9 of RA for both starts from the date after the
No. 9282 payment of the tax or penalty, or from
grants CTA the approval of the application for
power to credit.
suspend
collection of Observation: If we are not going to
tax if such allow the taxpayer to file a refund
collection before the CTA and let him wait for the
works to CIR’s decision, and the latter failed to
serious render a decision within the 2-year
prejudice of period, the said taxpayer can no longer
either file a refund before the CTA because his
taxpayer or right to appeal has prescribed.
government.
 However, Sec. 218 WEIGHT OF DECISION OF CTA
of the Tax
Code provides
Cabrera, Jhundee
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1
 Decisions of Tax VII.VALUE–ADDED TAX

Court have
persuasive (VAT)
effect and may TITLE IV OF NIRC
serve as
judicial DEFINITION: The value-added tax is an
guides. They indirect tax and the amount of tax may
have more be shifted or passed on to the buyer,
persuasive transferee or lessee of the goods,
value than BIR properties or services. This rule shall
Rulings. likewise apply to existing contracts of
 CTA’s findings of sale or lease of goods, properties or
fact are services at the time of the effectivity of
entitled to the Republic Act No. 7716.
highest
respect. VAT replaced Sales Tax as imposed by
(Raymundo vs. previous Tax Laws.
de Joya, GR
No. L-27733, HISTORY:
December 3, a. Executive Order No. 273
1980) b. Republic Act No. 7716
 The Supreme Court c. Republic Act No. 8241
will not set d. Republic Act No. 8424 (took
aside effect on 1 January 1998)
conclusions
reached by TRANSACTIONS COVERED BY VAT:
Tax Court 1. Sale of Commodities or Goods (in
which by the the course of trade or business
very nature of only)
its function, is 2. Sale of Services (in the course of
dedicated trade or business only)
exclusively to 3. Exportation (in the course of
the trade or business only)
consideration 4. Importation (whether or not in
of tax the course of trade or business)
problems and
has developed PERSONS LIABLE FOR VAT
an expertise Any person who, in the course of
on the trade or business, sells barters,
subject, unless exchanges, leases goods or properties,
there has been renders services, and any person who
an abuse or an imports goods shall be subject to the
improvident value-added tax (VAT) imposed in
exercise of Sections 106 to 108 of the National
authority on Internal Revenue Code.
its part.
(Commissioner “IN THE COURSE OF TRADE OR
vs. Court of BUSINESS”
Appeals & The regular conduct or pursuit of a
Atlas commercial or an economic activity,
Consolidated, including transactions incidental
GR No. 86785, thereto, by any person regardless of
November 21, whether or not the person engaged
1991) therein is a non-stock, nonprofit private
organization (irrespective of the
disposition of its net income and
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1

