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Golden Notes UST PDF
Golden Notes UST PDF
Q: What is the nature of the power to tax? A: Yes. It must be noted that Constitutional
provision relating to the power of taxation do not
A: The nature of the power to tax is two-fold: operate as grants of the power of taxation to the
1. inherent and government, but instead merely constitute a
2. legislative. limitation upon a power which would otherwise
be practically without limit. (2005 Bar Question)
The moment a state exists, the power to tax A: It is legislative in nature since it involves
automatically exists. promulgation of laws. It is the Legislature which
determines the coverage, object, nature, extent
Basis: The Life-blood Doctrine. and situs of the tax to be imposed.
1
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: May the power of taxation be delegated? c. Purposes for which taxes shall be
levied provided they are public
A: purposes
GR: No, since it is essentially a legislative d. Method of collection
function.
Note: This is not exclusive to
This is based upon the principle that “taxes are a Congress.
grant of the people who are taxed, and the grant
must be made by the immediate representatives e. Apportionment of the tax (whether
of the people. And where the people have laid the the tax shall be of general
power, there it must be exercised.” (Cooley) application or limited to a
particular locality, or partly general
XPNs: and partly local)
1. To local governments in respect of f. Kind of tax to be collected
matters of local concern to be exercised g. Situs of taxation
by the local legislative bodies thereof. 2. The grant tax exemptions and
(Sec. 5, Art. X, 1987 Constitution) condonations.
2. When allowed by the Constitution. 3. The power to specify or provide for
administrative as well as judicial
Note: The Congress may, by law, remedies (Philippines Petroleum
authorize the President to fix within Corporation v. Municipality of Pililla,
specified limits, subject to such limitations G.R. No.85318, June 3, 1991).
and restrictions as it may impose, tariff
rates, import and export quotas, tonnage
Q: In order to raise revenue for the repair and
and wharfage dues and other duties or
maintenance of the newly constructed City Hall
imposts within the framework of the
national development program of the
of Makati, the City Mayor ordered the collection
government. (Sec. 28 [2], Art. VI, 1987 of P1.00, called “elevator tax”, every time a
Constitution) person rides any of the high-tech elevators in the
City Hall during the hours of 8am to 10am and
3. When the delegation relates merely to 4pm to 6pm. Is the elevator tax a valid
administrative implementation that imposition?
may call for some degree of
discretionary powers under a set of A: No. The imposition of a tax, fee or charge or
sufficient standard expressed by law the generation of revenue under the Local
(Cervantes v. Auditor General, G.R. No. Government Code, shall be exercised by the
L-4043, May 26, 1952) or implied from Sanggunian of the local government unit
the policy and purpose of the act. concerned through an appropriate ordinance
(Maceda v. Macaraig, G.R. No. 88291, [Sec. 132, LGC]. The city mayor alone could not
June 8, 1993) order the collection of the tax; as such, the
“elevator tax” is an invalid imposition. (2003 Bar
Note: Technically, this does not amount to Question)
a delegation of the power to tax because
the questions which should be Q: Discuss the Marshall dictum “The power to
determined by Congress are already tax is the power to destroy” in the Philippine
answered by Congress before the tax law setting.
leaves Congress.
A: The power to tax includes the power to
Q: What is the scope of legislative power in destroy. Taxation is a destructive power which
taxation? interferes with the personal and property rights
of the people and takes from them a portion of
A: The following are the scope of legislative their property for the support of the
power in taxation: government. (McCulloch vs. Maryland, 4 Wheat,
1. The determination of: [SAP-MAKS] 316 4 L ed. 579, 607)
a. Subjects of taxation (persons,
property, occupation, excises or Note: It is more reasonable to say that the maxim
privileges to be taxed, provided “the power to tax is the power to destroy” is to
they are within the taxing describe not the purposes for which the taxing
jurisdiction) power may be used but the degree of vigor with
b. Amount or Rate of tax
2
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
which the taxing power may be empoloyed in order command, then the court must declare and
to raise revenue. (Cooley). adjudge it null. (Sison Jr. v. Ancheta, G.R. No. L-
59431, July 25, 1984)
Q: Justice Holmes once said: “The power to Tax
is not the power to destroy while this court Note: Marshall’s view refers to a valid tax while
(Supreme Court) sits”. Explain. Holmes’ view refers to an invalid tax.
Q: How will you reconcile the two dicta? Q: The NIRC was amended by BP 135, effectively
broadening the rates of tax on individual income
A: The power to tax involves the power to taxes. Sison brought a taxpayer’s suit alleging
destroy since the power to tax includes the that the amendatory provision was arbitrary,
power to regulate even to the extent of amounting to class legislation, oppressive and
prohibition or destruction, as when the power to capricious in character. He concludes that both
tax is used validly as an implement of police the equal protection and due process clauses
power in discouraging and prohibiting certain had been transgressed, as well as the rule
things or enterprises inimical to the public requiring uniformity in taxation. In response
welfare. thereto, the Solicitor General stated in his
answer that BP 135 is a valid exercise of the
While the power to tax is so unlimited in force State’s power to tax. Decide.
and so searching in extent that the courts
scarcely venture to declare that it is subject to A: Being an attribute of sovereignty, the power to
any restrictions whatever, it is subject to the tax is the strongest of all the powers of
inherent and constitutional limitations which are government. So powerful that Chief Justice
intended to prevent abuse on the exercise of the Marshall once said that, “the power to tax
otherwise plenary and unlimited powers. It is the involves the power to destroy.” However, the
court’s role to see to it that the exercise of the power to tax is restricted by the equal protection
power does not transgress these limitations. and due process clauses of the Constitution.
Hence, Justice Frankfurter could rightfully
The power to tax therefore, must not be conclude: “The web of unreality spun from
exercised in an arbitrary manner. It should be Marshall’s famous dictum was brushed away by
exercised with caution to minimize injury to one stroke of Mr. Justice Holmes’s pen stating
proprietary rights of a taxpayer. It must be that “The power to tax is not the power to
exercised fairly, equally and uniformly, lest the destroy while this court sits.” So it is in the
tax collector kill the hen that lays the golden egg. Philippines.
(Roxas et. al vs. CTA et. al, L-25043, April 26,
1968)
3
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
4
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
5
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Frank Chavez, as taxpayer, and Realty Owners indeed, without taxation, a government can
Association of the Philippines, Inc. (ROAP), neither exist nor endure.
alleged that E.O.73 providing for the collection
of real property taxes as provided for under Taxation is a principal attribute of sovereignty.
Section 21 of P.D.464 (Real Property Tax Code) is The exercise of the taxing power derives its
unconstitutional because it accelerated the source from the very existence of the State whose
application of the general revision of social contract with its citizens obliges it to
assessments to January 1, 1987 thereby promote public interest and the public good.
increasing real property taxes by 100% to 400%
on improvements, and up to 100% on land which In the case of Valley Trading Co. v. CFI G.R. No.
would necessarily lead to confiscation of 495529, March 31, 1989, the Supreme Court
property. Is the contention of the Chavez and ruled that the damages that may be caused a
ROAP correct? taxpayer by being made to pay the taxes cannot
be said to be as irreparable as it would negate the
A: No. To continue collecting real property taxes Government ability to collect taxes. (1991 Bar
based on valuations arrived at several years ago, Question)
in disregard of the increases in the value of real
properties that have occurred since then, is not in
consonance with a sound tax system. Fiscal Benefits-Protection Theory/
adequacy, which is one of the characteristics of a Symbiotic Relationship Doctrine
sound tax system, requires that sources of
revenues must be adequate to meet government Q: What is the Benefits-Protection Theory
expenditures and their variations. (Chavez v. (Symbiotic Relationship Doctrine) in taxation?
Ongpin, G.R. No. 76778, June 6, 1990)
A: It involves the power of the State to demand
Q: Is the VAT law violative of the administrative and receive taxes based on the reciprocal duties
feasibility principle? of support and protection between the State and
its citizen.
A: No. The VAT law is principally aimed to
rationalize the system of taxes on goods and Every person who is able must contribute his
services. Thus, simplifying tax administration and share in the burden of running the government.
making the system more equitable to enable the The government for its part is expected to
country to attain economic recovery. (Kapatiran respond in the form of tangible and intangible
ng Mga Naglilingkod sa Pamahalaan v. Tan, benefits intended to improve the lives of the
G.R.No.81311, June 30, 1988) people and enhance their material and moral
values. (CIR v. Algue, G.R. No. L-28896, February
17, 1988)
THEORY AND BASIS OF TAXATION
Special benefits to taxpayers are not required. A
Q: What are the theories in taxation? person cannot object to or resist the payment of
taxes solely because no personal benefit to him
A: The theories underlying the power of taxation can be pointed out arising from the tax. (Lorenzo
are the following: v. Posadas, 64 Phil. 353)
1. Lifeblood theory (Necessity theory)
2. Benefits-protection theory (Doctrine of Q: What are the principles involving the doctrine
Symbiotic Relationship) of symbiotic relationship/benefits protection?
Q: Discuss the meaning and the implications of On the other hand, it is a reciprocal duty on the
the statement: “Taxes are the lifeblood of the part of the Government to provide protection and
government and their prompt and certain benefits.
availability is an imperious need.”
6
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
Q: What is the Doctrine of Prospectivity of tax Rulings promulgated by the CIR shall be
laws? retroactive in the following cases:
a. Where the taxpayer deliberately
A: misstates or omits material facts
GR: Taxes must only be imposed prospectively. from his return or any document
required of him by the BIR;
XPN: If the law expressly provides for b. Where the facts subsequently
retroactive imposition. Retroactive application gathered by the BIR are materially
of revenue laws may be allowed if it will not different from the facts on which
amount to denial of due process. the ruling is based; or
c. Where the taxpayer acted in bad
Q: Is the prohibition against ex post facto law faith.
applicable in taxation?
7
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: “X,” a lessor of a property, pays real estate Q: SC Johnson and Son, Inc., is a domestic
tax on the premises, a real estate dealer’s tax corporation entered into an agreement with SC
based on rental receipts and income tax on the Johnson and Son-USA, a non-resident foreign
rentals. He claims that this is double taxation. corporation, pursuant to which SC Johnson
Decide. Philippines was granted the right to use the
trademark, patents and technology owned by
A: There is no double taxation. The real estate the SC Johnson and Son-USA for the use of
tax is a tax on property; the real estate dealer’s trademark and technology. SC Johnson and Son,
tax is a tax on the privilege to engage in business; Inc was obliged to pay SC Johnson and Son-USA
while the income tax is a tax on the privilege to royalties and subjected the same to 25%
earn an income. These taxes are imposed by withholding tax on royalty payments. Will the
different taxing authorities and are essentially of royalty payments be subject to 10% withholding
different kind and character. (Villanueva v. Iloilo, tax pursuant to the most favored nation clause
GR L-26521, Dec. 28, 1968) (1996 Bar Question) as claimed by SC Johnson Philippines?
8
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
A: No, since the RP-US Tax Treaty does not give a as that in the tax treaty under which the taxpayer
matching credit of 20% for the taxes paid to the is liable.
Philippines on royalties as allowed under the RP-
West Germany Tax Treaty, respondent cannot be Q: Upon the passage of the Local Autonomy Act
deemed entitled to the 10% rate granted under (RA 2264), the City of Iloilo Board passed an
the latter treaty for the reason that there is no ordinance imposing municipal license tax on
payment of taxes on royalties under similar persons engaged in the business of operating
circumstances. tenement houses. Is the ordinance
unconstitutional on the ground of double
Both Art. 13 of the RP-US Tax Treaty and Art. taxation since there is payment of both real
12(2) of the RP-West Germany Tax Treaty speak estate tax and the tenement tax?
of tax on royalties for the use of trademark,
patents, and technology. The entitlement of the A: No. It is a well-settled rule that a license tax
10% rate by US firms despite the absence of may be levied upon a business or occupation
matching credit (20% for royalties) would although the land or property used in connection
derogate from the design behind the most therewith is subject to property tax. The State
favored nation clause to grant equality of may collect an ad valorem tax on property used in
international treatment since the tax burden laid a calling, and at the same time impose a license
upon the income of the investor is not the same tax on that calling, the imposition of the latter
in the two countries. The similarity in the kind of tax being in no sense a double tax. The
circumstances of payment of taxes is a condition two taxes are not the same kind or character.
for the enjoyment of most favored nation (Villanueva v. Iloilo, GR L-26521, Dec. 28,1968)
treatment precisely to underscore the need for
equality of treatment.
Escape from Taxation
The RP-US Tax Treaty is just one of a number of
bilateral treaties which the Philippines have Q: What are the basic forms of escape from
entered into for the avoidance of double taxation. taxation?
The purpose of these international agreements is
to reconcile the national fiscal legislation of the A: SCATE2
contracting parties in order to help the taxpayer 1. Shifting
avoid international juridical double taxation. 2. Capitalization
(Commissioner v. SC Johnson and Son, Inc., G.R. 3. Avoidance
No. 127105, June 25, 1999) 4. Transformation
5. Evasion
Q: What is the purpose of the most-favored 6. Exemption
nation clause?
Q: What is shifting?
A: The most favored nation clause in a bilateral
tax treaty is meant to ensure that the treaty A: The transfer of the burden of tax by the
partner will always enjoy the same privileges as original payer or the one on whom the tax was
that another party which is granted more assessed or imposed to another or someone else
favorable treatment. This is an important clause without violating the law.
in treaties, specially with the passage of time. It is
to grant to the contracting parties treatment not Q: What are the kinds of shifting?
less favorable than that which has been or may
be granted to the “most favored” among other A:
countries. It is intended to establish the principle 1. Forward shifting – When the burden of
of equality of international treatment by tax is transferred from a factor of
providing that the citizens or subjects of the production through the factors of
contracting nations to enjoy the privileges distribution until it finally settles on the
accorded by either party to those of the most ultimate purchaser or consumer.
favored nation. The essence of the principle is to 2. Backward shifting – When the burden
allow the taxpayer in one state to avail of more is transferred from the consumer
liberal provisions granted in another tax treaty to through the factors of distribution to
which the country of residence of such taxpayer is the factors of production.
also a party provided that the subject matter of
taxation, in this case, royalty income, is the same
9
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
3. Onward shifting – When the tax is Benigno Toda Jr. G.R. No. 30554, Feb. 28, 1983). Tax
shifted two or more times either evasion is somestimes referred to as Tax Dodging.
forward or backward.
Q: What are the elements to be considered in
Q: In what kind of taxes does it apply? determining that there is tax evasion?
10
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
The BIR sent an assessed deficiency income tax to a tax exempt entity through a donation of ½ of
arising from the sale alleging that CIC evaded the the income producing property. The donation is
payment of higher corporate income tax of 35% likewise exempt from donor’s tax. The donation
with regard to the resulting gain. Is the scheme is the legal means employed to transfer the
perpetuated by Toda a case of tax evasion or tax incidence of income tax on the rental income.
avoidance? (2000 Bar Question)
A: It is the reduction in the price of the taxed Note: It cannot be transferred or assigned
object equal to the capitalized value of future by the person to whom it is given without
taxes which the purchaser expects to be called the consent of the State.
upon to pay.
2. Strictly construed against the taxpayer.
Q: What is transformation? 3. Exemptions are not presumed. But
when public property is involved,
A: It is the scheme where the manufacturer or exemption is the rule, and taxation, the
producer upon whom the tax has been imposed, exception.
fearing the loss of his market if he should add the
tax to the price, pays the tax and endeavors to Q: What are the kinds of tax exemptions?
recoup himself by improving his process of
production, thereby turning out his units of A:
products at a lower cost. As to basis
1. Constitutional – Immunities from taxation which
originate from the Constitution.
Q: Mr. Pascual’s income from leasing his
2. Statutory – Those which emanate from
property reaches the maximum rate of tax legislation.
under the law. He donated ½ of his said 3. Contractual – Agreed to by the taxing authority in
property to a non-stock, non-profit educational contracts lawfully entered into by them under
institution whose income and assets are enabling laws.
actually, directly, and exclusively used for 4. Treaty
educational purposes, and therefore qualified 5. Licensing ordinance
for tax exemption under Art.XIV, Sec. 4 (3) of As to form
the Constitution and Sec. 3 (h) of the Tax Code. 1. Express – Expressly granted by organic or statute
law.
Having thus transferred a portion of his said
2. Implied – When particular persons, properties or
asset, Mr. Pascual succeeded in paying a lesser excises are deemed exempt as they fall outside
tax on the rental income derived from his the scope of the taxing provision.
property. Is there tax avoidance or tax evasion? As to extent
Explain. 1. Total – Connotes absolute immunity.
2. Partial – One where a collection of a part of the tax
A: Yes. Mr. Pascual has exploited a legally is dispensed with.
permissive alternative method to reduce his As to object
income by transferring part of his rental income 1. Personal – Granted directly in favor of certain
persons.
11
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
2. Impersonal – Granted directly in favor of a certain Note: The erroneous payment of tax as a basis for a
class of property. claim of refund may be considered as a case of
solutio indebiti, which the government is not
Q: What are the principles governing tax exempt from its application and has the duty to
exemptions? refund without any unreasonable delay what it has
erroneously collected.
A:
1. Tax exemptions are highly disfavored in
law. Compensation or Set-Off
2. Tax exemptions are personal and non-
transferable. Q: When does compensation or set-off take
3. He who claims an exemption must place?
justify that the legislature intended to
exempt him by words too plain to be A: Compensation or set-off take place when two
mistaken. He must convincingly prove persons, in their own right, are creditors and
that he is exempted. debtors of each other (Article 1278, Civil Code).
4. It must be strictly construed against the
taxpayer.
5. Constitutional grants of tax exemptions Q: What are the rules governing compensation
are self-executing. or set-off as applied in taxation?
A: No. A tax refund may only be considered as a A: No. Taxes and debts are of different nature
tax exemption when it is based either on a tax- and character. Hence, no set-off or compensation
exemption statute or a tax-refund statute. Tax between the two different classes of obligations
refunds or tax credits are not founded principally is allowed. The taxes assessed or the obligation of
on legislative grace, but on the legal principle of the taxpayer arising from law, while the money
quasi-contracts against a person’s unjust judgment against the government is an
enrichment at the expense of another. obligation, arising from contract, whether express
or implied. Inasmuch as taxes are not debts, it
follows that the two obligations are not
12
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
13
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What is the nature of tax laws? Q: Are the tax exemptions strictly construed
against government political subdivision or
A: Tax laws are: instrumentality?
1. Not political
2. Civil in nature A: No. It is a recognized principle that the rule on
3. Not penal in character strict interpretation does not apply in the case of
exemptions in favor of a government political
Q: How are tax laws construed? subdivision or instrumentality. The reason for the
strict interpretation does not apply in the case of
A: exemptions running to the benefit of the
1. Generally, no person or property is government itself or its agencies. In such a case,
subject to tax unless within the terms the practical effect of an exemption is merely to
or plain import of a taxing statute. reduce the amount that has to be handled by
2. Tax laws are generally prospective in government in the course of its operations. For
nature. these reasons, provisions granting exemptions to
3. Where the language is clear and government agencies may be construed liberally,
categorical, the words employed are to in favor of non-taxability of such agencies.
be given their ordinary meaning. (Maceda vs. Macaraig, 197 SCRA 771)
4. When there is doubt, tax laws are
strictly construed against the Q: How are tax rules and regulations construed?
Government and liberally in favor of
the taxpayer. A: The construction placed by the office charged
with implementing and enforcing the provisions
Note: Taxes, being burdens, are not to be of a Code should be given controlling weight
presumed beyond what the statute unless such interpretation is clearly erroneous.
expressly and clearly provides.
Q: How are penal provisions of tax laws
5. Provisions of the taxing act are not to construed?
be extended by implication.
6. Tax laws are special laws and prevail A: Penal provisions are given strict construction
over general laws. so as not to extend the plain terms thereof that
might createoffenses by mere implication not so
Q: State the rule on construction of tax intended by the legislative body. (RP v. Martin,
exemptions. G.R. No. L-38019, May 16, 1980)
14
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
15
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
1. is for the welfare of the nation and/or 2. Inequalities resulting from the singling
for greater portion of the population; out of one particular class for taxation
2. affects the area as a community rather or exemption infringe no constitutional
than as individuals; limitation because the legislature is free
3. is designed to support the services of to select the subjects of taxation.
the government for some of its Note: Legislature is not required to adopt
recognized objects. a policy of “all or none” for the Congress
has the power to select the object of
Q: What are the tests in determining public taxation. (Lutz v. Araneta, G.R. No. L-7859,
purpose? 22 December 1955)
16
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
17
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
18
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
pursuant to the principle of laws. Are the questioned shares of stocks subject
the mobilia sequntur to the Philippine inheritance tax?
personam.
A: Yes, inheritance tax is not a tax on property,
XPN:
1. When the property has
but upon transmission by inheritance. Originally,
acquired a business the settled law is that intangibles have only the
situs in another domicile of the decedent at the time of his death
jurisdiction; as the situs for the purpose of inheritance tax
2. When an express (mobilia sequuntur personam). However, such
provision of the statute doctrine has been decreed as a mere "fiction of
provide for another law having its origin in considerations of general
rule.
convenience and public policy, and cannot be
applied to limit or control the right of the state to
EXCISE TAX / DONOR’S
TAX / ESTATE TAX tax property within its jurisdiction," and must
"yield to established fact of legal ownership,
Nationality– applied to Taxed upon their properties actual presence and control elsewhere, and
RC, NRC wherever situated cannot be applied if to do so would result in
inescapable and patent injustice."
Place – applied to NRA Taxed on properties situated
within the Philippines In the instant case, the actual situs of the shares
of stock is in the Philippines, the corporation
Residence – applied to Taxed upon their properties
RA wherever situated being domiciled therein. And besides, the
certificates of stock have remained in this country
Place where the act/ up to the time when the deceased died in
BUSINESS TAX
business is performed or California and that one Syrena McKee, secretary
occupation is engaged in of the Benguet Consolidated Mining Company,
Where the goods, property has the legal title to the certificates of stock held
VAT
or services are destined, in trust for the true owner thereof. In other
used or consumed words, the owner residing in California has
extended here her activities with respect to her
Q: What is meant by the doctrine of mobilia intangibles so as to avail herself of the protection
sequuntur personam? and benefit of the Philippine laws. (Wells Fargo
Bank and Union Trust v. Collector, G.R. No. L-
A: Literally, it means “Movable follows the 46720, June 28, 1940)
person/owner”. However, a tangible property
may acquire situs elsewhere provided it has a Q: For purposes of estate and donor’s taxes,
definite location there with some degree of what are the intangible properties with situs in
permanency. the Philippines?
19
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the remedies available against A: Yes. One of the inherent limitations on the
multiplicity of situs? power of taxation is recognition of tax
exemptions in favor of the government. This is
A: Tax laws and treaties with other States may: premised on the concept that with respect to the
1. Exempt foreign nationals from local government, exemption is the rule and taxation is
taxation and local nationals from the exception in order to reduce administrative
costs. But since sovereignty is absolute and
20
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
21
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What about the constitutional tax exemption Uniformity and Equality of Taxation
for non-stock non-profit educational
institutions?
Basis: “The rule of taxation shall be uniform and
A: All revenues and assets of non-stock, non- equitable. The Congress shall evolve a progressive
profit educational institutions used actually, system of taxation. (Sec.28[1], Art. VI, 1987
directly, and exclusively for educational purposes Constitution)
shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate Q: Explain the following concepts in taxation:
existence of such institutions, their assets shall be 1. Uniformity
disposed of in the manner provided by law. 2. Equality
3. Equitability
The Constitution provides that as long as the
revenue is used ADE for educational purposes, A:
the revenue remain tax exempt. It appears that 1. Uniformity – It means all taxable
Section 30 of the NIRC is inconsistent with the articles or kinds of property of the
Constitution. Constitution should still prevail. (See same class shall be taxed at the same
page 26 for the illustrative case) rate.
Note: Income derived from any public utility or from Note: Tax is uniform when it operates with the
the exercise of any essential governmental function same force and effect in every place where the
accruing to the government or to any political subject is found. Different articles may be taxed
subdivision thereof is exempt from income tax. (Sec. at different amounts provided that the rate is
32[B][7][b], NIRC) uniform on the same class everywhere, with all
people at all times.
22
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
Q: When is taxation progressive? Q: What are the requisites in order for the
President to validly impose tariff rates, import
A: Taxation is progressive when tax rate and export quotas, tonnage and wharfage dues?
increases as the income of the taxpayer
increases. A:
a. Delegated by Congress through a law
Q: Why must taxation be progressive? b. Subject to Congressional limits and
restrictions
A: It is built on the principle of the taxpayer’s c. Within the framework of national
ability to pay and in implementation of the social development program.
justice principle that the more affluent should
contribute more to the community’s benefit. To
whom much is given, much is required. Exemption of Properties Actually, Directly.
and Exclusively Used For Religious,,
Q: Does the Constitution prohibit regressive Charitable and.Educational Purposes
taxes?
Q: To what exemption does the constitutional
A: No, what the Constitution simply provides is exemption of all lands, buildings and
that Congress shall evolve a progressive system improvements actually, directly and exclusively
of taxation. used for religious, charitable and educational
purposes refer to?
Q: What does the Constitution mean when it
used the term “evolve”? A: It pertains to exemption from real property
taxes only.
A: The Constitution mandates to Congress not to
prescribe but to evolve a progressive tax system. Q: What are the properties exempt under the
This is a mere directive upon Congress, not a Constitution from the payment of property
justiciable right or a legally enforceable one. We taxes?
cannot avoid regressive taxes but only minimize
them. (Tolentino et.al. v. Secretary of Finance, A:
G.R. No. 115455, Oct. 30, 1995) 1. Charitable institutions
2. Churches and parsonages or convents
Q: Is VAT regressive? appurtenant thereto, mosques
3. Non-profit cemeteries and
A: Yes. By its very nature, it is regressive 4. All lands, buildings and improvements
inasmuch as the VAT paid by the consumer or actually, directly and exclusively used
business for every goods bought or services for religious, charitable or educational
enjoyed is the same regardless of income. (Ibid.) purposes shall be exempt from
taxation. (Sec. 28(3), Art. VI, 1987
Note: Not regressive as defined in such a manner Constitution)
that the tax rate decreases as the amount subject to
taxation increases. Note: To be entitled to the exemption, the
petitioner must prove that: it is any of the above
entities/institutions and that its real properties are
23
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
(3) Cemeteries, churches, and parsonages or Hence in the case of Province of Abra v. Hernando:
convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for xxx Under the 1935 Constitution: "Cemeteries,
religious, charitable, or educational purposes shall churches, and parsonages or convents appurtenant
be exempt from taxation. thereto, and all lands, buildings, and improvements
used exclusively for religious, charitable, or
Thus, in the case of The Roman Catholic Bishop of educational purposes shall be exempt from
Nueva Segovia v. The Provincial Board of Ilocos Norte taxation." The present Constitution added
(December 31, 1927), the Court ruled: "charitable institutions, mosques, and non-profit
cemeteries" and required that for the exemption of
The exemption in favor of the convent in the "lands, buildings, and improvements," they should
payment of the land tax, include not only the land not only be "exclusively" but also "actually" and
actually occupied by the church, but also the "directly" used for religious or charitable purposes.
adjacent ground (which is being used for a vegetable The Constitution is worded differently. The change
garden) destined to the ordinary incidental uses of should not be ignored. It must be duly taken into
man, comes under the exemption. Moreover, in consideration. Reliance on past decisions would have
regard to the lot which formerly was the cemetery, sufficed were the words "actually" as well as
while it is no longer used as such, neither is it used "directly" not added. There must be proof therefore
for commercial purposes and, is now being used as a of the actual and direct use of the lands, buildings,
lodging house by the people who participate in and improvements for religious or charitable
religious festivities, which constitutes an incidental purposes to be exempt from taxation. xxx
use in religious functions, also comes within the
exemption.
24
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
Under the 1973 and 1987 Constitutions and Rep. Act On the part of the donor, such
No. 7160 in order to be entitled to the exemption, donations are deductible expense
the petitioner is burdened to prove, by clear and provided that no part of the
unequivocal proof, that (a) it is a charitable income of which inures to the
institution; and (b) its real properties benefit of any private stockholder
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for or individual in an amount not
charitable purposes. "Exclusive" is defined as exceeding 10% in case of
possessed and enjoyed to the exclusion of others; individual, and 5% in case of a
debarred from participation or enjoyment; and corporation, of the taxpayer’s
"exclusively" is defined, "in a manner to exclude; as taxable income derived from trade
enjoying a privilege exclusively." If real property is
or business or profession.
used for one or more commercial purposes, it is not
(Sec.34[H], NIRC).
exclusively used for the exempted purposes but is
subject to taxation. The words "dominant use" or
"principal use" cannot be substituted for the words 2. For purposes of donor’s and estate
"used exclusively" without doing violence to the taxation - donations in favor of
Constitutions and the law. Solely is synonymous with religious and charitable institutions are
exclusively. generally not subject to tax provided,
however, that not more than 30% of
THE PREVAILING RULE: the said bequest, devise, or legacy or
The term “exclusively” does not cover incidental use. transfer shall be used for
What is meant by actual, direct and exclusive use of administration purposes (Secs. 87[D]
the property for charitable purposes is the direct and and 101, NIRC).
immediate and actual application of the property
itself to the purposes for which the charitable Q: In 1991, Imelda gave her parents a Christmas
institution is organized. It is not the use of the gift of P100, 000.00 and a donation of P80,000 to
income from the real property that is determinative the parish church. She also donated a parcel of
of whether the property is used for tax-exempt land for the construction of a building to the PUP
purposes.
25
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
26
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
27
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What is the vote required for such grant of Q: What does the Constitution provide with
tax exemption? respect to the jurisdiction of the Supreme
Court?
A: In granting tax exemptions, the absolute
majority vote of all the members of Congress is A: The Supreme Court can review judgments or
required. It means at least 50% plus 1 of all the orders of lower courts in all cases involving:
members voting separately. (Sec.28[4], Art. VI, a. The legality of any tax, impost, assessment,
1987 Constitution) or toll;
b. The legality of any penalty imposed in
Q: Why separate vote for Senate and Congress? relation thereto (Sec. 5[2][b], Art. VIII, 1987
Constitution)
A: Because the sheer number of Congressmen
would dilute the vote of the Senators. Note: These jusridiction are concurrent with the
Regional Trial Courts; thus, the petition should
Q: What is the vote required for withdrawal of generally be filed with the RTC following the
such grant of tax exemption? hierarchy of courts. However, questions on tax laws
are usually filed direct with the Supreme Court as
A: A relative majority or plurality of votes is these are imporessed with paramount public
sufficient, that is, majority of a quorum. interest. It is also provided under Sec. 30, Art VI of
the Constitution that “no law shall be passed
increasing the appellate jurisdiction of the Supreme
Court without its advice and concurrence.”
Prohibition on Use of Tax Levied for Special
Purpose
GR: The courts cannot inquire into the wisdom of
a taxing act.
Q: How does the constitution treat all money
collected on any tax levied for a special
XPN: There is an allegation of violation of
purpose?
constitutional limitations or restrictions.
A: It is treated as a special fund and paid out for
such purpose only. If the purpose for which a
Municipal Taxation
special fund was created has been fulfilled or
abandoned, the balance, if any, shall be
Q: What justifies the delegation of legislative
transferred to the general funds of the
taxing power to local governments?
government. (Sec. 29[3], Art. VI, 1987
Constitution)
A: Each local government unit shall have the
power to create its own sources of revenues and
to levy taxes, fees and charges subject to such
Veto Power Of The President
guidelines and limitations as the Congress may
provide, consistent with the basic policy of local
Q: What is the rule as regards the veto power of
autonomy. Such taxes, fees, and charges shall
the President?
accrue exclusively to the local governments.
(Article X, Section 5, 1987 Constitution)
28
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
29
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
of Congress with regard to bills initiated in support in the Constitution, as where it can be
each of said respective houses, before said shown to amount to a confiscation of property.
bill is transmitted to the other house for its (Reyes v. Almanzor, G.R. Nos. L-49839-46 April
concurrence or amendment. Verily, to 26, 1991)
construe said provision in a way as to
proscribe any further changes to a bill after While it is true that the Philippines as a State is
one house has voted on it would lead to not obliged to admit aliens within its territory,
absurdity as this would mean that the other once an alien is admitted, he cannot be deprived
house of Congress would be deprived of its of life without due process of law. This guarantee
Constitution power to amend or introduce includes the means of livelihood. The shelter of
changes to said bill. Thus, Art. VI, Sec. 26 (2) protection under the due process and equal
of the Constitution cannot be taken to mean protection clause is given to all persons, both
that the introduction by the Bicameral aliens and citizens. (Villegas v. Hiu Chiong Tsai
Conference Committee of amendments and Pao Ho, G.R. No. L-29646, Nov. 10, 1978)
modifications to disagreeing provisions in
bills that have been acted upon by both Q: Give illustrative cases of violations of the due
houses of Congress is prohibited. (Abakada process clause.
Guro v. Executive Secretary, G.R. No. 168056,
168207, 168461, 168463 and 168730, Sept. A:
1, 2005) 1. Tax amounting to confiscation of
property
2. Subject of confiscation is outside the
Provisions Indirectly Affecting Taxation jurisdiction of the taxing authority
3. Law is imposed for a purpose other
Due Process Clause than a public purpose
4. Law which is applied retroactively
Q: What does due process in taxation require? imposes unjust and oppressive taxes
5. The law is in violation of inherent
A: limitations.
Substantive Due Process
A: The due process clause may be invoked where Q: What are the requisites for a valid
a taxing statute is so arbitrary that it finds no classification?
30
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
31
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: No. Neither the purpose nor the effect of the Q: What are the rules regarding non-impairment
exemption is the advancement or the inhibition of obligation and contract with respect to the
of religion; and it constitutes neither personal grant of tax exemptions?
sponsorship of, nor hostility to religion. (Walz v.
Tax Commission, 397 US 664) A:
1. If the grant of the exemption is merely a
Note: spontaneous concession by the
Public money or property cannot be used for a legislature, such exemption may be
religious purpose (Sec. 28[3], Art VI, 1987 revoked. (unilaterally granted by law)
Constitution). Except, if a priest is assigned to the 2. If it is without payment of any
armed forces, penal institutions, government consideration or the assumption of any
orphanages or leprosarium. (Sec.29[2], Art.VI, 1987 new burden by the grantee, it is a mere
Constitution) gratuity. (franchise)
3. However, if the tax exemption
Q: Is the imposition of fixed license fee a prior constitutes a binding contract and for
restraint on the freedom of the press and valuable consideration, the government
religious freedom? cannot unilaterally revoke the tax
exemption. (bilaterally agreed upon)
A: Yes. As a license fee is fixed in the amount and
unrelated to the receipts of the taxpayer, the Q: Does RA 7716 (E-VAT Law) violate the non-
license fee, when applied to a religious sect, is impairment clause?
actually being imposed as a condition for the
exercise of the sect’s right under the A: No. Even if such taxation may affect particular
Constitution. (Tolentino v. Secretary of Finance, contracts, as it may increase the debt of one
G.R. No. 115873, Aug. 25, 1994) person and lessen the security of another, or may
impose additional burdens upon one class and
Q: Is VAT registration restrictive of religious and release the burdens of another, still the tax must
press freedom? be paid unless prohibited by the Constitution, nor
can it be said that it impairs the obligations of any
A: No. The VAT registration fee although fixed in existing contract in its true and legal sense.
amount is not imposed for the exercise of a
privilege but only for the purpose of defraying Contracts must be understood as having been
part of the cost of registration. (Ibid.) made in reference to the possible exercise of the
rightful authority of the government and no
obligation of contract can extend to defeat the
Non-Impairment Clause authority. (Tolentino v. Secretary of Finance, ibid.)
Q: What are the instances when there is Q: X Corporation was the recipient in 1990 of
impairment of the obligations of contract? two tax exemptions both from Congress, one
law exempting the company’s bond issues from
A: When the law changes the terms of the taxes and the other exempting the company
contract by: from taxes in the operation of its public utilities.
1. Making new conditions; or The two laws extending the tax exemptions
2. Changing conditions in the contract; or were revoked by Congress before their expiry
3. Dispenses with the conditions dates. Were the revocations Constitutional?
expressed therein.
A: Yes. The exempting statutes are both granted
Q: What is the rationale for the non-impairment unilaterally by Congress in the exercise of taxing
clause in relation to contractual tax exemption? powers. Since taxation is the rule and tax
exemption, the exception, any tax exemptions
unilaterally granted can be withdrawn at the
32
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
pleasure of the taxing authority without violating A: No. Even with due recognition of its high estate
the Constitution. (Mactan Cebu International and its importance in a democratic society,
Airport Authority v. Marcos, G.R. No. 120082, however the press is not immune from general
Sept. 11, 1996) (1997 Bar Question) regulation by the State. It has been held that the
publisher of a newspaper has no immunity from
Q: A law was passed granting tax exemptions to the application of general laws. He has no special
certain industries and investments for a period privilege to invade the rights and liberty of others.
of 5 years but 3 years later, the law was He must answer for libel. He may be punished for
repealed. With the repeal, the exemptions were contempt of court. Like others, he must pay
considered revoked by the BIR, which assessed equitable and nondiscriminatory taxes on his
the investing companies for unpaid taxes business. (Tolentino v. Secretary of Finance, G.R.
effective on the date of the repeal of the law. No. 115873, Aug. 25, 1994)
33
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
administration pertains to the executive or Q: Is the approval of the court, sitting as probate
administrative agencies) or estate settlement court, required in the
enforcement of the estate tax?
Q: What are the kinds of rules relative to the
imposition of tax? A: No. The approval of the court, sitting in
probate, is not a mandatory requirement in the
A: collection of estate tax. On the contrary, under
1. Legislative rule – subordinate legislation Section 94 of the NIRC, it is the probate or
by the Secretary of Finance. settlement court which is forbidden to authorize
2. Interpretative rule – issuance of the executor or judicial administrator of the
guidelines and procedures to enhance decedent’s estate, to deliver any distributive
the administration of tax laws by the share to any party interested in the estate, unless
Secretary of Finance. a certification from the Commissioner of the
Internal Revenue that the estate tax has been
Q: Taxes are assessed for the purpose of paid is shown. (Marcos II v. Court of Appeals, G.R.
generating revenue to be used for public needs. No.120880, June 5, 1997) (2005 Bar Question)
Taxation itself is the power by which the State
raises revenue to defray the expenses of *Further discussed under Remedies of the
government. A jurist said that a tax is what we Taxpayer.
pay for civilization, in our jurisdiction, which of
the following statements may be erroneous:
1. Taxes are pecuniary in nature. TAXES
2. Taxes are enforced charges and
contributions. CONCEPT AND NATURE
3. Taxes are imposed on persons and property
within the territorial jurisdiction of a State. Q: Define taxes.
4. Taxes are levied by the executive branch of
the government. A: These are enforced proportional contributions
5. Taxes are assessed according to a reasonable from persons and properties, levied by the State
rule of apportionment. by virtue of its sovereignty for the support of the
government and for all its public needs. (1Cooley
A: (4) Taxes are levied by the executive branch of 62).
government.
Q: What are the characteristics of taxes?
This statement is erroneous because levy refers
to the act of imposition by the legislature which is A: SLEP4
done through the enactment of a tax law. Levy is 1. It is levied by the State which has
an exercise of the power to tax which is jurisdiction over the person or property
exclusively legislative in nature and character. 2. It is levied by the State through its Law-
Clearly, taxes are not levied by the executive making body
branch of government. (NPC v. Albay, G.R. No. 3. It is an Enforced contribution not
87479, June 4, 1990) (2004 Bar Question) dependent on the will of the person
taxed.
Q: Can assessment and collection be delegated? 4. It is generally Payable in money
5. It is Proportionate in character
A: Yes, provided that: 6. It is levied on Persons and property
1. The tax law must designate which 7. It is levied for a Public purpose.
agency will collect; and
2. The circulars or regulations must be in Q: What are the requisites of a valid tax?
accordance with the tax measures
imposed by Congress. A:
1. It should be for a public purpose;
Note: Assessment and collection may be delegated 2. It should be uniform;
but not levy. Levy or the imposition of tax cannot be 3. That either the person or property
delegated since it is exclusively conferred with the being taxed be within the jurisdiction of
Congress. the taxing authority; and
34
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
GENERAL PRINCIPLES
35
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
36
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
37
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Give the general principles of income taxation Q: What are the different types of income taxes
in the Philippines under Sec. 23 of the NIRC. under the NIRC?
A: Except when otherwise provided in the NIRC: A: The types of Income Tax under the NIRC
1. A resident citizen is taxable on all includes:
income derived from sources within and 1. Personal Income Tax on individuals
without the Philippines; 2. Regular corporate income tax on
2. A non-resident citizen is taxable only on corporations
income derived from sources within the 3. Minimum corporate income tax on
Philippines; corporations
3. A citizen of the Philippines who is 4. Capital gains tax on sale of shares of
working and deriving income from stocks of a domestic corporation
abroad as an OFW is taxable only on outside an exchange by a person who is
income derived from sources within the not a dealer in securities and capital
Philippines: Provided, That a seaman gains tax on sale of real property
who is a citizen of the Philippines and classified as a capital asset by a person
who receives compensation for services who is not a real estate dealer or
rendered abroad as a member of the developer
complement of a vessel engaged 5. Tax on passive investment income, such
exclusively in international trade shall as interest, dividend, and royalty;
be treated as an OFW; 6. Fringe benefit tax
4. An alien individual, whether a resident 7. Branch profit remittance tax on
or not of the Philippines, is taxable only Philippine branches of foreign
on income derived from sources within corporations
the Philippines; 8. Tax on improperly accumulated
5. A domestic corporation is taxable on all earnings tax of corporations
income derived from sources within and 9. Final withholding income tax on certain
without the Philippines; and income from sources within the
6. A foreign corporation, whether engaged Philippines payable to resident (i.e.
or not in trade or business in the interests on bank deposits) or non
Philippines, is taxable only on income resident persons (i.e. interests on
derived from sources within the foreign loans or management fees paid
Philippines. to non resident foreign corporation), or
to certain special persons (i.e. OBU,
ROHQ, PEZA or SMBA-registered
Types of Philippine Income Tax enterprises.)
Q: What are the types of income tax? Q: What are the classifications of sources of
income?
A:
1. Presumptive Income Tax – A scale of A:
income taxes is imposed in relation to a 1. Income from sources within the
group of person’s actual expenditure Philippines.
and the presumed income. 2. Income from sources without the
2. Composite Tax – A tax consisting of a Philippines.
series of separate quasi-personal taxes, 3. Income from sources partly within and
assessed on the particular source of partly without the Philippines. (Sec. 42,
income with a superimposed personal NIRC)
tax on the income as a whole.
3. Unitary Income Tax – Incomes are Q: What are the factors in determining the
arranged according to source. The source of income?
separate items are added together and .
the rate applied to the resulting total A:
income. 1. Interests – source of income which rests
on the residence of the debtor
2. Dividends – residence of the
corporation declaring the dividends
38
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
3. Services – place of performance of the Note: A separate adjustment or final return shall be
service made for the period not covered by the old
4. Rentals and Royalties – location of accounting period and the new accounting period.
property or interest in such property (Sec. 47, NIRC)
5. Sale of Real Property – location of the
property
6. Sale of Personal Property – country in Kinds of Taxpayer
which it is sold
Q: What are the classes of taxpayers?
Note: The sale of shares of stock in a domestic
corporation shall be treated as derived entirely from A: ICP-GET-Co
sources within the Philippines regardless of where 1. Individuals
said shares are sold. a. Citizen
i. Resident citizen (RC)
ii. Non-resident citizen (NRC)
Taxable Period b. Aliens
i. Resident Alien (RA)
Q: What are the two periods that may be used ii. Non resident aliens (NRA)
by the taxpayer in the computation of taxable NRA-ETB (engaged in
income? trade or business)
NRA-NETB (not engaged
A: in trade or business)
1. Fiscal year period – accounting period c. Special Class Individual Employee
of 12 months ending on the last day of
any month other than Dec. 2. Corporations
2. Calendar year period – accounting a. Domestic
period from Jan. 1 to Dec. 31. b. Foreign
i. Resident foreign corporation
Q: Who can adopt fiscal year period or calendar (RFC)
year? ii. Non-resident foreign
Corporation (NRFC)
A: Corporate taxpayers have the option whether 3. Partnerships (considered as
to adopt fiscal year or calendar year period. On corporations under the NIRC)
the other hand, an individual taxpayer can only 4. General Professional Partnerships
adopt calendar year period. 5. Estates
6. Trusts
Q: Can there be a taxable period of less than 12 7. Co – Ownerships ( either treated as a
months? continuation of the separate interest of
the different owners or as unregistered
A: A taxpayer may have a taxable period of less partnership)
than 12 months where: DiNe-ChaD
1. Taxpayer Dies Q: What is the importance of knowing the
2. Corporation is Newly organized classification of taxpayers?
3. Corporation Changes its accounting
period A: In order to determine the applicable: GREED
4. Corporation is Dissolved 1. Gross income base;
2. Income tax Rates
Q: What is the treatment in case a corporation 3. Exclusions from gross income
changes its accounting period? 4. Exemptions; and
5. Deductions.
A: If a corporate taxpayer, changes its accounting
period from fiscal year to calendar year, from
calendar year to fiscal year, or from one fiscal Individual Taxpayers
year to another, the net income shall, with the
approval of the CIR, be computed on the basis of Q: What are the classifications of individual
such new accounting period, subject to the taxpayers?
provisions of Sec. 47. (Sec. 46, NIRC)
39
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
40
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: Assuming the BIR changed the tax base of a A: The earnings of Minimum Wage Earners are
RC from taxable income to gross income, is that exempt from income tax. (Sec. 24 A [2], NIRC as
valid? amended by RA 9504)
A: No, the BIR cannot go beyond the sources of Q: How are the individuals in number 2 taxed?
the law.
A: There shall be levied, collected and paid for
Q: Is the income of an overseas worker derived each taxable year upon the gross income received
abroad taxable? by these individuals employed by multinational
companies, offshore banking units and petroleum
A: No, it is no longer taxable applying the rule service contractors and subcontractor received as
that in case of NRC, only income derived from salaries, wages, annuities, compensation,
sources within the Philippines is taxable. remuneration and other emoluments, such as
honoraria and allowances, a tax equal to 15% of
such gross income. (Sec. 25, NIRC)
SPECIAL CLASSES OF.INDIVIDUAL EMPLOYEES
Note: For other income of said individuals sourced
Q: Who are the special individual employees? within the Philippines, it shall be subject to the
applicable income tax, that is, graduated rates, final
A: tax on passive income, capital gains depending
1. Minimum Wage Earner whether a citizen or an alien, as the case may be.
2. Individuals, whether Filipino or alien
employed by:
a. Regional or area headquarters Corporations
(RAHQ) and regional operating
headquarters (ROHQ) of Q: What is a corporation for tax purposes?
multinational companies in the
Philippines (Sec. 25[C], NIRC); A:
b. Offshore banking units established 1. The term “corporation” shall include:
in the Philippines (Sec. 25[D], a. Partnerships, no matter how
NIRC); created
c. Foreign service contractor or b. Joint stock companies
subcontractor engaged in c. Joint accounts (cuentas en
petroleum operations in the participacion)
Philippines (Sec. 25[D], NIRC). d. Associations
e. Insurance companies
Q: Who is a minimum wage earner? 2. It does not include:
a. General professional partnerships
A: The term “minimum wage earner” shall refer and
to a worker in the private sector paid the b. A joint venture or consortium
statutory minimum wage, or to an employee in formed for purposes of
the public sector with compensation income of undertaking construction projects
not more than the statutory minimum wage in engaging in:
i. Petroleum
41
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
42
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: Define estate.
Partnerships and
General Professional Partnerships A: Estate refers to the mass of properties left by a
deceased person.
Q: What are the classifications of partnerships in
so far as tax is concerned? Q: When a person who owns property dies,
what are the taxes payable under the income tax
A: law?
1. General Professional Partnership (GPP);
2. Business Partnership. A:
1. Income tax for individuals from Jan. to
Q: What is a co-partnership or business the time of death. (Sec. 24 and 25,
partnership? NIRC)
2. Income tax of the estate, if the estate is
A: These are partnerships, other than GPP, under administration or judicial
whether registered or not. They are considered as settlement. (Sec. 60, NIRC)
corporations and therefore are taxed as
corporation.
Trusts
Note: Partners are considered as stockholders and
profits distributed to them are considered as Q: What is a trust?
dividends subject to final tax.
A: It is a right to the property, whether real or
Q: Is it necessary that the partnership be personal, held by one person for the benefit of
registered? another.
A: Registration of a partnership is immaterial for Q: What are the classifications of trust for tax
income tax purposes. It is taxable as long as the purposes?
following requisites concur: AI
1. There is an Agreement, oral or writing, A: TIP
to contribute money, property, or 1. Taxable and tax-exempt trust
industry to a common fund; and 2. Irrevocable trust and revocable trust
2. There is an Intention to divide the (pass through entity)
profits.
43
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
44
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: Julia died leaving as heirs her surviving The transactions were isolated. The character of
spouse, Lorenzo and her five children. A habituality peculiar to business transactions for
settlement of the estate was instituted in the the purpose of gain was not present. (Pascual and
CFI. The project partition was approved by the Dragon v. CIR, GR 78133, Oct. 18, 1988)
court however, there was no attempt made to
divide the properties listed. Instead, the Q: On 2 Mar. 1973, Joe transferred his rights
properties remained under the management of under contract with Ortigas Co. to his 4 children
Lorenzo who used said properties by leasing or to enable them to build residences on the lots.
selling them and investing the income derived TCTs were issued. Instead of building houses, his
therefrom. From said investments and children sold them to Walled City Securities
properties, the heirs derived income. The BIR Corporation and Olga Cruz Canda. The BIR
decided that the heirs formed an unregistered required the children to pay corporate income
partnership and therefore subject to corporate tax under the theory that they formed an
income tax. They protested the assessment and unregistered partnership or joint venture. Are
asked for reconsideration alleging that they are they liable for corporate income tax?
co-owners of the properties inherited and the
profits derived from the transactions. Are the A: No, the children are co-owners since they did
heirs of the decedent subject to corporate not form a partnership. It is an isolated act which
income tax? shows no intention to form a partnership. To
regard the children as having formed a taxable
A: Yes, while as a rule, co-ownership is tax unregistered partnership would result in
exempt, the co-ownership of inherited properties oppressive taxation and confirm the dictum that
is automatically converted into an unregistered the power to tax involves the power to destroy. It
partnership the moment said common properties appears that they decided to sell it after they
and/or the income derived therefrom are used as found it expensive to build houses. The division
common fund with intent to produce profits. If of the profit was merely incidental to the
after such partition, each heir allows his share to dissolution of the co-ownership which was in the
be held in common with his co-heirs under a nature of things a temporary state. (Obillos, Jr. v.
single management to be used with the intent of CIR, GR L-68118, Oct. 29, 1985)
making profit thereby in proportion to his share,
there can be no doubt that, even if no document
or instrument were executed for the purpose, for INCOME TAXATION
tax purposes, at least, an unregistered
partnership is formed and therefore subject to Q: What is income tax?
corporate income tax. (Oña, et al v. CIR, GR L-
19342, May 25, 1972) A: A tax on all yearly profits arising from property,
profession, trade or business, or a tax on person’s
Q: Pascual and Dragon bought 2 parcels of land income, emoluments, profits and the like. (Fisher
from Bernardino and 3 from Roque. Thereafter, v. Trinidad, GR L-19030. Oct. 20, 1922)
the first 2 were sold to Meirenir Development
and 3 to Reyes and Samson. They divided the Q: What is the basis of income tax?
profits between the 2 of them. The CIR
contended that they formed an unregistered A: Income tax is based on income, either gross or
partnership or joint venture taxable as a net, realized in one taxable year.
corporation under the Code and its income is
subject to the NIRC. Decide. Q: What is the nature of income tax?
A: No, sharing of returns does not in itself A: It is generally regarded as an excise tax. It is
establish a partnership whether or not the not levied upon persons, property, funds or
persons sharing therein have a joint or common profits but on the privilege of receiving said
right or interest in the property. (Art. 1769, NCC) income or profit.
In the present case, there is clear evidence of co-
ownership between the petitioners. There is no Q: What are the purposes of income tax?
adequate basis to support the proposition that
they thereby formed an unregistered partnership. A: To:
The 2 isolated transactions where they purchased 1. Provide large amounts of revenue
properties and sold the same a few years 2. Offset regressive sales and consumption
thereafter did not thereby make them partners. taxes
45
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
3. Mitigate the evils arising from the specified, income means cash or its equivalent.
inequality in the distribution of income (Conwi v. CIR, GR 48532, Aug. 31, 1992)
and wealth which are considered
deterrents to social progress, by a Q: How does “income” differ from “capital”?
progressive scheme of taxation
(Madrigal v. Rafferty, GR 12287, Aug. 8, A:
1918) Capital Income
Constitutes the Any wealth which flows into
Q: What is the State Partnership Theory? investment which is the the taxpayer other than a
source of income mere return of capital
Is the wealth Is the service of wealth
A: It is the basis of the government in taxing
Is the tree Is the fuit
income. It emanates from its partnership in the
Fund Flow
production of income by providing the protection,
(Madrigal v. Rafferty, 38 Phil. 414)
resources, incentive and proper climate for such
production. (CIR v. Lednicky, G.R. Nos. L-18169, L-
Q: What are the types of taxable income?
18262 & L-21434, July 31, 1964)
A:
Q: Distinguish income tax from property tax.
1. Compensation Income – income derived
from rendering of services under an
A:
employer-employee relationship
INCOME TAX PROPERTY TAX
Incidence
2. Professional Income – fees derived from
The incidence of an The incidence of a engaging in an endeavor requiring
income tax falls on the property tax is on the special training as professional as a
earner. property itself. means of livelihood, which includes, but
Who pays the tax not limited to, the fees of CPAs,
Income tax is paid by the Property tax is paid by the lawyers, engineers and the like.
earner. owner of the property. 3. Business Income – gains or profits
How measured derived from rendering services, selling
Income tax is measured Property tax is measured merchandise, manufacturing products,
by the amount of income by the value of the
farming and long-term contracts.
received over a period of property at a particular
time date.
4. Passive Income – income in which the
Frequency of taxation taxpayer merely waits for the amount
Income is taxed only Property may be taxed on to come in, which includes, but not
once. a recurrent basis. limited to interest income, royalty
income, dividend income, winnings
prizes.
Definition of Income 5. Capital Gain – gain from dealings in
capital assets.
Q: What is income?
Q: What kinds of income are subject to
A: It refers to all wealth which flows into the graduated rates?
taxpayer other than as mere return of capital. It
includes the forms of income specifically A:
described as gains and profits, including gains 1. Compensation income
derived from the sale or other disposition of 2. Business and professional income
capital assets. (Sec. 36, RR No.2) 3. Capital gains not subject to capital gains
tax
Income is a flow of service rendered by capital by 4. Passive income not subject to final tax
payment of money from it or any benefit 5. Other income
rendered by a fund of capital in relation to such
fund through a period of time. (Madrigal v. Q: Assuming Mr. R withdraws money from his
Rafferty, GR 12287, Aug. 8, 1918) bank account, is it income?
An income is an amount of money coming to a A: No, because income is other than a mere
person or corporation within a specified time, return of capital.
whether as payment for services, interest or
profit from investment. Unless otherwise Q: Is payment by mistake considered income for
tax purposes?
46
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
47
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the conditions in the realization of receipt that determines the inclusion of
income? the amount in the gross income.
A: Under the realization principle, revenue is Q: How is the income of a taxpayer computed?
generally recognized when both of the following
conditions are met: A:
1. The earning process is complete or GR: Net income shall be computed in
virtually complete accordance with the method of accounting
2. An exchange has taken place (Manila regularly employed in the books of the
Mandarin Hotels, Inc. v. CIR) taxpayer.
Q: Distinguish Actual and Constructive Receipt XPN: Computation shall be made in such
method as in the opinion of CIR clearly reflects
A: the income:
1. Actual receipt – income may be actual 1. If no such method has been so
receipt or physical receipt. employed by the taxpayer;
2. Constructive receipt – occurs when 2. If the method of accounting employed
money consideration or its equivalent is does not clearly reflect the income.
placed at the control of the person who (Sec. 43, NIRC)
rendered the service without restriction
by the payor. (Sec. 4.108-A, RR 16-2005) Q: When is installment payment used?
48
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
49
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
50
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
51
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
52
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: It refers to the fees received by a professional A: The term capital asset is defined by an
from the practice of his profession, provided that exclusion of all ordinary assets. Thus, those
there is no employer-employee relationship properties not specifically excluded in the
between him and his clients. statutory definition constitutes capital assets, the
profits or losses on the sale or the exchange of
which are treated as capital gains or capital
53
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
losses. Conversely, all those properties specifically A: Yes, property initially classified as capital asset
excluded are considered as ordinary assets and may thereafter be treated as an ordinary asset if a
the profits or losses realized must have to be combination of the factors indubitably tends to
treated as ordinary gains or ordinary losses. show that the activity was in furtherance of or in
the course of the taxpayer’s trade or business.
Accordingly, "Capital assets" includes property
held by the taxpayer whether or not connected Note: Properties classified as ordinary assets for
with his trade or business, but the term does not being used in business other than real estate
include any of the following, which are business are automatically converted into capital
consequently considered as "ordinary assets": assets upon showing that the same have been used
[SOUR] in business for more than two years prior to the
1. Stock in trade of the taxpayer or other consummation of the taxable transactions involving
property of a kind which would properly said properties.
be included in the inventory of the
taxpayer if on hand at the close of the Q: In 1990, Naval bought a lot for P1 million in a
taxable year subdivision with the intention of building his
2. Property held by the taxpayer primarily residence on it. In 1994, he abandoned his plan
for sale to customers in the Ordinary because the surrounding area became a
course of trade or business depressed area and land values in the
3. Property Used in the trade or business subdivision went down; instead, he sold it for
of a character which is subject to the P800,000. At the time of the sale, the zonal value
allowance for depreciation provided in was P500,000. Is the land a capital asset or an
the NIRC ordinary asset?
4. Real property used in trade or business
of the taxpayer A: The land is a capital asset because it is neither
for sale in the ordinary course of business nor a
The statutory definition of "capital assets" property used in the trade or business of the
practically excludes from its scope, all property taxpayer. (Sec. 39 [A], NIRC) (1995 Bar Question)
held by the taxpayer if used in connection with
his trade or business. (2003 Bar Question) Q: In Jan. 1970, Juan bought 1 hectare of
agricultural land in Laguna for P100,000. This
Q: What are examples of capital asset? property has a current fair market value of P10
million in view of the construction of a concrete
A: road traversing the property. Juan agreed to
1. Jewelries not used for trade or business exchange his agricultural lot in Laguna for a one-
2. Residential houses and lands owned half hectare residential property located in
and used as such Batangas, with a fair market value of P10
3. Automobiles not used in trade or million, owned by Alpha Corporation, a domestic
business corporation engaged in the purchase and sale of
4. Stock and securities held by taxpayers real property. Alpha Corporation acquired the
other than dealers in securities property in 2007 for P9 million. What is the
nature of the real properties exchanged for tax
Q: What are examples of ordinary assets? purposes - capital or ordinary asset?
54
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: Capital Gain includes the gain derived from Q: What is the treatment of capital gains and
the sale or exchange of an asset not connected losses?
with the trade or business. Capital Loss is the loss
that may be sustained from the sale or exchange A:
of an asset not connected with the trade or 1. From Sale of Stocks of Corporations –
business. Capital loss may not exceed capital a. Stocks Traded in the Stock
gains when used as a deduction to income. Exchange – subject to stock
transaction tax of ½ of 1% on its
Q: What are the kinds of capital gain under the gross selling price
provisions of the NIRC? b. Stocks Not Traded in the Stock
Exchange – subject to capital gains
A: tax
1. Capital Gains Subject to Final Tax -
usually imposed upon the sale, 2. From Sale of Real Properties in the
exchange or other disposition of: Philippines – capital gain derived is
a. Real property subject to capital gains tax but no loss
b. Shares of stock that are not traded is recognized because gain is
through the stock exchange presumed.
2. Capital Gains Included in Gross Income 3. From Sale of Other Capital Assets - the
for Income Tax Purposes - includes sale rules on capital gains and losses apply
and other disposition of capital assets in the determination of the amount to
other than those enumerated above. be included in gross income and not
The gain is included in the gross income subject to capital gains tax.
of the taxpayer.
Q: Distinguish capital gains subject to final tax Sale or Other Disposition of Real Property
from capital gains reported in the income tax
return. Q: Explain the tax treatment of sale or
disposition of real property treated as capital
A: asset.
SUBJECT TO REPORTED IN
FINAL TAX THE ITR A: A final tax of 6% shall be imposed based on
As to deductions the higher amount between:
The capital gains are
There is a fixed rate for 1. The gross selling price; or
aggregated with other
the tax
income to constitute
55
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
2. Whichever is higher between the Batangas, with a fair market value of P10
current fair market value as million, owned by Alpha Corporation, a domestic
determined by: corporation engaged in the purchase and sale of
a. Zonal Value – prescribed zonal real property. Alpha Corporation acquired the
value of real properties as property in 2007 for P9 million.
determined by the CIR; or
b. Assessed Value – the fair market 1. Is Juan subject to income tax on the
value as shown in the schedule of exchange of property? If so what is the tax
values of the Provincial and City base and what is the tax rate?
assessors (Sec. 24 D [1], NIRC) 2. Is Alpha Corporation subject to income tax
on the exchange of property? If so what is
Note: Actual gain or loss is immaterial since there is the tax base and rate?
a conclusive presumption of gain.
A:
Q: How is the tax treatment of disposition of 1. Yes, in a taxable disposition of a real
real property deemed capital asset as to property classified as capital asset the
taxpayers liable therefrom? tax base is the higher between: the fair
market value of the property received
A: For individuals and corporations – The capital in exchange and the fair market value
gains presumed to have been realized from the of the property exchanged. Since the
sale, exchange or other disposition of real fair market value of the two properties
property located in the Philippines classified as are the same, the said market value
capital assets. (Sec. 24 D [1], 27 D [5], NIRC) should be taken as the tax base which
is P10million and the income tax rate is
Note: As regards transactions affected by the 6% 6%. (Sec. 24 [D], NIRC)
capital gain tax, the NIRC speaks of real property
with respect to individual taxpayers, estate and 2. Yes, the gain from the exchange
trust but only speaks of land and building with constitutes an item of gross income,
respect to domestic and resident foreign
and being a business income, it must
corporation.
be reported in the annual ITR of Alpha
Corporation. From the pertinent items
Q: What is the coverage of capital gains and
of gross income, deductions allowed by
losses in real estate property?
law from gross income can be claimed
to arrive at the net income which is the
A: It involves the sale or other disposition of real
tax base for the corporate income tax
property classified as capital asset located in the
rate of 35%. (Sec. 27 [A] and Sec 31,
Philippines by a non-dealer in real estate.
NIRC) (2008 Bar Question)
Q: What is the tax treatment if property is not
Note: The applicable tax rate to the case at bar
located in the Philippines? is still 35% since it was taxed on 2007. Effective
Januray 1, 2009, the corporate income tax rate
A: Gains realized from the sale, exchange or is 30%.
other disposition of real property, not located in
the Philippines by resident citizens or domestic Q: What transactions are covered by the
corporations shall be subject to ordinary income “presumed” capital gains tax on real property?
taxation (Sec. 4.f, RR 7-2003) but subject to
foreign tax credits. A: It covers:
1. Sale;
Such income may be exempt in case of non- 2. Exchange; or
resident citizens, alien individuals and foreign 3. Other disposition, including pacto de
corporations. (Sec. 4.f, RR 7-2003) retro and other forms of conditional
sales. (Sec. 24 D [1], NIRC)
Q: In Jan. 1970, Juan bought 1 hectare of
agricultural land in Laguna for P100,000. This Note: “Sale, exchange or other disposition” includes
property has a current fair market value of P10 taking by the government through expropriation
million in view of the construction of a concrete proceedings.
road traversing the property. Juan agreed to
exchange his agricultural lot in Laguna for a one- Q: A corporation, engaged in real estate
half hectare residential property located in development, executed deeds of sale on various
56
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
subdivided lots. One buyer, after going around Q: Is the sale of principal residence by an
the subdivision, bought a corner lot with a good individual subject to capital gain tax?
view of the surrounding terrain. He paid P1.2
million, and the title to the property was issued. A: No, sale of principal residence by an individual
A year later, the value of the lot appreciated to is exempt provided the following requisites are
a market value of P1.6 million, and the buyer present:
decided to build his house thereon. Upon 1. Sale or disposition of the old actual
inspection, however, he discovered that a huge principal residence;
tower antenna had been erected on the lot 2. By a citizen or resident alien;
frontage totally blocking his view. When he 3. Proceeds from which is utilized in
complained, the realty company exchanged his acquiring or constructing a new
lot with another corner lot with an equal area principal residence within 18 calendar
but affording a better view. Is the buyer liable months from the date of sale or
for capital gains tax on the exchange of the lots? disposition;
4. Notify the CIR within 30 days from the
A: Yes, the buyer is subject to capital gains tax on date of sale or disposition through a
the exchange of lots on the basis of prevailing fair prescribed return of his intention to
market value of the property transferred at the avail the tax exemption;
time of the exchange or the fair market value of 5. Can be availed of once every 10 years;
the property received, whichever is higher (Sec. 6. The historical cost or adjusted basis of
21 [e], NIRC). Real property transactions subject his old principal residence shall be
to capital gains tax are not limited to sales but carried over to the cost basis of his new
also exchanges of property unless exempted by a principal residence;
specific provision of law. (1997 Bar Question) 7. If there is no full utilization, the portion
of the gains presumed to have been
Q: A, a doctor by profession, sold in the year realized shall be subject to capital gains
2000 a parcel of land which he bought as a form tax; and
of investment in 1990 for P1 million. The land 8. The 6% capital gains tax due shall be
was sold to B, his colleague and at a time when deposited with an authorized agent
the real estate prices had gone down, for only bank subject to release upon
P800,000 which was then the fair market value certification by the RDO that the
of the land. He used the proceeds to finance his proceeds of the sale have been utilized.
trip to the United States. He claims that he (RR No. 14-00)
should not be made to pay the 6% final tax
because he did not have any actual gain on the Q: What is a principal residence?
sale. Is his contention correct?
