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Review Notes For Taxation 2: Sequuntur Personam and Situs of Taxation)
Review Notes For Taxation 2: Sequuntur Personam and Situs of Taxation)
Property Included in the Gross Estate (INCLUSIONS): Circumstances taken into account in determining in
A. In case of resident citizens, nonresident citizens and whether the transfer was made in contemplation of
resident aliens: death:
1. Real Property within and without the Philippines; A.) Age and state of health of the decedent at the
2. Tangible personal property within and without the time of the gift;
Philippines; and B.) Length of time between the gift and the date of
3. Intangible personal property within and without the death; and
Philippines. C.) Concurrent making of a will or making a will
within a short time after the transfer.
B. In cases of nonresident aliens:
1. Real property within the Philippines; Note: Check the factual settings before and at time of
2. Tangible personal property within the Philippines death because proximity to death is not always
and; conclusive.
3. Intangible personal property within the Philippines,
unless there is reciprocity in which case, it is not Examples of motives precluding the category of a
taxable. transfer in contemplation of death:
Note: These are either: a.) To relieve the donor from the burden of
A) Properties actually owned at the time of death management;
B) Properties deemed by law to be owned by the b.) To save income or property taxes;
decedent c.) To settle family litigated and unlitigated
under Sec. 85 disputes;
d.) To provide independent income for dependents;
Inter Vivos Transfers Subject to Estate Tax e.) To see the children enjoy the property while the
donor is alive;
The gross estate extends to gratuitous transfers f.) To protect the family from hazards of business
made by the decedent during his lifetime which are operations;
treated by the law as substitutes for testamentary g.) To reward services rendered
dispositions. They are transfers inter vivos in form
but mortis causa in substance.
Note:
Rationale for taxability: The THREE (3) YEAR PRESUMPTION provides that
any transfer of a material part of his property in the
To reach such transfers which are really nature of a final disposition or distribution thereof made
substitutes for testamentary dispositions and thus by the decedent within three years prior to his death
prevent the evasion of the estate tax. without such adequate and full consideration shall,
unless shown to the contrary, be deemed to be have
These transfers are: been made in contemplation of death.
a.) transfers in contemplation of death (sec.85 b);
b.) transfers with retention or reservation of This provision, however, has been already deleted in
certain rights (sec.85 b); Sec. 100 (b) now sec. 85 (B) of the Tax Code by PD No.
c.) revocable transfers (sec.85 c) 1705.
d.) transfers of property arising under a general
power of appointment ( sec.85 d); and Under BIR Ruling No. 261 September 2, 1987, the law
e.) transfers for insufficient consideration (sec.85 does not specify the number of years prior to a
g) decedent’s death within which a transfer can be
considered in contemplation of death.
Note:
Transfers by virtue of a bona fide sale of Note: In relation to transfers with retention of rights
property for an adequate and full consideration in which are made in contemplation of death – if the right
money or money’s worth are excluded and not of retention by the Decedent is co-terminous with his
taxable. lifetime.
INCLUSIONS IN THE GROSS ESTATE (CR2IG DIP)
- Ex: X has a house and lot which he transferred to Y
1) Decedent’s interest at a specific property a) with the condition that X will use it while X lives
- To the extent of the interest therein of the decedent - Effect: Still part of estate of X as he has control over it
at the time of his death. (Sec. 85 A)
b) with the condition that X will use it only for 10 years
- Ex: partnership interest, dividends and then X dies before 10 years
- Effect: Not part of the estate of X as he is not the
2) Transfer in contemplation of death actual owner
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 3
3.) Revocable transfer - However, if the purported absolute sale inter vivos
- the decedent has full control of disposition of property by the decedent is shown to be fictitious, then the
- even if the control is not exercised, it is enough that it is total value of the property transferred is subject to
exists inclusion in the taxable estate.
- A transfer where:
a.) The decedent or in conjunction with any other - Ex: X owns a house and lot, he wants to help Y so he
person has reserved the right to alter, amend, sells his house worth P5M for only P1M. At the time of
revoke, or terminate; or X’s death, his house and lot is worth P10M.
b.) Any such power is relinquished in contemplation of How much is included in the gross estatre of X? 10-1 =
the decedent’s death. 9M
The power to alter, amend or revoke shall be considered - Ex: X bought a car worth P1.3M. X needed money so he
to exist on the date of the decedent’s death even though: sells his car to Y for only P1M. This is not a transfer for
a.) the exercise of the power is subject to a insufficient consideration as this is a bona fide transfer at
precedent giving of notice; or arm’s length; hence, a valid transfer.
b.) The alteration, amendment or revocation takes
effect only upon the expiration of a stated period 6.) Proceeds of life insurance
after the exercise of the power. - Proceeds of life insurance taken by the decedent on his
own life shall be included in the gross estate if the
If the notice has not been given or the beneficiary:
power has not been exercised on or before the A.) Is the estate of the decedent, his executor, or
decedent’s death, such notice or the power shall administrator (regardless whether the
be considered to have been given or exercised designation is revocable or irrevocable); or
on the date of the decedent’s death. B.) Third person other than the estate, executor,
administrator but the designation of the
4.) Transfer of property under a general power of beneficiary is revocable.
appointment - Presumption: proceeds are revocable
- include in the estate only if it is revocable as the
- A transfer where the donor of the power of decedent retained control over the proceeds
appointment authorizes the donee of such power to
designate any person he chooses to be given the right 7.) Prior Interest
over the appointed property. - Except as otherwise specifically provided therein,
subsections (B), (C), (E) of Section 85 referring to
- The transferee may choose freely any person who will transfer in contemplation of death, revocable transfer
own the property after he dies and proceeds of life insurance respectively shall apply
to the transfers, trusts, estates, interests, rights, powers
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REVIEW NOTES FOR TAXATION 2 4
7) Unpaid Taxes
- Unpaid income tax on income due or received
3) Claims against the decedent’s estate before death of the decedent, and real property
- Debts or obligations of the decedent that is enforceable taxes, which have accrued prior to the death of the
against the estate provided that the following requisites decedent (real property taxes accrued at the
are beginning of the year but may be paid before or at
met: the end of each quarter) are deductible.
a) They were contracted in good faith and for an
adequate and full consideration in money or - Income taxes upon income received after the death
money’s worth. of the decedent, or property taxes not accrued before
b) They must be existing against the estate. his death, or any estate tax cannot be deducted
c) They must be legally enforceable obligations of because they are chargeable to the income of the
the decedent and ought to be enforced by the estate.
claimants.
d) They must be reasonably certain in amount; and; - except: estate tax because estate tax liability is
e) At the time the indebtedness was incurred, the determined at the time of death
debt instrument was duly notarized and if the
loan was contracted within three (3) years before
the death of the decedent, the administrator or B. Vanishing / Alternating Deduction Or Property
executor shall submit a statement showing the Previously Taxed
disposition of the proceeds of the loan. - an amount allowed to reduce the taxable estate of a
decedent where the property was:
a. received by him from prior decedent by gift,
4) Claims against the insolvent persons bequest, devise or inheritance, or
- Requisites for deductibility: b. transferred to him by gift, has been the object of
a) The amount of said claims has been initially previous transfer deduction.
included as part of the gross estate; and
b) The incapacity of the debtors to pay their - VANISHING DEDUCTION: because the rate of
obligations is proven and not merely alleged. deduction gradually diminishes and entirely
vanishes depending upon the time interval between b) NGO – excluded from the gross estate and subject to
the two (2) successive transfers. the limitation that not more than 30% must be used for
administrative purposes
- ALTERNATING DEDUCTION: because the present
decedent’s estate cannot claim it if the prior
decedent’s estate claimed it D. Family Home
- Refers to the dwelling house, including the land on
- Factors necessary in vanishing deduction, these are; which it is situated, where the husband and wife, or
a. There are two (2) deceased persons and the first is an unmarried person who is the head of the family
the donor; and and members of their immediate family resides as
b. The second decedent dies within five (5) years after certified by the Barangay Captain of the locality.
the death of the prior decedent or in the case of gifts
the decedent – donee dies within the same period - For the purpose of availing of a family home
after the date of the gift. deduction to the extent provided by law, a person
may constitute only one family home.
- Rationale:
The deduction operates to ease the harshness of - The amount deductible is equivalent to the current
successive taxation of the same property within a fair market value of the decedent’s family home if
relatively short period of time. said current fair market value exceeds P1,000,000,
the excess shall be subject to estate tax.
Requisites for deductibility:
1. The present decedent must have acquired the - Requisites to be deductible:
property by inheritance or by donation. a. The family home must be the actual residential home
2. The property must have been acquired within five of the decedent and his family at the time of his
(5) years prior to the death of the present decedent death. (Decedent is married and has dependents or is
3. The property must have formed part of the gross a head of family with dependents.)
estate of the prior decedent if acquired by inheritance, or b. Such fact must be certified by the Barangay Captain
the taxable gift of the donor if acquired by donation. of the locality where the family is situated.
4. The estate tax or the donor’s tax, as the case may be, c. The total value of the family home must be included
must have been paid on the previous transfer. in the gross estate of the decedent.
5. The property must be identified as the one received d. The allowable deduction must be in an amount
from the prior decedent or from the donor, as the case equivalent to the current fair market value of the
may be. family home as declared or included in the gross
6. The estate of the prior decedent must not have estate not exceeding
previously availed of the vanishing deduction on the P1, 000,000.
subject property.
E. Standard Deduction Of P1, 000,000.00
Procedure in computing vanishing deductions: - on top of other deductions, unlike the optional
1. Value taken of property previously taxed standard deduction which is in lieu of other deductions;
Less:Mortgage paid by the present decedent on hence, it does not include the P 200,000 exemption
property previously mortgaged by prior decedent /
donor, if any (Ist deduction) F. Medical Expenses
= Initial basis - Requisites:
a. Must be incurred by the decedent within one (1)
2. Initial basis divided by the value of the gross estate of year
present decedent X Expenses, and transfer for public prior to his death
purpose b. Must be duly substantiated by receipts; and
=2nddeduction c. Must not exceed P500, 000
Exclusive Conjugal alien decedent with respect to his estates situated in the
5 M house and lot 20 M lot Philippines at the time of his death.
1M car _________ _______
6M 20 M In case of deductions for expenses, losses,
Total gross estate = 26 M indebtedness and taxes, the amount of the allowable
deduction is limited only to the proportion of such
Then claim as deduction the 10M, which is the ½ deductions with the value of such part of his gross estate
share of the surviving spouse in the conjugal lot. which at the time of his death, is situated in the
Philippines, bears to the value of his entire gross estate
- Ex: H and W died simultaneously. In computing the wherever situated. (Sec. 86 (B))
gross estate of H and W, their shares ½ shares as to the
conjugal lot may immediately be split as there is no Formula:
surviving spouse left. Allowable deduction of non-resident estate =
I) Tax Credit For Estate Tax Paid To A Foreign Philippine Gross Estate x Deductions
Country Claimed
- The estate tax imposed by the tax code shall be credited Entire Gross estate
with the amount of any estate tax paid to a foreign
country. As a prerequisite to the deduction, it must be
- Concept: if a property located in the Philippines was included in the return required to be filed the value at
already subjected to estate tax abroad and the same the time of his death, of that part of the gross estate of
property is also subjected to estate tax in the Philippines, the non-resident not situated in the Philippines, to
the foreign tax paid is allowed to reduce his Philippine determine the ratable portion of the deduction for
estate tax expenses allowable.
