Taxation Law: San Beda College of Law

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

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

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

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4. Non-impairment of Contracts registration fees are regulatory

Contracts Contracts Contracts may exactions and not revenue measures.
may not be may be be impaired
impaired impaired
b. The tax imposed on videogram
5. Transfer of Property Rights establishments is not only regulatory but
Taxes paid No transfer Transfer is
a revenue measure because the earnings
become part but only effected in
of public restraint in favor of the of such establishments have not been
funds its exercise State subject to tax depriving the government
6. Scope
of an additional source of income. (Tio
All persons, All persons, Only upon a v. Videogram Regulatory Board, 151
property and property, particular SCRA 208)
excises rights and property
privileges c. The “coconut levy funds” were
all raised under the state’s taxing and
Systems of Taxation police powers.
Global System Schedular System The state’s concern to make it a
strong and secure source not only in the
A system A system employed livelihood of the significant segment of
employed where where the income tax the population, but also of export
the tax system treatment varies and
earnings, the sustained growth of which
views is made to depend on
indifferently the the kind or category
is one of the imperatives of the
tax base and of taxable income of economic growth.” Philippine Coconut
generally treats in the taxpayer. Producers Federation, Inc. Cocofed v.
common all Presidential Commission on Good
categories of Government (178 SCRA 236, 252)
taxable income of
the individual. CONSTRUCTION OF TAX LAWS
A system which A system which 1. Public purpose is always presumed.
taxes all itemizes the different 2. If the law is clear, apply the law in
categories of incomes and provides
accordance to its plain and simple
income except for varied percentages
certain passive of taxes, to be tenor.
incomes and applied thereto. 3. A statute will not be construed as
capital gains. It imposing a tax unless it does so
prescribes a clearly, expressly and
unitary but unambiguously.
progressive rate 4. In case of doubt, it is construed most
for the taxable strongly against the Government,
aggregate incomes and liberally in favor of the
and flat rates for
taxpayer.
certain passive
incomes derived 5. Provisions of a taxing act are not to
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
This case reversed the doctrine 2. Civil in nature, not subject to ex
previously held in Republic v. Philippine post facto law prohibitions
Rabbit Bus Lines, Inc., 32 SCRA 211, to 3. Not penal in character
the effect that motor vehicle

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

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6. Margin Fee – exaction designed to

stabilize the currency. Normally paid after Normally paid
7. Debt – a sum of money due upon the start of a before
contract or one which is evidenced business commencement of
business
by judgment.
8. Subsidy – a legislative grant of Taxes, being the License fee may be
money in aid of a private enterprise lifeblood of the with or without
deemed to promote the public State, cannot be consideration
welfare. surrendered except
9. Customs duties and fees – duties for lawful
charged upon commodities on their consideration
being transported into or exported
from a country. Non-payment does Non-payment
10. Revenue – a broad term that not make the makes the business
business illegal but illegal
includes taxes and income from
maybe a ground for
other sources as well. criminal
11. Impost – in its general sense, it prosecution
signifies any tax, tribute or duty. In
its limited sense, it means a duty on TEST IN DETERMINING IF THE IMPOSITION IS A
imported goods and merchandise. TAX OR A LICENSE FEE
If the purpose is primarily revenue
Tax Special or if revenue is, at least, one of the real
Assessment and substantial purposes, then the
exaction is a tax. If the purpose is
Imposed on persons, Levied only on land
property and excises
regulatory in nature, it is a license.
(PAL v. Edu)
Personal liability Cannot be made a
attaches on the personal liability of Tax Debt
person assessed in the person assessed
case of non-payment An obligation Created by contract
imposed by law
Not based on any Based wholly on
special or direct benefit Due to the May be due to the
benefit
government in its government but in
sovereign capacity its corporate
Levied and paid Exceptional both as
capacity
annually to time and locality
Payable in money Payable in money,
Exemption granted Exemption does not
property or services
is applicable (Art. apply.
VI, Sec. 28(3) 1987 N.B. If property is
Constitution) exempt from Real Does not draw Draws interest if
Property Tax, it is interest except in stipulated or
also exempt from case of delinquency delayed
Special Assessment.
Not assignable Assignable
Tax License Fee Not subject to Subject to
compensation or compensation or
Based on the power Emanates from set-off set-off
of taxation police power
Non-payment is No imprisonment in
To generate Regulatory punished by case of non-payment
revenue imprisonment (Art. III, Sec. 20
except in poll tax 1987 Constitution)
Amount is unlimited Amount is limited
to the cost of (1) Imposed only by Can be imposed by
issuing the license, public authority private individual
and (2) inspection
and surveillance

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TEST IN DETERMINING IF THE IMPOSITION IS A compensation takes place by operation

TAX OR A LICENSE FEE of law. (Domingo v. Garlitos)
If the purpose is primarily revenue or
if revenue is, at least, one of the real DOCTRINE OF EQUITABLE RECOUPMENT NOT
and substantial purposes, then the FOLLOWED IN THE PHILIPPINES
exaction is a tax. If the purpose is A tax presently being assessed
regulatory in nature, it is a license. against a taxpayer which has prescribed
(PAL v. Edu) may not be recouped or set-off against
an overpaid tax the refund of which is
Tax Debt also barred by prescription. It is against
public policy since both parties are
An obligation Created by contract guilty of negligence.
imposed by law
Tax Toll
Due to the May be due to the
government in its government but in Enforced A sum of money for
sovereign capacity its corporate proportional the use of
capacity contributions from something, a
persons and property consideration which
Payable in money Payable in money, is paid for the use of
property or services a property which is
of a public nature;
Does not draw Draws interest if e.g. road, bridge
interest except in stipulated or
case of delinquency delayed 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
Non-payment is No imprisonment in
punished by case of non- Imposed only by the May be imposed by:
imprisonment payment (Art. III, State (1) Government
except in poll tax Sec. 20 1987 (2) Private
Constitution) individuals or
entities
Imposed only by Can be imposed by
public authority private individual Tax Penalty
COMPENSATION OR SET-OFF Enforced Sanction imposed as

General Rule: Taxes cannot be the proportional a punishment for
subject of compensation or set-off. contributions from violation of a law
persons and or acts deemed
Reasons:
property injurious; violation
1. lifeblood theory of tax laws may give
2. taxes are not contractual rise to imposition of
obligation but arise out of duty penalty
to the government
3. the government and the Intended to raise Designed to regulate
taxpayer are not mutually revenue conduct
creditors and debtors of each
other. (Francia v. IAC) May be imposed May be imposed by:
Exception: When both obligations are only by the (1) Government
government (2) Private
due and demandable as well as fully
individuals or
liquidated and all the requisites for a entities
valid compensation are present,

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Tax Tariff (2) NON-DELEGABILITY OF THE TAXING

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

b. Promotion of General Welfare Test
tax is physically located
– whether the proceeds of the tax or permanently kept
will directly promote the welfare of (Lex rei sitae)
the community in equal measure. -intangible: subject
to Sec. 104 of the
NIRC and the

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principle of mobilia bonds have acquired a business

sequuntur personam situs in the Philippines; and
(5) shares or rights in any
partnership, business or industry
Business tax Place of business established in the Philippines.
(Sec. 104, 1997 NIRC).
Excise or Privilege Where the act is
tax performed or where
occupation is (4) EXEMPTION OF THE GOVERNMENT
pursued As a matter of public policy,
property of the State and of its
Sales tax Where the sale is municipal subdivisions devoted to
consummated government uses and purposes is
deemed to be exempt from taxation
Income Tax Consider although no express provision in the law
(1) citizenship, is made therefor.
(2) residence, and
(3) source of income
(Sec. 42, 1997 NIRC) General Rule: The Government is tax
exempt.
Transfer tax Residence or - However, it can also tax itself.
citizenship of the
taxpayer or location RULES:
of property 1. Administrative Agencies
a. Governmental function - tax
Franchise Tax State which granted exempt unless when the law
the franchise expressly provides for tax. (Sec.
32 B7)
SITUS OF TAXATION OF INTANGIBLE PERSONAL b. Proprietary function – taxable
PROPERTY unless exempted by law. (Sec.
General Rule: Domicile of the owner 27C)
pursuant to the principle of the mobilia 2. GOCCs
sequuntur personam or movables follow General Rule: Income is taxable at
the person. the rate imposed upon corporations
Exceptions: or associations engaged in a similar
1. When the property has acquired a business, industry, or activity.
business situs in another jurisdiction; Exception: GSIS, SSS, PHIC, PCSO
2. When an express provision of the and PAGCOR. (Sec. 27(C), NIRC)
statute provide for another rule. 3. Government Educational Institutions
Illustration: For purposes of estate a. Property or real estate tax –
and donor’s taxes, the following property actually, directly and
intangible properties are deemed exclusively used for educational
with a situs in the Philippines: purposes – exempt but income
(1) franchise which must be of whatever kind and character
exercised in the Philippines; from any of their properties,
(2) shares, obligations or bonds real or personal, regardless of
issued by any corporation the disposition, is taxable. (Sec.
organized or constituted in the 30, last par., NIRC)
Philippines in accordance with b. Income received by them as
its laws; such are exempt from taxes.
(3) shares, obligations or bonds by However, their income from any
any foreign corporation eighty- of their activities conducted for
five percent (85%) of the profit regardless of the
business of which is located in disposition, is taxable. (Sec. 30,
the Philippines; last par., NIRC)
(4) shares, obligations or bonds 4. Income derived from any public
issued by any foreign corporation utility or from the exercise of any
if such shares, obligations or essential governmental function

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

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4. Non-Infringement Of Religious process of liabilities should