A: It refers to the dwelling house, including the
A: No, the 6% capital gains tax on sale of a real land on which it is situated, where the individual
property held as capital asset is imposed on the and members of his family reside, and whenever
income presumed to have been realized from the absent, the said individual intends to return.
sale which is the fair market value or selling price Actual occupancy is not considered interrupted
thereof, whichever is higher. (Sec. 24 [D], NIRC) or abandoned by reason of temporary absence
Actual gain is not required for the imposition of due to travel or studies or work abroad or such
the tax but it is the gain by fiction of law which is other similar circumstances. (RR No. 14-00)
taxable. (2001 Bar Question)
Note: The address shown in the ITR is conclusively
Q: What is the treatment of gains from sale to presumed as the principal residence. If the taxpayer
the government of real property classified as is not required to file a return, certification from
capital asset? Barangay Chairman or Building Administrator (for
Condominium units) shall suffice.
A: The taxpayer has the option to either:
1. Include as part of gross income subject Q: If the taxpayer constructed a new residence
allowable deductions and personal and then sold his old house, is the transaction
exemptions, then subject to the subject to capital gains tax?
schedular tax; or
2. Subject to final tax of 6% on capital A: Yes, exemption from capital gains tax does not
gains. (Sec. 24 [D], NIRC) find application since the law is clear that the
proceeds should be used in acquiring or
constructing a new principal residence. Thus, the
57
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Who are liable to pay capital gains tax on the A: The following rules shall apply in determining
sale of shares of stock not traded in the stock the selling price:
exchange? 1. In the case of cash sale - the selling
price shall be the total consideration
A: per deed of sale.
1. Individuals – both citizens and aliens 2. If the total consideration is partly in
2. Corporations – both domestic and money and in kind - the selling price
foreign shall be the sum of money and the fair
3. Estates and Trusts market value of the property received.
3. In the case of exchange - the selling
Q: What is the controlling factor in sale of price shall be the fair market value of
shares of stock? the property received.
4. In case the fair market value of the
A: What is controlling is whether or not the shares of stock sold, bartered or
shares of stock are traded in the local stock exchanged is greater than the amount
exchange and not where the actual sale of money and/or fair market value - the
happened. (Del Rosario v. CIR, CTA Case No. excess of the fair market value of the
4796, Dec. 1, 1994) shares of stock SBE over the amount of
money and the fair market value of the
Note: If the stock is traded in the stock exchange, it property, if any, received as
is not subject to capital gain tax but to stock consideration shall be deemed a gift
transaction tax of ½ of 1% on its gross selling price. subject to the donor’s tax under the
NIRC. (RR 6-2008)
Q: What is the effect if the sale is made by a
dealer in securities? Q: What are the important features as regards
capital gains from sale of shares of stock?
A: The resulting gain or loss is considered as
ordinary gain subject to graduated rates (5-32%) A:
for individual and normal corporate income tax 1. No capital loss carry-over for capital
(30%) for corporations. losses sustained during the year (not
listed and traded in a local stock
Q: Explain the tax treatment of sale of shares of exchange) shall be allowed but capital
stock considered as capital assets which are not losses may be deducted on the same
traded in the stock exchange. taxable year only.
2. The entire amount of capital gains and
A: The holding period notwithstanding, a final tax capital loss (not listed and traded in a
at the rates prescribed below is hereby imposed local stock exchange) shall be
upon the net capital gains realized during the considered without taking into account
taxable year from the sale, barter or exchange or the holding period irrespective of the
other disposition of shares of stock in a domestic type/kind of taxpayer.
corporation which are not traded in the stock 3. Non-deductibility of losses on wash
exchange. (Sec. 24 [C], NIRC) sales and short sales.
4. Gain from sale of shares of stock in a
Not over P100,000 ……………………… 5% foreign corporation are not subject to
On any amount in excess of P100,000 …10%
58
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
capital gains tax but to graduated rates percentage tax of ½ of 1% of the gross
either as capital gain or ordinary selling price. (Sec. 127 [A], NIRC).
income depending on the nature of the
trade of business of the taxpayer. 2. Yes, the sale of shares of stocks of a
domestic corporation held as capital,
Q: What is a Short Sale? not through a trading in the local stock
exchange, is subject to capital gains tax
A: Any sale of a security which the seller does not based on the net capital gain during the
own or any sale which is consummated by the taxable year. The tax rate is 5% for a
delivery of a security borrowed by, or for the net capital gain not exceeding P100,000
account of the seller. and 10% for any excess. The tax due
would be P15,000. (2008 Bar Question)
Q: When can one be said to own a security?
59
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
since the taxpayer can exploit it in order to A: Under this rule only ordinary and necessary
reduce his tax due. (Sec. 39 [B], NIRC) expense are deductible from gross income or
ordinary Income. Capital loss is a non-business
Q: Who can avail the holding period rule? connected expense as it can be sustained only
from capital transactions. To allow that capital
A: Only individual taxpayers can avail. It is not loss as a deduction from ordinary income would
allowed to corporations. run counter to the rule on matching cost against
revenue.
Q: Manalo, Filipino citizen residing in Makati
City, owns a vacation house and lot in California, Q: What is the treatment of net capital loss
which he acquired in 2000 for P15 million. On carry-over (NELCO)?
Jan. 10, 2006, he sold said real property to
Mayaman, another Filipino residing in Quezon A: If any taxpayer, other than a corporation,
City for P20 million. On Feb. 9, 2006, Manalo sustains in any taxable year a net capital loss,
filed the capital gains return and paid P1.2 such loss (in an amount not in excess of the net
million representing 6% capital gains tax. Since income for such year) shall be treated in the
Manalo did not derive any ordinary income, no succeeding taxable year as a loss from the sale or
income tax return was filed by him for 2006. exchange of a capital asset held for not more
After the tax audit conducted in 2007, the BIR than 12 months. (Sec. 39 (D), NIRC)
officer assessed Manalo for deficiency income
tax computed as follows: P5 million (P20million Q: What are the notable distinctions between
less P15 million) x 35%= P1.75 million, without NELCO and NOLCO?
the capital gains tax paid being allowed as tax
credit. Manalo consulted a real estate broker A:
who said that the P1.2 million capital gains tax NET CAPITAL LOSS NET OPERATING LOSS
should be credited from the P1.75 million CARRY OVER (NELCO) CARRY OVER (NOLCO)
deficiency income tax. Is the BIR officer’s tax As to source
assessment correct? Arises from capital Arises from ordinary
transactions meaning transactions meaning
A: No, first, the rate of income tax used is the involving capital asset involving ordinary asset
corporate income tax although the taxpayer is an As to who can avail
individual. Second, the computation of the gain Can be availed of by
Can be availed of by
recognized from the sale did not consider the individual and corporate
individual taxpayer only
holding period of the asset. The capital asset taxpayer
having been held for more than 12 months, only
50% of the gain is recognized. (Sec. 39 [b], NIRC) As to period of carry-over
Allows carry over of
Q: What is the Capital and Loss Limitation Rule? May be carried over only operating loss in 3
in the next succeeding succeeding taxable years
A: Under this rule, capital loss is deductible only taxable year or in case of mining
to the extent of capital gain. companies 5 years
Q: Capital loss is deductible to the extent of Q: What is net capital loss and net capital gain?
capital gain, what does this mean?
A: Net capital loss is the excess of capital losses
A: This means that you can only deduct capital from capital gains. Net capital gain is the excess
loss from capital gain. If there’s no capital gain, of capital gain over the capital loss.
no deduction is allowed because you cannot
deduct capital loss from ordinary gain. Q: What is the rule regarding expenses that may
include losses?
Q: Can you deduct ordinary loss from ordinary
gain and from capital gain? A:
GR: Expenses that may include losses must be
A: Yes for both cases. paid and claimed in the year the same is paid
or incurred.
Q: What is the Rule on Matching Cost?
60
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
XPN: In NELCO wherein such loss can be Q: What is the rule on the recognition of gain or
carried over in the next succeeding taxable loss in exchange of property?
year.
A: Upon the sale or exchange of property, the
Q: Distinguish the treatment of capital gains and entire amount of the gain or loss shall be
losses between individuals and corporations. recognized.
61
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What is the significance in determining Q: What are the passive incomes that are subject
whether a transaction is a wash sale or not? to final tax under the NIRC?
62
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
accordance with the provisions of RA 6426, An Q: Is tax on income and dividends amount to
Act Instituting a Foreign Currency Deposit System double taxation?
in the Philippines, and for other purposes.”
A: No, tax on income is different from tax on
Q: What is the tax treatment of the following dividend because they have different tax basis.
interest on deposits with: (Afisco Insurance Companies v. CA, GR 1123675,
1. BPI Family Bank? Jan. 25, 1999)
2. A local offshore banking unit of a foreign
bank? Note: Where a corporation distributes all of its
assets in complete liquidation or dissolution, the
A: gain realized or loss sustained by the stockholders
1. It is a passive income subject to a whether individual or corporate, is a taxable income
withholding tax rate of 20%. or deductible loss, as the case may be. (Sec. 73 [A],
2. It is a passive income subject to final NIRC)
withholding tax rate of 7.5%. (Sec. 24 B
[1], NIRC) Both interests are not to be Q: When is the reckoning point in taxing the
decalred as part of gross income in the dividend?
income tax return. (2005 Bar Question)
A: The reckoning point is the time of declaration
Q: Distinguish the 20% final withholding tax on and not the time of payment of dividends as it is
interest income from the 5% gross receipts tax taxable whether actually or constructively
on banks. received.
63
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
of the service rendered shall be treated as a may be provided under a corresponding Tax
dividend, and shall be subjected to the Treaty.
corresponding tax of 35% on Philippine sourced
gross income, or such other preferential rate as E.g., Royalty payments under a corresponding
licensing agreement. (1994 Bar Question).
Q: Give the summary rules on the tax treatment of certain passive income as applied to individuals.
A:
NRA- NRA -
RC NRC RA
ETB NETB
Within
Sources Of Income and Within Within Within Within
without
NATURE OF INCOME TAX RATE
INTEREST
On interest on currency bank deposits, yield or other monetary
benefits from deposit substitutes, trust funds & similar
arrangements.
Note: If the loan is granted by a foreign government, or an 7.5% Exempt 7.5% Exempt Exempt
International or regional financing institution established by
governments, the interest income of the lender shall not be
subject to the final withholding tax.
Interest Income from long-term deposit or investment in the form Held for:
of savings, common or individual trust funds, deposit substitutes, 5 years or more – exempt
investment management accounts and other investments 4 years to less than 5 years – 5%
25%
evidenced by certificates in such form prescribed by the BSP 3 years to less than 4 years – 12%
Less than 3 years – 20%
DIVIDEND
Dividend from a DC or from a joint stock company, insurance or
mutual fund company and regional operating headquarters of a
multinational company; or on the share of an individual in the
distributable net income after tax of partnership (except that of a
GPP) of which he is a partner, or on the share of an individual in 10% 10% 10% 20% 25%
the net income after tax of an association, a joint account or joint
venture or consortium taxable as a corporation of which he is a
member of co-venturer.
ROYALTY INCOME
Royalties on books, literary works and musical composition. 10% 10% 10% 10% 25%
Other royalties (e.g. patents and franchises) 20% 20% 20% 20% 25%
PRIZES AND WINNINGS
Prizes exceeding P10,000 20% 20% 20% 20% 25%
Winnings 20% 20% 20% 20% 25%
Winnings from Philippines Charity sweepstakes and lotto
Exempt Exempt Exempt Exempt Exempt
winnings
Note: For corporations, the tax rate is also 20% without any distinction as to royalties. Thus, even books and other literary
works and musical compositions shall be subject to 20% tax.
Moreover, prizes and other winnings (except Philippine Charity Sweepstakes and Lotto winnings) of corporations are not
subject to final tax but included as part of their gross income.
64
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: It is the amount of compensation paid for the A: Dividend income is a corporate profit set aside,
use of money or forbearance from such use. declared and distributed by the board of director of
a corporation to be paid to stockholders on
Q: How is interest income taxed? demand or at a fixed time.
Q: As a rule, interest income is taxable. What are Note: Tax rate is seen on the table provided.
the exceptions?
Q: Are stock dividends taxable?
A: Interest Income: [FIL2D]
1. On bank deposit maintained under the A:
expanded Foreign currency deposit. GR: No, stock dividends are considered
2. On bonds, debentures, and other unrealized gain since there is a mere transfer of
certificate of Indebtedness received by surplus to the capital account. Thus, it is not
any of the above mentioned entities. subject to income tax until that gain has been
3. On Loans extended by any of the above realized.
mentioned entities.
4. From Long term investment or deposit. A stock dividend, when declared is merely a
5. From bank Deposits. The recipient must certificate of stock which shows the interest of
be any following tax exempts recipients: the stockholder in the increased capital of the
a. Foreign government; corporation.
b. Financing institutions owned,
controlled or financed by foreign XPN: A stock dividend constitutes taxable
government; or income if it gives the shareholder a higher
c. Regional or international financing interest compared with what his former
institutions established by foreign stockholdings represented.
government. (Sec. 25 A [2], NIRC)
Note: A stock dividend does not constitute taxable
Note: In order to avail exemption under item no. income if the new shares did not confer new rights
4, the recipient must be a non-resident alien or nor interests than those previously existing, and
non-resident foreign corporation. Otherwise, it is that the recipient owns the same proportionate
subject to final tax of 7 ½ %. interest in the net assets of the corporation (Sec.
252, RR No. 2)
Item no. 5 applies only to individual taxpayers.
Q: Fred, was a stockholder in the Philippine
Q: What is the tax treatment of the following in American Drug Company. Said corporation
the preparation of annual income tax returns: declared a stock dividend and that a proportionate
Interest on deposits with: (i) BPI Family Bank; and share of stock dividend was issued to the Fred. The
(ii) a local offshore banking unit of a foreign bank. CIR, demanded payment of income tax on the
aforesaid dividends. Fred protested the
A: Both items are excluded from the income tax assessment made against him and claimed that
return: (i) Interest income from any currency bank the stock dividends in question are not income but
deposit is considered passive income from sources are capital and are, therefore, not subject to tax.
within the Philippines and subject to final tax. Since Are stock dividends income?
it is subject to final tax it is not included in the
annual ITR. (Sec. 24 B [1], NIRC) (ii) Same as No. (i) A: No, stock dividends are not income and are
(2005 Bar Question) therefore not taxable as such. A stock dividend,
when declared, is merely a certificate of stock
which evidences the interest of the stockholder in
the increased capital of the corporation. A
declaration of stock dividend by a corporation
65
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
66
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: When is prepaid rent taxable? Note: With the outright method it would only be
counted for 1 rental payment unlike with the
A: Prepaid or advance rental is taxable income to spread out method it would be distributed to the
the lessor in the year received, if received under a remaining term of the lease contract.
claim of right and without restriction as to its use,
regardless of method of accounting employed. Q: What is the tax treatment of VAT added to
rental/paid by the lessee?
Note: Security deposit applied to the rental of terminal
month or period of contract must be recognized as A: Any additional amount paid, directly or indirectly,
income at the time it is applied. Security deposit is to by the lessee in consideration for the lease is
ensure contract compliance, it is not income to the considered rental. Therefore, taxes paid by the lessee
lessor until the lessee violates any provision of the on leased property are part of rental income of the
contract. landlord.
67
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A:
1. Prizes derived from sources within the Income from any Source Whatever
Philippines not exceeding P10,000 is
included in the gross income; if over Q: What are examples of income from any source
P10,000, it is subject to final tax on whatever?
passive income.
2. Winning from sources within is subject to A:
final tax on passive income except PCSO 1. Forgiveness of indebtedness
and lotto winnings which are tax exempt; 2. Recovery of accounts previously written
3. Prizes and winnings from sources outside off
the Philippines. 3. Receipt of tax refunds or credit
68
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
4. An insolvent debtor does not realize taxable A: Exclusions and exemptions must be strictly
income from the cancellation or construed against the taxpayer and liberally in
forgiveness. (CIR v. Gin Co.) favor of the Government.
5. The insolvent debtor realizes income
resulting from the cancellation or Q: Distinguish “Exclusion from Gross Income”
forgiveness of indebtedness when he from “Deductions from Gross Income”.
becomes solvent. (Lakeland Grocery Co. v.
CIR 36 BTA 289 [1937]) A:
Exclusion from Deduction from
Q: What is the situs of income taxation? Gross Income Gross Income
Refer to a flow of wealth to the The amounts,
A: Individual Income Taxation: taxpayer which are not treated which the law
1. Residence – RA, RC as part of gross income, for allows to be
2. Place – NRA, NRC purposes of computing the deducted from
3. Citizenship – RC taxpayer’s taxable income, due gross income in
to the following reasons: order to arrive at
1. It is exempted by the net income
Corporate Income Taxation:
fundamental law
1. Residence – RFC
2. It is exempted by statute
2. Place – NRFC
3. It does not come within the
3. Nationality – DC definition of income (Sec. 61,
RR No. 2)
Pertains to the computation of Pertains to the
EXCLUSIONS FROM GROSS INCOME gross income computation of
net income
Q: What are exclusions from gross income? Something received or earned Something spent
by the taxpayer which do not or paid in
A: Exclusions from gross income refer to the form part of gross income earning gross
removal of otherwise taxable items from the reach income
of taxation either because they: Example of an exclusion from Example of a
1. Represent return of capital; gross income is proceeds of life deduction is
2. Are not income, gain or profit; insurance received by the business rental
3. Are subject to another kind of internal beneficiary upon the death of
revenue tax; the insured which is not an
4. Are income, gain or profit that are income or 13th month pay of an
expressly exempt from income tax under employee not exceeding
the Constitution, Tax treaty, Tax Code, or P30,000 which is an income not
recognized for tax purposes
general or a special law.
69
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are those items that are excluded in gross A: No. The exceptions are: [ASV-PPC]
income and shall be exempt from gross income 1. If there is an Agreement between the
taxation? insured and the insurer to the effect that
the amount shall be withheld by the
A: These are: [GLAM-RIC] insurer under an agreement to pay
1. Gifts, bequests and devises interest thereon, the interest held by the
2. Life insurance proceeds insurer pursuant to that agreement is the
3. Amount received by insured as return of one taxable but not the principal amount
premium (Sec. 32 B [1], NIRC)
4. Retirement benefits, pensions, gratuities, 2. Where the life insurance policy is used to
etc. Secure a money obligation
5. Income exempt under treaty 3. Where the life insurance policy was
6. Compensation for injuries or sickness transferred for a Valuable consideration
7. Miscellaneous items. (13P2I2G3) 4. The recipient of the insurance proceeds is
a. 13thmonth pay and other Benefits; a business Partner of the deceased and
b. Prizes and awards the insurance was taken to compensate
c. Prizes and awards in sports the partner-beneficiary for any loss in
competitions income that may result as the death of
d. Income derived by foreign the insured partner
government 5. The recipient of the insurance proceeds is
e. Income derived by the government a Partnership in which the insured is a
or its political subdivisions partner and the insurance was taken to
f. GSIS, SSS, Medicare and other compensate the partnership for any loss
contributions in income that may result from the
g. Gains from the sale of bonds, dissolution of the partnership caused by
debentures or other certificate of the death of the insured partner
indebtedness 6. The recipient of the life insurance
h. Gains from redemption of shares in proceeds is a Corporation in which the
mutual fund (Sec. 32 [B],NIRC) insured was an employee or officer. (Sec.
62, RR No. 2)
Q: What are the conditions for the exclusion of life Q: When is the designation or name of the
insurance proceeds from gross income? beneficiary material?
70
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: Noel is a bright computer science graduate. He If the insured does not die and survives the
was hired by HP. To entice him to accept the the designated period, the amount pertaining to the
job, he was offered the arrangement that part of premiums he paid are excluded from gross income,
his compensation package would be an insurance but the excess shall be considered part of his gross
policy with a face value of P20 million. The parents income.
of Noel are made the beneficiaries of the
insurance policy. Will the proceeds of the Q: Suppose Al obtained an endowment policy
valued at P1 million. He paid premiums amounting
71
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
to P800,000. Upon maturity, he received P1 donee’s tax. Donee’s tax has been abolished by PD
million, what amount is taxable? 69. The value of the gift received by Ms. Gorgeous
is not included in the computation of gross income
A: The amount of P200,000 is taxable. The pursuant to Sec. 32 B (3), NIRC, gifts, bequest and
difference between the value of the insurance and devises are excluded from gross income.
the actual premiums paid forms part of Al’s gross
income. Q: What is a Bequest and a Devise?
Q: Mario worked his way through college. After A: Bequest is a gift of personal property and devise
working for more than 2 years in X Corporation, is a gift of real property. Both are donations mortis
Mario decided to retire and avail of the benefits causa. The giver is either known as the testator or
under the very reasonable retirement plan decedent while the recipient may be the heirs or
maintained by his employer. On the day of his beneficiary/ies.
retirement on Apr. 30, 1985, he received his
endowment insurance policy, for which he was Q: What are the tax implications of a Bequest and
paying an annual premium of P1,520 since 1965, Device?
also matured. He was then paid the face value of
his insurance policy in the amount of P50,000. Is A: The estate of the testator or the decedent is
his P50,000 insurance proceeds exempt from subject to estate tax, while the heirs or
income taxation? beneficiary/ies are not required to pay donee’s tax
as the same was already abolished. The value of the
A: The P50,000 insurance proceeds is not totally bequest and/or the devise received by the heirs or
exempt from income tax. The excluded amount is beneficiary/ies is not included in the computation
that portion which corresponds to the premiums of their gross income since gifts, bequest and
that he had paid since 1965. At the rate of P1,520 devises are excluded from gross income. (Sec. 32
per year multiplied by twenty (20) years which was [B], NIRC)
the period of the policy, he must have paid a total
of P30,400. (P1,520 x 20 years). Accordingly, he wil Q: Is donation inter vivos and mortis causa subject
be subject to report as taxable income the amount to income tax?
of P19,600. (Sec. 28, NIRC)
A: Whether the donation is inter vivos or mortis
causa, it is excluded from gross income for it is not
Gifts, Bequests and Devises product of capital nor industry. Furthermore, the
property is already subject to donor’s or estate
Q: What gratuitous transfers are excluded from taxes as the case may be.
gross income?
Q: What is the “Gift Tax Test”?
A: The value of property acquired by gift, bequest
or devise is excluded from gross income. The A: When a person gives a thing or right to another
income from said property, however, is included as and it is not a “legally demandable obligation” then
part of gross income and is subject to tax. it is treated as a gift and excluded from gross
income. However, if there is a legally demandable
Note: The consideration is based on pure liberality and obligation to give such as for services rendered by
is already subject to donor’s or estate tax as the case one to the donor or due to his merits, the amount
may be. Moreover, there is no income. received is taxable income to the recipient.
72
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
The CIR taxed the P1 million as part of the gross money equivalent of 10 days unutilized vacation
compensation income of Quiroz who protested leave credits which is not taxable. Amounts of
that it was excluded from income because (a) it vacation allowances or sick leave credits which are
was a retirement pay, and (b) it was a gift. paid to an employee constitute compensation. (Sec.
2.78 A [7], RR 2-98, as amended by RR 10-2000)
Is Quiroz correct in claiming that the additional P1
Million was gift and therefore excluded from The amounts that JR received from the airline are
income? excluded from gross income and not subject to
income tax because they are compensation for
A: No, the amount received was in consideration of personal injuries suffered from an accident as well
his loyalty and invaluable services to the company as damages received as a result of an agreement on
which is clearly a compensation income received on account of such injuries. (Sec. 32 B [4], NIRC) (2005
account of employment. Under the employer's Bar Question)
'motivation test,' emphasis should be placed on the
value of Quiroz services to the company as the
compelling reason for giving him the gratuity, hence Income Exempt Under Treaty
it should constitute a taxable income. The payment
would only qualify as a gift if there is nothing but Q: What are income exempt under treaty?
'good will, esteem and kindness' which motivated
the employer to give the gratuity. (Stonton v. U.S., A: Income of any kind, to the extent required by
186 F. Supp. 393) any treaty obligation binding upon the Government
of the Philippines. (Sec. 32 B [5], NIRC)
Compensation for Injuries or Sickness Note: Public policy recognizes the principles of
reciprocity and comity among nations.
Q: What are the kinds of compensation for injuries
or sickness that may be excluded from gross
income? Retirement Benefits, Pensions,,Gratuities, Etc.
73
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: Pension, gratuity, stock bonus or profit-sharing Q: Mel received from his first employer, P20,000
plan maintained by an employer for the benefit of as retirement benefit and was subsequently
some or all his officials or employees, wherein employed by another employer. After rendering
contributions are made by such employer for the 10 years, Mel retired from his second employer
officials or employees, or both, for the purpose of and received P50,000. Payment was made under a
distributing the earnings and principal of the fund BIR approved retirement plan. Is the said amount
thus accumulated, any part of which shall not be taxable or not?
used or diverted to any purpose other than for the
74
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: No, according to RA 8291 (The GSIS Act of 1997) Q: State the tax treatment for separation pay.
all benefits he received are tax exempt, including
retirement gratuity. A: Separation pay is not taxable irrespective of the
age of the employee, length of service, number of
Q: Mario worked his way through college. After benefits received or the recipient thereof. (Sec. 32 B
working for more than 2 years in X Corporation, [6] b, NIRC)
Mario decided to retire and avail of the benefits
under the very reasonable retirement plan Q: What is terminal leave pay?
maintained by his employer. On his retirement, he
received P400,000 as retirement benefit. Is A: Terminal Leave Pay is the amount received
Mario’s P400,000 retirement benefit subject to arising from the accumulation of sick leave or
income tax? vacation leave credits. (Commutation of leave
credits)
A: Mario’s 400,000 retirement benefit is subject to
income tax. To be exempt, the retirement pay must Q: Is terminal pay excluded from gross income?
have been extended to an employee who is at least
10 years with the employer. The amount cannot be A: Yes, because it is received on account of a cause
considered as separation pay that would have beyond the control of the employee, that is,
exempted benefits from income tax since it was compulsory retirement benefit.
Mario who had decided to retire instead of being
required to do so. It is applied for by an employee who is no longer
working, it is no longer compensation for services
Q: What are the conditions in order that rendered, hence not subject to income tax.
separation pay may be excluded from gross
income? Q: Assuming it does not form part of the terminal
leave pay, as when it is given annually to the
A: employee, wherein the vacation or sick leave may
1. Amount received by an official, employee be converted into cash. What is the tax treatment
or by his heirs; of the cash equivalent of such vacation leave
2. From the employer; and credits?
3. As a consequence of separation of such
official or employee from the service of A: It depends.
the employer: 1. For private employees – vacation leaves
a. Because of death, sickness or other are exempt from tax up to 10 days while
physical disability; or sick leaves are always taxable.
b. For any cause beyond the control of 2. For government employees – both
the official or employee. (Sec 32 B [6] vacation and sick leaves are tax exempt
b, NIRC) irrespective of the number of days.
Q: What are causes beyond the control of the Q: What is the tax treatment of sick leave credits?
employee?
A: They are taxable irrespective of the number of
A: days. This applies if the sick or vacation leave
1. Retrenchment credits do not form part of the compulsory
2. Cessation of business retirement benefit.
3. Redundancy (Sec. 2 b [2], RR 2-98)
Q: Bernardo, a retired employee of the SC filed a
Q: Who will be the recipient of separation pay if request with the SC for the refund of the amount
the cause of separation is death, physical disability of P59,502 which were deducted from his terminal
or sickness? leave pay as withholding tax. The Court said that
the terminal leave pay of Bernardo, which he
75
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
76
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
b. financing institutions owned, In the second award, Q did not file any application
controlled or financed by foreign to enter into any contest. The award was given to
government; or her in recognition for her outstanding performance
c. regional or international financing in the field of sports. However, the recognition in
institutions established by foreign the field of sports is not among those stated under
government. (Sec. 32 B [7], NIRC) Sec. 28 B *8+ e, to wit: “Prizes and awards made
primarily in recognition of religious charitable,
Note: The exclusion may be premised either on scientific, educational, artistic, literary, or civic
the principle of comity or upon the principle of achievement”
reciprocity.
The fellowship award of $10,000 is however,
excluded from her income as she was selected
Prizes and Awards therefore without any action on her part and the
same was given to her in recognition of literary and
Q: What are the requisites in order for prizes and educational achievement, presumably without her
awards made be exempted from tax? being required to render future services for the
A: grantor. (1993 Bar Question)
1. Primarily in recognition of Scientific, Civic,
Artistic, Religious, Educational, Literary,
or Charitable achievement [SCAR-CEL] Prizes and Awards in Sports Competition
2. The recipient was selected without any
action on his part to join; and Q: What are the requisites for the exclusion of
3. He is not required to render substantial prizes and awards in competition from gross
future services as condition to receiving income?
the prize or award.
A: PATS
Q: JM, received a prize of P100,000 for winning the 1. All Prizes and awards;
on-the-spot peace poster contest sponsored by 2. Granted to Athletes;
the Lions Club. Is the award included in the gross 3. In local and international sports
income of JM for tax purposes? Tournaments and competitions; and
4. Sanctioned by their national sports
A: No, it is not included. It is subject to a final tax of associations. (Sec. 32 B [7] d, NIRC)
20% for the amount is in excess of P10,000,
otherwise it would be included in his gross income Note: National sports associations are those duly
and subjected to a scheduler rate (Sec. 24 B [1], accredited by the Philippine Olympic Committee.
NIRC) (2000 Bar Question)
Q: A won P100,000 in a competition sanctioned by
Note: The prize constitutes a taxable income for it was the national sports association. Give the tax
made primarily in recognition of his artistic implication/s as to the recipient as well as to the
achievement which he won due to an action on his donor/contributor.
part to enter the contest. (Sec. 32 B [7] c, NIRC)
A: As to the recipient of the award, it is exempt
Q: Q won P2,500 as part of the Palanca Award for from income tax. As to the contributor/donor of the
an outstanding short story. She was also named award, it is exempt from donor’s tax not based on
MVP of the Varsity volleyball team and was given the NIRC but on RA 7549. Contributor/Donor is
a trophy and P10,000. Finally, she received a allowed to claim it as a deduction from gross
Fellowship Award from the University of California income based on RA 7549.
to pursue a master's degree in American
literature. The fellowship is for $10,000 plus free Q: Onyoc, an amateur boxer, won in a boxing
board and lodging. Should Q include these awards competition sponsored by the Gold Cup Boxing
and fellowship in her gross income? Council, a sports association duly accredited by the
Philippine Boxing Association. Onyoc received the
A: The first award granted to Q, a Palanca award, amount of P500,000 as his prize which was
requires submission of literary works. Hence, this is donated by Ayala Land Corporation. The BIR tried
included in the gross income because it fails to to collect income tax on the amount received by
meet the legal requirement that the recipient was Onyoc who refuses to pay. Decide.
selected without any action on his part to enter the
contest or proceeding.
77
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: The prize will not constitute a taxable income to obligation binding upon the Government of the
Onyoc, hence the BIR is not correct in imposing the Philippines. (Sec. 32 B [5], NIRC)
income tax. RA 7549 explicitly provides that “All
prizes and awards granted to athletes in local and Q: What are the reasons for granting tax
international sports tournaments and competitions exemption through a treaty?
in the Philippines or abroad and sanctioned by their
respective national sports association shall be A:
exempt from income tax.” 1. Reciprocity
2. To lessen the rigors of international
Neither is the BIR correct in collecting the donor’s juridical double taxation
tax from Ayala Land corporation. The law is clear
when it categorically stated “That the donors of Q: What are some tax treaties entered into by the
said prizes and awards shall be exempt from the Philippines?
payment of the donor’s tax.” (1996 Bar Question)
A:
1. RP-Japan Tax Treaty
13th Month Pay and Other Benefits 2. RP-US Tax Treaty
3. RP-France Tax Treaty
Q: How much is the maximum amount allowed for 4. RP-Switzerland Tax Treaty
13th month pay and other benefits to be excluded 5. RP-Netherlands Tax Treaty
from gross income?
Q: What is the “Most Favored Nation Clause”?
A: Gross benefits received by officials and
employees of public and private entities may be A: This grants to the contracting party treatment
excluded from gross income provided that the total not less favorable than which has been or may be
exclusion shall not exceed P30,000. The excess granted to the most favored among other
would be considered as part of the compensation countries. It allows the taxpayer in one state to
income of the employee where it is subject on a avail of more liberal provisions granted in another
scheduler rate. (Sec. 32 B [7] e, NIRC) tax treaty to which the country of residence of such
taxpayer is also a party; provided that the subject
matter of taxation is the same as that in the tax
Gains from the Sale of Bonds, Debentures or Other treaty under which the taxpayer is liable. (CIR v. SC
Certificate of Indebtedness. Johnson and Son Inc., GR 127105, June 25, 1999)
Note: The bonds, debentures or other certificate of Q: What are the statutory income tax exemptions?
indebtedness sold, exchanged or retired must be with
a maturity of more than five years. A:
1. PD 87, Oil Exploration and Development
Act, as amended by PD 1354
Gains from Redemption of Shares in a 2. EO 226, The Omnibus Investment Code of
Mutual Fund Company 1987, as amended
3. RA 3538, the exemption of salaries paid in
Q: What is a mutual fund company? dollars to non-Filipino citizens for services
rendered to the Ford Foundation
A: The term “mutual fund company” shall mean an 4. RA 6938, Cooperative Code of the
open-end and close-end investment company as Philippines, as amended by RA 1176, 8241
defined under the Investment Company Act. (Sec.22 and 8424
[BB], NIRC) 5. RA 7482, Senior Citizens Act as amended
by RA 9257
6. RA 7929, Urban Development and
Under a Tax Treaty Housing Act of 1992
7. RA 8502, Jewelry Industry Development
Q: What is the basis of income being exempted Act of 1998
under a treaty? 8. RA 8282, which exempts income of the
SSS form income taxation
A: Among the income excluded from gross income, 9. RA 8479, An Act Deregulating the
hence exempt form income taxation is “income of Downstrean Oil Industry and For Other
any kind to the extent required by any treaty Purposes
78
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
79
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
80
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
81
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are included in compensation for services A: I will rule against the deductibility of the bonus.
which are allowed as deductions from gross The extra bonus is not normal to the business and
income? unreasonable. Giving an extra bonus at a time that
the company suffers operating losses is not a
A: payment done in good faith and is not normal to
1. Wages, salaries, commissions, the business, hence unreasonable and would not
professional fees, vacation-leave pay, qualify as ordinary and necessary expense. (2006
retirement pay, and other compensation Bar Question)
2. Bonuses in good faith
3. Pensions and compensation for injuries if Q: Noel is a bright computer science graduate. He
not compensated for by insurance or was hired by Hewlett Packard. To entice him to
otherwise accept the job, he was offered the arrangement
4. Grossed-up monetary value of fringe that part of is compensation would be an
benefit provided for, as long as the final insurance policy with a face value of P20 million.
tax imposed has been paid. The fringe The parents of Noel are made the beneficiaries of
benefit must have been granted to the insurance policy. Can the company deduct
managerial and supervisory employees, from its gross income the amount of the
otherwise it cannot be availed as premium?
deduction.
A: Yes, the premiums paid are ordinary and
Q: What are the conditions for deductibility of necessary business expenses of the company. They
bonus? are allowed as a deduction from gross income so
long as the employer is not a direct or indirect
A: Although, there is no fixed test for determining beneficiary under the policy of insurance. Since the
the reasonableness of a bonus as an additional parents of the employee were made the
compensation. The following conditions may be beneficiaries, the prohibition for their deduction
taken into consideration: does not exist. (Sec. 36 A [4], NIRC)
1. The payment must be made in good faith
2. The character of the taxpayer’s business
3. The volume and amount of its net Travelling Expenses
earnings
4. Its locality Q: What are the requisites for its deductibility?
5. The type and extent of the services
rendered A: RAP
6. The salary policy of the corporation 1. Reasonable and necessary expenses;
7. The size of the particular business 2. Incurred or paid while Away from home;
and
82
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What are included as travelling expense? Q: What are the requisites for deductibility?
83
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
84
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
85
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: Yes, the law gives the taxpayer the option to XPN: In the case of contingent tax liability, the
claim it as a deduction or treat it as capital obligation to deduct arises only when the
expenditure interest incurred to acquire property liability is finally determined.
used in trade, business or exercise of a profession.
(1999 Bar Question) Q: What is the treatment to income taxes paid in
foreign countries?
86
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
limitations. This is to avoid the rigors of indirect A: Taxes allowed as deductions, when refunded or
double taxation, although not prohibited by the credited shall be included as part of gross income
Constitution for being violative of the due process, in the year of receipt to the extent of the income
results to a tax being paid twice on the same tax benefit of said deduction. (Sec. 34 C [1], NIRC).
subject matter or transaction.
Q: In 2006, Sally, a fruit market operator received
Q: Distinguish tax credit from tax deduction. an assessment for customs duties for her
imported market equipment in the amount of
A: P75,000. Believing that the amount is excessive,
TAX CREDIT TAX DEDUCTION she paid the same under protest. Because of the
Subtracted from: assurances from her retained CPA that she stands
Tax due Income before tax a good chance of being able to secure a refund of
Reduces: P50,000 she did not deduct the same anymore
The taxpayer’s tax liability Income upon which tax from her income tax return. She deducted only
peso for peso liability is computed
the P25,000 which she believed was due from her.
She received the refund amounting to P50,000 in
Q: Who are entitled to claim tax credit? 2008. What should have been the proper tax
treatment of the payment of P75,000 in 2006?
A:
1. Resident citizens A: Sally should have deducted the total P75,000
2. Domestic corporations (Sec. 34 C [3] a, customs duties in 2006. When she received the
NIRC) refund of P50,000 in 2008, she should have
3. Members of a GPP included the amount as part of her income. Under
4. Beneficiary of an estate or trust (Sec. 34 C the tax benefit rule, taxes allowed as deductions,
[3] b, NIRC) when refunded or credited shall be included as part
of gross income in the year of receipt to the extent
Q: Who are not entitled to claim tax credit? of the income tax benefit of said deduction.
A: Q: What is the limitation on such deduction?
1. Alien individuals, whether resident or
non-residents A: In the case of non-resident alien individual
2. Foreign corporation, whether resident or engaged in trade or business in the Philippines and
non-residents a resident foreign corporation, the deductions for
3. Non-resident citizen including overseas taxes shall be allowed only if and to the extent that
contracted workers and seamen they are connected with income from sources
within the Philippines. (Sec. 34 C [2], NIRC)
Q: What are the limitations in when claiming tax
credit? Q: What are non-deductible taxes?
A: A: Taxes not allowed as deduction from gross
1. The amount of the credit in respect to income to arrive at taxable income:
the tax paid or incurred to any country 1. Income tax provided unded the NIRC
shall not exceed the same proportion of 2. Income taxes imposed by authority of
the tax against which such credit is taken, any foreign country
which the taxpayer’s taxable income
from sources within such country bears Q: What is the tax treatment of special
to his entire taxable income; and assessment?
2. The total amount of the credit shall not
exceed the same proportion of the tax A: Special assessments are deductible as taxes
against which such credit is taken, which where these are made for the purpose of:
the taxpayer’s income from sources 1. Maintenance or repair of local benefits, if
without the Philippines taxable under the payment of such assessment is
Title II of the NIRC (Tax on Income) bears ordinary and necessary in the conduct of
to his entire taxable income for the same trade, business or profession
taxable year. (Sec. 34 C [4], NIRC) 2. Constructing local benefits tending to
increase the value of the property
Q: What is Tax Benefit Rule? assessd, the payments are in the nature
of capital expenditures
87
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
88
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
89
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
1. Not connected with trade, business or 1. The debtor has no property nor
profession; and visible income;
2. Between related taxpayers 2. The debtor has been adjudged
bankrupt or insolvent;
Note: A mere recording in the taxpayer’s books of 3. There are numerous debtors with
account estimated uncollectible accounts does not small amounts of debts and further
constitute a write-off of the said receivable, hence, it action on the accounts would entail
shall not be a valid basis for its deduction as a bad expenses exceeding the amounts
debt expense. sought to be collected;
4. The debt can no longer be collected
Q: What are the general requisites for even in the future; and
deductibility of bad debts? 5. Collateral shares have become
worthless. (2004 Bar Question)
A: USTCAR
1. The debts are Uncollectible despite Note: "Worthless" is not determined by an inflexible
diligent effort exerted by the taxpayer; formula or slide rule calculation, but upon the exercise
of sound business judgment. In order that debts be
Note: To prove that the taxpayer exerted considered as bad debts because they have become
diligent efforts to collect the debts: worthless, the taxpayer should:
1. Sending of statement of accounts; 1. Ascertain the debt to be worthless in the year for
2. Sending of collection letters; which the deduction is sought.
3. Giving the account to a lawyer for 2. Act in good faith in ascertaining the debt to be
collection; and worthless (CIR v. Goodrich International Rubber
4. Filing a collection case in court. Co., GR L-22265, Dec. 22, 1967).
2. Existing indebtedness Subsisting due to Q: Are “reserves for bad debts” deductible from
the taxpayer which must be valid and gross income for income tax purposes?
legally demandable;
3. Connected with the taxpayer’s Trade, A: No, bad debts must be charged off during the
business or practice of profession; taxable year to be allowed as deduction from gross
4. Actually Charged off in the books of income. The mere setting up of reserves will not
accounts of the taxpayer as of the end of give rise to any deduction. (Sec. 34 [E], NIRC)
the taxable year;
5. Actually Ascertained to be worthless and Q: What is the tax benefit rule as applied to bad
uncollectible as of the end of the taxable debts recovered?
year; and
6. Must not be sustained in a transaction A: This states that the taxpayer is obliged to declare
entered into between Related parties. as taxable income subsequent recovery of bad
debts in the year they were collected to the extent
Note: of the tax benefit enjoyed by the taxpayer when the
1. In the case of banks, in lieu of bad debts were written off and claimed as
requisite No. 5 above, the BSP, thru its deduction from gross income.
Monetary Board, shall approve the writing
off of said indebtedness from the banks’ Q: Is the testimony of a CPA sufficient as
books of accounts at the end of the taxable
substantial evidence for the deductibility of a
year.
claimed worthless debt?
2. In no case may a receivable from an
insurance or surety company be written off
from the taxpayer’s books and claimed as A: No, mere testimony of a CPA explaining the
bad debts deduction unless such company worthlessness of said debts is seen as nothing more
has been declared closed due to insolvency than as a self-serving exercise which lacks probative
or for any such similar reason by the value. Mere allegations cannot prove the
Insurance Commissioner. worthlessness of such debts. (Philippine Refining
Co. v. CA, GR 118794, May 8, 1996)
Q: What factors will determine whether or not the
debts are bad debts?
Depreciation
A: The factors to be considered include, but are not
limited to, the following: Q: What is depreciation?
90
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What are the methods of depreciation under Note: If the property is not directly related to
the NIRC? production, depreciation is for 5 years using straight
line method. (Sec. 34 F [4], NIRC)
A:
1. Straight line method Q: What method shall be used in depreciation of
2. Declining balance method properties used in mining operations other than
3. Sum of the years digit method petroleum operations?
4. Any other method which may be
prescribed by Department of Finance A:
upon recommendation of the CIR. 1. At the normal rate of depreciation if the
expected life is less 10 years or less; or
Q: How is the useful life determined on which 2. Depreciated over any number of years
depreciation rate is based? between 5 years and the expected life if
the latter is more than 10 years and the
A: The BIR and the taxpayer may agree in writing on depreciation thereon is allowed as
the useful life of the property to be depreciated deduction from taxable income.
subject to modification if justified by facts or
circumstances. The change shall not be effective Provided, that the contractor notifies the CIR at the
before the taxable year on which notice in writing beginning of the depreciation period which
by certified mail or registered mail is served by the depreciation rate allowed will be used.
party initiating. However, if there is no agreement
and the BIR does not object to the rate and useful Q: Z purchased fully depreciated machineries and
life being used by the taxpayer, the same shall be entered the machineries in his books at P120,000.
binding. Based on the independent appraisal and
engineering report, Z assigned to the machineries
Q: Who is entitled to claim depreciation expense? an economic life of 5 years. Adopting the straight-
line method, Z claimed a depreciation deduction
A: The person who sustains an economic loss from of P24,000 in his income tax return. Is the
the decrease in property value due to depreciation deduction proper, considering that in the hands of
which is usually the owner. Non-resident aliens and the original owner, the said machineries were
foreign corporations are allowed to deduct only already fully depreciated?
when the property is located within the Philippines.
(Sec. 34 [F], NIRC) A: Yes, the starting point for the computation of
the deductions for depreciation is the reasonable
Q: What are depreciable assets and non- cost of acquiring the asset and its economic life.
depreciable assets for tax purposes? The fact that the machineries were already
depreciated by its original owner does not matter.
A: Z is allowed a depreciation allowance for the
1. Depreciable Assets: exhaustion, wear and tear (including reasonable
a. Tangible property used in trade or allowance for obsolescence) of the machineries
business which he is using in his trade or business. (Sec. 34
[F], NIRC) (1983 Bar Question)
91
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
92
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What donations are subject to limitation? 3. No, for the beneficiary is the employer
(Sec. 36 A [4], NIRC)
A: 4. No, contributions to a newspaper fund
1. Donations that are not in accordance with for needy families are not deductible for
the priority plan. the reason that the income inures to the
2. Donations whose conditions are not benefit of the private stockholder of the
complied with. printing company. (1968 Bar Question)
3. Donations to the Government of the
Philippines or political subdivision Q: On Dec. 06, 2001, LVN Corp. donated a piece of
exclusive for public purposes. vacant lot situated in Mandaluyong City to an
4. Donations to domestic corporations accredited and duly registered non-stock, non-
organized exclusively for: profit educational institution to be used by the
a. Scientific latter in building a sports complex for students.
b. Educational
c. Cultural May the donor claim in full as deduction from its
d. Charitable gross income for the taxable year 2001 the
e. Religious amount of the donated lot equivalent to its fair
f. Rehabilitation of veteran market value/zonal value at the time of the
g. Social Welfare donation?
93
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: How may a taxpayer treat research and Q: What is optional standard deduction (OSD)?
development costs?
A: The OSD is a scheme whereby a taxpayer is given
A: Taxpayer may either treat it as: the option to deduct from his gross revenue or
1. Revenue Expenditure – it will be wholly gross income a lump sum equivalent to a
deducted as ordinary and necessary percentage of such gross revenue or gross income
expense in the year it is paid or incurred for purposes of computing the net taxable income
2. Deferred Expense – allowed as deduction on which the income tax rate will be applied.
ratably distributed over a period of at
least 60 months starting from the month Note: This is in lieu of the itemized deduction where
benefits are received from such the taxpayer lists down all his expenses and the
expenditure. (Sec. 34 I [1 and 2], NIRC) corresponding amounts incurred to determine the
amount of allowable deductions.
Q: What are those research and development
expenditures which are not deductible? Q: How much is allowed as OSD?
Q: What are the requisites for its deductibility? Q: Differentiate itemized deduction from OSD.
94
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
3. If the GPP avails of OSD in computing net A: It is a system which allows the deduction from
income, the partners may no longer claim gross income of arbitrary amounts for personal,
further deductions from their net living or family expenses of the taxpayer.
distributive share, whether itemized or
OSD;
Q: Who among the individual taxpayer’s are
4. The election to claim either the OSD or entitled to personal and additional exemptions?
itemized deductions must be signified in
the income tax return filed for the first A:
quarter of the taxable year; once the 1. Resident citizen
election is made, the same type of 2. Non-resident citizen
deduction must be consistently applied 3. Resident alien
for all succeeding quarters and in the
annual income tax return; and Q: Is a non-resident alien engaged in trade,
business, or in the exercise of a profession in the
5. A taxpayer who is required but fails to file Philippines (NRA-ETB) entitled to personal and
the quarterly income tax return for the additional exemptions?
first quarter shall be deemed to have
elected to avail of itemized deductions for A:
the taxable year. (RR No. 2-2010) GR: No.
95
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
2. File an accurate return of his income from iii. Not gainfully employed or
all sources within the Philippines. on time; d. If such dependent:
and i. Regardless of age;
3. Amount allowable is not to exceed our ii. Is incapable of self-support;
maximum allowable personal exemption. because of mental or physical
defect. (Sec. 2.79 I [1] b, RR 2-
Q: Who among the individual taxpayers are not 98 as amended by RR 10-2008;
entitled to personal and additional exemptions? Sec. 35 [b], NIRC)
96
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: Supposed the child was gainfully employed at 9504, an individual taxpayer may claim
the age of 15, is W still entitled to personal the BPE irrespective of status.
exemption?
2. His children from his previous marriage
A: No. who are legitimate children and his
illegitimate child with Jane will all entitle
Q: The child reached the age of 22, is W still him to additional personal exemption of
entitled to personal exemption? P25,000 for each dependent, if apart from
being minor and not gainfully employed,
A: It depends, as a rule, the child must not be more they are unmarried, living with and
than 21 years old. However, a dependent, dependent upon Charlie for their chief
regardless of age, who is incapable of self-support support. (2006 Bar Question)
because of mental or physical defect may qualify as
a dependent.
Change of Status
Note: In case of age requirement there is an
exception, but with regard to marriage and gainful Q: What are the rules in case of change of status
employment, the NIRC provides no exception. during the taxable year?
A: Any person whether related to the senior citizen Q: Mar and Joy got married in 1990. A week before
or not, who takes care of him/her as a dependent. their marriage, Joy received, by way of donation, a
condominium unit worth P750,000 from her
Q: Charlie, a widower, has two sons by his parents. After the marriage, some renovations
previous marriage. Charlie lives with Jane who is were made at a cost of P150,000. The spouses
legally married to Mario. They have a child named were both employed in 1991 by the same
Jill. The children are all minors and not gainfully company. On 30 Dec. 1992, their first child was
employed. born, and a second child was born on 07 Nov.
1. How much personal exemption can Charlie 1993. In 1994, they sold the condominium unit and
claim? bought a new unit.
2. How much additional exemption can Charlie
claim? Under the foregoing facts, what were the events in
the life of the spouses that had income tax
A: incidence?
1. Charlie may claim the basic personal
exemption (BPE) of P50,000. Under RA
97
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
98
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What are the establishments that can claim the Q: When may the additional deduction from gross
discounts granted as deduction? income of private establishments for
compensation paid to senior citizens be availed?
A:
1. Hotels and similar lodging establishments A: Private establishments employing senior citizens
2. Restaurants shall be entitled to additional deduction from their
3. Recreation centers gross income equivalent to 15% of the total amount
4. Theaters, cinema houses, concert halls, paid as salaries and wages to senior citizens
circuses, carnivals and other similar places provided the following are present:
of culture, leisure and amusement 1. Employment shall have to continue for a
5. Drug stores, hospitals, pharmacies, period of at least 6 months;
medical ad optical clinics and similar 2. Annual taxable income of the senior
establishments dispensing medicines citizen does not exceed the poverty level
6. Medical and dental services in private as may be determined by the NEDA thru
facilities the National Statistical Coordination
7. Domestic air and sea transportation Board (NSCB). For this purpose, the senior
companies citizen shall submit to his employer a
8. Public land transportation utilities sworn certification that his annual taxable
9. Funeral parlors and similar income does not exceed the poverty
establishments level. (Sec. 9, RR 4-2006)
Q: What are the conditions in order for Note: Poverty Level/treshold is the the
establishments to avail the 20% sales discounts as minimum income/expenditure required for
deduction from gross income? a family/individual to meet the basic food
and non-food requirements as defined by
A: the NSCB. (for an individual it is P974 and
1. Only that portion of the gross sales P1,403 while for a family it is P4,869 and
exclusively used, consumed or enjoyed by P7,017 as of the year 2009)
the senior citizen shall be eligible for the
deductible sales discount; Q: What deduction may be availed of under RA
2. The gross selling price and the sales 9999, otherwise known “Free Legal Assistance Act
discount must be separately indicated in of 2010?”
the official receipt or sales invoice issued
by the establishment from the sale of A: A lawyer or professional partnerships rendering
goods or services to the senior citizen; actual free legal services, as defined by the SC, shall
3. Only the actual amount of the discount on be entitled to an allowable deduction from the
a sales discount not exceeding 20% of the gross income.
gross selling price can be deducted from
Note: Deduction would be the amount that could have
the gross income, net of value-added tax,
been collected for the actual free legal services
if applicable, for income tax purposes,
rendered or up to 10% of the gross income derived
and from gross sales or gross receipts of from the actual performance of the legal profession,
the business enterprise concerned, for whichever is lower.
VAT or other percentage tax purposes;
4. The discount can only be allowed as Q: What is the condition for it to be availed of as a
deduction from gross income for the deduction from gross income?
same taxable year that the discount is
granted; and A: It shall be deductible provided that the actual
5. The business establishment giving sale free legal services contemplated shall be exclusive
discounts to qualified senior citizens is of the minimum 60-hour mandatory legal aid
required to keep separate and accurate services rendered to indigent litigants as required
record of sales, which shall include the under the Rule on Mandatory Legal Aid Services for
name of the senior citizen, OSCA ID, gross Practicing Lawyers, under BAR Matter No. 2012,
sales/receipts, sales discounts granted, issued by the SC.
dates of transaction and invoice number
for every sale transaction to senior *See discussion on Exempt Corporations.
citizen. (Sec. 8 [1] to [5], RR No. 4-2006)
99
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
2. Any amount paid out for new buildings of A: Except when otherwise provided in the NIRC:
for permanent improvements, or 1. A citizen of the Philippines residing
betterments made to increase the value therein is taxable on all income derived
of any property or estate – these are from sources within and without the
capital expenditures added to the cost of Philippines;
the property and the periodic
depreciation is the amount that is 2. A non-resident citizen is only taxable on
considered as deductible expense income derived from sources within the
Philippines
Note: Shall not apply to intangible drilling
and development costs incurred in 3. An individual citizen of the Philippines
petroleum operations which are deductible who is working and deriving income from
under Subsection (G) (1) of Sec. 34 of the abroad as an OFW is taxable only on
NIRC income derived from sources within the
Philippines: Provided, that a seaman who
3. Any amount expended in restoring is a citizen of the Philippines and who
property or in making good the receives compensation for services
exhaustion thereof for which an rendered abroad as a member of the
allowance is or has been made complement of a vessel engaged
exclusively in international trade shall be
4. Premiums paid on any life insurance treated as an OFW
policy covering the life of any officer or
employee, or of any person financially 4. An alien individual, whether a resident or
interested in any trade or business carried not of the Philippines, is taxable only on
on by the taxpayer, individual or income derived from sources within the
corporate, when the taxpayer is directly Philippines (Sec. 23, NIRC)
or indirectly a beneficiary under such
policy (Sec. 36 [A], NIRC) INCOME DERIVED FROM
INDIVIDUAL SOURCES
5. Losses from sales or exchanges of TAXPAYER IS A: Within the Outside the
property between related parties (Sec. 36 Philippines Philippines
[B], NIRC) Resident Citizen √ √
Non-resident Citizen x √
6. Interest expense, bad debts, and losses Alien (whether
x √
from sales of property between related resident or not)
parties
Q: How are individuals taxed?
7. Non-deductible interest
A:
8. Non-deductible taxes 1. Taxable income subject to graduated
Rates - applies to:
9. Non-deductible losses a. Resident citizens (RC);
b. Non-resident citizens (NRC) including
10. Losses form wash sales of stock or OCW
securities c. Resident alien (RA)
d. Non-resident alien engaged in trade
Q: When is a person financially interested in the or business (NRA- ETB)
taxpayer’s business?
100
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
2. Gross income Subject to final tax rate of but not 20% of the
Over
25% - applies only to non-resident not over P8,500 + excess over
P70,000
alien engaged in trade or business (NRA- P140,000 P70,000
NETB) but not 25% of the
Over P22,50
over + excess over
P140,000 0
Q: What is taxable income? P250,000 P140,000
but not 30% of the
Over P50,00
A: The term taxable income means the pertinent over + excess over
P250,000 0
items of gross income specified in the NIRC, less the P500,000 P250,000
deductions and/or personal and additional Over P500,000 P125,0
+ 32%
00
exemptions, if any, authorized for such types of
income by the NIRC or other special laws. (Sec. 24 A [2], NIRC)
Q: What are the incomes subject to graduated Q: Assuming X, a resident citizen, married and has
rates? 4 qualified dependents. He earns a monthly
compensation income of P25,000. In 2009, he
A: earned P150,000 as net income from his retail
1. Compensation Income: business. How much is his taxable income for the
a. Monetary Compensation: regular year 2009?
salary or wage, separation pay or
retirement benefit not otherwise A: X’s taxable income for the year 2009 is P300,000
exempt, bonuses, 13th month pay computed as follows:
and other benefits not exempt,
director’s fees; Gross Income (P25,000 x 12) P300,000
b. Non-monetary Compensation: fringe Less: Basic Personal exemptions (50,000)
benefit not subject to tax Additional Exemption (25K x 4) (100,000)
2. Business and Professional Income Premium payment on health
3. Capital Gain not subject to capital gain tax and/or Hospitalization insurance ------------
4. Passive Income not subject to final tax
5. Other Income Net Compensation Income 150,000
Add: Net business income 150,000
Q: What is the formula in determining taxable
income? Taxable income subject to
graduated rates P300,000
A:
Note: Premium payment on health and/or
Gross Compensation Income xxx
hospitalization insurance cannot be availed since the
Less: Personal exemptions (xxx)
family gross income is more than P250,000 for the
Premium payment on health taxable year.
and/or Hospitalization insurance (xxx)
Net Compensation Income xxx Q: How much is his income tax payable?
Add: Net business income or xxx
Net professional income xxx A: From the taxable income of P300,000, the
Other income xxx applicable rate is:
Taxable income
subject to graduated rates xxx
Over P250,000 but not P50,000+30% of the
over P500,000 excess over P250,000
Q: What are the graduated rates applicable to the
income of individuals?
Thus, the income tax payable is:
Over 250,000 P50,000
A:
Excess x 30% (50,000 x 30%) 15,000
Income Bracket Applicable Tax Rate
INCOME TAX PAYABLE P65,000
Not over P10,000 5% + -
but not 10% of the
Over Q: Assume that X is a non-resident alien not
over P500 + excess over
P10,000 engaged in trade or business. He earned gross
P30,000 P10,000
but not 15% of the
income in the amount of P1.5 million from his one-
Over night concert in the Philippines. How much will he
over P2,500 + excess over
P30,000 pay as income tax?
P70,000 P30,000
101
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: Since X is a non-resident alien not engaged in divisor. The grossed up divisor is the difference
trade or business, his gross income within the between 100% and the applicable rates.
Philippines is subject to 25% final tax and is not
allowed any deductions. Accordingly he must pay Thus:
P375,000 (1,500,000 x 25%) EMPLOYEE
GROSSED UP
RATE
DIVISOR
32%
Citizen, RA,NRA-ETB 68%
Fringe Benefits Tax FBT
25%
NRA-NETB 75%
FBT
Q: Define fringe benefit.
Individual employed by:
RHQ or RAHQ; OBU; Foreign
A: Fringe benefit is any good, service or other service contractor or foreign 15%
benefit furnished or granted by an employer in cash 85%
service sub-contractor FBT
or in kind in addition to basic salaries, to an engaged in petroleum
individual employee, except a rank and file operations in the Philippines
employee, such as but not limited to:
[HEV-HIM-HEEL] Q: How is the monetary value of a fringe benefit
1. Housing computed?
2. Expense account
3. Vehicle of any kind A: The computation of the FBT is done by:
4. Household personnel such as maid, driver 1. Evaluating the benefit granted; and
and others 2. Determining the proportion or
5. Interest on loans at less than market rate percentage of the benefit which is
to the extent of the difference between subject to the FBT.
the market rate and the actual rate
granted Q: Discuss the valuation of fringe benefits.
6. Membership fees, dues and other
expenses borne by the employer for the A: If the fringe benefit is granted or furnished in:
employee in social and athletic clubs or 1. Money or is directly paid by the employer
other similar organizations – the value is the amount granted or
7. Holiday and vacation expenses paid.
8. Expenses for foreign travel 2. Property or other than money and
9. Educational assistance to the employee or ownership is transferred to the employee
his dependents – the value of the fringe benefit shall be
10. Life or health insurance and other non-life equal to the fair market value of the
insurance premiums or similar amounts in property as determined in accordance
excess of what the law allows. (Sec. 33 with the authority of the BIR to prescribe
[B], NIRC; Sec. 2.33 [B], RR 3-98) real property values (zonal valuation.)
3. Property or other than money BUT
Q: What is fringe benefit tax (FBT)? ownership is NOT transferred to the
employee – the value of fringe benefit is
A: It is a final withholding tax imposed on the equal to the depreciation value of the
grossed-up monetary value (GMV) of fringe benefit property. (Sec 2.33, RR 3-98)
furnished, granted or paid by the employer to the
employee, except rank and file employees. (Sec. Note: These guidelines are only used in instances
2.33 [A], RR 3-98) where there are no specific guidelines. For example,
there are specific guidelines for the valuation of real
Note: GMV represents the whole amount of income property and automobiles.
realized by the employee which includes the net
amount of money or net monetary value of property Q: What is the tax treatment of fringe benefits?
which has been received plus the amount of FBT
thereon otherwise due from the employee but paid by A: If the benefit is not tax-exempt and the recipient
the employer for and in behalf of his employee. (Sec. is:
2.33, RR 3-98)
1. A rank and file employee – the value of
Q: How is the GMV determined? such fringe benefit shall be considered as
part of the compensation income of such
A: It shall be determined by dividing the monetary employee subject to tax payable by the
value of the fringe benefit by the grossed-up employee.
102
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
103
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
or managerial employees is not subject to 1. Duly receipted for and in the name of the
FBT. employer; and
2. The expenditures do not partake the
Q: What are the situations whereby housing nature of personal expense attributable
privilege may be subject to the FBT? to the said employee. (Sec. 2.33 D [2] b,
RR 3-98)
A:
1. Employer leases residential property for Q: What are the situations whereby motor vehicle
use of the employee; or use thereof may be subject to FBT?
2. Employer owns a residential property
and assigns the same for the use by the A: Employer:
employee; 1. Purchases vehicle in employee’s name
3. Employer purchases a residential 2. Provides employee cash for vehicle
property on installment basis and allows purchase
use by the employee; 3. Purchases car on installment in name of
4. Employee purchases a residential employee
property and transfers ownership to the 4. Shoulders a portion of purchase price
employee; 5. Owns and maintains a fleet of motor
5. The employee provides a monthly fixed vehicle for use of business and
amount for the employee to pay his employees
landlord. 6. Leases and maintains a fleet of motor
vehicles for the use of the business and
Q: What are the housing privileges not treated as employees
taxable fringe benefit?
Q: What household expenses subject to FBT?
A:
1. Housing privilege of military officials of A: Expenses of the employee which are borne by
the Armed Forces of the Philippines the employer for household personnel, such as
consisting of officials of the Philippine salaries of household help, personal driver of the
Army, Philippine Navy, and Philippine Air employee, or other similar personal expenses
Force. (Sec. 2.33 D [1] f, NIRC) (garbage dues, laundry expenses, etc.) shall be
treated as taxable fringe benefits. (Sec. 2.33 D [4],
Note: Benefit to said officials shall not be RR 3-98)
treated as taxable fringe benefit in
accordance with the existing doctrine that Q: Give the rules on “interest on loan at less than
the State shall provide its soldier with market rate” as taxable fringe benefit.
necessary quarters which are within or
accessible from the military camp so that A: If the employer lends money to his employees:
they can readily be on call to meet the 1. Free of interest; or
exigencies of their military service.
2. Rate lower than 12%,
such interest foregone by the employer or the
2. A housing unit which is situated inside or
difference of the interest assumed by the
adjacent to the premises of a business of
employee and the rate of 12% shall be treated as
factory. (Sec. 2.33 D [1] g, RR 3-98)
fringe benefit.
Note: A housing unit is considered adjacent
The rule shall apply to installment payments or
to the premises if it is located within the
maximum 50 meters from the perimeter of
loans with interest rate lower than 12%. (Sec. 2.33
the business premises. D [5], RR 3-98)
Q: When is an expense account treated as taxable Q: Give the rules on “expenses for foreign travel”
fringe benefit? as taxable fringe benefit.
A: A:
GR: Expenses incurred by the employee but GR: Fixed and variable transportation,
which are paid by his employer shall be treated representation and other allowances are subject
as taxable fringe benefits. to FBT.