Decedent’s Net Estate situated in a foreign country x * Note : The law does not state that the prevailing
Phil. Estate tax of the Entire net estate market rate or the consideration as a basis for
determining the FMV
B.) The tax credit limit for estate taxes paid to two or
more countries is determined as follows: * Note: If there are no improvements in the property,
get a Certificate of No-improvement, (which you can get
TAX CREDIT LIMIT = only after obtaining a Certificate of Non-tax
delinquency) and attach these to the estate tax return.
Decedent’s net estate situated outside of the Phil X Phil.
Estate tax of Entire net Estate 2. Personal Properties
a) Shares of Stock
Note: - book or par value at the time of death, and can be
1.) Under limitation A the allowable tax credit is the obtained by writing a letter of inquiry, asking for a
lower amount between the tax credit limit and the formal certification from the corporation which issued
estate tax paid to the foreign country. the shares of stock as to the value of such stock at the
time of death of the decedent
2.) Under limitation B the allowable tax credit is the
lower amount between the tax credit limit computed b) Inventories
under (A) and that computed under (B) - value as stated in the invoices (i.e.: price at purchase);
or the prevailing market rate (ask for the value from
those engaged in the same business); or if value cannot
B.) IF DECEDENT IS A NON – RESIDENT ALIEN be definitely ascertained, state the approximate
reasonable value (but this will be subject to the
The deductions allowed to citizens or residents discretion of the BIR inspector)
of the Philippines are also extended to a non-resident
c) Motor vehicles
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REVIEW NOTES FOR TAXATION 2 8
- these depreciate 20% per year from purchase d) duly authorized treasurer of the city or
- Hence, motor vehicles are fully liquidated and has no municipality where the decedent was
estate tax liability after 5 years but include in the gross domiciled at the time of his death, or
estate placing zero as the amount (to secure a tax
clearance therefor)
Where the gross value of the estate exceeds P 20,000 4.) Copies:
although exempt, the executor, administrator, or any of The return shall be filed in triplicate, two (2) for the
the legal heirs shall give, within 2 months after the BIR and one (1) copy for the taxpayer.
decedent’s death or within like period after the executor
or administrator qualifies as such, a written notice 5.) When to Pay
thereof, to the Commissioner of Internal Revenue. (Sec. Pay the estate tax at the time you will file your estate
89, NIRC) tax return. (Pay as you file system)
Liability for Payment of Estate Tax d. Neither shall a debtor of a deceased pay his
debts to the heirs, legatees, executor or administrator of
Primarily Liable : Executor or administrator - before his creditor, unless a certification of the Commissioner
delivery to any beneficiary of his distributive shares. that the tax fixed has been paid is shown; but he may
After due payment, the executor or administrator pay the executor or judicial administrator without said
shall be discharged from personal liability. certification if the credit is included in the inventory of
the estate of the deceased. (Sec. 95)
Subsidiarily Liable : Beneficiary - to the extent of his - else: debtor may be personally liable for the payment of
distributive share, liable for the portion of the estate the lost tax, like a withholding agent who fails to
tax as his distributive share bears to the value of the withhold taxes
total net estate.
e. Corporations, sociedad anonima,
NOTE: There are two ways the government may enforce partnerships, business or industry organized in the
collection of estate taxes from the decedent’s heirs: Philippines shall not transfer in their books any shares
1. It can collect from all the heirs the amount of the estate obligations, bonds or rights by way of gift inter vivos or
tax proportionate to the inheritance they received. mortis causa, legacy or inheritance to the new owner
2. It can subject properties of the estate which are in the unless a certification from the Commissioner that the
hands of the heirs/transferees to the payment of the taxes fixed and due thereon have been is shown; (Sec.
tax. (CIR vs. Pineda, 21 SCRA 105) 97)
- obligation of corporate secretary
NOTE: The heirs have a solidary obligation to settle the
estate. Hence, the BIR can collect from or sue any of the f. If a bank has knowledge of the death of a
heirs, but only up to the amount of that heir’s share in person who maintained a bank deposit account alone or
the hereditary estate. This is without prejudice to such jointly with another, it shall not allow any withdrawal
heir’s right of reimbursement from his co-heirs of their from the said joint deposit account unless the
share in the payment of the estate tax. (CIR vs. Pineda, Commissioner has certified that the estate taxes imposed
21 SCRA 105) thereon have been paid. However, the administrator of
the estate or any of the heirs of the decedent may, upon
authorization by the Commissioner of Internal Revenue
Measures to Insure Payment of Estate Tax withdraw an amount not exceeding P 20,00 without the
said certification . (Sec. 97)
a. No judge shall authorize the executor or
judicial administrator to deliver a distributive share to - For this purpose, all withdrawal slips shall contain a
any party interested in the estate unless a certification statement to the effect that all of the joint depositors are
from the Commissioner that the estate tax has been paid still living at the time of withdrawal by any one of the
as shown. (Sec.94) joint depositors and such statement shall be under oath.
- by the court requiring the executor/administrator to Otherwise, the joint depositor will be liable for perjury
submit an inventory of properties of the estate, these (Sec. 267).
properties are to be distributed only after payment of
estate taxes and receipt of clearance by the - joint accounts covered by this rule include “and” and
Commissioner or his duly authorized representative “and/or” accounts, but do not include an account
- NOTE: The approval of the probate court is not subject to a Survivorship Agreement with a survivor-
required before estate taxes may be collected. The take-all feature (because there is an automatic transfer of
enforcement and collection of taxes are executive in right to the survivor; hence, not included in gross estate
nature. (Marcos II vs. CA, 273 SCRA 47) of the joint depositor who died – tax avoidance scheme)
b. Registers of Deeds shall not register in the g. The estate tax together with interest,
Registry of Property any document transferring real penalties, and costs that may accrue in addition thereto
property any document transferring real property or real constitutes a lien upon all property and rights to
right therein or any chattel mortgage, by way of gift property belonging to the taxpayer. The lien attaches
inter vivos or mortis causa, legacy or inheritance, unless when the taxpayer neglects or refuses to pay after
certification from the commissioner that the tax has been demand. (Sec. 219)
paid and the y shall immediately notify the
Commissioner, Regional Director, Revenue District h. In judicial settlement of estates, the court is
Officer, or Revenue collection Officer or treasurer of the required to furnish the commissioner of Internal
city or municipality where their officer are located, of Revenue a certified copy of the schedule of participation
the non-payment of the tax discovered by them. (Sec. 95) and the court order approving the same within 30 days
- before the properties are transferred in the name of the after its promulgation. (Sec. 91(b));
heirs, a Certificate Authorizing Registration (CAR) must
be shown i. The estate tax shall be paid by the executor or
administrator before delivery to any beneficiary his
c. Any lawyer notary public, or any Government distributive share of the estate (Sec. 91 (c)). He may be
Officer who, by reason of his official duties, intervenes discharged from personal liability for deficiency in the
in the preparation or acknowledgement of documents estate tax only after written application to the
regarding partition or disposal of donation inter vivos or commissioner and upon determination that no such
mortis causa, legacy or inheritance, shall have the duty deficiency appears. (Sec. 92)
of furnishing the Commissioner, etc., with copies of such
documents and any information whatsoever, which may NOTE: Additional Readings
facilitate the collection of the aforementioned tax. (Sec. 1. Revenue Regulation 2-2003
95) 2. Revenue Memorandum Order 15-2003
- ex: deed of extrajudicial settlement, deed of donation
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REVIEW NOTES FOR TAXATION 2 10
Note:
A. The donee, unlike the donor need not be capacitated.
B. donor’s tax applies now to both natural and juridical
persons.
C. donative intent must be present in direct gift but with
respect to indirect gift, e.g. transfer of property for
less than an adequate and full consideration,
DISTINCTION BETWEEN DONOR’S AND ESTATE donative intent is superfluous. Thus, donative intent
TAX is not always essential to constitute a gift.
D. In Abello vs. CIR (Feb. 25, 2005), donative intent is
DONOR’S TAX ESTATE TAX evidenced by a reduction of patrimony of one and an
Tax on the privilege to Tax on the privilege to increase in patrimony to the other.
transmit property during transmit property upon
the lifetime of the donor one’s death Purposes Of Gift Tax
Tax rates are lower (2 to Tax rates are higher (5 1.) The gift tax was enacted originally to supplement
15) to20) the estate and inheritance taxes by preventing their
Exemption is only P Tax exemption is avoidance through the taxation of gifts inter vivos.
100,000.00 P200,000.00 2.) The donor’s tax is also intended to prevent the
Notice of donation is Notice of death is avoidance of income tax through the device of
generally not required required splitting income among numerous/different donees
with the donor thereby escaping the effect of the
Extension of payment is Extension of payment progressive rates of income taxation.
not provided may be granted by the
Commissioner of Internal Kinds Of Gift Taxes:
Revenue 1. Donor’s tax or tax levied on the act of giving; it
Payable within 30 days Payable within 6 months supplements the estate tax; and
from the date of gift from the date of death 2. Donee’s tax or tax levied on the act of receiving; it
Imposed on the net gift Imposed on the net estate was formerly the counterpart of the inheritance tax,
which has been integrated into an estate tax.
II. DONOR’S TAX / GIFT TAX
*Both taxes have now been integrated into a donor’s tax.
A. NATURE
Parties To A Donation:
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REVIEW NOTES FOR TAXATION 2 11
1. Donor - the Person who disposes of his property or 3. The child must be either the legitimate,
right. recognized natural or legally adopted child of
2. Donee - the Person who receives the property or right. the donor, and;
4. It must be given before or one year after the
Properties Included In The Term “Gift” celebration of the marriage.