Freedom And Worship (Art. III, Sec. law. imposed. therefore,
5, 1987 Constitution) Notice be no direct
A license tax or fee constitutes a must, double
therefore taxation
curtailment of religious freedom if
, be given
imposed as a condition for its in case of
exercise. (American Bible Society failure to
vs. City of Manila, GR No. L-9637, pay taxes
April 30, 1957)
B. SPECIFIC OR DIRECT
5. Non-Impairment Of Contracts (Art. CONSTITUTIONAL LIMITATIONS
III, Sec. 10, 1987 Constitution)
No law impairing the obligation 1. Non-Imprisonment For Debt Or Non-
of contract shall be passed. (Sec. Payment Of Poll Tax (Art. III, Sec.
10, Art. III, 1987 Constitution) 20, 1987 Constitution)
The rule, however, does not
apply to public utility franchises or 2. Rule Requiring That Appropriations,
right since they are subject to Revenue And Tariff Bills Shall
amendment, alteration or repeal by Originate Exclusively From The
the Congress when the public House Of Representatives (Art. VI,
interest so requires. (Cagayan Sec. 24, 1987 Constitution)
Electric & Light Co., Inc. v.
Commissioner, GR No. 60216, 3. Uniformity, Equitability And
September 25, 1985) Progressivity Of Taxation (Art. VI,
Sec. 28(1), 1987 Constitution)
RULES: Uniformity – all taxable articles or
a. When the exemption is bilaterally kinds of property of the same class
agreed upon between the are taxed at the same rate.
government and the taxpayer – it Equitability – the burden falls to
cannot be withdrawn without those who are more capable to pay.
violating the non-impairment Progressivity – rate increases as the
clause. tax base increases.
b. When it is unilaterally granted by
law, and the same is withdrawn by Q: Is a tax law adopting a regressive
virtue of another law – no violation. system of taxation valid?
c. When the exemption is granted A: Yes. The Constitution does not
under a franchise – it may be really prohibit the imposition of indirect
withdrawn at any time thus, not a taxes which, like the VAT, are
violation of the non-impairment of regressive. The Constitutional provision
contracts means simply that indirect taxes shall be
minimized. The mandate to Congress is
6. Presidential power to grant not to prescribe, but to evolve, a
reprieves, commutations and progressive tax system. (EVAT En Banc
pardons and remit fines and Resolution, Tolentino, et al vs Secretary
forfeitures after conviction (ART. of Finance, October 30, 1995)
VII, SEC. 19, 1987 CONSTITUTION)
Due Equal 4. Limitations On The Congressional
Uniformity
Process Protection Power To Delegate To The
Taxpayer Taxpayers Taxable President The Authority To Fix
may not shall be articles, or
be treated alike kinds of
Tariff Rates, Import And Export
deprived under like property of Quotas, Etc. (Art. VI, Sec. 28(2),
of life, circumstances the same 1987 Constitution)
liberty or and conditions class, shall
property both in the be taxed at 5. Tax Exemption Of Properties
without privileges the same Actually, Directly And Exclusively
due conferred and rate. There Used For Religious, Charitable And

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1
Educational Purposes. (Art. VI, Exemption (Art. VI, Sec. 28(4),

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

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1
This constitutes a violation of the output tax or tax on the finished

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

Cabrera, Jhundee
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1
deduction method which allows foreign INCIDENCE OF TAXATION – point on which

income taxes to be deducted from gross the tax burden finally rests or settles
income, in effect exempting the down.
payment from being further taxed.) Illustration: Value added tax. The
2. The credit method- although the seller is required by law to pay tax, but
income or capital which is taxed in the the burden is actually shifted or passed
state of source is still taxable in the on to the buyer.
state of residence. The tax paid in the
former is credited against the tax, levied KINDS OF SHIFTING
in the latter.(Commissioner of Internal a. Forward shifting- when burden of
Revenue v. S.C Johnson and Son, Inc. et tax is transferred from a factor of
al., G.R No. 127105, June 25, 1999) production through the factors of
distribution until it finally settles on
Exemption the ultimate purchaser or consumer
Credit Method b. Backward shifting- when burden is
Method
Focus is on the Focus is on the tax transferred from consumer through
income or capital factors of distribution to the factors
itself of production
c. Onward shifting- when the tax is
NOTE: Computational illustration shifted 2 or more times either
between a tax deduction and a tax forward or backward
credit:
(2) CAPITALIZATION – a mere increase in
Tax deduction method the value of the property is not income
Gross income but merely an unrealized increase in
Less: allowable deductions capital. No income until after the
including actual sale or other disposition of the
foreign taxes paid property in excess of its original cost.
Income subject to tax EXCEPT: if by reason of appraisal, the
Multiplied by rate cost basis of property increased and the
Income tax due resultant basis is used as the new tax
base for purposes of computing the
Tax credit method allowable depreciation expense, the net
Gross income difference between the original cost
Less: allowable deductions basis and new basis is taxable under the
excluding economic benefit principle. (BIR Ruling
foreign taxes paid No. 029, March 19, 1998)
Income subject to tax
Multiplied by rate (3) TRANSFORMATION – the manufacturer
Income tax due or producer upon whom the tax has been
Less: foreign taxes paid imposed, fearing the loss of his market if
Net income tax due he should add the tax to the price, pays
the tax and endeavors to recoup himself
by improving his process of production,
FORMS OF ESCAPE thereby turning out his units at a lower
FROM TAXATION cost.
(4) TAX AVOIDANCE – the exploitation by

(1) SHIFTING – the process by which the
the taxpayer of legally permissible
tax burden is transferred from the
alternative tax rates or methods of
statutory taxpayer (impact of taxation)
assessing taxable property or income, in
to another (incident of taxation) without
order to avoid or reduce tax liability.
violating the law.
Example: “estate planning”
(conveyance of property to a family
IMPACT OF TAXATION – point on which tax
corporation for shares) (Delpher Trades
is originally imposed.
Corp. vs. IAC, 157 SCRA 349)

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1
(5) TAX EVASION – use by the taxpayer of b. Statutory – those which emanate
illegal or fraudulent means to defeat or from legislation
lessen the payment of the tax. Examples of Statutory Exemptions
Sec. 27, NIRC
FACTORS IN TAX EVASION Sec. 105 Tariff and Customs
1. the end to be achieved, i.e. payment Code
of less than that known by the taxpayer Sec. 234 Local Government Code
to be legally due, or paying no tax when Special Laws, such as the
it is shown that the tax is due; Omnibus Investment Code of 1987
2. an accompanying state of mind (EO 226), Philippine Overseas
which is described as being evil, in bad Shipping Act (RA 1407 as amended),
faith, willful, or deliberate and not Fertilizer Industry Act (RA 3050, as
coincidental; and amended), Mineral Resources
3. a course of action which is unlawful. Development Decree of 1974 (PD 463
as amended), Cottage Industry Act
INDICIA OF FRAUD IN TAX EVASION (RA 318, as amended) and
1. Failure to declare for taxation exemptions in “Housing for Low
purposes true and actual income derived Income Group” (PD 1205, as
from business for 2 consecutive years amended)
(Republic vs Gonzales, L-17962) c. Contractual- agreed to by the
2. Substantial under-declaration of taxing authority in contracts
income tax returns of the taxpayer for 4 lawfully entered into by them
consecutive years coupled with under enabling laws
intentional overstatement of deductions d. Treaty
(CIR vs Reyes, 104 PHIL 1061) e. Licensing Ordinance
2. As to form
TAX TAX (1) Express – expressly granted by
AVOIDANCE EVASION organic or statute law
(2) Implied – when particular
Validity Legal and not Illegal and persons, property or excises are
subject to subject to deemed exempt as they fall
criminal penalty criminal outside the scope of the taxing
penalty
provision itself.
Effect Minimization of Almost 3. As to extent
taxes always (1) Total – absolute immunity
results in (2) Partial – one where a collection
absence of of a part of the tax is dispensed
tax payments with
4. As to object
(6) TAX EXEMPTION – a grant of (1) Personal – granted directly in
immunity to particular persons or favor of certain persons
corporations from the obligation to pay (2) Impersonal – granted directly in
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.

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1
c. He who claims exemption should which then becomes contractual and

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

Cabrera, Jhundee
Guillermo
1
character of the acts charged in the of import entry was merely tentative.”
information. (Sec 1603,TCC)
Tax amnesty Tax exemption c.) Local Government Code

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

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

Cabrera, Jhundee
Guillermo
1
2. Where the facts subsequently BIR shall be under the supervision

gathered by the BIR is materially and control of the Dept. of Finance (Sec.
different from the facts on which 2, NIRC)
the ruling is based.
3. Where the taxpayer acted in bad POWERS AND DUTIES OF THE BIR
faith. Assessment and collection of all
national internal revenue taxes, fees,
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN and charges
ADMINISTRATIVE INTERPRETATION THROUGH 1. Enforcement of all forfeitures,
REENACTMENT penalties, and fines connected
Where a statute is susceptible of the therewith
meaning placed upon it by a ruling of 2. Execution of judgments in all cases
the government agency charged with its decided in its favor by the Court of
enforcement and the legislature Tax Appeals (CTA) and the ordinary
thereafter reenacts the provision courts
without substantial change, such action 3. Give effect to and administer the
is to some extent confirmatory that the supervisory and police powers
ruling carries out the legislative conferred to it by the Code or other
purpose. laws
RULE OF NO ESTOPPEL AGAINST THE ASSESSMENT – a finding by the taxing

GOVERNMENT authority that the taxpayer has not paid
General Rule: The Government is not the correct taxes. It is also a written
estopped by the mistakes or errors of its notice to a taxpayer to the effect that
agents; erroneous application and the amount stated therein is due as a
enforcement of law by public officers do tax and containing a demand for the
not bar the subsequent correct payment thereof.
application of statutes. (E. Rodriguez, General rule: Taxes are self-assessing
Inc. vs. Collector, L-23041, July 31, and thus, do not require the issuance of
1969) an assessment notice in order to
Exception: In the interest of justice and establish the tax liability of a taxpayer.
fair play, as where injustice will result
Exceptions:
to the taxpayer. (see CIR vs. CA, GR No.
117982, Feb. 6, 1997; CIR vs. CA, GR No. 1. Tax period of a taxpayer is
107135, Feb. 3, 1999) terminated [Sec. 6(D), NIRC]
2. Deficiency tax liability arising from a
AGENCIES INVOLVED IN TAX ADMINISTRATION tax audit conducted by the BIR [Sec.
1. Bureau of Internal Revenue 56(B), NIRC]
– internal revenue taxes 3. Tax lien [Sec. 219, NIRC]
Agents of the CIR 4. Dissolving corporation [Sec. 52(c),
a. Commissioner of Customs with NIRC]
respect to taxes on imported goods
b. head of the appropriate SIGNIFICANCE OF ASSESSMENT
government office with respect to a. In the proper pursuit of judicial and
energy tax extrajudicial remedies to enforce
c. banks duly accredited by the CIR taxpayer liabilities and certain
(Sec. 12, 1997 NIRC) matters that relate to it, such as the
2. Bureau of Customs – customs law imposition of surcharges and
enforcement interests,
3. Provincial, city and municipal b. In the application of statute of
assessors and treasurers – local and limitations,
real property taxes c. In the establishment of tax liens,
and
ORGANIZATION AND FUNCTION OF THE d. In estimating the revenues that may
BUREAU OF INTERNAL REVENUE (BIR) be collected by government in the
coming year. (Mamalateo,