104
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
XPN: If incurred or reasonably expected to be Q: What are those benefits which are considered
incurred by employee in the performance of his necessary to the business of the employer or are
duties subject to the following conditions: granted for the convenience of the employer?
1. Ordinary and necessary in the pursuit of
employer’s business and paid or incurred A:
by employee; and 1. Housing privilege of military officials of
2. Liquidated or substantiated by receipts or the Armed Forces of the Philippines
other adequate documentation. (Sec. consisting of officials of the Philippine
2.33 D [7] c, RR 3-98) Army, Philippine Navy, and Philippine Air
Force.
Q: Give the rules on “educational assistance to the
employee or dependents” treated as taxable 2. A housing unit which is situated inside or
fringe benefit. adjacent to the premises of a business of
factory. A housing unit is considered
A: adjacent to the premises if it is located
GR: The cost of the educational assistance to the within the maximum 50 meters from the
employee which is borne by the employer shall perimeter of the business premises.
be treated as taxable fringe benefit.
3. Temporary housing for an employee who
XPN: A scholarship grant shall not be treated as stays in a housing unit for 3 months or
taxable fringe benefit if: less.
1. Education/study is directly connected
with employer’s trade, business or 4. The use of aircraft (including helicopters)
profession; and owned and maintained by the employer.
2. There is written contract that the
employee shall remain employed with 5. Reasonable business expenses which are
the employer for a period of time paid for by the employer for the foreign
mutually agreed upon by the parties. travel of his employee for the purpose of
(Sec. 2.33 D [9] b, RR 3-98) attending business or conventions.
Q: Give the rules on “life or health insurance” 6. A scholarship grant to the employee by
treated as taxable fringe benefit. the employer if the education or study
involved is directly connected with the
A: employer’s trade, business or profession,
GR: The cost of life or health Insurance and other and there is a written contract between
non-life insurance premiums borne by the them that the employee is under
employer are taxable fringe benefits. obligation to remain in the employ of the
employer for period of time that they
XPNs: have mutually agreed upon.
1. Contributions of the employer for the
benefit of employee to the SSS, GSIS, or 7. Cost of premiums borne by the employer
similar contributions arising from for the group insurance of his employees.
provisions of any existing law.
2. The cost of premiums borne by the 8. Expenses of the employee which are
employer for the group of insurance of reimbursed if they are supported by
employees. (Sec 2.33 [D] 10, RR 3-98) receipts in the name of the employer and
do not partake the nature of a personal
Q: Are Stock Options subject to FBT? expense of the employee
A: Yes, the basis is the difference between the fair 9. Motor vehicles used for sales, freight,
market value and the exercise price at the time of delivery service and other non-personal
exercise. uses. (RR 3-98)
Note: Employees receive stock options as part of their Q: What are de minimis benefits?
payment for the services they rendered to their
employer, which entitles them to buy their employer’s A: These are facilities or privileges furnished or
shares of stock at an agreed price. offered by an employer to his employees that are
of relatively small value and are offered or
105
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
furnished by the employer merely as a means of Q: How de minimis benefits are taxed?
promoting the health, goodwill, contentment and
efficiency of his employees. A:
GR: De minimis benefits are not taxable.
Q: What are included as de minimis fringe benefits
and give their respective ceiling amounts? XPN: If the total amount of de minimis benefits
exceed the P30,000 limit, the excess shall be
A: As per RR 5-2008, de minimis benefits include: considered as part of the compensation income.
Qualify:
1. Private employees:
a. Vacation leave - exempt Premiun Payments on Health and Hospitalization
Monetized unused up to 10 days
vacation leave b. Sick leave – always taxable
credits of 2. Government employees:
Q: Who may avail of the deduction?
employees Vacation and sick leave are
always tax exempt A: Only an individual taxpayer may claim said
regardless of the no. of deduction. Individual taxpayers whether earning
days. purely compensation income during the year or
Medical cash earning business income or in practice of his
allowance to Not exceeding P750 per profession whether availing of itemized or optional
dependents of semester or P125 per month standard deductions during the year.
employees
P1,500 or one sack of 50-kg rice
Rice subsidy per month amounting to not
In the case of married taxpayers, only the spouse
more than P1,500 claiming the additional exemption for dependents
Uniforms and shall be entitled to this deduction. (Sec. 34 [M],
Not exceeding P4,000 per NIRC)
clothing
annum
allowances
Actual medical Not exceeding P10,000 per Q: How much is the amount allowed?
benefits annum
Laundry allowance Not exceeding P300 per month A: The amount of premiums not to exceed P2,400
Employee per family or P200 a month paid during the taxable
In the form of tangible personal
achievement
property other than cash or gift year for health and/or hospitalization insurance
awards
certificate with an annual taken by the taxpayer for himself, including his
e.g. for length of
monetary value not exceeding family, shall be allowed as deduction from gross
service or safety
P10,000 income. (Sec. 34 [M], NIRC)
achievement
Gifts given during
Christmas and Not exceeding P5,000 per
major anniversary employee per annum Q: What are the conditions in order to avail said
celebrations deduction?
Flowers, fruits and
books or similar
A:
items given to Reasonable value –depending
employees under on the employer’s capacity 1. The health and/or hospitalization was
certain taken by the taxpayer for himself,
circumstances including his family; and
Daily meal 2. That said family has a gross income of not
Not exceeding 25% of the basic
allowance for more than P250,000 for the taxable year.
minimum wage
overtime work
106
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
income tax. (Sec. 24(A)(2), NIRC as amended by Note: Intercorporate Dividends are not subject to
R.A. 9504) tax. (Sec. 27 D [4], NIRC)
107
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are those corporations which do not fall A: MCIT is imposed beginning the fourth taxable
within the coverage of MCIT? year in which such corporation commenced its
business operations, which is the year when the
A: corporation registers with the BIR and not when the
1. On Domestic Corporations: corporation started its commercial operation. (Sec.
a. Those operating as proprietary 27 E [1], NIRC)
educational institutions subject to
tax at 10% on their taxable income; Q: Can the payment of MCIT be suspended?
b. Those engaged in hospital operations
which are non-profit subject to tax at A: Yes. The Secretary of Finance, upon
10% on their taxable income; recommendation of the BIR, may suspend the
c. Those engaged in business as imposition of MCIT on any corporation which
depositary banks under the suffers loss on account of: [PFL]
expanded foreign currency deposit 1. Prolonged Labor Dispute – arising from a
system subject to final income tax at strike staged by the employees which lasted
10% of such income; for more than 6 months within a taxable
d. Firms that are taxed under a special period and which has caused the temporary
income tax regime such as those in shutdown of business operations.
accordance with RA 7916 and 7227
(the PEZA Law and the Bases 2. Force Majeure – a cause due to an
Conversion Development Act, irresistible force as by ‘Act of God’ like
respectively) (Sec. 2.27 E [8], RR 9- lightning, earthquake, storm, flood and the
98) like. It shall also include armed conflicts like
war or insurgency.
2. On Foreign Corporations:
a. Those engaged in business as 3. Legitimate Business Reverses – include
“international carrier” subject to tax substantial losses due to fire, theft or
at 2½% of their “Gross Philippine embezzlement or for other economic
Billings”; reason as determined by the Secretary of
b. Those engaged in business as Finance. (Sec. 27 E [3], NIRC)
offshore banking unit;
c. Those engaged in business as Q: When is MCIT reported and paid?
regional operating headquarters
subject to tax at 10% of their taxable A: MCIT shall likewise apply to the quarterly
income; corporate income tax but the final comparison
d. Firms that are taxed under a special between the NCIT due and the MCIT shall be made
income tax regime such as those in at the end of the taxable year taking into
accordance with RA 7916 and 7227 consideration quarterly tax payment made. (RR 12-
2007)
108
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
109
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
4. A 0.9% ratio of Consolidated Public Sector A: It is any private school maintained and
Finance Position to GNP. (Sec. 27 [A], NIRC) administered by private individuals or groups with
an issued permit to operate from the DepEd, CHED
Note: No authority yet has been given by the or TESDA as the case may be.
President.
Q: How are insurance companies treated?
Q: When is it available?
A: Special deductions are allowed to insurance
A: This optional tax is available only to firms whose companies under Sec. 37 of the NIRC.
ratio of cost of sales to gross sales/receipts from all
sources does not exceed 55%. The election of the Q: How are depositary banks under the expanded
gross income tax option by the corporation shall be foreign currency deposit system taxed?
irrevocable for 3 consecutive taxable years during
which the corporation is qualified under the A:
scheme. (Sec. 27 [A], NIRC) GR: They are exempt from all taxes.
XPNs:
Income Taxation of Special 1. Final tax of 10% on interest income from
Domestic Corporations foreign currency loans granted by such
depositary banks under the expanded
Q: What are the special domestic corporations foreign currency deposit system, to
under the NIRC? residents other than offshore units in the
Philippines or other depositary banks
A: These are the domestic corporations that are under the expanded system.
subject to concessionary tax rates that are lower 2. Net income from such transactions as
than those imposed upon ordinary domestic may be specified by the Monetary Board
corporations. Among such special domestic to be subject to the regular income tax
corporations are: payable by banks.
1. Proprietary educational institutions
2. Non-profit hospitals
3. Insurance companies Income Taxation of
4. Depositary banks Resident Foreign Corporations
5. GOCCs, government instrumentalities or
agencies Q: What are the classes of taxes imposed on a
6. Franchise holders resident foreign corporation?
A: It means any trade, business or other activity, Branch Profit Remittance Tax
the conduct of which is not substantially related to
the exercise or performance by such educational Q: What are branch profits?
institution or hospital of its primary purpose or
function. A: Branch profits are gains or profits which are
effectively connected with the conduct of trade or
Q: What is a proprietary educational institution? business of a branch in the Philippines.
110
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: It is the concept where the head office of a A: It is a foreign airline corporation doing business
foreign corporation is the same juridical entity as its in the Philippines having been granted landing
branch in the Philippines. rights in any Philippine port to perform
international air transportation service/activities or
Q: What is the rule in imposing BPRT? flight operations anywhere in the world. (Sec. 2, RR
15-2002)
A:
GR: Any branch remitting profits to its head Q: How is an international carrier taxed?
office shall be subject to a tax of 15% which
shall be based on the total profits applied or A: An international carrier doing business in the
earmarked for remittance without any Philippines shall pay a tax of 2½% on its Gross
deduction for the tax component thereof Philippine Billings. (Sec 28 A [3], NIRC)
provided that interest dividends received by a
corporation during each taxable year from all Q: Define Gross Philippine Billings.
sources within the Philippines shall not be
treated as branch profits. A:
1. As to International Air Carrier – It refers to
XPN: It does not find application to activities the amount of gross revenue derived
registered with the Philippine Economic Zone from carriage of persons, excess baggage,
Authority. RR 2-98 also exempts enterprises cargo and mail originating from the
registered with the Subic Bay Metropolitan Philippines in a continuous and
Authority (SBMA) and the Clark Development uninterrupted flight, irrespective of the
Authority (CDA) which are covered under RA place of sale or issue and the place of
7227. payment of the ticket or passage
document: Provided:
Q: What remittances are not considered as branch a. That tickets revalidated, exchanged
profits? and/or indorsed to another
international airline form part of the
A: Interests, dividends, rents, royalties including Gross Philippine Billings if the
remuneration for technical services, salaries, wages, passenger boards a plane in a port or
premiums, annuities, emoluments or other fixed or point in the Philippines;
determinable annual, periodic or casual gains, b. That for a flight which originates
profits, income and capital gains received by a from the Philippines, but
foreign corporation during each taxable year from transshipment of passenger takes
all sources within the Philippines shall not be place at any port outside the
treated branch profits. (Sec. 2 A [5], NIRC) Philippines on another airline, only
the aliquot portion of the cost of the
Q: When are they considered as branch profits? ticket corresponding to the leg flown
from the Philippines to the point of
A: They shall be considered as branch profit when transshipment shall form part of
they are effectively connected with the conduct of Gross Philippine Billings.
branch’s trade or business in the Philippines.
111
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
2. As to International Shipping – It means Note: RAHQs are not subject to income tax for they do
gross revenue whether for passenger, not earn or derive income. They only act as
cargo or mail originating from the supervisory, communications and coordinating center
Philippines up to final destination, for their affiliates, subsidiaries, or branches in the Asia-
regardless of the place of sale or Pacific Region and other foreign markets.
payments of the passage or freight
documents.
Q: Define regional operating headquarters
Q: Does the absence of flight operations within the (ROHQ).
Philippine territory render the income received by
an international air carrier income outside the A: It is a branch established in the Philippines by
Philippines? multinational companies which are engaged in any
of the following services:
A: No, a foreign airline company selling tickets in 1. General administration and planning
the Philippines through their local agents shall be 2. Business planning and coordination
considered as resident foreign corporation engaged 3. Sourcing and procurement of raw
in trade or business in the country. The absence of materials and components
flight operations within the Philippines cannot alter 4. Corporate finance advisory services
the fact that the income received was derived from 5. Marketing control and sales promotion
activities within the Philippines. The test of 6. Training and personnel management
taxability is the source, and the source is that 7. Logistic services
activity which produced the income. (Air Canada v. 8. Research and development services and
CIR, CTA Case No. 6572, Dec. 22, 2004) product development
9. Technical support and maintenance
Note: If an international air carrier maintains flights to 10. Data processing and communications
and from the Philippines, it shall be taxed at the rate of 11. Business development
2½% of its Gross Philippine Billings, while international
air carriers that do not have flights to and from the Q: How are ROHQ taxed?
Philippines but nonetheless earn income from other
activities in the country will be taxed at the normal A: They shall pay a tax of 10% of their taxable
rate of 30% of such income. (South African Airways v. income within the Philippines.
CIR, GR 180356, Feb. 16, 2010)
Q: What are the special resident foreign
Q: How are offshore banking units (OBU) taxed? corporations and how are they taxed?
112
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
3. Intercorporate Dividends – A final A: When a NRFC receives dividend from a DC, the
withholding tax on intercorporate dividend income is taxable. The 30% corporate
dividends at the rate of 15% on the income tax goes down to 15% if the foreign
amount of cash and/or property dividends government shall allow a credit against the tax due
received from a domestic corporation (Sec. from the foreign corporation taxes deemed to have
28 B [5] b, NIRC) been paid.
Note: The 15% tax on intercorporate Q: Does the phrase “deemed paid” tax credit mean
dividends shall be collected and paid subject tax credit actually granted by the foreign
to the condition that the country in which the corporation?
non-resident foreign corporation is domiciled
shall allow a credit against the tax due from A: There is no statutory provision or revenue
the non-resident foreign corporation taxes regulation requiring actual grant as long as the
deemed to have been paid in the Philippines foreign government allows such tax credit. (CIR v.
equivalent to 15%, which represents the
Wander Philippines, GR L-68375, Apr. 15, 1988)
difference between the regular income tax of
30% and the 15% tax on dividends.
Q: If it is taxable, is it subject to corporate final tax
(FT) or regular corporate rate?
4. Capital Gains from Sale of Shares of Stock
not Traded in the Stock Exchange – A final
A: The tax rate is in the nature of a FT. Since it is a
tax at the rates prescribed below from the
FT, the source which is the DC is considered as the
sale, barter, exchange or other disposition
withholding agent of the Government therefore it is
of shares of stock not traded in the stock
the one who is legally obliged to pay the tax.
exchange (Sec. 28 B [5] c, NIRC)
Note: This is to encourage foreign investments and to
Not over P100,000....................................... 5%
attract foreign investors.
On any amount in excess of P100,000 ……. 10%
Q: Wander Inc. is a DC owned by Glaro Ltd.
Q: Maru Corp. is a foreign corporation duly
(Switzerland) - a foreign service corporation not
organized and existing under the laws of Japan
engaged in trade or business in the Philippines.
and duly licensed to engage in business under
Wander remits dividends to its parent company
Philippine laws. Atlantic Gulf and Pacific Co. of
out of which Wander withholds 35% and pays the
Manila (AGP) declared and paid cash dividends to
same to the BIR. Wander filed a claim for refund,
petitioner and withheld the corresponding final
contending that it is liable only for 15%
dividend tax thereon. Subsequently, Maru claimed
withholding tax and not 35% as provided in the
for the refund or issuance of a tax credit
NIRC. Is Wander entitled to the preferential rate of
representing profit tax remittance erroneously
paid on the dividends remitted by AGP. Maru
113
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
15% withholding tax on the dividends it remitted A: A tax equivalent to 10% of improperly
to Glaro? accumulated income. (Sec. 29 [A], NIRC)
A: Yes, under the NIRC, dividends received from a Q: What is improperly accumulated income?
domestic corporation is liable to tax, the tax rate
shall be 15% of the dividends remitted, subject to A: Improperly accumulated earnings refer to profits
the condition that the country in which the non- of a corporation that are accumulated instead of
resident corporation shall allow a credit against the distributing it to its shareholders for the purpose of
tax due from the non-resident corporation taxes avoiding the income tax with respect to its
deemed to be paid in the Philippines equivalent to shareholders or the shareholders of another
20% which represents the difference between the corporation.
regular tax of 35% on corporations and 15% tax on
dividends. Note: If the earnings and profits were distributed, the
shareholders would be liable for income tax, whereas
In the instant case, Switzerland did not impose any if there is no distribution, they would incur no tax with
tax on dividends received by Glaro. Such fact, respect to the undistributed earnings of the
however, should be considered as a full satisfaction corporation. Hence, IAET is imposed:
of the given conditions. To deny Wander to 1. In the nature of a penalty to the corporation for
withhold the 15% tax would run counter to the very the improper accumulation of its earnings; and
2. As a form of deterrent to the avoidance of tax
spirit and intent of said law. (CIR v. Wander
upon shareholders who are supposed to pay
Philippines Inc., GR L-68375, Apr. 15, 1988)
dividends tax on the earning distributed to them
by the corporation
Note: The NCIT rate at the time the case was decided
was still 35% now it is 30%.
Q: To whom is it imposed?
114
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
115
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
116
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
2. There is an Intention to divide the profits. deductible from the taxable income of the
estate. (BIR Ruling 233-86)
Q: How do we compute the net income of GPP?
Note:
A: For purposes of computing the distributive share 1. The distributed income shall form part of
of each partner, the net income of the partnership the respective heir’s taxable income.
shall be computed in the same manner as a 2. Deduction is allowed only when the
corporation. (Sec. 26, NIRC) distribution is made during the taxable year
when the income is earned.
Each partner shall report his distributive share in
the net income of the partnership as gross income
in his return whether actually or constructively TAXATION OF TRUSTS
received.
Q: Explain how trusts are taxed.
Q: What is the treatment in case the GPP incurred
losses? A:
GR: Subject to income tax in the same manner as
A: Results of operation of a partnership shall be individuals. (Sec. 60 [A], NIRC)
treated in the same way as a corporation. In case
of loss, it will be divided as agreed upon by the XPNs:
partners and shall be taken by the individual 1. Personal exemption is limited to only
partners in their respective returns. P20,000. (Sec. 62, NIRC)
2. No additional exemption is allowed.
Q: How will the partners treat the loss if the 3. Distribution to the beneficiaries during
operation of the partnership resulted in a loss? the taxable year of trust income is
deductible from the taxable income of the
A: If the partnership operation resulted to a loss, trust. Deduction is allowed only when the
the partners shall be entitled to deduct their distribution is made during the taxable
respective shares in the net operating loss from year when the income is earned. (Sec. 61
their individual gross income. [A], NIRC)
Q: What is the distributive share of a partner in Q: Who shall file and pay the income tax?
the net income of a business partnership?
A:
A: It is equal to each partner’s distributive share of GR: If the income:
the net income declared by the partnership for a 1. Is distributed to beneficiaries, the
taxable year after deducting the corresponding beneficiaries shall file and pay the tax.
corporate income tax. 2. Is to be accumulated or held for future
distribution, the trustee or beneficiary
Note: In a business partnership, there is no shall file and pay the tax.
constructive receipt of distributive share in the net
income. XPN:
1. In a revocable trust, the income of the
trust will be returned to the grantor. (Sec.
TAXATION OF ESTATES 63, NIRC)
Q: How is income tax applied to estates? 2. In a trust where the income is held for the
benefit of the grantor, the income of the
A: trust becomes income of the grantor.
GR: Subject to income tax in the same manner (Sec. 64, NIRC)
as individuals.
3. In a trust administered in a foreign
XPNs: country, the income of the trust,
1. Personal exemption is limited to only administered by any amount distributed
P20,000. to the beneficiaries shall be taxed to the
2. No additional exemption is allowed. trustee. (Sec. 61 [C], NIRC)
3. Distribution to the heirs during the
taxable year of estate income is Q: Is an “employee’s trust” tax-exempt?
117
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
118
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
rentals and other the withholding agent to withhold the tax under any
payments and all circumstances. In effect, the responsibility for
5. Income payments to the collection of the tax as well as the payment
certain contractors thereof is concentrated upon the person over whom
As to whether or not income should be reported as part the Government has jurisdiction. (Filipinas Synthetic
of the gross income Fiber Corporation v. CA, et al., GR 118498 & 124377,
The recipient may not Oct. 12, 1999)
report the said income
The employee is required to in his gross income
Q: May a withholding agent bring a claim for
include the income in his because the tax
gross income withheld constitutes
refund or tax credit of erroneously withheld tax?
final and full settlement
of the tax liability A: Yes, in applications for refund, the withholding
As to the effect of the tax withheld agent is considered a taxpayer because if he does
The tax withheld can be not pay, the tax shall be collected from him. (CIR v.
claimed as a tax credit or The tax withheld cannot Procter & Gamble Philippine Manufacturing
may be deducted from the be claimed as tax credit Corporation, GR L-66838, Dec. 2, 1991)
tax due or payable
As to filing of ITR
The withholding agent is liable for the correct
If the only source of
amount of the tax that should be withheld. The
income is subject to final
There is a necessity to file on withholding agent is, moreover, subject to and
tax, no need to file an
the earner liable for deficiency assessments, surcharges and
ITR on the part of the
earner penalties should the amount of the tax withheld be
finally found to be less than the amount that
Q: When does the obligation to deduct and should have been withheld under the law. Given
withhold arise? this responsibility, a withholding agent can validly
claim for tax refund.
A: At the time the income is paid or payable or
accrued or recorded as an expense or asset Q: What are the duties and obligations of the
whichever is applicable in the payor’s books, withholding agent?
whichever comes first. (Sec. 2.57.4 of RR 2-98 as
amended by Sec. 4 of RR 12-2001) A: The following are the duties and obligations of
the withholding agent to:
It is payable when the obligation becomes due, 1. Register – To register within 10 days after
demandable or legally enforceable. acquiring such status with the RDO
having jurisdiction over the place where
Q: How are withholding taxes withheld and the business is located.
remitted? 2. Deduct and Withhold – To deduct tax
from all money payments subject to
A: Taxes deducted and withheld by withholding withholding tax.
agents shall be covered by a return and paid to, 3. Remit the Tax Withheld – To remit tax
except in cases where the CIR otherwise permits, withheld at the time prescribed by law
an authorized Treasurer of the municipality or city and regulations.
where the withholding agent has his legal 4. File Annual Return – To file the
residence or principal place of business, or where corresponding Annual Information
the withholding agent is a corporation, where the Return at the time prescribed by law and
principal office is located. The taxes deducted and regulations.
withheld by the withholding agent shall be held as 5. Issue Withholding Tax Certificates – To
a special fund in trust for the government until paid furnish Withholding Tax Certificates to
to the collecting officers. (Sec. 58{A], NIRC) recipient of income payments subject to
withholding.
Q: Who is a withholding agent?
Q: Is the imposition of creditable withholding tax
A: A withholding agent is a separate entity acting amount to deprivation of property without due
no more than an agent of the government for the process and thus unconstitutional?
collection of tax in order to ensure its payments.
A: No, the seller may claim tax refund if net income
Note: A withholding agent is explicitly made is less than the taxes withheld (CREBA v. Romulo,
personally liable under Sec. 251, NIRC for the payment GR 160756, Mar. 9, 2010)
of the tax required to be withheld, in order to compel
119
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
120
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What is the effect if the employer fails to 1. Failure or refusal to file the withholding
deduct and withhold the tax and thereafter the exemption certificate
tax against which such tax may be credited is paid 2. False and inaccurate information
by the recipient?
*See discussion on Withholding of VAT
A: The tax so required to be deducted and withheld
shall not be collected from the employer but it will RETURNS AND PAYMENT
not relieve the employer from liability for any
penalty or addition to the tax. Q: What is a tax return?
Q: What if there is overpayment of tax by the A: A tax return is a report made by the taxpayer to
employer? the BIR on all gross income received during the
taxable year, the allowable deduction including
A: Refund or credit shall be made to the employer exemptions, the net taxable income, the income
only to the extent that the amount of such tax rate, the income tax due, the income tax
overpayment was not deducted and withheld by withheld, if any, and the income tax still to be paid
the employer. or refundable.
Q: What is its effect to the employee? Q: Who are required to file Income Tax Returns
(ITR)?
A: The amount deductedand withheld during any
calendar year shall be allowed as a credit to the A:
recipient of such income against the tax imposed. 1. Individuals
a. Resident citizens receiving income from
Q: How is the year-end adjustment done? sources within or outside the Philippines:
i. Individuals deriving compensation
A: On or before the end of the calendar year but income from 2 or more employers,
prior to the payment of the compensation for the concurrently or successively at
last payroll period, the employer shall determine anytime during the taxable year;
the tax due from each employee on taxable ii. Employees deriving compensation
compensation income for the entire taxable year. income regardless of the amount,
whether from a single or several
Q: What is the liability for tax of the employer? employers during the calendar year,
the income tax of which has not been
A: The employer shall be liable for the withholding withheld correctly resulting to
and remittance of the correct amount of tax collectible or refundable return;
required to be deducted and withheld. iii. Employees whose monthly gross
compensation income does not
Q: What if the employer failed to withhold and exceed 5,000 or the statutory
remit the correct amount of tax? minimum wage, whichever is higher,
and opted for non-withholding of tax
A: The tax shall be collected from the employer on said income;
together with the penalties and additions to the iv. Individuals deriving non-business,
tax. non- professional related income in
addition to compensation income not
Q: What if an employee fails or refuses to file the otherwise subject to a final tax;
withholding exemption certificate or willfully v. Individuals receiving purely
supplies false or inaccurate information? compensation income from a single
employer, although the income of
A: The tax required to be withheld by the employer which has been correctly withheld,
shall be collected from the employee including but whose spouse is not entitled to
penalty or additions to the tax from the due date of substituted filling.
remittance until the date of payment. b. Non-resident citizens receiving income
from sources within the Philippines.
Q: In what instances shall the excess taxes c. Citizens working abroad receiving income
withheld be forfeited in favor of the Government? from sources within the Philippines.
A: The employer’s:
121
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: They file only one return for the taxable year if Q: Where to file the ITR?
they are married and do not derive income purely
from compensation. If impractical to file only one A: With any authorized agent bank, Revenue
return, each spouse shall file a separate return of District Officer, Collection agent or duly authorized
income but the return so filed shall be consolidated Treasurer of the municipality or city where such
by the BIR. (Sec. 51 [D], NIRC) person has legal residence or principal place of
business or with the CIR. (Sec. 51 [B], NIRC)
Q: Who are the individuals exempt from filing an
ITR? For non-resident citizens, with the Philippine
Embassy or nearest Philippine Consulate or mailed
A: Individuals: directly to CIR.
1. Whose gross income do not exceed the
total personal and additional exemptions Q: When to file the ITR?
2. With respect to pure compensation
derived from sources within the A: On or before Apr. 15 of each year covering
Philippines, the income tax on which has income of the preceding taxable year for individual
been correctly withheld taxpayers. (Sec. 51 [C], NIRC)
3. Whose sole income have been subjected
to final withholding income tax Individuals who are self-employed or in practice of
4. Who are exempt from income tax. a profession are required to file and pay estimated
income tax every quarter as follows:
Note: Individuals not required to file an ITR may 1. First Quarter - Apr. 15
nevertheless be required to file an information return. 2. Second Quarter - Aug. 15
3. Third Quarter - Nov. 15
Under RA 9504, minimum wage earners are granted 4. Final Quarter - Apr. 15 of the following
full tax exemption from paying income tax. year
Q: What is the Confidentiality Rule with respect to For corporations, a quarterly tax return for the first
tax returns filed with the BIR? 3-quarters shall be required on a strictly 60-day
basis. The final adjusted return shall be on the
A: Although Sec. 71 of the NIRC provides that the 15th day of the 4th month following the close of
tax returns shall constitute public records, it is either fiscal or calendar year (Sec. 77 [B], NIRC)
necessary to know that these are confidential in
nature and may not be inquired into in Q: What is substituted filing?
unauthorized cases under the pain of penalty
provided for in Sec. 270 of the NIRC. A: It is when the employer’s annual return may be
considered as the “substitute” ITR of an employee
Note: For conviction of each act or omission, the inasmuch as the information provided in his
penalty of fine of not less than P50,000 but not more income tax return would exactly be the same
than P100,000 or imprisonment of not less than 2
information contained in the employer’s annual
years but not more than 5 years.
return.
122
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
123
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
124
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
It is considered as lawful because, “the legal right of 6. Progressive – the rate increases as the tax
a taxpayer to decrease the amount of what base increases. (Sec. 84, NIRC)
otherwise would be his taxes or altogether avoid
them by means which the law permits, cannot be Q: What are the bases for the imposition of estate
doubted.”(Delpher Trades Corporation v. IAC, et al. tax?
G.R. No. 73584, Jan. 28, 1988)
A:
Q: A law was passed by Congress abolishing estate 1. Benefits-protection theory – based on the
tax. Is the law valid? power of the State to demand and receive
taxes on the reciprocal duties of support
A: Yes, it is in the nature of a tax exemption. Settled and protection i.e. distribution of the
is the rule that the power to tax includes the power estate of the decedent;
to grant an exemption.
2. Privilege theory/State-partnership theory
– the State, as a passive and silent partner
Nature of Transfer Tax in the privilege of accumulating property,
has the right to collect the share which is
Q: What is the nature of transfer taxes? properly due it;
A: They are excise taxes; not property taxes. 3. Ability to pay – the receipt of inheritance
is in the nature of unearned wealth which
Note: They are not property taxes because their creates the ability to pay the tax
imposition does not rest upon general ownershipbut
rather they are privilege tax since they are imposed on 4. Redistribution of wealth – receipt of
the act of passing ownershipof property. inheritance contributes to the widening
inequalities in wealth. By imposing estate
Q: What are the characteristics of estate tax? tax, the value received by the successor is
thereby reduced and brings said value
A: into the coffers of the government
1. Excise tax – it is a tax imposed upon the
privilege of transferring property or Q: What are the requisites for the imposition of
shifting of economic benefits and Estate Tax?
enjoyment of the property from the dead
to the living; A: DSD
1. Death of decedent;
2. Ad valorem tax – it is based on the fair 2. Successor is alive at the time of
market value as of the time of death. decedent’s death; and
However, the appraised value of real 3. Successor is not Disqualified to inherit.
property as of the time of death shall be,
whichever is higher of the fair market
value Purpose/Object of Transfer Tax
a. As determined by the Commissioner
(zonal value), or Q: Give the purposes in imposing the estate tax.
b. As shown in the schedule of values
fixed by the Provincial and City A: To:
Assessors. (Sec. 88, NIRC) 1. Generate additional revenue for the
government
3. Indirect tax – amount may be shifted or 2. Reduce the concentration of wealth
passed on to the transferee 3. Provide for an equal distribution of
wealth
4. National – imposed by the National 4. Compensate the government for the
government. It cannot be imposed by protection given to the decedent that
LGU’s pursuant to Sec. 133 of the Local
Government Code
125
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
enabled him to prosper and accumulate Less: Tax credit (if any) (Sec. 86(E) or 110(B))
wealth Estate Tax Due, if any E
126
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
127
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
to the extent of the interest therein of the life, payable upon his death to his estate. (Sec.
decedent at the time of his death (Sec. 85 [A], 85[E], NIRC). (2005 Bar Question)
NIRC). These properties shall have a situs of
taxation in the Philippines hence subject to Q: What is the meaning of fair market value?
Philippines estate taxes.
A: The price at which any seller will sell and any
On the other hand, in the case of a non-resident buyer will buy both willingly without any force or
decedent who at the time of his death was not a intimidation.
citizen of the Philippines, only that part of the entire
gross estate which is situated in the Philippines to
the extent of the interest therein of the decedent at Items to be Included in Gross Estate
the time of his death shall be included in his taxable
estate. Provided, that, with respect to intangible Q: What are included in the gross estate?
personal property, we apply the rule of reciprocity.
(Ibid ) (2000 Bar Question) A:
1. Decedent's interest
Q: Ralph Donald, an American citizen, was a top 2. Transfer in contemplation of death
executive of a U.S company in the Philippines until 3. Revocable transfer
he retired in 1999. He came to like the Philippines 4. Property passing under general power of
so much that following his retirement, he decided appointment
to spend the rest of his life in the country. He 5. Proceeds of life insurance
applied for and was granted permanent resident 6. Prior interests
status the following year. In the spring of 2004, 7. Transfers of insufficient consideration
while vacationing in Orlando Florida USA, he
suffered a heart attack and died. At the time of his Note: Nos. 2, 3, 4 and 7- properties not physically in
death he left the following properties: the estate (these have already been transferred during
a. Bank deposits with Citibank Makati and the lifetime of the decedent but are still subject to
Citibank Orlando Florida; payment of estate tax) - are transfers inter-vivos which
b. Rest house in Orlando, Florida; are considered part of gross estate.
c. A condominium unit in Makati;
d. Shares of stock in the Phil subsidiary of
the U.S company where he worked; Decedent’s Interest.
e. Shares of stock in San Miguel
Corporation and PLDT Q: What does the decedent’s interest include?
f. Shares of stock in Disney World in
Florida A: It includes any interest having value or capable of
g. U.S treasury bonds being valued, transferred by the decedent at his
h. Proceeds from a life insurance policy death.
issued by a US corporation.
Q: Jose Ortiz owns 100 hectares of agricultural
Which of the foregoing assets shall be included in land planted with coconut trees. He died on May
the taxable gross estate in the Philippines? 30, 1994. Prior to his death, the government, by
Explain. operation of law, acquired under the
Comprehensive Agrarian Reform Law all his
A: All of the properties enumerated except (h), the agricultural lands except five (5) hectares. Upon
proceeds from life insurance, are included in the the death of Ortiz, his widow asked you how she
taxable gross estate in the Philippines. Ralph will consider the 100 hectares of agricultural land
Donald is considered a resident alien for tax in the preparation of the estate tax return. What
purposes since he is an Aerican citizen and was a advice will you give her?
permanent resident of the Philippines at the time of
his death. The value of the gross estate of a A: The 100 hectares of land that Jose Ortiz owned
resident alien decedent shall be determined by but which prior to his death on May 30, 1994 were
including the value at the time of his death of all acquired by the government under CARP are no
property, real or personal, tangible or intangible, longer part of his taxable gross estate, with the
wherever situated. (Sec. 85, NIRC) The other item, exception of the remaining five (5) hectares which
(h) proceeds from a life insurance policy, may also under Sec. 78{a) of the Tax Code still forms part of
be included on the assumption that it was Ralph "decedent's interest". (1994 Bar Question)
Donald who took out the insurance upon his own
128
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
1. When the decedent has, at any time, Q: What is the 3-year Presumption Rule? Give an
made a transfer in contemplation of or example.
intended to take effect in possession or
enjoyment at or after death;or A: The 3-year presumption rule states that any
transfer made within 3 years before one’s death is
2. When decedent has, at any time, made a considered one in contemplation of death.
transfer under which he has retained for
his life or for a period not ascertainable Q: Is the said rule (3-year Presumption Rule) still
without reference to his death or any applicable?
period which does not in fact end before
his death: A: No. It was deleted by P.D. 1705.
a. Possession, enjoyment or right to
income from the property; or Q: What are the circumstances to be taken into
b. The right alone or in conjunction account in determining whether the transfer is one
with any other person to designate in contemplation of death?
the person who will possess or enjoy
the property or income there from. A:
(Sec. 85[B], NIRC) 1. Age of the decedent at the time the
transfers were made
Note: The concept of transfer in contemplation of 2. Decedent’s health, as he knew it at or
death has a technical meaning. This does not before the time of the transfers
constitute any transfers made by a dying person. It is 3. The interval between the transfers and
not the mere transfer that constitutes a transfer in the decedent’s death
contemplation of death but the retention of some type 4. The amount of property transferred in
of control over the property transferred. In effect, proportion to the amount of property
there is no full transfer of all interests in the property retained
inter vivos.
5. The nature and disposition of the
decedent
Q: What are the transfers not considered in
6. The existence of a general testamentary
contemplation of death and not part of the gross
scheme of which the transfers were a part
estate?
7. The relationship of the donee(s) to the
decedent
A:
8. The existence of a desire on the part of
1. A bonafide sale
the decedent to escape the burden of
2. Sale for adequate and full consideration
managing property by transferring the
in money or in money’s worth.(Ibid.)
property to others
9. The existence of a long established gift-
Q: A, aged 90 years and suffering from incurable
making policy on the part of the decedent
cancer, on August 1, 2001 wrote a will and, on the
10. The existence of a desire on the part of
same day, made several inter-vivos gifts to his
the decedent to vicariously enjoy the
children. Ten days later, he died. In your opinion,
enjoyment of the donees for the property
are the inter-vivos gifts considered transfers in
transferred
contemplation of death for purposes of
11. The existence of the desire by the
determining properties to be included in his gross
decedent of avoiding estate taxes by
estate?
means of making inter vivos transfers of
property. (Estate of Oliver Johnson v.
A: Yes. When the donor makes his will within a
Commissioner, 10 T.C. 680).
short time of, or simultaneously with, the making of
gifts, the gifts are considered as having been made
in contemplation of death. (Roces v. Posadas, 58
Phil. 108). Obviously, the intention of the donor in
129
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Revocable Transfer. A:
GR: No. It is sufficient that the decedent has the
Q: Define revocable transfer. power to revoke, though he did not exercise
such power.
A: A revocable transfer is a transfer by trust or
otherwise, where the enjoyment thereof was XPN: In case of a bona fide sale for an adequate
subject at the date of his death to any change & full consideration in money and money’s
through the exercise of a power to alter or amend worth.
or revoke or terminate such transfer by:
Q: When is a transfer not revocable, thereby not
1. Decedent alone; subject to estate tax?
2. By the decedent in conjunction with any
other person without regard to when or A:
from what source the decedent acquired 1. If the decedent’s power could only be
such power, to alter, amend, revoke or exercised with the consent of all parties
terminate; or having an interest in the transferred
3. Where any such power is relinquished in property and if the power adds nothing to
contemplation of the decedent’s death the rights the parties possess under local
other than a bone fide sale for an law. (Lober v. United States, 346 US 335)
adequate and full consideration in money 2. When the decedent has been completely
or money’s worth. (Sec. 85(C)(1), NIRC) divested of the power at the time of his
death (ibid.)
Q: When is the power to alter, amend or revoke 3. Where the exercise of the power by the
considered existing on date of decedent’s death? decedent was subject to a contingency
beyond the decedent’s control which did
A: The power to alter, amend or revoke shall be not occur before his death. (Hurd v.
considered to exist on date of decedent’s death Commissioner 160F(2)610)
even though: 4. The mere right to name trustees. Neither
1. The exercise of the power is subject to a is the grantor’s limited power to appoint
precedent giving of notice; or himself as trustee under conditions which
2. The alteration, amendment or revocation did not exist at his death. (24 Am Jur. 2d,
takes effect only on the expiration of a p 790)
stated period for the exercise of the
power, whether or not on or before the
date of the decedent’s death Property Passing Under a General Power of
a. Notice has been given Appointment
b. The power has been exercised
Q: Define general power of appointment (GPA).
In such cases, proper adjustment shall be made
representing the interest which would have been A: It is the right to designate the person who will
excluded from the power if the decedent had lived, succeed to the property of the prior decedent, in
and for such purpose if notice has not been given or favor of anybody, including himself, his estate, his
the power has not been exercised on or before the creditors, or the creditors of his estate. If the
date of his death, such notice shall be considered to donation contains a provision of reversion to the
have been given, or the power exercised on the donor, this is similar to a revocable transfer.
date of his death. (Sec. 85(C)(2), NIRC)
Note: A power is not general (specific) if it can be
Note: Revocable transfer is part of the gross estate of exercised only in favor of one or more designated
the decedent because the transferor can revoke the person or classes of persons exclusive of the decedent,
transfer any time, such person wields tremendous his estate, his creditors and creditors of his estate, or if
amount of power such that he can revoke the transfer it expressly not exercisable in favor of the decedent,
as if none was actually made. his estate, his creditors, or creditors of his estate.
Q: Is it necessary that the decedent should have Q: What properties passing under a GPA is
exercised such right? includible as part of a decedent’s estate?
130
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What properties passing under GPA are not A: It is one other than the estate, executor, and
included as part of a decedent’s gross estate? administrator.
131
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
132
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
133
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What is the amount of funeral expenses 4. Distribution of the estate among the
deductible from the gross estate of a non- resident heirs.
alien decedent?
Note: These deductible items are expenses incurred
A: The proportion which actual funeral expenses or during the settlement of the estate but not beyond the
amount equal to 5% of the gross income whichever last day prescribed by law, or the extension thereof,
is lower but not to exceed P20,0000 bears to the for the filing of the estate tax return.
value of the entire gross estate whichever situated.
Q: May the notarial fee paid for the extrajudicial
Q: What are included as funeral expense? settlement and the attorney's fees in the
guardianship proceedings be allowed as
A: The term is not confined to its ordinary or usual deductions from the gross estate of decedent in
meaning. It includes: order to arrive at the value of the net estate?
1. Mourning apparel of the surviving spouse
and unmarried minor children of the A: Although the Tax Code specifies "judicial
deceased, bought and used in the expenses of the testamentary or intestate
occasion of the burial; proceedings," there is no reason why expenses
2. Expenses of the wake preceding the burial incurred in the administration and settlement of an
including food and drinks; estate in extrajudicial proceedings should not be
3. Publication charges for death notices; allowed. However, deduction is limited to such
4. Telecommunication expenses in administration expenses as are actually and
informing relatives of the deceased; necessarily incurred in the collection of the assets
5. Cost of burial plot, tombstone monument of the estate, payment of the debts, and
or mausoleum but not their upkeep. In distribution of the remainder among those entitled
case deceased owns a family estate or thereto. Such expenses may include executor's or
several burial lots, only the value administrator's fees, attorney's fees, court fees and
corresponding to the plot where he is charges, appraiser's fees, clerk hire, costs of
buried is deductible; preserving and distributing the estate and storing or
6. Interment and/or cremation fees and maintaining it, brokerage fees or commissions for
charges; selling or disposing of the estate, and the like.
7. All other expenses incurred for the Deductible attorney's fees are those incurred by the
performance of the ritual and ceremonies executor or administrator in the settlement of the
incident to the interment. estate or in defending or prosecuting claims against
or due the estate.
Note: Expenses incurred after the interment are not
deductible. Any portion of the funeral and burial Attorney's fees, on the other hand, in
expenses borne or defrayed by relatives and friends of order to be deductible from the gross estate must
the deceased are not deductible. The expenses must be essential to the settlement of the estate.
be duly supported by receipts or invoices or other Attorney's fees incurred in the guardianship
evidence to show that they were actually incurred (RR- proceeding were essential to the distribution of the
2-2003). property to the persons entitled thereto. Hence,
the attorney's fees incurred in the guardianship
Note: Medical expenses, on the other hand, are proceedings should be allowed as a deduction from
allowed only if incurred by the decedent within one the gross estate of the decedent. (CIR v. CA, G.R No.
year prior to his death. (Sec. 86[A][6], NIRC). 123206, Mar. 22, 2000)
134
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
3. Premiums paid on the bond filed by the collect from the decedent must not have
administrator as an expense of prescribed (RR 2-2003; and
administration since the giving of a bond 5. It must be duly substantiated.
is in the nature of a qualification for the
office and not necessary for the Note: Substantiation Requirements (if a claim arose
settlement of the estate out of a debt instrument) :
4. Attorney’s fees incident to litigation
incurred by the heirs in asserting their a. The debt instrument was duly notarized at
respective rights (ibid). the time the indebtedness was incurred,
except loans from financial institutions
Claims Against The Estate where notarization is not part of business
practice or policy; and
b. A statement under oath executed by the
Q: Define “claims”.
administrator or executor of the estate
reflecting the disposition of the proceeds of
A: Debts or demands of a pecuniary nature which the loan if said loan was contracted within
could have been enforced against the deceased in (3) years prior to the death of the decedent.
his lifetime and could have been reduced to simple
money judgments. Q: During the proceeding for the probate of Jose
Fernandez’s estate, Dizon, the administrator,
Q: What are the sources of these claims? requested the probate court's authority to sell
several properties forming part of the estate, for
A: They may arise out of: CTO the purpose of paying its creditors. However, the
1. Contract BIR issued an Estate Tax Assessment Notice
2. Tort demanding payment of the deficiency estate tax.
3. By Operation of law Dizon claims that in as much as the valid claims of
creditors against the estate are in excess of the
Q: When may it be allowed as a deduction from gross estate, no estate tax was due. CTA ordered
the gross estate of a Filipino citizen, whether that the estate should pay the estate tax liability
resident or not, or of a resident alien decedent? with interest.
A: Claims against the estate may be claimed as a May the actual claims of the creditors be fully
deduction provided that: allowed as deductions from the gross estate of
1. At the time the indebtedness was Jose despite the fact that the claims were reduced
incurred the debt instrument was duly or condoned through compromise agreements
notarized; and entered into by the Estate with its creditors
2. If the loan was contracted within three (3)
years before the death of the decedent, A: No. The claims against the estate which the law
the administrator or executor shall submit allows as deduction from the gross estate are
a statement showing the disposition of existing claims against the estate. An indebtedness
the proceeds of the loan. (Sec 86[A][1][c], that has been condoned is in legal effect no
NIRC) indebtedness at all. If there is no more
indebtedness by reason of the condonation, there
Q: What are the requisites for its deductibility? is no more claim against the estate which may be
allowed as a deduction. (Dizon, et. al v. CA, G.R. No.
A: TiG-VaC 140944, Apr. 30, 2008)
1. The liability represents a personal
obligation of the deceased existing at the
Time of his death except unpaid Claims of Deceased Against Insolvent
obligations incurred incident to his death
such as unpaid funeral expenses and Q: What are the requisites for deductibility?
unpaid medical expenses;
2. The liability was contracted in Good faith A: This is deductible provided that:
and for adequate and full consideration in 1. The full amount of the receivables be
money or money’s worth; included first in the gross estate; and
3. Must be a debt or claim must be Valid 2. The incapacity of the debtors to pay their
and enforceable in court; obligation is proven not merely alleged.
4. The indebtedness must not have been
Condoned by the creditor or the action to
135
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Note: Judicial declaration of insolvency is not resident and resident alien are allowed provided
necessary. It is enough that the debtor’s liabilities that they:
exceeded his assets. 1. Were incurred during the settlement of
the estate;
2. Arise from fire, storm, shipwreck, or other
Unpaid Mortgage casualties, or robbery, theft or
embezzlement;
Q: What are the requisites for deductibility? 3. Are not compensated by insurance or
otherwise;
A: This is deductible provided that: 4. Are not claimed as deduction in the ITR of
1. In all instances: the estate at the time of the filing of the
a. The value of the property, return; and
undiminished by such mortgage or 5. Occur not later than the last day for
indebtedness is included in the gross payment of the estate tax (last day to pay:
estate; and six months after the decedent’s death).
b. The mortgage indebtedness was (Sec. 86[A][1][e], NIRC)
contracted in good faith and for an
adequate and full consideration in Q: If the decedent is a non-resident alien
money or money’s worth; decedent, would the rule be the same?
2. In case unpaid mortgage payable is being
claimed by the estate, verification must A: The same items herein shall be allowed as
be made as to who was the beneficiary of deduction but only the proportion of such
the loan proceeds; deductions which the value of his gross estate in
3. If the loan is found to be merely an the Philippines bears to the value of his entire gross
accommodation loan where the loan estate, wherever situated shall be deducted.
proceeds went to another person, the
value of the unpaid loan must be included Note: Casualty loss can be allowed as deduction in one
as a receivable of the estate; and instance only, either for income tax purposes or estate
4. If there is a legal impediment to recognize tax purposes.
the same as receivable of the estate, said
unpaid obligation/ mortgage payable shall Property Previously Taxed
not be allowed as a deduction from the (Vanishing Deductions).
gross estate. (Section 86(A)(1))(e), NIRC)
Q: What is Vanishing Deduction?
Taxes
A: It is the deduction allowed from the gross estate
Q: What are deductible taxes? of citizens, resident aliens and non resident estates
for properties which were previously subject to
A: donors or estate taxes.
1. Income taxes upon income received
before the decedent’s death Note: The purpose of vanishing deduction is to lessen
2. Property taxes which accrue before the the harsh effects of double taxation.
decedent’s death
Q: What is the rate of deduction?
Q: What taxes are not deductible?
A: The rate of deduction depends on the period
A: Those accruing after death, such as: from the date of transfer to the death of the
1. Income tax on income received after decedent, as follows:
death
2. Property tax not accrued before death PERIOD DEDUCTION
3. Estate tax. Within 1 year or less 100%
More than 1 year but
80%
not more than 2 years
Losses More than 2 years but not more
60%
than 3 years
Q: What are the requisites for its deductibility? More than 3 years but not more
40%
than 4 years
A: Losses are allowed as deductions from the gross More than 4 years but not more
20%
estate of a Filipino citizen whether resident or non than 5 years
136
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
137
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Define family home. Note: Nonresident estates are not entitled to standard
deduction because it is not among those enumerated
A: The dwelling house, including the land where it is under Sec. 86 (b) of the NIRC.
situated where the married person or an unmarried
head of the family and his family resides. Q: What is the difference between standard
deduction in estate tax (Sec. 86[A][5]) and optional
Q: When is family home deemed constituted? standard deduction in income taxation(Sec. 34
[L])?
A: Family home is deemed constituted on the house
and lot from the time that it is constituted as a A:
family residence and is considered as such so long OPTIONAL STANDARD
STANDARD DEDUCTION in
DEDUCTION in INCOME
as any of the beneficiaries actually resides therein. ESTATE TAX
TAX
(Sec. 86 [A][5])
(Sec. 34 [L])
Q:What are the requisites for its deductibility? As to nature
Deduction in addition to Deduction in lieu of
A: the other deductions itemized deductions
1. The family home must be the actual As to amount of deduction
residential home of the decedent and his Fixed at P1,000,000 40% of gross income or
family at the time of his death, as certified gross sales/receipts as the
by the Barangay Captain of the locality case may be
where the family home is situated; As to availability
Available to resident Applies to all individual
2. The total value of the family home must
citizens, non-resident taxpayers except non-
be included as part of the gross estate of citizens and resident aliens resident aliens, as well as
the decedent; and to corporations
3. Allowable deduction must be in the
amount equivalent to:
138
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What are the requisites for deductibility? Q: Is the net share of the surviving spouse included
in the gross estate of the decedent?
A:
1. Medical expenses incurred by the A: No. After deducting the allowable deductions
decedent; pertaining to the conjugal or community properties
2. Incurred within one (1) year prior to the included in the gross estate, the net share of the
decedent’s death; surviving spouse must be removed to ensure that
3. Must be substantiated with receipts; and only the decedent’s interest in the estate is taxed.
4. Shall not exceed 500,000 whether paid or (Sec. 86(C))
unpaid.
Q: Is the capital of the surviving spouse considered
Note: Any amount of medical expenses incurred within part of the gross estate?
1 year from the decedent’s death in excess of
P500,000 shall no longer be allowed as a deduction. A: Under Section 85 (H) of the NIRC capital pertains
Neither can any unpaid amount thereof in excess of to the property of the spouses brought into the
the P500,000 threshold nor any unpaid amount for marriage. Under the Civil Law capital means
medical expenses incurred prior to the 1 year period property brought by the husband to the marriage
from date of death shall be allowed to be deducted while the properties brought into the marriage by
from the gross estate as claim against the estate. (Sec.
the wife is called paraphernal property. The said
86 (A)(6))
capital or paraphernal property of the surviving
spouse is deducted from the gross estate of the
decedent.
Amounts Received Under RA 4917
139
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Who can avail estate tax credit? E.g. X dies and leaves in his will a lot to his
brother, Y, who is entrusted with the
A: Only the estate of a citizen or a resident alien at obligation to transfer the lot to Z, a son of
the time of death can claim tax credit for any estate X, when Z reaches legal age. Y is the
taxes paid in a foreign country. fiduciary heir and Z is the
fideicommissary. The transfer from X to Y
Q: What are the limitations in estate tax credit? is subject to estate tax. But the
transmission or delivery to Z upon
A: reaching legal age shall be exempt from
1. The amount of the credit in respect to the estate tax.
tax paid to any country shall not exceed
the same proportion of the tax against 4. The transmission from the first heir,
which such credit is taken, which the legatee or donee in favor of another
decedent’s net estate situated within beneficiary, in accordance with the desire
such country taxable under the NIRC of the predecessor
bears to his entire net estate (per country
basis); and 5. All bequests, devises, legacies or transfers
2. The total amount of the credit shall not to social welfare, cultural and charitable
exceed the same proportion of the tax institutions. Provided:
against which such credit is taken, which a. no part of the net income of which
the decedent’s net estate situated outside inures to the benefit of any
the Philippines taxable under the NIRC individual; and
bears to his entire net estate (overall b. Not more than thirty percent (30%)
basis) of the said bequests, devises,
legacies or transfers shall be used by
such institutions for administration
Exemption of Certain acquisitions and purposes. (Sec. 87, NIRC)
Transmissions
140
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: Who must file the notice of death? A: Must be under oath and shall contain the
following:
A: The executor, administrator, or any legal heir. 1. The value of the gross state of the decent
(Ibid.) at the time of his death or in case of a
non-resident, not a citizen of the
Q: To whom must notice of death be filed? Philippines, the part of his gross estate
situated in the Philippines.
A: To the CIR. (ibid.) 2. The deductions allowed from the gross
estate in determining the estate.
3. Such part of the information as may at
Estate Tax Return the time be ascertainable and such
supplemental data as may be necessary
Q: When is estate tax return required? to establish the correct taxes. (Sec. 90[A],
NIRC)
A: In cases of:
1. Transfers subject to tax Q: What are the requirements in case the gross
2. Where gross value of estate exceeds estate exceeds 2,000,000?
P200,000
3. Where estate consists of registered or A: The estate tax return shall be accompanied by a
registrable property, regardless of statement which is certified by an independent CPA
amount (Sec. 90[A], NIRC) which shall contain the following:
1. Itemized assets of the decedent with its
Q: Within what period must the estate tax return corresponding gross value at the time of
be filed? his death, death or in case of a non-
resident, not a citizen of the Phil, the part
A: Within 6 months from the decedent’s death. of his gross estate situated in the
(Sec. 90[B], NIRC) Philippines;
2. Itemized deduction from the gross estate;
Q: Is an extension to file an estate tax return and
allowed? 3. The amount of the tax due whether paid
or still due and outstanding. (Sec. 90[A],
A: In meritorious cases but not to exceed 30 days. NIRC)
(Sec. 90[C], NIRC)
Q: Is there any prohibition from withdrawing
Q: Who shall file the estate tax return? funds in the bank account of a deceased
depositor?
A:
1. Executor A:
2. Administrator GR: If the bank has knowledge of the death of
3. Any legal heir the person who maintains a bank deposit alone
or jointly with another, it shall not allow any
Q: Before whom must the estate tax return be withdrawal from said deposit account unless the
filed? CIR has certified that estate taxes have been
paid. (Sec. 97, NIRC)
A:
1. If it is a resident decedent - To an XPN: The CIR may allow the administrator or
authorized agent bank, RDO, Collection anyone of the heirs to withdraw an amount not
Officer, or duly authorized Treasurer in exceeding 20,000 without the certification that
the city or municipality where the estate taxes have been paid.
decedent was domiciled at the time of his
death, or to the Office of the CIR.
141
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What shall be the liability of a co-depositor who TIN filed with the
was able to withdraw funds from the account of a RDO having
deceased depositor without paying the estate tax? jurisdiction over the
executor or
administrator’s
A: They shall be held liable for perjury because all legal residence;
withdrawal slips contain a statement to the effect c. In the absence of
that their co-depositors are still living at the time of an executor or
the withdrawal by any one of the joint depositors administrator in the
and such statements are deemed under oath. Phil the ETR
together with the
Q: Distinguish “notice of death” from “estate tax TIN shall be filed
before RDO No. 39-
return”.
South Quezon City;
d. Any other place
A: where the CIR
ESTATE TAX RETURNS permits the estate
NOTICE OF DEATH
(ETR) tax return to be
Conditions required for its application filed (Sec 90[D],
1. In all cases of transfers 1. Transfers subject to tax NIRC).
subject to tax. where gross value of Period of filing
2. Where though exempt estate exceeds Within 6 months from the
from tax, the gross P200,000; Within 2 months (60 days)
decedent’s death, except in
value of the estate 2. Where estate consists after the decedent’s death
meritorious cases where
exceeds P20,000. of registered or or within the same period
the Commissioner may
registrable property, after qualifying as executor
grant reasonable extension
regardless of amount. or administrator.
not exceeding 30 days.
Who files
1. Executor
Q: When must the taxpayer pay the estate tax?
2. Administrator
3. Any of the legal heirs
Where to file A: Upon filing, under the “Pay as you file system”.
1. Resident decedent
a. Authorize agent Q: May an extension to pay estate tax be granted?
bank
b. Revenue District A: Yes, if the Commissioner finds that such payment
Officer would impose undue hardships upon the estate or
c. Duly authorized any heir and shall:
City or Municipal
1. Not exceed 5 years in case of judicial
treasurer of the
place of the
settlement;
decedent’s domicile 2. Not exceed 2 years in case of extrajudicial
at the time of his settlement.
death or any other
place where the CIR Q: What are the requisites for the granting of
permits the estate extension to pay the estate tax?
tax return to be
filed (Sec 90 D of
A:
Commissioner of Internal the NIRC)
Revenue
1. The request for extension must be filed
2. Non-Resident before the expiration of the original
decedent- with the period to pay which is within 6 months
Commissioner of from death;
Internal Revenue: 2. There must be a finding that the payment
a. In case of non- on the due date of the estate tax would
resident citizen or impose undue hardship upon the estate
non-resident alien
or any of the heirs;
with executor or
administrator in the
3. The extension must be for a period not
Phil the ETR exceeding 5 years if the estate is settled
together with TIN is judicially or 2 years if settled
filed with the RDO; extrajudicially; and
b. In case the executor 4. The Commissioner may require the
or administrator is posting of a bond in an amount not
not registered the
ETR together with
142
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
exceeding double the amount of tax to Q: What are the instances where the request for
secure the payment thereof. extension of time to pay estate tax should be
denied?
Q: Remedios, a resident citizen, died on November
10, 2006. She died leaving three condominium A: No extension if there is:
units in Quezon City valued at 5 million each. 1. Negligence
Rodolfo was her only heir. He reported her death 2. Intentional disregard of rules and
on December 6, 2006 and filed the estate tax regulations
return on March 30, 2007. Because she needed to 3. Fraud.
sell one unit of the condominium to pay for the
estate tax she asked the CIR to give her one year Q: Who shall pay the estate tax?
to pay the estate tax due. The CIR approved the
request of extension of time provided that the A:
estate tax be computed on the basis of the value 1. The executor or administrator, before
of property at the time of payment of tax. delivery to any beneficiary of his
distributive share.
1. Does CIR have the power to extend the 2. The beneficiary, to the extent of his
payment of estate tax? distributive share in the estate, shall be
2. Does the condition that the basis of the subsidiarily liable for the payment of such
estate tax will be the value at the time of the portion of the estate tax as his
payment have legal basis? distributive share bears to the value of
the total net estate.
A:
1. Yes. The CIR may allow an extension of Q: What are the instances when a Certificate of
time to pay the estate tax if the payment Payment of Tax from the Commissioner is
on the due date would impose undue required?
hardship upon the estate or any of the
heirs. The extension in any case, will not A:
exceed 2 years if the estate is not under 1. Before a judge shall authorize the
judicial settlement of 5 years if it is under executor or judicial administrator to
judicial settlement. The CIR may require deliver a distributive share to any party
the posting of a bond to secure the interested in the estate
payment of the tax. (Sec. 91[B], NIRC) 2. Before the Register of Deeds shall
register in the Registry of Property any
2. No. The valuation of properties document transferring real property or
comprising the estate of a decedent is the real rights therein or any chattel
fair market as of the time of death. No mortgage, by way of gifts inter vivos or
other valuation date is allowed by law. mortis causa, legacy or inheritance
(Sec. 88, NIRC) (2007 Bar Question) 3. When a lawyer, by reason of his official
duties, intervenes in the preparation or
Q: What are the effects for granting an extension acknowledgment of documents regarding
of time to pay estate taxes? partition or disposal of donation inter
vivos or mortis causa, legacy or
A: inheritance
1. The amount shall be paid on or before expiration 4. When a notary public, by reason of his
of the extension and running of the statute of official duties, intervenes in the
limitations for assessment shall be suspended for preparation or acknowledgment of
the period of any of such extension. documents regarding partition or disposal
2. The CIR may require a bond not exceeding of donation inter vivos or mortis causa,
double the amount of the tax and with such legacy or inheritance
sureties as the CIR deems necessary when the 5. When a government officer, by reason of
extension of payment is granted. his official duties, intervenes in the
3. Any amount paid after the statutory due date of preparation or acknowledgment of
the tax, but within the extension period, shall be documents regarding partition or disposal
subject to interest but not to surcharge. of donation inter vivos or mortis causa,
(Sec. 91(B)) legacy or inheritance;
143
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
6. Before a debtor of the deceased pay his 3. No return was filed, therefore, no tax was
debts to the heirs, legatee, executor or paid.
administrator of his creditor
7. Before a transfer to any new owner in the Q: Differentiate deficiency estate tax (Sec. 93)
books of any corporation, sociedad from delinquency estate tax (Title X).
anonima, partnership, business, or
industry organized or established in the A: Deficiency arises when tax paid is less than the
Philippines any share, obligation, bond or amount due while delinquency arises when there is
right by way of gift inter vivos or mortis either failure to pay amount due or refusal to pay
causa, legacy or inheritance the tax due.
8. Before a bank, which has knowledge of
the death of a person who maintained a
bank deposit account alone, or jointly DONOR’S TAX
with another, shall allow any withdrawal
from the said deposit account Q: What is donation?
Q: When is said certification not required? A: Donation is an act of liberality whereby a person
(donor) disposes gratuitously of a thing or right in
A: In cases when withdrawalof bank deposit: favor of another (donee) who accepts it. (Art. 725,
1. Has been authorized by the Commissioner Civil Code)
2. The amount does not exceed P20,000.
Q: What are the kinds of donations?
Q: When can the estate be distributed?
A:
A: Upon payment of the estate tax, the 1. Donation inter vivos - a donation made
administrator shall deliver the distributive share in between living persons. Its perfection is at
the inheritance to any heir or beneficiary. The the moment when the donor knows the
estate clearance tax issued by the CIR or the RDO acceptance of the donee. It is subject to
having jurisdiction over the estate will serve as the donor’s tax.
authority to distribute the remaining/distributive
properties/share in the inheritance of the heir or 2. Donation moris causa – a donation which
beneficiary. In case of installment payments, the takes effect upon the death of the donor.
clearance shall be released only with respect to the It is subject to estate tax.
property the corresponding tax of which has been
paid. (Section 94, NIRC).
Definition
Q: May estate tax be paid in installment?
Q: What is donor’s tax?
A: Yes. In case the available cash of the estate is not
sufficient to pay the total estate tax liability and the A: It is an excise tax imposed on the privilege of
clearance shall be released with respect to the transferring property by way of a gift inter vivos
property the corresponding/computed tax on which based on pure act of liberality without any or less
has been paid. than adequate consideration and without any legal
compulsion to give.
Q: A tax refund was filed by a taxpayer. Pending
said action, taxpayer died. Will the tax refund Q. What is the subject of donor’s tax?
form part of his gross estate?
A. The subject of donor’s tax is the gift or donation.
A: It depends. If there is a legal and factual basis, it Article 725 of the Civil Code defines a gift or
will. Otherwise, it will not be included. donation as “an act of liberality whereby a person
disposes gratuitously of a thing or right in favor of
Q: Enumerate the three situations when deficiency another who accepts it.”
occurs.
Q: What law governs the imposition of donor’s
A: tax?
1. A return was filed but paid less than the
amount of tax due;
2. A return was filed but did not pay any tax;
144
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What are the purposes of imposing donor’s tax? Q: What are the transfers subject to donor’s tax?
A: To: A:
1. Raise revenues 1. Transfer in trust or otherwise, whether
2. Tax the wealthy and to reduce certain the gift is direct or indirect and whether
other excise taxes the property is real or personal, tangible
3. Discourage inter vivos transfers of or intangible;
property which could reduce mortis causa 2. Include not only the transfer of ownership
transfers on which a higher tax (estate in the fullest sense but also the transfer of
tax) can be collected any right or interest in property, but less
4. Prevent avoidance of income tax through than title;
the device of splitting income among 3. Where property, other than real property
numerous donees who are usually subject to capital gains tax, is transferred
members of a family or into many trusts, for less than an adequate and full
with the donor thereby escaping the consideration in money or money’s
effect of the progressive rates of income worth, then the amount by which the
taxation FMV of the property exceeded the value
of the consideration shall, for the purpose
of the donor’s tax, be deemed a gift, and
Requisites of Valid Donation shall be included in computing the
amount of gifts made during the calendar
Q: What are the requisites for a gift to be taxable? year. Donative intent therefore, is not
always essential to constitute a gift.