(A). In the case of resident citizens, non-resident b.) Gifts made to or for the use of the National
citizens and resident aliens: Government or any of its agencies which is not
1. Real property within and without the Philippines. conducted for profit, or to any political subdivision of
2. Tangible personal property within and without the said government.
the Philippines; and
3. Intangible personal property within and without c.) Gifts in favor of educational, charitable, religious,
the Philippines. cultural or social welfare corporation, institutions,
foundations, trust or philanthropic organization,
(B.) In the case of non-resident aliens: research institution or organization, or accredited non-
1. Real property within the Philippines. government organization. Provided, that no more than
2. Tangible personal property within the 30% of said gifts shall be used by such donee for
Philippines. administration purposes.
3. Intangible personal property within the
Philippines, unless there is reciprocity in which Note:
case, it is not taxable. For purposes of exemption, a non-profit
educational and/or charitable corporation,
Note: institution, accredited non-government
The specific items includible in the “gross estate” are organization, trust or philanthropic organization is
applicable to and are embraced by the term “gift”. defined as:
school, trust or university and/ or charitable
corporation, foundation trust or philanthropic
B. FACTORS AFFECTING LIABILITY FOR GIFT organization and/ or research institution or
TAXES organization incorporated as a non-stock entity:
paying no dividends.
1. Relationship of the donor and the donee governed by trustees who receive no
a) when the donee is considered a stranger to the compensation; and
donor, the donor’s tax shall be 30% of the net gifts.
devoting all its income to the accomplishment
b) when the donee is a relative of the donor, the tax
and promotion of the purposes enumerated in
shall be based on the 2-15% table under Sec. 99(A).
its articles of incorporation.
Stranger
1.) one who is not a :
(a) brother/sister (whole or half blood), spouse, Note:
ancestor and lineal descendant Only donations made to non-stock, non-profit
(b) relative by consanguinity in the collateral line educational institutions are exempt from gift taxes as
within the fourth degree of relationship although Article 14 of the Constitution states that
2.) donations made between individuals and business proprietary educational institutions may be given the
organizations are considered donations to same privileges subject to a guideline; as a guideline, the
strangers NIRC does not provide for such exemption to them.
3.) donations made between business organizations
are considered donations made to strangers 2. Gifts made by a Non-Resident Alien
(RR 2-2003) a.) Gifts made to or for the use of the National
Government or any entity created by of its
Note: Donees who have no blood relation to the donor agencies which is not conducted for profit, or to
are considered strangers to the donor, such as those any political subdivision of the said government.
made to one’s in-laws or to juridical persons.
b.) Gifts in favor of educational, charitable, religious,
2. Value of the Gift cultural or social welfare corporation, institution,
- the higher the value of the gift, the higher the gift taxes foundations trust or philanthropic organization,
research organization or institution; Provided, that
no more than 30% of said gifts shall be used by
C. DEDUCTIONS / EXEMPTIONS FROM GIFT TAX such donee for administration purposes.
Note: doesn’t include accredited NGO
1. Gifts Made by a Resident: Note:
1. Intangible personal property in the gross gift of a
a.) Dowries or gifts made on account of marriage before NON-RESIDENT ALIEN donor shall be taxable in the
its celebration or within one year thereafter by parents to Philippines, if the PRINCIPLE OF RECIPROCITY is not
each of their legitimate, illegitimate or adopted children cognizable.
to the extent of the first P10,000.00.
2. Intangible personal properties considered situated in
Requisites: the Philippines.
1. The donation must be given on account of
marriage.
Franchise which must be exercised in the
2. The parent must give it to his child.
Philippines
2. January - A married B and was given dowry 3. X died and left 1M each to his heirs A, B, C. The heirs
February – B died agreed to settle extrajudicially.
December – A married C and was given dowry
Can the parents of A still claim dowry deduction even if a) A renounced his inheritance in favor of B. Is there
it was claimed already for the January dowry? liability for donor’s tax?
- Yes, this is a case of waiver. A is deemed to have E. Zero rating vs. Exemption
accepted the property before he gave it to B as one
cannot give what one does not own. A specific a. A zero-rated scale is taxable transaction, but
renunciation is taxable. does not result in an output tax while an
exempted transaction is not subject to the output
b) A renounced his share without specifying a co-heir tax;
who will receive the same. Is there liability for donor’s b. The input VAT on the purchases of VAT-
tax? registered person with zero-rated sales may be
allowed as tax credits or refunded while the
- No donor’s tax because as if A never inherited seller in an exempt transaction is not entitled to
anything from X and the transfer was made directly any input tax on his purchases despite the
from X to B and C. issuance of a VAT invoice or receipt; and
c. Persons engaged in transactions which are zero-
rated, being subject to VAT, are required to
VALUE ADDED TAX register while registration is option for VAT-
exempt persons.
A. Value Added Tax
- Indirect Tax F. Tax Credits
- It is not the tax itself which is shifted or passed but it is a. Transitional Input Tax Credits (Sec. 111(A),
the burden to pay the tax NIRC, as amended by RA 9337)
Why? Tax is Personal. Seller is still liable, only that b. Presumptive Input Tax Credits (Sec. 111(B),
the economic burden is shouldered by the buyer. NIRC, as amended by RA 9337)
* The phrase “in the course of business” means the regular B. Government agencies involved in tax
conduct or pursuit of a commercial or an economic activity, administration
including transactions incidental thereto, by any person - the BIR and Bureau of Customs are
regardless of whether or not the person engaged therein is a tasked to implement revenues laws as
non-stock, non-profit private organization (irrespective of the the case may be.
disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity. C. The Bureau of Internal Revenue
* VAT becomes due when the following conditioned concur: a. Composition Functions
- The Bureau of Internal Revenue shall
a. There is sale, barter, exchange, transfer or similar have a chief to be known as
transactions, either for nominal or valuable Commissioner of Internal Revenue,
consideration, intended to transfer ownership of, or title hereinafter referred to as the
to, articles imported, milled, produced or manufactured; Commissioner and four (4) assistant
and chiefs to be known as Deputy
Commissioners. (Sec. 3, NIRC)
b. The sale is consummated, not merely perfected, in the
Philippines. The place where the title to the thing passes b. Powers and Duties
determines the place of delivery or tax situs. i. In general
(b) Where the facts subsequently gathered by In case a taxpayer files an application to
the Bureau of Internal Revenue are materially compromise the payment of his tax liabilities on his
different from the facts on which the ruling is claim that his financial position demonstrates a clear
based; or inability to pay the tax assessed, his application shall not
be considered unless and until he waives in writing his
(c) Where the taxpayer acted in bad faith. privilege under Republic Act No. 1405 or under other
general or special laws, and such waiver shall constitute
the authority of the Commissioner to inquire into the That failure to file a return shall not
bank deposits of the taxpayer. prevent the Commissioner from
authorizing the examination of any
Such limited power of the Commissioner does taxpayer.
not conflict with R.A 1405 or the Secrecy of Bank Any return, statement of
Deposits Law because the provisions of the Tax Code declaration filed in any office
granting this power are an exception to the said authorized to receive the same shall not
legislation. be withdrawn: Provided, That within
three (3) years from the date of such
If the bank has knowledge of the death of a filing, the same may be modified,
person, who maintained a bank deposit account either changed, or amended: Provided, further,
alone or jointly with another, it shall not allow any That no notice for audit or
withdrawal from the said deposit account, unless the investigation of such return, statement
Commissioner has certified that the transfer taxes or declaration has in the meantime
imposed thereon have been paid. However the been actually served upon the
administrator of the estate or any one of the heirs of the taxpayer.
decedent may, upon authorization by the
Commissioner, withdraw an amount not exceeding i. Amendment of Returns
twenty thousand pesos (P20, 000.00) without the
certification. For this purpose all withdrawal slips shall When a report required by law
contain a statement to the effect that all of the joint as a basis for the assessment of any
depositors are still living at the time of withdrawal by national internal revenue tax shall not
any one of the joint depositors and such statement shall be forthcoming within the time fixed by
be under oath by the said depositors. laws or rules and regulations or when
there is reason to believe that any such
d. Summons persons, take testimony report is false, incomplete or erroneous,
the Commissioner shall assess the
In ascertaining the correctness of any return, or proper tax on the best evidence
in making a return when none has been made, or in obtainable.
determining the liability of any person for any internal In case a person fails to file a
revenue tax, or in collecting any such liability, or in required return or other document at
evaluating tax compliance, the Commissioner is the time prescribed by law, or willfully
authorized: or otherwise files a false or fraudulent
return or other document, the
1. To summon the person liable for tax or Commissioner shall make or amend the
required to file a return, or any officer or employee of return from his own knowledge and
such person, or any person having possession, custody, from such information as he can obtain
or care of the books of accounts and other accounting through testimony or otherwise, which
records containing entries relating to the business of the shall be prima facie correct and
person liable for tax, or any other person, to appear sufficient for all legal purposes. (Sec. 6
before the Commissioner or his duly authorized {b}, NIRC)
representative at a time and place specified in the
summons and to produce such books, papers, records,
or other data, and to give testimony (Sec.5 {c}, NIRC) ii. Rule on confidentiality of tax
returns and exceptions thereto
2. To take such testimony of the person (Sec.71 and 270, NIRC)
concerned, under oath, as may be relevant or material to
such inquiry (Sec.5 {d}, NIRC) - After the assessment shall have
been made, as provided in this Title, the
- To summon the person liable for tax or returns, together with any corrections
required to file a return, or any officer or employee of thereof which may have been made by
such person, or any person having possession, custody, the Commissioner, shall be filed in the
or care of the books of accounts and other accounting Office of the Commissioner and shall
records containing entries relating to the business of the constitute public records and be open to
person liable for tax, or any other person, to appear inspection as such upon the order of the
before the Commissioner or his duly authorized President of the Philippines, under rules
representative at a time and place specified in the and regulations to be prescribed by the
summons and to produce such books, papers, records, Secretary of Finance, upon
or other data, and to give testimony. recommendation of the Commissioner.
a. the tax or any portion Where the basic tax involved exceeds One million pesos
thereof appears to be (P1,000.000) or where the settlement offered is less than
unjustly or excessively the prescribed minimum rates, the compromise shall be
assessed subject to the approval of the Evaluation Board which
b. the administration and shall be composed of the Commissioner and the four (4)
collection costs involved do Deputy Commissioners.
not justify the collection of
the amount due (B) Abate or Cancel a Tax Liability, when:
The power to compromise or abate shall not be (1) The tax or any portion thereof
delegated by the Commissioner, except in the appears to be unjustly or excessively
following cases; assessed; or
(2) The administration and collection
a. assessments issued by the costs involved do not justify the
regional offices involving collection of the
basic taxes of amount due.
P 500,000.00 or less
All criminal violations may be
b. Minor criminal violations. compromised except: (a) those already
These cases may be filed in court, or (b) those involving
compromised by the fraud.
regional evaluation board.