Cabrera, Jhundee
Guillermo
1
Victorino. Reviewer on Taxation,

2004)
KINDS 4. The authority of the Commissioner

1. SELF- ASSESSMENT- one in which the to assess taxes may be delegated,
tax is assessed by the taxpayer except the power to make final
himself assessments.
2. DEFICIENCY ASSESSMENT- made by the 5. It must be directed to the right
tax assessor himself whereby the party.
correct amount of the tax is
determined after an examination or Authority of a Revenue Officer -
investigation is conducted. The pursuant to a Letter of Authority issued
liability is determined and assessed by the Regional Director
for the following reason: a. To examine taxpayers within
a. amount ascertained exceeds that the jurisdiction of the district in
which is shown as the tax by the order to collect the correct
taxpayer in his return amount of tax;
b. no amount of tax is shown in the b. To recommend the assessment of
return any deficiency tax due in the
c. taxpayer did not file any return same manner that the said acts
at all could have been performed by the
3. ILLEGAL AND VOID ASSESSMENT- Revenue Regional Director.
assessment wherein tax assessor has General Rule: income tax returns are
no power to assess at all confidential.
4. ERRONEOUS ASSESSMENT- assessor has Exception: inquiry into income tax
power to assess but errs in the returns may be authorized-
exercise thereof
1. inspection is authorized upon
BURDEN OF PROOF IN PRE-ASSESSMENT written order of the President of the
PROCEEDINGS Philippines;
There is a presumption of 2. inspection is authorized under
correctness and good faith on the part of Finance Regulations No. 33 of the
the CIR; thus, the burden lies on the Secretary of Finance;
taxpayer. Otherwise, the finding of the 3. production of the tax return is
CIR will be conclusive and he will assess material evidence in a criminal case
the taxpayer. The same is true even if wherein the government is
the CIR is wrong, if the taxpayer does interested in the result; or
not controvert. (Cagayan Robina Sugar 4. production or inspection thereof is
Milling Co. vs. Court of Appeals, GR. authorized by the taxpayer himself.
No. 122451, October 12, 2000)
Reasons: a. lifeblood theory Networth Method- inventory method of
b. presumption of regularity in income tax verification.
performance of public
functions  Applies the accounting principle:
NOTE: Assessments by the BIR must have assets – liabilities = networth
on its face the law and facts upon which Condition for its use:
the presumption is made. 1. taxpayer’s books do not clearly
reflect his income or the taxpayer
PRINCIPLES GOVERNING TAX ASSESSMENTS has no books, or if he has books, he
1. Assessments are prima facie refuses to produce them;
presumed correct and made in good 2. there is evidence of possible source
faith. or sources of income to account for
2. It should be based on actual facts. increases in networth;
3. It is discretionary on the part of the 3. there is a fixed starting point or
Commissioner. opening networth; and

Cabrera, Jhundee
Guillermo
1
4. there must be proper adjustments to ii. any officer or employee of such

conform with the income tax laws. person or
iii. any person having in his
possession/custody/care
POWERS AND DUTIES OF THE COMMISSIONER -- the books of accounts,
I. SECTION 4 (power to interpret tax law -- accounting records of entries
and decide tax cases) relating to the business of the
person liable for tax or any other
1. Interpret provisions of this Code and person
other tax laws subject to review of the -- to produce such books,
Secretary of Finance papers, records, and other data
(Quasi-legislative) and to give testimony
2. Decide: (Quasi-judicial) 4. to take the Testimony of the person
a) disputed assessment concerned, under oath as may be
b) refunds of internal relevant to the inquiry
revenue taxes, fees and charges 5. to cause revenue officers and
c) penalties imposed in employees to make a Canvass of any
relation thereto revenue district or region
d) other matters arising
from this Code or other laws or Nothing in Section 5 shall be
portions thereof administered by construed as granting the Commissioner
the BIR subject to the exclusive the authority to inquire into bank
appellate jurisdiction of the CTA deposits other than as provided for
(Sec. 4) under sec. 6 (F) of the Code.
II. SECTION 5 (power to obtain III. SECTION 6 (power to make

information, summon, examine and take assessments, prescribe additional
testimony of persons) requirements for tax administration
and enforcement)
3. For the Commissioner to ascertain:
(a) correctness of any return or in 4. Examination of returns and
making a return where none has determination of tax due
been made A. After a return has been filed the
(b) liability of any person for any Commissioner or his
internal revenue tax or in representative may authorize
correcting such liability i.
(c) tax compliance the Examination of any taxpayer
and
The Commissioner is authorized: ii.
1. to Examine any relevant Book, paper, the Assessment of the correct
record or other data amount of tax;
2. to Obtain any information (costs, B. F
volume of production, receipts, sales, ailure to file a return shall not
gross income, etc), on a regular basis prevent the commissioner from
from: authorizing the examination of
i. any person other than the person any taxpayer;
under investigation or * Any tax or deficiency tax so
ii. any office or officer of the assessed shall be paid upon
national/local government, gov’t notice and demand from the
agencies and instrumentalities Commissioner or his
(Bangko Sentral, gov’t owned and representative
controlled corporations) (e.g. LTO, * Any return, statement or
Register of Deeds) declaration filed in any
3. to Summon authorized office shall not be
i. the person liable for tax or withdrawn; but within three
required to file a return or years from date of filing, the

Cabrera, Jhundee
Guillermo
1
same may be modified, Receipts or Commercial

changed or amended; Invoices) or
provided that no notice for ii. When the books of accounts
audit or investigation of such or records do not correctly
return, has in the meantime, reflect the declarations made
been actually served upon the or required to be made in a
taxpayer. return,
Such minimum amount shall
5.Failure to submit required returns and be considered correct.
other documents 7. Terminate taxable period
If a person Commissioner shall declare the tax
i. fails to file a required return or period of a taxpayer Terminated and
report at the time prescribed or send notice to the taxpayer of such
ii. willfully or otherwise files a decision with a request for immediate
false or fraudulent return, payment of the tax when it has come to
The Commissioner shall Make or the knowledge of the Commissioner:
Amend the return from a) that a taxpayer is retiring from
i. his own knowledge or business subject to tax or
ii. from such b) is intending to leave the Phils.
information as he can obtain or
through testimony or otherwise c) to remove his property
which shall be prima facie therefrom or
correct and sufficient for all d) to hide or conceal his property
legal purposes or
e) is performing any act tending to
6.Inventory-taking, Surveillance, obstruct the proceedings for
Presumptive Gross Sales the collection of tax
A. Commissioner may, at any time
during the taxable year 8. Prescribe Real Property Values
(a) order the inventory taking of The Commissioner is authorized to:
goods of any taxpayer or a. Divide the Phils. into different
(b) may place the business zones or areas and
operations of any person b. Determine the fair market value
(natural/juridical) under of real properties located in each
observation or Surveillance, zone or area
if there is reason to
believe that such is not For tax purposes, the value of
declaring his correct income, the property shall be whichever is
sales or receipts for tax higher of:
purposes. a) Fair market value as
The findings may be used determined by the
as basis for assessing the Commissioner; or
taxes and shall be deemed b) Fair market value as shown in
prima facie correct. the schedule of values of the
provincial and city assessors.
B. Commissioner may prescribe a
Minimum amount of gross 9. Authority to Inquire into Bank
receipts, sales and taxable base Deposit
(taking into account the sales and Notwithstanding R.A. 1405 (Bank
income of other persons engaged Secrecy Law) the Commissioner is
in similar business): authorized to inquire into the Bank
i. When a person has failed to deposits of:
issue receipts as required by (a) a decedent to determine his gross
sec.113 (Invoice requirements estate
for VAT-registered persons) (b) a taxpayer who has filed an
and Sec. 237 (Issuance of application to compromise

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payment of tax liability by reason modify any existing rule of the

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

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subject to excise tax are produced – tax on income,

or kept (Sec. 16) whether gross or net. (27 Am. Jur.
308)
17. Authority to assign or reassign
internal revenue officers and INCOME – all wealth, which flows into the
employees of the BIR to other or taxpayer other than as a mere
special duties connected with the return of capital.
enforcement or administration of
the revenue laws (Sec. 17) CAPITAL – resource of person, which
can be used in producing goods
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED
TO INSTITUTE APPEAL PROCEEDINGS WITHOUT
and services.
THE PARTICIPATION OF THE SOLICITOR Income Capital
GENERAL?
NO. The institution or All wealth, which Fund or property
flows into the which can be used
commencement before a proper court of
taxpayer other than in producing goods
civil and criminal actions and as a mere return of or services
proceedings arising under the Tax capital.
Reform Act which shall be conducted by
legal officers of the BIR is not in dispute. Flow of Wealth Fund or property
An appeal from such court, however, is
not a matter of right. It is still the Source of wealth Wealth
Solicitor General who has the primary
responsibility to appear for the REQUISITES FOR INCOME TO BE TAXABLE
government in appellate proceedings. 1. There must be a gain or profit.
(Commissioner vs. La Suerte Cigar and 2. The gain must be realized or
Cigarette Factory, GR No. 144942, July received.
4, 2002) 3. The gain must not be excluded by
law or treaty from taxation.
SOURCES OF REVENUE
The following taxes, fees and TESTS ON TAXABILITY OF INCOME
charges are deemed to be national 1. Flow of Wealth Test – The
internal revenue taxes. (Sec. 21, NIRC) determining factor for the
1. Income tax imposition of income tax is
2. Estate and donor's taxes whether any gain was derived
3. Value-added tax from the transaction.
4. Other percentage taxes 1. Realization Test - unless the
5. Excise taxes income is deemed "realized,"
6. Documentary stamp taxes there is no taxable income.
7. Such other taxes as are or hereafter 2. Economic-Benefit Principle
may be imposed and collected by Test
the Bureau of Internal Revenue. -flow of wealth realized is
taxable only to the extent that
the taxpayer is economically
II. NATIONAL TAXATION benefited.
A. INCOME TAXATION CRITERIA IN IMPOSING INCOME TAX

1. Citizenship Principle – A citizen of
DEFINITIONS the Philippines is subject to Philippine
INCOME TAX – tax on all yearly profits income tax (a.) on his worldwide
arising from property, possessions, income, if he resides in the Philippines,
trade or business, or as a tax on a or (b.) only on his income from sources
person’s income, emoluments, within the Philippines, if he qualifies as
profits and the like (61 CJS 1559) nonresident citizen.
2. Residence Principle – resident alien
is liable to pay income tax on his income