A: CaDonAcAct 4. Renunciation by the surviving spouse of
1. Capacity of donor to donate his/her share in the conjugal partnership
or absolute community after the
Note: The donor’s capacity shall be determined as of dissolution of the marriage in favor of the
the time of the making of the donation (Art. 737, NCC) heirs of the deceased spouse or any other
person/s is subject to donor’s tax;
2. Donative intent 5. However, general renunciation by an heir,
including the surviving spouse, of his/her
Note: Donative intent is necessary only in cases of share in the hereditary estate left by the
direct gift. If the gift is indirectly taking place by way of decedent is not subject to donor’s tax,
sale, exchange or other transfer of property as unless specifically and categorically done
contemplated in cases of transfers for less than in favor of identified heir/s to the
adequate and full consideration (Sec. 100, NIRC), not
exclusion or disadvantage of the other co-
always essential to constitute a gift.
heirs in the hereditary estate.
3. Acceptance by the donee
Note: All donations made in one year are taxed at the
same rate as if they had been made at one time. A new
computation of donor’s tax is made for gifts given at
4. Actual or constructive delivery of gift each succeeding year.
145
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: A transfer becomes complete and taxable only Q: A, an individual, sold to B, her sister-in-law, his
when, the donor has divested himself of all lot with a market value of P1,000,000 for
beneficial interests in the property transferred and P600,000. A's cost in the lot is P100,000. B is
has no power to recover any such interest in financially capable of buying the lot. A also owns X
himself or his estate. Co., which has a fast growing business. A sold
some of her shares of stock in X Co. to her key
Q: When does an incomplete gift become a executives in X Co. These executives are not
complete one, subject to donor’s tax? related to A. The selling price is P3, 000,000, which
is the book value of the shares sold but with a
A: A gift that is incomplete because of reserved market value of P5, 000,000. A's cost in the shares
powers becomes complete when either: sold is P1, 000,000. The purpose of A in selling the
1. The donor renounces the power to shares is to enable her key executives to acquire a
recover; or propriety interest in the business and have a
2. His right to exercise the reserved power personal stake in its business. Explain if the above
ceases because of the happening of some transactions are subject to donor's tax.
event or contingency or the fulfillment of
some condition, other than because of A: The first transaction where a lot was sold by A to
the donor’s death. (Ibid.) her sister-in-law for a price below its fair market
value will not be subject to donor's tax if the lot
Q: What are the elements of remuneratory qualifies as a capital asset. The transfer for less than
donation? adequate and full consideration, which gives rise to
a deemed gift, does not apply to a sale of property
A: subject to capital gains tax (Sec. 100, NIRC).
1. A person gives to another a thing or right; However, if the lot sold is an ordinary asset, the
excess of the fair market value over the
146
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: GR: The property is transferred for less than 2. When the donee or beneficiary is stranger
adequate and full consideration in money or - the tax payable by the donor shall be
money’s worth, the amount by which the FMV thirty percent (30%) of the net gifts.
exceeds the consideration shall be deemed a gift
and be included in computing the amount of gifts Q: When the donee or beneficiary is a stranger,
made during the year. It is as if the property was the tax payable by the donor shall be 30% of the
donated but in order to avoid paying donor’s tax, net gifts. For purposes of this tax, who is a
the donor opted to transfer the property for stranger?
inadequate consideration.
A: A stranger is the one who is not a brother, sister,
XPN: Where property transferred is real property spouse, ancestor and lineal descendant, or a
located in the Philippines considered as capital relative by consanguinity in the collateral line
asset, the donor’s tax is not applicable but the final within the 4th civil degree of the donee. (Sec. 98,
income tax of 6% of the fair market value or gross NIRC)(2000 Bar Question)
selling price, whichever is higher.
Note: A donation is considered made to a stranger
when it is:
CLASSIFICATION OF DONOR I. Between business organizations
II. Between an individual and a business
Q: Who are liable to pay donor’s tax? organization (Sec 10B, RR 02-03)
A:
1. Taxable within and outside Philippines: Determination of Gross Gift
a. Resident citizen
b. Non-resident citizen Q: Define gross gifts.
147
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Note: If a mortgaged property is transferred as a gift, 3. Dino gained an income of 19 million from
but imposing upon the donee the obligation to pay the the sale. Dino acquires a carry-over basis
mortgage liability, then the net gift is measured by which is the basis of the property in the
deducting from the fair market value of the property hands of the donor or P1 million. The gain
the amount of mortgage assumed. from the sale or other disposition of
property shall be the excess of the
Q: Kenneth Yusoph owns a commercial lot which amount realized therefrom over the basis
she bought many years ago for P1 Million. It is or adjusted basis for determining gain
now worth P20 Million although the zonal value is [Sec. 34(a), NIRC]. Since the property was
only P15 Million. She donates one-half pro-indiviso acquired by gift, the basis for determining
interest in the land to her son Dino on 31 gain shall be the same as if it would be in
December 1994, and the other one-half pro- the hands of the donor or the last
indiviso interest to the same son on 2 January preceding owner by whom the property
1995. was not acquired by gift. Hence, the gain
is computed by deducting the basis of P1
1. How much is the value of the gifts in 1994 and million from the amount realized which is
1995 for purposes of computing the gift tax? P20 million.
Explain.
2. The Revenue District Officer questions the 4. If the commercial lot was received by
splitting of the donations into 1994 and 1995. inheritance, the gain from the sale for P20
He says that since there were only two (2) million is P5 million because the basis is
days separating the two donations they the fair market value as of the date of
should be treated as one, having been made acquisition. The stepped-up basis of P15
within one year. Is he correct? Explain. million which is the value for estate tax
3. Dino subsequently sold the land to a buyer purposes is the basis for determining the
for P 20 Million. How much did Dino gain on gain. (Sec. 34(b)(2), NIRC)(1995 Bar
the sale? Explain. Question)
4. Suppose, instead of receiving the lot by way
of donation, Dino received it by inheritance. Q: What is the difference between cumulative and
What would be his gain on the sale of the lot splitting method?
for P20 Million? Explain.
A:
A: Cumulative Splitting
1. The value of the gifts for purposes of When the donor makes The donor makes two or
computing the gift tax shall be P7.5million two or more donations more donations during
in 1994 and P7.5million in 1995. In valuing within the same calendar different calendar years.
a real property for gift tax purposes the year, it is required that
property should be appraised at the the said donations be
included in the return for
higher of two values as of the time of
the last donation. It will
donation which are (a) the fair market not amount to double
value as determined by the Commissioner taxation because the tax
(which is the zonal value fixed pursuant to paid for the previous
Section 16(e) of the Tax Code), or (b) the methods will be
fair market value as shown in the considered as tax credit
schedule of values fixed by the Provincial for succeeding donations.
and City Assessors. The fact that the
property is worth P20 million as of the Q: What is the significance of the two methods
time of donation is immaterial unless it mentioned?
148
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: How are gross gifts valued? EXEMPTIONS OF GIFTS FROM DONOR’S TAX
A: If the gift is: Q: What are the deductions from donor’s tax?
1. Personal property - the fair market
valueof the property given at the time of A:
the gift shall be the value of the gross gift. 1. Encumbrances on the property donated,
2. Real property - the fair market value at if assumed by the donee;
the time of donation or the value fixed by 2. Amount specifically provided by the
the assessor, whichever is higher. (Sec. donor as a diminution of the property
102) donated.
149
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
2. Certain gifts made by residents (Sec. the Commission on Elections as required under the
101[A], NIRC) Omnibus Election Code.
3. Certain gifts made by non-residents Sec.
101[B], NIRC) The answer would be the same if X had donated the
4. Donation of intangibles subject to amount to Political Party Z instead of to Y directly
reciprocity (Sec. 104, NIRC) because the law places in equal footing any
5. Donation for athlete’s prizes and awards contribution to any candidate, political party or
(R.A. 7549) coalition of parties for campaign purposes. (Sec.
6. Donation under the “Adopt-a-School 99(C), NIRC) (2003 Bar Question)
Program” (R.A. 8525)
7. Exemption under other special laws. Certain Gifts made By Residents.
150
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
151
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Give the rules on tax credit for donor's taxes Q: What are the requirements for exemption from
paid to a foreign country. donor’s tax of athlete’s prizes and awards?
A: A:
1. In general - The tax imposed by this Title 1. The donation must be prizes and awards
upon a donor who was a citizen or a given to athletes in local and international
resident at the time of donation shall be tournaments and competitions;
credited with the amount of any donor's 2. held in the Philippines or abroad; and
tax of any character and description 3. sanctioned by their respective sports
imposed by the authority of a foreign association. (Sec. 1, R.A. 7549)
country.
2. Limitations on credit - The amount of the
credit taken under this Section shall be Donations Under.“Adopt-A-School” Program.
subject to each of the following
limitations: Q: What is the exemption provided under adopt-a-
school program?
a. The amount of the credit in respect
to the tax paid to any country shall A: Under R.A. 8525, any aid, help, contribution or
not exceed the same proportion of donation provided by an adopting private entity to
the tax against which such credit is a government school, whether elementary,
taken, which the net gifts situated secondary or tertiary are exempt from donor’s
within such country taxable under taxes. The assistance may be in the form of, but not
this Title bears to his entire net gifts; limited to infrastructure, teaching, and skills
and development, learning, support, computer and
b. The total amount of the credit shall science laboratories and food and nutrition.
not exceed the same proportion of
the tax against which such credit is
taken, which the donor's net gifts Exemption Under Other Special Law.
situated outside the Philippines
taxable under this title bears to his Q: What are exempted from donor’s tax under
entire net gifts. (Sec. 104, NIRC) other special laws?
152
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: Any person making a donation unless the Q: What is the nature of VAT?
donation is specifically exempted under NIRC or
other special laws, is required for every donation to A: It is an indirect tax. VAT is a tax on consumption
accomplish under oath a donor’s tax return in levied on the sale, barter, exchange, or lease of
duplicate. goods or properties and services in the Philippines
and on importation of goods into the Philippines
Q: What is the formula in computing taxable
donation? The seller is the one statutorily liable for the
payment of the tax but the amount of the tax may
A: be shifted or passed on to the buyer, transferee or
1. On the first donation of the year lessee of the goods, properties or services.
However, in the case of importation, the importer is
Gross Gift the one liable for the VAT. (Sec 4.105-2 RR 16-2005)
Less: deductions/exemption
------------------------------------------ Q: Explain VAT as an indirect tax.
Net gift
x Tax rate A: The amount of tax paid on the goods, properties
------------------------------------------ or services bought, transferred, or leased may be
Donor’s tax shifted or passed on by the seller, transferor, or
lessor to the buyer, transferee or lessee. Unlike a
2. On subsequent donation during the year direct tax, such as the income tax, which primarily
taxes an individual’s ability to pay based on his
Gross gift income or net wealth, an indirect tax, such as the
Less: Deductions/exemptions VAT, is a tax on consumption of goods, services, or
------------------------------------------- certain transactions involving the same. The VAT,
Net gift thus, forms a substantial portion of consumer
expenditures.
Net gift
Add: Prior net gifts Further, in indirect taxation, there is a need to
----------------------- distinguish between the liability for the tax and the
Aggregate net gifts burden of the tax. As earlier pointed out, the
x Applicable tax rate amount of tax paid may be shifted or passed on by
------------------------------ the seller to the buyer. What is transferred in such
Donor’s tax on aggregate gifts instances is not the liability for the tax, but the tax
Less: prior donor’s tax paid burden. In adding or including the VAT due to the
-------------------------------------------- selling price, the seller remains the person primarily
Donor’s tax paid on this date and legally liable for the payment of the tax. What
is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of
the tax. Stated differently, a seller who is directly
and legally liable for payment of an indirect tax,
such as the VAT on goods or services is not
necessarily the person who ultimately bears the
burden of the same tax. It is the final purchaser or
consumer of such goods or services who, although
153
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
not directly and legally liable for the payment Fashion Inc. filed with the BIR a claim for refund
thereof, ultimately bears the burden of the tax. for the input tax shifted to it by the suppliers. If
(Contex v. CIR, GR No. 151135, July 2, 2004) you were the CIR will you allow the refund?
Q: What is the effect of VAT being an indirect tax A: No. The exemption of Lily’s Fashion Inc. is only
on exemptions? for taxes which it is directly liable, hence, it cannot
claim exemption for tax shifted to it, which is not at
A: If a special law merely exempts a party as a seller all considered a tax to the buyer but part of the
from its direct liability for payment of the VAT, but purchase price. Lily’s Fashion Inc. is not a taxpayer
does not relieve the same party as a purchaser from in so far as the passed-on tax is concerned and
its indirect burden of the VAT shifted to it by its therefore, it cannot claim for a refund of a tax
VAT-registered suppliers, the purchase transaction merely, shifted to it. Only taxpayers are allowed to
is not exempt. It is because VAT is a tax on file a claim for refund. (2006 Bar Question)
consumption, the amount of which may be shifted
or passed on by the seller to the purchaser of the Q: What is Tax Cascading?
goods, properties or services. (CIR v. Seagate
Technology, G.R. No. 153866, Feb. 11, 2005) A: An item is taxed more than once as it makes its
way from production to final retail sale.
Q: How are transactions classified under the VAT
system? Q: Explain how VAT is not a cascading tax?
154
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Impact of Tax
PERSONS LIABLE FOR VAT
Q: Who bears the impact of tax (VAT)?
Q: Who are liable to pay VAT?
A: It is on the seller upon whom the tax has been
imposed. A: Any person who in the course of trade or
business:
1. Sells, barters, exchanges, leases goods or
Incidence of Tax properties;
2. Renders services; and
Q: Who bears the incidence of tax (VAT)? 3. Imports goods shall be subject to VAT
imposed in Sections 106 to 108 of the
A: It is on the final consumer, the place at which the NIRC. (Sec. 4.105-1, RR 16-2005)
tax comes to rest. The tax is shifted to the buyer of
the goods, properties, or services. Consequently, any sale, barter or exchange of
goods or services not in the course of trade or
business is not subject to VAT. (Commissioner v.
Tax Credit Method Magsaysay Lines Inc., G.R. No. 146984, July 28,
2006)
Q: Explain the Tax Credit Method (also called
“invoice method”) of collecting VAT? Q: Define “in the course of trade or business”
(Rule of Regularity) as used under the VAT law.
A: The input tax shifted by the seller to the buyer is
credited against the buyer’s output taxes when he A: It means the regular conduct or pursuit of a
in turn sells the taxable goods, properties or commercial or an economic activity, including
services. transactions incidental thereto, by any person
regardless of whether or not the person engaged
Q: What is the “Destination Principle” or the therein is a non-stock, non-profit private
“Cross Border Doctrine” as used in VAT? organization (irrespective of the disposition of its
155
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
net income and whether or not it sells exclusively to principally for subsistence or livelihood
members or their guests), or government entity. and not in the course of trade or business.
2. Services rendered in the Philippines by
GR: If the disposition of goods or services is not in non-resident foreign persons shall be
the course of trade or business then it is not subject considered as being rendered in the
to VAT course of trade or business. (Section
105,NIRC)
XPN: Importation is subject to VAT regardless of
whether or not it is in the course of trade or Q: When is a non-resident, deemed performing
business. service in the Philippines?
A: Non-resident persons who perform services in
Reason: This is to protect our local or domestic the Philippines are deemed to be making sales in
goods or articles and to regulate the entry or the course of trade or business, even if the
introduction of foreign articles to our local market. performance of services is not regular. (Sec 4.105-3,
RR 16-2005).
Q: Pursuant to the privatization program of the
government, National Development Company Q: Who are taxable persons?
(NDC) sold five of its vessels to Magsaysay Lines
Inc. (Magsaysay). In the sales contract it provides A: Taxable persons refer to any person liable for the
that VAT shall be paid by the purchaser Magsaysay payment of VAT, whether registered or registrable
Lines. Magsaysay asked BIR for a formal request in accordance with Sec. 236 of the Tax Code.
for a ruling whether said purchaser should pay
VAT on account of such sale. BIR held that it is Q: Who is a VAT-registered person?
liable to pay VAT. The CTA reversed the same on
the ground that it was not done in the ordinary A: A VAT-registered person refers to any person
course of business of NDC. who is registered as a VAT taxpayer under Sec. 236
of the Tax code or a person who opted to be
Is Magsaysay lines liable to pay VAT on such sale? registered as VAT taxpayer. His status as a VAT
registered person shall continue until the
A: No. VAT is a tax levied only on the sale, barter or cancellation of the registration.
exchange of goods or services by persons who
engage in such activities, in the course of trade or Q: Who are the persons required to register for
business. The "carrying on business" does not mean VAT?
the performance of a single disconnected act, but
means conducting, prosecuting and continuing A: Every person who in the course of trade of
business by performing progressively all the acts business, sells, barter, or exchanges goods or
normally incident thereof; while "doing business" properties, or engages in the sale or exchange of
conveys the idea of business being done, not from goods, services subject to VAT if:
time to time, but all the time. "Course of business" 1. The Gross sale or gross receipts have
is what is usually done in the management of trade exceeded 1.5 million; or
or business. 2. There are reasonable grounds to believe
that his gross receipts or gross sales in the
The act of NDC in selling the vessels was not done in next 12 month shall exceed 1.5 million.
the regular manner, not in the ordinary course of (Section 236(G), NIRC)
trade or business. In fact the sale was effected only
because of the privatization program of the Q: What is the penalty for failure to register as
government thus the sale was not subject to VAT. VAT taxpayer?
(CIR v. Magsaysay Lines Inc., G.R. No. 146984, July
28, 2006) A: He shall be held liable to pay the tax as if he is a
VAT registered person but he cannot avail of the
Q: What are the exemptions to the rule of input tax credit for the period that he has not
regularity? properly registered. (Section 236(G), NIRC)
156
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
VAT ON SALE OF GOODS OR PROPERTIES A: The term goods or properties shall mean all
tangible and intangible objects which are capable of
Requisites of taxability of sale of goods or pecuniary estimation and shall include:
properties
1. Real properties held primarily for sale to
Q: What are the requisites for taxability of sale of customers or held for lease in the
goods and personal properties? ordinary course of trade or business
2. The right or the privilege to use patent,
A: copyright, design or model, plan secret
1. There is an actual or deemed sale, barter formula or process, goodwill, trademark,
or exchange of goods or personal trade brand or other like property or right
properties for valuable consideration; 3. The right or the privilege to use in the
2. The sale is in the course of trade or Philippines of any industrial, commercial
business or exercise of profession in the or scientific equipment
Philippines; 4. The right or the privilege to use motion
3. The goods or proerties are located in the picture films, films, tapes and discs
Philippines and are for use or 5. Radio, television, satellite transmission
consumption therein; and and cable television time
4. The sale is not exempt from VAT under (Sec. 106[A][1], NIRC)
Section 109 of NIRC, special law,
international agreement binding upon the Q: Are all intangible properties subject to VAT?
government of the Philippines.
A: No, only those capable of pecuniary estimation.
Note: Absence of any of the above requisites EXEMPTS (Sec. 4.106-2, RR 16-2005)
the transaction from VAT. However, percentage taxes
may apply (Section 116, NIRC).
Q: Is the sale of real properties subject to VAT?
Q: What are the requisites for taxability of sale or
A: Sale of real properties primarily for sale to
exchange of real property?
customers or held for lease in the ordinary course
of trade or business of the seller shall be subject to
VAT. (1st par., Sec. 4.16-3, RR 16-2005)
157
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
As such, capital transactions of individuals are not A: Payment/s which the seller receives before or
subject to VAT. Only real estate dealers are subject upon execution of the instrument of sale and
to VAT. payments which he expects or is scheduled to
receive in cash or property (other than evidence of
Q: What are taxable sales? indebtedness of the purchaser) during the year
when the sale or disposition of real property was
A: Taxable sales refers to the sale, barter, exchange made.
and/or lease of goods or properties, including
transactions deemed sale and the performance of Q: What are the distinctions between sale on
service for consideration, whether in cash or in installment plan and sale on a deferred payment
kind. basis?
158
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
VAT registered person, the sale of goods or in the Philippines of the said
properties is multiplied by 0% thus his output tax is buyer’s goods;
P 0.00. Since the person is VAT-registered, he can c. paid for in acceptable foreign
claim input tax for purchases made from VAT- currency;
registered entities. d. accounted in accordance with
the rules of BSP.
E.g.: Output tax -------------------- P 0.00
Less: Input tax ------------------- 5,000.00 3. Sale of raw material or packaging
VAT Creditable P 5, 000.00 materials to export oriented enterprise
whose export sales exceed 70% of total
EXEMPT ZERO-RATED annual production
Nature of transaction
Not taxable; removes VAT Transaction is taxable for 4. Sale of gold to BSP
at the exempt stage VAT purposes although the
tax levied is 0%
5. Those considered as export sales under
By whom made
the E.O. 226 (Omnibus Investment Code
Need not be a VAT- Made by a VAT-registered
registered person person of 1987)
Tax Credit/Refund
Cannot avail of tax credit Can claim or enjoy tax 6. The sale of goods, supplies, equipment
or refund. Thus, may credit/refund and fuel to persons engaged in
result in increased prices (Total Relief) international shipping or international air
(Partial Relief) transport operations. (Sec. 106[A][2][a],
NIRC as amended by RA 9337)
Q: What are the zero-rated sales of goods by a
VAT-registered person? Note: Under Omnibus Investment Code:
i. The Philippine port F.O.B. value determined from
A: invoices, bills of lading, inward letters of credit, landing
1. Export sales certificates, and other commercial documents, of
2. Foreign currency denominated sale export products exported directly by a registered
3. Sales to persons or entities whose export producer, or
exemption under special laws or
international agreements to which the ii. The net selling price of export products sold by a
registered export producer to another export
Philippines is a signatory effectively
producer, or to an export trader that subsequently
subjects such sales to zero rate. (Sec. 106,
export the same;
NIRC)
iii. Provided, that sales of export products to another
Q: What is meant by export sales? producer or to an export trader shall only be deemed
expoert sales when actually exported by the latter, as
A: The term export sales means: evidenced by landing certificates or similar commercial
1. The sale and actual shipment of goods documents
from the Philippines to a foreign country:
a. irrespective of any shipping Q: When is export sale exempt and when is it zero-
arrangement; rated?
b. paid for in acceptable foreign
currency or its equivalent in goods A: Export sale is exempt if made by a non-VAT
or services; person (Sec. 109, NIRC). On the other hand, it is
c. accounted for in accordance with zero-rated if made by VAT-registered person (Sec.
the rules and regulations of BSP. 4.106-5, RR 16-2005).
2. Sale of raw materials or packaging Q: Is the sale of goods to ecozone, such as PEZA,
materials by a VAT-registered entity to a considered as export sale?
non-resident buyer:
a. for delivery to a non resident A: Yes. Notably, while an ecozone is geographically
local export-oriented within the Philippines, it is deemed a separate
enterprise; customs territory and is regarded in law as foreign
b. used in the manufacturing, soil. Sales by suppliers from outside the borders of
processing, packing, repacking the ecozone to this separate customs territory are
deemed as exports and treated as export sales.
159
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
160
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
the refund or credit of shifted by the suppliers. Philippines. It is also registered with the PEZA to
input taxes that are engage in the manufacture of recording
attributable to export components primarily used in computers for
sales.
export. SEAGATE is a VAT-registered entity. An
Effect
administrative claim for refund of VAT input taxes
Results in no tax chargeable against the purchaser.
The seller can claim a refund or a tax credit certificate for
in the amount of P28, 369,226.38 with supporting
the VAT previously charged by suppliers. documents was filed with Revenue District Office
in Cebu. The administrative claim for refund was
Note: For zero-rated transactions, whether automatic not acted upon by the petitioner prompting the
or effectively zero-rated, the word “ZERO-RATED” respondent to elevate the case to the CTA. The CIR
must be prominently stamped on the face of the VAT contended that since ‘taxes are presumed to have
invoice or receipt issued by the seller (failure to been collected in accordance with laws and
comply will make the transaction VAT taxable). regulations, Seagate has the burden of proof that
the taxes sought to be refunded were erroneously
Q: Cebu Toyo Corp., an export enterprise, is a or illegally collected. Unfortunately, Seagate failed
subsidiary of a foreign corporation duly registered to do so.
with the Philippine Economic Zone Authority
pursuant to PD 66 and is also registered with the Is Seagate entitled to the refund or issuance of Tax
BIR as a VAT taxpayer. It sells 80% of its products Credit Certificate representing alleged unutilized
to its mother corporation, and the rest are sold to input VAT paid on capital goods purchased?
various enterprises doing business in the Mactan
Export Processing Zone. Inasmuch as both sales A: Yes. No doubt, as a PEZA-registered enterprise
are considered export sales subject to VAT at 0% within a special economic zone, it is entitled to the
rate under the National Internal Revenue Code, as fiscal incentives and benefits provided for in either
amended, it filed an application for tax PD 66 or EO 226 which would not subject
credit/refund of VAT paid for the said period respondent to internal revenue laws and
representing excess VAT input payments. The CIR regulations for raw materials, supplies, articles, etc
belies the claim for refund. or would be entitled to income tax holiday;
additional deduction for labor expense, etc. It shall,
Is the grant of a refund representing unutilized moreover, enjoy all privileges, benefits, advantages
input VAT to Cebu Toyo proper? or exemptions under both Republic Act Nos. 7227
(duty-free importation) and 7844 (tax credits).
A: Yes. Cebu Toyo is engaged in taxable rather than Thus, Seagate enjoys preferential tax treatment.
exempt transactions. Taxable transactions are those The VAT on capital goods is an internal revenue tax
transactions which are subject to value-added tax from which the entity is exempt. Although the
either at the rate of ten percent (10%) or zero transactions involving such tax are not exempt,
percent (0%). In taxable transactions, the seller Seagate as a VAT-registered person, however, is
shall be entitled to tax credit for the value-added entitled to their credits.
tax paid on purchases and leases of goods,
properties or services. An exemption means that Since the purchases of Seagate are not exempt
the sale of goods, properties or services and the use from the VAT, the rate to be applied is zero. Its
or lease of properties is not subject to VAT (output exemption under both PD 66 and RA 7916
tax) and the seller is not allowed any tax credit on effectively subjects such transactions to a zero rate,
VAT (input tax) previously paid. A VAT-registered because the ecozone within which it is registered is
purchaser of goods, properties or services that are managed and operated by the PEZA as a separate
VAT exempt, is not entitled to any input tax on such customs territory. This means that in such zone is
purchases despite the issuance of a VAT invoice or created the legal fiction of foreign territory. Under
receipt. Under the system, a zero rated sale by a the cross-border principle of the VAT system being
VAT-registered person, which is a taxable enforced by the BIR, no VAT shall be imposed to
transaction for VAT purposes, shall not result in any form part of the cost of goods destined for
output tax, but the input tax on his purchase of consumption outside of the territorial border of the
goods, properties or services related to such zero- taxing authority. If exports of goods and services
rated sale shall be available as tax credit or refund from the Philippines to a foreign country are free of
(CIR v. Cebu Toyo Corporation, G.R. No. 149073, the VAT, then the same rule holds for such exports
Feb. 16, 2005). from the national territory -- except specifically
declared areas -- to an ecozone. (CIR v. Seagate
Q: SEAGATE is a resident foreign corporation duly Technology (Philippines), G.R. No. 153866, Feb. 11,
registered with the SEC to do business in the 2005)
161
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
162
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
consecutive years from the time of importer prior to the release of such goods from
registration by a person who voluntarily customs custody. (Sec.107[A])
registered despite being exempt under
Sec 109 (2) of the Tax Code XPN: Where the customs duties are determined
on the basis of quantity or volume f the goods,
4. Approval of a request for cancellation of the VAT shall be based on the landed cost plus
registration of one who commenced excise taxes, if any.
business with the expectation of gross
sales or receipt exceeding P1,500,000 but Q: Who pays for the tax on imported goods?
who failed to exceed this amount during
the first 12 months of operations. A: The importer shall pay the tax prior to the
release of the imported goods.
Q: When is a change in or cessation of status of a
VAT registered person not subject to VAT? Q: Who is an importer?
A: The following are not subject to 12% output vat A: An importer is a person who brings goods into
the Philippines, whether or not made in the course
1. Change of control in the corporation of as of trade or business. It includes non-exempt
corporation by the acquisition of persons or entities who acquire tax free imported
controlling interest of the corporation by goods from exempt persons, entities or agencies.
another stockholder or group of
stockholders . Q: When does importation begin and end?
The goods or properties used in the A: Importation begins when a vessel or aircraft
business or those comprising the stock-in- enters the Philippine jurisdiction with the intention
trade of the corporation will not be to unload goods/cargo. Importation ends upon the
considered sold, bartered or exchanged payment of duties, taxes, and other charges due
despite the change in the ownership upon the article, or to be paid at the port of entry
interest. However, exchange of property and legal permit for withdrawal shall have been
by corporation acquiring control for the granted.
shares of stocks of the target corporation
is subject to VAT. Q: What is “technical importation”?
2. Change in the trade or corporate name of A: Sale of goods by a PEZA registered enterprise to
the business. a buyer from the customs territory shall be treated
as a technical importation. Such buyer shall be
3. Merger or consolidation of corporations. treated as an importer thereof and shall be
The unused input tax of the dissolved imposed with the corresponding import taxes.
corporation, as of the date of merger or
consolidation, shall be absorbed by the
surviving or new corporation. Transfer of Goods by Tax Exempt Persons
Q: What is the tax base of importation? Note: The tax due on such importation shall constitute
a lien on the goods superior to all charges or liens on
A: the goods, irrespective of the possessor thereof.
GR: The tax base shall be based on the total
value used by the BOC in determining tariff and Q: Anshari, an alien employee of Asian
customs duties plus customs duties, excise taxes, Development Bank (ADB) who is retiring soon has
if any, and other charges to be paid by the offered to sell his car to you, which he imported
tax-free for his personal use. The privilege of
163
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
exemption from tax is recognized by tax 6. The supply of technical advice, assistance
authorities. If you decide to purchase the car, is or services rendered in connection with
the sale subject to tax? Explain. technical management or administration
of any scientific, industrial or commercial
A: Yes. The sale is subject to tax. Sec. 107 (B) of the undertaking, venture, project or scheme
Tax Code provides that “In case of tax-free 7. The lease of motion picture films, films,
importation of goods into the Philippines by tapes and discs
persons, entities or agencies exempt from tax, 8. The lease or the use of or the right to use
where the goods are subsequently, sold, radio, television, satellite transmission
transferred or exchanged in the Philippines to non- and cable television time. (Ibid.)
exempt persons or entities, the purchasers,
transferees or recipients shall be considered a the Note: Lease of properties shall be subject to the tax
importer thereof, who shall be liable for any herein imposed irrespective of the place where the
internal revenue tax on such importation. (2005 Bar contract of lease or licensing agreement was executed
Question) if the property is leased or used in the Philippines.
164
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
received during the taxable quarter for the services Consequently, PHILHEALTH brought the matter to
performed or to be performed for another person, the CTA. The CTA declared that VAT Ruling 231-88
excluding VAT. (Sec. 108, NIRC) is void and without force and effect and
ordered it to pay the VAT deficiency, but
Q: What is the meaning of constructive receipt? canceling the payment of DST. After a Motion for
Partial Reconsideration, CTA overruled its decision
A: Constructive receipt occurs when the money with respect to the payment of deficiency VAT and
consideration or its equivalent is placed at the held that PHILHEALTH was entitled to the benefit
control of the person who rendered the service of non-retroactivity of rulings guaranteed under
without restrictions by the payor. Section 246 of the Tax Code, in the absence of
showing of bad faith on its part.
Q: Is a lease of property subject to VAT?
Are the services of PHILHEALTH subject to VAT?
A: All forms of property for lease, whether real or
personal, are liable to VAT. A: Yes. PHILHEALTH’s services are not VAT-exempt.
Those exempted from VAT are those engaged in the
Q: Are advance payments made by lessee for lease performance of medical, dental, hospital and
of property subject to VAT? veterinary services except those rendered by
professionals. PHILHEALTH is not actually
A: If the advance payment is for the faithful rendering medical service but merely acting as a
performance of certain obligations of the lessee, it conduit between the members and their accredited
is not subject to VAT. A security deposit that is and recognized hospitals and clinics. It merely
applied to rental shall be subject to VAT at the time provides and arranges for the provision of pre-need
of its application. If the advance payment health care services to its members for a fixed
constitutes a pre-paid rental, then such payment is prepaid fee for a specified period of time; that it
taxable to the lessor in the month when received, then contracts the services of physicians, medical
irrespective of the accounting method employed by and dental practitioners, clinics and hospitals to
the lessor. perform such services to its enrolled members; and
that it enters into contract with clinics, hospitals,
Q: PHILHEALTH, a corporation that establishes, medical professionals and then negotiates with
maintains, conducts and operates a prepaid group them regarding payment schemes, financing and
practice health care delivery system or a health other procedures in the delivery of health
maintenance organization to take care of the sick services. (CIR v. Philippine Health Care Providers
and disabled persons enrolled in the health care Inc., G.R. No. 168129, Apr. 24, 2007)
plan, inquired before the Commissioner of
Internal Revenue (Commissioner) whether the Q: Are gross receipts derived from sales of
services it provided to the participants in its health admission tickets in showing motion pictures
care program were exempt from the payment subject to VAT?
of VAT. The Commissioner issued VAT Ruling 231-
88 stating that PHILHEALTH, as a provider of A: No. The legislative intent is not to impose VAT on
medical services, was exempt from the VAT persons already covered by the amusement tax.
coverage. The repeal by the Local Government Code of 1991
of the Local Tax Code transferring the power to
Meanwhile, Republic Act 7716 (E-VAT Law) impose amusement tax on cinema/theater
took effect, amending further the NIRC of 1977. operators or proprietors to the local government
Subsequently, R.A. 8424 (NIRC of 1997) took did not grant nor restore the said power to the
effect, substantially adopting and reproducing the national government nor did it expand the coverage
provisions of E.O. 273 on VAT and the E-VAT law. of VAT. Since the imposition of a tax is a burden on
With the passage of these laws, the BIR sent the taxpayer, it cannot be presumed nor can it be
PHILHEALTH a Preliminary Assessment Notice for extended by implication. As it is, the power to
deficiency in its payment of the VAT and impose amusement tax on cinema/theater
documentary stamp taxes (DST) for taxable years operators or proprietors remains with the local
1996 and 1997 and a letter demanding payment of government.
“deficiency VAT” and DST for taxable years 1996 to
1997. A contrary ruling will subject cinema/theater
operators or proprietors to a total of 40% tax, the
PHILHEALTH filed a protest with the Commissioner 10% VAT being on top of the 30% amusement tax
but the latter did not take action on its protest. imposed by the Local Government Code of 1991,
165
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
thereby killing the “*goose+ that lays the golden Philippines is a signatory effectively
egg*s+.”(CIR v. SM Prime Holdings, Inc., G.R. No. subjects the supply of such services to
185305, Feb. 26, 2010) zero percent (0%) rate;
166
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: No longer exempt.
Note: The basis for the grant of VAT exemptions is
equity Q: When is the sale of real properties subject to
VAT? When is it exempt?
Q: What are the distinctions between exempt
transaction and exempt party? A: Real properties held primarily for sale to
customers or held for lease in the ordinary course
A: of trade or business is subject to VAT. (Sec.
EXEMPT PARTY EXEMPT TRANSACTION 106[A][1][a], NIRC)
A person or entity granted Involves goods or services
VAT exemption under the which, by their nature are
Whereas, real properties not primarily held for sale
Tax Code, special law or specifically listed in and
international agreement to expressly exempted from
to customers or held for lease in the ordinary
which RP is a signatory, the VAT under the Tax course of trade or business are exempt from VAT.
and by virtue of which its Code, without regard to the (Sec. 109, NIRC)
taxable transactions tax status of the parties in
become exempt from the the transactions. Q: When is fuel exempt from tax, and when is it
VAT. zero-rated?
Such party is not subject to Transaction is not subject
the VAT, but may be to VAT, but the seller is not A: Fuel is exempt if imported by persons engaged in
allowed a tax refund or allowed any tax refund or
international shipping or air transport operations
credit of input tax paid, credit for any input taxes
depending on its paid. (Sec. 109 [T], NIRC). On the other hand, fuel is zero-
registration as a VAT or rated when sold to persons engaged in
non-VAT taxpayer. international shipping or international air transport
operations without docking or stopping at any
Q: Does a VAT-registered individual have the other port in the Philippines. (Sec 4.106-5[A][6], RR
option to be subject to VAT rather than to avail of 16-2005]
the above-mentioned exemptions?
Q: State whether the following transactions are: a)
A: Yes. Under Sec. 109(2) of the Tax Code, the VAT Exempt, b) subject to VAT at 12%; or c)
taxpayer has the option to be: subject to VAT at 0%.
1. VAT exempt under Sec. 109(1) of the
NIRC; or 1. Sale of fresh vegetables by Aling Ining at
2. Be subject to VAT. the Pamilihang Bayan ng Trece Martirez.
2. Services rendered by Jake's Construction
Note: The choice of the taxpayer is irrevocable for a Company, a contractor to the World
period of 3 years from the quarter the election was Health Organization in the renovation of
made. its offices in Manila.
3. Sale of tractors and other agricultural
Q: Why would a VAT-exempt person choose to be implements by Bungkal Incorporated to
subject to VAT than to be VAT exempt? local farmers. [1%]
4. Sale of RTW by Cely's Boutique, a Filipino
A: A VAT-registered person who opted to be subject dress designer, in her dress shop and
to VAT may avail of the input tax credit. The input other outlets.
tax is deducted from the output tax thereby 5. Fees for lodging paid by students to
reducing his tax liabilities but a VAT-registered Bahay-Bahayan Dormitory, a private
person who opted to be exempt there from cannot entity operating a student dormitory
avail of the input tax credit. Thus a VAT-registered (monthly fee PI, 500).
person may choose to be subjected to rather than
exempt from payment of VAT. A:
1. VAT exempt. Sale of agricultural products,
Q: Will a VAT-registered purchaser of goods, such as fresh vegetables, in their original
properties or services that are VAT-exempt be state, of a kind generally used as, or
entitled to any input tax on such purchase? producing foods for human consumption
is exempt from VAT. (Sec. 109[A], NIRC)
A: No. 2. VAT at 0%. Since Jake's Construction
Company has rendered services to the
Q: Are petroleum products exempt from VAT? World Health Organization, which is an
entity exempted from taxation under
167
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
international agreements to which the for the market, such as freezing, drying,
Philippines is a signatory, the supply of salting, broiling, roasting, smoking or
services is subject to zero percent (0%) stripping. Polished and/or husked rice,
rate. (Sec. 108[B][3], NIRC) corn grits, raw cane sugar and molasses,
3. VAT at 12%. Tractors and other ordinary salt, and copra shall be
agricultural implements fall under the considered in their original state (Sec.
definition of goods which include all 109[A], NIRC]);
tangible objects which are capable of
pecuniary estimation. (Sec. 106[A][1], Note: Fighting cocks, race horses, zoo
NIRC) animals and other animals generally
4. This is subject to VAT at 12%. This considered as pets are not included in the
transaction also falls under the definition term livestock and poultry.
of goods which include all tangible objects
which are capable of pecuniary It is not a simple process if it is a physical or
estimation (Sec. 106[A][1], NIRC) chemical process which would alter the
exterior or inner substance of a product in
5. VAT Exempt. The monthly fee paid by
such a manner as to prepare it for special
each student falls under the lease of
use to which it could not have been put in
residential units with a monthly rental per its original form or condition; like the
unit not exceeding P10,000, which is addition of preservatives or anti oxidants.
exempt from VAT regardless of the
amount of aggregate rentals received by b. Sale of fertilizers; seeds, seedlings and
the lessor during the year. (Sec. 109[Q], fingerlings; fish, prawn, livestock and
NIRC). The term unit shall mean per poultry feeds, including ingredients,
person in the case of dormitories, whether locally produced or imported,
boarding houses and bed spaces (Sec. used in the manufacture of finished feeds.
4.103-1, RR No. 7-95).(1998 Bar Except specialty feeds for race horses,
Question) fighting cocks, aquarium fish, zoo animals
and other animals generally considered as
Q: What is the tax on persons who are exempt pets (Sec. 109[B], NIRC]);
from VAT?
c. Transactions which are exempt under
A: Persons who are exempt from the payment of international agreements to which the
VAT and who is not a VAT-registered person shall Philippines is a signatory or under special
pay a tax equivalent to three percent (3%) of his laws, except those under P.D. No. 529
gross quarterly sales or receipts, except (Sec. 109[K], NIRC]);
cooperatives shall not be held liable to pay for
three percent (3%) gross receipts tax. Note: PD 529 is Petroleum Exploration
Concessionaires under the Petroleum Act of
1949
Exempt transactions, Enumerated
d. Sales by agricultural cooperatives duly
Q: What are the VAT exempt transactions? registered with the Cooperative
Development Authority (CDA) to their
A: members as well as sale of their produce,
1. Sale Of Goods And Property whether in its original state or processed
form, to non-members; their importation
a. Sale or importation of agricultural and of direct farm inputs, machineries and
marine food products in their original equipment, including spare parts thereof
state, livestock and poultry of a kind to be used directly and exclusively, in the
generally used as, or yielding or producing production and/or processing of their
foods for human consumption; and produce (Sec. 109[L], NIRC]);
breeding stock and genetic materials
therefor. Note: Unlike in paragraph A, the sales made
by agricultural cooperatives duly accredited
Products classified under this paragraph by CDA may be in original state or processed
shall be considered in their original state form is exempt from VAT.
even if they have undergone the simple
processes of preparation or preservation e. Sales by non-agricultural, non-electric and
non-credit cooperatives duly registered with
168
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
the Cooperative Development Authority: j. Sale of goods or properties other than the
Provided that the share capital contribution transactions mentioned in the preceding
of each member does not exceed Fifteen paragraphs, the gross annual sales and/or
thousand pesos (P15, 000.00) and regardless receipts do not exceed the amount of One
of the aggregate capital and net surplus million five hundred thousand pesos (P1,
ratably distributed among the members 500,000): Provided, That not later than
(Sec. 109[N], NIRC]); January 31, 2009 and every three (3) years
thereafter, the amount herein stated shall
f. Export sales by persons who are not VAT- be adjusted to its present value using the
registered (Sec. 109[O], NIRC]); Consumer Price Index as published by the
NSO (Sec. 109[V], NIRC);
g. Sale of real properties not primarily held for
sale to customers or held for lease in the
ordinary course of trade or business, or real 2. Sale of Services
property utilized for low-cost and socialized
housing as defined by R.A. No. 7279, a. Services subject to percentage tax under
otherwise known as the Urban Development Title V (Sec. 109[E], NIRC);
and Housing Act of 1992, and other related
laws, residential lot valued at One million b. Services by agricultural contract growers
five hundred thousand pesos (P1,500,000) and milling for others of palay into rice,
and below, house and lot, and other corn into grits and sugar cane into raw
residential dwellings valued at Two million sugar (Sec. 109[F], NIRC);
five hundred thousand pesos (P2,500,000)
and below: Provided, That not later than c. Medical, dental, hospital and veterinary
January 31, 2009 and every three (3) years services except those rendered by
thereafter, the amounts herein stated shall professionals (Sec. 109[G], NIRC);
be adjusted to their present values using the
Consumer Price Index, as published by the Note: Laboratory services are exempted
National Statistics Office (NSO) (Sec. 109[P], because it is a hospital service.
NIRC]);
The sale of medicines by the pharmacy of a
h. Sale of books and any newspaper, magazine, hospital or a clinic to its in-patients is
review or bulletin which appears at regular considered hospital service hence, VAT
intervals with fixed prices for subscription exempt. If the sale of medicine is made to
an out-patient, such sale is subject to VAT
and sale and which is not devoted
(Mamalateo, Value Added Tax, 2007 ed., pp.
principally to the publication of paid
163 and 274)
advertisements (Sec. 109[R], NIRC);
d. Educational services rendered by private
i. Sale of passenger or cargo vessels and
educational institutions, duly accredited
aircraft, including engine, equipment and
by the DEPED, CHED, TESDA and those
spare parts thereof for domestic or
rendered by government educational
international transport operations and
institutions (Sec. 109[H], NIRC);
provided that (Sec. 109[S], NIRC);
I. Exemption from VAT on the importation Note: In this section for private educational
and local purchase of passenger and/or institution to be exempt from VAT they
cargo vessel shall be limited to those of must be duly accredited by DEPED, CHED
one hundred fifty tons (150) and above, and TESDA on there other hand,
including engine and spare parts of the government educational institutions are
said vessels; exempt without the need of the said
II. Vessels to be imported shall comply with accreditation requirements.
the age limit requirements:
Passenger and/or cargo-vessels- e. Services rendered by individuals pursuant
15 years old to an employer-employee relationship
Tanker-10 years old (Sec. 109[I], NIRC);
High speed passenger craft-5
years old f. Services rendered by regional or area
headquarters established in the
Philippines by multinational corporations
169
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
which act as supervisory, communications that such persons are actually coming to
and coordinating centers for their settle in the Philippines and that the change
affiliates, subsidiaries or branches in the of residence is bona fide (Sec. 109[D], NIRC);
Asia-Pacific Region and do not earn or c. Importation of books and any newspaper,
derive income from the Philippines (Sec. magazine, review or bulletin which appears
109[J], NIRC); at regular intervals with fixed prices for
g. Transactions which are exempt under subscription and sale and which is not
international agreements to which the devoted principally to the publication of
Philippines is a signatory or under special paid advertisements (Sec. 109[R], NIRC);
laws, except those under P.D. No. 529
(Sec. 109[K], NIRC); d. Importation of passenger or cargo vessels
and aircraft, including engine, equipment
h. Gross receipts from lending activities by and spare parts thereof for domestic or
credit or multi-purpose cooperatives duly international transport operations and
registered with the Cooperative provided that (Sec. 109[S], NIRC);
Development Authority (Sec. 109[M], I. Exemption from VAT on the importation
NIRC); and local purchase of passenger and/or
cargo vessel shall be limited to those of
i. Services of banks, non-bank financial one hundred fifty tons (150) and above,
intermediaries performing quasi-banking including engine and spare parts of the
functions, and other non-bank financial said vessels
intermediaries (Sec. 109[U], NIRC); and II. Vessels to be imported shall comply with
the age limit requirements
j. Performance of services other than the Passenger and/or cargo-vessels
transactions mentioned in the preceding 15 years old;
paragraphs, the gross annual sales and/or Tanker-10 years old;
receipts do not exceed the amount of High speed passenger craft-5
One million five hundred thousand pesos years old
(P1, 500,000): Provided, That not later
than January 31, 2009 and every three (3) e. Importation of fuel, goods and supplies by
years thereafter, the amount herein persons engaged in international shipping or
stated shall be adjusted to its present air transport operations (Sec. 109[T], NIRC).
value using the Consumer Price Index as
published by the NSO (Sec. 109[V], NIRC); 4. Lease Of Property
170
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
171
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What is the purpose of transitional input tax prepare it for special use to which it could not have
credit? been put in its original form or condition.
A: It is an input tax credit allowed to persons or Q: How is creditable input tax determined?
firms engaged in the:
1. processing of: A: The sum of the excess input tax carried over
a. sardines from the preceding month or quarter and the input
b. mackerel tax creditable to a VAT-registered person during the
c. milk taxable month or quarter shall be reduced by the
2. manufacturing of: amount of claim for refund or tax credit for VAT and
a. refined sugar other adjustments, such as purchase returns or
b. cooking oil allowances and input tax attributable to exempt
c. packed noodle based instant meals sale.
The allowed input tax shall be equivalent to four The claim for tax credit referred to in the foregoing
percent (4%) of the gross value in money of their paragraph shall include not only those filed with the
purchases of primary agricultural products which BIR but also those filed with other goverment
are used as inputs to their production. (Sec. 111 [B], agencies, such as the Board of Investments or the
NIRC) Bureau of Customs [Sec. 110 [C], NIRC]
Note: The term 'processing' shall mean pasteurization, Allocation of Input Tax on Mixed Transactions
canning and activities which through physical or
chemical process alter the exterior texture or form or Q: May a VAT- registered person who is also
inner substance of a product in such manner as to engaged in transactions not subject to VAT be
allowed tax credit?
172
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: Output tax
A: Yes. A VAT-registered person who is also LESS: Input tax__________
engaged in transactions not subject to the VAT shall VAT payable/ ecess tax credits
be allowed tax credit as follows:
1. Total input tax which can be directly Q: What are the rules in computing VAT?
attributed to transactions subject to
value-added tax; and A:
2. A ratable portion of any input tax which 1. If at the end of any taxable quarter the
cannot be directly attributed to either output tax exceeds the input tax – The
activity. (Sec. 110 [A][3], NIRC) excess shall be paid by the VAT-registered
person.
Q: How is input tax allocated on mixed
transactions? 2. If the input tax exceeds the output tax–
The excess shall be carried over to the
A: A VAT-registered person who is also engaged in succeeding quarter or quarters.
transactions not subject to VAT shall be allowed to
recognize input tax credit on transactions subject to Note: Any input tax attributable to the purchase of
VAT as follows: capital goods or to zero-rated sales by a VAT-
registered person may at his option be refunded or
1. All the input taxes that can be directly credited against other internal revenue taxes, subject
attributed to transactions subject to VAT to the provisions of Section 112.
may be recognized for input tax credit:
provided, that input taxes which are
directly attributable to VAT taxable sales SUBSTANTIATION OF INPUT TAX CREDITS
of goods and services from the
Government or any of its political Q: What are the substantiation requirements for
subdivisions, instrumentalities or input tax credits?
agencies, including GOCCs shall not be A:
credited against output taxes arising from
sales to non-government entities. Transactions Required Support
Input taxes on domestic VAT invoice
purchases of goods or
2. If any input tax cannot be directly properties made in the
attributed to either a VAT taxable or VAT- course of trade or
exempt transaction, the input tax shall be business
pro-rated to the VAT taxable and VAT-
exempt transactions; only the ratable
portion pertaining to transactions subject
to VAT may be recognized for input tax Input tax on purchases of
credit real property
173
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
of VAT on the imported v. CIR, G.R. No. 125704, Aug. 29, 1998) (2001 Bar
goods Question)
Transitional input tax Inventory of goods as
shown in a detailed list to
be submitted to the BIR
Period to File Claim/Apply for Issuance of TCC
Input tax on “deemed sale Required invoices
transaction”
Input tax from payments Monthly Remittance Q: When must the options be availed of?
made to non-residents Return of Value Added
(such as for services, Tax Withheld (BIR Form A: The claim, which must be in writing, for both
rentals, or royalties) 1600) filed by the resident cases, must be filed within 2 years after the close of
payor in behalf of the the taxable quarter when the sales were made
non-resident evidencing apply for:
remittance of VAT due 1. The issuance of a tax credit certificate;
which was withheld by
2. Refund of creditable input tax due or paid
the payor.
Advance VAT on sugar Payment order showing attributable to such sales. (Ibid.)
payment of the advance
VAT Note:
The creditable input tax allowed to be refunded does
not include transitional input tax
REFUND OR TAX CREDIT OF EXCESS INPUT TAX
In case the taxpayer is engaged in zero-rated and also
in taxable or exempt sale, and the amount of
Who may claim for refund/apply for issuance of
creditable input tax due or paid cannot be directly and
tax credit certificate (TCC) entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the
Q: What are the options available to a VAT- volume of sales
registered person, whose sales are zero-rated or
effectively zero-rated?
Manner of Giving Refund
A:
1. To claim for tax credit; or Q: What is the manner of giving refund?
2. To claim for refund. (Sec. 112[A], NIRC)
A: Refund shall be made upon warrants drawn by
Q: For a claim for tax refund to prosper, what must the Commissioner or by his duly authorized
the VAT-registered entity prove? representative without the necessity of being
countersigned by the Chairman of Commission on
A: The taxpayer must prove the following: Audit (COA). Refund shall be subject to post audit
1. That it is a VAT-registered entity; by COA. (Sec 112( D) NIRC)
2. It must substantiate the input VAT paid by
purchase invoices or official receipts
(Commissioner v. Manila Mining INVOICING REQUIREMENTS
Corporation, G.R. No. 153204, Aug. 31,
2005). Invoicing requirements in general
Q: May a taxpayer who has pending claims for VAT Q: What is required from VAT-registered person to
input credit or refund, set off said claims against issue?
his other tax liabilities? Explain your answer.
A: A VAT-registered person shall issue:
A: No. Set-off is available only if both obligations 1. A VAT invoice for every sale, barter or
are liquidated and demandable. Liquidated debts exchange of goods or properties; and
are those where the exact amounts have already 2. A VAT official receipt for every lease of
been determined. In the instant case, a claim of the goods or properties, and for every sale,
taxpayer for VAT refund is still pending and the barter or exchange of services. (Sec.
amount has still to be determined. A fortiori, the 113[A], NIRC)
liquidated obligation of the taxpayer to the
government cannot, therefore, be set-off against Q: What are the information contained in the
the unliquidated claim which the Taxpayer VAT invoice or VAT official receipts?
conceived to exist in his favor. (Philex Mining Corp.
174
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: Sample Receipt
1. A statement that the seller is a VAT-
registered person, and the taxpayer's ABC CORPORATION
identification number (TIN); 40 Katipunan Ave. Quezon City
2. The total amount which the purchaser VAT Reg. TIN:456-378-112-037-000
pays or is obligated to pay to the seller
April 20, 2009
with the indication that such amount Sold To: Tommy Corporation
includes the value-added tax: Provided Address: 44 Torro St. Project 8, Quezon City
that: TIN:478-808-000VAT
a. The amount of the tax shall be
shown as a separate item in the Unit Transaction
Description Qty. Total
invoice or receipt; Cost Type
b. If the sale is exempt from value- Pad Paper
40 2, 500 100,000 VATable
added tax, the term "VAT-exempt 100pcs/box
sale" shall be written or printed Poultry
Product VAT exempt
prominently on the invoice or 120 30 3, 600
Eggs per Sale
receipt; dozen
c. If the sale is subject to zero percent Native
(0%) value-added tax, the term products 56 8, 000 448, 000 Zero-rated
"zero-rated sale" shall be written or for export
printed prominently on the invoice
or receipt; Vatable sales--------------------------------------- 100,000
d. If the sale involves goods, properties Vat exempt sale------------------------------------ 3, 600
or services some of which are subject Zero-rated sale------------------------------------- 448,000
Total Sales------------------------------------------ 551,600
to and some of which are VAT zero-
12% Vat--------------------------------------------- 12,000
rated or VAT-exempt, the invoice or Total TAXPAYER Payable ----------------------- 563,600
receipt shall clearly indicate the
breakdown of the sale price between
its taxable, exempt and zero-rated Q: What are the accounting requirements for VAT
components, and the calculation of registered persons?
the value-added tax on each portion
of the sale shall be shown on the A: All persons subject to the VAT under Sec. 106
invoice or receipt: "Provided, That and 108 shall, in addition to the regular accounting
the seller may issue separate records required, maintain a subsidiary sales
invoices or receipts for the taxable, journal and subsidiary purchase journal on which
exempt, and zero-rated components the daily sales and purchases are recorded. (Sec.
of the sale. 113[C], NIRC)
3. The date of transaction, quantity, unit
cost and description of the goods or
properties or nature of the service; and Consequence of Issuing Erroneous VAT Invoice or
4. In the case of sales in the amount of one VAT Official Receipt
thousand pesos (P1, 000) or more where
the sale or transfer is made to a VAT- Q: What are the consequences of issuing an
registered person, the name, business erroneous VAT invoice/VAT official receipt?
style, if any, address and taxpayer
identification number (TIN) of the A:
purchaser, customer or client. (Sec. 1. In case of non-VAT registered person who
113[B], NIRC) issues a VAT invoice/receipt shall be held
liable to:
a. payment of percentage tax if
applicable;
b. payment of VAT without input tax;
c. 50% surcharge on tax due; and
d. the purchaser shall be allowed to
recognize an input tax credit
provided that the invoice/official
receipt contains the required
information.
175
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
2. In case of VAT-registered who issues a A: GR: VAT-registered persons shall pay the VAT on
VAT invoice/official receipt for a VAT- a monthly basis
exempt sale without the words “VAT
Exempt Sale” shall be held liable to pay XPN: Persons whose registration has been
12% VAT. (Sec. 113[D], NIRC) cancelled in accordance with Section 236 who shall
pay the tax due thereon within 25 days from the
date of cancellation of registration.
Filing of Return and Payment
Note: Under Section 236 of NIRC, a VAT –registered
Q: Who are required to file a VAT return? person may cancel his registration for VAT if:
a. He makes written application and can
A: demonstrate to the commissioner’s
1. Every person or entity who in the course satisfaction that his gross sales or receipts
of trade or business, sells or leases goods, for the following twelve (12) months, other
properties, and services subject to VAT, if than those that are exempt under Section
109(A) to (U), will not exceed one million
the aggregate amount of actual gross
five hundred thousand pesos (P1,500,000)
sales or receipts exceed P1.5 million for
or
any twelve month period b. He has ceased to carry on his trade or
2. A person required to register as VAT business, and does not expect to
taxpayer but failed to register recommence any trade or business within
3. Any person who imports goods the next twelve (12) months.
4. Professional practitioners
The cancellation of registration will be effective
Note: Services of Professional Practitioners are subject from the first day of the following month.
to:
VAT if the gross professional fees exceed P1.5 million
for a 12-month period;or WITHHOLDING OF FINAL VAT ON SALES TO
GOVERNMENT
3% percentage tax if the gross professional fees does
not exceed P1.5 million for a 12-month period
Q: State the rule regarding the withholding of Final
(Revenue Regulation No. 16-2005)
VAT on sales to government.
Q: State the rules regarding filing of return.
A: The Government or any of its political
subdivisions, instrumentalities or agencies,
A:
including government owned or controlled
GR: Every person liable to pay the VAT shall file a
corporations (GOCCs) shall, before making payment
quarterly return of the amount of his gross sales
on account of its purchase of goods and/or services
or receipts within 25 days following the close of
taxed at 12% shall deduct and withhold a final VAT
each taxable quarter prescribed for each
of 5% of the gross payment. (Section 114(C), NIRC)
taxpayer.
Note:
XPN: Any person, whose registration has been The five percent (5%) final VAT withholding rate shall
cancelled in accordance with Section 236, shall represent the net VAT payable to the seller
file a return:
1. Within 25 days from the date of The remaining seven percent (7%) effectively accounts
cancellation of registration; for the standard input VAT for sales of goods or
2. Provided, that only one consolidated services to government or any of its political
return shall be filed by the taxpayer for subdivisions, instrumentalities or agencies including
his principal place of business or head GOCCs, in lieu of the actual Input VAT directly
office and all branches. (Sec. 114[A], attributable or ratably apportioned to such sales.
NIRC)
Should actual input VAT attributable to sale to
Note: VAT-registered shall pay the VAT on a monthly government exceed seven percent (7%) of gross
basis. The monthly return shall be filed not later than payments, the excess may form part of the seller’s
the 20th day following the end of each month. expense or cost
Q: When should VAT be paid? If actual input VAT attributable to sale to government
is less than 7% of gross payment, the difference must
be closed to expense or cost.
176
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What shall the registration contain? A: The registration of any person who ceases to be
liable to a tax type shall be cancelled upon filing
A: It shall contain the taxpayer’s name, style, place with RDO an application for registration
of business, and such other information as may be information update. (Sec. 236 F1)
required by the Commissioner.
Q: What is the penalty for failure to register?
Q: What is a facility?
A: The Commissioner has the power to suspend the
A: Facility may include but not limited to sale business of any person who fails to register.
outlets, places of production, warehouses or
storage places.
Persons Required To Register For VAT
Q: What is required of a person who maintains a
head office, branch or facility? Q: Who are the persons required to register for
VAT?
A: He shall register with the Revenue District Officer
who has jurisdiction over the head office, branch or A: Every person who in the course of trade of
facility. (Sec. 236, NIRC) business sells, barter, or exchanges goods or
properties, or engages in the sale or exchange of
Q: How much is the annual registration fee? goods, services subject to VAT if:
A: An annual registration fee in the amount of P500 1. The Gross sale or gross receipts have
for every separate or distinct establishment or exceeded 1.5 million or
place of business, including facility types where 2. There are reasonable grounds to believe
sales transactions occur, shall be paid upon that his gross sales in the next 12 month
registration and every year thereafter on or before shall exceed 1.5 million.
the last day of January. (Sec. 236B, NIRC)
Q: Who is a VAT-registered person?
Q: Who are exempted from the annual registration
fee? A: Any person who has registered VAT as a tax type
in accordance with Subsection C shall be referred to
177
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
178
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
d.
If the sale involves goods,
A: They shall keep the receipts for a period of three properties or services
years from the close of the taxable year in which some of which are subject
such invoice was issued. (Sec. 237, NIRC) to and some of which are
VAT zero-rated or VAT-
Q: Is there a need for an authority to print receipts exempt, the invoice or
from the BIR? receipt shall clearly
indicate the breakdown of
A: Yes. All persons who are engaged in business the sale price between its
shall secure from the BIR an authority to print taxable, exempt and zero-
receipts or sales or commercial invoices before a rated components, and the
printer can print the same. (Sec. 238, NIRC) calculation of the value-
added tax on each portion
Q: What are required in the printing of receipts? of the sale shall be shown
on the invoice or receipt:
A: Receipts must be serially numbered and shall "Provided, That the seller
show the name, style, TIN and the business address may issue separate
of the person. (Sec. 238, NIRC) invoices or receipts for the
taxable, exempt, and zero-
Q: What are the accounting requirements for VAT rated components of the
registered persons? sale.
3. The date of transaction, quantity, unit
A: All persons subject to the VAT under Sec. 106 cost and description of the goods or
and 108 shall, in addition to the regular accounting properties or nature of the service; and
records required, maintain a subsidiary sales 4. In the case of sales in the amount of one
journal and subsidiary purchase journal on which thousand pesos (P1, 000) or more where
the daily sales and purchases are recorded. (Sec. the sale or transfer is made to a VAT-
113[C], NIRC) registered person, the name, business
style, if any, address and taxpayer
Q: What are the information contained in the VAT identification number (TIN) of the
invoice or VAT official receipts? purchaser, customer or client. (Sec.
113[B], NIRC)
A:
1. A statement that the seller is a VAT- Q: What are the consequences of issuing an
registered person, and the taxpayer's erroneous VAT invoice/VAT official receipt?
identification number (TIN);
2. The total amount which the purchaser A:
pays or is obligated to pay to the seller 1. In case of non-VAT registered person
with the indication that such amount who issues a VAT invoice/receipt
includes the value-added tax: Provided shall be held liable to:
that: a. payment of percentage tax if
a. The amount of the tax shall applicable;
be shown as a separate b. payment of VAT without input
item in the invoice or tax;
receipt; c. 50% surcharge on tax due; and
b. If the sale is exempt from d. the purchaser shall be allowed
value-added tax, the term to recognize an input tax credit
"VAT-exempt sale" shall be provided that the
written or printed invoice/official receipt contains
prominently on the invoice the required information.
or receipt; 3. In case of VAT-registered who issues
c. If the sale is subject to zero a VAT invoice/official receipt for a
percent (0%) value-added VAT-exempt sale without the words
tax, the term "zero-rated “VAT Exempt Sale” shall be held
sale" shall be written or liable to pay 12% VAT. (Sec. 113[D],
printed prominently on the NIRC)
invoice or receipt;
179
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Exhibition Of Certificate Of Payment At Place Of A: A tax return is a report made by the taxpayer to
Business the BIR on all gross income received during the
taxable year, the allowable deduction including
Q: Is the certificate of payment required to be exemptions, the net taxable income, the income tax
exhibited? rate, the income tax due, the income tax withheld,
if any, and the income tax still to be paid or
A: Yes. The certificate or receipts showing payment refundable.
of taxes issued to a person engaged in a business
subject to an annual registration fee shall be kept Individual Tax Return
conspicuously exhibited in plain view in or at the
place where the business is conducted. Peddlers are Q: Who are required to file an Income Tax Return
required to show the certificate upon demand. (Sec. (ITR)?