(see Sec.7, NIRC)
D. The rule on estoppel in relation to tax
administration
i. Enforcement of police power (see a. Against the government
Sec.15, NIRC)
The error made by a tax official in the assessment of his
The Commissioner, the Deputy Commissioners, tax liabilities does not have the effect of relieving the
the Revenue Regional Directors, the Revenue taxpayer from the obligation to pay the full amount of
District Officers and other internal revenue his tax liability, for taxes are fixed by law and the
officers shall have authority to make arrests and government is never estopped to collect the legitimate
seizures for the violation of any penal law, rule taxes because of the errors committed by its agents.
or regulation administered by the Bureau of However, like other principles, the principle of estoppel
Internal Revenue. Any person so arrested shall also admits exceptions in the interest of justice and fair
be forthwith brought before a court, there to be play. The Commissioner is precluded from adopting a
dealt with according to law. position inconsistent with one previously taken where in
justice would result therefore or where there has been a
j. Authority to Abate and misrepresentation.
Compromise Tax Liabilities (see
Sec.6 {f}{2}, 204 in relation to Rev. Any mistakes committed by the
Regs.30-2002 as amended by RR agents of the sovereign, namely government officials
No.8-2004) and employees are their own and cannot bind the
government, which cannot be placed on estoppel on
SEC. 204. Authority of the Commissioner to account of the mistakes of its agents.
Compromise, Abate and Refund or Credit Taxes.
- The Commissioner may - b. Against the taxpayer
(A) Compromise the Payment of any Internal E. Assessments and its governing principles
Revenue Tax, when:
a. Definition
(1) A reasonable doubt as to the The notice and demand for payment of a tax
validity of the claim against the liability should not be confused with assessment
taxpayer exists; or relative to real property taxation which refers to
(2) The financial position of the the listing and evaluation of taxable real
taxpayer demonstrates a clear inability property.
to pay the assessed tax.
b. What constitutes an assessment
The compromise settlement of any tax
liability shall be subject to the i. CIR v. Pascor Realty, 29 June 1999
following minimum amounts: Neither the NIRC nor the revenue regulations
governing the protest of assessments provide a
specific definition of form of an assessment
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 20
however the NIRC defines the specific function administered by the BIR. The wording of the
and effects of an assessment: provision is clear and simple. It gives the CTA
the Jurisdiction to determine if the warrant of
An assessment must be sent to and received distraint and levy issued by the BIR is valid and
by a tax payer, and must demand payment of to rule if the waiver of stature of limitations was
the taxes described therein within a specific validly effected.
period.
Issuance of an assessment is vital in A waiver of the statute of limitations under the
determining the period of limitation regarding NIRC, to a certain extent, is a derogation of the
its proper issuance and the period within taxpayer’s right to security against prolonged
which to protest. and unscrupulous investigations and must
An assessment is deemed made only when the therefore be carefully and strictly construed. The
collector of Internal Revenue releases or mails waiver of the statute of limitations is not a
or sends such notice to the tax payer. waiver of the right to invoke the defense of
An assessment is not necessary before prescription as erroneously held by the CA. It is
acriminal charge can be filed. an agreement between the taxpayer and the BIR
Before an assessment is issued, there is by that the period to issue an assessment and
practice, a pre-assessment notice sent to the collect the taxes due id extended to a date
tax payer.The tax Payer is then given a chance certain.
to submit position papers and documents to
prove that the assessment is unwarranted. If The waiver does not mean that the taxpayer
the commissioner is unsatisfied, an assessment relinquishes the right to invoke prescription
signed by him/her is then sent to the tax unequivocally particularly where the language
payer informing the latter specifically and of the document is equivocal. For the purpose of
clearly that an assessment has been made safeguarding taxpayers from any unreasonable
against him/her. In contrast, the criminal examination, investigation or assessment, out
charge need not go through all this. tax law provides a statute of limitation in
collection of taxes. Thus the law on prescription,
ii. CIR v. Reyes, G.R. No. 159694, January 27, being a remedial measure should be liberally
2006 construed in order to afford such protection/
Tax payers shall be informed in writing of the ii. CIR v. CA and Carnation, G. R. No. 115712,
law and the facts on which the assessment and 25 February 1999
the assessment is made; otherwise the
assessment shall be void. (2nd paragraph of Finality of findings of facts as a matter of
section 228 is clear and mandatory) principle, this court will not set aside the
conclusion reached by an agency such as the
c. Kinds of Assessment CTA unless there has been an abuse or
improvident exercise of authority. By the very
d. Statute of Limitation on Assessment of Internal nature of its function, dedicated exclusively to
Revenue Taxes (Sections 203, 222, NIRC) the study and consideration of tax problems and
has necessarily developed an expertise of the
General rule (sec203) subject.
Internal revenue taxes shall be assessed within
three years after the last day prescribed for the e. Instances where the running of the prescriptive
filing of the return, and no proceeding in court period is suspended (section 223)
without assessment for the collection of sluch
taxes shall begun after the expiration of such i. Republic v. Hizon, 13 December 1999
period.
Sec. 229 of the code mandates that a request for
Exceptions (sec.222) reconsideration must be made within thirty (30)
In the case of a false of fraudulent return with days from the tax payer’s receipt of tax
intent to evade tax or of failure to file a return, deficiency assessment, otherwise the assessment
the tax collection may be filed without an becomes final, unappealable and, therefore,
assessment at any time within ten years after the demandable. The notice of assessment for
discovery of the falsity, fraud or omission: respondent’s tax deficiency was issued by
petitioner on July 18, 1986. On the other hand,
If before the expiration of the time prescribed in respondent made her request for
the tax codes for the assessment of the tax, both reconsideration thereof only on November 3.
the commissioner and the taxpayer have agreed 1992, without stating when she received the
in writing to its assessment after such time, the notice of tax assessment. She explained that she
tax may be assessed within the period agreed was constrained to ask for a reconsideration in
upon. order to avoid the harrrasment of BIR collectors.
In all likelihood, she must have been referring to
i. RMO 20-90, Philippine Journalist Inc., v. the distraint and levy of her properties by
CIR, G.R. No. 162852, 16 December 2004 petitioner’s agents which took place of January
12, 1989. Even assuming that she first learned of
Appellate Jurisdiction of the CTA is not limited the deficiency assessment on this date her
to cases which involve decisions of the CIR on request for reconsideration was nonetheless
matters relating to assessments or refunds. The filed late since she made it more than 30 days
second part of the provision covers other cases thereafter. Hence, her request for
that arise out of the NIRC or related laws and reconsideration did not suspend the running for
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 21
the prescriptive period provided under section iv. PNOC v. Court of Appeals, G.R. No.,
223. Although the commissioner acted on her 109976, April 26, 2005
request by eventually denying it on August 11,
1994, this is of no moment and does not distract The defense of prescription of the period for the
from the fact that the assessment had become assessment and collection of tax liabilities shall
demandable be deemed waived when such defense was not
properly pleaded and the facts alleged and
ii. BPI v. CIR, G.R. No. 139736, 17 October 2005 evidenced submitted by the parties were not
sufficient to support a finding by the supreme
The court had consistently ruled in a number of court on the matter – prescription, being a
cases that a request for reconsideration by the matter of defense, imposes the burden on the
tax payer without a valid waiver of the taxpayer to prove that the full period of the
prescriptive period for the assessment and limitation has expired, and this requires him to
collection of tax, as required by the tax code and positively establish the date when the period
implementing rules, will not suspend the started running and when the same was fully
running thereof. (Exception: section 224) accomplished.
Wherein the statute of limitations on assessment g. Instances when pre-assessment is not required
and collection of taxes is considered suspended, (Section 228)
when the tax payer request for a reinvestigation A preassessment notice shall not be required in
which is granted by the commissioner. the following cases:
When any tax deficiency is the result of
f. Procedure in the process of assessment (Section mathematical error in the computation of
228) the tax as appearing on the face of the
return.
i. Estate of the Late Juliana Diez Vda. De When a discrepancy has been determined
Gabriel v. CIR, G.R. No. 155541, January 27, 2004 between the tax withheld and the amount
actually remitted by the withholding
The rule that an assessment is deemed made for agent.
the purpose of giving effect to such assessment When a taxpayer who opted to claim a
when the notice is released, mailed or sent to the refund or tax credit of excess creditable
taxpayer to effectuate the assessment requires withholding tax for a taxable period was
that the notice must be sent to the taxpayer, and determined to have carried over and
not merely to a disinterested party. Although automatically applied the same amount
there is no specific requirement that the claimed against the estimated tax
taxpayer should receive that notice within the liabilities for the taxable quarter or
said period, due process requires at the very quarters of the succeeding taxable year.
least that such notice actually be received. When the excise tax due on exciseable
articles has not been paid.
When an estate is under administration, notice When the article locally purchased or
must be sent to the administrator of the estate. imported by an exempt person has been
sold, traded, or transferred to non-exempt
ii. CIR v. Reyes, G.R. No. 159694, January 27, persons.
2006
h. Governing principles concerning assessment
The tax payers shall be informed in writing of
the law and facts on which the assessment is Injunction is not available to restrain the
made otherwise the assessment itself is void. collection of internal revenue taxes.
iii. CIR v. BPI, G.R. No. 134062, 17, April 2007 Exception: the Court of Appeals may issue
injunctions against administrative collection,
The inevitable conclusion is that BPI’s failure to when collection could jeopardize the interest of
protest the assessments within the 30-day period the Government or taxpayer.
provided in the former section 270 meant that
they became final and unappealable. Thus, the i. When do we reckon the period when the
CTA correctly dismissed BPI’s appeal for lack of assessment was made?
jurisdiction. BPI was, from then on barred from
disputing the correctness of the assessments or Internal revenue taxes shall be assessed within
invoking any defense that would reopen the three years after the last day prescribed by law
question of its liability on the merits. Not only for the filing of the return.
that. There arose a presumption of correctness
when BPI failed to protest the assessments: Tax In case where a return is filed beyond the three
assessments by tax examiners are presumed year period shall be counted form the day the
correct and made in good faith. The taxpayer return was filed.
has the duty to prove otherwise. In the absence
of proof of any irregularities in the performance j. Is assessment necessary before a taxpayer could be
of duties, an assessment duly made by a BIR prosecuted for violation of the NIRC?
examiner and approved by his superior offices
will not be disturbed. All presumptions are in i. Ungab v. Cusi, May 30, 1980
favor of the correctness of tax assessments.