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from sources within the Philippines but or for employment on a

exempt from tax on his income from permanent basis;
sources outside the Philippines. c. who works and derives income
3. Source Principle – An alien is subject from abroad and whose
to Philippine income tax because he employment thereat requires
derives income from sources within the him to be physically present
Philippines. Thus, a nonresident alien is abroad most of the time during
liable to pay Philippine income tax on the taxable year;
his income from sources within the d. who is previously considered as a
Philippines such as dividend, interest, non-resident and who arrives in
rent, or royalty, despite the fact that he the Philippines at anytime during
has not set foot in the Philippines. the taxable year to reside
CLASSIFICATION OF TAXPAYERS thereat permanently shall be
considered non-resident for the
Individuals taxable year in which he arrives
a. citizens in the Philippines with respect to
(1) resident citizens (RC) his income derived from sources
(2) non-resident citizens (NRC) abroad until the date of his
b. aliens arrival [Sec.22 (E), NIRC]
(1) resident aliens (RA)
(2) non-resident aliens (NRA) NOTE: An overseas contract worker
(a) engaged in trade or (OCW) is taxable only on income
business within the derived from sources within the
Phils. (NRAETB) Philippines. [Sec. 23 (B)(C)]
(b) not engaged in trade or A seaman is considered as an
business within the OCW provided the following
Philippines (NRANETB) requirements are met:
1. receives compensation for services
Corporations rendered abroad as a member of
a. Domestic (DC) the complement of a vessel; and
b. Foreign 2. such vessel is engaged exclusively
(1) resident foreign corporation in international trade.
(RFC)
(2) non-resident foreign Based on the above provisions,
corporation (NRFC) there are three (3) types of
Estates nonresident citizens, namely: (1)
Trusts immigrants; (2) employees of a foreign
Partnerships entity on a permanent basis; and
(3) overseas contract workers.
Immigrants and employees of a foreign
A. INDIVIDUALS entity on a permanent basis are
treated as nonresident citizens from
WHO ARE TAXABLE? the time they depart from the
1. Resident Citizen Philippines. However, overseas
2. Non-resident Citizen contract workers must be physically
A non-resident citizen means, a present abroad most of the time
Filipino citizen: during the calendar year to qualify as
a. who establishes to the nonresident citizens.
satisfaction of the Commissioner 3. Resident alien - means an individual
the fact of his physical presence whose residence is within the
abroad with a definite intention Philippines and who is not a citizen
to reside therein; thereof. [Sec.22 (F, NIRC)]
b. who leaves the Philippines 4. Non-resident alien engaged in
during the taxable year to reside trade or business within the
abroad, either as an immigrant Philippines. (NRAETB)

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A non-resident alien means an

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

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RULES ON TAXABILITY OF ESTATE estate becomes liable for the

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

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RULES ON TAXABILITY OF THE INCOME OF A benefit of some or all of his

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

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assimilated to be within the context net income of the partnership.

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

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KINDS OF INCOME TAXES  See Annex D for detailed discussion

UNDER THE NIRC of items.
KINDS OF DIVIDENDS
1. Net Income Tax 1. Cash and Property Dividends
2. Optional Corporate Income tax Individual Taxpayer
3. Minimum Corporate Income Tax a. From Domestic Corporations
4. Improperly Accumulated Earnings
 RC, NRC, RA – 10% (Sec.
Tax
24A)
5. Preferential Rates or Special Rates
 NRAETB – 20% (Sec. 25A2)
of Income Tax
 NRANETB – 25% on gross
6. Gross Income Tax
income (Sec. 25B)
7. Final Income Tax
b. From Foreign Corporations
8. Fringe Benefits Tax
9. Capital Gains Tax  RC, NRC, RA, NRAETB – 5-
32% (Sec. 24, 25A1)
(1) NET INCOME TAX
 NRANETB – 25% on gross
income (Sec. 25B)
DEFINITION: Means gross income less
deductions and/or personal and
Corporate Taxpayer
additional exemptions (Sec. 31, NIRC)
a. Foreign to Domestic Corp. – 32%
(Sec. 32A)
NET INCOME TAX FORMULA
b. Domestic to Domestic Corp. –
Entire Income
Exempt; intercorporate
Less: Exclusions and Income subject
dividends (Sec. 27D)
to Final Tax (e.g. Passive
c. Domestic to Foreign Corp. -
Income)
 Resident Foreign Corp. –
Gross Income
Exempt (Sec. 28 [A] 7d)
Less: Deductions (and/or additional
exemptions, if applicable)  Nonresident Foreign Corp. –
Net Taxable Income 15% subject to the condition
Multiply by: Tax Rate (%) stated in Sec. 28 [B] 5.
Otherwise, it shall be taxed
Net Income Tax Due at 32%. (See Commissioner
Less: Tax Credit, if any vs. Procter and Gamble, GR
Tax Still due, if any No. 66838, December 2,
1991)
GROSS INCOME
2. Stock Dividends
DEFINITION: Means all income derived General rule: Not subject to tax
from whatever source, including but not because it does not constitute
limited to the following (Sec. 32) income; it represents transfer of
a. Compensation; surplus to capital account. (Sec.
b. Gross income from profession, trade 73B, 1997 NIRC)
or business; Exceptions:
c. Gains form dealings in property; a. Sec. 73B, 1997 NIRC
d. Interests; (1) there is redemption or
e. Rents; cancellation
f. Royalties; (2) the transaction involves
g. Dividends; stock dividends, and
h. Annuities; (3) the “time and manner” of
i. Prizes and winnings; the transaction makes it
j. Pensions; “essentially equivalent to a
k. Partner’s share in the net income of distribution of taxable
the general professional partnership dividends”. (see
Commissioner vs. Court of
Appeals, Court of Tax

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Appeals & ANSCOR, GR No. premiums or considerations paid

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

NOTE: if such amounts (when added gratuities, etc.
to amounts already received before a. those derived under R.A. 7641
the taxable year under such (pertains to private firms
contracts) exceed the aggregate without retirement trust fund);

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b. those received by officials and exercise of any governmental

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

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1
(2) personal additional

DEFINITION: Items or amounts which the exemptions
law allows to be deducted from gross b. gross income from business or
income in order to arrive at the taxable practice of profession
income. (1) Optional Standard Deduction
(OSD)
BASIC PRINCIPLES GOVERNING DEDUCTIONS (2) Itemized deductions
a. The taxpayer seeking a deduction (3) premium payments on health
must point to some specific and/or hospitalization
provisions of the statute authorizing insurance
the deduction; and (4) personal additional
b. He must be able to prove that he is exemptions
entitled to the deduction authorized 2. Corporations
or allowed. (Atlas Consolidated  Itemized Deductions
Mining & Dev. Corp. vs.
Commissioner, GR No. L-26911,
January 21, 1981) KINDS OF DEDUCTIONS
c. Any amount paid or payable which is a. Optional standard deductions (OSD)
otherwise deductible from, or taken –10% of the gross income.
into account in computing gross The OSD may be availed of
income or for which depreciation or only by individuals (except
amortization may be allowed, shall nonresident alien) who are not
be allowed as deduction only if it is purely compensation income
shown that the tax required to be earners.
deducted and withheld therefrom b. Personal and additional exemptions
has been paid to the BIR. [Sec. Available only to individuals
34(K), NIRC] (business income and compensation
income earners).
NOTE: Deductions for income tax
purposes partake of the nature of tax NRAETB may be entitled to
exemptions; hence, if tax exemptions personal exemptions (only) subject
are to be strictly construed, then it to reciprocity, i.e.,
follows that deductions must also be a. the country of which he is a
strictly construed. subject or citizen has an income
tax law; and
TAXPAYERS WHO CANNOT AVAIL OF b. the income tax law of his
DEDUCTIONS FROM GROSS INCOME country allows personal
1. Citizens and resident aliens whose exemption to citizens of the
income is purely compensation Philippines not residing therein,
income (except for premium but deriving income therefrom
payments on health and/or and not to exceed the amount
hospitalization insurance); allowed in NIRC.
2. Non-resident aliens not engaged in
trade or business in the Philippines; The personal exemption shall be
and equal to that allowed by the income
3. Non-resident foreign corporation tax law of his country to a citizen of
the Philippines not residing therein,
CLASSES OF DEDUCTIONS or the amount provided in the NIRC,
1. Individuals whichever is lower.
a. with gross compensation income
from employer-employee Individuals not entitled to these
relationship only exemptions:
(1) premium payments on health a. Non-resident Alien not engaged
and/or hospitalization in trade or business
insurance

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

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

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those who have retired from shall determine his exemptions.

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

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

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2. Interest paid on indebtedness

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

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year of receipt to the extent of the Taxable

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

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

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

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b. Losses resulting from securities expenditures pertaining thereto

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

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REQUISITES FOR DEDUCTIBILITY International Rubber, GR No. L-

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

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

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2. Declining-balance method 1. Petroleum Operations

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

1. Straight Line Method with estimated resident aliens engaged in
life = 5 years trade/business or non-resident
15,000 – 5,000 = P2,000 corporation
5 years a. Only when such property is
located in the Philippines.
2. Declining balance with rate of 200%
Year 1: 15,000 – 0 x 200% = P6,000 G. DEPLETION OF OIL AND GAS
5 WELLS AND MINES
Year 2:15,000–6,000 x 200% =P3,600
5
DEPLETION - exhaustion of natural
resources as in mines, oil, and gas
3. Sum of the years digits
wells. The natural resources are called
SYD for 5 years = 5+4+3+2+1 or 15
“wasting assets”. As the physical units
Year 1: 5/15 x (15,000 – 5,000)
representing such resources are
= P3,333.33
extracted and sold, such assets move
Year 2: 4/15 x (15,000 – 5,000)
towards exhaustion.
= P2,666.67
Known as cost of depletion
allowance for mines, oil gas wells and
AGREEMENT AS TO USEFUL LIFE ON WHICH
other natural deposits starting calendar
DEPRECIATION RATE IS BASED
year 1976 and fiscal year beginning July
The Bureau of Internal Revenue and
1,1975
the taxpayer may agree in writing on the
useful life of the property to be
depreciated. The agreed rate may be
TO WHOM ALLOWED
modified if justified by facts or
Only mining entities owning
circumstances. The change shall not be
economic interest in mineral deposits.
effective before the taxable year on
Economic interest means interest in
which notice in writing by certified mail
minerals in place investment therein or
or registered mail is served by the party
secured by operating or contract
initiating.
agreement for which income is derived,
SPECIAL TYPES OF DEPRECIATION

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and return of capital expected, from the

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

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

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1
I. RESEARCH AND DEVELOPMENT

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

Cabrera, Jhundee
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1
REQUISITES FOR DEDUCTIBILITY REQUISITES FOR DEDUCTIBILITY

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

Cabrera, Jhundee
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1
4. Premiums paid on any life insurance (2) OPTIONAL CORPORATE

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

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

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

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

Cabrera, Jhundee
Guillermo
1
Net operating loss carry-over (NOLCO) definition are, therefore,