241, NIRC)
A: The following individuals are required to file an
income tax return:
Continuation Of Business Of Deceased Person a. Resident citizens receiving
income from sources within or outside
Q: What is required in cases of continuation of the Philippines
business of a diseased person or transfer of i. Individuals deriving
ownership or change of name of business compensation income
establishment? from 2 or more
employers,
A: The person interested in the estate should concurrently or
submit to the BIR inventories of goods and stocks successively at anytime
had at the time of such death, transfer or change of during the taxable year;
name. (Sec. 242, NIRC) ii. Employees deriving
compensation income
Q: In case of continuing the business of a deceased regardless of the
person, is there an additional fee to be paid? amount, whether from
a single or several
A: None. No additional payment shall be required employers during the
for the residue of the term of which the tax was calendar year, the
paid. (Sec. 242, NIRC) income tax of which
has not been withheld
correctly resulting to
Removal of business to other location collectible or
refundable return;
Q: Is the taxpayer required to pay another annual iii. Employees whose
registration fee in case his business is transferred monthly gross
to another place? compensation income
does not exceed 5,000
A: Any business for which the annual registration or the statutory
fee has been paid may be removed and continued minimum wage,
in any other place without the payment of whichever is higher,
additional tax during the term for which the and opted for non-
payment was made subject to the rules prescribed withholding of tax on
by the Secretary of Finance and upon said income;
recommendation of the Commissioner. (Sec. 243, iv. Individuals deriving
NIRC) non-business, non-
professional related
income in addition to
TAX RETURNS compensation income
not otherwise subject
Income Tax Return to a final tax;
v. Individuals receiving
Q: What is a tax return? purely compensation
income from a single
employer, although the
180
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What is the rule on income of unmarried Q: When do individuals subject to capital gains tax
minors / children? file a tax return?
A: A:
GR: The income of unmarried minors derived 1. From the sale or exchange of shares
from property received from a living of stock not traded thru a local stock
parent shall be included in the return of exchange as prescribed under
the parent. Section 24 (C) shall file a return
181
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the instances wherein inquiry into the Q: What are the requirements for corporations in
income tax returns of taxpayers may be filing their returns?
authorized?
A: Every corporation subject to the tax under the
A: Inquiry into the ITR of taxpayers may be had code, except foreign corporation not engaged in
when: trade or business, shall render, induplicate, a true
1. the inspection of the return is authorized and accurate quarterly income tax return and final
upon the written order of the President of or adjustment return. The returns shall be filed by
the Philippines; the president, vice-president or other principal
2. the inspection is authorized under officer, and shall be sworn to by such officer and by
Finance Regulation No. 33 of the the treasurer or assistant treasurer. (Sec. 52, NIRC)
Secretary of Finance;
3. the production of the tax return is a Q: What shall be the accounting period that a
material evidence in a criminal case corporation may employ as its basis for filing its
where the Government is interested in annual income tax return?
the result;
4. the production or inspection thereof is A: A corporation may employ either a calendar year
authorized by the taxpayer himself. or fiscal year, provided, that the corporation may
not change the accounting period employed
Q: What is substituted filing? without prior approval from the Commissioner in
accordance with the provisions os Section 47 of the
A: It is when the employer‘s annual return may be NIRC. (Sec. 52 [B])
considered as the ―substitute Income Tax Return
(ITR) of an employee inasmuch as the information Q: What is the rule on the declaration of quarterly
provided in his income tax return would exactly be corporate income tax?
the same information contained in the employer‘s
annual return. A: Every corporation shall file in duplicate a
quarterly summary declaration of its gross income
Q: What are the conditions for the substitute filing and deductions on a cumulative basis for the
of ITR? preceding quarter or quarters upon which the
income tax shall be levied, collected and paid. The
tax so computed shall be decreased by the amount
182
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
of tax previously paid or assessed during the A: The two year period shall be computed from the
preceding quarters and shall be paid not later than time of filing the adjustment return or annual
60 days from the close of each of the 3 quarters of income tax return and final payment of income tax.
the taxable year, whether calendar or fiscal year. (Atlas Consolidated v. CIR, June 8, 2007)
(Sec. 75, NIRC)
Q: When does a corporation file the income tax
Q: What is the Final Adjustment Return? return?
A: It is a return that covers the total taxable income A: The corporate quarterly declaration shall be filed
of a corporation for the preceding calendar or fiscal within sixty days (60) following the close of each of
year. The quarterly tax payments are in the nature the first three quarters of the taxable year. (Sec.
of advances or portions of the annual income tax 77[B], NIRC)
due. They have to be adjusted at the end of the
calendar or fiscal year through the Final Adjustment The final adjustment return shall be filed on or
return. before the 15th day of April, or on or before the 15th
day of the fourth month following the close of the
Q: What is the rule as regards the declaration by a fiscal year, as the case may be. (Sec. 77[B], NIRC)
corporation of its income adopting a final
adjustment return? For return on capital gains realized from sale of
shares of stocks not traded in the local stock
A: Every corporation liable to tax under Section 27 exchange, the corporation shall file a return 30 days
shall file a final adjustment return covering the after each transaction and a final consolidated
taxable income for the preceding calendar or fiscal return of all transactions during the taxable year on
year. or before the 15th day of the 4th month following
the close of the taxable year. (Sec. 52[D], NIRC)
Q: What are the options of the corporation if the
sum of the quarterly tax payments made during Q: Where does a corporation file the tax returns?
the taxable year is not equal to the total tax due
on the entire taxable year? A: The quarterly income tax return and final
adjustment return shall be filed with the authorized
A: agent banks or Revenue District Officer or
1. Pay the balance of tax still due; or Collection agent or duly authorized treasurer of the
2. Carry-over the excess credit; city or municipality having jurisdiction over the
3. Be credited or refunded with the excess location of the principal office of the corporation
amount paid, as the case may be. (Sec. 76, filing the return or place where its main books of
NIRC) accounts and other data from which the return is
prepared are kept. (Sec. 77[A], NIRC)
Note: In case the corporation is entitled to a tax
credit or refund of the excess estimated quarterly Q: Is an extension of time allowed in the filing of
income taxes paid, the excess amount shown on its return?
final adjustment return may be carried over and
credited against the estimated quarterly income tax A: Yes. The Commissioner, may, in meritorious
liabilities for the taxable quarters of the succeeding cases, grant a reasonable extension of time for
taxable years. (Sec. 76, NIRC) filing returns of income (or final and adjustment
returns in case of corporations), subject to the
Q: Is the option of carry- over exclusive? provisions of Section 56 of the NIRC. (Sec.53, NIRC)
A: Yes. Once the option to carry-over and apply the Q: What is required from a Corporation
excess quarterly income tax against income tax due Contemplating Dissolution or Reorganization as
for the taxable quarters of the succeeding taxable regards the filing of return?
quarters has been made, such option shall be
considered irrevocable for the taxable period and A: Every corporation shall, within 30 days after the
no application for cash refund or issuance of tax adoption by the corporation of a resolution or plan
credit certificate shall be allowed. (Sec. 76, NIRC) for its dissolution; or for the liquidation of the
whole or any part of its capital stock, including a
Q: What is the importance of the Final Adjustment corporation which has been notified of possible
Return to the refund of erroneously paid taxes? involuntary dissolution by the SEC; or for its
reorganization, shall render a correct return to the
183
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Commissioner, verified under oath, setting forth Such fiduciary or person filing the return for him or
the terms of such resolution or plan and such other it, shall take oath that he has sufficient knowledge
information as the Secretary of Finance, upon of the affairs of such person, trust or estate to
recommendation of the Commissioner, shall by enable him to make such return and that the same
rules and regulations, prescribe. (Sec. 52[C], NIRC) is, to the best of his knowledge and belief, true and
correct, and subject to the provisions applicable to
Note: The dissolving or reorganizing corporation, shall individual taxpayers under Title II of the NIRC.
prior to the issuance by the SEC of the certificate of
dissolution or Reorganization, secure a certificate of Note: The return made by or for one or two or more
tax clearance from the BIR which shall be submitted to joint fiduciaries filed in the province where such
the SEC. (Sec. 52[C], NIRC) fiduciaries reside, shall be a sufficient compliance with
the requirements of Sec. 65, NIRC.
Q: What is the rule on returns of receivers,
trustees in bankruptcy or assignees? Furthermore, trustees, executors, administrators and
other fiduciaries are indemnified against the claims or
A: In cases wherein receivers, trustees or assignees demands of every beneficiary for all payments of taxes
are operating the property or business of a which they shall be required to pay, and they shall
corporation, they shall make returns of net income have credit for the amount of such payments against
as and for such corporation, in the same manner the beneficiary or principal in any accounting which
and form as such organization is hereinbefore they make as such trustees or other fiduciaries. (Sec.
66, NIRC)
required to make returns. Any tax due on the
income as returned by receivers, trustees or
Estate Tax Return
assignees shall be assessed and collected in the
same manner as if assessed directly against the
Q: When is a notice of death required to be filed?
organizations of whose businesses or properties
they have custody or control. (Sec. 54, NIRC)
A: A notice of death is required to be filed:
1. In all cases of transfers subject to tax; or
Q: What is the rule on the returns of General
2. Even if exempt from tax, if gross value of
Professional Partnership?
estate exceeds P20,000. (Sec. 89, NIRC)
A: Every general professional partnership shall file,
Q: Who shall file the notice of death?
in duplicate, a return of its income, except income
exempt under Section 32 B, setting forth the items
A: Notice of death must be filed by the executor,
of gross income and of deductions allowed by this
administrator or any of the legal heirs, as the case
title, and the names, TIN, addresses and shares of
may be. (Sec. 89, NIRC)
each of the partners. (Sec. 55, NIRC)
Q: When must the notice of death be filed?
Note: A GPP is not subject to income tax, but it is
required to file a return of its income for the purpose
of furnishing information as to the share in the gains or A: It shall be filed within two (2) months after
profits which each partner shall include in his decedent’s death or within the same period after
individual return. The individual partner is taxable on qualifying as such executor or administrator. (Sec.
his distributive share of the net income of the 89, NIRC)
partnership, whether distributed or not, and are
required to include such distributive shares in their Q: To whom shall the notice be filed?
individual returns (Sec. 22, Regs. No. 2 as amended).
A: The notice shall be filed with the Commissioner.
Q: What are the rules governing Fiduciary (Sec. 89, NIRC)
Returns?
Q: When is an Estate Tax Return required?
A: Guardians, trustees, executors, administrators,
receivers, conservators and all persons or A: An estate tax return is required:
corporations, acting in any fiduciary capacity, shall 1. In all cases of transfers subject to tax;
render, in duplicate, a return of the income of the 2. Even though exempt, where gross value
person, trust or estate for whom or which they act, of estate exceeds P200,000;
in case such person, trust, estate has a gross 3. When the gross estate consists of
income of 20,000 pesos or over during the taxable registered or registrable property,
year. regardless of amount.(Sec.90, NIRC)
184
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Note: Extension of time for the filing of the return, on Q: Where to file the return?
meritorious cases, may be allowed by the
Commissioner. The period of extension is limited to a A: The return must be filed with:
period not exceeding thirty (30) days. (Sec. 90 [C]), 1. AAB, RDO, RCO, or duly authorized
NIRC)
treasurer of the City or municipality
where the donor was domiciled at the
Q: Where must the return be filed?
time of the transfer;
2. If there is no legal residence in the
A:
Philippines, with the office of the
If it is a Resident Decedent –
Commissioner;
i. Authorized Agent Bank (AAB) or
3. For gifts made by non-residents, with the
ii. Revenue District Officer (RDO),
Phil embassy or Consulate in the country
Collection Officer, or
where he is domiciled at the time of the
iii. Duly authorized Treasurer of the city
transfer or directly with the office of the
or municipality in which the
Commissioner. (Sec.103 [B], NIRC)
decedent was domiciled at the time
of his death, or
iv. Any other place where the CIR
VAT Return
permits the estate tax return to be
filed (Sec. 90 [D], NIRC)
Q: What is the rule governing the filing of a VAT
return?
If it is a Non-Resident Decedent –
i. Office of the CIR
A: Every person liable to pay VAT shall file a
ii. Revenue District Officer or
quarterly return of the amount of his gross sales or
iii. Philippine Embassy or Consulate in
receipts within 25 days following the close of each
the country where decedent is
taxable quarter. However, a VAT-registered person
residing at the time of his/her death
shall pay the VAT on a monthly basis.
iv. Any other place where the CIR
permits the estate tax return to be
Any person, whose registration has been cancelled,
filed
shall file a return and pay the tax due within 25
days from the date of cancellation of registration;
Provided, that only one consolidated return shall be
Donor’s Tax Return
filed by the taxpayer for his principal place of
business or head and all his branches. (Sec. 114[A],
Q: Is a notice of donation required?
NIRC)
A:
Q: Where must the return be filed?
GR: Notice of donation is not required.
185
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: Except as the Commissioner otherwise permits, due thereon before their departure. Upon failure to
the return shall be filed with the authorized agent file the return and pay the tax due, the Bureau of
bank, revenue collection officer or duly authorized Customs is authorized to hold the vessel and
city or municipal treasurer in the Philippines located prevent its departure until proof of payment of the
within the revenue district where the taxpayer is tax is presented or a sufficient bond is filed to
registered or required to register. (Sec. 114 [B], answer for the tax due. (Sec. 56 [A][1], NIRC)
NIRC)
XPN: When the tax due is in excess of Two
Thousand Pesos (P2,000.00), the taxpayer other
Withholding Tax Return than a corporation may elect to pay in two (2) equal
installments in which case:
Q: What is the rule as regards the filing of a. the first installment shall be paid at the
Withholding Tax Return? time the return is filed and
b. the second installment, on or before July
A: Taxes deducted and withheld under Sec.57 by 15 following the close of the calendar
withholding agents shall be covered by a return and year.
paid to, except in cases where the Commissioner
otherwise permits, an authorized agent bank, If any installment is not paid on or before the date
revenue district officer, collection agent or duly fixed for its payment, the whole amount of the tax
authorized treasurer of the city or municipality unpaid becomes due and payable, together with
where the withholding agent has his legal residence the delinquency penalties. (Sec. 56 [A][2], NIRC)
or place of business, or where the withholding
agent is a corporation, where the principal office is Q: What is the rule as regards the payment of
located. (Sec.58, NIRC) capital gains tax?
Note: The taxes deducted and withheld by the A: The total amount of tax imposed and prescribed
withholding agent shall be held as special fund in trust under Sec.24[C], 24[D], 27[E][2], 28[A][8][c], and
for the government until paid to the collecting officers. 28[B][5][c] shall be paid on the date the return is
filed; Provided, that if the seller submits proof of his
The return for final withholding tax shall be filed and intention to avail himself of the benefit of
the payment made within 25 days from the close of exemption of capital gains under existing special
each calendar quarter, while the return for creditable laws, no such payment shall be required.
withholding taxes shall be filed and payment made not
later than the last day of the month following the close
In case of failure to qualify for exemption, the tax
of the quarter during which the withholding was
made; Provided, that the Commissioner, with the
due on the gains realized from the original
approval of the Secretary of Finance, may require transaction shall immediately become due and
these withholding agents to pay or deposit the taxes payable, and subject to the penalties prescribed
deducted or withheld at more frequent intervals when under the rules and the NIRC.
necessary to protect the interest of the government.
(Sec.58[B], NIRC) If the seller, having paid the tax, submits such proof
of intent within 6 months from the registration of
the document transferring the real property, he
PAYMENT OF TAXES shall be entitles to a refund of such tax upon
verification of his compliance with the
Income Tax requirements for such exemption.
Q: What is the manner of paying income tax? In case the taxpayer elects and is qualified to report
the gin by installments under Sec.49 of the NIRC,
A: the tax due from each installment shall be paid
GR: Pay-as-you-file system. within 30 days from receipt of such payments.
(Sec.56 [A] [3], NIRC)
Note: It is a system where the income tax shown on
the return should be paid at the time the return is Note: No registration of any document transferring
filed. real property shall be effected by the Register of
deeds unless the Commissioner or his duly
In case of tramp vessels, the shipping agents and/or authorized representative has certified that such
the husbanding agents, and in their absence, the transfer has been reported, and the tax imposed, if
captains thereof are to file a return and pay the tax any, has been paid. (Sec.56 [A] [3], NIRC)
186
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: When is the Estate Tax paid? Q: Who are the persons liable for the payment of
estate tax?
A: At the time the return is filed and before delivery
to any heir or beneficiary, of his distributive share A: Where there are two or more executors or
of the estate. (Sec.91 [A], NIRC) administrators, all of them are severally liable for
the payment of the tax.
Note: Philippines implement the “Pay as you file” The primary obligation to pay the estate tax falls
system. upon the executor or administrator of an estate.
But the heir or beneficiary has subsidiary liability for
Q: May the period of payment of estate tax be the payment of that portion of the estate which his
extended? distributive share bears to the value of the total net
estate. The extent of his liability, however, shall in
A: Yes. An extension for the payment of the estate no case exceed the value of his share in the
tax may be granted by the Commissioner on inheritance. (Sec.91[C], NIRC)
meritorious cases.
Note: The estate tax clearance issued by the
Q: What is the period of extension? Commissioner or the Revenue District Officer (RDO)
having jurisdiction over the estate, will serve as the
A: authority to distribute the remaining/distributable
1. In case of judicial settlement of estate – not properties/share in the inheritance to the heir or
exceeding five (5) years beneficiary.
187
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
But not after the expiration of the period Note: There shall not be transferred to any new owner
prescribed for the assessment of the tax in Section in the books of any corporation, sociedad anonima,
203. partnership, business, or industry organized or
established in the Philippines any share, obligation,
3. The executor or administrator, upon bond or right by way of gift inter vivos or mortis causa,
payment of the amount of which he is legacy or inheritance, unless a certification from the
notified, shall be discharged from Commissioner that the taxes fixed in this Title and due
thereon have been paid is shown. (Sec. 97, NIRC)
personal liability for any deficiency in the
tax thereafter found to be due and shall
Q: What are the instances where a Certificate of
be entitled to a receipt or writing showing
Payment from the Commissioner is required?
such discharge. (Sec.92, NIRC)
A: The following are instances when a Certificate of
Note: The one year period shall be counted from the
filing of the written application.
Payment of Tax from the Commissioner is required:
1. Before a judge shall authorize the
Q: What is meant by deficiency assessment? executor or judicial administrator to
deliver a distributive share to any party
A: The term deficiency means – interested in the estate;
1. The amount by which the tax imposed by 2. Before the Register of Deeds shall
this Chapter exceeds the amount shown register in the Registry of Property any
as the tax by the executor, administrator document transferring real property or
or any of the heirs upon his return; but real rights therein or any chattel
the amounts so shown on the return shall mortgage, by way of gifts inter vivos or
first be increased by the amounts mortis causa, legacy or inheritance; (Sec.
previously assessed (or collected without 95, NIRC)
assessment) as a deficiency and 3. When a lawyer, by reason of his official
decreased by the amount previously duties, intervenes in the preparation or
abated, refunded or otherwise repaid in acknowledgment of documents regarding
respect of such tax; or partition or disposal of donation inter
2. If no amount is shown as the tax by the vivos or mortis causa, legacy or
executor, administrator or any of the inheritance; (Sec. 95, NIRC)
heirs upon his return, or if no return is 4. When a notary public, by reason of his
made by the executor, administrator, or official duties, intervenes in the
any heir, then the amount by which the preparation or acknowledgment of
tax exceeds the amounts previously documents regarding partition or disposal
assessed (or collected without of donation inter vivos or mortis causa,
assessment) as a deficiency; but such legacy or inheritance; (Sec. 95, NIRC)
amounts previously assessed or collected 5. When a government officer, by reason of
without assessment shall first be his official duties, intervenes in the
decreased by the amounts previously preparation or acknowledgment of
abated, refunded or otherwise repaid in documents regarding partition or disposal
respect of such tax. (Sec.93, NIRC) of donation inter vivos or mortis causa,
legacy or inheritance; (Sec. 95, NIRC)
Note: Deficiency occurs when, one files a return and 6. Before a debtor of the deceased pay his
pay the tax but the tax paid is less than the amount of debts to the heirs, legatee, executor or
tax due, or if a return is filed but the taxpayer did not administrator of his creditor; (Sec. 95,
pay the tax, or when one did not file the return nor NIRC)
paid the tax. 7. Before a transfer to any new owner in the
books of any corporation, sociedad
Q: May there be delivery of distributable share anonima, partnership, business, or
even before payment of estate tax? industry organized or established in the
Philippines any share, obligation, bond or
A: No. Under the Tax Code, no judge shall authorize right by way of gift inter vivos or mortis
the executor or judicial administrator to deliver a causa, legacy or inheritance;
distributive share to any party interested in the 8. Before a bank, which has knowledge of
estate unless a certification from the Commissioner the death of a person who maintained a
that the estate tax has been paid is shown. (Sec. 94, bank deposit account alone, or jointly
NIRC) with another, shall allow any withdrawal
188
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
189
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the subjects of tax remedies in Q: What is the importance of a tax assessment?
internal revenue taxation?
A:
TO THE GOVERNMENT TO THE TAXPAYER
A: They include the action of the BIR where there
1. In the proper pursuit of 1. To inform the
may be controversy between the taxpayer and the
judicial and extrajudicial taxpayer of his
State such as:
remedies to enforce liabilities;
1. Assessment of internal revenue taxes
taxpayer liabilities and 2. To determine
2. Collection of internal revenue taxes certain matters that relate the period
3. Refund of internal revenue taxes to it, such as the imposition within which to
4. Imposition of administrative or civil of surcharges and interests; protest.
fines, penalties, interests or 2. In the application of the 3. To determine
surcharges; promulgation and/or Statute of Limitations; prescription of
enforcement of administrative rules 3. In the establishment of tax government
and regulations for the effective and liens; and claim.
efficient enforcement of internal 4. In estimating the revenues
revenue laws that may be collected by the
5. Prosecution of criminal violations of government.
internal revenue laws.
Q: What is the nature of an assessment?
190
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: It is merely a notice to the effect that the amount Q: What are the different ways of paying taxes?
stated therein is due as tax and containing a
demand for the payment. (Alhambra Cigar Mfg. Co. A:
v. CIR, GR L-23226, Nov. 28, 1967) 1. Pay-as-you-file system – Income for
individuals and corporation shall be paid
Q: Who has the burden of proof in pre-assessment by the person subject thereto at the time
proceedings? the return is filed. (Sec. 56, NIRC)
A: The burden of proof is on the taxpayer for there 2. Installment payment – When income tax
is a presumption of correctness on the part of the due is in excess of P2,000 and the
CIR. Otherwise, the finding of the CIR will be taxpayer is not a corporation, he may
conclusive and the CIR will assess the taxpayer. If elect to pay the tax in two equal
the taxpayer does not controvert, such finding is installments. First installment is when the
conclusive, even if the CIR is wrong. return is filed and the second installment
is on or before July 15 following the close
Q: What are the principles governing tax of the calendar year. (Sec. 56 A [2], NIRC)
assessments?
Q: Is the assessment made by the CIR subject to Constructive Method of Income Determination
judicial review?
Q: If the taxpayer’s record or methods of
A: No, for such power is discretionary. What may accounting are not reflective of his true income,
be the subject of a judicial review is the decision of what methods may be utilized by the CIR to
the CIR on the protest against the assessment, not determine the correct taxable income of the
the assessment itself. taxpayer?
191
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
letter to A Co. to furnish the BIR information on right to assess VAT on such royalty payment has
sales and payments to its suppliers. 2) Issued an prescribed. Is the assessment made on the royalty
access letter to X Bank to furnish the BIR on payment outside the scope of the Audit Notice and
deposits of some suppliers of A Co. on the alleged has the right of the government to assess
ground that the suppliers are committing tax deficiency VAT thereon prescribed?
evasion. A Co., X Bank and the suppliers have not
been issued by the BIR letter of authority to A: B Corp. paid royalties to a NRFC in 1997 but
examine. A Co. and X Bank believe that the BIR is failed to pay VAT thereon. Hence, B Corp’s VAT
on a "fishing expedition" and come to you for liability is incontrovertible. Notwithstanding the
counsel. What is your advice? absence of an Audit Notice to conduct a tax
investigation for the year 1997, the CTA ruled, on
A: I will advise A Co. and X Bank that the BIR is the basis of Sec. 6 (A) and (B), NIRC, that the power
justified only in getting information from the of the CIR to assess B Corp. deficiency VAT is valid.
former but not from the latter. The BIR is The CTA further ruled that the power of the
authorized to obtain information from other government to assess deficiency VAT has not
persons other than those whose internal revenue prescribed since the royalty payment was not
tax liability is subject to audit or investigation. reflected in the 1997 and 1998 VAT returns of B
However, this power shall not be construed as Corp. For filing false returns, the ten year
granting the CIR the authority to inquire into bank prescriptive period for the assessment of deficiency
deposits. (Sec. 5, NIRC) (1999 Bar Question) taxes applies. (Business One, Inc. v. CIR, CTA Case
No. 6832, Oct. 7, 2008)
Q: BIR assessed the taxpayer for alleged deficiency
taxes. The assessment was based on photocopies
of 77 Consumption Entries furnished by an Inventory Method for Income Determination
informer, the taxpayer understated its
importations. However, the BIR failed to secure Q: What are the Inventory methods for income
certified true copies of the subject Consumption determination?
Entries from the Bureau of Customs since,
according to the custodian, the originals had been A: The International Accounting Standard
eaten by termites. Can the BIR base its assessment enumerated the following:
on mere photocopies of records/documents? 1. Last In – First Out (LIFO)
2. First In – First Out (FIFO)
A: No, mere photocopies of the Consumption 3. Weighted Average
Entries have no probative weight if offered as proof 4. Specific identification
of the contents thereof. While it is true that under
the Tax Code, the BIR can assess taxpayers based Q: What is LIFO and FIFO?
on the “best evidence obtainable” and that tax
assessments are presumed correct and made in A: A method of assigning costs to both inventory
good faith, it is elementary that the assessment and cost of goods sold. With regard to LIFO the
must be based on actual facts. The best evidence assumption is that the most recent inventory is the
obtainable provided under the Tax Code does not one sold first as compared to FIFO wherein the
include mere photocopies of records or documents. inventory items are sold in the order they are
The presumption of the correctness of an acquired.
assessment, being a mere presumption, cannot be
made to rest on another presumption. (CIR v. Q: What is Weighted Average?
Hantex Trading Co., Inc., GR 136975, Mar. 31, 2005)
A: A method of assigning cost which requires that
Q: B Corp. received an Audit Notice authorizing we compute the weighted average cost per unit at
the examination of its books of accounts and other the time of each sale, equals the cost of goods
accounting records for all internal revenue taxes available for sale divided by the units available.
for the period Jan. 31, 1998 to Dec. 31, 1998. Thus, the cost of goods sold would be dependent
Under the aforesaid Audit Notice, B Corp. was on the average acquisition cost of the inventory
assessed deficiency VAT on payments made in currently available when a sale is done.
1997 to a nonresident foreign corporation. B Corp.
protested the assessment alleging, among others, Q: What is Specific Identification?
that the audit conducted regarding the 1997
royalty payment is beyond the authority of the A: A meticulous method wherein each item in
auditing officers under the Audit Notice and the inventory can be identified with a specific purchase
192
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
and invoice, when each item is sold the sales record required to execute a waiver of the statute
should also contain the same. Thus the cost of of limitations.
goods sold would depend on which item was sold
for that particular sale.
Tax Delinquency and Tax Deficiency
193
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
194
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
195
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: Sec. 203 covers tax returns which is neither false Note: Requests for reconsideration of tax
nor fraudulent whereas, Sec. 222 covers: assessments, as required by the BIR, must be
1. Fraudulent returns, accompanied by a waiver of statute of limitations
2. False returns and; accomplished by the taxpayer.
3. Failure to file a return.
196
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
2. The return was amended substantially – (Aznar v. CIR, GR L-20569, Aug. 23, 1974)
The prescriptive period shall be counted
from the filing of the amended return. Q: When is an amendment considered substantial?
Q: What is the effect of filing a defective return? A: Only after receipt of the letter-assessment was
coupled with the willful refusal to pay the taxes due
A: If the return was defective, it is as if no return within the allotted period.
was filed. The corollary prescription will be 10 years
from and after the discovery of the failure or Q: Is it necessary that the notice of assessment be
omission and not the 3 year prescriptive period. received by the taxpayer within the prescriptive
There is an omission when the taxpayer failed to file period?
a return for the particular tax required by law.
(Butuan Sawmill v. CTA, GR L-20601, Feb. 28, 1966) A: No, notice of the assessment must be released,
mailed or sent to the taxpayer within the 3 year
period. It is not required that the notice be received
False, Fraudulent and Non-filing of Returns by the taxpayer within the prescribed period, but
the sending of the notice must clearly be proven.
Q: What is the prescriptive period where the (Basilan Estate, Inc. v. CIR, GR L-22492, Sept. 5,
return was false, fraudulent or there was no return 1967)
filed?
Q: A Co., a DC filed its 1995 ITR on Apr. 15, 1996
A: The prescription period is 10 years from the showing a net loss. On Nov. 10, 1996, it amended
discovery of the falsity, fraud or from the omission its 1995 ITR to show more losses. After an
to file the return. (Sec. 222, NIRC) investigation, the BIR disallowed certain
deductions claimed by A Co., putting A Co., in a
Q: When is a return considered fraudulent? net income position. As a result, on Aug. 5, 1999,
the BIR issued a deficiency income assessment
A: Fraud is never presumed and the circumstances against A Co. A Co., protested the assessment on
constituting it must be alleged and proved to exist the ground that it has prescribed.
by clear and convincing evidence. It may be
established by the: A: The right of the BIR to issue an assessment has
1. Intentional and substantial understatement not yet prescribed since the return was amended.
of tax liability by the taxpayer; The rule is that internal revenue taxes shall be
2. Intentional and substantial overstatement of assessed within 3 years after the last day prescribed
deductions of exemptions; and/or by law for the filing of the return. (Sec. 203, NIRC)
3. Recurrence of the above circumstances However if the return originally filed is amended
substantially, the counting of the 3-year period
Q: When is a return considered false? starts from the date the amended return was filed.
There is substantial amendment in this case
A: When there is a deviation from the truth due to because a new return was filed declaring more
mistake, carelessness or ignorance. losses, which can only be done either in reducing
gross income or in increasing the items of
Q: Distinguish a false return from a fraudulent deduction. Thus, the period within which to assess
return. shall prescribe on Nov. 10, 1999. (1999 Bar
Question)
A:
False Return Fraudulent Return Q: Mr. Reyes, a Filipino citizen engaged in the real
A deviation from the Intentional and deceitful with estate business, filed his 2004 ITR on Mar. 30,
truth or fact whether the sole aim of evading the 2005. On Dec. 30, 2005, he left the Phil. as an
intentional or not correct tax due
197
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: No, the assessment has not yet prescribed since 4. Where the CIR is prohibited from making
the BIR has a period of 3 years from the last day the assessment or beginning distraint or
prescribed by law for the filing of the return. The levy or a proceeding in court for 60 days
return was filed on Mar. 30, 2005 with a due date thereafter, such as where there is a
of Apr. 15, 2005. The assessment issued on Apr. 15, Pending petition for review in the CTA
2008 is within the 3 year prescriptive period. (2000 from the decision on the protested
Bar Question) assessment (Republic v. Ker & Co., GR L-
21609);
Q: Mr. Sebastian is a Filipino seaman employed by
a Norwegian company which is engaged 5. Where CIR and the taxpayer Agreed in
exclusively in international shipping. He and his writing for the extension of the
wife, who manages their business, filed a joint ITR assessment, the tax may be assessed
for 1997 on Mar. 15, 1998. After an audit of the within the period so agreed upon (Sec.
return, the BIR issued on Apr. 20, 2001 a deficiency 222 [b], NIRC);
income tax assessment for the sum of P250,000
inclusive of interest and penalty. For failure of Mr. 6. When the taxpayer Requests for
and Mrs. Sebastian to pay the tax within the reinvestigation which is granted by the
period stated in the notice of assessment, the BIR Commissioner (Collector v. Suyoc
issued on Aug. 19, 2001 warrants of distraint and Consolidated Mining Co., GR L-11527,
levy to enforce collection of the tax. Nov. 25, 1958);
If you are the lawyer of Mr. and Mrs. Sebastian, Note: A request for reconsideration alone does
what possible defenses will you raise in behalf of not suspend the period to assess/collect.
your clients against the action of the BIR in
enforcing collection of the tax? 7. When there is an Answer filed by the BIR
to the petition for review in the CTA
A: I will raise the defense of prescription. The right (Hermanos v. CIR, GR. No. L-24972. Sept.
of the BIR to assess prescribes after three years 30, 1969) where the court justified this by
counted from the last day prescribed by law for the saying that in the answer filed by the BIR,
filing of the income tax returns when the said it prayed for the collection of taxes.
return is filed on time. (Sec. 203, NIRC) The last day
for filing the 1997 income tax return is Apr. 15,
1998. Since the assessment was issued only on Apr. Waiver of Statute of Limitations..
20, 2001, the BIR's right to assess has already
prescribed. (2002 Bar Question) Q: What is a waiver of statute of limitations?
198
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
null and void. The taxpayer shall then have the right
to refuse the service of this LA, unless the LA is
Q: What are the requisites of an agreement revalidated.
waiving the statute of limitations?
Q: How is LA revalidated? How often can it be
A: revalidated?
1. Entered before the expiration of the 3
year period for assessment of the tax; A: Revalidated through the issuance of a new LA. It
2. In writing; can be revalidated only once, if issued by the
3. Signed by the taxpayer; Regional Director; twice, if issued by the CIR. The
4. Must specify a definite date agreed upon suspended LA(s) must be attached to the new
between the parties within which to issued LA. (RMO 38-88)
assess and collect taxes;
5. Signed and accepted by the CIR or his duly
authorized representative; and Audit Stage.
6. Date of acceptance must be indicated.
(RMC 06-05) Q: Within what period should a RO conduct an
audit?
*See discussion on General provision on Addition to
the Tax A: A RO is allowed only 120 days to conduct the
audit and submit the required report of
investigation from the date of receipt of a LA by the
Assessment Process taxpayer. If the RO is unable to submit his final
report of investigation within the 120-day period,
1. Issuance of a letter of authority he must then submit a Progress Report to his Head
2. Audit stage of Office, and surrender the LA for revalidation.
3. Issuance of notice of informal conference
4. Informal conference Q: How many times can a taxpayer be subjected to
5. Issuance of preliminary assessment notice examination and inspection for the same taxable
6. Issuance of formal letter of demand and year?
assessment notice
A:
GR: Only once per taxable year.
Issuance of a Letter Of Authority
XPNs: FRC3
Q: What is a Letter of Authority (LA)? 1. When the CIR determines that Fraud,
irregularities, or mistakes were
A: It is an official document that empowers a committed by the taxpayer;
Revenue Officer (RO) to examine and scrutinize a 2. When the taxpayer himself requests for
taxpayer’s books of accounts and other accounting the Re-investigation or re-examination of
records, in order to determine the taxpayer’s his books of accounts and it was granted
correct internal revenue tax liabilities. by the commissioner;
3. When there is a need to verify the
Q: What are the cases which need not be covered taxpayer’s Compliance with withholding
by a valid LA? and other internal revenue taxes as
prescribed in a Revenue Memorandum
A: Order issued by the Commissioner;
1. Cases involving civil or criminal tax fraud 4. When the taxpayer’s Capital gains tax
which fall under the jurisdiction of the tax liabilities must be verified; and
fraud division of the Enforcement 5. When the Commissioner chooses to
Services; and exercise his power to obtain information
2. Policy cases under audit by the Special relative to the examination of other
Teams in the National Office (RMO 36-99) taxpayers (Secs. 5 and 235, NIRC)
199
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the instances where NIC may be Q: What is a Pre-Assessment Notice (PAN)?
dispensed with?
A: It is a communication issued by the Regional
A: NIC can be dispensed with: MEDEC Assessment Division, or any other concerned BIR
1. When the finding for any deficiency tax is Office, informing a taxpayer who has been audited
the result of Mathematical error in the of the findings of the RO, following the review of
computation of the tax appearing on the these findings.
face of the tax return filed by the
taxpayer; or Q: What are the requirements of a valid PAN?
2. When the Excise tax due on excisable
articles has not been paid; or A:
3. When a Discrepancy has been determined 1. In writing; and
between the tax withheld and the 2. Should inform the taxpayer of the law and
amount actually remitted by the the facts on which the assessment is
withholding agent; or made (Sec. 228, NIRC)
4. When an article locally purchased or Note: This is to give the taxpayer the opportunity to
imported by an Exempt person, such as, refute the findings of the examiner and give a more
but not limited to, vehicles, capital accurate and detailed explanation regarding the
equipment, machineries and spare parts, assessments. The absence of any of the requirements
has been sold, traded or transferred to shall render the assessment void.
non-exempt persons; or
5. When a taxpayer who opted to claim a Q: Within what period must the taxpayer respond
refund or tax credit of excess creditable to PAN?
withholding tax for a taxable period was
200
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: If the taxpayer disagrees with the findings stated P250,000.00. Counsel for AZ protested the
in the PAN, he have 15 days from receipt of the assessment for being null and void on the ground
PAN, to file a written reply contesting the proposed that no pre-assessment notice had been issued. Is
assessment. (Sec. 3.1.2, RR 12-99) the contention of the counsel tenable?
Q: What is the effect of taxpayer’s failure to A: No, the contention of the counsel is untenable.
respond within 15 days? Sec. 228, NIRC expressly provides that no pre-
assessment notice is required when a discrepancy
A: The taxpayer shall be considered in default, in has been determined between the tax withheld and
which case a formal letter of demand and the amount actually remitted by the withholding
assessment notice shall be issued by the BIR. (Sec. agent. Since the amount assessed relates to
3.1.2, RR 12-99) deficiency withholding taxes, the BIR is correct in
issuing the assessment and demand letter calling
for the immediate payment of the deficiency
Exceptions to Issuance of PAN withholding taxes. (2002 Bar Question)
201
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
shall be void. (Sec. 228, NIRC; Sec. 3.1.4 RR FAN did not provide Enron with the written
12-99) bases of the law and facts on which the
subject assessment is based. The CIR did not
Q: What does the phrase “in writing” under Sec. bother to explain how it arrived at such an
228 mean? assessment. Furthermore, he failed to
mention the specific provision of the Tax
A: It does not exclusively mean written words. Code or rules and regulations which were
“Writing” consists of letters, word, numbers, or not complied with by Enron.
their equivalent, set down by handwriting, 2. The advice of tax deficiency given to the
typewriting, printing, photostating, photographing, taxpayer’s employee during the pre-
magnetic impulse, mechanical or electronic assessment stage, as well as the preliminary
recording, or other form of data compilation. five-day letter, were not valid substitutes for
Indubitably, figures are also “writings” and if the the mandatory notice in writing of the legal
numerical presentation is understandable enough, and factual bases of the assessment. (CIR v.
then there is no reason why it should be Enron Subic Power Corp., GR 166387, Jan.
automatically rejected as inadequate compliance 19, 2009)
with the law. (Sevilla, et. al., v. CIR, CTA Case 6211,
Oct. 4, 2004)
Q: What are the remedies of the taxpayer after the Disputed Assessment
issuance of a FAN?
Q: When is an assessment considered disputed?
A: The taxpayer may protest the assessment within
30 days from receipt otherwise the assessment A: When the taxpayer, indicates its protest against
becomes final, executory, demandable and not the delinquent assessment of the RO and requests
appealable to the CTA. for reconsideration, through a letter. After the
request is filed and received by the BIR, the
Q: Enron, a duly registered Subic Bay Freeport assessment becomes a disputed assessment. (CIR v.
Zone enterprise received a FAN from the CIR Isabela Cultural Corp., GR 135210, July 11, 2001)
despite filing its protest letter to the preliminary
five-day letter. Enron filed a Petition for Review
with the CTA since the CIR failed to resolve its Administrative Decision on a Disputed Assessment
protest against the FAN within the mandated 180-
day period. Enron alleged that the BIR failed to Q: Can a taxpayer go to the CIR when a protest is
provide the legal and factual basis of the denied by the CIR’s authorized Representative?
assessment in violation of Sec. 3.1.4, RR 12-99.
Finding for Enron, the CTA held that the FAN sent A: Yes, the taxpayer may elevate the protest to the
to the Company failed to comply with the CIR within 30 days from receipt of the decision for a
requirements of a written notice set by the law as request for reconsideration and that his case is
there was no mention of the applicable law and referred to the Bureau’s Appellate Division.
facts. The CIR then elevated the case to the SC Otherwise, it becomes final and appeal to the CTA
claiming that Enron was informed of the legal and may be taken.
factual bases of the deficiency assessment against Note: The authority to make tax assessments may be
it. delegated to subordinate officers. Said assessment has
the same force and effect as that issued by the CIR if
1. Was there a valid assessment? not revised or reviewed by the latter. (Oceanic
2. Is the notice requirement satisfied when the Network Wireless Inc. V. CIR, GR 148380, Dec. 9, 2005)
BIR advised the taxpayer’s representative of
the tax deficiency during the pre-assessment
stage, and furnished the taxpayer of a copy of Protesting Assessment
the audit working papers?
Q: What is a protest?
A:
1. There was no valid assessment made. The A: It is the act by the taxpayer of questioning the
CIR merely issued a formal assessment and validity of the imposition of the corresponding
indicated therein the supposed tax, delinquency increments for internal revenue taxes
surcharge, interest and compromise penalty as shown in the notice of assessment and letter of
due thereon. The ROs in the issuance of the demand.
202
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What are the requisites of a protest? A: Prescriptive period provided by law to make
collection by distraint or levy or by a proceeding in
A: court is interrupted once a taxpayer protests the
1. In writing; assessment and requests for its cancellation.
2. Addressed to the CIR;
3. Accompanied by a waiver of the Statute
of Limitations in favor of the When to File Protest
Government. Without the waiver the
prescriptive period will not be tolled; (BPI Q: What is the procedure to be followed in
v. CIR, GR 139736, Oct. 17, 2005) protesting an assessment?
4. State the facts, applicable law, rules and
regulations or jurisprudence on which A:
the protest is based otherwise the 1. BIR issues assessment notice.
protest would be void; and 2. The taxpayer files an administrative
5. Must contain the following: protest against the assessment. Such
a. Name of the taxpayer and address protest may either be a request for
for the immediate past 3 taxable reconsideration or for reinvestigation.
years; The protest must be filed within 30 days
b. Nature of the request, specifying the from receipt of assessment.
newly discovered evidence to be 3. All relevant documents must be
presented; submitted within 60 days from filing of
c. Taxable periods covered by the protest; otherwise, the assessment shall
assessment; become final and unappealable.
d. Amount and kind of tax involved and 4. In case the CIR decides adversely or if no
the assessment notice number; decision yet at the lapse of 180 days, the
e. Date of receipt of the assessment taxpayer may appeal to the CTA Division,
notice or letter of demand; 30 days from the receipt of the decision
f. Itemized statement of the finding to or from the lapse of the 180 days
which the taxpayer agrees (if any) as otherwise the decision shall become
basis for the computation of the tax final, executory and demandable. (RCBC
due, which must be paid upon filing v. CIR, GR 168498, Apr. 24, 2007)
of the protest; 5. If the decision is adverse to the taxpayer,
g. Itemized schedule of the he may file a motion for reconsideration
adjustments to which the taxpayer or new trial before the same Division of
does not agree; the CTA within 15 days from notice
h. Statements of facts or law in thereof.
support of the protest; and 6. In case the resolution of a Division of the
i. Documentary evidence as it may CTA on a motion for reconsideration or
deem necessary and relevant to new trial is adverse to the taxpayer, he
support its protest to be submitted may file a petition for review with the
60 days from the filing thereof. CTA en banc.
7. The ruling or decision of the CTA en banc
Q: What must a motion for reconsideration raise? may be appealed with the Supreme
Court through a verified petition for
A: It must raise new grounds, which have not been review on certiorari pursuant to Rule 45
raised in that request for reconsideration or of the 1997 Rules of Civil Procedure.
reinvestigation.
Q: A taxpayer receives two final assessments, one
Note: A motion for reconsideration of the denial of the for Net Income Tax (NIT) and one for VAT. If the
administrative protest does not toll the 30-day period taxpayer would only like to protest the one for NIT
to appeal to the CTA. (Fishwealth Canning Corporation and not the one for VAT, what should he do to file
v. CIR, GR 179343, Jan. 21, 2010) a protest for the NIT?
Q: What is the effect of a protest against an Note: This is not payment under protest for this is
assessment? neither a tax under the TCC nor a Real Property Tax.
(RR 12-99)
203
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
204
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Remedies of Taxpayer to Action by Commissioner 5. The assessment which has become final
and executor cannot be superseded by a
In Case of Denial of Protest new assessment.
A: The remedy is to appeal such decision to the CTA Q: To whom is the informer’s reward given?
within 30 days from receipt of the decision
otherwise, the assessment will become final, A: To persons instrumental:
executor and demandable. 1. In the discovery of violations of the NIRC;
and
Note: If the taxpayer elevates his protest to the CIR 2. In the discovery and seizure of smuggled
within 30 days from date of receipt of the final goods.
decision of the CIR’s duly authorized representative,
such decision will not be final and executory. Q: What are the legal requirement/s must be
complied with to claim the reward?
A:
1. Voluntarily file a confidential information
In Case of Inaction by Commissioner within under oath with the Law Division of the
180 days from Submission of Documents BIR alleging therein the specific violations
constituting fraud;
Q: What are the options given to the taxpayer if 2. The information must not yet be in the
there would be inaction by the CIR within 180 days possession of the BIR, or refer to a case
from submission of the documents? already pending or previously
investigated by the BIR;
A: The taxpayer has two alternative options: 3. One should not be a government
1. File a petition for review with the CTA employee or a relative of a government
within 30 days after the expiration of the employee within the sixth degree of
180-day period; or consanguinity; and
2. Wait for the final decision of the CIR on 4. The information must result to collections
the disputed assessment and appeal the of revenues and/or fines and penalties
final decision to the CTA within 30 days (Sec. 282, NIRC) (2002 Bar Question)
from the receipt of the decision.
Q: How much is the amount of the reward?
205
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the prescriptive periods for the A: Upon filing of the corresponding complaint in the
collection of tax? court of competent jurisdiction. In administrative
remedies, upon service of the distraint and levy on
A: the taxpayer or persons or entity authorized to
GR: receive the same. (Diluangco v. CIR, GR L-16661,
1. Where an assessment was made - period Jan. 31, 1962)
for collection (by distraint or levy or by a
proceeding in court) is within 3 years Q: What is the prescriptive period where the
following the assessment has been government action is on a bond which the
released, mailed, or sent. (BPI v. CIR, GR taxpayer executes in order to secure the payment
139736, Oct. 17, 2005) of his tax obligation?
2. In the case of a false or fraudulent return
with intent to evade tax or of failure to file A: 10 years under Art. 1144 (1) of the Civil Code and
a return, a proceeding in court for the not 3 years under the NIRC. In this case, the
collection of such tax may be filed Government proceeds by court action to forfeit a
206
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Assessment should be A: CTA may review the decision of the CIR on the
Assessment should be
made within 3 years from
made within 10 years from disputed assessments. (CIR v. Villa, GR L-23988, Jan.
the date of filing of the
the date of discovery of the 2, 1968)
return or from the last day
failure to file the return, or
required by law for filing,
the falsity or fraud in the Q: May the CIR still modify its assessment despite
whichever is later (Sec.
return (Sec.222 [a], NIRC)
203, NIRC) the CTA has already acquired jurisdiction?
Collection should be made within 10 years after the
A: Yes, provided it would be done before an answer
discovery of falsity or fraud or non-filing and it should only
be by judicial proceeding (Sec. 222 [a], NIRC) is filed with the court.
207
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
208
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
209
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
210
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
loss of P1,000,000 in its annual income tax return. filed with the CTA on Mar. 02, 1996 is beyond the
After failing to get a refund, XCEL filed on Mar. 1, reglementary period. (1997 Bar Question)
1988 a case with the CTA to recover the P500.000
in taxes paid on May 15, 1985. Is the action to Q: On Mar. 12, 2001, REN paid his taxes. Ten
recover the taxes filed timely? months later, he realized that he had overpaid and
immediately filed a claim for refund with the CIR.
A: The action for refund was filed in the CTA on On Feb. 27, 2003, he received the decision of the
time. In the case of CIR v. TMX Sales, Inc., GR 83736, CIR denying REN's claim for refund. On Mar. 24,
Jan. 15, 1992, which is similar to this case, the SC 2003, REN filed an appeal with the CTA. Was his
ruled that in the case of overpaid quarterly appeal filed on time or not?
corporate income tax, the two-year period for filing
claims for refund in the BIR as well as in the A: No, his appeal was not filed on time. The 2-year
institution of an action for refund in the CTA, the period for filing a claim for refund is not only a
two-year prescriptive period for tax refunds is limitation for pursuing the claim at the
counted from the filing of the final, adjustment administrative level but also for appealing the case
return under Sec. 67 of the NIRC, and not from the to the CTA. The law provides that "no suit or
filing of the quarterly return and payment of the proceeding shall be filed after the expiration of 2
quarterly tax. The CTA action on Mar. 1, 1988 was years from the date of the payment of the tax or
clearly within the reglementary 2-year period from penalty regardless of any supervening cause that
the filing of the final adjustment return of the may arise after payment. Since the appeal was only
corporation on Apr. 15, 1986. (1994 Bar Question) made on Mar. 24, 2003, more than two years had
already elapsed from the time the taxes were paid
Q: A Corp. files its income tax return on a calendar on Mar. 12, 2003. Accordingly, REN had lost his
year basis. For the first quarter of 1993, it paid on judicial remedy because of prescription. (2004 Bar
May 30, 1993 its quarterly income tax of P3 Question)
million. On Aug. 20, 1993, it paid the second
quarterly income tax of P0.5 million. The third Q: When must an appeal to CTA be filed if the
quarter resulted in a net loss, and no tax was paid. claim for refund was denied by the CIR?
For the fourth and final return for 1993, the
company reported a net loss for the year, and the A: It must be filed within 30 days from receipt of
taxpayer indicated in the income tax return that it the decision of the CIR but not to exceed the 2-year
opted to claim a refund of the quarterly income period from date of payment of the tax or penalty
tax payments. On Jan. 10, 1994, the corporation regardless of any supervening cause that may arise
filed with the BIR a written claim for the refund of after payment.
P3.5 million.
Note: If the decision of the CIR takes too long and the
BIR failed to act on the claim for refund; hence, on 2-year period is about to end, proceedings in the CTA
Mar. 2, 1996, the A Corp. filed a petition for review must be commenced and there would no longer be
with the CTA on its claim for refund of the any need to wait for the decision of the CIR.
overpayment of its 1993 quarterly income tax. BIR,
in its answer to the petition, alleged that the claim Q: Alyanna has a pending claim for refund with the
for refund was filed beyond the reglementary CIR. The 2-year period is about to end and the CIR has
yet to decide on the claim. What must Alyanna do to
period. Did the claim for refund prescribe?
pursue her claim for refund?
A: Yes, the counting of the two-year prescriptive A: A claim for refund must be filed with the BIR and
period for filing a claim for refund is counted not the commencement of the proceedings in the CTA
from the date when the quarterly income taxes must be done within the 2-year period from the date
were paid but on the date when the final of full payment of the tax or penalty regarless of any
adjustment return or annual income tax return was supervening event. Thus, Alyanna must commence the
filed. (CIR v. PhilAm Life Insurance Co., Inc., GR proceedings with the CTA before the end of the 2-year
105208, May 29, 1995) It is obvious that the annual period without waiting for the decision of the CIR.
income tax return was filed before Jan. 10, 1994
because the written claim for refund was filed with Q: Who is the proper party to question/seek a tax
the BIR on Jan. 10, 1994. Since the 2-year refund in indirect taxes?
prescriptive period is not only a limitation of action
in the administrative stage but also for bringing the A: In indirect taxes, the proper party who can
case to the judicial stage, the petition for review question or seek a refund of the tax is the person
on whom the tax is imposed by law and who paid
211
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
the tax even when he shifts the burden thereof to Q: Does a withholding agent or a subsidiary
another. (Cebu Portland Cement Co. v. Collector, GR corporation have the personality to file a written
L-20563, Oct. 29, 1968) claim for refund?
Q: Silkair purchased aviation jet fuel from Petron A: Yes, a withholding agent is technically a taxpayer
for use on Silkair international flights. Silkair, because it is required to deduct and withhold the
contending that it is exempt from the payment of tax, and the obligation to remit the same to the
excise taxes, filed a formal claim for refund with government. So the withholding agent is liable for
the CIR. Silkair claims that it is exempt from the the tax. It has therefore the personality to file a
payment of excise tax under the NIRC, specifically written claim for refund.
Sec. 135, and under Art. 4 of the Air Transport
Agreement between the Governments of the Withholding agent is not only an agent of the
Republic of the Philippines and the Republic of taxpayer but also an agent of the government.
Singapore (Air Agreement). The CIR denied the Since it is an agent of the taxpayer, it is ipso facto
claim contending that since the liability for the authorized to file a written claim for refund.
excise tax payment is imposed by law on Petron as
the manufacturer of the petroleum products, any Note: However, as a rule, the withholding agent is not
claim for refund should only be made by Petron as considered as the taxpayer, hence he is not entitled to
the statutory taxpayer. On appeal, the CTA a tax amnesty due for the taxpayer’s account.
resolved to deny the claim. Silkair thus filed this
Petition for Review. Q: Is payment under protest a requirement?
1. Whether or not Silkair is the proper party to A: No. A suit or proceeding for tax refund may be
claim a refund for the excise taxes paid. maintained “whether or not such tax, penalty or
2. What is the proper remedy of the Silkair? sum has been paid under protest or duress.” (Sec.
204 [3], NIRC)
A:
1. The SC held that “the proper party to Note: The taxpayer’s willingness to pay the tax is no
question, or seek a refund of an indirect waiver to raise, defenses against the tax’s legality. (CIR
tax is the statutory taxpayer, the person v. Gonzales, GR L-19495, Nov. 24, 1966)
on whom the tax is imposed by law and
who paid the same even if he shifts the Q: When is payment under protest required?
burden thereof to another.”
A: Payment under protest is necessary in claims for
Excise tax on petroleum is an indirect tax. refund for real property taxes under Sec. 252, LGC
Although the burden to pay an indirect and for customs duties under Sec. 2308, TCC.
tax can be passed on to the purchaser of
the goods, the liability to pay the indirect Q: PERF filed an administrative claim with the
tax remains with the petroleum appellate division of the BIR for refund of overpaid
manufacturer or seller. When the income taxes. Due to the inaction of the BIR, PERF
manufacturer or seller decides to shift the filed a petition for review with the CTA seeking for
burden of the excise tax to the tax- the said refund. The CTA denied the petition of
exempt purchaser, the tax becomes a part PERF on the ground of insufficiency of evidence.
of the price of the commodity. Thus, in The CTA noted that PERF did not indicate in its
this case, the petroleum manufacturer 1997 ITR the option to either claim the excess
who is the statutory taxpayer is the income tax as a refund or tax credit pursuant to
proper party to claim the refund. Sec. 76, NIRC. It held that the failure of PERF to
signify its option on whether to claim for refund or
2. The exempt entity’s remedy is to invoke opt for an automatic tax credit and to present its
its tax exemption before buying the 1998 ITR left the Court with no way to determine
petroleum so that the petroleum with certainty whether or not PERF has applied or
manufacturer would not pass on the credited the refundable amount sought for in its
excise taxes as part of the purchase price. administrative and judicial claims for refund.
(Silkair Singapore PTE. Ltd. v. CIR, GR
171383 & 172379, Nov. 14, 2008) 1. Is the failure of PERF to indicate its choice to
avail of either the tax refund or the tax credit
in the annual ITR fatal to its claim for refund?
2. Is the failure of PERF to present in evidence
the 1998 ITR fatal to its claim for refund?
212
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: Fortune Tobacco Corp. was granted a tax refund 1. Is the stand of the CIR correct?
representing excise taxes erroneously collected 2. Why is the filing of an administrative claim
from its tobacco products. The tax refund is being with the BIR necessary?
re-claimed by the BIR in a petition before the SC.
The BIR argued that tax refund partakes of the A:
nature of a tax exemption and should be 1. Yes, for there was no claim for refund or
construed against the claimant. Is the BIR correct? credit that has been duly filed with the
CIR which is required before a suit or
A: No, not all claims for tax refunds are in the proceeding can be filed in any court.
nature of tax exemptions. A tax refund may only be (Sec. 229, NIRC) The denial of the claim
considered as a tax exemption when it is based by the CIR is the one which will vest the
either on a tax-exemption statute or a tax-refund CTA jurisdiction over the refund case
statute. The company’s claim for tax refund is not should the taxpayer decide to appeal on
based on either a tax-exemption statute or a tax- time.
refund statute, but is premised on either an
erroneous payment of tax or the government’s 2. The filing of an administrative claim for
exaction in the absence of a law. Thus, what is refund with the BIR is necessary in order:
controlling in this case is the well-settled doctrine a. To afford the CIR an opportunity to
of strict interpretation in the imposition of taxes, consider the claim and to have a
and not the doctrine as applied to tax exemptions. chance to correct the errors of
As burdens, taxes should not be unduly exacted nor subordinate officers (Gonzales v.
assumed beyond the plain meaning of the tax laws. CTA, GR 14532, May 26, 1965); and
(CIR v. Fortune Tobacco Corp., GR 167274-75 July b. To notify the Government that such
21, 2008.) taxes have been questioned and the
notice should be borne in mind in
Q: When is there waiver of prescription in an estimating the revenue available for
action for refund? expenditures. (Bermejo v. Collector,
GR L-3028, July 29, 1950) (2000 Bar
A: Question)
GR: If the government failed to plead
prescription in a motion to dismiss or as a
213
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Congress enacts a law granting grade school 2. Tax Credit – Yes, a Tax Credit Certificate
and high school students a 10% discount on all which remains unutilized after 5 years
school-prescribed textbooks purchased from any from date of issue, shall be invalid. Unless
bookstore. The law allows bookstores to claim the revalidated (Sec. 230, NIRC)
discount in full as a tax credit.
214
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
cannot be blamed for not filing a protest against the A: Upon failure to pay the delinquent tax at the
FAN since the language used and the tenor of the time required, the proper officer shall seize and
demand letter indicate that it is the final decision of distraint any goods, chattels, or effects, and the
the CIR on the matter. The court reminded the CIR personal property, including stocks and other
to indicate, in a clear and unequivocal language, securities, debts, credits, bank accounts and
whether its action on a disputed assessment interests in and rights to personal property of the
constitutes its final determination thereon in order taxpayer in sufficient quantity to satisfy the tax,
for the taxpayer concerned to determine when his expenses of distraint and the cost of the
or her right to appeal to the tax court accrues. Thus, subsequent sale.
the CIR is now estopped from claiming that t did
not intend the FAN to be a final decision. (Allied
Banking Corp. v. CIR, GR 175097, Feb. 5, 2010) Q: Who is authorized to issue the warrant of
distraint?
Administrative Remedies A:
Distraint 1. CIR or his duly authorized
representative – if the amount
Q: Define distraint. involved is in excess of P1 million; or
2. Revenue District Officer – if the
A: It is a summary remedy whereby the collection amount involved is P1 million or less.
of tax is enforced on the goods, chattels or effects (Sec. 207 [A], NIRC)
of the taxpayer (including other personal property
of whatever character as well as stocks and other Q: What is the procedure that must be observed in
securities, debts, credits, bank accounts and effecting actual distraint?
interest in or rights to personal property.) The
property may be offered in a public sale, if taxes are A:
not voluntarily paid. 1. Commencement of distraint proceedings
by the CIR or his duly authorized
Q: What are the requisites for the exercise of representatives or by the revenue district
distraint (and levy)? officer as the case may be
2. Service of warrant of distraint upon
A: DeF–DeP taxpayer or upon any person in
1. Taxpayer is Delinquent in payment of tax; possession of the property
2. There must be subsequent Demand to 3. Posting of notice in not less than 2 public
pay; places in the municipality or city and
3. Taxpayer Failed to pay delinquent tax on notice to taxpayer specifying the time and
time; and place of sale and the articles distrained
4. Period within which to assess and collect 4. Sale at public auction to be held not less
the tax due has not yet prescribed. than 20 days after notice to the owner or
possessor of the property and publication
Q: What are the kinds of distraint? or posting of such notice
5. Disposition of proceeds of the sale
A: 6. Residue over and above what is required
1. Actual – resorted to when there is actual to pay the entire claim, including
delinquency in tax payment. expenses, shall be returned to the owner
of the property sold
2. Constructive – a preventive remedy which
aims at forestalling a possible dissipation Q: To whom is the warrant of distraint served?
of the taxpayer’s assets when
delinquency sets in. Hence, no actual A:
delinquency in payment is necessary. 1. As to tangible goods:
a. The owner or person in possession;
or
Actual Distraint b. Someone of suitable age and
discretion at the dwelling or place of
Q: How is actual distraint of personal property business of such person.
effected?
2. As to stocks and/or securities:
215
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
a. Upon the taxpayer; and pending the sale and does not include
b. President, manager, treasurer or services of the Revenue Officer.
other responsible officer of the
corporation. 7. The officer making the sale shall make a
written report of the proceedings to the
3. As to debts/credits: CIR within 2 days after the sale (Sec. 211,
a. Upon the person owing the debt; or NIRC)
b. The person having control over the
credit or his agent. Q: May the government purchase the property
under distraint?
4. As to bank accounts:
a. Upon the taxpayer and A: Yes, the CIR or his deputies may purchase the
b. The president, manager, treasurer or property in behalf of the National Government for
other responsible officer of the bank. the amount of taxes, penalties and cost due
thereon when the bid amount for the property
Note: Distraint of bank accounts is called under distraint is:
garnishment. 1. Not equal to the amount of tax; or
2. Very much less than the actual market
Q: What are the rules governing the sale? value of the property offered for sale
(Sec. 212, NIRC)
A:
1. The sale must be held at the time and Note: Property so purchased may be resold by the CIR
place stated in the notice. or his deputy. The net proceeds shall be remitted to
the National Treasury and accounted as internal
2. It may be conducted by the Revenue revenue.
Officer or through a licensed commodity Q: What is the remedy of the taxpayer once the
or stock exchange. CIR or other proper officer issues the warrant of
distraint?
3. If the sale is conducted by the Revenue
Officer, it must be a public auction and A: The taxpayer may request that the warrant be
the property shall be sold to the highest lifted. The CIR may, in his discretion, allow the
bidder for cash. lifting of the order of distraint. He may ask for a
bond as a condition for the cancellation of the
4. If the sale is through a licensed warrant. (Sec. 207, NIRC)
commodity or stock exchange, it must be
with the approval of the CIR. Q: May the taxpayer recover his property prior to
consummation of the sale?
5. In case of stocks and other securities, the
officer making the sale shall execute a bill A: Yes, if at any time prior to the consummation of
of sale, which shall be delivered to the the sale all proper charges are paid to the officer
buyer and to the corporation, company or conducting the sale, the goods or effects distrained
association which issued the stocks or shall be restored to the owner. (Sec. 210, NIRC)
other securities.
216
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: When may property of the taxpayer be placed Q: Can property levied upon by the order of a
under constructive distraint? competent court be subsequently distrained?
A: LRT-ABUC A: Yes, such property may, with the consent of such
1. Taxpayer has a record of Leaving the court, be subsequently distrained, subject to the
Philippines at least twice a year, unless prior lien of the attachment creditor. (CIR v. Floresl,
such business is justified and/or GR L- 9675, Sept. 28, 1957)
connected with his trade, business or
profession; Q: What is Garnishment?
2. Taxpayer applying for Retirement from
business has a huge amount of A: It is the taking of personal properties, cash or
assessment pending with the BIR; sums of money owned by a delinquent taxpayer
3. Taxpayer has record of Transferring his which is in the possession of a third party (i.e. bank
bank deposits and other personal accounts.) Bank accounts are garnished by serving a
properties in the Phil. to any foreign warrant upon the taxpayer and upon the president,
country except if taxpayer is a banking manager, treasurer, or other responsible officer of
institution; the bank.
4. Taxpayer uses Aliases in bank accounts Levy
other than the name for which he is
legally and/or popularly known; Q: Define levy.
5. Taxpayer keeps Bank deposits and other
properties under the name of other A: It is the seizure of real property and interest in or
persons, whether or not related to him, rights to such properties for the satisfaction of
and the same are not under any lawful taxes due from the delinquent taxpayer.
fiduciary or trust capacity;
6. There is big amount of Undeclared Q: When may levy on real property be made?
income known to the public and to the
BIR and there is a strong reason to believe A: It may be made before, simultaneously or after
that the taxpayer will hide or conceal his the distraint of personal property of the same
property; taxpayer.
7. BIR receives Complaint or information
pertaining to undeclared income (of big Q: How is levy on real property effected?
amount) and such is supported by
substantial and credible evidence. A: It may be effected by serving upon the taxpayer
a written notice of levy in the form of a duly
Q: Distinguish actual from constructive distraint. authenticated certificate prepared by Revenue
District Officer containing: [DNA]
A: 1. Description of the property upon which
ACTUAL CONSTRUCTIVE
levy is made;
Nature
2. Name of the taxpayer;
Summary remedy
Subject matter 3. Amount of tax and penalty due.
Personal property
Availability Q: What is the procedure that must be observed in
Cannot be availed of if tax is not more than P100. levy of real property?
To whom made
Delinquent taxpayer Any taxpayer A:
(delinquent or not) 1. Preparation of a duly authenticated
How made certificate which shall operate with force
Taking of possession Mere prohibition from of a legal execution throughout the
or transfer of control disposing the property Philippines.