What is involved here is not collection of taxes
where the assessment of the commissioner of
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 22
internal revenue may be reviewed by the court retroactive operation of statutes. Clearly, Section
of tax appeals, but a criminal prosecution for 228 provides for the procedure in case an
violations of the NIRC which is within the assessment is protested. The provision does not
recognizance of the CFI. While there can be no create new or take away vested rights. In both
civil action to enforce collection before the instances, it can surely be applied retroactively.
assessment procedures provided in the code Moreover, RA 8424 does not state, either
have been followed, there is no requirement for expressly or by necessary implication, that
the precise computation and assessment of the pending actions are excepted from the operation
tax before there can be a criminal prosecution of section 228, or that applying it to pending
under the code. proceedings would impair vested rights.
ii. CIR v. CA, G.R. No. 119322, 4 June 1996 INTERNAL REVENUE TAX REMEDIES
Reading Ungab carefully, the pronouncement Tax Remedies: Its general concepts
therein that deficiency assessment is not
necessary prior to prosecution is pointedly and Importance: They exist to enhance the
deliberately qualified by the Court with Government’s tax collection efforts, they, too, come in as
following statement quoted form Guzik v. U. S.: safeguards against arbitrary action. While taxes are the
“the crime is complete when the violator has lifeblood of the Government and should be collected
knowingly and willfully filed a fraudulent without unnecessary hindrance, such collection must
return with intent to evade and defeat a part or nevertheless be made in accordance with law as any
all of the tax.” In plain words, for criminal arbitrariness will negate the very reason or the
prosecution to proceed before assessment, there Government itself.
must be a prima facie showing of willful attempt
to evade taxes. There was willful attempt to Classification:
evade tax in Ungab because of the taxpayer’s
failure to declare in his income tax return “his 1. Remedies in favor of the taxpayer
income derived from banana saplings.” In the A. Administrative
mind of the trial court and the Court of Appeals, (1) Before Payment
Fortune’s situation is quite apart factually since a. Filing of a petition or request for
the registered wholesale price of the goods. reconsideration or reinvestigation
Approved by the BIR, is presumed to be the (Administrative Protest);
actual wholesale price, therefore, not fraudulent b. Entering into compromise
and unless and until the BIR has made a final (2) After Payment
determination of what is supposed to be the a. Filing of claim for tax refund; and
correct taxes, the taxpayer should not be placed b. Filing of claim for tax credit
in the crucible of criminal prosecution. Herein B. Judicial
lies a whale of difference between Ungab and (1) Civil action
the case at bar. a. Appeal to the Court of Tax Appeals
b. Action to contest forfeiture of
iii. CIR v. Pascor Realty, 29 June 1999 chattel; and
c. Action for Damages
The issuance of an assessment is vital in (2) Criminal Action
determining the period of limitation regarding Filing of complaint against erring
its proper issuance and the period within which Bureau of Internal Revenue officials and
to protest it. Section 203 of NIRC provides that employees
internal revenue taxes must be assessed within
three years from the last day within which to file 2. Remedies available to the government
the return. Section 222, on the other hand,
specifies a period of ten years in case a Applicability of the Doctrine Exhaustion of
fraudulent return with intent to evade was Administrative Remedies
submitted or in case of failure to file a return. - No civil or criminal action for the
Also, Section 228 of the same law states that said recovery of taxes shall be filed in court
assessment may be protested only within thirty without the approval of the
days from receipt thereof. Necessarily, the Commissioner. (Sec. 220, NIRC)
taxpayer must be certain that a specific
document constitutes an assessment. Otherwise,
confusion would arise regarding the period
within which t make an assessment or to protest
the same, or whether interest and penalty may
Remedies Available to Taxpayers
accrue thereon.
CIR. This is equivalent to a pleading. It may be taxpayer of the required documents in support of his
a: protest, the taxpayer may appeal to the CA within 30
days from the lapse of the 180-day period.
Request for reconsideration- a plea for
the re-evaluation of an assessment on the basis
of existing records without need of additional Administrative actions taken during the 180-day
evidence. It may involve a question of fact or law period.
or both. 1. Grant of the Protest
2. Denial of Protest:
Request for reinvestigation- a plea for
reinvestigation of an assessment on the basis of A. Direct Denial
newly-discovered or additional evidence that a The decision of the Commissioner or his duly rep shall
taxpayer intends to present in the (a) state the facts, applicable law, rules and regulations
reinvestigation. It may also involve question of or jurisprudence on which his protest is based,
fact or law or both. otherwise the protest shall be considered void and
without force and effect, in which case the same shall
Requirements of a valid protest not be considered a decision a disputed assessment and
1. In writing; (b) that the same is his final decision. (sec. 3.1.5, RR 12-
2. Addressed to the CIR; 99)
3. Must be accompanied by a waiver of the
Statute of Limitations in favor of the
government; B.Indirect Denial
4. States the Facts, applicable law rules and a. Commissioner did not rule on the taxpayer’s MR of
regulations and jurisprudence on which his the assessment – it was only when respondent received
protest is based; otherwise, his protest shall be summons on the civil action for the collection of
considered void and without force and effect deficiency income tax that the period to appeal
on the event the letter of protest submitted by commenced to run. (CIR vs. Union Shipping
the taxpayer is accepted; b. Referral by the Commissioner of request for
5. Contains the following: reinvestigation to the Solicitor General (Republic vs.Lim
1. Name of the taxpayer and address for the Tian Teng Sons)
immediate past three taxable years; c. Reiterating the demand for immediate payment of the
2. Nature of request whether reinvestigation deficiency tax due to taxpayer’s continued refusal to
or reconsideration specifying newly execute waiver (CIR vs. Ayala Securities Corp.)
discovered evidence that he intends to d. Preliminary collection letter may serve as assessment
present it is a request for reinvestigation; notice (United Int’l Pictures vs. CIR)
3. Taxable periods covered by the
assessment; Acts of BIR Commissioner Considered as Denial of
4. Amounts and kind/s of tax involved, and Protest which serves as a Basis for Appeal to CTA:
Assessment Notice Number;
5. Date of receipt of assessment notice or letter of 1. Filing by the BIR of a civil suit for collection
demand; of the deficiency tax (CIR v. Union Shipping Corp . 185
6. Itemized statement of the findings to which the SCRA 547)
taxpayer agrees, if any, as a basis for computing 2. Indication to the taxpayer by the
the tax due, which amount should be paid Commissioner in clear and unequivocal language of his
immediately upon the filing of the protest. For this final denial. (CIR v. Union Shipping Corp)
purpose, the protest shall not be deemed validly 3. BIR demand letter reiterating his previous
filed unless payment of the agreed portion of the demand to pay, sent to taxpayer after his protest of the
tax is paid first; assessment (Surigao Electric Co. Inc. v. CTA, 57 SCRA 523)
7. Itemized schedule of the adjustments with which 4. The actual issuance of a warrant of distraint
the taxpayer does not agree; and levy in certain cases cannot be considered as final
8. Statement of facts and/or law in support of the decision on a disputed settlement (CIR v. Union
protest; and Shipping Corp)
9. Documentary evidence as it may deem necessary
and relevant to support its protest to be submitted b. Effect of protest filed out of time
within sixty (60) days from the filing of the
protest. If the taxpayer fails to comply with this The pendency of the taxpayer's appeal in the Court of
requirement, the assessment shall become final. Tax Appeals and in the Supreme Court had the effect of
(Revenue Regulation No. 12-85, dated Nov. 27, 1985.) temporarily staying the hands of the said Commissioner.
If the taxpayer's stand that the pendency of the appeal
Effect of a protest on the period to collect deficiency did not stop the running of the period because the Court
taxes: of Tax Appeals did not have jurisdiction over the case of
taxes is upheld, taxpayers would be encouraged to delay
The prescriptive period is arrested by the taxpayer's the payment of taxes in the hope of ultimately avoiding
request for re-examination or reinvestigation even if he the same. Under the circumstances, the running of the
has not previously waived it (CIR vs. Wyeth, G.R. No. prescriptive period was suspended. Deficiency
76281,Sep 30, 1991) Percentage Taxes must be imposed.(PROTECTOR'S
SERVICES, INC., petitioner, vs. CA, G.R. No. 118176,
Failure of the BIR to act within the 180-day period. 2000 Apr 12)
2. Appeal to the Court of Tax Appeals(RA 1125, as accomplished.(CIR V PHILAMLIFE, 244 SCRA 446. May
amended by RA 9282) 29, 1995)
1. Refund (Section 229, NIRC) c. Who has the personality to file a claim for refund?
The Legal Principle of quasi-contracts or solutio
indebiti (see Art. 2142 & 2154 of the Civil Code). The The duty of the withholding agent to withhold the
Government is within the scope of the principle of solutio corresponding tax arises at the time of such accrual. The
indebiti. (CIR vs. Fireman’s Fund Insurance Co.) withholding agent/corporation is then obliged to remit the tax
to the Government since it already and properly belongs to the
a. Must be strictly construed against taxpayer Government. If a withholding agent who is personally
liable for income tax withheld at source fails to pay said
Grounds for filing a claim for refund: withholding tax, an assessment for said deficiency
Erroneously or illegally assessed or collected internal withholding tax would, therefore, be legal and proper.
revenue taxes; (FILIPINAS SYNTHETIC FIBER CORP. V CA, GR
No.113347. June 14, 1996)
Taxpayer pays under the mistake of fact, as for instance
in a case where he is not aware of the existing exemption
in his favor at the time payments were made. d. Is setting-off of taxes against a pending claim for refund
A tax is illegally collected if payments are made under allowed?
duress. e. Is automatic application of excess tax credits allowed?
f. Effect of existing tax liability on a pending claim for
1.Penalties imposed without authority; and refund
2.Any sum alleged to have been excessive or in any g. Period of validity of a tax refund/credit
manner wrongfully collected. 1. Returns are not actionable documents for purposes of
The value of internal revenue stamps when they are the rules on civil procedure and evidence
returned in good condition by the purchaser may also be h. Refund and Protest are mutually exclusive remedies
redeemed.
The two-year prescriptive period provided in Section General Rule: The Government cannot be required to
292 (now Section 230 of the Tax Code should be pay interest on taxes refunded to the taxpayer, unless:
computed from the time of filing the Adjustment Return
or Annual Income Tax Return and final payment of 1. The Commissioner acted with patent arbitrariness
income tax.(CIR vs. TMX SALES, G.R. No. 83736, 1992 Arbitrariness presupposes inexcusable or obstinate
Jan 15,) disregard of legal provisions. (CIR vs. Victorias Milling
Corp., Inc. L-19607, Nov. 29, 1966.)