Total publicly-held corporations.
Less:
Income tax paid/payable for the taxable Exception: The said tax shall not apply
year to:
Dividends actually or constructively 1. Publicly held corporations (Sec. 29)
paid/issued from the applicable year’s 2. Banks and other non-banks Financial
taxable income intermediaries (Sec. 29)
Amount reserved for the reasonable 3. Insurance companies (Sec. 29)
needs of the business as defined in the 4. Taxable partnerships (deemed to
Regulations have actually or constructively
Tax base of improperly accumulated received the taxable income under
earnings tax Sec. 73D)
5. General professional partnerships
EXCLUSIONS (exempt; taxable against the
partners)
 For corporations using the calendar 6. Non- taxable joint ventures and
basis the accumulated earnings tax 7. Enterprises duly registered with the
shall not apply on IAE as of Dec. 31, Philippine Economic Zone Authority
1997. (PEZA) under R.A. 7916, and
 For fiscal year basis, the tax shall enterprises registered pursuant to
not apply to the 12-month period of the Bases Conversion and
fiscal year 1997-1998. Development Act of 1992 under R.A.
7227, as well as other enterprises
IAE as of the end of a calendar duly registered under special
or fiscal year period on or after Dec. economic zones declared by law
31, 1998 shall be subject to the 10% which enjoy payment of special tax
tax. rate on their registered operations
or activities in lieu of other taxes,
WHO ARE COVERED? national or local.
8. Foreign corporations [RR No. 02-
General Rule: The IAE tax shall apply to 2001]
every corporation formed or availed
for the purpose of avoiding the EVIDENCE OF PURPOSE TO AVOID
income tax with respect to its INCOME TAX
shareholders or the shareholders of
any other corporation, by permitting 1. The fact that any corporation is a
earnings and profits to accumulate mere holding company or investment
instead of being divided or company shall be prima facie
distributed. These are: evidence of a purpose to avoid the
1. Domestic corporations as tax upon its shareholders or
defined under the Tax Code; members.
2. Corporations which are classified
as closely-held corporations. Instances indicative of purpose to
• those corporations at least avoid income tax upon
fifty percent (50%) in value shareholders:
of the outstanding capital 1. Investment of substantial
stock or at least fifty earnings and profits of the
percent (50%) of the total corporation in unrelated
combined voting power of all business or in stock or
classes of stock entitled to securities of unrelated
vote is owned directly or business;
indirectly by or for not more 2. Investment in bonds and other
than twenty (20) individuals. long-term securities;
 Domestic corporations not 3. Accumulation of earnings in
falling under the aforesaid excess of 100% of paid-up

Cabrera, Jhundee
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1
capital, not otherwise The controlling intention of the

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

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Guillermo
1
(7) FINAL INCOME TAX 6. Membership fees, dues and other

expenses borne by the employer for
GENERAL PRINCIPLES the employee in social and athletic
clubs and similar organizations
1. It is constituted as a full and final 7. Expenses for foreign travel
payment of the income tax due from 8. Holiday and vacation expenses
the payee on a particular type of 9. Educational assistance to the
income subject to final withholding employee or his dependents; and
tax (FWT). 10. Life or health insurance and other
The finality of the withholding non-lire insurance premiums or
tax is limited only to the payee’s similar amounts on excess of what
income tax liability and does not the law allows.
extend to other taxes that may be
imposed on said income. PERSONS LIABLE
2. The income subjected to final
income tax is no longer subject to The EMPLOYER (as a withholding
the net income tax; otherwise, there agent), whether individual, professional
would be a violation of prohibited partnership or a corporation, regardless
double taxation. of whether the corporation is taxable or
3. The liability for the payment of the not, or the government and its
tax rests primarily on the payor as instrumentalities
withholding agent.
4. The payee is not required to file an TAX RATE: 32% (from January 1, 2000
income tax return for the particular onwards) of the Grossed up Monetary
income subjected to FWT. It is the Value (GMV) of fringe benefits.
withholding agent who files the In the case of aliens, the tax rates to
return. be applied on fringe benefit shall be as
5. The rate of the final tax is follows:
multiplied to the gross income. 1. NRANEBT 25%
Thus, deductions and/or personal 2. Aliens employed by regional HO
and additional exemptions are not 15 %
allowed. 3. Aliens employed by OBU 15%
4. Aliens employed by Petroleum
(8) FRINGE BENEFIT TAX (FBT) Service Contractors and
Subcontractors 15%
FRINGE BENEFIT TAX is a final income
tax on the employee which shall be “GMV” OF THE FRINGE BENEFIT
withheld and paid by the employer on a REPRESENTS
quarterly basis.
1. The whole amount of income
FRINGE BENEFIT means any good, realized by the employee which
service, or other benefit furnished or includes the net amount of money or
granted by an employer, in cash or in net monetary value of property
kind, in addition to basic salaries, to an which has been received; plus
individual employee (except rank and 2. The amount of fringe benefit tax
file employees) such as, but not limited thereon otherwise due from the
to the following: employee but paid by the employer
1. Housing for and in behalf of the employee.
2. Expense Account
3. Vehicle of any kind “GMV” of the fringe benefit
4. Household personnel, such as maid, shall be determined by dividing the
driver and others monetary value of the fringe benefit by
5. Interest on loan at less than market the Grossed up divisor. The Grossed up
rate to the extent of the difference divisor is the difference between 100%
between the market rate and actual and the applicable rates.
rate granted.

Cabrera, Jhundee
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1
GROSSED UP General Rule: The amount of taxable

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

Cabrera, Jhundee
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1
written plan which does not Amount in excess

discriminate in favor paid of P100,000 – FT of 10%
employees; b. On sale of land/building held as
8. Gifts given during Christmas and capital asset
major anniversary celebrations not On the gross selling price, or the
exceeding P3, 000 per employee per current fair market value at the
time of sale, whichever is higher
annum; – FT of 6%
9. Flowers, fruits, books or similar (Reyes, Virgilio. Income Tax Law and
items given to employees under Accounting – A New Approach, 2002)
special circumstances
10. Daily meal allowance for overtime
work not exceeding 25% of the basic CAPITAL GAINS AND LOSSES –
minimum wage. IN GENERAL
Time for filing of quarterly remittance CONCEPT OF CAPITAL ASSETS

return of final income taxes withheld
The tax imposed under Sec. 33 shall Under the tax code, there is no
be treated as a final income tax on the definition for the term "capital assets".
employee that shall be withheld and What it gives is the meaning of ordinary
paid by the employer, whether a large assets:
taxpayer or non-large taxpayer, on or a. Ordinary assets (Sec. 39, NIRC)
before the 10th day of the month a. Stock in trade of the taxpayer or
following the calendar quarter in which other properties of a kind which
the fringe benefits were granted (RR 04- would properly be included in
2002). the inventory of the taxpayer;
 For Additional Rules on Fringe b. Property held by the taxpayer

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

Cabrera, Jhundee
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1
deductibility of are allowed only

The excess of the The excess of the Net Capital to extent of the
gains from sales/ losses from sales or losses capital gains;
exchanges of capital exchanges of capital  Capital losses hence, the net
assets over the assets over the gains are allowed only capital loss is
gains from such from such sales or to extent of the not deductible.
sales/ exchanges. exchanges. capital gains; Exception: If any
hence, the net domestic bank or
capital loss is trust company, a
not deductible. substantial part of
 TRANSACTION RESULTING IN TAXABLE whose business is
GAINS BUT NON-RECOGNITION OF LOSSES the receipt of
a. Sale or exchange between deposits, sells any
related parties; bond, debenture,
b. Wash sales by non-dealers of note or certificate
securities and when not subject or other evidence
to the stock transfer tax; of indebtedness
issued by any
c. Exchanges not solely in kind in
corporation
merger and consolidation; and (including one
d. Sales or exchanges that are not issued by a
at arms length. government or
political
REQUISITES FOR RECOGNITION OF subdivision)
CAPITAL GAIN/LOSS
 Net Capital Loss  Not allowed
1. The transaction must involve Carry –Over
property classified as capital  Allowed
asset; and The net capital loss
(in an amount not in
excess of the taxable
2. The transaction must be a sale income before
or exchange or one considered as personal exemption for
equivalent to a sale or exchange. such year) shall be
treated in the
RULES ON THE RECOGNITION OF succeeding year (but
CAPITAL GAINS OR LOSSES not beyond 12 months)
as a deduction as
short-term capital loss
(at 100%) from the net
INDIVIDUAL CORPORATION capital gains.

 Holding Capital gains and
Period losses are  See Annex U for illustration.
The percentages recognized to the
of gain or loss to be extent of 100%.
SALE OR EXCHANGE OF CAPITAL ASSETS
taken into account (There is no
shall be the holding period)
following: The following are considered as sale
a.100% - if the orexchange of capital assets:
capital assets has 1. Retirement of bonds
been held for 12 2. Short sales of property
mos. or less; and 3. Failure to exercise privilege or
b.50% - if the option to buy or sell property
capital asset has 4. Securities becoming worthless
been held for 5. Distribution in liquidation of
more than 12 corporations
mos. 6. Readjustment of interest in a
general professional partnership.
TAX FREE EXCHANGES
 Non-  Capital losses

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Sales or exchanges resulting in non- b. Transfer to a controlled

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

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

exchange of property, the entire gain or
loss, as the case may be, shall be 1. Shares of stock not traded through
recognized. [Sec. 40 (C, 1)] a local stock exchange – Net capital
gains derived during the taxable
Exceptions: year from sale, exchange, or
1. Transactions where gains and losses transfer shall be taxed as follows (on
are not recognized – a per transaction basis):
a. Exchange solely in kind in Not over P 100,000 - 5%
legitimate mergers and Over P 100,000 - 10%
consolidation

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2. Shares of stock listed through a 1. Listed and Traded in the Stock

local stock exchange – ½ of 1% of Exchange - The stockbroker shall
the gross selling price of the stock. turn over the tax collected to the
EXCEPTIONS TO THE TAX B.I.R. within five (5) banking days
1. Gains derived by dealers in from the date of collection.
securities.
2. All other gains which are specifically 2. Not traded through the stock exchange
exempt from income tax under - It shall be paid by the seller on a per
existing investment incentives and transaction basis upon filing of the
other special laws. required return within 30 days
following each sale or other
BASIS FOR COMPUTING GAIN OR LOSS (BIR disposition of shares of stock.
RULING 146-98)
CAPITAL GAINS AND LOSSES
 The fair market value (FMV) of the
sale of shares not traded but listed
(REAL PROPERTY)
in the stock exchange is the highest
PERSONS LIABLE AND TRANSACTIONS
closing price on the day the shares
AFFECTED
were sold, transferred or exchanged.
 When no sale is made in the stock
1. Individual taxpayers, estates and
exchange, the FMV shall be the
trusts
highest selling price on the day
Sale or exchange or other
nearest to the day of sale, transfer
disposition of real property
or exchange.
considered as capital assets.
 For shares not listed in the
The said sale shall include "pacto
exchange, the FMV shall be the book
de retro sale" and other conditional
value nearest the valuation date
sale.
2. Domestic Corporation
The above rules shall be used in
Sale or exchange or disposition
computing for the net capital gain/loss
of lands and/or building which are
for disposition of shares.
not actually used in business and are
treated as capital asset.
IMPORTANT FEATURES
 EXCEPTIONS TO THE TAX
1. Sale of shares of stock of a domestic
1. Gains derived by dealers in real
corporation listed and traded in a
estate
local stock exchange and that of
initial public offering shall be subject
RATE AND BASIS OF TAX
to Percentage tax (Business Tax)
A final tax of 6% is based on the
2. Capital losses sustained during the
gross selling price or fair market value
year (not listed and traded in a local
or zonal value whichever is higher.
stock exchange) shall be allowed as
Note: Gain or loss is immaterial,
a capital loss deductible on the same
there being a conclusive presumption of
taxable year only (no carry-over)
gain.
3. The entire amount of capital gain
and capital loss (not listed and
 See Annex G – Guidelines in
traded in a local stock exchange)
Determining Whether a Real
shall be considered without taking
Property is a Capital or an Ordinary
into account holding period
Asset.
irrespective of who is the taxpayer
(all 100%)
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE
4. Non-deductibility of losses on wash
CAPITAL GAINS TAX ON THE SALE OR
sales.
DISPOSITION OF A PRINCIPAL RESIDENCE
FILING AND PAYMENT OF TAX