How effected
2. Service of the written notice to the:
217
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
a. Delinquent taxpayer, or A: Yes, at any time before the day fixed for the sale,
b. If he is absent from the Philippines, the taxpayer may discontinue all proceeding by
to his agent or the manager of the paying the taxes, penalties and interest. (Sec. 213,
business in respect to which the NIRC)
liability arose, or
c. If there be none, the occupant of the Q: May the taxpayer redeem his property after the
property. consummation of the sale?
d. The Registry of Deeds of the place
where the property is located shall A: Yes, within 1 year from the date of sale, the
also be notified; taxpayer or anyone for him, may pay to the
3. Advertisement of the time and place of Revenue District Officer the total amount of the
sale within 20 days after the levy by following:
posting of notice and by publication for 1. Public taxes;
three consecutive weeks. 2. Penalties;
4. Sale at a public auction. 3. Interest from the date of delinquency to
5. Disposition of proceeds of sale. the date of sale; and
6. Residue to be returned to the owner. 4. Interest on said purchase price at the rate
of 15% per annum from the date of sale
to the date of redemption.
Q: What is the effect of service of warrant of
distraint or levy? Note: If the property was forfeited in favor of the
government, the redemption price shall include only
A: Its timely service suspends the running of the the taxes, penalties and interest plus costs of sale – no
prescriptive period to collect the tax deficiency in interest on purchase price since the Government did
the sense that the disposition of the attached not “purchase” the property, for it was forfeited. (Sec.
properties might well take time to accomplish, 214, NIRC)
extending even after the lapse of the statutory
period for collections. In those cases, the BIR did Q: Who is entitled to the possession of the
not file any collection case but merely relied on the property levied?
summary remedy of distraint and levy to collect the
tax deficiency. Thus, the enforcement of tax A: The owner shall not be deprived of the property
collection through summary proceedings may still until the expiration of the redemption period and
be carried out as the service of warrant of distraint shall be entitled to rents and other income until the
or levy suspends the prescriptive period for expiration of the period for redemption. (Sec. 214,
collection. (RP v. Hizon, GR 130430, Dec. 13, 1999) NIRC)
Q: Suppose an auction sale of land for the Q: What is the effect of the redemption to the
collection of delinquent taxes was held, is notice property sold?
by publication enough or must there be personal
service of notice? A: It shall entitle the taxpayer, the delivery of the
certificate issued to the purchaser and a certificate
A: Notice by publication is not enough there must from the Revenue District Officer that he has
be a personal notice to the registered owner of the redeemed the property. The Revenue District
property for cases involving an auction sale of land Officer shall pay the purchaser the amount by
for the collection of delinquent taxes are in which such property has been redeemed and said
personam. (Talusan v. Tayag, GR 133698, Apr. 4, property shall be free from lien of such taxes and
2001) penalties. (Sec. 214, NIRC)
Q: May the BIR forfeit the property subject to Q: What are the similarities between distraint and
levy? levy?
218
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
A: Yes, the BIR is authorized to issue a warrant of Q: What are the rules governing forfeiture?
garnishment against the bank account of a taxpayer
despite the pendency of protest. (Yabes v. Flojo, GR A:
L-46954 July 20, 1982) Nowhere in the Tax Code is 1. If there is no bidder in the public sale or if
the CIR required to first, rule on the protest before the amount of the highest bid is
he can institute collection proceedings on the tax insufficient to pay the taxes, penalties and
assessed. The legislative policy is to give the CIR costs, the real property shall be forfeited
much latitude in the speedy and prompt collection to the government.
of taxes because it is in taxation that the 2. The Register of Deeds shall transfer the
Government depends to obtain the means to carry title of forfeited property to the
on its operations. (1998 Bar Question) Government without necessity of a court
order.
3. Within 1 year from the date of sale, the
Forfeiture property may be redeemed by the
delinquent taxpayer or any one for him,
Q: Define forfeiture. upon payment of taxes, penalties and
interest thereon and cost of sale; if not
A: It is the divestiture of property without redeemed within said period, the
compensation, in consequence of a default or forfeiture shall become absolute. (Sec.
offense. 215, NIRC)
219
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Further Distraint and Levy A: It goes back to the taxpayer or owner of the
property.
Q: Can there be further distraint?
Q: When is the tax lien extinguished?
A: The remedy of distraint and levy may be
repeated if necessary until the full amount of the A:
tax delinquency due including all expenses is 1. By payment orremission of the tax
collected from the taxpayer. (Sec. 217, NIRC) 2. By prescription of the right of government
Otherwise, a clever taxpayer who is able to conceal to assess or collect
most of the valuable part of his property would 3. By failure to file notice of such tax lien in
escape payment of his tax liability by sacrificing an the office of Register of Deeds
insignificant portion of his holdings. 4. By destruction of property subject to tax
lien
Note: Further distraint and levy does not apply when 5. By replacing it with a bond
the real property was forfeited to the government for
it is in satisfaction of the claim in question. (Sec 215, Note: A buyer in an execution sale acquires only the
NIRC) rights of the judgment creditor.
220
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What are the requisites for Compromise: law that cast doubt on the taxpayer’s
obligation to withhold.
A: 6. Criminal violations already filed in courts.
1. Tax liability of the taxpayer; 7. Delinquent accounts with duly approved
2. An offer of the taxpayer of an amount to schedule of installment payments.
be paid by him; and
3. The acceptance (the CIR or the taxpayer) Note: The CTA may issue an injunction to prevent
of the offer in the settlement of the claim the government from collecting taxes under a
compromise agreement when such would be
Note: If the offer to compromise was rejected by the prejudicial to the government.
taxpayer, the compromise penalty cannot be enforced
thru an action in court, or by distraint or levy. If the CIR Q: What are the grounds for a compromise?
wants to enforce a penalty he must file a criminal
action in the courts. (CIR v. Abad GR L-19627, June 27, A:
1968) 1. Doubtful validity of assessment; or
2. Financial incapacity
Q: What are the cases which may be
compromised? Q: What are the requisites in order that
compromise settlement on the ground of financial
incapacity may be allowed?
A: DAC3
1. Delinquent accounts A:
2. Cases under Administrative protest after 1. Clear inability to pay the tax; and
issuance of the Final Assessment Notice 2. The taxpayer must waive in writing his
to the taxpayer which are still pending in privilege of the secrecy of bank deposit
the RO, RDO, Legal Service, Large under RA 1405 or other general or special
Taxpayer Service, Collection Service, laws, which shall constitute as the CIR’s
Enforcement Service, and other offices in authority to inquire into said bank
the National Office deposits (Sec. 6 [F], NIRC)
3. Civil tax cases disputed before the courts
4. Collection cases filed in courts Q: When may an offer to compromise a delinquent
5. Criminal violations except: account or disputed assessment on the ground of
a. Those already filed in courts; and reasonable doubt as to the validity of the
b. Those involving criminal tax fraud. assessment be accepted?
(Sec.3, RR 30-2002)
A: When:
Q: What are the cases which cannot be 1. The delinquent account or disputed
compromised? assessment is one resulting from a
jeopardy assessment.
A: F3EW-CD 2. The assessment seems to be arbitrary in
1. Criminal tax Fraud cases, confirmed as nature, appearing to be based on
such by the CIR or his duly authorized presumptions and there is reason to
representative. believe that it is lacking in legal and/or
2. Cases where Final reports of factual basis.
reinvestigation or reconsideration have 3. The taxpayer failed to file an
been issued resulting to reduction in the administrative protest on account of the
original assessment and the taxpayer is alleged failure to receive notice of
agreeable to such decision by signing the assessment and there is reason to believe
required agreement form for the purpose. that the assessment is lacking in legal
3. Cases which become Final and executory and/or factual basis.
after final judgment of a court, where 4. The taxpayer failed to file a request for
compromise is requested on the ground reinvestigation/reconsideration within 30
of doubtful validity of the assessment. days from receipt of final assessment
4. Estate tax cases where compromise is notice and there is reason to believe that
requested on the ground of financial the assessment is lacking in legal and/or
incapacity of the taxpayer. factual basis.
5. Withholding tax cases, unless the 5. The taxpayer failed to elevate to the CTA
applicant – taxpayer invokes provisions of an adverse decision of the CIR, or his
authorized representative, in some cases,
221
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
within 30 days from receipt thereof and the assessed tax provided that the
there is reason to believe that the minimum compromise entered into
assessment is lacking in legal and/or is equivalent to 10% of the basic
factual basis. assessed tax.
6. Assessments made based on the “Best
Evidence Obtainable Rule” and there is Note: In these instances, the CIR is allowed
reason to believe that the same can be to enter into a compromise only if the basic
disputed by sufficient and competent tax involved does not exceed P1M and the
evidence. settlement offered is not less than the
7. Assessment was issued within the prescribed percentages. (Sec. 204 [A], NIRC)
prescriptive period for assessment as If the basic tax involves exceeds P1 million
extended by the taxpayer’s execution of or when the settlement offered is less than
the prescribed minimum rates the approval
waiver of the Statute of Limitations the
of the Evaluation Board is needed.
validity or authenticity of which is being
questioned or at issue and there is strong A preliminary compromise may be entered
reason to believe and evidence to prove into by subordinate officials subject to
that it is not authentic. (Sec. 3.1, RR 30- review by the CIR.
2002)
2. The Regional Evaluation Board (REB) may
Q: Define compromise penalty. compromise:
a. Tax assessments by revenue officers
A: It is a certain amount of money paid in lieu of involving basic deficiency taxes of
criminal prosecution and cannot be imposed in the P500,000 or less; and
absence of a showing that the taxpayer consented b. For minor criminal violations (RR 7-
thereto. 2001)
Q: When must compromise be entered into? Note: The REB shall becomposed of:
a. The Regional Director as Chairman;
A: It must be entered into prior to the institution of b. The Assistant Regional Director;
the corresponding criminal action arising out of a c. Chief, Legal Division;
violation of the provisions of the Tax Code. A d. Chief, Assessment Division;
compromise can never be entered into after final e. Chief, Collection Division; and
judgment because by virtue of such final judgment f. Revenue District Officer having
the Government had already acquired a vested jurisdiction over the taxpayer-applicant
right. (Roviro v. Amparo, G.R. L- 5482, May 5, 1982)
Q: What is the extent of Commissioner’s power to
Note: A compromise validly entered into between the compromise criminal violations?
CIR and the taxpayer prior to the institution of the
corresponding criminal action arising out of a violation A:
of the provisions of the Tax Code becomes a bar to 1. Before the complaint is filed with the
such criminal action. (People v. Magdaluyo, GR L- Prosecutor’s Office – full discretion to
16235, Apr. 20,1965) compromise except those involving fraud;
Q: Who may compromise tax cases? 2. After the complaint is filed with the
Prosecutor’s Office but before the
A: information is filed with the court – can
1. The CIR may compromise with respect to still compromise provided that the
criminal and civil cases arising from prosecutor gives his consent;
violations of the NIRC as well as the
payment of any internal revenue tax 3. After the information is filed with the
when: court – no longer permitted to
compromise with or without the consent
a. A reasonable doubt as to the validity of the Prosecutor. (People v. Magdaluyo,
of the claim against the taxpayer GR L-1595, Apr. 20, 1961)
exists provided that the minimum
compromise entered into is Q: Can the court compel the CIR to compromise in
equivalent to 40% of the basic tax; or cases when such is allowed?
b. The financial position of the taxpayer
demonstrates a clear inability to pay
222
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Q: What are the limitations on the power to A: It is the cancellation of a tax liability.
compromise a tax liability?
Q: Differentiate compromise from abatement.
A:
1. Minimum compromise rate: A: Compromise involves a reduction of the
a. In case of financial incapacity, 10% of taxpayer’s liability, while abatement means that the
basic assessed tax entire tax liability of the taxpayer is cancelled.
b. In other cases, 40% of basic assessed
tax Q: When is the CIR authorized to abate or cancel a
tax liability?
2. Subject to approval of Evaluation Board:
a. When basic tax involved exceeds A:
P1,000,000 1. The tax or any portion thereof appears to
b. Where the settlement offered is less be unjustly or excessively assessed; or
than the prescribed minimum rates. 2. The administration and collection costs
(Sec. 204, NIRC) involved do not justify the collection of
c. When the CIR is not authorized to the amount due. (Sec. 204[B], NIRC)
compromise
Q: What are the instances when the tax liabilities,
Note: The minimum compromise rate may be less than penalties and/or interest imposed on the taxpayer
the prescribed rates, as the case may be, provided it is may be abated on the ground that the imposition
approved by the Evaluation Board. thereof is unjust or excessive?
2. Regard it as rescinded and insist upon 3. There is Late payment of the tax under
original demand (Art. 2041, Civil Code) meritorious circumstances (i.e. Failure to
beat bank cut-off time, surcharge
Q: What is the prescriptive period to enforce erroneously imposed.)
compromises?
4. The assessment is brought about or
A: As a rule, the obligation to pay tax is based on resulted from taxpayer’s non-compliance
law. But when, for instance, a taxpayer enters into a with the law due to a difficult
compromise with the BIR, the obligation of the Interpretation of said law.
taxpayer becomes one based on contract.
Compromise is a contract whereby the parties, by 5. The taxpayer fails to file the return and
reciprocal concessions, avoid litigation or put an pay the correct tax on time due to
end to one already commenced. (Art. 2028 NCC) Circumstances beyond his control.
Since it is a contract, the prescriptive period to
enforce the same is 10 years based on Art. 1144 6. The taxpayer’s mistake in payment of his
NCC reckoned from the time the cause of action tax is due to Erroneous written official
accrued.
223
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
advice of a revenue officer (Sec. 2, RR 13- when: (1) the tax or any portion thereof appears to
2001) have been unjustly or excessively assessed; or (2)
the administrative and collection costs involved do
7. Other similar or analogous cases. not justify collection of the amount due. (Sec. 204,
NIRC) (1996 Bar Question)
Q: What are the instances when the tax liabilities,
penalties and/or interest imposed on the taxpayer Q: May the CIR compromise the payment of
may be abated on the ground that tax withholding tax where the financial position of the
administration and collection costs are more than taxpayer demonstrates a clear inability to pay the
the amount sought to be collected? assessed tax?
224
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
incapacity which the CIR shall not accept unless 1. Must follow and
accompanied by a waiver of the secrecy of bank observe the legal
deposits. (Sec. 6 [F], NIRC) The waiver will enable parameters set forth
in the law. (e.g. An
the CIR to ascertain the financial position of the
action for collection
taxpayer, although the inquiry need not be limited by the BIR (Sec. 205,
only to the bank deposits of the taxpayer but also NIRC) must be filed
as to his financial position as reflected in his within the
financial statements or other records upon which prescriptive period Judicial remedies are
his property holdings can be ascertained. (Sec. 222, NIRC); “exclusive.” Thus, the CIR
decision must be
If indeed, the financial position of NX as determined 2. Must be approved by appealed to the CTA and
the CIR (Sec. 220, the CTA en banc decision
by the CIR demonstrates a clear inability to pay the
NIRC) must be appealed to the
tax, the acceptance of the offer is legal and ethical SC.
for the ground upon which the compromise was
anchored is within the context of the law and the
rate of compromise is well within and far exceeds
the minimum prescribed by law which is only 10%
of the basic tax assessed. (2004 Bar Question)
A: If implied
Compromise Abatement
Involves a reduction of Involves the cancellation of May resort to the laws of
the taxpayer’s liability. the entire tax liability of a May avail of the usual general application. Thus,
taxpayer. judicial remedies for a declaratory relief may
Officers authorized to Officer authorized to abate convenience and be availed of if the law
compromise: CIR and or cancel tax, penalties expediency. does not provide for
Regional Evaluation and/or interest: CIR judicial remedies.
Board
Grounds: Grounds:
2. Reasonable doubt 1. The tax or any portion
Q: Whose approval is needed for the filing of the
as to the validity of thereof appears to be
assessment; unjustly or excessively judicial remedies in court?
3. Financial assessed; or
incapacity of the 2. The administration and A: No civil or criminal action for the recovery of
taxpayer collection costs taxes or the enforcement of any fine, penalty or
involved do not justify forfeiture under the NIRC shall be filed in court
the collection of the without the approval of the CIR. (Sec. 220 NIRC)
amount due. Regional Directors may approve the filing of such if
this power is expressly delegated to him by the CIR.
(Sec. 7, NIRC)
JUDICIAL REMEDIES
Civil Action.
Q: What are the judicial remedies available to the
government? Q: Define civil action.
225
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: A:
1. By filing a civil case for collection of a sum 1. CTA - where the principal amount of taxes
of money with the proper regular court; or and fees, exclusive of charges and
2. By filing an answer to the petition for penalties claimed is P1 million and above;
review filed by taxpayer with CTA
2. RTC, MTC, MeTC - where the principal
Q: When is civil action resorted to? amount of taxes and fees, exclusive of
charges and penalties claimed is less than
A: It is resorted to when a tax liability becomes P1 million. (Sec. 7, R.A. 9282)
collectible. It is collectible:
1. When tax is assessed and the assessment AMOUNT OF TAXES
COURTS
became final and executory because the INVOLVED
taxpayer fails to file a protest with the CIR Municipal Trial Courts Amount does not exceed
within 30 days from receipt. outside Metro Manila 300,000
2. When a protest against assessment is Municipal Trial Courts Amount does not exceed
filed and a decision of the CIR was within Metro Manila 400,000
rendered but the said decision became Regional Trial Courts
300,001 to 999,999
outside Metro Manila
final, executory and demandable for
Regional Trial Courts
failure of the tax payer to appeal the 400,001 to 999,999
within Metro Manila
decision to the CTA within 30 days from
the receipt of the decision.
Q: What is the effect of filing a civil action?
3. When the protest is not acted upon by
the CIR within 180 days from the
A: Once an action is filed with the regular courts,
submission of the documents and the
the taxpayer can no longer assail the validity or
taxpayer failed to appeal with the CTA
legality of assessment.
within 30 days from the lapse of the 180
days period. (Sec. 228, NIRC)
Q: On Mar. 15, 2000, the BIR issued a deficiency
income tax assessment for the taxable year 1997
Note: In the case of a false or fraudulent return
with intent to evade tax or of failure to file a
against the Valera in the amount of P10 million.
return, a proceeding in court for the collection of Counsel for Valera protested the assessment and
such tax may be filed without assessment, at any requested a reinvestigation of the case. During the
time within 10 years after the discovery of the investigation, it was shown that Valera had been
falsity, fraud or omission. (Sec. 222 [a], NIRC) transferring its properties to other persons. As no
additional evidence to dispute the assessment had
Q: What is the form and mode of proceeding? been presented, the BIR issued on June 16, 2000
warrants of distraint and levy on the properties
A: and ordered the filing of an action in the RTC for
1. Civil actions shall be brought in the name the collection of the tax. Counsel for Valera filed
of the Government of the Philippines. an injunctive suit in the RTC to compel the BIR to
2. It shall be conducted by legal officers of hold the collection of the tax in abeyance until the
the BIR. decision on the protest was rendered.
3. The approval by the Solicitor General 1. Can the BIR file the civil action for collection,
together with the approval of the CIR for pending decision on the administrative
civil actions for collection of delinquent protest?
taxes is required before they are filed. 2. As counsel for Valera, what action would you
(Sec. 220 NIRC) take in order to protect the interest of your
client?
Note: BIR legal officers deputized as Special
Attorneys who are stationed outside Metro A:
Manila may file verified complaints with the 1. Yes, because there is no prohibition for
approval of the Solicitor General. Provided that a this procedure considering that the filing
copy of the complaint is furnished to the Solicitor of a civil action for collection during the
General. The Solicitor General must file a notice pendency of an administrative protest
of appearance in the court where it was filed. constitutes the final decision of the CIR on
the protest in denying the same. (CIR v.
Q: Where to file civil actions? Union Shipping Corp., GR 66160, May 21,
1990)
226
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
2. I will wait for the filing of the civil action Tariff and Customs Code and other laws
for collection and consider the same as an administered by the BIR and the BOC
appealable decision. Injunctive suit is not where the principal amount of taxes and
an available remedy. I would then appeal fees, exclusive of charges and penalties
the case to the CTA and move for the claimed is less than P1 million. (Sec. 7, RA
dismissal of the collection case with the 9282)
RTC. Once the appeal to the CTA is filed
on time, the CTA has exclusive jurisdiction Q: Does acquittal in the criminal action on tax
over the case. Hence, the collection case liability exonerate the taxpayer from payment of
in the RTC should be dismissed. (Yabes v. civil liability to pay tax?
Flojo, GR L-46954, July 20, 1982)
A: No. Generally it is the criminal liability that would
give rise to the civil liability, but in tax cases the
Criminal Action criminal liability arises from the act of not paying
the tax due which occurred first. The basis of the
Q: What is the purpose for filing a criminal civil liability is not from the criminal liability but
complaint? from the act of not paying the tax. Thus, the
exoneration from criminal action will not exonerate
A: Criminal complaint is instituted not to demand the taxpayer from its civil liability. (Republic v.
payment but to penalize taxpayer for the violation Patanao, GR L-22356, July 21, 1967)
of the NIRC.
Q: What is the effect of the subsequent
Q: What is the nature of this remedy? satisfaction of civil liability?
A: Criminal action is resorted to not only for A: The subsequent satisfaction of civil liability by
collection of taxes but also for enforcement of payment or prescription does not extinguish the
statutory penalties of all sorts. taxpayer’s criminal liability.
Q: What are the two common crimes punishable Q: Can there be subsidiary imprisonment in case
under the NIRC? the taxpayer is insolvent?
227
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
fraudulent return with intent to evade and defeat special law. After investigation of its withholding
the tax. (Ungab v. Cusi, GR L-41919-24, May 30, tax returns for the taxable year 1997, the BIR
1980) (1998 Bar Question) issued a deficiency withholding tax assessment in
the amount of P150.000. On May 15, 1999,
Q: Mr. Chan, a manufacturer of garments, was because of financial difficulty, the deficiency tax
investigated for failure to file tax returns and to remained unpaid, as a result of which the
pay taxes. Despite the subpoena duces tecum assessment became final and executory. The BIR
issued to him, he refused to submit his books of also found that, in violation of the provisions of
accounts and allied records. Investigators, raided the NIRC, Minolta did not file its final corporate
his factory and seized several bundles of income tax return for the taxable year 1998,
manufactured garments, supplies and unpaid because it allegedly incurred net loss from its
imported textile materials. After his apprehension operations. On May 17, 2002, the BIR filed with
and based on the testimony of a former employee, the RTC an action for collection of the deficiency
deficiency income and business taxes were withholding tax for 1997.
assessed against Mr. Chan. It was then that he
paid the taxes. Action was instituted against him 1. Will the BIR's action for collection prosper? As
in the RTC for violation of the NIRC. Mr. Chan counsel of Minolta, what action will you take?
demanded the return of the garments and 2. May criminal violations of the NIRC be
materials seized from his factory on the ground compromised? If Minolta makes a voluntary offer
that he had already paid the taxes assessed to compromise the criminal violations for non-
against him. How will you resolve Mr. Chan's filing and non-payment of taxes for the year 1998,
motion? may the CIR accept the offer?
Q: The BIR filed before the DOJ a criminal As counsel of Minolta, I will introduce
complaint against a corporation and its officers for evidence that the income payment was
alleged evasion of taxes. The complaint was reported by the payee and the income tax
supported by a sworn statement of the BIR was paid thereon in 1997 so that my
examiners showing the computation of the tax client may only be allowed to pay the civil
liabilities of the erring taxpayer. The corporation penalties for non-withholding pursuant to
filed a motion to dismiss the criminal complaint on RMO 38-83.
the ground that no assessment of its tax liability
has been done. The DOJ denied the motion on the 2. All criminal violations of the NIRC may be
ground that the joint affidavit of the BIR compromised except those already filed
examiners may be considered as an assessment of in court or those involving fraud. (Sec.
the tax liability of the corporation. Is the ruling of 204, NIRC) Accordingly, if Minolta makes a
the DOJ correct? voluntary offer to compromise the
criminal violations for non-filing and non-
A: No, the DOJ is incorrect when it ruled that the payment of taxes for the year 1998, the
joint affidavit of the BIR examiners may be CIR may accept the offer which is allowed
considered as an assessment of the tax liability of by law. However, if it can be established
the corporation. The joint affidavit showing the that a tax has not been paid as a
computation of the tax liabilities of the erring consequence of non-filing of the return,
taxpayer is not a tax assessment for it was not sent the civil liability for taxes may be dealt
to the taxpayer and does not demand payment of with independently of the criminal
the tax within a certain period of time. An violations. The compromise settlement of
assessment is deemed made only when the BIR the criminal violations will not relieve the
releases, mails or sends such notice to the taxpayer. taxpayer from its civil liability. But the civil
(CIR v. Pascor Realty and Development Corp., GR liability for taxes may also be
128315, June 29, 1999) (2005 Bar Question) compromised if the financial position of
the taxpayer demonstrates a clear
Q: Minolta is an EPZA-registered enterprise inability to pay the tax. (2002 Bar
enjoying preferential tax treatment under a Question)
228
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Prescriptive Period for the assessment which is enforceable by the BIR. It is the
Filing of Criminal Action issuance of the final notice and demand letter
dated Apr. 15, 1997 and the failure of the taxpayer
Q: What is the prescriptive period for filing of a to protest within 30 days from receipt thereof that
criminal action? made the assessment final and unappealable. The
earliest date that the assessment has become final
A: The period is 5 years from commission or is May 16, 1997 and since the criminal charge was
discovery of the violation, whichever is later. (Sec. instituted on Jan. 10, 2002, the same was timely
281, NIRC) filed. (2002 Bar Question)
The cause of action for willful failure to pay Q: Gerry was being prosecuted by the BIR for
deficiency tax occurs when the final notice and failure to pay his income tax liability for calendar
demand for the payment thereof is served upon the year 1999 despite several demands by the BIR in
taxpayer. 2002. The Information was filed with the RTC only
last June 2006. Gerry filed a motion to quash the
The 5-year prescriptive period commences to run Information on the ground of prescription, the
only after receipt of the final notice and demand Information having been filed beyond the 5-year
and the taxpayer refuses to pay. reglementary period. If you were the judge, will
you dismiss the Information?
Note: In addition to the fact of discovery of the filing of
a fraudulent return, there must be a judicial A: No, the trial court can exercise jurisdiction.
proceeding for the investigation and punishment of Prescription of a criminal action begins to run from
the tax offense before the 5-year limiting period to the day of the violation of the law. The crime was
institute a criminal action for filing a fraudulent return committed when Gerry willfully refused to pay
begins to run. The crime of filing false returns can be despite repeated demands in 2002. Since the
considered "discovered" only after the manner of information was filed in June 2006, the criminal
commission, and the nature and extent of the fraud
case was instituted within the five-year period
have been definitely ascertained. Note the conjunctive
required by law. (Tupaz v. Ulep, GR 127777, Oct. 1,
word “and” between the phrases “the discovery
thereof” and “the institution of judicial proceedings for
1999; Sec. 281, NIRC) (2006 Bar Question)
its investigation and proceedings.” (Lim, Sr. v. CA, GR
48134-37, Oct. 18, 1990)
Statutory Offenses and Penalties
Q: TY Corp. filed its final adjusted income tax
return for 1993 on Apr. 12, 1994 showing a net Civil Penalties
loss. After investigation, the BIR issued a pre-
assessment notice on Mar. 30, 1996. A final notice Q: What is the nature of civil penalties?
and demand letter dated Apr. 15, 1997 was issued,
personally delivered to and received by the A: They are imposed in addition to the tax required
company's chief accountant. For willful refusal and to be paid.
failure of TY Corp. to pay the tax, warrants of
distraint and levy on its properties were issued
and served upon it. On Jan. 10, 2002, a criminal Surcharge
charge for violation of the NIRC was instituted in
the RTC with the approval of the CIR. Q: What is a surcharge or surtax?
The company moved to dismiss the criminal A: It is a civil penalty imposed by law as an addition
complaint on the ground that an act for violation to the main tax required to be paid. It is a civil
of any provision of the NIRC prescribes after 5 administrative sanction provided as a safeguard for
years and, in this case, the period commenced to the protection of the State revenue and to
run on Mar. 30, 1996 when the pre-assessment reimburse the government for the expenses of
was issued. How will you resolve the motion? investigation and the loss resulting from the
taxpayer’s fraud. A surcharge added to the main tax
A: The motion to dismiss should not be granted. It is is subject to interest.
only when the assessment has become final and
unappealable that the 5-year period to file a Q: What are the corresponding rates of
criminal action commences to run. (Tupaz v. Ulep, surcharges?
GR 127777, Oct. 1, 1999) The pre-assessment
notice issued on Mar. 30, 1996 is not a final
229
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A:
1. Twenty-five percent (25%) of the amount Q: Businessman Lincoln filed an income tax return
due, in the following cases: F-TOP for 1993 showing business net income of P350,000
on which he paid an income tax of P61,000. After
a. Failure to File any return and pay the filing the return he realized that he forgot to
tax due thereon as required under include an item of business income in 1993 for
the provisions of the NIRC or rules P50.000. Being an honest taxpayer, he included
and regulations on the date this income in his return for 1994 and paid the
prescribed corresponding income tax thereon. In the
b. Failure to pay the deficiency tax examination of his 1993 return the BIR examiner
within the Time prescribed for its found that Lincoln failed to report this item of
payment in the notice of assessment P50.000 and assessed him a deficiency income tax
c. Unless otherwise authorized by the on this item, plus a 50% fraud surcharge.
CIR, filing a return with an internal
revenue officer Other than those 1. Is the examiner correct?
with whom the return is required to 2. If you were the lawyer of Lincoln, what would
be filed you have advised your client before he
d. Failure to Pay the full or part of the included in his 1994 return the amount of
amount of tax shown on any return P50.000 as 1993 income to avoid the fraud
required to be filed under the surcharge?
provisions of the NIRC or rules and 3. Considering that Lincoln had already been
regulations, or the full amount of tax assessed a deficiency income tax for 1993 for
due for which no return is required his failure to report the P50.000 income, what
to be filed, on or before the date would you advise him to do to avoid the
prescribed for its payment (Sec 248 penalties for tax delinquency?
[A], NIRC) 4. What would you advise Lincoln to do with
regard to the income tax he paid for the
2. The penalty shall be fifty percent (50%) of P50.000 in his 1994 return? In case your
the tax or of the deficiency tax, in the remedy fails, what is your other recourse?
following cases:
a. Willful neglect to file the return A:
within the period prescribed; or 1. The examiner is correct in assessing a
b. False or fraudulent return is willfully deficiency income tax for taxable year
made (Sec. 248 [B], NIRC) 1993 but not in imposing the 50% fraud
surcharge. The amount of all items of
Q: When is a return deemed false or fraudulent? gross income must be included in gross
income during the year in which received
A: A prima facie evidence of false or fraudulent or realized. (Sec. 38, NIRC) The 50% fraud
return arises when there is: under-over surcharge attaches only if a false or
1. A substantial under declaration of taxable fraudulent return is willfully made by
sales, receipts or income; or Lincoln. (Sec.248, NIRC) The fact that
2. A substantial overstatement of Lincoln included it in his 1994 return
deductions (Sec. 248, NIRC) belies any claim of willfulness but is
rather indicative of an honest mistake
Q: When is there a substantial underdeclaration of which was sought to be rectified by a
taxable sales, receipts or income? subsequent act that is the filing of the
1994 return.
A: When there is failure to report sales, receipts or
income in an amount exceeding 30% of that 2. Lincoln should have amended his 1993
declared per return. income tax return to allow for the
inclusion of the P50,000 income during
the taxable period it was realized.
Q: When is there a substantial overstatement of
deductions? 3. Lincoln should file a protest questioning
the 50% surcharge and ask for the
A: There is a substantial overstatement of abatement thereof.
deductions where a claim of deduction exceeds 30%
of actual deductions. 4. Lincoln should file a written claim for
230
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
231
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
exempted from the application of the statute of 9. To Inquire into bank deposits of
non-claims, and this is justified by the necessity of a. Decedent to determine his gross
government funding, immortalized in the maxim income;
that taxes are the lifeblood of the government. b. A taxpayer who filed application to
(Marcos v. CIR, GR 120880, June 5, 1997) (1998 Bar compromise payment of tax liability
Question) by reason of financial incapacity;
c. A specific taxpayer or taxpayers
Q: Who are the Chief Officials of the BIR? subject of a request for the supply of
tax information from a foreign tax
A: The BIR is headed by the CIR and 6 Deputy authority pursuant to an
Commissioners, who lead the following divisions: international convention or
1. Operations group agreement on tax matters to which
2. Legal Inspection Group the Philippines is a signatory or a
3. Resource and Management Group party of. Provided, That the
4. Information Systems Group information obtained from the
5. Prosecution Group banks and other financial
6. Special Concerns Group institutions may be used by the BIR
for tax assessment, verification,
Q: What are the powers of the Commissioner? audit and enforcement purposes;
232
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
investigation and any office or officer of exceptions to the law on prescription should
the national/local government; perforce be strictly construed. (CIR v. Goodrich
3. To summon the following to produce Philippines Inc., GR 104171, Feb. 24, 1999)
records and to give testimony:
a. The person liable for tax or required Note: In the Citytrust case, which involves a claim for
to file a return; refund, the error or neglect was the failure of the
b. Any officer or employee of such Solicitor General to present its evidence, as counsel for
person; the CIR, due to the unavailability of the necessary
c. Any person having in his possession, records from BIR, prompting the Solicitor to submit the
custody and care the books of case for decision without presenting any evidence.
accounts, accounting records of While in Goodrich, the error committed refers to the
neglect of the BIR to make assessment within the 3-
entries related to the business of
year period as required in Sec. 203, NIRC.
such taxpayer.
Q: What are the powers of the BIR which cannot Rule-making Authority of the Secretary of Finance
be delegated?
Authority of Secretary of Finance to
A: RICA Promulgate Rules and Regulations
1. To Recommend promulgation of rules
and regulations by the Secretary of Q: What law provides for the authority of the
Finance; Secretary of Finance to promulgate rules and
2. To Issue rulings of first impression or to regulations?
reverse, revoke or modify any existing
rule of the BIR; A: Sec. 244 of the NIRC provides the authority for
3. To Compromise or abate any tax liability; the Secretary of Finance. It states, upon
recommendation of the CIR, the Secretary of
XPN: The Regional Evaluation Board may Finance shall promulgate all needful rules and
compromise assessments involving regulations for the effective enforcement of the
deficiency taxes of P500,000 or less and provisions of the NIRC.
minor crime violations.
233
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
5. The conditions under which goods taxes and the returns, papers and
intended for storage in bonded statements that may be filed by the
warehouses shall be conveyed thither, taxpayers in connection with the payment
their manner of storage and method of of the tax:
keeping entries and records, also the Provided, however, that notwithstanding
books to be kept by Revenue Inspectors the other provisions of the NIRC
and the reports to be made by them in prescribing the place of filing of returns
connection with their supervision of such and payment of taxes, the CIR may, by
houses. rules and regulations require that the tax
6. The conditions under which denatured returns, papers and statements and taxes
alcohol may be removed and dealt in, the of large taxpayers be filed and paid,
character and quantity of the denaturing respectively, through collection officers or
material to be used, the manner in which through duly authorized agent banks:
the process of denaturing shall be Provided, further, That the CIR can
effected, so as to render the alcohol exercise this power within 6 years from
suitably denatured and unfit for oral the approval of RA 7646 or the
intake, the bonds to be given, the books completion of its comprehensive
and records to be kept, the entries to be computerization program, whichever
made therein, the reports to be made to comes earlier: Provided, finally, That
the CIR, and the signs to be displayed in separate venues for the Luzon, Visayas
the business ort by the person for whom and Mindanao areas may be designated
such denaturing is done or by whom, such for the filing of tax returns and payment
alcohol is dealt in. of taxes by said large taxpayers.
7. The manner in which revenue shall be
collected and paid, the instrument,
document or object to which revenue Q: What is a large taxpayer?
stamps shall be affixed, the mode of
cancellation, the manner in which the A: A taxpayer who satisfies any of the following
proper books, records, invoices and other criteria:
papers shall be kept and entries therein 1. For VAT - Business establishment with
made by the person subject to the tax, as VAT paid or payable of at least P100,000
well as the manner in which licenses and for any quarter of the preceding taxable
stamps shall be gathered up and returned year;
after serving their purposes.
8. The conditions to be observed by revenue 2. For Excise Tax - Business establishment
officers respecting the enforcement of with excise tax paid or payable of at least
Title III imposing a tax on estate of a P1 million for the preceding taxable year;
decedent, and other transfers mortis
causa, as well as on gifts and such other 3. For Corporate Income Tax - Business
rules and regulations which the CIR may establishment with annual income tax
consider suitable for the enforcement of paid or payable of at least P1 million for
the said Title III. the preceding taxable year; and
9. The manner tax returns, information and
reports shall be prepared and reported 4. For Withholding Tax - Business
and the tax collected and paid, as well as establishment with withholding tax
the conditions under which evidence of payment or remittance of at least P1
payment shall be furnished the taxpayer, million for the preceding taxable year.
and the preparation and publication of
tax statistics. Provided, however, That the Secretary of Finance,
10. The manner in which internal revenue upon recommendation of the CIR, may modify or
taxes, such as income tax, including add to the above criteria for determining a large
withholding tax, estate and donor's taxes, taxpayer after considering such factors as inflation,
value-added tax, other percentage taxes, volume of business, wage and employment levels,
excise taxes and documentary stamp and similar economic factors.
taxes shall be paid through the collection
officers of the BIR or through duly The penalties prescribed under Sec. 248 of the NIRC
authorized agent banks which are hereby shall be imposed on any violation of the rules and
deputized to receive payments of such regulations issued by the Secretary of Finance,
234
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
NATIONAL INTERNAL REVENUE CODE OF 1997
Non-Retroactivity of Rulings
A:
1. In the case of VAT-registered person:
a. Failure to issue receipts or invoices;
b. Failure to file a VAT return as
required under Sec. 114; or
c. Understatement of taxable sales or
receipts by 30% or more of his
correct taxable sales or receipts for
the taxable quarter.
235
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
236
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
fees and charges subject to the direct authority conferred by the Constitution.
provisions herein, consistent with the (2007 Bar Question)
basic policy of local autonomy. Such
taxes, fees and charges shall accrue Q: May Congress, under the 1987 Constitution,
exclusively to the local government abolish the power to tax of local governments?
units.”
A: No. Congress cannot abolish what is expressly
Q: Does the ARMM have the same source of granted by the fundamental law. The only
power as the LGUs? authority conferred to Congress is to provide the
guidelines and limitations on the local
A: No. The LGUs derive their power to tax from government's exercise of the power to tax (Sec. 5,
Sec. 5, Article X of the 1987 Constitution. The Art. X, 1987 Constitution) (2003 Bar Question)
constitutional provision is self-executing. This is
applicable only to LGUs outside the Autonomous Note: The authority to tax of LGUs within the
Region namely the Muslim Mindanao and the Autonomous Regions (Muslim Mindanao and the
Cordilleras since the authority to tax the LGUs Cordilleras) is not delegated by the Constitution, but
within their region is delegated by the Organic Act by the Organic Act creating them.
creating them.
Q: What are the characteristics of the taxing
Sec. 20, Article X of the 1987 Constitution power of LGUs?
authorizes the Congress to pass the Organic Act
which shall provide for legislative powers over A: DON2G
creation of sources of revenues. This provision is 1. Not inherent –May only be exercised if
not self-executing unlike Sec. 5, Article X of the delegated to them by national
Constitution. legislature or conferred by the
Constitution itself.
Note: The LGU’s power to tax is subject to such 2. Direct grant from the Constitution –
guidelines and limitations as Congress may proved While a direct grant, the same is subject
while the Autonomous Region’s power to tax is to limitations as may be set by
based on the Organic Act which the Constitution Congress.
authorizes Congress to pass. 3. Not absolute –Subject to limitations and
guidelines as may be provided by law
Q: What is the “paradigm shift” in local such as progressivity etc.
government taxation? 4. Exercised by the sanggunian of the LGU
concerned through an appropriate
A: The power to tax is no longer vested Ordinance.
exclusively on Congress. Local legislative bodies 5. Its application is bounded by the
are now given direct authority to levy taxes, fees Geographical limits of the LGU that
and other charges pursuant to Art. X, Sec. 5 of the imposes the tax.
Constitution. (NaPoCor v. City of Cabanatuan,
G.R. No. 149110, Apr. 9, 2003) Q: What are the aspects of local taxation?
Q: What is the nature of the taxing power of the Local Government Real Property Taxation
provinces, municipalities and cities? Taxation
System of levy on real
A: The taxing power of the provinces, property imposed on a
municipalities and cities is directly conferred by Imposition of license, country-wide basis but
taxes, fees and other authorizing, to a limited
the Constitution by giving them the authority to
impositions, including extent and within certain
create their own sources of revenue. The local community tax. parameters, local
government units do not exercise the power to governments to vary the
tax as an inherent power or by a valid delegation rates of taxation
of the power by Congress, but pursuant to a
237
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
238
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
239
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A:
Residual taxing power of local governments GR: LGUs cannot impose taxes, fees or
charges of any kind on the National
Q: What is the so-called “Residual Taxing Power Government, its agencies and
of the LGU”? instrumentalities.
A: LGUs may exercise the power to levy taxes, XPN: When specific provisions of the LGC
fees or charges on any base or subject NOT authorize the LGUs to impose taxes, fees or
otherwise specifically enumerated herein or charges on the aforementioned entities (City
taxed under the Government of San Pablo, Laguna v. Reyes,
1. Local Government Code; G.R. No. 127708, Mar. 25, 1999)
2. National Internal Revenue Code; or
3. Other applicable laws. (Sec. 186, LGC)
Authority to Issue Local Tax Ordinances
Q: What are the conditions in the exercise of the
residual power of taxation? Q: What are the kinds of Local Tax Ordinances?
A: A:
1. That the taxes, fees, or charges shall not 1. Those imposing a fee or tax specifically
be unjust, excessive, oppressive, authorized by the Local Government
confiscatory or contrary to declared Code for the local government units to
national policy; and impose.
2. That the ordinance levying such taxes, 2. Those imposing a fee or tax not
fees or charges shall not be enacted specifically enumerated under the LGC
without any prior hearing conducted for or taxed under the provisions of the
the purpose. (Ibid.) NIRC or other applicable laws (Sec. 186,
LGC)
Q: What are the limitations of the residual
power? Q: How shall the sanggunian levy local taxes?
240
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
1. Create its own sources of revenue; and 2. Public hearings are required before any
2. Levy taxes, fees, and charges subject to local tax ordinance is enacted (Sec. 187,
the provisions herein, consistent with LGC)
the basic policy of local autonomy.(Sec. 3. Within 10 days after their approval,
129, LGC) publication in full for 3 consecutive days
in a newspaper of general circulation. In
Note: Such taxes, fees, and charges shall accrue the absence of such newspaper in the
exclusively to the local government units. (Ibid.) province, city or municipality, then the
ordinance may be posted in at least two
Q: Who shall exercise local taxing authority? conspicuous and publicly accessible
places (Sec. 188 & 189, LGC)
A: The power to impose a tax, fee, or charge or to
generate revenue under the LGC shall be Note: The requirement of publication in full for 3
exercised by the sanggunian of the local consecutive days is mandatory for a tax ordinance to
government unit concerned through an be valid. The tax ordinance will be null and void if it
appropriate ordinance. (Sec. 132, LGC) fails to comply with such publication requirement.
(Coca-Cola v. City of Manila, G.R. No. 161893 June
Q: What are the powers incidental to local 27, 2006)
taxation?
241
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A:
1. Tax on transfer of real property
ownership (Sec. 135, LGC)
2. Tax on business of printing and
publication (Sec. 136, LGC)
3. Franchise Tax (Sec. 137, LGC)
4. Tax on sand, gravel and other quarry
resources (Sec. 138, LGC)
5. Professional tax (Sec. 139, LGC)
6. Amusement tax (Sec. 140, LGC)
7. Annual fixed tax for every delivery truck
or van of manufacturer or producers,
wholesalers of, dealers, or retailer in
certain products (Sec. 141, LGC)
242
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Note: the authority to impose taxes and fees for extraction of sand and gravel belongs to the province, and not to the
municipality where they are found. (Municipality of San Fernando La Union vs. Sta. Romana, G.R. No. L-30159, March 31,
1998)
Regalian Doctrine is not applicable. Province may not invoke the doctrine to extend the coverage of its ordinance to
quarry resources extracted from private lands.
Rationale: tax statutes are construed strictissimi juris against the government. (Province of Bulacan vs. CA, G.R. No.
126232)
243
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Professional tax
Professionals
exclusively employed
Exercise or practice of profession At such amount and reasonable
in the government
requiring government licensure classification as the sanggunian Not to exceed P300
shall be exempt from
examination panlalawigan may impose
the payment of this
tax
Date of Payment: payable annually on or before January 31 or before beginning the practice of the profession
Place of Payment: Province where he practices his profession or where the principal office is located
Note: TAX TO BE PAID ONLY ONCE. Person who has paid the corresponding professional tax shall be entitled to practice
his profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for
the practice of such profession
Amusement tax
Gross receipts from admission GR: The holding of
fees. operas, concerts,
dramas, recitals,
In case of theaters or cinemas, the painting and art
tax shall first be deducted and exhibitions, flower
withheld by their proprietors, shows, musical
lessees, or operators and paid to Not more than 10% programs, literary
Ownership, lease or operation of the provincial treasurer before the of gross receipts and oratorical
theaters, cinemas, concert halls, gross receipts are divided between from admission presentation shall be
circuses, boxing stadium and said proprietors, lessees, or fees (as amended exempt from the
other places of amusement operators and the distributors of by R.A. No. 9640, payment of
the cinematographic films. May 21, 2009) amusement tax.
XPN:
Holding of pop, rock,
or similar concerts
shall be subject to
amusement tax.
Note: The Supreme Court held that it is the intent of the Legislature not to impose VAT on persons already covered by
the amusement tax. Thus, the gross receipts derived by respondents from admission tickets in showing motion pictures,
films or movies are subjected to the Amusement Tax and not to value-added tax under the NIRC. (CIR v SM Prime
Holdings Inc., G.R. No. 183505, Feb 26, 2010)
Distribution of Proceeds: Tax shall be shared equally by the province and municipality where such amusement places are
located.
Annual fixed tax for every delivery truck or van of manufacturer or producers, wholesalers of, dealers, or retailer in
certain products
Use by manufacturers,
producers, wholesalers, dealers
or retailers of truck, van or any
vehicle in the delivery or
distribution of distilled spirits,
Exempt from tax on
fermented liquors, soft drinks,
Every truck, van or vehicle Not exceeding P500 peddlers imposed by
cigars and cigarettes, and other
municipalities
products as may be determined
by the sangguniang
panlalawigan, to sales outlets, or
consumers, whether directly or
indirectly.
244
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Q: To whom is the tax on transfer of real where he practices law or in Makati City
property ownership due? where he maintains his principal office.
(Sec. 139[b], LGC)
A: It is due from the seller of the property.
However, if the buyer is a foreign government, no 2. No, the situs of the professional tax is
such tax is due. the city where the professional
practices his profession or where he
Q: What is meant by “franchise” in the phrase maintains his principal office in case he
“tax on business enjoying a franchise under Sec. practices his profession in several
137 of the Local Government Code? places. The local government of Quezon
City has no right to collect the
A: The Congress defined it in the sense of a professional tax from Mr. Fermin as the
secondary or special franchise. It is not levied on place of residence of the taxpayer is not
the corporation simply for existing as a the proper situs in the collection of the
corporation, upon its property or income, but on professional tax. (2005 Bar Question)
its exercise of the rights or privileges granted to it
by the government. Q: Has the province authority to impose taxes on
sand, gravel and other quarry resources
Q: Who are the professionals subject to extracted on private lands?
professional tax?
A: No, A province is not expressly authorized to
A: They are those who have passed the bar do so. Such tax is a tax upon the performance,
examinations, or any board or examinations carrying on, or exercise of an activity, hence an
conducted by the Professional Regulation excise tax upon an activity already being taxed
Commission (PRC). under the NIRC. (Province of Bulacan, et. al., v. CA
G.R.No. 126232, Nov. 27, 1998)
e.g. A lawyer who is also a Certified Public
Accountant (CPA) must pay the professional tax Q: What is amusement and amusement places
imposed on lawyer and that fixed for CPAs, if he is as defined under the LGC?
to practice both professions.
A:
Note: Municipalities cannot impose professional tax 1. Amusement is a pleasurable diversion
since such power is reserved only to provinces and and entertainment. It is synonymous to
cities. relaxation, avocation, pastime, or fun;
2. Amusement places include theaters,
Q: Mr. Fermin, a resident of Quezon City, is a cinemas, concert halls, circuses and
Certified Public Accountant-Lawyer engaged in other places of amusement where one
the practice of his two professions. He has his seeks admission to entertain oneself by
main office in Makati City and maintains a seeing or viewing the show or
branch office in Pasig City. Mr. Fermin pays his performances. Sec. 131[b] and [c], LGC)
professional tax as a CPA in Makati City and his
professional tax as a lawyer in Pasig City. Q: What are the amusement places upon which
1. May Makati City, where he has his main provinces or cities cannot impose amusement
office, require him to pay his professional taxes?
tax as a lawyer? Explain.
A:
2. May Quezon City, where he has his 1. Cockpits
residence and where he also practices his 2. Cabarets
two professions, go after him for the 3. Night or day clubs
payment of his professional tax as a CPA 4. Boxing exhibitions
and a lawyer? Explain. 5. Professional basketball games
6. Jai-Alai
A: 7. Racetracks
1. No. Makati City where Mr. Fermin has
his main office may not require him to Note: There can be no imposition of amusement
pay his professional tax as a lawyer. Mr. taxes on the above amusement places since the
Fermin has the option of paying his NIRC already imposes amusement taxes on them
professional tax as a lawyer in Pasig City under Section 125 thereof.
245
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: May LGUs collect amusement taxes on Q: What are the taxes that a municipality may
admission tickets to the Philippine Basketball impose under the LGC?
Association (PBA) games?
A:
A: No. Professional basketball games are within 1. Tax on business (Sec. 143, LGC)
the ambit of national taxation as it is presently 2. Fees and charges on business and
being taxed under the provisions of the NIRC. occupation (Sec. 147, LGC)
Furthermore, the income from cession of 3. Fees for sealing and licensing of weights
streamers and advertising spaces is subject to and measures (Sec. 148, LGC)
amusement taxes under the NIRC because the 4. Fishery rentals, fees and charges (Sec.
definition under the Tax Code is broad enough to 149, LGC)
include the cession of streamers and advertising
spaces as the same includes all the receipts of the Q: What are the businesses under Section 143 of
proprietor, lessee or operator of the amusement the Local Government Code upon which
place. (Philippine Basketball Association v. CA, municipalities may impose business taxes?
G.R. No. 119122, Aug. 8, 2000)
A: ManWhoRE-COP-B
1. On Manufacturers, assemblers,
Taxing Powers of Cities repackers, processors, brewers,
distillers, rectifiers, and compounders of
Q: What is the scope of the taxing power of a liquors, distilled spirits, and wines or
city? manufacturers of any article of
commerce of whatever kind or nature;
A: The city, may levy the taxes, fees, and charges 2. On Wholesalers, distributors, or dealers
which the province or municipality may impose, in any article of commerce of whatever
except as otherwise provided in the LGC. Those kind or nature;
levied and collected by highly urbanized and 3. On exporters, and on manufacturers,
independent component cities shall accrue to millers, producers, wholesalers,
them and distributed in accordance with the distributors, dealers or retailers of
provisions of LGC. (Sec. 151, LGC) Essential commodities;
4. On Retailers;
Note: The rates of taxes that the city may levy may 5. On Contractors;
exceed the maximum rates allowed for the province 6. Banks and other financial institutions;
or municipality by not more than fifty percent (50%) 7. Peddlers;
except the rates of professional and amusement 8. Other business not specified which the
taxes. (Ibid.) sanggunian concerned my deem proper
to tax.
Cities have the broadest taxing powers, embracing
both specific and general powers as provinces and
Q: What is Wholesale?
municipalities may impose.
246
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
A: Includes persons, natural or juridical, not A: Peddler means any person who, either for
subject to professional tax under Section 139 of himself or on commission, travels from place to
the Code, whose activity consists essentially of place and sells his goods or offers to sell and
the sale of all kinds of services for a fee, deliver the same. (Sec. 131[t], LGC).
regardless of whether or not the performance of
the service calls for the exercise of the use of the Q: What are considered Essential Commodities?
physical or mental faculties of such contractor or
his employees. A:
1. Rice and corn
Q: What are the conditions to which other 2. Wheat or cassava flour, meat, dairy
businesses not specified may the sanggunian products, locally manufactured,
concerned deem proper to tax? processed or preserved food, sugar, salt
A: and other agricultural, marine and fresh
1. Business not subject to Vat or water products, whether in their
percentage tax under the NIRC; and original state or not
2. Tax rate not to exceed 2% of the gross 3. Cooking oil and cooking gas
sales/receipts of the preceding calendar 4. Laundry soap, detergents, and medicine
year. 5. Agricultural implements, equipment
and post-harvest facilities, fertilizers,
Note: “When a municipality or city has already pesticides, insecticides, herbicides, and
imposed a business tax on manufacturers, etc. of other farm inputs
liquors, distilled spirits, wines, and any other 6. Poultry, feeds and other animal feeds
article of commerce pursuant to Section 143(a) of 7. School supplies
the LGC, said municipality or city may no longer 8. Cement
subject the same manufacturers, etc. to a
business tax under section 143(h) of the same
Code. Section 143(h) may be imposed only on
247
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
PERSON/ENTITIES
TAX BASE TAX RATE EXCEPTION
SUBJECT TO TAX
Tax on Business
Manufacturers, assemblers, GRADUATED ANNUAL FIXED
Based on the taxpayer’s gross
repackers, processors, brewers, TAX
sales or receipts for the preceding
distillers, rectifiers, and calendar year.
compounders of liquors, distilled
spirits and wines or manufacturers
of any article of commerce of Gross sales or receipts amount to Ceases to be a fixed tax,
whatever kind or nature. (Sec. P6,500,000 or more for the instead a PERCENTAGE TAX
143[a]) preceding calendar year of 37.5% of 1% is imposed.
248
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Tax on Retirement of Business A: The municipality may impose and collect such
reasonable fees and charges on business and
Q: When is a business considered officially occupation except professional taxes reserved for
retired? provinces (Sec. 147, LGC)
1. Fees for Sealing and Licensing of
A: Weights and Measures (Sec. 148, LGC)
1. A business subject to tax shall, upon 2. Fishery Rentals, Fees and Charges,
termination thereof, submit a sworn including the authority to grant fishery
statement of its gross sales or receipts privileges within municipal waters, as
for the current year. well as issue licenses for the operation
2. If the tax paid during the year be less of fishing vessels of three tons or less.
than the tax due on said gross sales of 3. The sanggunian may penalize the use of
receipts of the current year, the explosives, noxious or poisonous
difference shall be paid before the substances, electricity, muro –ami, and
business is considered officially other deleterious methods of fishing
retired.(Sec. 145, LGC) and prescribe a criminal penalty
therefore. (Sec. 149, LGC)
Rules on Payment of Business Tax Note: Principal is the head or main office of the
business appearing in the pertinent documents
Q: How is Payment of Business Taxes submitted to the SEC, or DTI, or other appropriate
conducted? agencies, as the case may be.
A:
1. Taxes shall be payable for every
separate or distinct establishment or
place where business subject to the tax
is conducted and one line of business
does not become exempt by being
conducted with some other business for
which such tax has been paid.
2. The tax on a business must be paid by
the person conducting the same.
3. In cases where a person conducts or
operates 2 or more of the businesses
mentioned in Section 143 of LGC which
are subject to:
a. Same rate of tax – the tax shall be
computed on the combined total
gross sales or receipts of the said 2
or more related business.
249
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A:
SITUATION RECOGNITION OF SALE PAYMENT OF TAX
All sales made in the locality
With branch or sales office or The tax shall be payable to the city or
where the branch or office or
warehouse municipality where the same is located.
warehouse is located
The municipality where the sale
or transaction is made.
The tax shall accrue to the city or
Where there is no branch or sales The sale shall be recorded in
municipality where said principal office is
office or warehouse the principal office along with
located.
the sales made by said principal
office
Branch office – a fixed place in a locality which conducts operations of the business as an extension of the principal office.
Principal office – head or main office of the business appearing in pertinent documents submitted to the SEC and
specifically mentioned in the Articles of Incorporation.
Where there is a factory, project Of all sales recorded in the principal office:
All sales shall be recorded in the
office, plant or plantation in pursuit of 1. 30% taxable to the city or municipality
principal office.
business where the principal office is located.
If plantation is at a place other than All sales shall be recorded in the 2. 70% taxable to the city or municipality
where the factory is located principal office. where the factory, plant, etc. is located.
Note: in case of manufacturers or producers which engage the services of an independent contractor to produce or
manufacture some of their products, these rules shall apply except that the factory or plant and warehouse of the
contractor utilized for the production and storage of the manufacturers’ products shall be considered as the factory
or plant and warehouse of the manufacturer. (IRR)
The city or municipality where the port of loading is located shall not levy and collect reasonable fees unless the
exporter maintains in said city or municipality its principal office, a branch, sales office, or warehouse, factory, plant
or plantation in which case, the rule on the matter shall apply accordingly. (IRR)
Sales Tax – With respect to sale, it is the place of the consummation of the sale, associated with the delivery of the
things which are the subject matter of the contract that determines the situs of the contract for purposes of
taxation, and not merely the place of the perfection of the contract. (Shell Co., Inc. v. Municipality of Sipocot,
Camarines Sur, 105 Phil 1263)
250
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
A:
FEES AND
SOURCES OF REVENUE TAX BASE TAX RATE
CHARGES
Gross sales receipts for
preceding calendar year of
BARANGAY TAXES – On stores or P50,000 or less (for barangay Not exceeding 1% of
retailers with fixed business in the cities); and such gross sales or
establishments receipts.
P30,000 or less (for barangay
and municipalities
SERVICE FEES OR CHARGES Services rendered in Reasonable Fees or
connection with the regulation charges
or the use of barangay-owned
properties; or
Service facilities such as palay,
copra, or tobacco dryers
BARANGAY CLEARNCE Reasonable fee
as the
Sanggunian
Barangay may
impose
OTHER FEES AND CHARGES Reasonable fees
a. Commercial breeding of and charges as
fighting cocks, cockfights and the barangay
cockpits may levy.
b. Places of recreation which
charge admission fees
c. Billboards, signboards, neon
signs and outdoor
advertisements
Common Revenue Raising Powers use of any public road, pier, or wharf,
waterway, bridge, ferry or
telecommunication system funded and
Service Fees and Charges, Public Utility Charges, constructed by the local government
Toll Fees or Charges unit concerned. (Sec. 155, LGC)
Q: What are the common revenue raising Q: Who are exempted from payment of tolls,
powers of LGUs? fees or other charges?
A: A: HOP
1. Fees, service or user charges – LGUs 1. Officers and enlisted men of the Armed
may impose and collect such reasonable Forces of the Philippines and members
fees and charges for services rendered. of PNP on mission
(Sec. 153, LGC) 2. Post office personnel delivering mail
2. Public utility charges – may fix the rates 3. Physically Handicapped and disabled
for the operation of public utilities citizens, 65 years or older. (Ibid.)
owned, operated and maintained by
them within their jurisdiction. (Sec. 154, Q: May LGUs discontinue the collection of tolls?
LGC)
3. Toll fees or charges – The sanggunian A: The sanggunian concerned may discontinue
concerned may prescribe the terms and the collection of the tolls when public safety and
conditions and fix the rates for the welfare so requires. Thereafter, the said facility
imposition of toll fees or charges for the
251
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
252
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
A: The exercise of the taxing powers of provinces, Note: LGUs may impose tax on a
cities, municipalities, and barangays shall not petroleum business. A tax on business is
extend to the levy of the following: IDE-C3AP3- distinct from a tax on the article itself
MENT (Phil. Petroleum Corporation vs
1. Income tax, except when levied on Municipality of Pililia Rizal, G.R. No.
banks and other financial institutions; 90776, June 3, 1991)
2. Documentary stamp tax;
3. Taxes on estates, inheritance, gifts, 9. Percentage or value-added tax (VAT) on
legacies and other acquisitions mortis sales, barters or exchanges or similar
causa, except as otherwise provided transactions on goods or services
under the LGC; exception: tax on except as otherwise provided herein;
transfer of real property (Sec. 135, LGC) 10. Taxes on the gross receipts of
4. Customs duties, registration fees of transportation contractors and persons
vessel and wharfage on wharves, engaged in the transportation of
tonnage dues, and all other kinds of passengers or freight by hire and
253
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
254
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Tax Period and Manner of Payment Q: Who has the authority to collect such taxes,
fees and charges?
Q: What is tax period for the collection of taxes?
A: Provincial, city, municipal, or barangay
A: It is based on calendar year, unless otherwise treasurer, or their duly authorized deputies. (Sec.
provided (Sec. 165 LGC) 170, LGC)
Q: What is the manner of payment of the taxes? Q: Who has the authority to inspect the books of
persons or association?
A: It may be paid in quarterly instalments. (Sec.
165, LGC) A: The local treasurer or his deputy duly
authorized in writing, may examine the books,
accounts and other pertinent records of any
255
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
person, or association to ascertain and collect the local treasurer contesting the
correct amount of tax. Examination shall be made assessment; otherwise the
during the regular business hours, only once for assessment shall become final and
every tax period, and shall be certified to by the executory.
examining official. (Sec. 171, LGC) iii. The local treasurer shall decide the
protest within sixty (60) days from
the time of its filing. If the local
Taxpayer’s Remedies treasurer finds the assessment to
be wholly or partly correct, he shall
Q: What are the remedies available to the deny the protest wholly or partly
taxpayer under local government taxation? with notice to the taxpayer.
iv. The taxpayer shall have thirty (30)
A: days from the receipt of the denial
1. Protest assessment of the protest or from the lapse of
2. Claim for refund or tax credit the sixty (60) day period prescribed
3. Judicial action herein within which to appeal with
the court of competent jurisdiction
A. Prior to assessment otherwise the assessment
becomes conclusive and
1. Administrative appeal to the Secretary unappealable. (Sec. 195, LGC)
of Justice v. The competent court referred to is
i. Administrative appeal to the the Regional Trial Court (RTC)
Secretary of Justice questioning which acts in the exercise of its
the constitutionality or legality original jurisdiction.
within 30 days from the effectivity
of the tax ordinance or revenue 2. Action for refund
measure; i. A written claim for refund or credit
ii. Secretary of Justice shall render a is filed with the local treasurer.
decision within sixty (60) days from ii. A claim or proceeding is then filed
date of receipt of the appeal with the court of competent
iii. Within thirty (30) days after receipt jurisdiction (depending upon the
of the decision or the lapse of sixty jurisdictional amount) within two
day period without action from the (2) years from the date of the
Secretary of Justice, aggrieved payment of such tax, fee, or
party may file appropriate charge, or from the date the
proceedings with a court of taxpayer is entitled to a refund or
competent jurisdiction. credit. (Sec. 196, LGC)
Note: such appeal shall not have the Note: The filing of a written claim for refund
effect of suspending the effectivity of with the local treasurer is a condition
the ordinance and the accrual of the precedent for maintaining a court action.
payment of the tax, fee, or charge
levied therein (Sec. 187, LGC) C. Judicial Remedies
1. Court Action
2. Action for declaratory relief i. Within 30 days after receipt of
decision or lapse of 60 days in case
of Secretary of Justice’s inaction
B. After an assessment (Sec. 187, LGC)
1. Protest of the assessment ii. Within 300 days from receipt when
i. When the correct tax, fee or protest of assessment is denied or
charge is not paid, the Local lapse of 60 days in case of local
Treasurer shall issue a notice of treasurer’s inaction (Sec. 195, LGC)
assessment within the applicable iii. If no action is taken by the
prescriptive period. (Sec. 184, LGC) treasurer in refund cases and the
stating the nature of the levy, the two year period is about to lapse
amount of deficiency, the (Sec. 195, LGC)
surcharges, interests and penalties.
ii. The taxpayer may file a written
protest of the assessment with the
256
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
iv. If remedies available does not Q: When is the running of the prescriptive period
provide plain, speedy and suspended?
adequate remedy.
2. Action for declaratory relief A: The running of the periods of prescription
provided in the preceding paragraphs shall be
suspended for the time during which: Pre-Req-OC
Periods of Assessment and Collection of
Local Taxes, Fees or Charges 1. The treasurer is legally Prevented from
making the assessment of collection;
Q: What is the period of assessment of local 2. The taxpayer Requests for a
taxes? reinvestigation and executes a waiver in
writing before expiration of the period
A: within which to assess or collect; and
GR: Local taxes, fees, or charges shall be 3. The taxpayer is Out of the Country or
assessed within five (5) years from the date otherwise cannot be located. (Sec.
they became due. No action for the collection 195[d], LGC)
of such taxes, fees, or charges, whether
administrative or judicial, shall be instituted
after the expiration of such period.
257
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Protest of Assessment
A:
Assessment is made by local treasurer
Assessment becomes
conclusive and unappealable
(Sec. 195, LGC) Taxpayer has 30 days from
receipt of the denial of the
protest or from lapse of the
60 day period prescribed to
appeal with a court of
competent jurisdiction
Note: The competent court referred to is the Regional Trial Court (RTC) which acts in the exercise of its original
jurisdiction.