The rationale in computing the two-year prescriptive
period with respect to the petitioner corporation's claim 2. In case of Income Tax withheld on the wages of
for refund from the time it filed its final adjustment employees
return is the fact that it was only then that ACCRAIN Any excess of the taxes withheld over the tax due from
could ascertain whether it made profits or incurred the taxpayer shall be returned or credited within 3
losses in its business operations. The "date of payment", months from the fifteenth (15th) day of April. Refund or
therefore, in ACCRAIN's case was when its tax liability, credit after such time earn interest at the rate of 6% per
if any, fell due upon its filing of its final adjustment annum, starting after the lapse of the 3-month period to
return. (ACCRA vs CA, G.R. No. 96322, 1991 Dec 20) the date the refund or credit is made (Sec 79 (c) (2) 1997
NIRC
The two-year period for prescription should be counted from
the date of payment of the tax, which for actions for refund of b. Other Remedies
corporate income tax should be computed from the time of
actual filing of the adjustment return or annual income tax 1. Action to Contest Forfeiture of Chattel (Sec.
return. This is so because at that point, it can already be 231)
determined whether there has been an overpayment by
the taxpayer. Moreover, under Sec. 49 (a) by the NIRC In case of seizure of personal property under claim for
(now Sec. 56(a), 1997 NIRC), payment is made at the forfeiture, the owner desiring to contest the validity of
time the return is filed. (CIR V CA, CTA, BPI, GR No. the forfeiture may bring an action:
117254. January 21, 1999) a. Before sale or destruction of the
There is some likelihood that the above rule could apply property to recover the property from the person seizing
also to individuals who are self employed (i.e., in the property or in possession thereof upon filing of the
business and professional practice) as well as estates and proper bond to enjoin the sale.
trusts, which are likewise required to file quarterly b. After the sale and within 6 months to
returns. recover the net proceeds realized at the sale (see. Sec. 231,
1997 NIRC)
The prescriptive period of two years should commence to run
only from the time that the refund is ascertained, which can Action partakes the nature of an ordinary civil action for
only be determined after a final adjustment return is recovery of personal property or the net proceeds of its
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 25
sale which must be brought in the ordinary courts and investigation and private respondent
not the CTA had literally” laid his cards on the table.
PNOC V. CA, APRIL 26, 2005
2. Redemption of Property Sold (Sec. 214)
Three (3)years from the following, A tax lien created in favor of the
whichever comes later: government is superior to all other
1. The last day prescribed by law for claims and preferences, even to that of a
filing the return private litigant predicated on a court
2. The day when the return was judgment.
actually filed
Ten (10) years after the discovery of the Extinguishment of Tax Lien
falsity, fraud or omission in case of: 1. Payment or remission of the tax
1. False or fraudulent return with 2. Prescription of the right of the government to
intent to evade tax, or assess or collect.
2. Failure to file a return 3. Failure to file notice of such lien in the office of
Within the period agreed upon, when register of Deeds, purchases or judgment
both the TP and the Commissioner have creditor.
agreed in writing, before the expiration 4. Destruction of the property subject to the lien.
of the period in Sec. 203 for the NOTE: In Nos. 1 and 2, there is no more tax liability
assessment of the tax. while under nos. 3 and 4, the taxpayer is still liable.
CASES:
CASE: CIR V. NLRC, NOV. 09, 1994
REPUBLIC V. HIZON, DEC. 13, 1999 A tax lien created in favor of the
Revenue Adm. Order No. 10-95 government is superior to all other
specifically authorizes the Litigation and claims and preferences, even to that of a
Prosecution section of the Legal private litigant predicated on a court
Division of regional district offices to judgment. The tax lien attaches not only
institute the necessary civil and criminal from the service of the warrant of
actions for tax collection. As the distraint of personal property but from
complaint filed in this case was signed the time the tax became due and
by the BIR’s Chief of Legal Division for payable.
Region 4 and verified by the Regional
Director, there was, therefore, 2. Compromise
compliance with the law. CIR may compromise both civil and
Sec. 7 of NIRC, authorizes the BIR criminal liability of the taxpayer.
Commissioner to delegate the powers
vested in him under the pertinent REQUISITES:
provision of the Code to any 1. The taxpayer have a tax liability
subordinate official with the rank 2. There must be an offer by the
equivalent to a division chief or higher. taxpayer of an amount to be paid by
the taxpayer
CIR V. JAVIER, JULY 31, 1991 3. There must be an acceptance by the
There was no actual intentional fraud in Commissioner or the taxpayer as
filing the return. Private respondent’s the case may be of the offer in the
notation on the tax return was at most settlement of the original claim
an error or mistake of fact or law not
constituting fraud, an invitation for Grounds for compromise
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 26
1. A reasonable doubt as to the validity of It includes the idea of not only losing
the claim against the taxpayer exists; or but also having the property
2. The financial position of the taxpayer transferred to another with out the
demonstrates a clear inability to pay the
consent of the owner and wrongdoer.
assessed tax
Effect: Transfer the title to the specific thing from
the owner to the government.
Cases that may be compromised
When available:
1. Delinquent accounts
a. No bidder for the real property exposed
2. Cases under administrative protest
for sale.
3. Cases disputed before the courts b. If highest bid is for an amount
4. Cases for collection already filed in courts
insufficient to pay the taxes, penalties
5. Criminal violations except those already filed,
and costs.
and those involving fraud.
With in two days thereafter, a return of the
proceeding is duly made.
Cases that cannot be compromised
How enforced:
1. Withholding tax cases a. In case of personal property – by seizure
2. Criminal tax fraud cases and sale or destruction of the specific
3. Criminal cases already filed in court forfeited property.
4. Delinquent accounts with duly approved b. In case of real property – by a judgment
schedule of installment payments of condemnation and sale in a legal
5. Cases where reduction of payments had already action or proceeding, civil or criminal,
been granted. as the case may require.
6. cases already decided and are final and
executory When forfeited property to be destroyed or sold:
a. To be destroyed – by order of the CIR
when the sale for consumption or use of
Compromise of criminal violation the following would be injurious to the
public health or prejudicial to the
In criminal violations, the compromise enforcement of the law: (at least 20 days
must be made prior to the filing of the after seizure)
information in court. 1. distilled spirits
All criminal violations may be compromised 2. liquors
except: 3. cigars
4. cigarettes, and other
1. those already filed in court; and manufactured products of
2. those involved in fraud. tobacco
5. playing cards
Limitations: 6. All apparatus used in or about
1. Minimum compromise rate: the illicit production of such
a. 10% of the basic tax assessed – in case of articles.
financial incapacity. b. To be sold or destroyed – depends upon
b. 40% of basic tax assessed – other cases. the discretion of CIR
2. Subject to approval of the Evaluation Board 1. All other articles subject to
a. When basic tax involved exceeds exercise tax, (wine, automobile,
P1,000,000.00 or mineral products, manufactured
b. Where settlement offered is less than the oils, miscellaneous products,
prescribed minimum rates. non-essential items a petroleum
products) manufactured or
Delegation of Power to Compromise removed in violation of the Tax
General Rule: The power to compromise or abate shall Code.
not be delegated by the commissioner. 2. Dies for printing or making IR
Exception: The Regional Evaluation Board may stamps, labels and tags, in
compromise the assessment issued by the regional imitation of or purport to be
offices involving basic taxes of P 500,000.00 or less. lawful stamps, labels or tags.
Remedy in case of failure to comply:
The CIR may either: Where to be sold:
a. Enforce the compromise, or a. Public sale: provided, there is notice
b. Regard it as rescinded and insists upon the original given not less than 20 days.
demand. b. Private sale: provided, it is with the
approval of the Secretary of Finance.
3. Distraint and/or Levy
4. Civil Action Right of Redemption:
5. Criminal Action a. Personal entitled – taxpayer or anyone
6. Forfeiture
for him
Implies a divestiture of property
b. Time to redeem – within one (1) year
without compensation, in consequence from forfeiture
of a default or offense. c. Amount to be paid – full amount of the
taxes and penalties, plus interest and
cost of the sale
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 27
probate court claims against the deceased Sec. 7 of NIRC, authorizes the BIR
taxpayer. Commissioner to delegate the powers vested in
Resorted to when the tax liability becomes final him under the pertinent provision of the Code to
and unappealable, or when the decision of the any subordinate official with the rank
Commissioner becomes final or executory. equivalent to a division chief or higher.
When:
CIR V. LA SUERTE CIGAR, JULY 04, 1992 (re:
A tax is assessed and the assessment becomes participation of the Office of the Solicitor General)
final and unappealable because the taxpayer The institution or commencement before a
fails to file an administrative protest with the proper court of civil and criminal actions and
BIR within 30 days from the receipt of the proceedings arising under the Tax Reform Act
assessment. which "shall be conducted by legal officers of
When an administrative protest filed by the the Bureau of Internal Revenue" is not in
taxpayer against the assessment is denied, in dispute. An appeal from such court, however, is
whole and in part or Is not acted upon within not a matter of right. Section 220 of the Tax
180 days from submission of the documents, Reform Act must not be understood as
and overturning the long established procedure
The taxpayer adversely affected by the decision before this Court in requiring the Solicitor
or inaction fails to file an appeal with the CTA General to represent the interest of the Republic.
within 30 days from receipt of said decision or This Court continues to maintain that it is the
from the lapse of the180 day period. Solicitor General who has the primary
responsibility to appear for the government in
B. CRIMINAL CASES ( TITLE X, NIRC; SEC. appellate proceedings.
281, NIRC)
PNOC V. CA, APRIL 26, 2005
All violations of any provision of the tax code
shall prescribe after five (5) years. LIM V. CA, OCT. 18, 1990 ( re: prescription of
criminal actions, Sec, 281, NIRC)
NOTE:
When should it commence: The five (5) year should be filed 5 years from the (1) day of the
prescriptive period shall begin to run from the commission of the violation of the law, and if
a. If known, day of the commission of the the same shall be not known, from the (2)
violation. discovery thereof and the institution of the
b. If not known, from the time of discovery and judicial proceedings for its investigation and
the institution of judicial proceeding for its punishment.
investigation and punishment.
When is it interrupted: MARCOS II V. CA, JUNE 5, 1997 (re: enforcement of tax
a. When a proceeding is instituted against the liability during pendency of probate proceedings)
guilty person The BIR is authorized to collect estate tax
b. When the offender is absent from the deficiency through the summary remedy of the
Philippines. levying upon and sale of properties of a
When should it run again: When the decedent, without the cognition and authority of
proceeding is dismissed for reason not the court sitting in probate over the supposed
constituting jeopardy. will of the deceased, because the collection of
estate tax is executive in character. As such the
Where to file estate tax is exempted from the application of
1) Court of Tax Appeals- on criminal offenses arising the statute of the non – claims, and this is
from violations of the NIRC or TCC and other laws justified by the necessity of the government
administered by the BIR and the BOC, where the finding, immortalized in the maxim that taxes
principal amount of taxes and fees, exclusive of charges are the lifeblood of the government
and penalties claimed is P1,000,000.00 and above.