whether or not it sells exclusively to based on the landed cost plus excise
members or their guests), or government taxes, If any. customs duties.
entity.
B. Zero-rated (0%) rate of tax
Therefore if the disposition of goods
or services is NOT in the course of trade
1. Export Sales as provided in Section
or business then it is not subject to VAT;
106(A)(2)(a)
with the exception of importation of
2. Foreign Currency Denominated Sale
course.
as provided in Section 106 (A)(2)(b)
The rule of regularity, to the 3. Sale to persons or entities which is
contrary notwithstanding, services as VAT exempt under special laws or
defined in this Code rendered in the international agreements to which
Philippines by non-resident foreign the Philippines is a signatory as
persons shall be considered as being provided in Section 106 (A)(2)(c)
course of trade or business. 4. Transactions subject to zero-rated
(0%) as provided in Section 108(B)
Importation is subject to VAT
regardless of whether or not it is in the REGISTRATION UNDER THE VAT SYSTEM
course of trade or business (SECTION 236 OF THE NIRC)
The reason for the rule is to protect General Rule: Failure to register is
our local or domestic goods or articles subject to temporary closure of the
and to regulate the entry or introduction establishment for 5 days as provided in
of foreign articles to our local market. Section 115(b).
Regulation is one of the purposes of
Taxation. Exception: It does not apply to an
exporter who fails to register. The effect
is, instead of treating the transaction as
Tax Rates:
zero-rated (0%), it is treated as an
1. 10% - the rate used in sale of
exempt transaction.
commodities and goods, sale of
services, and importation.
What is the difference? In zero-rated
2. Zero-rated (0%) - the rate used in
(0%) transactions, tax credit is
exportation.
available. However, in exempt
transactions, tax credit is not available.
MANNER OF COMPUTING THE VAT:
A. 10% rate of Tax
EXEMPT TRANSACTIONS (SECTION 109):
1. In Section 109(a) and (c), food and
1. In sale of commodities and goods,
non-food products are VAT-exempt
10% is multiplied with the Gross
as long as these products are in its
Selling Price.
original state. The simple process of
2. In sale of services, 10% is multiplied
preparation or preservation for the
with the Gross Receipts.
market such as freezing, drying,
3. In importation, 10% is multiplied salting, broiling, roasting, smoking,
with the rates used by the Bureau of or stripping does not remove the
Customs in imposing tariff and product from its category of being in
customs duties plus customs duties, its original state.
excise taxes, if any, and other  However, even if the products
charges, such tax to be paid by the were no longer in its original
importer prior to the release of such state, it can still be VAT-
goods from customs custody: exempt under Section
Provided, That where the customs 109(r), if sold by agricultural
duties are determined on the basis cooperatives duly registered
of the quantity or volume of the by Cooperative Development
goods, the value-added tax shall be Authority.
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1

2. Under Section 109(m), private where such goods are
educational institutions are exempt subsequently sold,
from VAT if duly accredited by the transferred or exchanged in
DECS or by the CHED. In case of the Philippines to non-
government educational institution, exempt persons or entities,
no accreditation is required. the purchasers, transferees
or recipients shall be
3. Transactions in the field of Arts are considered the importers
VAT-exempt only, as provided in thereof, who shall be liable
Section 109(n), if the seller is the for any internal revenue tax
artist himself or the artist’s services on such importation. The tax
performed for the production of due on such importation
such works. shall constitute a lien on the
goods superior to all charges
4. Section 109(p) makes Regional or or liens on the goods,
Area Headquarters exempt from irrespective of the possessor
VAT. thereof.
5. Under Section 109(w) in order for TRANSACTIONS DEEMED SALE:

the sale or lease of real property to
be exempted from VAT, the The following transactions shall be
transaction must NOT be conducted deemed sale therefore making them
in the ordinary course of trade or covered by VAT:
business. It complements Section
106(A)(1)(a) where it states that in (1) Transfer, use or consumption not in
order for the sale or lease of real the course of business of goods or
property to be covered by VAT, it properties originally intended for sale or
must be made in the ordinary course for use in the course of business;
of trade or business. (2) Distribution or transfer to:
(a) Shareholders or investors as
6. Revenue Regulations No. 6-97 adds a share in the profits of the VAT-registered
requirement in order for the lease of persons; or
residential units with a monthly (b) Creditors in payment of debt;
rental of not more than P8,000.00, (3) Consignment of goods if actual sale is
as provided in Section 109(x), to be not made within sixty (60) days following
VAT exempt, that the annual gross the date such goods were consigned; and
receipts must not exceed (4) Retirement from or cessation of
P550,000.00. business, with respect to inventories of
taxable goods existing as of such
7. Section 109(z) provides that the sale retirement or cessation.
or lease of goods or performances of
services other than those mentioned How to determine the VAT: The tax
in the preceding paragraphs are VAT shall be computed by multiplying the
exempt if the Gross Annual Receipts total amount indicated in the invoice by
do not exceed P550,000.00. one-eleventh (1/11).
However, the limitation of
P550,000.00 does apply for those Example: the total amount indicated in
transactions from Section 109(a) to the invoice is P110. P110/11 = P10. P10
(y), except (x) because Revenue is the amount of VAT.
Regulations No. 6-97 imposes a
P550,000.00 limitation. TAX CREDIT AND REFUND
 In cases of tax-free importation Formula for Tax Credit:

of goods into the Philippines Output
by persons, entities or Less: Input
agencies exempt from tax VAT due.
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1
 If Input is greater than Output, HOW TO DETERMINE CREDITABLE INPUT