258
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Claim for Refund of Tax Credit for Erroneously or Local Government’s Lien for
Illegally Collected Tax, Fee or Charge Delinquent Taxes, Fees or Charges
A:
1. Local government lien
2. Civil remedies
a. Distraint of personal property
b. Levy of real property
c. Judicial action (Secs. 173 & 174,
LGC)
259
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Administrative Action
Failure of the person owing any local tax, Local treasurer or his deputy issues written notice
fee, or charge to pay the same at the time to the taxpayer concerned informing to seize or
required (Sec. 175[a], LGC) confiscate any personal property belonging to
that person or any personal property subject to
the lien in sufficient quantity to satisfy the tax,
fee, or charge in question, together with any
The officer executing the distraint shall
increment thereto incident to delinquency and
make or cause to be made an account of
the expenses of seizure (Sec. 175[a], LGC)
the goods, chattels or effects distrained, a
copy of which signed by himself shall be left
either with the owner or person from
whose possession the goods, chattels or
effects are taken, or at the dwelling or place The local treasurer or his deputy shall issue a duly
of business of that person and with authenticated certificate based upon the records
someone of suitable age and discretion, to of his office showing the fact of delinquency and
which list shall be added a statement of the the amounts of the tax, fee, or charge and
sum demanded and a note of the time and penalty due. Such certificate shall serve as
place of sale (Sec. 175[b], LGC) sufficient warrant for the distraint of personal
property aforementioned, subject to the
taxpayer’s right to claim exemption under the
The officer shall forthwith cause a provisions of existing laws (Sec. 175[a], LGC)
notification to be exhibited in not less than
three (3) public and conspicuous places in
the territory of the local government unit Should the property distrained be not disposed of
where the distraint is made, specifying the within one hundred and twenty (120) days from
time and place of sale, and the articles the date of distraint, the same shall be considered
distrained.(Sec. 175[c], LGC) as sold to the local government unit concerned
for the amount of the assessment made thereon
Note: The time of sale shall not be less than by the Committee on Appraisal and to the extent
twenty (20) days after the notice to the owner of the same amount, the tax delinquencies shall
or possessor of the property as above be cancelled. (Sec. 175 [e], LGC)
specified and the publication or posting of the
notice. One place for the posting of the notice
shall be at the office of the chief executive of
the local government unit in which the
The proceeds of the sale shall be applied to
property is distrained. (Sec. 175[c], LGC)
satisfy the tax, including the surcharges, interest,
and other penalties incident to delinquency, and
the expenses of the distraint and sale.
At the time and place fixed in the notice,
the officer conducting the sale shall sell the Note: The expenses chargeable upon the seizure and
goods or effects so distrained: sale shall embrace only the actual expenses of the
a. At a public auction; seizure and preservation of the property pending the
b. To the highest bidder for cash sale, and no charge shall be imposed for the services
of the local officer or his deputy. (Sec. 175[f], LGC)
Note: Within five (5) days after the sale, the
local treasurer shall make a report of the
proceedings in writing to the local chief
executive concerned (Sec. 175 [e], LGC) Where the proceeds of the sale are insufficient to
satisfy the claim, other property may, in like
Note: If at any time prior to the consummation manner, be distrained until the full amount due,
of the sale, all the proper charges are paid to including all expenses, is collected (Sec. 175 [f],
the officer conducting the sale, the goods or LGC)
effects distrained shall be restored to the
owner (Sec. 175[d], LGC) Note: The balance over and above what is required
to pay the entire claim shall be returned to the
owner of the property sold. (Sec. 175 [f], LGC)
260
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Failure of the person owing any local tax, Levy of real property before,
fee, or charge to pay the same at the simultaneously or after distraint of
time required. (Sec. 176, LGC) personal property belonging to the
delinquent taxpayer.
Written notice of the levy shall be mailed The provincial city or municipal treasurer
to or served upon the: shall:
a. assessor and a. prepare a duly authenticated
b. Register of Deeds of the certificate
province or city where the b. showing the name of the
property is located who shall taxpayer and the amount of
annotate the levy on the tax the tax, fee, or charge, and
declaration and certificate of penalty due from him. (Sec.
title of the property, 176, LGC)
respectively, and
c. delinquent taxpayer or,
d. if he be absent from the Report on levy within ten (10) days from
Philippines, to his agent or the levy by the levying officer. (Sec. 176, LGC)
manager of the business in
respect to which the liability
arose, or Advertisement of the sale of the property
e. if there be none, to the through sale or auction within 30 days
occupant of the property in after levy. The advertisement shall be
Sale of levied property (Sec. 178, LGC)
question. (Sec. 176, LGC) effected by:
a. Posting notice in the main
entrance of the municipal
Within thirty (30) days after the sale, the building or city hall and
local treasurer or his deputy shall make a conspicuous place in the
report of the sale to the sanggunian barangay where the real
concerned, and which shall form part of property is located
his records. (Sec. 178, LGC) b. Publication once a week for 3
consecutive weeks in a
newspaper of general
The local treasurer shall
circulation in the province, city
purchase the property on
or municipality where the
behalf of the LGU if:
Issuance of the certificate of sale property is located.
to the purchaser. (Sec.
(Sec. 178,178,
LGC)
a. There is no bidder
LGC)
b. The highest bid is
insufficient to pay
the deficiency tax
(Sec. 181, LGC) The delinquent taxpayer has one If property is not
(1) year from the date of sale to redeemed, a final
redeem the property. If property is deed of sale shall be
redeemed, a certificate of issued to the
If not redeemed, ownership shall
redemption will be issued (Sec. purchaser. (Sec. 180,
be fully vested on the LGU
179, LGC) LGC)
concerned. (Sec 181, LGC)
261
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: May the levy of real property be 2. One (1) horse, cow, carabao, or other
simultaneously issued with the warrant of Beast of burden, such as the delinquent
distraint? taxpayer may select, and necessarilly
used by him in his ordinary occupation;
3. His necessary Clothing, and that of all
A: Yes. The levy of a real property may be made his family;
before or simultaneous with distraint. In case the 4. Household furniture and utensils
levy on real property is not issued before or necessary for housekeeping and used
simultaneously with the warrant of distraint on for that purpose by the delinquent
personal property, and the personal property of taxpayer, such as he may select, of a
the taxpayer is not sufficient to satisfy his value not exceeding Ten thousand
delinquency, the provincial, city or municipal pesos (P10,000.00)
treasurer, as the case may be, shall within thirty 5. Provisions, including crops, actually
(30) days after execution of the distraint, proceed provided for individual or family use
with the levy on taxpayer’s real property. (Sec. sufficient for four (4) months;
176, LGC) 6. The professional Libraries of doctors,
engineers, lawyers and judges;
Q: When may LGU purchase real property 7. One fishing Boat and net, not exceeding
advertised for sale? the total value of Ten thousand pesos
(P10,000.00), by the lawful use of which
A: a fisherman earns his livelihood; and
1. No bidder for the real property 8. Any Material or article forming part of a
2. If the highest bid is for an amount house or improvement of any real
insufficient to pay the taxes, fees, or property. (Sec. 185, LGC)
charges, related surcharges, interests,
penalties and costs
Penalty on Local Treasurer for Failure to Issue
and Execute Warrant of Distraint or Levy
Further Distraint or Levy
Q: What is the penalty on the local treasurer for
Q: May the local government repeat the failure to issue and execute the warrant?
remedies of distraint and levy?
A: Automatically dismissed from service after
A: The remedies by distraint and levy may be notice and hearing, if found guilty of abusing the
repeated if necessary until the full amount due, exercise thereof by competent authority, without
including all expenses, is collected. (Sec. 184, LGC) prejudice to criminal prosecution under the RPC
and other applicable laws. (Sec. 177, LGC)
Q: What are the properties exempt from Q: How does the LGU concerned enforce the
distraint or levy? judicial remedy in collection of taxes?
A: The following property shall be exempt from A: The LGU concerned may enforce the collection
distraint and the levy, attachment or execution of delinquent taxes, fees, charges and other
thereof for delinquency in the payment of any revenues by civil action in any court of competent
local tax, fee or charge, including the related jurisdiction. The civil action shall be filed by the
surcharge and interest: ToBe-ChoP-LBM local treasurer within five (5) years from
1. Tools and implements necessarily used delinquent taxes, fees or charges become due.
by the delinquent taxpayer in his trade
Note: The local government files an ordinary suit for
or employment;
the collection of sum of money before the MTC, RTC
or CTA depending upon the jurisdictional amount.
262
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
MTC
If principal amount of taxes, fees, exclusive of charges and penalties does not
Original exceed P300,000 or P400,000 in Metro Manila
RTC
If principal amount of taxes, fees exclusive of charges and penalties exceeds
P300,000 or P400,000 in Metro Manila
Original
Provided, the amount is less than 1 million
The RTC shall exercise appellate jurisdiction over all cases decided by the MeTC,
Appellate MTC, and MCTC in their respective territorial jurisdiction
CTA DIVISION
If principal amount of taxes, fees exclusive of charges and penalties is P 1 million or
Original above
Over appeals from the judgments, resolutions or orders of the RTC in tax collection
Appellate cases originally decided by them in their respective jurisdiction.
CTA EN BANC
1. Decisions or resolutions over petitions for review of the Court in Divisions in
the exercise of its exclusive appellate jurisdiction over local taxes decided by
the RTC in the exercise of their original jurisdiction;
2. Over Petitions for review of the judgments, resolutions or orders of the RTC in
the exercise of their appellate jurisdiction over tax collection cases originally
decided by the MeTC, MTC and MCTC in their respective territorial
Appellate jurisdiction.
Note:
JURISDICTION OF COURTS OVER LOCAL TAXATION CASES
1. With the amendment brought by R.A. No. 9282, the CTA now has appellate jurisdiction over local taxation
cases decided by the RTC in the exercise of its appellate or original jurisdiction.
2. Regular judicial courts are not prohibited from enjoining the collection of local taxes, subject to Rule 58
(preliminary injunction) of the Rules of Court.
263
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
TABLE FOR TAXPAYER’S REMEDIES FROM ASSESSMENT OF LOCAL TAXES OTHER THAN REAL PROPERTY
TAXES – LOCAL GOVERNMENT CODE
yes no
LT issues notice
cancelling
If Division
partially/wholly
decides against
the assessment
taxpayer, file
(Sec. 195, LGC)
MR within 15
days with the
same division
MR is denied, file
end Appeal to SC petition for review
with CTA en banc
264
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
265
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the requisites for taxability of an Corporation v. CBAA, G.R. No. L-46245 May 31,
improvement? 1982)
266
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
267
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What can be considered as idle lands? Q: What is the purpose of imposing ad valorem
taxes on idle land?
A:
1. Agricultural lands: A: To penalize property owners who do not use
a. more than one (1) hectare in area their property productively. It is also designed to
b. suitable for cultivation, dairying, encourage utilization of land resources in order to
inland fishery, and other contribute to national development.
agricultural uses
c. one-half (1/2) of which remain Q: A city outside of Metro Manila plans to enact
uncultivated or unimproved by the an ordinance that will impose a special levy on
owner or person having legal idle lands located in residential subdivisions
interest. within its territorial jurisdiction in addition to
the basic real property tax. If the lot owners of a
Note: Agricultural lands planted to subdivision located in the said city seeks your
permanent or perennial crops with at legal advice on the matter, what would your
least fifty (50) trees to a hectare shall advice be? Discuss.
not be considered idle lands. Lands
actually used for grazing purposes
A: I would advise the lot owners that a city, even
shall likewise not be considered idle
if it is outside Metro Manila, may levy an annual
lands.
tax on idle lands at the rate not exceeding five
percent (5%) of the assessed value of the
2. Lands other than agricultural:
property which shall be in addition to the basic
a. Located in a city or municipality
real property tax. (Sec. 236, LGC) I would likewise
b. More than one thousand (1,000)
advise them that the levy may apply to residential
square meters in area
lots, regardless of land area, in subdivisions duly
c. One-half (1/2) of which remain
approved by proper authorities, the ownership of
unutilized or unimproved by the
which has been transferred to individual owners
owner or person having legal
who shall be liable for the additional tax. (Last
interest.
par., Sec. 237, LGC)
Regardless of land area, this
Finally, I would advise them to construct or place
Section shall apply to residential
improvements on their idle lands by making
lots in subdivisions duly approved
valuable additions to the property or
by proper authorities, the
268
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
ameliorations in the land's conditions so the lands filtering, conveying and cleansing mine
would not be considered as idle. (Sec. 199[m], industrial waste and tailings as well as
LGC) In this manner their properties would not be eliminating or reducing hazardous effects
subject to the ad valorem tax on idle lands. (2005 of solid particles, chemicals, liquids or
Bar Question) other harmful by products and gases
emitted from any facility utilized in mining
operations for their disposal (R.A.No.
7942, Sec. 3,am)
Exemption from Real Property Tax
Except as herein provided, any
Q: Under the Local Government Code, what
exemption from payment of real
properties are exempt from real property taxes?
property tax previously granted to, or
presently enjoyed by all persons,
A: RP-PWC
whether natural or juridical, including
1. Real property owned by the Republic of
all government-owned or controlled
the Philippines or any of its political
corporations, are hereby withdrawn
subdivisions except when the
upon the effectivity of the LGC.
beneficial use thereof has been granted
for consideration or otherwise to a
Note: A taxpayer claiming exemption must submit
taxable person.
sufficient documentary evidence to the local
assessor within thirty (30) days from the date of the
2. Charitable institutions, churches, declaration of real property; otherwise, it shall be
parsonages, or convents appurtenant listed as taxable in the Assessment Roll. (Sec. 206,
thereto, mosques, non-profit or LGC)
religious cemeteries, and all lands,
buildings, and improvements actually, Q: The Light Rail Transit Authority (LRTA)
directly and exclusively used for resolutely argues that the improvements such
religious, charitable, or educational as, carriageways, passenger terminal stations
purposes. and similar structures, not of its properties, but
of the government-owned national roads to
Note: the tax exemption herein rest on which they are immovably attached. They are
the premise that they are actually, directly thus not taxable as improvements under the
and exclusively used by said entities or Real Property Tax Code. It contends that to
institution s for their stated purposes and
impose a tax on the carriageways and terminal
not necessarily because they are owned
stations would be to impose taxes on public
by religious, charitable or educational
institutions.
roads.
3. All machineries and equipment that are Are the LRT improvements subject to real
actually, directly and exclusively used by property tax?
local Water utilities and government-
owned or controlled corporations A: Yes. While it is true that carriageways and
engaged in the supply and distribution terminal stations are anchored, at certain points,
of water and/or generation and on public roads, said improvements do not form
transmission of electric power. part of the public roads since the former are
constructed over the latter in such a way that the
4. All real property owned by duly flow of vehicular traffic would not be impaired.
registered Cooperatives as provided for The carriageways and terminals serve a function
under RA 6938. different from the public roads. The former are
part and parcel of the light rail transit (LRT)
5. Machinery and equipment used for system which, unlike the latter, are not open to
Pollution control and environmental use by the general public. The carriageways are
protection. (Sec. 234, LGC) (2002 Bar accessible only to the LRT trains, while the
Question) terminal stations have been built for the
convenience of LRTA itself and its customers who
Note: Pollution control and infrastructure pay the required fare. Even granting that the
devices refers to infrastructure, national government owns the carriageways and
machinery, equipment and/or terminal stations, the property is not exempt
improvements used for impounding, because their beneficial use has been granted to
treating or neutralizing, precipitating,
269
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
270
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
exemption of the machineries and equipment Q: Distinguish “fair market value” from
from RPT on the ground of its exemption from “assessed value”.
taxes and the provision under the BOT
Agreement whereby Napocor assumes A:
responsibility for all real estate taxes. Is Napocor FAIR MARKET VALUE ASSESSED VALUE
liable to pay tax? As to determination
Determined by the
Declared by the owner
A: Under Sec. 234(c) of the LGC of 1991, application of the
subject to final
assessment level to the
machineries and equipment actually, directly and determination by the
FMV. It is synonymous to
exclusively used by a government-owned or assessor.
the taxable value.
controlled corporation are exempt from real As to basis
property tax. BPPC, not being a GOCC, is not Merely a percentage of
entitled to the Sec. 234(c) exemption. Napocor, Supposed to be the actual
the FMV depending on
value of the real property
not being the actual, direct and exclusive user of the assessment level of
in the open market.
the machineries and equipment, cannot invoke the property in question.
the Sec. 234(c) exemption either. (National Power
Corp. v. CBAA, G.R. No. 171470, January 30, 2009) Q: What are the approaches in estimating the
fair market value of real property for RPT
Q: Is GSIS exempt from real property taxes? purposes?
A:
a. Assessor of the province/city or
municipality may summon the
owners of the properties to be
affected and may take depositions
concerning the property, its
ownership, amount, nature and value
(Sec. 213, LGC)
271
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Quezon City passed an ordinance which Q: What are the limitations of local government
contains a proviso, to wit: to administer, appraise, levy and collect real
property taxes?
“The parcels of land sold, ceded, transferred and
conveyed for remuneratory consideration after A:
the effectivity of this revision shall be subject to 1. Authorization Limitation –the Local
real estate tax based on the actual amount Government Code authorizes only
reflected in the deed of conveyance or the certain LGUs to administer real property
current approved zonal valuation of the Bureau taxation. (Sec. 200, LGC)
of Internal Revenue prevailing at the time of the 2. Fundamental principles of appraisal,
sale, cession, transfer and conveyance, whoever assessment, levy and collection of real
is higher, as evidenced by the certificate of property taxes. (Sec. 198, LGC)
payment of the capital gains tax issued 3. The real property taxes collected shall
therefore.” accrue solely to the benefit of the local
government unit concerned. (Sec. 5,
Is the said proviso valid? Art. X, 1987 Constitution)
A: No. The said proviso mandates an exclusive Q: May local governments impose an annual
rule in determining the fair market value and realty tax in addition to the basic real property
departs from the established procedures such as tax on idle or vacant lots located in residential
sales analysis approach, the income capitalization subdivisions within their respective territorial
approach and reproduction cost approach under jurisdictions?
the rules implementing the statute. (Local
Assessment Regulation No. 1-92) It unduly A: Not all local government units may do so. Only
interferes with the duties statutorily placed upon provinces, cities, and municipalities within the
the local assessor by completely dispensing with Metro Manila area (Sec. 232, Local Government
his analysis and discretion which the LGC ad the Code) may impose an ad valorem tax not
regulations require to be exercised. (Allied exceeding five percent (5%) of the assessed value
Banking Corporation, v. Quezon City Government, (Sec. 236, Ibid.) of idle or vacant residential lots in
G. R. No. 154126, Oct. 11, 2005) a subdivision, duly approved by proper
authorities regardless of area. (Sec.237, Ibid.)
(2000 Bar Question)
Rule on Appraisal of Real Property
at Fair Market Value Q: The real property of Mr. and Mrs. Angeles,
situated in a commercial area in front of the
Q: Give the fundamental principles of appraisal, public market, was declared in their Tax
assessment, levy and collection of real property Declaration as residential because it had been
taxes. used by them as their family residence from the
time of its construction in 1990. However, since
A: The appraisal, assessment, levy and collection January 1997, when the spouses left for the
of real property tax shall be guided by the United States to stay there permanently with
following fundamental principles: CAULE their children, the property has been rented to a
single proprietor engaged in the sale of
272
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
appliances and agri-products. The Provincial c. The schedule of fair market values
Assessor reclassified the property as commercial shall be published in a newspaper
for tax purposes starting January 1998. Mr. and of general circulation in the
Mrs. Angeles appealed to the Local Board of province, city or municipality
Assessment Appeals, contending that the Tax concerned or in the absence
Declaration previously classifying their property thereof, shall be posted in the
as residential is binding. How should the appeal provincial capitol, city or municipal
be decided? hall and in two other conspicuous
public places therein. (Sec. 212,
A: The appeal should be decided against Mr. and LGC)
Mrs. Angeles. The law focuses on the actual use
of the property for classification, valuation and 2. Determining the assessed value - To
assessment purposes regardless of ownership. determine the assessed value, the fair
Section 217 of the Local Government Code market value of the property is
provides that "real property shall be classified, multiplied by the assessed level as
valued, and assessed on the basis of its actual use determined from an ordinance
regardless of where located, whoever owns it, promulgated by the sanggunian
and whoever uses it". (2002 Bar Question) concerned.
Q: Give the steps in the assessment and 3. Determining the real property tax -
collection of real property tax? Real property tax is computed by
multiplying the with the applicable RPT
A: rate.
1. Declaration of real property.
2. Listing of real property in the
assessment rolls. Declaration of Real Property
3. Appraisal and valuation of real
property. Q: Who shall declare the real property?
4. Determination of assessed value and
RPT. A: It shall be the duty of all persons, natural or
5. Payment and collection of tax. juridical, owning or administering real property,
including the improvements therein, within a city
Q: Define assessed value. or municipality, or their duly authorized
representative, to prepare, or cause to be
A: Assessed value is the fair market value of the prepared, and file with the provincial, city or
real property multiplied by the assessment level. municipal assessor, a sworn statement declaring
It is synonymous to taxable value. (Sec.199(h), the true value of their property, whether
LGC) previously declared or undeclared, taxable or
exempt, which shall be the current and fair
Q: Discuss the procedure in: market value of the property, as determined by
1. Preparation of Schedule of Fair Market the declarant. (Sec. 202, LGC)
Values;
2. Determining the assessed value; Q: When is real property declared?
3. Determining the real property tax.
A: Once every 3 years during the period from
A: January 1 to June 30 commencing with the
1. Preparation of Schedule of Fair Market calendar year 1992. (Sec. 202, LGC)
Values
a. A schedule of fair market values
(SMV) is prepared by the
provincial, city and municipal
assessor of the municipalities
within the Metropolitan Manila
Area for the different classes of
real property situated in their
respective local government units.
b. Respective sanggunians enact
ordinance adopting the SMV.
273
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Give the rules on the declaration of real Listing of Real Property in Assessment Rolls
property by the owner or administrator.
Q: What is an assessment roll?
A:
For newly acquired For improvement on A: It is a listing of all real property, whether
property property taxable or exempt, located within the territorial
What to file jurisdiction of the local government unit
Sworn statement containing the fair market value and concerned prepared and maintained by the
description of the property
provincial, city or municipal assessor.
When to file
File with the assessor File within 60 days upon
Note: Real property shall be listed, valued and
within 60 days from date completion or occupation
of transfer (whichever comes earlier) assessed in the name of the owner or administrator,
or anyone having legal interest in the property.
Q: When is the assessor required to make a
The undivided real property may be listed, valued
declaration of real property? and assessed in the name of the estate or of the
heirs and devisees without designating them
A: When any person, by whom real property is individually; and undivided real property other than
required to be declared under Sec. 202 of the LGC that owned by a deceased may be listed, valued and
refuses or fails for any reason to make such assessed in the name of one or more co-owners
declaration within the time prescribed the
assessor shall himself declare the property in the Corporation, partnership, or association shall be
name of the defaulting owner, if known, or listed, valued and assessed in the same manner as
against an unknown owner, as the case may be, that of an individual
and shall assess the property for taxation. (Sec. Real property owned by the Republic of the
204, LGC) Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has been
Note: No oath by the assessor is required. granted, for consideration or otherwise, to a taxable
person,, shall be listed, valued and assessed in the
Q: What is the duty of any person transferring name of the possessor, grantee or of the public
ownership of real property? entity if such property has been acquired or held for
resale or lease.(Sec. 205, LGC)
A: Any person who shall transfer real property
Q: Give the procedure on listing of real property
ownership to another shall notify the assessor
in the assessment roll.
concerned within sixty (60) days from the date of
such transfer. The notification shall include the
A:
mode of transfer, the description of the property
1. Listing of all real property whether
alienated, the name and address of the
taxable or exempt within the
transferee. (Sec. 208, LGC)
jurisdiction of LGU
2. All declarations shall be kept and filed
Q: What is the duty of the Registrar of Deeds
under a uniform classification system to
before entering the real property in the registry?
be established by the provincial, city or
municipal assessor.
A: It is to require every person who shall present
for registration a document of transfer,
alienation, or encumbrance of real property to
Preparation of Schedules of Fair Market Value
accompany the same with a certificate to the
effect that the real property subject has been
Q: When shall the shedule of fair market value
fully paid of all real property taxes due. Failure to
be made?
provide such certificate shall be a valid cause for
the refusal of the registration of the document.
A: Before any general revision of property
(Sec. 209[B], LGC)
assessment is made pursuant to the provisions of
this Title, there shall be prepared a schedule of
fair market values by the provincial, city and
municipal assessors of the municipalities within
the Metropolitan Manila Area for the different
classes of real property situated in their
respective local government units for enactment
by ordinance of the sanggunian concerned.
274
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
A: Yes. For the purpose of obtaining information Note: Special classes of real property have
on which to base the market value of any real lower assessment level compared with other
property, the assessor of the province, city or classes of real property.
municipality or his deputy may summon the
owners of the properties to be affected or Actual Use of Property as Basis of Assessment
persons having legal interest therein and
witnesses, administer oaths, and take deposition Q: Define “actual use”.
concerning the property, its ownership amount,
nature, and value. (Sec. 213, LGC) A: Actual use refers to the purpose for which the
property is principally or predominantly utilized
by the person in possession thereof. (Sec. 199[b],
Amendment of Schedule of Fair Market Value LGC)
Q: When can there be amendment of the Note: Unpaid realty taxes attach to the property and
schedule of the fair market value of the are chargeable against the person who had actual or
properties? beneficial use and possession of it regardless of
whether or not he is the owner. To impose the real
property tax on the subsequent owner which was
A: The provincial, city or municipal assessor may
neither the owner nor the beneficial user of the
recommend to the sanggunian concerned
property during the designated periods would not
amendments to correct errors in valuation in the only be contrary to law but also unjust (Estate of Lim
schedule of fair market values. The sanggunian vs. City of Manila, G.R. No. 90639, February 21,
concerned shall, by ordinance, act upon the 1990)
recommendation within ninety (90) days from
receipt thereof. (Sec. 214, LGC) Q: What is the basis of real property taxation?
275
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
assessment of real property irrespective of any A: An assessment fixes and determines the tax
previous assessment or taxpayers’ valuation liability of the taxpayer. It is a notice to the effect
thereon? that the amount therein stated is due as tax and a
demand for payment thereof.
A:1st GR
1. Real property is declared and listed for
taxation purposes for the 1st time; General Revisions of Assessments and
2. There is an ongoing General revision of Property Classification
property classification and assessment;
3. A Request is made by the person in Q: When shall general revisions of assessment
whose name the property is declared and classification take place?
assessor shall make a classification,
appraisal and assessment or taxpayer's A: The provincial, city or municipal assessor shall
valuation. (Sec. 220, LGC) undertake a general revision of real property
assessments within two (2) years after the
Note: Provided, however, that the assessment of effectivity of this Code and every three (3) years
real property shall not be increased oftener than thereafter. (Sec. 219, LGC)
once every three (3) years except in case of new
improvements substantially increasing the value of
said property or of any change in its actual use. Date of Effectivity of Assessments or
Reassessment
Q: Who sets the assessment levels? A: Real property declared for the first time shall
be assessed for taxes (back taxes) for the period
A: The assessment levels to be applied to the fair during which it would have been liable but in no
market value of real property to determine its case of more than ten (10) years prior to the date
assessed value shall be fixed by ordinances of the of initial assessment: Provided, however, that
sangguniang panlalawigan, sangguniang such taxes shall be computed on the basis of the
panlungsod or sangguniang bayan of a applicable schedule of values in force during the
municipality within the Metropolitan Manila Area, corresponding period.
at the rates not exceeding those enumerated
under Sec 218 of the LGC. If such taxes are paid on or before the end of the
quarter following the date the notice of
Q: What is the effect of assessment? assessment was received by the owner, no
276
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
A: A:
A. Realty by Destination – machinery GR: The collection of real property tax with
essential to the business interest thereon and related expenses, and the
enforcement of the remedies are the
Note: Movable equipments to be responsibility of the city or municipal treasurer.
immobilized in contemplation of the
law must first be “essential and XPN: Treasurer may deputize the barangay
principal elements” of an industry or treasurer to collect all taxes on real property
works without which such industry or located in the barangay, provided that:
works would be “unable to function or 1. The barangay treasurer is properly
carry on the industrial purpose for bonded for the purpose: provided,
which it was established.” (Mindanao further,
Bus Co. v. City Assessor, G.R. no. L- 2. The premium on the bond shall be paid
17870, September 29, 1962) by the city or municipal government
concerned. (Sec. 247, LGC)
B. Realty by Incorporation – Machinery
permanently attached
Duty of Assessor to Furnish Local Treasurer with
Assessment Rolls
Appraisal and Assessment of Machinery
Q: What is the duty of the Assessor after
a. For brand new machinery, FMV is the assessment or reassessment?
acquisition cost
b. In all other cases: A: The provincial, city or municipal assessor shall
prepare and submit to the treasurer of the local
FMV= REMAINING OF ECONOMIC LIFE x government unit, on or before the thirty-first
REPLACEMENT COST (or reproduction cost) (31st) day of December each year, an assessment
277
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
roll containing a list of all persons whose real Q: Is there any tax discount for
properties have been newly assessed or advanced/prompt payment?
reassessed and the values of such properties.
(Sec. 248, LGC) A: If the basic real property tax and the additional
tax accruing to the Special Education Fund (SEF)
are paid in advance the sanggunian may grant a
Notice of Time for Collection of Tax discount not exceeding twenty percent (20%) of
the annual tax due. (Sec. 251, LGC)
Q: When is the time for collection of tax?
Note: For prompt payment – discount not exceeding
A: Treasurer shall post the notice of the dates 10% of annual tax due (Art. 342, IRR)
when the tax may be paid without interest in a
publicly accessible place at the city or municipal
hall. Notice shall likewise be published in a Payment of Real Property Tax in Instalments
newspaper of general circulation in the locality
once a week for two (2) consecutive weeks on or Q: May RPT be paid in installments?
before the thirty-first (31st) day of January each
year in the case of the basic real property tax and A: Yes. The owner or the person having legal
the additional tax for the Special Education Fund interest may pay the basic real property tax and
or any other date to be prescribed by the the additional tax for Special Education Fund
sanggunian concerned in the case of any other (SEF) due without interest in four (4) equal
tax levied under this title. (Sec. 249, LGC) installments(on or before March
31/June30/September 30/December 31). (Sec.
250, LGC)
Periods within which to
Collect Real Property Tax
Interests on Unpaid Real Property Tax
Q: What is the period of collection of real
property tax? Q: What is the rate of interest on unpaid real
property tax?
A:
GR: Within five (5) years from the date taxes A: The rate is (2%) per month on the unpaid
become due. amount until the delinquent tax shall have been
fully paid. Provided, in no case shall the total
XPN: In case of fraud or intent to evade interest on the unpaid tax or portion thereof
payment - within ten (10) years from exceed thirty-six (36) months. (Sec. 255, LGC)
discovery of fraud or intent. (Sec. 270, LGC)
278
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Q: May the President condone or reduce real fund of the municipality where the
property tax? property is located;
c. Barangays – Thirty percent (30%)
A: The president may, when public interest so shall be distributed among the
requires, condone or reduce the real property tax component barangays of the
and interest for any year in any province or city or municipality where the property is
a municipality within the Metro. (Sec. 277, LGC) located in the following manner:
i. Fifty percent (50%) shall
accrue to the barangay
DISPOSITION OF PROCEEDS where the property is
located;
Q: What is the division in the distribution of ii. Fifty percent (50%) shall
proceeds? accrue equally to all
component barangays of
A: Proceeds of real property tax, including the municipality. (Sec. 271,
interest thereon plus proceeds from the use, LGC)
lease or disposition, sale or redemption of
property acquired at a public auction shall be Note: The share of each barangay shall be released,
distributed as follows: without need of any further action, directly to the
barangay treasurer on a quarterly basis within five
1. In the case of provinces: (5) days after the end of each quarter and shall not
a. Province — Thirty-five percent be subject to any lien or holdback for whatever
(35%) shall accrue to the general purpose.
fund;
b. Municipality — Forty percent Q: How are the proceeds of the additional one
(40%) to the general fund of the percent SEF tax applied?
municipality where the property is
located; and A: The proceeds from the additional one percent
c. Barangay — Twenty-five percent (1%) tax on real property accruing to the Special
(25%) shall accrue to the barangay Education Fund (SEF):
where the property is located. 1. Shall be automatically released to the
local school boards. Provided, in case of
2. In the case of cities: provinces, the proceeds shall be divided
a. City – Seventy percent (70%) shall equally between the provincial and
accrue to the general fund of the municipal school boards
city; and 2. The proceeds shall be allocated for the:
b. Component barangays –Thirty a. Operation and maintenance of
percent (30%) shall be distributed public schools;
among the component barangays b. Construction and repair of school
of the cities where the property is buildings, facilities and equipment;
located in the following manner: c. Educational research;
i. Fifty percent (50%) shall d. Purchase of books and periodicals;
accrue to the barangay e. Sports development as determined
where the property is and approved by the Local School
located; Board
ii. Fifty percent (50%) shall
accrue equally to all Q: What happens to proceeds of the tax on idle
component barangays of lands?
the city; and
A: It shall accrue to the:
3. In the case of a municipality within the 1. Respective general fund of the province
Metropolitan Manila Area: or city where the land is located
a. Metropolitan Manila Authority – 2. In the case of a municipality within the
Thirty-five percent (35%) shall Metropolitan Manila Area, the proceeds
accrue to the general fund of the shall accrue equally to the Metropolitan
authority; Manila Authority and the municipality
b. Municipality – Thirty-five percent where the land is located. (Sec. 273,
(35%) shall accrue to the general LGC)
279
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the guidelines in the exercise of The owner shall not be deprived of possession and
local government lien? to rentals/income thereof until the expiration of the
time allowed for its redemption.
A:
Q: May the owner of the delinquent property
1. A legal claim on the property subject on
redeem the property?
the real property tax as security for the
payment of tax obligation.
A: Yes. Within one (1) year from the date of sale,
2. It is constituted on the property subject
the owner of the delinquent real property or
to the tax from the date the RPT
person having legal interest therein, or his
accrued, i.e., first day of January. (Sec.
representative, shall have the right to redeem the
246, LGC)
property upon payment to the local treasurer of
3. It is superior to any lien, mortgage, or
the
encumbrance of any kind whatsoever.
1. amount of the delinquent tax;
(Sec. 246, LGC) in favor of any person,
2. the interest due thereon
irrespective of the owner or possessor
3. the expenses of sale from the date of
thereof. (Sec. 257, LGC)
delinquency to the date of sale
4. It is enforceable by administrative or
4. plus interest of not more than two
judicial action. (Sec. 257, LGC)
percent (2%) per month on the
5. It may be extinguished only upon
purchase price from the date of sale to
payment of the tax and related
the date of redemption. (Sec.261, LGC)
interests and expenses. (Sec. 246 and
257, LGC)
Q: What is the effect of the redemption of the
delinquent property?
280
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
A: In case the owner or person having legal 2. Yes. The law requires that a notice of
interest fails to redeem the delinquent property, the auction sale must be properly sent
the treasurer shall execute a deed conveying to to Joachin and not merely through
the purchaser said property, free from lien of the publication (Tan v. Bantegui, G.R. No,
delinquent tax, interest due thereon and 154027, October 24, 2005; Estate of
expenses of sale. Mercedes Jacob v. CA, G.R. No. 120435,
Dec. 22, 1997). (2006 Bar Question)
Q: How is distraint of personal property effected
under real property taxation? Q: When may LGU purchase real property
advertised for sale?
A: When notice of delinquency has been
accordingly posted and published, the local A:
treasurer shall proceed to sell the personal 1. There is no bidder; or
property of the delinquent taxpayer in order to 2. The highest bid is for an amount
satisfy his unpaid obligation. (Sec. 254, LGC) insufficient to pay the real property tax,
fees, charges, surcharges, interests or
Q: Quezon City published on January 30, 2006 a penalties. (Sec. 263, LGC)
list of delinquent real property taxpayers in 2
newspapers of general circulation and posted
this in the main lobby of the City Hall. The notice Resale of Real Estate Taken for Taxes, Fees or
requires all owners of real properties in the list Charges
to pay the real property tax due within 30 days
from the date of publication, otherwise the Q: May the sanggunian dispose of the real
properties listed shall be sold at public auction. property acquired?
Joachin is one of those named in the list. He A: Yes. The sanggunian concerned may, by
purchased a real property in 1996 but failed to ordinance duly approved an upon notice of not
register the document of sale with the register less than twenty (20) days, sell and dispose of the
of Deeds and secure a new real property tax real property acquired under the preceding
declaration in his name. He alleged that the Section at public auction. The proceeds of the
auction sale of his property is void for lack of sale shall accrue to the general fund of the local
due process considering that the City Treasurer government unit concerned. (Sec. 264, LGC)
did not send him personal notice. For his part,
the City Treasurer maintains that the publication
and posting of notice are sufficient compliance Further Levy Until Full Payment of Amount Due
with the requirements of the law.
Q: May a levy be repeated?
1. If you were the judge, how will you resolve
this issue? A: Levy may be repeated if necessary until the full
2. Assuming Joachin is a registered owner, will amount due, including all expenses, is collected.
your answer be the same? (Sec. 265, LGC)
281
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Within what period must the claim for refund Q: What are the guidelines in paying tax under
be made? protest?
282
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
283
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: Jurisdiction to hear appeals from the decision A: Appeal on assessments of real property shall,
of Local Board of Assessment Appeals. (Sec. in no case, suspend the collection of the
229[c], LGC) corresponding realty taxes on the property
involved as assessed – but without prejudice to
Note: The CBAA can be appointed by the Supreme subsequent adjustment depending upon the final
Court to act as a court-appointed fact finding outcome of the appeal. (Sec. 231, LGC)
commission to assist the Court in resolving the
factual issues raised in the cases before it. In that
regard, the CBAA is not acting in its appellate Payment of Real Property Under Protest
jurisdiction. (Mathay v. Undersecretary of Finance,
En banc Minute Resolution, Nov. 5, 1991) Q: Why is there a need of prior payment before
protest may be entertained by the courts?
The owner of the property or the person having legal
interest therein or the assessor who is not satisfied
A: The basis for requiring payment before protest
with the decision of the Board may, within thirty (30)
days after receipt of the decision of said Board,
can be entertained is that taxes are the lifeblood
appeal to the Central Board of Assessment Appeals, of the nation and as such collection cannot be
as herein provided. The decision of the Central restrained by injunction or any like action.
Board shall be final and executory. (Sec. 230, LGC) (Manila Electric Company v. Barlis, et. al., G.R. No.
114231, May 18, 2001)
Q: Does the CBAA have the authority to hear
purely legal issues? Q: Give the rules as to the necessity of paying
real property tax prior to protest.
A: No. Such authority is lodged with the regular
courts. Thus, the issue of whether R.A. 7160 A:
repealed P.D. 921, is an issue which does not find GR: The taxpayer must pay the real property
referral to the CBAA before resort is made to the tax assessed prior to protesting a real property
courts. (Ty, v. Trampe, G.R. No. 117577. tax assessment. (Sec. 252, LGC)
December 1, 1995)
XPN: The payment of the tax prior to protest is
Q: A Co., a Philippine corporation, is the owner not necessary where the taxpayer questions
of machinery, equipment and fixtures located at the authority and power of the assessor to
its plant in Muntinlupa City. The City Assessor impose the assessment and of the treasurer to
characterized all these properties as real collect the tax. (Ty, et. al., v. Trampe, G.R. No.
properties subject to the real property tax. A Co. 117577. December 1, 1995)
appealed the matter to the Muntinlupa Board of
Assessment Appeals. The Board ruled in favor of Note: The protest contemplated under Section 252
the City. A Co. brought a petition for review is required where there is a question as to the
before the CTA to appeal the decision of the City reasonableness or correctness of the amount
assessed. Hence, if a taxpayer disputes the
Board of Assessment Appeals. Is the Petition for
reasonableness of an increase in a real property tax
Review proper? Explain.
assessment, he is required to “first pay the tax”
under protest. Otherwise, the city or municipal
A: No. The CTA’s devoid of jurisdiction to treasurer will not act on his protest. (Ibid.)
entertain appeals from the decision of the City
Board of Assessment Appeals. Said decision is Q: The Province of Quezon assessed Mirant
instead appealable to the Central Board of Pagbilao Corporation (Mirant) for unpaid real
Assessment Appeals, which under the Local property taxes. Napocor, which entered into a
Government Code, has appellate jurisdiction over Build-Operate-Transfer (BOT) Agreement with
284
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Mirant, protested the assessment before the the property who is not satisfied with
Local Board of Assessment Appeals (LBAA), the action of the provincial, city, or
claiming entitlement to the tax exemptions municipal assessor in the assessment of
provided under Section 234 of the Local his property may appeal to the Board of
Government Code (LGC). The real property taxes Assessment Appeals,” should be read in
assessed were not paid prior to the protest. The conjunction with Section 252 (d), which
LBAA dismissed Napocor’s petition for states that in the event that the protest
exemption for its failure to comply with Section is denied, the taxpayer may avail of the
252 of the LGC requiring payment of the assailed remedies as provided for in Chapter 3,
tax before any protest can be made. The Central Title II, Book II of the LGC [Chapter 3
Board of Assessment Appeals (CBAA) ultimately refers to Assessment Appeals, which
dismissed Napocor’s appeal for failure to meet includes Sections 226 to 231]. The
the requirements for tax exemption; however, “action” referred to in Section 226 (in
the CBAA agreed with Napocor’s position that relation to a protest of real property tax
the protest contemplated in Section 252 (a) is assessment) thus refers to the local
applicable only when the taxpayer is questioning assessor’s act of denying the protest
the reasonableness or excessiveness of an filed pursuant to Section 252. Without
assessment. The CBAA ruled that the the action of the local assessor, the
requirement of payment prior to protest does appellate authority of the LBAA cannot
not apply where the legality of the assessment is be invoked. Napocor’s action before the
put in issue on account of the taxpayer’s claim LBAA was thus prematurely filed.
that it is exempt from tax. The Court of Tax (NAPOCOR v. Province of Quezon and
Appeals (CTA) en banc agreed with the CBAA’s Municipalilty of Pagbilao, G.R. No.
discussion. 171586, January 25, 2010)
A:
1. Yes. By claiming exemption from realty
taxation, Napocor is simply raising a
question of the correctness of the
assessment. As such, the real property
tax must be paid prior to the making of
a protest. On the other hand, if the
taxpayer is questioning the authority of
the local assessor to assess real
property taxes, it is not necessary to
pay the real property tax prior to the
protest. A claim for tax exemption,
whether full or partial, does not
question the authority of local assessor
to assess real property tax.
285
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Taxpayer’s Remedies Involving Collection of Real Property Tax – Local Government Code
286
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Local Government Code of 1991
Procedure for Levy for Purposes of Satisfying Real Property Taxes – Local Government Code
Tax constitutes a lien on the property superior to all liens and may only be extinguished upon payment of the tax
and charges (Sec. 257, LGC)
Time for payment of real property tax expires (Sec. 258, LGC)
Warrant of levy issued by LT, which has the force of legal execution in the LGU concerned. (Sec. 258, LGC)
Warrant mailed to or served upon the delinquent owner. Written notice of levy and warrant is mailed/served
upon the assessor and the Register of Deeds of the LGU (Sec. 258, LGC)
IF there is a bidder AND highest bid is sufficient to pay real IF there is no bidder OR highest bid is
property tax and related interests and costs, bidder pays insufficient to pay real property tax and
and treasurer reports sale to sanggunian 30 days after the related interest and costs, LT shall
sale. LT will deliver to purchaser the certificate of sale. purchase the prop in behalf of the LGU.
Proceeds of sale in excess of delinquent tax, interest,
expenses of sale remitted to owner. (Sec. 260, LGC) Registrar of Deeds shall transfer the title
of forfeited prop to LGU without need of
Within one year from sale, owner may redeem upon Court order.
payment of the delinquent tax, interest due, expenses of
sale (from date of delinquency to date of sale), and Within one year from forfeiture, owner
additional interest of 2% per month on the purchase price may redeem prop by paying to Treasurer
from date of sale to date of redemption. Delinquent owner full amount of tax, interest, costs of sale
retains possession and right to the fruits. Price paid plus (Sec. 263, LGC)
interest of 2% per month shall be returned to the buyer.
(Sec. 261, LGC) Sanggunian concerned may by ordinance,
sell/dispose by public auction of prop
IF not redeemed, deed of conveyance shall be issued to the acquired by forfeiture. (Sec. 264, LGC)
purchaser (Sec. 262, LGC)
Levy may be repeated until full amount due; including all expenses is collected (Sec. 265, LGC)
287
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF SANTO TOMAS
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
288
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
TARIFF AND CUSTOMS TAXATION Q: What are the other types of fees charged by
the Bureau of Customs?
Q: What comprises tariff and customs laws?
A:
A: 1. Arrastre charge
1. Provisions of the Tariff and Customs 2. Wharfage dues – counterpart of license,
Code of the Philippines and regulations charged not for the use of any wharf
issued pursuant thereto; and but for a special fund known as the Port
Works Fund
2. Other laws and regulations subject to 3. Berthing fee
the enforcement by the Bureau of 4. Harbor fee
Customs of otherwise within its 5. Tonnage dues
jurisdiction
289
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What are the limitations imposed on the relating to the tariff and customs
flexible tariff clause? administration;
4. Supervision and control over the
A: entrance and clearance of vessels and
1. Conduct by the Tariff Commission of an aircraft engaged in foreign commerce;
investigation in a public hearing - The 5. Supervision and control over the
Commission shall also hear the views handling of foreign mails arriving in the
and recommendations of any Philippines (for the purpose of
government office, agency or collection of lawful duty on the dutiable
instrumentality concerned. The articles thus imported and the
Commission shall submit their findings prevention of smuggling through the
and recommendations to the NEDA medium of such mails);
within thirty (30) days after the 6. Supervision and control of import and
termination of the public hearings. The export cargoes landed or stored in
NEDA thereafter submits its piers, airports, terminal facilities
recommendation to the President (Sec. including container yards and freight
401 paragraph b, TCC). stations (for the protection of
2. The power of the President to increase government revenue);
or decrease the rates of import duty 7. Exercise exclusive original jurisdiction
within the abovementioned limits fixed over seizure and forfeiture cases under
in the Code shall include the the tariff and customs laws. (Sec. 602,
modification in the form of duty. In such TCC)
a case, the corresponding ad valorem or
specific equivalents of the duty with Q: What is the territorial jurisdiction of the
respect to the imports from the BOC?
principal competing foreign country for
the most recent representative period A:
shall be used as bases (Sec. 401 1. All seas within the jurisdiction of the
paragraph c, TCC). Philippines
2. Customs zone – 12 nautical miles of
territorial sea from the baseline
GOVERNMENT AGENCIES CONCERNED 3. Exclusive economic zone – 200 nautical
miles from the baseline
Q: What are the agencies of the Government 4. All coasts, ports, airports, harbors, bays,
tasked to enforce, implement and administer rivers and inland waters, whether
customs law? navigable or not from the sea (Sec. 603,
TCC)
A:
1. Bureau of Customs (BOC); and Q: What is an ecozone?
2. Tariff Commission (TC)
A: A place specifically designated for the location
of certain industries or business that enjoys tax
Bureau of Customs exemption privilege. It is also known as a Special
Economic Zone.
Q: What are the functions of the Bureau of
Customs? Note: An ecozone while geographically within the
Philippines is deemed a separate customs territory
A: APESSSE and is regarded in law as foreign soil.
1. Assessment and collection of the lawful
revenues from imported articles and all Q: How are transactions within the ecozone
other dues, fees, charges, fines and treated?
penalties accruing under the tariff and
customs laws; A:
2. Prevention and suppression of 1. Sales by suppliers from outside the
smuggling and other frauds upon the borders of the ecozone are deemed
customs; exports and are treated as export sales.
3. Enforcement of tariff and customs laws 2. Conversely, if the sales are made to
and all other laws, rules and regulations persons or entities outside the ecozone
but within the Philippines, such sales
290
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
are considered as importations by the 1. The administration of and the fiscal and
buyers and subject to import duties. industrial effects of the tariff and
customs laws of this country now in
Q: What are the duties of the Collector of forceor which may hereafter be
Customs over importation of articles within its enacted;
jurisdiction? 2. The relations between the rates of duty
on raw materials and the finished or
A: He shall: partly finished products;
1. Cause all articles entering the 3. The effects of ad valorem and specific
jurisdiction of his district and destined duties and of compound specific and ad
for importation through his port to be valorem duties;
entered into the customhouse; 4. All questions relative to the
2. Cause all such articles to be appraised arrangement of schedules and
and classified; classification of articles in the several
3. Assess and collect the duties, taxes, schedules of the tariff law;
fees and other charges thereon; 5. The tariff relations between the
4. Hold possession of all imported articles Philippines and foreign countries,
until the duties, taxes, fees and other commercial treaties, preferential
charges are paid. (Sec. 1206, TCC) provisions, economic alliances, the
effect of export bounties and pref-
Q: The Collector of Customs issued an erential transportation rates;
assessment for unpaid customs duties and taxes 6. The volume of importations, compared
on the importation of your client in the amount with domestic production and
of P980,000. Where will you file your case to consumption;
protect your client's right? Choose the correct 7. Conditions, causes, and effects relating
courts/agencies, observing their proper to competition of foreign industries
hierarchy. with those of the Philippines, including
dumping and cost of production;
1. Court of Tax Appeals 8. In general, to investigate the operation
2. Collector of Customs of customs and tariff laws, including
3. Commissioner of Customs their relation to the national revenues,
4. Regional Trial Court their effect upon the industries and
5. Metropolitan Trial Court labor of the country and to submit
6. Court of Appeals reports of its investigation as provided;
7. Supreme Court and
9. The nature and composition of, and the
A: classification of, articles according to
1. Protest with the Collector of Customs tariff commodity classification and
(Sec. 2308, TCC) heading number for customs revenue
2. Appeal to the Commissioner of Customs and other related purposes which shall
(Sec. 2313, TCC). be furnished to NEDA, Board of
3. Appeal to the CTA (RA 9282) Investments, Central Bank of the
4. Petition for Review on Certiorari to the Philippines, and Secretary of Finance.
Supreme Court (Rule 45 of the 1997 (Sec. 505, TCC)
Rules of Civil Procedure). (2006 Bar
Question) Q: What administrative assistance is required to
be rendered by the Tariff Commission to the
President and Congress?
Tariff Commission (TC).
A: In order that the President and the Congress
Q: What is the nature of the powers of the TC? may secure information and assistance, it shall be
the duty of the Commission to:
A: Investigative and administrative in nature. 1. Ascertain conversion costs and costs of
production in the principal growing,
Q: What matters may be investigated upon by producing or manufacturing centers of
the TC? the Philippines, whenever practicable;
2. Ascertain conversion costs and costs of
A: The Commission shall investigate: production in the principal growing,
291
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: After importation has begun but before All articles when imported from a foreign country
importation is terminated. into the Philippines shall be subject to duty upon
each importation even though previously
Q: When does importation begin and when does exported from the Philippines except as
it end? otherwise specifically provided for in the Code or
other laws (Sec. 100, TCCP)
A:
1. Importation begins when the
conveying vessel or aircraft enters the
jurisdiction of the Philippines with
intention to unload therein.
292
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
Q: What is meant by “articles” under the Tariff 4. Articles, instruments, drugs and
and Customs Code? substances designed, intended or
adapted for producing unlawful
A: The term “articles” refer to goods, wares and abortion, or any printed matter which
merchandise and in general, anything that may be advertises or describes or gives directly
the subject of importation or exportation. (Sec. or indirectly information where, how or
3574, TCC) by whom unlawful abortion is
produced.
Note: The term merchandises may include checks
and money order, as well as dollar bills which are not 5. Roulette wheels, gambling outfits,
legal tender in the Philippines. (Batisda v. loaded dice, marked cards, machines,
Commsissioner of Customs, 35 SCRA 448) apparatus or mechanical devices used
in gambling or the distribution of
Q: What is the classification of articles subject to money, cigars, cigarettes, or other
tariff and customs laws? when such distribution is dependent on
chance, including jackpot and pinball
A: machines or similar contrivances, or
1. Articles subject to duty parts thereof.
2. Articles of prohibited importation
3. Articles free from duties subject to 6. Lottery and Sweepstakes tickets
conditions prescribed by law advertisements thereof and list of
(conditionally-free importation) drawings therein.
4. Duty free articles- Enterprises located in
special economic zones are allowed to XPN: Those tickets authorized by the
import capital equipment and raw Philippine Government
materials free from duties, taxes and
other import restrictions. (R.A. 7916) 7. Any article manufactured in whole or in
part of gold, silver or other precious
metals or alloys thereof, the stamps,
Prohibited Importations brands or marks or which do not
indicate the actual fineness of quality of
Q: What articles are prohibited from being said metals or alloys.
imported to the Philippines?
8. Any adulterated or misbranded articles
A: of food or any adulterated or
1. Dynamite, gunpowder, ammunitions misbranded drug in violation of the
and other explosives, firearms, and provisions of the “Food and Drugs Act”.
weapons of war, and parts thereof.
9. Marijuana, opium, poppies, coca leaves,
XPN: when authorized by law. heroin or any other narcotics or
synthetic drugs which are or may
2. Written or printed articles in any form hereafter be declared habit forming by
containing any matter advocating or the President of the Philippines, or any
inciting treason, or rebellion, compound, manufactured salt,
insurrection, sedition, or subversion derivative, or preparation thereof.
against the Government of the
Philippines, or forcible resistance to any XPN:
law of the Philippines, or containing any a. When imported by the Government
threat to take the life of, or inflict bodily of the Philippines
harm upon any person in the
Philippines. b. Any person duly authorized by the
Dangerous Drugs Board, for medical
3. Written or printed articles, negatives or purposes only
cinematographic film, photographs,
engravings, lithographs, objects,
paintings, drawings, or other
293
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
A: These are imported articles that are allowed to Note: Returning residents for purposes of
enter the Philippines free of duties and taxes conditionally-free importation of personal and
after the compliance with certain conditions as household effect must be those:
imposed in the Tariff and Customs Code and a. Nationals (Filipino)
other Customs regulation. b. who have stayed in the foreign country
c. for a period of AT LEAST six (6) months
Q: What are the kinds of conditionally-free
importations?
294
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
Q: What are the conditionally-free importations under Sec. 105 of the TCC?
A:
2. Equipment for salvage of vessels and a. Payment of bond equal to 1 ½ times the
aircrafts unavailable locally ascertained duties, taxes and other charges (DTO)
thereon
b. Conditioned on:
i. Exportation or
ii. Payment of DTO within 6 months from acceptance
of import entry
3. Cost of repairs made in foreign countries Satisfactory proof to the Collector of Customs of:
on Philippine-registered/licensed vessels or a. Adequate facilities for repairs not afforded in the
aircrafts Philippines
b. Vessel/aircraft was compelled by stress of weather
or other casualty to dock into a foreign port to
secure safety and sea/air-worthiness
c. Excluding the value of the article used
4. Articles brought for repairs, processing or Bond in amount equal to 1 ½ times the ascertained DTO
reconditioning to be exported upon thereon, conditioned on:
completion of repairs a. exportation
b. payment of DTO within 6 months from acceptance
of import entry
5. Medals, badges, cups and other small Bestowed or received as honorary distinction
articles
6. a. Formally declared and listed before departure Vehicles, aircraft and
a. Personal and household effects of b. Identified under oath before Collector animals purchased in
residents of the Philippines c. Personal and household effects shall neither be in foreign countries
returning from abroad(include commercial quantities nor intended for barter, necessary, Appropriate,
jewelry, precious stone and other sale, hire normally used for comfort
articles of luxury) d. Dutiable value not exceeding P 2,000 and convenience in their
b. Personal and household effects e. Returning residents have not previously received stay abroad.
purchased in foreign countries by the benefit within 365 days prior to his arrival
residents of the Philippines which f. 50% ad valorem duty across the board shall be
were necessary, appropriate and levied in excess of the P 10,000
normally used for the convenience g. Personal and household effects of returning
in their journey and during their residents who have not stayed abroad for 6 months
stay abroad (include wearing shall be subject to 50% ad valorem duty across the
apparel, articles of personal board, the total dutiable value of which does not
adornment, toilet articles, portable exceed P 2,000
appliances and instruments)
7. Wearing apparel, articles of personal Written commitment or bond equal to 1 ½ times the Not applicable to articles
adornment, theatrical costumes and similar ascertained DTO intended for other persons
effects accompanying travelers or tourists, or for barter, sale or hire.
in quantities and kind necessary and suitable
to the profession, rank or position of the
person importing them for their own use.
8. Personal and household effects and In quantities and of the kind necessary and suitable to the
vehicles belonging to foreign consultants profession, rank or position of the person importing them.
295
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
296
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
297
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Jacob, after serving a 5-year tour of duty as provided for in the Tariff and Customs Code or in
military attaché in Jakarta, returned to the other laws. (Sec. 101, TCC)
Philippines bringing with him his personal effects
including a personal computer and a car. Would Q: Dagat-dagatan Shipping Corp (DSC) brought
Jacob be liable for taxes on these items? Discuss into the country two non-propelled foreign barges
fully. which DSC chartered for use in the Philippines
coastwise trade under a temporary Certificate of
A: No. Jacob would not be liable for the payment of Philippine Registration to be returned to the
taxes on his personal effects including a personal foreign owner upon the termination of the charter
computer and a car provided he is able to prove his period but not beyond 2000, pursuant to P.D. No.
qualification for conditional free importation. 780 as amended. Upon arrival, the barges were
The requirements are: subjected to duty by the Bureau of Customs. DSC
1. The officer or employee is for refused to pay any customs duty contending that
reassignment to his home office, or dies, the chartered or leased barges, which will be
resigns or is retired from the service; returned to the foreign owner when the charter
2. The motor car must have been ordered expires, is not an importation and therefore
or purchased prior to the receipt by the cannot be subjected to any customs duty. Is DSC’s
mission or consulate of the order of refusal with or without legal basis?
recall, must be registered in the
employee’s name; A: DSC’s refusal is without legal basis. All imported
3. The personal effects should not exceed articles when imported in the Philippines from a
30% of the total amount received by such foreign country are subject to customs duty upon
employee or officer in salary and each importation. The tax exemption granted to
allowances during his latest assignment chartered vessels/leased ocean vessels does not
abroad but not to exceed four years; apply to the barges because they are non-propelled
4. The exemption shall not be availed of and are to be used for coastwise trade.
oftener than once every four years; (1991 Bar Question)
5. The officer or employee concerned must
have served abroad for not less than two Q: What is the concept of Preferential Tariffs?
years. (Sec. 105, TCC)
A: It is the imposition of high customs duties which
Q: Mr. Balikbayan has a used car among the items results to making the foreign goods more expensive
he brought home to the Philippines where he will compared with locally produced articles. This is to
resettle permanently after living forty years in protect Philippine manufacturers from competition
California, USA. He also brought along a VCD posed by foreign manufacturers.
machine and a stereo. Discuss whether or not he is
liable for payment of import duties for bringing to Q: Are there instances where there could be
the Philippines the above-mentioned items. exemptions from customs duties?
298
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
recommendation of the National Q: What are the kinds of special customs duties?
Economic Development Authority in the
interest of national economic A:
development. (Sec. 105, TCC) 1. Under the Tariff and Customs Code
(Dump-DisCo-Mark)
Q: Is the Government exempt from customs a. Anti-Dumping duty;
duties, taxes, fees and other charges? b. Countervailing duty;
c. Marking duty; and
A: d. Discriminatory duty.
GR: All importations by the government for its 2. Additional tariff imposed as a safeguard
own use or that of its subordinate branches or measure under the Safeguard Measure
instrumentalities, or corporations, agencies or Act (R.A. 8800).
instrumentalities owned or controlled by the
government shall be subject to the duties, taxes,
fee and other charges provided for in the Tariff
and Customs Code. (Sec. 1205, TCC)
XPNs:
1. If expressly exempted under a special law;
2. If imported as conditionally-free
importations.
3. Those granted to government agencies,
instrumentalities or government-owned
or controlled corporations with existing
contracts, commitments, agreements or
obligations (requiring such exemptions)
with foreign countries.
A:
1. Regular tariff or customs duties - these
are imposed and collected merely as a
source of revenue.
2. Special tariffs or custom duties - Those
imposed in addition to the ordinary
customs duties usually to protect local
industries against foreign competition.
A:
1. Ad valorem duty – Customs duties that
are computed on the basis of value of
imported article
2. Specific duty – Customs duties that are
computed on the basis of dutiable weight
of goodi.e. a unit of measure such as per
kilogram, per liter, etc.
3. Compound duty – Customs duties that
impose both ad valorem and specific
customs duties. E.g. 10% ad valorem plus
P100 per liter.
4. Alternating duty – alternates between ad
valorem and specific
299
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Duty imposed on an ad
MARKING DUTY valorem basis imposed To prevent 5% ad valorem of the Commissioner of
for improperly marked possible goods Customs
articles. deception
Duty imposed on
imported goods
whenever it is found as
a fact that the country
DISCRIMINATORY/ of origin discriminates
RETALIATORY against the commerce NONE
DUTY of the Philippines in
such a manner as to
place the commerce of To protect the Not exceeding 100% President of the
300
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
a. GENERAL – imposed
upon goods or To protect a. GENERAL – tariff a. GENERAL – Any interested party
products imported in domestic increase, either ad Secretary of who is adversely
SAFEGUARD increased quantities industries and valorem or specific Trade and affected by the ruling
producers from or both, to be paid Industry and of the Secretary in
b. SPECIAL – volume of increased through a cash bond Secretary of connection with the
imports exceed a base imports set at a level Agriculture imposition of a
trigger level or price sufficient to redress safeguard measure
falls below a trigger or prevent injury to b. SPECIAL – may file with the CTA
price level the domestic Secretary of a petition for review
industry Agriculture of such ruling within
thirty (30) days from
b. SPECIAL receipt thereof BUT
i. Volume Test the filing of such
ii. Price Test petition for review
shall not in any way
stop, suspend or
otherwise toll the
imposition or
collection of the
appropriate tariff
duties or the adoption
of other appropriate
safeguard measures,
as the case may be.
301
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What is the amount generally imposed as an account otherwise than for the purpose
anti-dumping duty? of concealing the origin of such article
and in such manner that any mark
A: The amount imposed shall be equal to the contemplated by this section would
margin of dumping on such product, commodity or necessarily be obliterated, destroyed or
article and on like product, commodity or article permanently concealed
thereafter imported to the Philippines under similar 8. An ultimate purchaser, by reason of the
circumstances, in addition to ordinary duties, taxes character of such article or by reason of
and charges imposed by law on the imported the circumstances of its importation must
product, commodity or article. (Sec. 3(a), R.A. 8752) necessarily know the country of origin of
such article even though it is not marked
Q: What happens when products are not imported to indicate its origin
directly from the country of origin but exported to 9. Such article was produced more than
the Philippines from an intermediate country? twenty years prior to its importation into
A: The price at which the products are sold from the Philippines
the country of export to the Philippines shall 10. Such article cannot be marked after
normally be compared with the comparable price in importation except at an expense which is
the country of export. However, comparison may economically prohibitive, and the failure
be made with the price in the country of origin if, to mark the article before importation
for example, the products are merely transshipped was not due to any purpose of the
through the country of export, or such products are importer, producer, seller or shipper to
not produced in the country of export, or there is avoid compliance with this section. (Sec.
no comparable price for them in the country of 303, TCC)
export. (Ibid.)
302
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
safeguard measures binding upon the DTI value of similar goods, computed value and fallback
Secretary? value. (2005 Bar Question)
A: Yes. The positive final determination by the Tariff Q: For customs valuation, when are goods
Commission operates as an indispensable requisite identical and when are they similar?
to the imposition of the safeguard measure.
Congress in enacting the SMA and prescribing the A:
roles to be played therein by the Tariff Commission 1. Identical goods – goods which are the
and the DTI Secretary did not envision that the same in all respects, including physical
President, or his/her alter ego, could exercise characteristics, quality and reputation.
supervisory powers over the Tariff Commission- the Minor differences in appearances shall
Tariff Commission does not fall under the not preclude goods otherwise conforming
administrative supervision of the DTI. (Southern to the definition from being regarded as
Cross Cement Corp. v. Cement Manufacturers Assoc. identical.
of the Phils., G.R. No. 158540, Aug. 3, 2005) 2. Similar goods – goods which although not
alike in all respects have like
characteristics and like component
CUSTOMS VALUATION materials which enable them to perform
the same functions and to be
Q: What is customs valuation? commercially interchangeable. The
quality of the goods, their reputation and
A: Customs valuation is a procedure for the existence of a trademark shall be
determining the customs value of imported goods. among the factors to be considered in
If the rate of duty is ad valorem, the customs value determining whether goods are similar.
is essential to determine the duty to be paid on an
imported good. Q: What are the methods in assessing the dutiable
value of an imported article subject to an ad
Q: How are customs duties computed? valorem rate of duty?
303
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
c. Transport cost of import goods from goods of the same class or kind as
port of exportation to port of entry the goods being valued which are
in the Philippines made by producers in the country
d. Unloading and handling charges of exportation for export to the
associated with transport of Philippines;
imported goods c. The FREIGHT, INSURANCE FEES
e. Cost of insurance AND OTHER TRANSPORTATION
EXPENSES for the importation of
2. TRANSACTION VALUE OF IDENTICAL the goods;
GOODS – the dutiable value shall be the d. ANY ASSIST, if its value is not
transaction value of identical goods SOLD included under paragraph 1
FOR EXPORT TO THE PHILIPPINES AND hereof; and
EXPORTED AT OR ABOUT THE SAME TIME e. The COST OF CONTAINERS AND
AS THE GOODS BEING VALUED. PACKING, if their values are not
included under paragraph 1
3. TRANSACTION VALUE OF SIMILAR GOODS – hereof.
where the dutiable value cannot be
determined under the preceding method, Note: At the request of the importer, the
the dutiable value shall be the transaction order of application of Deductive Value and
value of similar goods SOLD FOR EXPORT TO Computed Value may be reversed.