2) RTC, Mun. TC, Metro TC- on criminal offenses arising E. EFFECTS OF FAILURE TO PAY THE TAX ON
from violations of the NIRC or TCC and TIME: ADDITIONS TO THE TAX (CHAPTER I,
other laws administered by the BIR and the BOC, where TITLE X, NIRC)
the principal amount of taxes and fess
exclusive of charges and penalties claimed is less than 1. SURCHARGES- a civil penalty imposed by
P1,000,000.00 or where there is no specified amount law as an addition to the main tax required to be
claimed (Sec 7[b], RA 9282) paid. It is not a criminal penalty but a civil
administrative sanction provided primarily as
CASES: safeguard for the protection of the State
REPUBLIC V. HIZON, DEC. 13, 1999 (re: approval of revenue and to reimburse the government for the
filing of civil and criminal actions) expenses of investigation and the loss resulting
Revenue Adm. Order No. 10-95 specifically from the taxpayer’s fraud. A surcharge added to the
authorizes the Litigation and Prosecution main tax is subject to interest.
section of the Legal Division of regional district
offices to institute the necessary civil and a. ORDINARY (SEC. 248A, NIRC)
criminal actions for tax collection. As the
complaint filed in this case was signed by the Penalty: 25% of the amount due, in addition to the tax
BIR’s Chief of Legal Division for Region 4 and required to be paid
verified by the Regional Director, there was,
therefore, compliance with the law.
a. Failure to file any return and to pay the 1) any person who is qualified and elects to pay the tax
tax due thereon as required by the NIRC on installment but fails to pay the tax, or any
or rules. installment, or any part on or before the date prescribed;
b. Filing a return with an internal revenue or
officer other than those with whom the 2) where the Commissioner has authorized an extension
return is required to be fired. Not of time within which to pay a tax or a deficiency tax or
authorized officer. any part thereof,
c. Failure to pay the deficiency tax within 3) from the date of notice and demand until it is paid.
the time prescribed for its payment in
the notice of assessment. Compromise Penalty
d. Failure to pay the full or part of the 1. It is a certain amount of money which the
amount of tax shown on any return, or taxpayer pays to compromise a tax violation.
the full amount of tax due for which no 2. It is pain in lieu of a criminal prosecution.
return is required to be filed, on or 3. Since it is voluntary in character, the same may
before the date prescribed for its be collected only if the taxpayer is willing to pay
payment. them.
b. FRAUD PENALTY (SEC. 248B, NIRC) Failure to File Certain Information Returns (Sec. 250,
NIRC)
Penalty: 50% of the amount due, in addition to the tax A) Penalty: P 1,000 for each failure
required to be paid B) The aggregate amount for all such failure shall not
exceed P 25,000 during a calendar year
a. In case of willful neglect to file the C) Upon notice and demand by the Commissioner
return within the period prescribed by D) Unless it is shown that such failure is due to
the NIRC or rule. reasonable cause and not to willful neglect.
b. In case a false or fraudulent return is In the case of each failure to file:
willfully made. 1) information return;
2) statement or list;
CASE: CIR V. JAVIER, JULY 31, 1991 3) keep any record;
There was no actual intentional fraud in 4) supply any information
filing the return. Private respondent’s E) required by this Code or by the Commissioner on the
notation on the tax return was at most date prescribed thereof.
an error or mistake of fact or law not
constituting fraud, an invitation for
investigation and private respondent LOCAL TAXATION
had literally” laid his cards on the table.
A. Local Taxation: General Concepts
2. INTEREST- This is an increment on any 1. Nature of Local Taxing Power
unpaid amount of tax assessed at the rate of 20% per
annum or such higher rate as may be prescribed a. Constitutional Provision (Section 5, Article X)
by the regulations from the date prescribed for
payment until the amount is fully paid. “Each local government unit shall have the
power to create its own sources of revenues
Classes of interest and to levy taxes, fees and charges subject to
such guidelines and limitations as the
1. Deficiency interest Congress may provide, consistent with the
2. Delinquency interest basic policy of local autonomy. Such taxes,
3. Interest on extended payment fees, and charges shall accrue exclusively to
the local governments.”
Deficiency interest
b. Delegated Power
Any deficiency in the tax due shall be subject to i. City of San Pablo Laguna vs. Reyes,
the interest of 20% per annum which shall be March 25, 1999
assessed and collected from the date prescribed
for its payment until the full payment thereof. “The power to tax is primarily vested in
Congress. However, in our jurisdiction,
When delinquency interest imposed? it may be exercised by local legislative
bodies, no longer merely by virtue of a
Delinquency interest is imposed in case of valid delegation as before, but pursuant
failure to pay: to direct authority conferred by Section
1. The amount of the tax due on any return 5, Article X of the Constitution. The
required to be filed; or important legal effect of Section 5 is that
2. The amount of tax due for which no return henceforth, in interpreting statutory
is required; or provisions on municipal fiscal powers,
3. A deficiency tax or any surcharge or interest doubts will have to resolved in favor of
thereon on the issue date appearing in the municipal corporations.”
notice and demand of the Commissioner.
ii. Meralco vs. Province of Laguna, May 5,
Rate is 20% per annum until the amount is fully 1999
paid which interest shall form part of the tax.
“Prefatorily, it might be well to recall
Interest on Extended Payment. that local governments do not have the
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 31
operation refers to income taxes imposed by or penalties, but only for a period not exceeding
the national government on BOI-registered six (6) months.
pioneer firms. Clearly, it is the provision of
the Local Government Code that should 5. Surcharges, Interests and Penalties
apply to the tax claim of Batangas City
against the BPC. The 6-year tax exemption C. Residual Power to Tax (Sec. 186)
of BPC should thus commence from the date - The power of LGU to tax even of not
of BPC’s registration with the BOI on July expressly granted by the LGC provided that
16, 1993 and end on July 15, 1999. there is no express prohibition.
- Those already covered by the Tariff and ii. Printing and Publication
Customs Code;
- Duties upon products about
to be exported and goods
passing through territorial iii. Franchise Tax
jurisdiction cannot be taxed - Government franchise, whether primary
by LGUs. or secondary, i.e. public utility companies
- If the franchise grants tax exemption and
- Taxation of the National Government, the same was executed prior to 1991 LGC,
including its agencies and it is deemed revoked by reason of the
instrumentalities as we as local law’s blanket revocation.
government units; - At a rate not exceeding ½ of 1% of the
Gross Amount receipt of the preceding
- Those subjects not within the ambit of calendar year
real taxation by reason of public policy,
i.e. Cooperatives registered under RA iv. Professional Tax
6938 (CDA); - Those who have passed government
licensure examinations are the ones liable
- Those enjoying privileges as granted by - Amount – not exceeding Php 300.00
the Board of Investments (Investments - Imposed by the city or province where the
Priorities Plan); taxpayer’s principal office is located
- Both pioneer and non-pioneer - With employer-employee relationship –
enterprises enjoy such kind of liability to PTR depends on the extent of
privileges under the Omnibus services provided. If services provided is
Investments Code. exclusive to the employer, PTR is not
necessary, otherwise, the employee is
- Taxes on agricultural or aquatic liable.
products sold by marginal enterprises;
v. Sand and Gravel Tax
- Taxes, fees, or charges for the - Imposed on extraction of sand, gravel and
registration of motor vehicles and for other quarry resources
the issuance of all kinds of licenses or - Not more than 10% of the FMV of what
permits for the driving thereof, except was extracted
tricycles. - Case: Province of Bulacan vs. CA
1. Talusan vs. Tayag, (April 04, 2001) - Cases - General Rule: All local taxes, fees and
involving an auction sale of land for the charges shall be paid within the first 20 days
collection of delinquent taxes are in of January or of each subsequent quarter, as
personam. Thus, notice by publication, the case may be.
though sufficient in proceedings in rem, does - Except:
not as a rule satisfy the requirement of
proceedings in personam. As such, mere i. Unless otherwise provided by the LGC
publication of the notice of delinquency
ii. The Sanggunian concerned may, for a
would not suffice, considering that the justifiable reason or cause, extend the time
procedure in tax sales is in personam. It was, for payment of such taxes, fees, or charges or
therefore, still incumbent upon the city penalties, but only for a period not exceeding
treasurer to send the notice of tax 6 months.
delinquency directly to the taxpayer in order
Surcharges, Interests and Penalties – (Sec.
to protect the interests of the latter. 168, LGC)
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 35
- Protest in writing must be filed within 1. Commonwealth Act No. 470 – Old
30 days from payment of the tax to the Assessment Law
provincial, city or municipal treasurer, - since 1920
who shall decide the protest within 60 2. Real Property Tax Code (Presidential Decree
days from receipt. No. 464, as amended)
- June 1, 1974
- The tax or a portion thereof paid under 3. Local Government Code (Republic Act No.
protest shall be held in trust by the 7160)
treasurer concerned. - January 1, 1992
- The changes however were only on the
- Protest decided in favor of taxpayer – tax rate ceilings and assessment levels.
the amount or portion of the tax
protested shall be refunded to the The Local Government Code covers the
protestant or applied as tax credit administration, appraisal, assessment, levy and
against his existing or future tax collection of Real Property Tax, i.e. tax on land and
liability. building and other structures and improvements
on it, including machineries. (Subject to the definition
- Protest denied or upon lapse of the
given by Art. 415 of the New Civil Code)
period to decide - appeal to the BAA.
Claim for refund (Sec. 253, LGC) B. Nature of Real Property Tax – National or Local?
Hybrid of national and local tax
- When an assessment of basic real Provisions of LGC are applied
property tax, or any other tax levied is nationwide but rates imposed are
found to be illegal or erroneous and the different per LGU ordinance
tax is accordingly reduced or adjusted,
The real property tax has been considered and
- The taxpayer may file a written claim held to be national, despite the fact that in practice it is
for refund or credit of taxes and local in its imposition and utilization.
interests
Justice Vitug points out that: “The real property
- With the provincial or city treasurer tax has been considered and held to be a national, not a
local tax in Meralco Securities Industrial Corp v. CBAA,
- Within 2 years from the date the
114 SCRA 260. The Court said that realty tax has always
taxpayer is entitled to such reduction
been imposed by the national law-making body. The
or adjustment.
real estate tax is enforced throughout the Philippines
- The provincial or city treasurer shall and not in a particular political subdivision, although
decide the claim for refund or credit the bulk of the tax proceeds accrue to the various local
within 60 days from receipt government units where the property is located. Under
the Local Government Code, local government units are
- In case the claim is denied, the mandated to fix a uniform rate of basic real property tax
taxpayer may appeal to the BAA. applicable to their respective localities, the proceeds of
which exclusively accrue to them. (See Secs. 233 and 271,
Remedies from a denial of the protest LGC)”, [Page 479, Tax Law and Jurisprudence, 2000
and refund Edition by Justice Vitug and Judge Acosta].