Conditions:

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a. Sale or disposition of the old 2. taxpayer has no accounting

principal residence; period
b. By natural persons - citizens or aliens 3. taxpayer does not keep
provided that they are residents books
taxable under Sec. 24 of the Code 4. taxpayer is an individual
(does not include an estate or a  Fiscal year: accounting period of
trust); 12 months ending on the last day
c. The proceeds of which is fully of any month other than
utilized in (a) acquiring or (b) December
constructing a new principal  Calendar year: accounting period
residence within eighteen (18) from January 1 to December 31
calendar months from date of sale or
disposition; B. Periods in which items of gross
d. Notify the Commissioner within income included (Sec. 44)
thirty (30) days from the date of sale  Amount of all items of gross
or disposition through a prescribed income shall be included in the
return of his intention to avail the gross income for the taxable
tax exemption; year in which received by the
e. Can only be availed of only once taxpayer, unless, any such
every ten (10) years; amounts are to be properly
f. The historical cost or adjusted basis accounted for in a different
of his old principal residence sold, period under methods of
exchanged or disposed shall be accounting permitted
carried over to the cost basis of his  In case of death of taxpayer:
new principal residence include for the taxable year in
g. If there is no full utilization, the which falls the date of his death,
portion of the gains presumed to all amounts which accrued up to
have been realized shall be subject the date of his death; if not
to capital gains tax. otherwise properly includible in
respect of such period or a prior
GROSS INCOME FROM DIFFERENT SOURCES period
(SEC. 42)
 Please refer to Annex I. C. Period for which deduction and
credits taken (Sec. 45)
ACCOUNTNG PERIODS AND METHODS OF  Deductions provided in this Title
ACCOUNTING shall be taken for the taxable
year in which ‘paid or incurred,
I. ACCOUNTING PERIODS dependent upon the method of
A. General rule (Sec. 43) accounting upon the basis of
Taxable income is computed which the net income is
upon the basis of taxpayer’s computed, unless, in order to
annual accounting period (fiscal or reflect the income, deductions
calendar year) in accordance with should be taken as of a different
the method of accounting period.
employed.  In case of death of taxpayer:
 If no method of accounting deductions allowed for the
employed or method does not taxable period in which falls the
clearly reflect the income, date of his death, amounts
computation shall be made in accrued up to the date of his
accordance w/ such method as death if not otherwise properly
the opinion of the Commissioner allowable in respect of such
clearly reflects the income. period or a prior period.
 Taxable income is computed
based on calendar year if: D. Change of accounting period
1. accounting period is other (Sec.46)
than a fiscal year  Kinds of changes:

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- from fiscal year to calendar require or permitted by

year R&R prescribed by Sec. of
- from calendar year to fiscal Finance. upon
year recommendation of
- from one fiscal year to Commissioner
another  Both shall be made for a
 Effect of change: Net income, fractional part of a year.
shall, with the approval of the  Then income is computed on the
Commissioner, be computed on basis of the short period for
the basis of the new accounting which separate final or
period, subject to Sec. 47. adjustment return is made.
E. Final or adjustment returns for a II. METHODS OF ACCOUNTING

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

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architects or engineers = 50,000/200,000 = 25%

showing the percentage of Collections in 2000=P100,000
completion during the Income for 2000
taxable year of the entire = P100,000 x 25% = P25,000
work performed under the
contract (2) Sales of realty and casual
 Deductions from gross sales of Personalty
income: all expenditures  In cases of:
made during the taxable a. casual sale or other
year on account of the casual disposition of
contract: account being personal property
taken of the material and (other than
supplies on hand at the inventory on hand of
beginning and end of the the taxpayer at the
taxable period for use in close of the taxable
connection with the work year) for a price >
under the contract but not P1,000, or
yet so applied. b. sale or other
 Amended return may be disposition of real
permitted /required by the property, if in either
Commissioner: if upon case the initial
completion of contract, payments do not
taxable income has not been exceed 25% of the
clearly reflected for any selling price
year(s).  How may income be
returned: same as in
3. Installment sales of dealer in
basis personal property above
(1) Sales of dealers in personal  Initial payments:
property payments received in
Under rules and cash or property other
regulations prescribed by than evidences of
the Sec. of Finance, a person indebtedness of the
who regularly sells or purchaser during the
otherwise disposes of taxable period in which
personal property on the the sale or other
installment plan may return disposition is made.
as income there from in any
taxable year that proportion (3) Sales of real
of the installment payments property considered as
actually received in that capital asset by individuals
year, which the gross profit  Individual who sells of
realized or to be realized disposes of real
when payment is completed, property, considered as
bears to the contract price. capital asset and is
otherwise qualified to
Example: Sale in 2000 report the gain under (2)
Contract price (CP) above may pay the
(installments capital gains tax in
receivable) P200, 000 installments under rules
Cost 150,000 and regulations to be
Gross profit (GP) 50,000 promulgated by the Sec.
of Finance.
Installments payable in 2
equal annual installments (4) Change from accrual to
GP/CP ratio installment basis

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PERSONS REQUIRED TO FILE INCOME TAX

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

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same information contained in the 6. The employer issues BIR Form 2316
employer’s annual return. (Oct 2002 ENCS) version to each
employee
HOW IS “SUBSTITUTED FILING” DIFFERENT
FROM “NON-FILING”? INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED
FILING (STILL REQUIRED TO FILE)
 Substituted Filing – an individual
taxpayer although required 1. Individuals deriving compensation
under the law to file his income from two or more employers
tax return, will no longer have concurrently or successively during
to personally file his own income the taxable year.
tax return. 2. Employees deriving compensation
– but instead the income, regardless of the amount,
employer’s annual information whether from a single or several
return filed is the considered employers during the calendar year,
“substitute” income tax return the income tax of which has not
of the employee inasmuch as the been withheld correctly (i.e. tax due
information in the employer’s is not equal to the tax withheld)
return is exactly the same resulting to collectible or refundable
information contained in the return.
employee’s return. 3. Employees whose monthly gross
compensation income does not
 Non-filing – applicable to certain exceed P5,000 or the statutory
types of individual taxpayers minimum wage, whichever is higher,
who are not required under the and opted for non-withholding of tax
law to file an income tax return. on said income.
Example: employee whose 4. Individuals deriving other non-
pure compensation income does business, non-profession-related
not exceed P60,000 and has only income in addition to compensation
one employer for the taxable income not otherwise subject to
year and whose tax withheld is final tax.
equivalent to his tax due. 5. Individuals receiving purely
compensation income from a single
SUBSTITUTED FILING OF INCOME TAX RETURNS employer although the income tax of
BY EMPLOYEES RECEIVING PURELY which has been correctly withheld,
COMPENSATION INCOME. [SECTION 4, RR 3- but whose spouse falls under 1 to 4
2002; RMC 01-03] above.
6. Non-resident aliens engaged in trade
Requisites: or business in the Philippines
1. The employee receives purely deriving purely compensation
compensation income (regardless of income, or compensation income
amount) during the taxable year. and other non-business, non-
2. The employee receives the income profession-related income.
only from one employer during the
taxable year. NOTE: Non-filing of ITR, for employees
3. The amount of tax due from the who are qualified for the substituted
employee at the end of the year filing shall be OPTIONAL for the taxable
equals the amount of tax withheld year 2001, the returns for which shall be
by the employer. filed on or before April 15, 2002.
4. The employee's spouse also complies Thereafter, substituted filing where
with all three (3) conditions stated applicable shall be MANDATORY. [Sec 5
above. RR 3-2002)
5. The employer files the annual
information return (BIR Form No.
1604-CF)

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

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

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

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

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

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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,
subject to Section 204 (abatement,
A decedent’s gross estate includes
refund/credit taxes).
(Sec. 85)
 If amount withheld at source is less
than the tax due on his return, the RESIDENT & NON-
difference is paid in accordance with RESIDENT
Section 56 (payment and assessment NON-RESIDENT
CITIZEN,
of income tax). ALIEN DECEDENT
RESIDENT ALIEN
 All taxes withheld shall be DECEDENT
considered as trust funds and
maintained in a separate account 1. Real property 1. Real property
and not commingled with any other wherever situated in the
funds of the withholding agent. situated Philippines.
2. Personal 2. Personal property

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

death of the decedent shall govern
(1) ESTATE TAXES estate taxation.
DEFINITION: an excise tax on the right of Intangible personal properties with a
transmitting property at the time of situs in the Phil. (Sec. 104, 1997
death and on the privilege that a person NIRC)
is given in controlling to a certain extent
the disposition of his property to take 1. Franchise which must be exercised
effect upon death. in the Philippines;
2. Shares, obligations or bonds issued
Estate Tax Formula by any corporation or sociedad
anonima organized or constituted in
Gross Estate (Sec. 85) the Philippines in accordance with
Less: (1) Deductions (Sec. 86) its laws;
(2)Net share of the SS in the CPP 3. Shares, obligations or bonds issued
Net Taxable Estate by any foreign corporation eighty-

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1
five per centum (85%) of the WHICHEVER IS HIGHER

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

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

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

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

Proceeds of life insurance taken by 1. The merger of usufruct in the owner
the decedent on his own life shall be of the naked title;
included in the gross estate if the 2. Fideicommisary substitution;
beneficiary is: 3. The transmission from the first heir,
legatee or donee in favor of another

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beneficiary, in accordance with the owns a family estate or several

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

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deceased existing at the time of always form part of the gross

his death except unpaid taxable estate.
obligations incurred incident to
his death such as unpaid funeral F. TAXES
expenses (i.e., expenses Taxes which have accrued as of the
incurred up to the time of death of the decedent which were
interment) and unpaid medical unpaid as of the time of death.
expenses which are classified
under a different category of The following are not deductible:
deductions; 1. income tax on income received
2. The liability was contracted in after death
good faith and for adequate and 2. property taxes not accrued
full consideration in money or before death
money's worth; 3. estate tax
3. The claim must be a debt or
claim which is valid in law and G. LOSSES
enforceable in court; Requisites:
4. The indebtedness must not have 1. It should arise from fire, storm,
been condoned by the creditor shipwreck, or other casualty,
or the action to collect from the robbery, theft or embezzlement;
decedent must not have 2. Not compensated by insurance
prescribed. or otherwise;
3. Not claimed as deduction in an
D. CLAIMS AGAINST INSOLVENT PERSONS income tax return of the taxable
estate;
Requisites: 4. Occurring during the settlement
1. The amount thereof has been of the estate; and
initially included as part of his gross 5. Occurring before the last day for
estate (for otherwise they would the payment of the estate tax
constitute double deductions if they (last day to pay: six months after
were to be deducted) the decedent’s death).
2. The incapacity of the debtors to pay
their obligation is proven. 2. TRANSFER FOR PUBLIC USE
C. UNPAID MORTGAGE Requisites:

 In case unpaid mortgage payable is 1. The disposition is in a last will and
being claimed by the estate, testament
verification must be made as to who 2. To take effect after death
was the beneficiary of the loan 3. In favor of the government of the
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
deduction depends on the period from

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the date of transfer to the death of the A deduction in the amount of One
decedent, as follows: Million Pesos (P1,000,000) shall be
allowed as an additional deduction
PERIOD DEDUCTION without need of substantiation.
 1 year or less 100% The full amount of P1,000,000 shall
 1 year – 2 years 80% be allowed as deduction for the benefit
 2 years – 3 years 60% of the decedent.
 3 years – 4 years 40%
 4 years – 5 years 20%
6. MEDICAL EXPENSES
Requisites:  Any amount of medical expenses

1. the present decedent died within 5 incurred within one year from death
years from transfer of the property in excess of Five Hundred Thousand
from a prior decedent or donor. Pesos (P500,000) shall no longer be
2. The property must be located in the allowed as a deduction under this
Phils. subsection.
3. The property formed part of the  Neither can any unpaid amount
taxable estate of the prior decedent, thereof in excess of the P500,000
or of the taxable gift of the donor. threshold nor any unpaid amount for
4. The estate tax or donor’s tax on the medical expenses incurred prior to
gift must have been finally the one-year period from date of
determined and paid. death be allowed to be deducted
5. The property must be identified as from the gross estate as claim
the one received from the prior against the estate.
decedent, or something acquired in
exchange therefor. 7. AMOUNT RECEIVED BY HEIRS
6. No vanishing deduction on the UNDER REPUBLIC ACT NO.
property was allowable to the estate 4917
of the prior decedent.
Any amount received by the heirs
4. FAMILY HOME from the decedent's employer as a
consequence of the death of the
Conditions: decedent-employee in accordance with
1. The family home must be the actual Republic Act No. 4917 is allowed as a
residential home of the decedent deduction provided that the amount of
and his family at the time of his the separation benefit is included as
death, as certified by the Barangay part of the gross estate of the decedent.
Captain of the locality where the
family home is situated; 8. NET SHARE OF THE
2. The total value of the family home SURVIVING SPOUSE IN THE
must be included as part of the gross CONJUGAL PARTNERSHIP OR
estate of the decedent; and
COMMUNITY PROPERTY
3. Allowable deduction must be in an
amount equivalent to
1. the current fair market value of After deducting the allowable
the family home as declared or deductions (only the ordinary
included in the gross 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
5. STANDARD DEDUCTION

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DEDUCTIONS ON GROSS Limit B. Whichever is lower

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

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When The Gross Estate Exceeds there is a judicial settlement of

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

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There is nothing in the Tax Code and (2) DONOR’S TAXES

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

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

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

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

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

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

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

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

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

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

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

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

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

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Minimum Compromise Rates (MCR) of

c. The taxpayer is suffering from a any tax liability
networth deficit (total liabilities a. In case of financial incapacity:
exceed total assets) computed by MCR = 10% of the basic assessed tax
deducting total liabilities (net of b. Other cases:
deferred credits and amounts MCR = 40% of the basic assessed tax
payable to stockholders/owners [Sec. 204(A), 1997 NIRC]
reflected as liabilities, except
business-related transactions) Approval of the compromise by the
from total assets (net of prepaid Evaluation Board is required when
expenses, deferred charges, pre- a. the basic tax involved exceeds
operating expenses, as well as P1,000,000.00, or
appraisal increases in fixed b. the settlement offered is less than
assets), taken from the latest the MCR.
audited financial statements,
provided that in the case of an NOTE: The MCR may be less than the
individual taxpayer, he has no prescribed rates of 10% or 40%, as the
other leviable properties under case may be, provided it is approved by
the law other than his family the Evaluation Board (composed of the
home; (Sec. 3, RR. 30–2002). BIR Commissioner and the four BIR
Deputy Commissioners).
c. The taxpayer is a compensation
earner with no other source of Compromise of Criminal Violations
income and the family’s gross General Rule: All criminal violations
monthly compensation does not under the CTRP may be compromised.
exceed (P10,500/month if single;
P21,000/month if married), and Exceptions:
that it appears that the taxpayer 1. Those already filed in court
possesses no other leviable/ 2. Those involving fraud [Sec. 204(B),
distrainable assets, other than his 1997 NIRC].
family home; or
Extent of the Commissioner’s
d. The taxpayer has been granted by Discretion to Compromise Criminal
the SEC or by any competent Violations
tribunal a moratorium or
suspension of payments to 1. Before the complaint is filed with
creditors, or otherwise declared the Prosecutor’s Office: The CIR
bankrupt or insolvent. (Sec. 3, RR. has full discretion to compromise
07-2001) except those involving fraud.
The Congressional Oversight 2. After the complaint is filed with

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

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This is more so, when the court

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

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

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

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

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

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

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to the taxpayer to pay to the Taxpayer’s obligation to preserve

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

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

Distraint of Personal Property When may Levy be Effected?

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Real property may be levied upon The advertisement shall be made

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

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

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

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

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1
Where to file there is no specified amount

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

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

Cabrera, Jhundee
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It is not a requirement for the revenue stamps and labels – Upon

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

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

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

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discovery of the omission to file

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

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

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b. Sale of a real property for a price the same is sufficiently complete to

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

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

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

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

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

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

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

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

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

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

Cabrera, Jhundee
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(Commissioner vs. Victorias Milling, decision of the CIR’s duly authorized

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

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

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

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

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

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Shall be exercised by the Sanggunian 10. educational institutions.

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

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LEVYING OF LOCAL TAXES (LOCAL TAX taxing power of the LGUs

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

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into or out of, or passing CLASSIFICATION OF COMMON

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

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spirits, and wines or some other business for which

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

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

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

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

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

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

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and constructed by the local Every corporation no matter how

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

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

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

case shall the total interest on the JURISDICTION OF COURTS OVER LOCAL
unpaid amount or portion thereof TAXATION CASES
exceed thirty-six (36) months.
a. With the amendment brought by
Collection of Local Revenues by the RA No. 9282, the Court of Tax
Treasurer – (Sec. 170 LGC) Appeals now has appellate
All local taxes, fees and charges jurisdiction over local taxation
shall be collected by the provincial, city, cases decided by the Regional
municipal or barangay treasurer, or their Trial Court in the exercise of its
duly authorized deputies. appellate or original jurisdiction.
The provincial, city or municipal b. Regular judicial courts are not
treasurer may designate the barangay prohibited from enjoining the
treasurer or his deputy to collect local collection of local taxes, subject
taxes, fees or charges. to Rule 58 (Preliminary
In case a bond is required for the Injunction) of the Rules of Court.
purpose, the provincial, city or
municipal government shall pay the Note: Unlike the NIRC, the Local Tax
premiums thereon in addition to the Code does not contain any specific
premiums of the bond that may be provision prohibiting courts from
required under the Code. enjoining the collection of local taxes.
Such statutory lapse or intent may have
allowed preliminary injunction where
LOCAL TAX REMEDIES local taxes are involved. But it cannot
UNDER THE LGC negate the procedural rules and
requirements under Rule 58 of the Rules
of Courts. (Valley Trading Co. vs. CFI of
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 AND COLLECTION
Government Units (LGU) To Effect OF LOCAL TAXES
Collection Of 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).
(2) Civil Remedies PRESCRIPTIVE PERIOD OF COLLECTION
Local taxes, fees, or charges
(a) by administrative action through may be collected within five (5) years
distraint of personal property from the date of assessment by
and by levy upon real property administrative or judicial action. No
such action shall be instituted after the
(b) by judicial action expiration of such period (Sec. 194,
LGC).
GROUNDS FOR THE SUSPENSION OF
Either of these remedies or all may THE RUNNING OF THE PRESCRIPTIVE
be pursued concurrently or PERIODS
simultaneously at the discretion of the
LGU concerned.

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a. The treasurer is legally Secretary of Justice’s inaction

prevented from the assessment (Sec. 187 LGC)
or collection of the tax;  within 30 days from receipt
b. The taxpayer requests for a when protest of assessment is
reinvestigation and executes a denied (Sec. 195 LGC)
waiver in writing before the  if no action is taken by the
expiration of the period within treasurer in refund cases and the
which to assess or collect; and two year period is about to lapse
c. The taxpayer is out of the (Sec. 195 LGC)
country or otherwise cannot be  if remedies available does not
located (Sec. 194, LGC). provide plain, speedy and
adequate remedy.
2. TAX REMEDIES OF 2. Action for declaratory relief
THE TAXPAYER 3. Injunction – if irreparable damage
would be caused to the taxpayer and
Remedies Of The Taxpayer In Local no adequate remedy is available.
Taxation
A. ADMINISTRATIVE IV. REAL PROPERTY

Before assessment
a. Appeal – any question on TAXATION
constitutionality or legality of tax
ordinance within 30 days from
effectivity thereof to Secretary of Definitions:
Justice (Sec. 187 LGC) REAL PROPERTY TAXATION – A direct
b. Declaratory relief whenever tax on ownership of lands and
applicable. buildings or other improvements
thereon payable regardless of
After assessment whether the property is used or
a. Protest – within 60 days from receipt not, although the value may vary
of assessment (Sec. 195 LGC). in accordance with such factor.
Payment under protest is not Under the LGC, it covers
necessary. the administration, appraisal,
assessment, levy and collection
b. Payment & subsequent refund or of Real Property Tax, i.e. tax on
tax credit – within 2 years from land and building and other
payment of tax to local treasurer structures and improvements on
(Sec. 196 LGC). It is to be noted it, including machineries.
that, unlike in internal revenue
taxes, the supervening cause applies REAL PROPERTY – subject to the
in local taxation because the period definition given by Art. 415 of
for the filing of claims for refund or the Civil Code.
credit of local taxes is counted not
necessarily from the date of IMPROVEMENT – valuable addition made
payment but from the date the to a property or amelioration in
taxpayer is entitled to a refund or its condition amounting to more
credit. than a mere replacement of
parts involving capital
c. Right of redemption – 1 year from expenditures and labor.
the date of sale or from the date of
forfeiture (Sec. 179, LGC).
B. JUDICIAL NATURE AND CLASSES

1. Court action
 within 30 days after receipt of CHARACTERISTICS OF REAL PROPERTY
decision or lapse of 60 days of TAX

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1
1. Direct tax on the Ownership of works, projects or improvements

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

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4. Real property owned by duly