THE PHILIPPINES AND EXPORTED AT OR However, if the Commissioner of Customs
ABOUT THE SAME TIME AS THE GOODS deems that he will experience real
BEING VALUED. difficulties in determining the dutiable value
using Computed Value, he may refuse such
request
4. DEDUCTIVE VALUE – the dutiable value of
the imported goods under this method shall
6. FALLBACK VALUE – if the dutiable value
be the deductive value which shall be based
cannot be determined under the preceding
on the UNIT PRICE AT WHICH THE
methods described above, it shall be
IMPORTED GOODS OR IDENTICAL OR
determined by using REASONABLE MEANS
SIMILAR IMPORTED GOODS ARE SOLD IN
consistent with the principles and general
THE PHILIPPINES, in the same condition as
provisions of the Agreement on Tariffs and
when imported, in the greatest aggregate
Trade of 1994 and of Article VII of GATT of
quantity, at or about the time of the
1994 and on the basis of data available in
importation of the goods being valued, to
the country of importation.
persons not related to the persons from
whom they buy such goods, subject to
Note: If the importer so requests, he shall be informed
deductions:
in writing of the dutiable value determined under
a. Either the commissions usually Fallback Value and the method used to determine
paid or agreed to be paid or the such value.
additions usually made for profit
and general expenses in Q: What are the PROHIBITED METHODS OF
connection with sales. VALUATION?
b. The usual costs of transport and
insurance and associated costs; A: No customs value shall be determined under the
c. The costs and charges; provisions of this Article on the basis of:
d. Customs duties and other national 1. the selling price in the country of
taxes importation of goods produced in such
country;
5. COMPUTED VALUE – the dutiable value of 2. a system which provides for the
this method shall be the computed value acceptance for customs purposes of the
which shall be the SUM of: higher of two alternative values;
a. The COST OR THE VALUE OF 3. the price of goods on the domestic
MATERIALS and fabrication of market of the country of exportation;
other processing employed in 4. the cost of production other than
producing the imported goods; computed values which have been
b. The AMOUNT FOR PROFIT AND determined for identical or similar goods
GENERAL EXPENSES equal to that in accordance with the provisions of
usually reflected in the sale of Article 6;
304
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
5. the price of the goods for export to a 2. A duty licensed customs broker acting
country other than the country of under authority from a holder of a bill;
importation; 3. A person duly empowered to act as agent
6. minimum customs values; or or attorney-in-fact for each holder of the
7. arbitrary or fictitious values bill of lading. (Sec. 1301, TCC as amended
by R.A. 9135)
305
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
306
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
Delivery of the Imported Article However, where the importer is the government,
the authority to hold the delivery or release of its
Q: To whom shall the imported articles be imported article does not find application. (Ibid.)
delivered?
Q: Is the Collector personally liable for misdelivery
A: of cargoes?
1. Delivery of articles to holder of bill of
lading – A Collector shall make a delivery A: Yes. As a rule, a Collector is not personally liable
of a shipment, upon the surrender of the with respect to his ruling in custom cases.
bill of lading, to person who by the terms However, he may be held personally liable:
thereof appears to be the consignee or 1. In case of misdelivery of imported
lawful holder of the bill. He shall not be articles; or
liable on account of any defect in the bill 2. When he decided with grave abuse of
or irregularity in its negotiation, unless he authority. (Sec. 3511, TCC)
has notice of the same. (Sec. 1501, TCC)
Q: Is the Collector still liable for misdelivery even
2. Delivery of articles without production of if he has no knowledge of such?
bill of lading – No Collector shall deliver
imported articles to any person without A: Yes. He is still liable even if the misdelivery was
the surrender by such person of the bill made by his subordinate and he had no knowledge
of lading covering said article, except on of such. This is to protect the shipper, consignee or
written order of the carrier or agent of the person interested in the cargo. (Collector of
the importing vessel or aircraft. However, Customs of Manila v. IAC, et. al., 137 SCRA 4)
the Collector for customs purposes may
require the production of an exact copy Q: What is the Compliance Audit under the Tariff
of the bill of lading where delivery of and Customs Code?
articles is made against such written
order of the carrier or agent of the A: The Bureau of Customs shall examine, inspect
importing vessel or aircraft. (Sec. 1502, and verify the books, records and documents
TCC) necessary or relevant for the purpose of collecting
the proper duties and taxes.
Q: When may the Collector withhold the delivery Q: What is required from the importer for
of an imported article? purposes of compliance audit?
A: When the Collector is duly notified in writing of A: All importers are required to keep at their
a lien for freight, lighterage or general average principal place of business, in the manner
upon any imported articles in his custody, he shall prescribed by regulations to be issued by the
withhold the delivery of the same until he is Commissioner of Customs and for a period of three
satisfied that the claim has been paid or secured. (3) years from the date of importation, all the
(Sec. 1505, TCC) records of their importations and/or books of
accounts, business and computer systems and all
Q: When is the Collector authorized to suspend customs commercial data including payment
the delivery or release of imported articles? records relevant for theverification of the accuracy
of the transaction value declared by the
A: Whenever any importer has an outstanding and importers/customs brokers on the import entry.
demandable account with the Bureau of Customs, (Sec. 3514, TCC; Sec. 8, R.A. 9135)
the Collector shall hold the delivery of any article
imported or consigned to such importer unless Q: What are the effects of denial by the importer
subsequently authorized by the Commissioner of of access to its records?
Customs, and upon notice as in seizure cases, he
may sell such importation or any portion thereof to A: The Bureau of Customs may, in case of
cover the outstanding account of such importer. At disobedience:
any time prior to the sale, the delinquent importer 1. Invoke the aid of the proper regional trial
may settle his obligations with the Bureau of court within whose jurisdiction the
Customs, in which case the aforesaid articles may matter falls. The court may punish
be delivered upon payment of the corresponding contumacy or refusal as contempt;
duties and taxes and compliance with all other 2. File a criminal case imposed by the TCC;
legal requirements. (Sec. 1508, TCC)
307
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
308
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
309
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
the decision of the Collector which is favorable to 2. That the defendant, if he is not the
the taxpayer and adverse to the Government. This importer himself, must have received,
is the reason why whenever the decision of the concealed, bought, sold or in any manner
Collector is adverse to the Government, the said facilitated the transportation,
decision is automatically elevated to the concealment or sale of the merchandise;
Commissioner for review; and if such decision is and
affirmed by the Commissioner, the same shall be 3. That the defendant must be shown to
automatically elevated to and be finally reviewed have knowledge that the merchandise has
by the Secretary of Finance. (Yaokasin v. been illegally imported.
Commissioner of Customs, G.R. No. 84111, Dec. 22,
1989)(2002 Bar Question) Q: An information was filed against Jardeleza in
violation of the TCC for bringing 20.1 kilograms of
assorted gold jewelry with an estimated value of
P7,562,231.50. Such was effected by hiding said
Customs Seizure and Forfeiture jewelry inside a hanger bag and, by not declaring it
in the Customs Declaration form and, by verbally
Q: What is the nature of customs seizure and denying that she is carrying said items by
forfeiture case? answering “no” when asked by Bureau of Customs
if she has anything to declare prior to the actual
A: They are administrative and civil in nature and inspection of her luggage. The accused denied the
are directed against the res or imported articles allegations against her.
and entail the determination of the legality of the
importation. These are actions in rem. Thus, it is of Is the accused guilty of smuggling the jewelries?
no defense that the owner of the vessel sought to
be forfeited had no actual knowledge that his A: Yes. A person arriving in the Philippines with
property was used illegally. The absence or lack of baggage containing dutiable articles is bound to
actual knowledge of such use is a defense personal declare the same in all respects. Adequate
to the owner himself, which cannot in any way reporting of dutiable merchandise being brought
absolve the vessel from the liability of forfeiture. into the country is absolutely necessary to the
(Commissioner of Customs v. Manila Star Ferry, enforcement of customs laws, and failure to comply
Inc., G.R. Nos. 31776-78, Oct. 21, 1993) with those requisites is as condemnable as failure
to pay customs fees. Any administrative penalty
imposed on the person arriving in the Philippines
SMUGGLING with undeclared dutiable articles is separate from
and independent of criminal liability for smuggling
Q: What is smuggling? under Sec. 3601 of the TCC and for violation of
other provisions in the TCC.
A: Any act of a person who shall:
1. fraudulently import or bring into the The phrase “contrary to law” in Sec. 3601 of the
Philippines, any article, contrary to law; or TCC qualifies the phrases “imports or brings into
2. assist in so doing; or the Philippines” and “assists in so doing,” and not
3. receive, conceal, buy, sell or in any the word “article”. The word “law” includes
manner facilitate the transportation, regulations having the force and effect of law,
concealment, or sale of such article after meaning substantive or legislative type rules as
importation, knowing the same to have opposed to general statements of policy or rules of
been imported contrary to law. (Sec. agency, organization, procedures or positions.
3601, TCC) (Jardeleza v. People of the Philippines,G.R. No.
165265, Feb. 06, 2006)
Note: The Philippines is divided into various ports of
entry. Entry in any place other than those ports will be Q: What needs to be proved before a person may
considered smuggling. be found guilty of smuggling?
310
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
Q: Is mere possession of the alleged smuggled Q: What properties are not subject to forfeiture in
goods enough evidence for the conviction of the absence of prima facie evidence?
smuggling?
A: The forfeiture of a vehicle, vessel or aircraft shall
A: Yes. After importation, the act of facilitating the not be effected if it is established that the owner
transportation, concealment or sale of the thereof or his agent in charge of the means of
unlawfully imported article must be with the conveyance used has no knowledge of or
knowledge that the article was smuggled. However, participation in an unlawful act.
if upon trial the defendant is found to have been in
possession of such article, this shall be sufficient to Q: When is there prima facie presumption of
authorize conviction unless the defendant explains knowledge of or participation in the unlawful act?
his possession to the satisfaction of the court.The
receipt, concealment, sale, purchase or the A:
facilitation thereof after the unlawful importation 1. If the conveyance has been used for
with the knowledge that the textile is smuggled smuggling at least twice before.
becomes punishable under Section 3601 of the 2. If the owner is not in the business for
Code. (Rodriguez v. CA, G.R. No. 115218, Sept. 18, which the conveyance is generally used.
1995) 3. If the owner is financially not in the
position to own such conveyance.
Q: What are contrabands?
Q: In smuggling a shipment of garlic, the smugglers
A: These are articles of prohibited importation or used an eight-wheeler truck which they hired for
exportation. (Sec. 3519, TCC) the purpose of taking out the shipment from the
customs zone. Danny, the truck owner, did not
Q: When are imported goods not considered as have a certificate of public convenience to operate
contrabands? his trucking business. Danny did not know that the
shipment of garlic was illegally imported. Can the
A: Imported goods must be entered into a Collector of Customs of the port seize and forfeit
customhouse at their port of entry, otherwise they the truck as an instrument in the smuggling?
shall be considered as contraband and the importer
is liable for smuggling. (Sec. 101, TCC) A: Yes, since the same was used unlawfully in the
importation of smuggled articles. The mere carrying
Q: What is port of entry? of such articles on board the truck (in commercial
quantities) shall subject the truck to forfeiture,
A: It is a domestic port open to both foreign and since it was not being used as a duly authorized
coastwise trade including “airport of entry”. (Sec. common carrier, which was chartered or leased as
3514, TCC). All articles imported into the Philippines such. (Sec. 2530 [a], TCC)
whether subject to duty or not shall be entered
through a customs house at a port of entry. Moreover, although forfeiture of the vehicle will
not be effected if it is established that the owner
Q: What are the things subject to confiscation in thereof had no knowledge of or participation in the
smuggling cases? unlawful act, there arises a prima facie presumption
or knowledge or participation if the owner is not in
A: the business for which the conveyance is generally
GR: Anything that was used for smuggling is used. Thus, not having a certificate of public
subject to confiscation, like the vessel, plane, convenience to operate a trucking business, he is
etc. (Llamado v. Commissioner of Customs, G.R. legally deemed not to have been engaged in the
No. L-28809, May 16, 1983). trucking business. (Sec. 2531, TCC) (1994 Bar
Question)
XPN: Common carriers which are not privately
chartered cannot be confiscated. Q: What are the requirements for customs
forfeiture of imported goods?
Note: Common carriers are generally not subject to
forfeiture except if the owner has knowledge of and A:
consented to its use in smuggling. Lack of personal 1. The wrongful making by the owner,
knowledge of the owner or carrier does not constitute importer, exporter or consignee of any
a valid defense in forfeiture cases. declaration or affidavit, or the wrongful
making or delivery by the same persons of
311
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
any invoice, letter or paper - all touching 2. Overvaluation – reporting values higher
on the importation or exportation of than the transaction value
merchandise.; 3. False invoice description through
2. That such declaration, affidavit, invoice, reporting lower qualities in the invoice not
letter or paper is false; and identifying branded items as such
3. An intention on the part of the 4. False country of origin
importer/consignee to evade the
payment of the duties due. (Republic, etc., Q: When can forfeiture be effected?
v. CTA, et al., G.R. No. 139050, Oct. 2,
2001) A:
1. Forfeiture shall be effected only when
Q: On January 30, 1972, the vessel S/S "Pacific and while the article is in the custody or
Hawk" arrived at the Port of Manila carrying, within the jurisdiction of the customs
among others, 80 bales of screen net consigned to authority;
Bagong Buhay Trading. Since the customs 2. In the hands or subject to the control of
examiner found the subject shipment reflective of importer/exporter, original owner,
the declaration, Bagong Buhay paid the duties and consignee, agent, or other person
taxes due in the amount of P11,350.00 which was effecting the importation entry or
paid through the Bank of Asia thereafter, the exportation;
customs appraiser made a return of duty. The 3. In the hands or subject to the control of
Collector of Customs determined the subject some person who shall receive, conceal,
shipment classifiable at 100% ad valorem. Thus, buy, sell or transport or aid in such acts
Bagong Buhay Trading was assessed P272, 600.00 with knowledge.
as duties and taxes due on the shipment in
question. Since the shipment was misdeclared as Q: May seizure be effected even outside the
to quantity and value, the Collector of Customs territorial limits of the Philippines (doctrine of hot
forfeited the subject shipment in favor of the pursuit)?
government.
A: Yes. A vessel loaded with contraband while in
Is the shipment in question subject to forfeiture? the high seas headed towards Tawi-tawi was
considered to have been lawfully seized. The
A: Although it cannot be denied that Bagong Buhay power of a nation to secure itself from injury may
caused to be prepared through its customs broker a be exercised beyond the territorial limits. (Asaali,
false import entry or declaration, it cannot be et al. v. Commissioner of Customs, G.R. No. L-
charged with the wrongful making thereof because 24170, Feb. 28, 1969)
such entry or declaration merely restated faithfully
the data found in the corresponding certificate of Q: What are the requisites of the Doctrine of Hot
origin,certificate of manager of the shipper, the Pursuit in TCC?
packing lists and the bill of ladingwhich were all
prepared by its suppliers abroad. If at all, the A:
wrongful making or falsity of the documents above- 1. Over vessels:
mentioned can only be attributed to Bagong a. Act is done in Philippines waters;
Buhay's foreign suppliers or shippers. With regard b. Act constitutes a violation of TCC;
to the second requirement on falsity, it bears c. Pursuit of such vessel began within
mentioning that the evidence on record, the jurisdictional waters:
specifically, the decisions of the Collector of i. Which may continue beyond
Customs and the Commissioner of Customs, do not the maritime zone;
reveal that the importer or consignee, Bagong ii. And the vessel may be seized
Buhay Trading had any knowledge of any falsity on on the high seas.
the subject importation. (Farolan, Jr. v. CTA, G.R.
No. 42204, Jan. 21, 1993) 2. Over imported articles:
a. There is violation of TCC;
Q: What are the types of valuation frauds? b. As a consequence, they may be
pursued in their transportation in
A: the Philippines by land, water or air;
1. Undervaluation – reporting lower values c. Such jurisdiction over them at any
than the actual transaction value place therein as may be necessary
312
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
for the due enforcement of the law. same considering that the customs duties and the
(Sec 603, TCC) taxes had already been paid and the goods had
left the control and jurisdiction of the Bureau of
Q: State the Doctrine of Primary Jurisdiction of the Customs.
BOC (Doctrine of Exclusive Customs Jurisdiction
over customs cases.) 1. Did the Collector of Customs have jurisdiction
to issue the warrant of seizure and
A: The BOC has exclusive administrative jurisdiction detention?
to conduct searches, seizures and forfeitures of 2. Did the payment of customs duties, taxes,
contraband without the interference from the etc. render illegal and improper the issuance
courts. The BOC could conduct searches and of said warrant?
seizures without need of judicial warrant except if 3. Has the Regional Trial Court jurisdiction to
search is to be conducted in a dwelling place. hear and decide the civil case?
313
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
However, the basic operative fact is the actual or Q: On the basis of a warrant of seizure and
constructive possession of the res by the tribunal detention issued by the Collector of Customs for
empowered by law to conduct the proceedings. the purpose of enforcing the Tariff and Customs
This means that to acquire jurisdiction over the Laws, assorted brands of cigarettes said to have
vessel, the trial court must have obtained either been illegally imported into the Philippines were
actual or constructive possession over it. Neither seized from a store where they were openly
was accomplished by the RTC as the vessel was offered for sale. Dissatisfied with the decision
already in the possession of the Bureau of Customs. rendered after hearing by the Collector of
(Commissioner of Customs v. CA, et al., G. R. Nos. Customs on the confiscation of the articles, the
111202-05, Jan. 31, 2006) importer filed a petition for review with the CTA.
The Collector moved to dismiss the petition for
Q: Is a judicial search warrant necessary in case of lack of Jurisdiction.
customs search and seizures?
1. Rule on the motion.
A: No, it is one of the exceptions to the judicial 2. Under the same facts, could the importer file
warrant requirement under the Constitution. Under an action in the RTC for replevin on the
the Tariff and Customs Code, a search, seizure and ground that the articles are being wrongfully
arrest may be made even without a warrant for detained by the Collector of Customs since
purposes of enforcing customs and tariff laws. the importation was not illegal and therefore
(Rieta v. People, 436 SCRA 273, August 12, 2004) exempt from seizure?
314
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
export duties due the State, which enables the imported items displayed on the shop. Since MR
government to carry out the functions It has could not show any receipt, the custom agents
been Instituted to perform. (Jao v. CA, G.R. seized all the imported items displayed on the
No. 104604, October 6, 1995) (2000 Bar shop. Upon a tip by a disgruntled employee of the
Question) MR, the Customs agents preceded to the house of
MR at Sam Lorenzo Village in Makati. More
Q: What is required before a warrant of seizure untaxed imported electronics items were found
and detention may be issued? there. The customs agents also seized the same.
Discuss the legality of the seizure made by the
A: The Collector of Customs upon probable cause customs agents.
that the articles imported or exported, or are
attempted to be imported or exported are contrary A: The seizure conducted at MR’s shop is valid
to the TCC. (Sec. 6, Title III, C.A.O. No. 9-93) because it is not a dwelling place. The Bureau of
Customs has jurisdiction to effect the seizure
Q: What may be the subject of customs search because importation has not yet ended, there being
and seizure? no showing that there was full payment of customs
duties. The seizure made at his house is invalid
A: because there was no warrant from a regular court.
1. Land or inclosure or any warehouse, (1990 Bar Question)
store or other building, not being a
dwelling house (Sec. 2208, TCC) Q: On January 1, 1996, armed with warrants of
2. Dwelling house (Sec. 2209, TCC) seizure and detention issued by the Bureau of
3. Vessels or aircrafts and persons or Customs, members of the customs enforcement
articles conveyed therein (Sec. 2210, TCC) and security services coordinated with the Quezon
4. Vehicles, beasts and persons (Sec. 2211, City police to search the premises owned by a
TCC) certain Mr. Ho along Kalayaan Avenue, Quezon
5. Persons arriving from foreign countries City, which allegedly contained untaxed vehicles
(Sec. 2212, TCC). and parts. While inside the premises, the member
of the customs enforcement and security services
Note: If the search and seizure is to be conducted in a noted articles which were not included in the list
dwelling place, then a search warrant should be issued contained in the warrant. Hence, on January 15,
by the regular courts not the Bureau of Customs. 1996, an amended warrant and seizure was issued.
On January 25, 1996, the customs personnel
No warrant is required to be issued by the Bureau of started hauling the articles pursuant to the
Customs or the regular courts in search and seizures of amended warrant. This prompted Mr. Ho to file a
motor vehicles and vessels since it is not practicable to case for injunction and damages with a prayer for
secure a warrant because vehicles can be quickly
a restraining order before the Regional Trial Court
moved out of the locality or jurisdiction in which the
of Quezon City against the Bureau of Customs on
warrabt must be sought.
January 27, 1996. On the same date, the trial court
Burden of proof in seizure or forfeiture is on the issued a temporary restraining order. A motion to
claimant. (Sec. 2535, TCC) dismiss was filed by the Bureau of Customs on the
ground that the RTC has no jurisdiction over the
Q: When can a dwelling house be searched? subject matter of the complaint claiming that it
was the Bureau of Customs that has exclusive
A: Only upon a warrant issued by a judge of the jurisdiction over it. Decide.
regular court and upon a sworn application showing
probable cause and particularly describing the A: The motion to dismiss should be granted. Seizure
places to be searched and person or thing to be and forfeiture proceedings are within the exclusive
seized. (Sec. 2209, TCCP) jurisdiction of the Collector of Customs to the
exclusion of regular Courts. RTCs are devoid of
Q: MR owns an electronic shop at Mile Long competence to pass upon the validity or regularity
Shopping Center in Makati. The shop sells various of seizure and forfeiture proceedings conducted by
imported items such as camera, television sets, the Bureau of Customs and to enjoin or otherwise
video cassette recorders, and similar items. In interfere with these proceedings (Republic v. CFI of
February 10, 1990, agents of the Commissioner of Manila, G.R. No. 43747, September 2, 1992; Jao v.
Customs visited the shop and asked that they be CA,G.R. No. 104604, October 6, 1995)
shown the official of Bureau of Customs receipts
evidencing payment of the duties and taxes on all
315
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Can goods in the custom’s custody pending and taxes and compliance with all other legal
payment of customs duties be attached? requirements (Sec. 1508, TCC)
A: No. Goods in the custom’s custody pending Q: Discuss briefly the remedies of an importer
payment of customs duties are beyond the reach of during the pendency of seizure proceedings.
attachment. As long as the importation has not A: During the pendency of seizure proceedings the
been terminated, the imported goods remain importer may secure the release of the imported
under the jurisdiction of the Bureau of Customs. property for legitimate use by posting a bond in an
(Viduya v. Berdiago, G.R. No. L-29218, October 29, amount to be fixed by the Collector, conditioned
1976) for the payment of the appraised value of the
article and/or any fine, expenses and costs which
Q: What is a manifest? may be adjudged in the case; provided, that
articles the importation of which is prohibited by
A: It is a listing of the passengers or cargoes carried law shall not be released under bond.
by a vessel or aircraft, whether engaged in the
coastwise or foreign trade. The importer may also offer to pay to the collector
a fine imposed by him upon the property to secure
Q: When is a manifest required? its release or in case of forfeiture, the importer
shall offer to pay for the domestic market value of
A: A manifest in coastwise trade for cargo and the seized article, which offer subject to the
passengers transported from one place or port in approval of the Commissioner may be accepted by
the Philippines to another is required when one or the Collector in settlement of the seizure case,
both of such places is a port of entry (Sec. 906, TC). except when there is fraud. Upon payment of the
Manifests are also required of a vessel from a fine or domestic market value, the property shall
foreign port (Sec. 1005, TCC). be forthwith released and all liabilities which may
or might attach to the property by virtue of the
Q: Is manifest required only for imported goods? offense which was the occasion of the seizure and
all liability which might have been incurred under
A: No. Articles subject to seizure do not have to be any bond given by the importer in respect to such
imported goods. Manifests are also required for property shall thereupon be deemed to be
articles found on vessels or aircraft engaged in discharged. (1996 Bar Question)
coastwise trade. (Rigor v. Rosales, G.R. No. L-
33756, October 23, 1982)
Q: Is unmanifested cargo subject to forfeiture? FRAUDULENT PRACTICES
A: Yes. Unmanifested cargo is subject to forfeiture Q: What are the fraudulent practices considered as
whether the act of smuggling is established or not criminal offenses against Customs Revenue Laws?
under the principle of res ipsa loquitur. It is enough
that the cargo was unmanifested and that there A:
was no showing that payment of duties thereon 1. Unlawful importation;
had been made for it to be subject to forfeiture. 2. Entry of imported or exported article by
means of any false or fraudulent
Q: State the rule in settlement of forfeiture cases. practices, invoice, declaration, affidavit,
or other documents;
A: 3. Entry of goods at less than their true
GR: Settlement of cases by fine or redemption is weights or measures or upon a
generally allowed. classification as to quality or value;
4. Payment of less than the amount due;
XPNS: 5. Filing any false or fraudulent claim for the
1. The importation is absolutely prohibited; payment of drawback or refund of duties
2. The surrender of the property to the upon the exportation of merchandise; or
person offering to redeem would be 6. Filing any affidavit, certificate or other
contrary to law; or document to secure to himself or others
3. There is fraud. (Sec. 2307, TCC) the payment of any drawback, allowance
or refund of duties on the exportation of
Note: At any time prior to the sale, the delinquent merchandise greater than that legally due
importer may settle his obligations with the Bureau of thereon. (Sec. 3602, TCC)
Customs, in which case the aforesaid articles may be
delivered upon payment of the corresponding duties
316
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
317
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
merely ancillary to the appellate jurisdiction, On the other hand, when the goods are
the CTA has no jurisdiction over it until it has properly released and thus beyond the reach
acquired jurisdiction on the petition for of tax lien, the government can seek payment
review. Since there is no appealable decision, of the tax liability through judicial action since
the CTA has no jurisdiction over the petition the tax liability of the importer constitutes a
for review and writ of prohibition. personal debt to the government, therefore,
(Commissioner of Customs v. Alikpala, G.R No. enforceable by action. In this case judicial
L-32542, 1970). remedy is normally availed of instead of the
administrative remedy. (1997 Bar Question)
2. No, because the Commissioner of Customs
has not yet rendered a decision on the claim
for refund. The jurisdiction of the REMEDIES OF THE TAXPAYER
Commissioner and the CTA are not concurrent
in so far as claims for refund are concerned. Q: What are the remedies of the taxpayer?
The only exception is when the Collector has
not acted on the protested payment for a long A:
time, the continued inaction of the Collector 1. Administrative
or Commissioner should not be allowed to a. Protest;
prejudice the taxpayer. (Nestle Philippines, b. Refund, drawback, abatement;
Inc. v. CA, G.R. No. 134114, July 6, 2001). c. Payment of fine or redemption;
(2002 Bar Question) d. Abandonment
e. Appeal to the Customs
Q: TCC allows the Bureau of Customs to resort to Commissioner
the administrative remedy of seizure, such as by
enforcing the tax lien on the imported article, and 2. Judicial
to the judicial remedy of filing an action in court. a. Appeal to the CTA;
b. Action to question the legality of
When does the Bureau of Customs normally avail seizure;
itself:
1. Of the administrative, instead of the judicial
remedy?
2. Of the latter, instead of the former remedy? ADMINISTRATIVE
A: Protest
1. The Bureau of Customs avails of the
administrative remedy of seizure if the Q: Who can make a protest and how is protest
imported article which is burdened by a lien made?
for the unpaid customs duties could still be
found. A:
1. Any importer or interested party - if
The Bureau of Customs normally avails itself dissatisfied with published value within
of the administrative remedy of seizure, such 15 days from date of publication or
as by enforcing the tax lien on the imported within 5 days from date the importer is
articles, instead of the judicial remedy when entitled to refund in case payment is
the goods to which the tax lien attaches, rendered erroneous or illegal by events
regardless of ownership, is still in the custody occurring after the payment.
or control of the Government. In the case,
however, of importations which are 2. Taxpayer - within 15 days from
prohibited or undeclared, the remedy of assessment. Payment under protest is
seizure and forfeiture may still be exercised by necessary.
the Bureau of Customs even if the goods are
no longer in its custody.
Q: Is protest an exclusive remedy?
2. If the imported article could no longer be
found, or if it has perished, then judicial action A: In all cases subject to protest, the interested
through an ordinary suit for the collection of party who desires to have the action of the
sum of money is then filed. Collector reviewed, shall make a protest, otherwise
318
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
the action of the collector shall be final and business within the zones; thus creating
conclusive against him. more employment opportunities and
infusing more dynamism to the vibrant
interplay of market forces. It is clear that
Refund, Drawback and Abatement Section 17(1) of EPZA Law considers such
supplies exempt even if they are used
Q: How is refund made? indirectly, as they had been in this case.
A: All claims for refund of duties shall be made in 2. No. The EPZA Law itself is silent on the
writing and forwarded to the Collector whom matter, and the prescriptive periods
duties are paid; and upon receipt of claim, the under the Tariff and Customs Code and
Collector shall verify the same through his records; other revenue laws are inapplicable, by
and shall certify to the Commission with his specific mandate of Section 17(1) of the
recommendations together with all necessary EPZA Law. Thus, the Civil Code provisions
papers and documents; and upon receipt by the on solutio indebiti may find application.
Commission, he shall cause the same to be paid if The Court has in the past sanctioned the
found correct. application of the provisions on solutio
indebiti in cases when taxes were
Q: Philippine Phosphate Fertilizer Corporation collected thru error or mistake. Thus, the
(Philphos), a domestic corporation engaged in the claim for refund must be commenced
manufacture and production of fertilizers for within six (6) years from date of payment
domestic and international distribution. It is pursuant to Article 1145(2) of the New
registered with the Philippine Export Zone Civil Code. (Commissioner of Customs v.
Authority (PEZA). The manufacture of fertilizers Philippine Phosphate Fertilizer
required Philphos to purchase fuel and petroleum Corporation, G.R. No. 144440, Sept. 1,
products for its machineries. These fuel supplies 2004)
are considered indispensable by Philphos, as they
are used to run the machines and equipment and Q: What is duty drawback?
in the transformation of raw materials into
fertilizer. Petron Corporation (Petron) was A: A device resorted to for enabling a commodity
Philphos’ supplier, which imports the same and affected by taxes to be exported and sold in foreign
pays the corresponding customs duties to the markets upon the same terms as if it had not been
Bureau of Customs; and, the ad valorem and taxed at all.
specific taxes to the BIR. When the fuel and
petroleum products are delivered at Philphos’ Q: What is abatement?
manufacturing plant, Philphos is billed by Petron
the corresponding customs duties imposed on A: It is the reduction or non-imposition of custom
these products. Effectively thus, Philphos duties on certain imported materials as a result of:
reimburses Petron for the customs duties on the 1. Damaged incurred during voyage;
purchased fuels and petroleum products which 2. Deficiency in contents of packages;
are passed on by the Petron as part of the selling 3. Loss or destruction of articles after arrival;
price. Philphos sought the refund of customs or
duties it had paid on the ground that Philphos is 4. Death or injury of animals.
entitled to tax incentives under Presidential
Decree No. 66 (EPZA Law). The Bureau of Customs
denied the claim for refund. Payment of Fine or Redemption
319
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Abandonment
A: Abandonment in customs is the renunciation by Q: To whom should appeal be filed and when?
an importer of all his interests and property rights
in the importer article. A: To the Commissioner, within 15 days after
notification by collector of his decision.
Q: How may abandonment be made?
320
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
TAX REMEDIES
NIRC TCC
As to payment
Discrepancies in the form of
additional taxes are not Payment must first be
paid if contested effected
As to protest
There is no need for Payment under protest is
payment under protest required
As to who takes action in case of protest
Collector first takes action
Commissioner takes action before the Commissioner
Filing period in protest cases
Within 30 days from the At the time of payment or
receipt of assessment within 15 days thereafter
notice
Period within which to decide
Commissioner is given 180 No time period is allowed
days from receipt of within which the Collector
complete supporting must decide the case
documents.
As to automatic review
There is no automatic A decision of the Customs
review should the Commissioner against the
Commissioner decide Government is subject to an
against the Government automatic review by the
Secretary of Finance.
321
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
322
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Tariff and Customs Code of 1978
A:
Arrival at the Port of Entry
(Aircraft or Vessel of Foreign Trade)
Observance
of Entry to
Submission of Papers the Vessel
Passenger and Cargo Manifest, Cargo Storage Plan, Store List showing Store laden or Air Craft
Except those
entry by
necessity Unloading of Cargo
Within 30 days
from discharge
Entry into the Customs House of last package
(Filing of Import Entry)
Examination of Goods
BOC Internal
Processes
Appraisal of Goods
Payment of Duties
Compliance Audit
Note:
Formal* and Informal Entry – generally depending on the value (if the dutiable value is 2000 or less) or personal and
household effects, not in quantity for personal use
*under penalties of falsification or perjury
Submission of the bill of lading, commercial invoices and supporting documents to evidence quantity and dutiable value.
Liquidation of entries: may be tentative – subject to future and final readjustment and settlement within a period of six
months from date of tentative liquidation – or final.
323
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
324
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Judicial Remedies
Q: State the expanded jurisdiction of the CTA. jurisdiction involving final and
executoryassessments for taxes, fees,
A: charges and penalties, where the
1. Exclusive original jurisdiction over criminal principal amount of taxes and penalties
cases arising from violations of the NIRC claimed is less than one million pesos;
or the Tariff and Customs Code and other
laws administered by the BIR and the BOC 2. criminal offenses arising from violations
where the principal amount of taxes and of the NIRC or the Tariff and Customs
penalties involved is P1 million or more Code and other laws administered by the
and appellate jurisdiction in lieu of the CA Bureau of Internal Revenue or Bureau of
over the Decisions of the RTC where the Customs
amount is less than P1 million;
2. Exclusive original jurisdiction over tax (b) Decisions, resolutions or orders on motions for
collection cases where the principal reconsideration or new trial of the Court in Division
amount of taxes and penalties involved if in the exercise of its exclusive original jurisdiction
P1 million or more and the appellate over :
jurisdiction over decisions of the RTC 1. tax collection cases
where the amount is less than P1 million; 2. involving criminal offenses arising from
3. Appellate jurisdiction over decisions of violations of the NIRC or the Tariff and
the RTC in local tax cases; and Customs Code and other laws
4. Appellate jurisdiction over decisions of administered by the Bureau of Internal
the Central Board of Assessment Appeals Revenue or Bureau of Customs;
over cases involving the assessment of
taxation of real property. (R.A. 9282) (c) Decisions, resolutions or orders of the RTC in
decided or resolved by them in the exercise of their
Q: What is the salient feature of R.A. 9282 appellate jurisdiction over:
regarding appeal? 1. local tax cases
2. tax collection cases
A: Decisions of the CTA are no longer appealable to 3. criminal offenses arising from violations
the CA. The decision of a division of the CTA may be of the NIRC or the Tariff and Customs
appealed to the CTA en banc, which in turn may be Code and other laws administered by the
appealed directly to the SC only on questions of Bureau of Internal Revenue or Bureau of
law. Customs
325
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
326
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Judicial Remedies
2. Jurisdiction over cases involving criminal Note: Collection cases where the principal
offenses amount of taxes and fees, exclusive of
a. Exclusive original jurisdiction over all charges, and penalties, claimed, is less than
criminal offenses arising from P1M shall be tried by the proper MTC,
i. Violations of the National Metropolitan Trial Court and RTC.
Internal Revenue Code(NIRC);
or b. Exclusive appellate jurisdiction in tax
ii. The Tariff and Customs collection cases:
Code(TCC) and
iii. Other laws administered by the i. Over appeals from the
Bureau of Internal Revenue(BIR) judgments, resolutions or
or the Bureau of Customs(BOC). orders of the RTC; in tax
collection cases originally
Note: If the principal amount of taxes and fees, decided by them, in their
exclusive of charges and penalties, claimed is less
327
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
JUDICIAL PROCEDURES A: The party who may appeal are the following:
Judicial Action For Collection Of Taxes (a) A party adversely affected by a decision, ruling
or the inaction of the Commissioner of Internal
Local Taxes Revenue on disputed assessments or claims for
refund of internal revenue taxes, or by a decision or
Q: How does the LGU concerned enforce the ruling of the Commissioner of Customs, the
judicial remedy in collection of taxes? Secretary of Finance, the Secretary of Trade and
Industry, the Secretary of Agriculture, or a Regional
A: The LGU concerned may enforce the collection of Trial Court in the exercise of its original jurisdiction
delinquent taxes, fees, charges and other revenues may appeal to the Court by petition for review filed
by civil action in any court of competent within 30 days after receipt of a copy of such
jurisdiction. The civil action shall be filed by the decision or ruling, or expiration of the period fixed
local treasurer within five (5) years from delinquent by law for the Commissioner of Internal Revenue to
taxes, fees or charges become due. act on the disputed assessments. In case of inaction
of the Commissioner of Internal revenue on claims
Note: The local government files an ordinary suit for for refund of internal revenue taxes erroneously or
the collection of sum of money before the MTC, RTC or illegally collected, the taxpayer must file a petition
CTA depending upon the jurisdictional amount. for review within the two-year period prescribed by
law from payment or collection of the taxes.
Q: What are the prescriptive periods of
assessment and collection of local taxes? (b) A party adversely affected by a decision or
resolution of a Division of the Court on a motion for
Prescriptive Period for taxes, fees, or charges reconsideration or new trial may appeal to the
Assessment 5 years from date Court by filing before it a petition for review within
they became due fifteen days from receipt of a copy of the
Collection No action can be brought whether
questioned decision or resolution. Upon proper
administrative or judicial shall be
instituted after the expiration of the
motion and the payment of the full amount of the
period to access docket and other lawful fees and deposit for costs
before the expiration of the reglementary period
Note:In case of fraud or intent to evade the payment herein fixed, the Court may grant an additional
of taxes, fees, or charges, the same may be assessed period not exceeding fifteen days from the
within ten (10) years from discovery of the fraud or expiration of the original period within which to file
intent to evade payment (Sec. 194, LGC). the petition for review.
Q: What are the instances wherein the running of (c) A party adversely affected by a decision or ruling
the prescriptive period for assessment and of the Central Board of Assessment Appeals and the
collection of local taxes will be suspended? Regional Trial Court in the exercise of their
appellate jurisdiction may appeal to the Court by
A: The following are the instances that will suspend filing before it a petition for review within thirty
the running of the prescriptive period for days from receipt of a copy of the questioned
assessment and collection of local taxes: decision or ruling. (Sec. 3., Rule 8, A.M. No. 05-11-
a. The Treasurer is legally prevented from 07-CTA).
making the assessment or collection;
328
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Judicial Remedies
Q: How is appeal made? A: Yes. Under Section 228 of the 1997 Tax Code, the
taxpayer had 30 days to appeal the denial of its
A: The venue and mode of appeal are the protest to the CTA. Since the denial of the
following: administrative protest on August 4, 2005, it had
until September 3, 2005 to file a petition for review
(a) An appeal from a decision or ruling or the before the CTA Division. It filed one, however, on
inaction of the Commissioner of Internal Revenue October 20, 2005, hence, it was filed out of time for
on disputed assessments or claim for refund of a motion for reconsideration of the denial of the
internal revenue taxes erroneously or illegally administrative protest does not toll the 30-day
collected, the decision or ruling of the period to appeal to the CTA. (Fishwealth Canning
Commissioner of Customs, the Secretary of Finance, Corporation v. CIR, G.R. 179343, Jan. 21, 2010)
the Secretary of Trade & Industry, the Secretary of
Agriculture, and the Regional Trial Court in the Q: What is the remedy of a party affected by a
exercise of their original jurisdiction, shall be taken ruling, decision, or ruling of a Division of the CTA?
to the Court by filing before it a petition for review
as provided in Rule 42 of the Rules of Court. The A: A party adversely affected by a ruling, order or
Court in Division shall act on the appeal. decision of a Division of the CTA may file a motion
for reconsideration or new trial before the same
(b) An appeal from a decision or resolution of the Division of the CTA within fifteen (15) days from
Court in Division on a motion for reconsideration or notice thereof.
new trial shall be taken to the Court by petition for
review as provided in Rule 43 of the Rules of Court. However in criminal cases, the general rule
The Court en banc shall act on the appeal. applicable in regular Courts on matters of
prosecution and appeal shall likewise apply.
(c) An appeal from a decision or ruling of the
Central Board of Assessment Appeals or the Q: What is the remedy of a party affected by a
Regional Trial Court in the exercise of their resolution of a Division of the CTA?
appellate jurisdiction shall be taken to the Court by
filing before it a petition for review as provided in A: A party adversely affected by a resolution of a
Rule 43 of the Rules of Court. The Court en banc Division of the CTA on a motion for reconsideration
shall act on the appeal. (Sec. 4., Rule 8, A.M. No. 05- or new trial, may file a petition for review with the
11-07-CTA). CTA en banc.
Note: The 30 day prescriptive period is jurisdictional. Q: How about the remedy of a party affected by a
decision or ruling of the CTA en banc?
Q: BIR issued a Final Assessment Notice of income
tax and VAT deficiencies to a taxpayer on August A: A party adversely affected by a decision or ruling
6, 2003 which the latter contested by letter of of the CTA en banc may file with the Supreme Court
September 23, 2003. The BIR thereafter issued a a verified petition for review on certiorari pursuant
Final Decision on Disputed Assessment (FDDA) to Rule 45 of the 1997 Rules of Civil Procedure.
dated August 2, 2005 which the taxpayer received
on August 4, 2005 denying the letter of protest Q: What is the effect of the perfection of an
and requesting the immediate payment thereof appeal?
inclusive of penalties incident to delinquency. It
added that if he disagrees, he may appeal to the A:
CTA within 30 days from date of its receipt GR: Appeal to the CTA shall not suspend
otherwise the deficiency income and value-added payment, levy, distraint and/or sale of any
taxes assessments shall become final, executory property of taxpayer for the satisfaction of his
and demandable. Instead of appealing to the CTA, liability.
the taxpayer filed a Letter of Reconsideration to
the BIR on September 1, 2005. By a Preliminary XPN: If in the opinion of the CTA, the collection
Collection Letter dated September 6, 2005, the BIR may jeopardize the interest of the government
demanded payment of the taxpayer’s liabilities and/or the taxpayer.
prompting him to file on October 20, 2005 a
Petition for Review before the CTA. In its Answer, In this case, collection may be suspended at any
BIR argued, among other things, that the petition stage of the proceeding but taxpayer shall be
was filed out of time. Is the argument of the BIR required either:
valid?
329
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
1. To deposit (with the court) the amount In case of voluminous documents or long accounts
claimed; or the party who desires to introduce in such evidence
2. To file a surety bond (with the court) for must, upon motion and approval by the Court, refer
not more than double the amount of the the voluminous documents to an independent
tax due. Certified Public Accountant (CPA) for the purpose of
presenting: (1) a summary of the invoices or
Q: If there is a request or motion for receipts and the amount(s) of taxes paid and (2) a
reconsideration, what is the appealable decision? certification of the independent CPA attesting to
the correctness of the contents of the summary
A: It is the decision denying the request or motion. after making an examination, evaluation and audit
The filing of a civil action in court to collect a tax of voluminous receipts, invoices or long accounts
which was the subject of a pending protest in the (Sec. 5., Rule 12, A.M. No. 05-11-07-CTA).
BIR was a justifiable basis for the taxpayer to appeal
to the CTA and to move for the dismissal in the trial
court of the Government’s action to collect the tax Motion for Reconsideration/ New Trial
under dispute. (Yabes v. Flojo, G.R. No. L-46954,
July 20, 1982) Q: Who and when to file a motion for
reconsideration or new trial?
Q: May the collection of taxes be enjoined?
A: Collection of taxes should not be enjoined except A: Any aggrieved party may seek a reconsideration
upon clear showing of a right to an exemption. or new trial of any decision, resolution or order of
Reason: Lifeblood theory. (Northern Lines Inc. v. CA, the Court. He shall file a motion for reconsideration
G.R. No. L-41376-77, June 29, 1988) or new trial within fifteen days from the date he
received notice of the decision, resolution or order
GR: Collection of internal revenue taxes and of the Court in question. (Sec. 1., Rule 15, A.M. No.
customs duties cannot be enjoined. 05-11-07-CTA).
XPN: CTA is empowered to suspend the collection Q: What are the grounds for filing a motion for
of internal revenue taxes and custom duties in new trial?
cases pending appeal only when:
A: A motion for new trial may be based on one or
(1) in the opinion of the court the collection by the more of the following causes materially affecting
BIR will jeopardize the interest of the government the substantial rights of the movant:
and/ or taxpayer; and
(2) the taxpayer is willing to deposit the amount (a) Fraud, accident, mistake or excusable negligence
being collected or to file a surety bond for more which ordinary prudence could not have guarded
than double the amount of the tax to be fixed by against and by reason of which such aggrieved
the court (Sec. 11, R.A. 1125). party has probably been impaired in his rights; or
330
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Judicial Remedies
07-CTA).
Q: Define undisputed assessments.
A pro forma request for reconsideration or one that
is directed to the Secretary of Finance, does not A: These are assessments that are already final and
suspend the period. collectible because the taxpayer failed to
seasonably protest the assessment within a period
of 30 days from receipt of the notice of assessment.
Appeal to CTA, en banc
Q: Will the CTA acquire jurisdiction even in the
Q: May a decision or resolution of the CTA in absence of a decision of the CIR or Commissioner
Division be appealable directly to the CTA En Banc of Customs?
in its exercise of its exclusive appellate
jurisdiction? A:
GR: CTA has jurisdiction only if there is a
A: No, the petition for review of a decision or decision of the Commissioner of Internal
resolution of the Court in Division must be Revenue or Commissioner of Customs.
preceded by the filing of a timely motion for
reconsideration or new trial with the Division. (Sec. XPNS:
1., Rule 8, A.M. No. 05-11-07-CTA). 1. If Commissioner of Customs has not
rendered a decision and the suit is about
to prescribe;
Petition for Review on Certiorari to the Reason: If the taxpayer waits, then his
Supreme Court right of action prescribes.
Q: Who may file an appeal to the Supreme Court 2. If the Commissioner of Internal Revenue
by petition for review on certiorari? has not acted in a refund case and the 2-
year prescriptive period is about to
A: A party adversely affected by a decision or ruling expire; or
of the Court en banc may appeal therefrom by filing Reason: The taxpayer would be left at
with the Supreme Court a verified petition for the mercy of the Commissioner, who
review on certiorari within 15 days from receipt of a by his delay leaves the taxpayer
copy of the decision or resolution, as provided in without any positive and expedient
Rule 45 of the Rules of Court. If such party has filed relief from the courts.
a motion for reconsideration or for new trial, the
period herein fixed shall run from the party’s 3. Where the Commissioner of Internal
receipt of a copy of the resolution denying the Revenue has not acted upon a protested
motion for reconsideration or for new trial. (Sec. 1., assessment within 180 days from
Rule 16, A.M. No. 05-11-07-CTA). submission of all relevant documents
supporting the protest, the taxpayer
Q: What is the effect of the appeal? adversely affected by the inaction may
appeal to the CTA within 30 days from the
A: The motion for reconsideration or for new trial lapse of the 180 day period.
filed before the Court shall be deemed abandoned
if, during its pendency, the movant shall appeal to Q: Does the CTA have jurisdiction over dispute
the Supreme Court (Sec. 1., Rule 16, A.M. No. 05- between the Philippine National Bank (PNB) and
11-07-CTA). the BIR relative to deficiency withholding tax
assessment?
Q: Which court has jurisdiction over undisputed
assessments? A: Yes. Disputes, claims, and controversies falling
under section 7 of R.A. 1125, even though solely
A: Since it is an action for the collection of sum of among government offices, agencies, and
money, the CTA has exclusive original jurisdiction instrumentalities, including government –owned or
over undisputed assessments when the amount controlled corporations, remain in the exclusive
involved is One Million (P1,000,00) or more. jurisdiction of the CTA. P.D. 242 which deals with
administrative settlement or adjudication of
However, where the amount is less then disputes, claims and controversies between or
P1,000,000, it is the RTC or the MTC that has among government offices, agencies and
jurisdiction, as the case may be ,depending on the instrumentalities, including government owned or
jurisdictional amount. controlled corporations, does not affect R.A. 1125,
331
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
the law creating the CTA and defines its jurisdiction. not become final (Lascona Land Co. v. CIR, CTA Case
P.D. 242 is a general law while R.A. 1125 is a special No. 5777, January 4, 2000). (2006 Bar Question)
law therefore following the rule on the rule on
statutory construction, R.A. 1125 should prevail. It Q: In the investigation of the withholding tax
is the CTA and not the BIR which has jurisdiction to returns of AZ Medina Security Agency (AZ Medina)
settle or adjudicate BIR’s assessment against PNB. for the taxable years 1997 and 1998, a discrepancy
(PNOC v. CA, G.R. no. 109976,April 26, 2005) between the taxes withheld from its employees
and the amounts actually remitted to the
Q: Is a simultaneous filing of the application with government was found. Accordingly, before the
the BIR for refund/credit and the institution of period of prescription commenced to run, the BIR
acourt suit for the same case with the CTA issued an assessment and a demand letter calling
allowed? for the immediate payment of the deficiency
withholding taxes in the total amount of P250,
A: Yes. There is no need to wait for a BIR denial. 000.00. Counsel for AZ Medina protested the
assessment for being null and void on the ground
Reasons: that no pre-assessment notice had been issued.
1. The positive requirement of Sec. 229, NIRC; However, the protest was denied. Counsel then
2. The doctrine that delay of the Commissioner filed a petition for prohibition with the Court of
in rendering decision does not extend the Tax Appeals to restrain the collection of the tax.
peremptory period fixed by the statute; Will the special civil action for prohibition brought
3. The law fixed the same period of 2 years for before the CTA under Sec. 11 of R.A, No. 1125
filing a claim for refund with the prosper? Discuss your answer.
Commissioner under Sec. 204 [C], NIRC of
1997, unlike in protests of assessments
A: The special civil action for prohibition will not
under Sec. 228, NIRC of 1997, which fixed
prosper, because the CTA has no jurisdiction to
the period (thirty days from receipt of
decision) for appealing to the Court, thus
entertain the same. The power to issue writ of
clearly implying that the prior decision of injunction provided for under Section 11 of RA 1125
the Commissioner is necessary to take is only ancillary to its appellate jurisdiction. The CTA
cognizance of the case. (CIR v. BPI, etc. et. is not vested with original jurisdiction to issue writs
al., CA G.R. SP No. 34102, Sept. 9, 1994) of prohibition or injunction independently of and
apart from an appealed case. The remedy is to
Q: On June 1, 2003, Global Bank received a final appeal the decision of the BIR. (Collector v. Yuseco,
notice of assessment from the BIR for deficiency L-12518, October 28, 1961). (2002 Bar Question)
documentary stamp tax in the amount of P5
Million. On June 30, 2003, Global Bank filed a Q: Mr. Abraham Eugenio, a pawnshop operator,
request for reconsideration with the after having been required by the Revenue District
Commissioner of Internal Revenue. The Officer to pay value added tax pursuant to a
Commissioner denied the request for Revenue Memorandum Order (RMO) of the
reconsideration only on May 30, 2006, at the same Commissioner of Internal Revenue, filed with the
time serving on Global Bank a warrant of distraint RTC an action questioning the validity of the RMO.
to collect the deficiency tax. If you were its If you were the judge, will you dismiss the case?
counsel, what will be your advice to the bank?
Explain. A: Yes. The RMO is in reality a ruling of the
Commissioner in implementing the provisions of
A: The denial for the request for reconsideration is the Tax Code on the taxability of pawnshops.
the final decision of the CIR. I would advise Global Jurisdiction to review rulings of the Commissioner is
Bank to appeal the denial to the CTA within 30 days lodged with the CTA and not with the RTC. (2006
from receipt. I will further advise the bank to file a Bar Question)
motion for injunction with the CTA to enjoin the
Commissioner from enforcing the assessment Q: The Collector of Customs of the Port of Cebu
pending resolution of the appeal. While an appeal issued warrants of seizure and detention against
to the CTA will not suspend the payment, levy, the importation of machineries and equipment by
distraint, and/or sale of any property of the LLD Import and Export Co. (LLD) for alleged
taxpayer for the satisfaction of its tax liability, the nonpayment of tax and customs duties in violation
CTA is authorized to give injunctive relief if the of customs laws. LLD was notified of the seizure,
enforcement would jeopardize the interest of the but, before it could be heard, the Collector of
taxpayer, as in this case, where the assessment has Customs issued a notice of sale of the articles. In
order to restrain the Collector from carrying out
332
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Judicial Remedies
the order to sell, LLD filed with the Court of Tax granted by it on the basis that such collection will
Appeals a petition for review with application for jeopardize the interest of the taxpayer or the
the issuance of a writ of prohibition. It also filed Government (Pirovano v. CIR, 14 SCRA 832 [1965]).
with the CTA an appeal for refund of overpaid
taxes on its other importations of raw materials The CTA is empowered to suspend the collection of
which has been pending with the Collector of internal revenue taxes and customs duties in cases
Customs. The Bureau of Customs moved to dismiss pending appeal only when: (1) in the opinion of the
the case for lack of jurisdiction of the Court of Tax court the collection by the BIR will jeopardize the
Appeals. interest of the Government and/or the taxpayer;
and (2) the taxpayer is willing to deposit the
Does the Court of Tax Appeals have jurisdiction amount being collected or to file a surety bond for
over the petition for review and writ of not more than double the amount of the tax to be
prohibition? Explain. fixed by the court (Section 11, R.A. No. 1125). (2004
Bar Question)
A: No, because there is no decision as yet by the
Commissioner of Customs which can be appealed Q: A Co., a Philippine corporation, is the owner of
to the CTA. Neither the remedy of prohibition machinery, equipment and fixtures located at its
would lie because the CTA has not acquired any plant in Muntinlupa City. The City Assessor
appellate jurisdiction over the seizure case. The writ characterized all these properties as real
of prohibition being merely ancillary to the properties subject to the real property tax. A Co.
appellate jurisdiction, the CTA has no jurisdiction appealed the matter to the Muntinlupa Board of
over it until it has acquired jurisdiction on the Assessment Appeals. The Board ruled in favor of
petition for review. Since there is no appealable the City. In accordance with R.A: 1125 (An Act
decision, the CTA has no jurisdiction over the creating the CTA). A Co. brought a petition for
petition for review and writ of prohibition. review before the CTA to appeal the decision of
(Commissioner of Customs v. Alikpala, L-32542, 26 the City Board of Assessment Appeals. Is the
November 1970). Petition for Review proper? Explain.
Q: Will an appeal to the CTA for tax refund be A: No. The CTA’s devoid of jurisdiction to entertain
possible? Explain appeals from the decision of the City Board of
Assessment Appeals. Said decision is instead
A: No, because the Commissioner of Customs has appealable to the CBAA, which under the Local
not yet rendered a decision on the claim for refund. Government Code, has appellate jurisdiction over
The jurisdiction of the Commissioner and the CTA decisions of Local Board of Assessment Appeals.
are not concurrent in so far as claims for refund are (Caltex Phil, Foe. v. Central Board of Assessment
concerned. The only exception is when the Appeals, L50466, May 31, 1982) (1999 Bar
Collector has not acted on the protested payment Question)
for a long time, the continued inaction of the
Collector or Commissioner should not be allowed to Q: A taxpayer received, on 15 January 1996 an as-
prejudice the taxpayer. (Nestle Philippines, Inc. v. sessment for an internal revenue tax deficiency.
CA, GR No. 134114, July 6, 2001). (2002 Bar On 10 February 1996, he forthwith filed a petition
Question) for review with the CTA could the Tax Court
entertain the petition?
Q: RR disputed a deficiency tax assessment and
upon receipt of an adverse decision by the A: No. Before a taxpayer can avail of judicial
Commissioner of Internal Revenue, filed an appeal remedy he must first exhaust administrative
with the CTA. While the appeal is pending, the BIR remedies by filing a protest within 30 days from
served a warrant of levy on the real properties of receipt of the assessment. It is the Commissioner's
RR to enforce the collection of the disputed tax. decision on the protest that gives the Tax Court
Granting arguendo that the BIR can legally levy on jurisdiction over the case provided that the appeal
the properties, what could RR do to stop the is filed within 30 days from receipt of the
process? Explain briefly. Commissioner's decision. An assessment by the BIR
is not the Commissioner's decision from which a
A: RR should file a motion for injunction with the petition for review may be filed with the CTA.
CTA to stop the administrative collection process. Rather, it is the action taken by the Commissioner
An appeal to the CTA shall not suspend the in response to the taxpayer’s protest on the
enforcement of the tax liability, unless a motion to assessment that would constitute the appealable
that effect shall have been presented in court and decision. (Sec. 7, RA 1125)
333
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: Has the RTC jurisdiction over the collection case Institution And Prosecution Of Criminal Actions
filed by the BIR? Explain.
Q: How are criminal actions instituted?
A: The RTC has no jurisdiction over the collection
case filed by the BIR. The filing of an appeal with A: All criminal actions before the Court in Division in
the CTA has the effect of divesting the RTC of the exercise of its original jurisdiction shall be
jurisdiction over the collection case. At the moment instituted by the filing of an information in the
the taxpayer appeals the case to the CTA in view of name of the People of the Philippines. In criminal
the Commissioner's filing of the collection case with actions involving violations of the National Internal
the RTC which was considered as a decision of Revenue Code and other laws enforced by the
denial, it gives a justifiable basis for the taxpayer to Bureau of Internal Revenue, the Commissioner of
334
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Judicial Remedies
Internal Revenue must approve their filing. In the Rules of Court within fifteen days from receipt
criminal actions involving violations of the tariff and of a copy of the decision or resolution appealed
Customs Code and other laws enforced by the from. The Court may, for good cause, extend the
Bureau of Customs, the Commissioner of Customs time for filing of the petition for review for an
must approve their filing. (Sec. 2., Rule 9, A.M. No. additional period not exceeding fifteen days.
05-11-07-CTA). (c) An appeal to the Court in criminal cases decided
by the Regional Trial Courts in the exercise of their
Note: The institution of the criminal action shall appellate jurisdiction shall be taken by filing a
interrupt the running of the period of prescription. petition for review as provided in Rule 43 of the
(Ibid) Rules of Court within fifteen days from receipt of a
copy of the decision or final order appealed from.
Q: How are criminal actions prosecuted? The Court en banc shall act on the appeal (Sec. 9,
Rule 9, A.M. No. 05-11-07-CTA)
A: All criminal actions shall be conducted and
prosecuted under the direction and control of the Q: Who shall represent the People in the criminal
public prosecutor. In criminal actions involving action?
violation of the National Internal Revenue Code or
other laws enforced by the Bureau of Internal A: The Solicitor General shall represent the People
Revenue, and violations of the Tariff and Customs of the Philippines and government officials sued in
Code or other laws enforced by the Bureau of their official capacity in all cases brought to the
Customs, the prosecution may be conducted by Court in the exercise of its appellate jurisdiction. He
their respective duly deputized legal officers (Sec. may deputized the legal officers of the Bureau of
3., Rule 9, A.M. No. 05-11-07-CTA). Internal Revenue in cases brought under the
National Internal Revenue Code or other laws
Q: What is the rule on the Institution on civil enforced by the Bureau of Internal Revenue, or the
action in criminal action? legal officers of the Bureau of Customs in cases
brought under the Tariff and Customs Code of the
A: In cases within the jurisdiction of the Court, the Philippines or other laws enforced by the Bureau of
criminal action and the corresponding civil action Customs, to appear in behalf of the officials of said
for the recovery of civil liability for taxes and agencies sued in their official capacity: Provided,
penalties shall be deemed jointly instituted in the however, such duly deputized legal officers shall
same proceeding. The filing of the criminal action remain at all times under the direct control and
shall necessarily carry with it the filing of the civil supervision of the Solicitor General (Sec. 10, Rule 9,
action. No right to reserve the filing of such civil A.M. No. 05-11-07-CTA).
action separately from the criminal action shall be
allowed or recognized (Sec. 11, Rule 9, A.M. No. 05-
11-07-CTA) Petition for Review on Certiorari
to the Supreme Court
Appeal and Period to Appeal Q: Who may file an appeal to the Supreme Court
by petition for review on certiorari?
Q: How to appeal and what is the period to
appeal? A: A party adversely affected by a decision or ruling
of the Court en banc may appeal therefrom by filing
A: with the Supreme Court a verified petition for
(a) An appeal to the Court in criminal cases decided review on certiorari within 15 days from receipt of a
by a Regional Trial Court in the exercise of its copy of the decision or resolution, as provided in
original jurisdiction shall be taken by filing a notice Rule 45 of the Rules of Court. If such party has filed
of appeal pursuant to Sections 3(a) and 6, Rule 122 a motion for reconsideration or for new trial, the
of the Rules of Court within 15 days from receipt of period herein fixed shall run from the party’s
a copy of the decision or final order with the court receipt of a copy of the resolution denying the
which rendered the final judgment or order motion for reconsideration or for new trial. (Sec. 1.,
appealed from and by serving a copy upon the Rule 16, A.M. No. 05-11-07-CTA).
adverse party. The Court in Division shall act on the
appeal.
335
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Q: What is the effect of the appeal? maintain an action in courts to restrain the unlawful
use of public funds to his injury cannot be denied."
A: The motion for reconsideration or for new trial (David vs. Macapagal-Arroyo, G.R. No. 171396, May
filed before the Court shall be deemed abandoned 3, 2006)
if, during its pendency, the movant shall appeal to
the supreme Court (Sec. 1., Rule 16, A.M. No. 05-11- Q: What are the requisites before a citizen may file
07-CTA). a taxpayer’s suit?
Furthermore, as held by the New York Supreme A: No, Gonzales did not meet the requisite burden
Court in People ex rel Case v. Collins: "In matter of to warrant the reversal of the trial court’s decision.
mere public right, however…the people are the real It was pointed out therein that one valid reason
parties…It is at least the right, if not the duty, of why such an outcome was unavoidable was that
every citizen to interfere and see that a public the funds administered by the Center came from
offence be properly pursued and punished, and donations and contributions and not from taxation.
that a public grievance be remedied." Accordingly, there was the absence of the
pecuniary requisite or monetary interest. The stand
With respect to taxpayer’s suits, Terr v. Jordan held of the lower court finds support in judicial
that "the right of a citizen and a taxpayer to precedents. This is not to retreat from the liberal
approach followed in the earlier case of Pascual v.
336
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Judicial Remedies
A: A taxpayer's suit may only be allowed when an Note: It is applicable when the Interest of the plaintiff
act complained of, which may include a legislative is subjected to or imminently threatened with
enactment, directly involves the illegal substantial injury; if the statute is Self-executing; when
disbursement of public funds derived from taxation a party is immediately confronted with the problem of
(Pascual v. Secretary of Public Works, 110 Phil. complying or violating a statute and there is a risk of
331).(1996 Bar Question) Criminal penalties; or when plaintiff is harmed by the
Vagueness of the statute.
Q: What is the “Double Nexus Test”?
337
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
Decisions of the Secretary of Finance on custom cases elevated to him automatically for review from decisions of the
Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code;
Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product, commodity or article, and the Secretary
of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under
Sections 301 and 302, respectively of the Tariff and Customs Code, and safeguard measures under RA 8800, where either party
may appeal the decision to impose or not to impose said duties.
Decisions of the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and
countervailing duties under Secs. 301 and 302, respectively of the Tariff and Customs Code, and safeguard measures under RA
8800, where either party may appeal the decision to impose or not to impose said duties.
CTA: EXCLUSIVE ORIGINAL JURISDICTION:
Criminal Case/s: Civil Case/s:
1. Violations of: 1. Tax collection cases involving final and executory
a. NIRC, assessments for taxes, fees, charges and penalties
b. Tariff and Customs Code, where the principal amount of taxes and fees,
c. Other laws administered by BIR and BOC, exclusive of charges and penalties claimed is P1M and
…where the principal amount of taxes and fees, exclusive above.
of charges and penalties claimed is P1M and above.
CTA: EXCLUSIVE APPELLATE JURISDICTION:
Criminal Case/s: Civil Case/s:
1. Violationsof : 1. Tax collection cases from judgments, resolutions or
a. NIRC orders of the RTC in tax cases originally decided by
b. Tariff and Customs Code, them.
c. Other laws administered by BIR and BOC
…originally decided by the regular court where the
principal amount of the taxes is less than P1M or no
special amount claimed.
2. Judgments, resolutions or orders of the RTC in tax cases 2. Tax collection cases from judgments, resolutions or
originally decided by them. orders of the RTC in the exercise of its appellate
3. Judgments, resolutions or orders of the RTC in the exercise jurisdiction over tax cases originally decided by the
of its appellate jurisdiction over tax cases originally MeTC, MTC and MCTC.
decided by the MeTC, MTC and MCTC.
Q: What are the importation procedures?
338
TAXATION LAW TEAM:
ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
Judicial Remedies
339
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F SANTO TOMAS
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