D. Properties Covered (Sec. 232, LGC) manner that it reveals the intention to attach
1. Land, them permanently to the tenements;
2. Buildings
3. Machinery and (5) Machinery, receptacles, instruments or
4. Other improvements not otherwise implements intended by the owner of the
exempted under said code (Sec 232, LGC) tenement for an industry or works which may
be carried on in a building or on a piece of land,
Machinery – embraces machines, equipment, and which tend directly to meet the needs of the
mechanical contrivances, instruments, said industry or works;
appliances or apparatus which may or may not be
attached, permanently or temporarily, to the real (6) Animal houses, pigeon-houses, beehives, fish
property. It includes the physical facilities for ponds or breeding places of similar nature, in
production, the installations and appurtenant case their owner has placed them or preserves
service facilities, those which are mobile, them with the intention to have them
selfpowered or self-propelled, and those not permanently attached to the land, and forming a
permanently attached to the real property which are permanent part of it; the animals in these places
actually, directly, and exclusively used to meet the
are included;
needs of the particular industry, business or
activity and which by their very nature and
(7) Fertilizer actually used on a piece of land;
purpose are designed for, or necessary to its
manufacturing, mining, logging, commercial,
industrial or agricultural purposes. (Sec. 199 (8) Mines, quarries, and slag dumps, while the
[o], LGC) matter thereof forms part of the bed, and waters
either running or stagnant;
Machinery which are of general purpose use
including but not limited to office equipment, (9) Docks and structures which, though floating,
typewriters, telephone equipment, breakable or are intended by their nature and object to
easily damaged containers (glass or cartons), remain at a fixed place on a river, lake, or coast;
microcomputers, facsimile machines, telex
machine, cash dispensers, furnitures and (10) Contracts for public works, and servitudes
fixtures, freezers, refrigerators, display cases or and other real rights over immovable property.
racks, fruit juice or beverage automatic “
dispensing machines which are not directly and
exclusively used to meet the needs of a In Caltex vs. CBAA, May 31, 1982:
particular industry, business or activity shall
not be considered within the definition of Machinery and equipment, consisting of
machinery. (Sec. 290 [o], IRR of RA 7160) underground tanks, elevated tanks, water tanks,
gasoline pumps, computing pumps, water
Improvements include valuable additions made pumps, car washer, car and truck hoists, air
to a property or an amelioration in its condition, compressors and similar articles, installed by
amounting to more than a mere repair or Caltex (Philippines) Inc. in its gasoline stations,
replacement of parts involving capital located on leased land, have been held to be real
expenditures and labor, which is intended to property subject to the tax. (real properties
enhance its value, beauty or utility or to adopt it which have characteristics of permanency, the
for new or further purposes. lease is for a long period of time)
properties are ACTUALLY, DIRECTLY Query: are the older cases now not
and EXCLUSIVELY used for charitable applicable so that they are
purposes. "Exclusive" is defined as now taxable?
possessed and enjoyed to the exclusion - not clear as to the extent
of others; debarred from participation or of Lung Center case as
enjoyment; and "exclusively" is defined, to areas which used to
"in a manner to exclude; as enjoying a be considered as real
privilege exclusively." If real property is property tax exempted
used for one or more commercial as incidental
purposes, it is not exclusively used for - If city decides to tax
the exempted purposes but is subject to SLU on its hospital,
taxation. The words "dominant use" or parking lot, etc., use as
"principal use" cannot be substituted for ground that they should
the words "used exclusively" without be exempt due to
doing violence to the Constitutions and necessity, do not use the
the law. Solely is synonymous with word “incidental”
exclusively.
3. In LRTA vs. CBAA, October 12, 2000,
What is meant by actual, direct though the creation of the LRTA was
and exclusive use of the property for impelled by public service – to provide
charitable purposes is the direct and mass transportation in MM- its
immediate and actual application of the operations undeniably partakes of
property itself to the purposes for which ordinary business. . . Given that it is
the charitable institution is organized. It engage in a service-oriented commercial
is not the use of the income from the endeavour, its carriage ways and
real property that is determinative of terminal stations are patrimonial
whether the property is used for tax- property subject to tax, notwithstanding
exempt purposes. its claim of being a GOCC.
With respect to these properties, the In Lopez vs. City of Manila, February 19, 1999, the
Authority is liable to pay real property Court discussed the steps to be followed for the
tax. mandatory conduct of General Revision of Real Property
assessments, pursuant to the provision of Sec. 219, of
The Authority should be R.A. No. 7160 which are as follows:
classified as an instrumentality of the
national government. As such, it is 1. The preparation of Schedule of Fair Market
generally exempt from payment of real Values.
property tax, except those portions 2. The enactment of Ordinances:
which have been leased to private a) levying an annual "ad valorem" tax
entities. on real property and an additional tax
accruing to the SEF.
F. May LGUs grant exemption? Yes b) fixing the assessment levels to be
applied to the market values of real
Power to Grant Local Exemptions (Sec. 192 LGC) properties;
- LGUs, may through ordinances duly approved, grant c) providing necessary appropriation to
tax exemptions, incentives or reliefs under such terms defray expenses incident to general revision
and conditions, as they may deem necessary. of real property assessments; and
d) adopting the Schedule of Fair Market
- Although powerless to grant RPT exemption, LGU in Values prepared by the assessors.
MM can exempt the 5% ad valorem
tax on idle lands. The preparation of fair market values as a preliminary
step in the conduct of general revision was set forth in
- LGUs (within and outside MM) may also grant Section 212 of R.A. 7160, to wit: (1) The city or municipal
condonation which actually partake of assessor shall prepare a schedule of fair market values
exemption. for the different classes of real property situated in their
respective Local Government Units for the enactment of
G. Who are liable for the Real Property Taxes an ordinance by the sanggunian concerned. (2) The
1. Ownership vs. Use schedule of fair market values shall be published in a
newspaper of general circulation in the province, city or
Doctrine of Ownership municipality concerned or the posting in the provincial
- owner is liable capitol or other places as required by law.
1. Declaration of Real Properties – whose duty? • NOTE: IF PROPERTY DECLARED FOR THE
FIRST TIME (Sec. 222)
DECLARATION OF REAL PROPERTY If declared for 1st time, real property shall be
assessed for back taxes
It shall be the responsibility of the owner, a) for not more than ten (10) years prior
administrator or their representatives to to the date of initial assessment
declare, under oath, the true value of real b) taxes shall be computed on the basis
property, taxable or exempt, within 60 of applicable schedule of values in force during the
days after the acquisition. The sworn corresponding periods
declaration shall be filed once every 3 *Assessor will compare the entry on file with the
years before June 30th of the year Registry of Deeds and the assessment roll in his office.
commencing 1992. The failure or refusal
to make that declaration within the c. building officials
prescribed period would authorize the Prior to construction of building, as required in
provincial or city assessor to declare the procuring building permit.
property in the name of the defaulting Permit transmitted by building officials to
owner, if known, or against an unknown Registry of Deeds.
owner as the case may be, and to assess
the property for taxation. (Secs. 201-204 d. Geodetic engineers - For lands surveyed
LGC). e. Notaries Public - For document notarization,
must furnish the assessors a copy
In the case of Testate Estate of Concordia Lim
V. City of Manila, February 21, 1990, it was held that 2. Valuation by Assessors
the unpaid tax attaches to the property and is chargeable
against the person who had actual or beneficial use Assessment
and possession of it regardless of whether or not he - the act or process of determining the value of a
property, or proportion thereof subject to tax, including
is the owner. To impose the real property tax on the
subsequent owner who was neither the owner nor the discovery, listing, classification, and appraisal of
properties.
the beneficial user of the property during the designated
periods would not only be contrary to law but also
unjust. Appraisal
- the act or process of determining the value of property
as of a specific date for a specific purpose.
Classification of Land for purposes of assessment - Sec c. Special Assessments/ For Public Works
218, LGC - on lands specially benefited by public works,
1. Commercial – land devoted principally for the object projects or improvements funded by the LGU
of profit and is not classified as agricultural, industrial, - May be imposed even by municipalities
mineral, timber, or residential land outside MM provided:
2. Agricultural – land devoted principally to the planting - Special levy shall not exceed 60% of
of trees, raising of crops, livestock and poultry, the actual cost of such projects and improvements,
dairying, salt making, inland fishing and similar including the costs of acquiring land and such other real
aquacultural activities, and other agricultural property in connection therewith not apply to lands
activities exempt from basic real property tax and the remainder
3. Residential – land principally devoted to habitation of the land have been donated to the local government
4.Mineral- lands which minerals, metallic or non- unit concerned for the construction of said projects.
metallic, exist in sufficient quantity or grade to justify (Sec. 240, LGC).
the necessary expenditures to extract and utilize such
materials Special Levy
5. Industrial-land devoted principally to industrial Requirements for validity:
activity as capital investment and is not classified as 1. infrastructure project financed by
agricultural, commercial, timber, mineral or residential government whereby real property owners
land benefit from it
6. Timberland 2. not more than 60% of actual cost of
7. Special project
- Classification of lands made by respective sanggunian 3. not less than five but not more than ten
in accordance with zoning ordinances. years
-It is based on actual use. Actual use refers to the 4. thru an ordinance
purpose for which the property is principally or a. nature of project
predominantly utilized by the person in b. extent of project
possession thereof. c. cost spent
d. metes and bounds
For Machinery
1. For Brand New machinery : FMV is acquisition cost What may be done:
2. In all other cases: i. levy ad valorem taxes (see above)
FMV = Remaining economic life x Replacement ii. Fix Assessment levels
cost Assessment level – is the percentage applied to
the fair market value to determine the taxable or
DETERMINE ASSESSED VALUE (Sec. 218) taxation value of the property.
Within five (5) yrs from the date they become due within
SEC. 216. Special Classes of Real ten (10) yrs. from discovery of fraud, in case there is
Property.––All lands, buildings, fraud or intent to evade
and other improvements thereon
actually, directly and exclusively Period of prescription shall be SUSPENDED when:
used for hospitals, cultural or (Sec 270, LGC)
scientific purposes, and those 1. local treasurer is legally prevented to collect tax
owned and used by local water 2. the owner of prop requests for reinvestigation and
districts, and government-owned writes a waiver before expiration of period to
or controlled corporations collect
rendering essential public 3. the owner of the property is out of the country or
services in the supply and cannot be located
distribution of water and/or
generation and transmission of
electric power shall be classified
as special.
Payment of Tax
How:
a. basic real prop tax in 4 equal installments (Mar 31,Jun
30,Sep 30, Dec 31)
b. special levy - governed by ordinance
Who Collects:
The provincial, city, municipal or barangay treasurer