Tax Credit is available. TAX
The sum of the excess input tax
carried over from the preceding month
"INPUT TAX" means the value-added tax or quarter and the input tax creditable
due from or paid by a VAT-registered to a VAT-registered person during the
person in the course of his trade or taxable month or quarter shall be
business on importation of goods or local reduced
purchase of goods or services, including
lease or use of property, from a VAT-
registered person. It shall also include reduced by the amount of claim for
the transitional input tax determined in refund or tax credit for value-added tax
accordance with Section 111 of the and other adjustments, such as purchase
NIRC. returns or allowances and input tax
attributable to exempt sale.
"OUTPUT TAX" means the value-added The claim for tax credit referred to
tax due on the sale or lease of taxable in the foregoing paragraph shall include
goods or properties or services by any not only those filed with the Bureau of
person registered or required to register Internal Revenue but also those filed
under Section 236 of the NIRC. with other government agencies, such as
the Board of Investments or the Bureau
 If at the end of any taxable of Customs.
quarter the output tax
exceeds the input tax, the The Commissioner within 120 days,
excess shall be paid by the in proper cases, from the date of
VAT-registered person. If the submission of complete documents in
input tax exceeds the output support of the application shall grant a
tax, the excess shall be refund or issue the tax credit certificate
carried over to the for creditable input taxes.
succeeding quarter or
quarters. Any input tax Remedy in case of full, or partial
attributable to the purchase denial, or failure on the part of the
of capital goods or to zero- Commissioner to act upon the
rated sales by a VAT- application for tax credit or refund: the
registered person may at his taxpayer affected may, within thirty (30)
option be refunded or days from the receipt of the decision
credited against other denying the claim or after the expiration
internal revenue taxes, of the one hundred twenty day-period,
subject to the provisions of appeal the decision or the unacted claim
Section 112. with the Court of Tax Appeals.
RETURN AND PAYMENT OF VAT

OPTIONS OF A TAXPAYER AS PROVIDED
IN SECTION 112: Every person liable to pay the value-
1. to claim for tax credit; or added tax shall file a quarterly return of
2. to claim for refund the amount of his gross sales or receipts
within 25 days following the close of
The claim, which must be in writing, each taxable quarter prescribed for each
for both cases, must be filed within 2 taxpayer: Provided, however, That VAT-
years after the close of the taxable registered persons shall pay the value-
quarter when the sales were made for: added tax on a monthly basis.
a) the issuance of a tax credit
certificate; b) refund of creditable input Any person, whose registration has
tax due or paid attributable to such been cancelled in accordance with
sales. Section 236, shall file a return and pay
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1

the tax due thereon within 25 days from his principal place of business or head
the date of cancellation of registration: office and all branches.
Provided, That only one consolidated
return shall be filed by the taxpayer for

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Guillermo

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San Beda College of Law

MEMORY AID IN TAXATION LAW

6. levied for a public purpose.

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

2. Penalty – punishment for the Exemption granted Exemption does

Imposed on Levied only on land TEST IN DETERMINING IF THE IMPOSITION IS A

Not based on any Based wholly on Tax Debt

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

Enforced Sanction imposed LIMITATIONS ON THE TAXING

All embracing A kind of tax B. Promotion of General Welfare Test

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

(1) SITUS OR TERRITORIALITY OF TAXATION Transfer tax Residence or

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TWO METHODS OF RELIEF ARE USED UNDER THE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

1. Prescribe Real Property Values Those who are denied

MEMORY AID IN TAXATION LAW

2. Authority to administer oaths

MEMORY AID IN TAXATION LAW

SOURCES OF REVENUE TESTS ON TAXABILITY OF INCOME

II. NATIONAL TAXATION CRITERIA IN IMPOSING INCOME TAX

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

2. Taxable or Business he, avails of itemized

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW

MEMORY AID IN TAXATION LAW