CLASSIFICATION OF LANDS FOR PURPOSES registered cooperatives as
OF ASSESSMENT SEC. 218 (A) provided for in RA 6938; and
5. Machinery and equipment used
a. Commercial for pollution control and
b. Agricultural environmental protection.
c. Residential
d. Mineral ACTUAL USE OF PROPERTY AS BASIS
e. Industrial FOR ASSESSMENT (SEC. 217 LGC)
f. Timberland
g. Special Real property shall be classified,
valued and assessed on the basis of
SPECIAL CLASSES OF REAL PROPERTY actual use regardless of where located,
(SEC. 216, LGC) whoever owns it, and whoever uses it.
1. Hospitals Unpaid realty taxes attach to the

2. Cultural and Scientific purposes property and is chargeable against the
3. owned and used by Local water person who had actual or beneficial use
districts and possession of it regardless of
4. GOCCs rendering essential public whether or not he is the owner. To
services in the supply and impose the real property tax on the
distribution of water and/or subsequent owner which was neither the
generation or transmission of owner nor the beneficial user of the
electric power. property during the designated periods
would not only be contrary to law but
PROPERTIES EXEMPT FROM REAL also unjust. (Estate of Lim vs. City of
PROPERTY TAX (SEC. 234, LGC) Manila, GR No. 90639, February 21,
Exemption is limited only to the 1990)
following:
1. Real property owned by the PROCEDURE
government except when the
beneficial use thereof has been
granted to a taxable person; STEP 1: DECLARATION OF REAL
2. Charitable institutions, PROPERTY
churches, personages or
convents appurtenant thereto, DECLARATION BY OWNER OR ADMINISTRATOR
mosques, non-profit or religious (SEC. 202-203)
cemeteries and all lands,  File a sworn declaration with the
buildings and improvements assessor
actually, directly and - once every 3 years during
exclusively used for religious, the period from January 1
charitable or educational to June 30.
purposes (Art. VI, Sec. 28,  For newly acquired property –
Constitution); WHEN: Must file with the assessor within
3. Machineries and equipment that 60 days from date of transfer
are actually, directly and WHAT: Sworn statement containing the
exclusively used by local water fair market value and description of the
utilities and GOCC’s engaged in property.
the supply and distribution of  For improvement on property
water and/or electric power; WHEN: Must file within 60 days upon
completion or occupation (whichever
comes earlier)
WHAT: Sworn statement containing the
fair market value and description of the
property.

Cabrera, Jhundee
Guillermo
1
DECLARATION BY PROVINCIAL / CITY / concerning the property, its

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

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

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

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

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

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

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

COURT OF TAX APPEALS (EN BANC) Bureau of Customs
within 15 days 1. Arrastre charge

2. Wharfage due – counterpart of
license, charged not for the use of
SUPREME COURT any wharf but for a special fund
known as the Port Works Fund.

Cabrera, Jhundee
Guillermo
1
3. Berthing fee other charges are paid thereon.

4. Harbor fee (Sec. 1206, TCC)
5. Tonnage due
TERRITORIAL JURISDICTION OF THE
Meaning and Scope of the Tariff and BOC
Customs Laws 1. All seas within the jurisdiction of the
Include not only the provisions of the Philippines
Tariff and Customs Code (TCC) and 2. All coasts, ports, airports, harbors,
regulations pursuant thereto, but all bays, rivers and inland waters
other laws and regulations that are whether navigable or not from the
subject to the Bureau of Customs (BOC) sea. (1st par, Sec. 603, TCC)
or otherwise within its jurisdiction.
As to its scope, therefore, tariff and CUSTOMS DUTIES
customs laws extend not only to the
provisions of the TCC but to all other
laws as well, the enforcement of which WHEN TARIFF AND CUSTOMS APPLIED
is entrusted to the BOC. Only after importation has begun but
before importation is terminated.
THE BUREAU OF CUSTOMS Importation begins:
1) when the conveying vessel or
FUNCTIONS OF THE BUREAU OF aircraft
CUSTOMS 2) enters the jurisdiction of the
Phil.
1. Assessment and collection of 3) with intention to unload therein
revenues from imported articles and
all other impositions under the tariff Importation is deemed terminated:
and customs laws;
2. Control smuggling and related (a) upon payment of the duties, taxes
frauds; and other charges due upon the articles.
3. Supervision and control over the
entrance and clearance of vessels (b) and legal permit for withdrawal
and aircraft engaged in foreign shall have been granted.
commerce;
4. Enforcement of TCC and related
 In case the articles are free of
laws;
duties, taxes and other charges, until
5. Supervision and control over the
they have legally left the jurisdiction of
handling of foreign mails arriving in
the customs (Sec. 1202, TCC)
the Philippines;
6. Supervise and control all import and
INTENTION TO UNLOAD
export cargoes for the protection of
Even if not yet unloaded, and there is
government revenue;
unmanifested cargo, forfeiture may take
7. Exclusive original jurisdiction over
place because importation has already
seizure and forfeiture cases under
begun.
the tariff and customs laws.
ARTICLES UNDER TCC
JURISDICTION OF COLLECTOR OF
May either be:
CUSTOMS OVER IMPORTATION OF
1. Subject to duty –
ARTICLES
a. Live animals and animal
1. Cause all articles for importation to
products;
be entered in the customhouse,
b. Vegetable products;
2. Cause all such articles to be
c. Animal or vegetable fats; oils
appraised and classified,
and their cleavage products;
3. Assess and collect the duties, taxes
prepared edible fats; animal or
and other charges thereon, and
vegetable waxes;
4. Hold possession of all imported
articles until the duties, taxes and

Cabrera, Jhundee
Guillermo
1
d. Prepared foodstuffs; beverages, 3. Conditionally-free from tariff and

spirits and vinegar; tobacco and customs duties (conditionally-free
manufactured tobacco importation)
substitutes;  Those provided in Sec. 105, TCC;
e. Mineral products;  Those granted to government
f. Products of chemical or allied agencies, GOCCs with
industries; agreements with foreign
g. Plastics and articles thereof; countries;
rubber and articles thereof;  Those given to international
h. Raw hides and skins; leather, institutions entitled to
etc.; exemption by agreement or
i. Wood and articles of wood, etc.; special laws; and
j. Pulp of wood, etc.;  Those that may be granted by
k. Textiles and textile articles; the President upon NEDA’s
l. Articles of stone; plaster, recommendation.
cement, etc.;
m. Footwear, headgear, etc.; 4. Free from TC duties (duty-free)
n. Natural or cultured pearls Imported goods must be
precious/semi-precious stones; entered in a customhouse at their
o. Base metals and articles of base port of entry otherwise they shall be
metals; considered as contraband and the
p. Machinery and mechanical importer is liable for smuggling (See
appliances; electric equipment; Sec. 101, TCC).
sound recorders, etc; All articles when imported from
q. Vehicles, aircraft, vessels and any country into the Philippines shall
associated transport equipment; be subject to duty upon each
r. Optical, photographic, medical, importation, even though previously
surgical instruments, etc.; exported from the Philippines,
s. Arms, ammunition, parts and except as otherwise specifically
accessories; provided for in the TCC or other
t. Miscellaneous manufactured laws.
articles; and
u. Works of art, collector's pieces Liability for Customs Duties
arid antiques (Sec. 104, Title 1, General Rule: All importations /
TCC). exportations of goods are subject to
customs duties (Sec. 105, TCC).
2. Prohibited from being imported
(Prohibited importation) Exceptions:
a. Absolutely prohibited such as: (1) Exemptions under the TCC;
weapons of war; gambling (2) Exemptions granted to
devices; narcotics or prohibited government agencies,
drugs; immoral, obscene or instrumentalities or GOCCs with
insidious articles; and those existing contracts,
prohibited under special laws commitments, agreements, or
(Sec.102, TCC). obligations with foreign
b. Qualifiedly prohibited countries;
Where such conditions as to (3) Exemptions of international
warrant a lawful importation do organizations pursuant to
not exist, the legal effects of the agreements or special laws; and
importation of qualifiedly (4) Exemptions granted by the Pres.
prohibited articles are the same of the Phil. upon
as those of absolutely prohibited recommendation of NEDA (Sec.
articles. (Auyong Hian vs. CTA, 105, TCC).
GR No. L-28782, September 12, LIABILITY OF IMPORTER FOR CUSTOM DUTIES
1974)

Cabrera, Jhundee
Guillermo
1
 A personal debt which can be

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

It is the invoice value of the The special customs duties are
goods plus freight, insurance, costs, imposed for the protection of consumers
expenses and other necessary expenses. and manufacturers, as well as Phil.
This replaces the Home Consumption products from undue competition posed
Value as basis of valuation of goods. by foreign-made products.
SPECIAL DUTIES COMPARED
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
1. Nature Imposed upon foreign Imposed upon Imposed upon

Imposed upon goods enjoying subsidy those not goods coming
foreign products thus allowing them to properly marked from countries
with value lower sell at lower prices to as to place of that discriminate
than their fair the detriment of local origin of the against Philippine
market value to the products similarly goods. products.
detriment of local situated.
products.

Cabrera, Jhundee
Guillermo
1
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
2. Amount/Rate Equivalent to the 5% ad valorem Any amount not

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

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

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

case of full, or whose
partial denial, registration has
or failure on the been cancelled
part of the in accordance
Commissioner to with Section
act upon the 236, shall file a
application for return and pay
tax credit or the tax due
refund: the thereon within
taxpayer 25 days from
affected may, the date of
within thirty cancellation of

Taxation Law: San Beda College of Law

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San Beda College of Law

MEMORY AID IN TAXATION LAW

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

REQUISITES OF A VALID TAX

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

4. Non-impairment of Contracts registration fees are regulatory

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

6. Margin Fee – exaction designed to

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TEST IN DETERMINING IF THE IMPOSITION IS A compensation takes place by operation

COMPENSATION OR SET-OFF Enforced Sanction imposed as

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Tax Tariff (2) NON-DELEGABILITY OF THE TAXING

Personal property -tangible: where it

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

principle of mobilia bonds have acquired a business

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

accruing to the Government of the instrumentalities, as well as on its

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

4. Non-Infringement Of Religious process of liabilities should

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Educational Purposes. (Art. VI, Exemption (Art. VI, Sec. 28(4),

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

This constitutes a violation of the output tax or tax on the finished

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

deduction method which allows foreign INCIDENCE OF TAXATION – point on which

(4) TAX AVOIDANCE – the exploitation by

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

c. He who claims exemption should which then becomes contractual and

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Tax amnesty Tax exemption c.) Local Government Code

DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

2. Where the facts subsequently BIR shall be under the supervision

RULE OF NO ESTOPPEL AGAINST THE ASSESSMENT – a finding by the taxing

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Victorino. Reviewer on Taxation,

KINDS 4. The authority of the Commissioner

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

4. there must be proper adjustments to ii. any officer or employee of such

II. SECTION 5 (power to obtain III. SECTION 6 (power to make

TAXATION LAW COMMITTEE