ESTATE AND DONOR’S TAXES
death of all property.
TRANSFER TAXES
 Transfer taxes are the taxes imposed upon the
gratuitous disposition of property, whether real
or personal, tangible or intangible.
 They are not property taxes because their
imposition does not rest upon general
ownership but rather considered as privilege tax
imposed on the act of passing ownership of
property.
Kinds of Transfer Taxes
1. Estate tax – a tax imposed upon the privilege of
individuals to transfer property occasioned by
death (donation mortis causa)
2. Donor’s tax – a tax imposed upon the privilege
of individuals and corporate donors to transfer
property during lifetime (donation inter vivos)
Characteristics of Donation Mortis Causa
1. It conveys no title or ownership to the
transferee before the death of the transferor;
or, what amounts to the same thing that the
transferor should retain the ownership (full or
naked) and control of the property while alive
2. That before his death, the transfer should be
revocable by the transferor at will, ad nutum;
but revocability may be provided for indirectly
by means of a reserved power in the donor to
dispose of the properties conveyed; and
3. Tat the transfer should be void if the transferor
should survive the transferee.
Basic Principles of Estate Taxation
 Estate tax laws rest in their essence upon the
principle that death of an individual is the
generating source from which the taxing power
takes its being, and that it is the power to
transmit or the transmission from the dead to
the living on which the tax is more immediately
based.
Estate Tax
 A tax levied, assessed, collected and paid upon
the transfer of the net estate of every decedent,
whether resident or nonresident of the
Philippines, based on the value of such net
estate, by including the value at the time of his
 In case of a nonresident decedent who at the
time of his death was not a citizen of the
Philippines, only that part of the estate which is
situated in the Philippines shall be included in
his taxable estate.
Nature of Estate Tax
 It has made the duty of the probate court to
make the amount of the inheritance tax a part
of the final decree of distribution of the estate.
 It is not against the property of the decedent,
nor is it a claim against the estate of as such,
but it is against the interest or property right
which the heir, legatee, devisee, etc., has in the
property formerly held by the decedent.
 Proceeding in rem – one taken directly against
the property, and has for its object the
disposition of the property, without reference
to the title of individual claimants. It constitutes
constructive notice to the whole world.
 The enforcement and collection of estate tax is
executive in character.
 It is a tax laid neither on the property nor on
transferor or the transferee. It is an excise tax or
privilege tax and its object is to tax the shifting
of economic benefits and enjoyment of
property from the dead to the living.
Purpose or Object for Levying the Estate Tax
 It is a more effective agent for bringing about a
more equitable distribution of wealth.
 It applies to the entire net estate, including the
property otherwise exempt.
 It is the most appropriate and effective method
for taxing the privilege which the decedent
enjoys of controlling the disposition at death of
property accumulated during lifetime.
 It is the only method of collecting the share
which is properly due to the State as a partner
in the accumulation of property which was
made possible on account of the protection
given by the State.
The law that governs
 Estate taxation is governed by the statute in
force at the time of death of the decedent.
  The estate tax accrues as of the death of the situated in the Philippines, provided that
decedent and the accrual of the tax is distinct intangible personal property, its inclusion in the
from the obligation to pay the same. gross estate is subject to the rule on reciprocity.
 The right of the State to tax the privilege to
transmit the estate vests instantly upon death. Residence for purposes of estate taxation
 Synonymous with domicile.
Time and Transfer of Properties  Refers to the permanent home, the place to
 The properties and rights are transferred to the which whenever absent, for business or
successors at the time of death. But the ROD pleasure, one intends to return, and depends on
shall not transfer the title to the properties facts and circumstances, in the sense that
without the Certificate Authorizing Registration disclose intent.
issued by the RDO evidencing the payment of  It is not the actual place of residence.
the estate tax.
Meaning of date-of-death valuation rule
Rates of Estate Tax  The properties comprising the gross estate shall
 The entire value of the net estate is divided into be valued based on their fair net value as of the
brackets and each rate is imposed on the time of death.
corresponding bracket.  If the property is a real property, the fair market
value shall be the fair market value as
If the net estate is: determined by the Commissioner or the fair
Over But not The tax Plus Of the market value as shown in the schedule of values
over shall be excess fixed by the provincial and city assessors,
over whichever is higher.
200k exempt  If shares of stocks, the fair market value shall
200k 550k 0 5% 200k depend on whether the shares are listed or
500k 2M 15k 8% 500k unlisted in the stock exchanges. Unlisted
2M 5M 135k 11% 2M common shares are values based on their book
5M 10M 465k 15% 5M value which unlisted preferred shares are values
10M And 1.215M 20% 10M at par value. In determining the book value of
over common shares, appraisal surplus shall not be
considered as well as the value assigned to
GROSS ESTATE preferred shares, if there are any.
 Consists of the totality of the value of all  If shares are listed in the stock exchanges, the
property of the decedent at the time of his fair market value shall be the arithmetic mean
death, whether real or personal, tangible or between the highest and lowest quotation at a
intangible, wherever situated. date nearest the date of death, if none is
 These are the properties which the decedent available on the date of death itself.
owned, existing and can dispose to the extent of  To determine the value of the right to usufruct,
the interest therein at the time of his death, use or habitation, as well as that of annuity,
including revocable transfers and transfers for there shall be taken into account the probable
insufficient consideration. life of the beneficiary in accordance with the
latest basic standard mortality table.
Classification of Decedents  Personal properties shall be valued at their fair
1. Citizen and resident alien – gross estate shall market value at the time of death.
include all his property, real or personal,
tangible or intangible, wherever situated at the Composition of the Gross Estate of a Decedent
time of his death. 1. Decedent’s interest
2. Nonresident alien – gross estate includes only 2. Transfers in contemplation of death
that part of the entire gross estate which is 3. Revocable transfers
 4. Property passing under general power of
appointment
5. Proceeds of life insurance
6. Prior interests
7. Transfer for insufficient consideration
8. Dividends declared by a corporation before
death of stockholder although paid after death,
if the decedent was still living on the record
date
9. Partnership profits even if paid after the death
of partner
10. Right of usufruct if transferable to the heirs
Decedent’s Interest
 The decedent must have had an interest in
property at the time of his death in order that
such property interest may be taxable or
includible in his gross estate.
 Where he had, before his death, relinquished
ownership over any interest in property, he
could not be deemed to have transmitted any
interest in such property upon his death.
Transfer in contemplation of death
 Refers to transfer, by trust or otherwise, of
properties or interest therein made by the
decedent during his lifetime in contemplation of
or intended to take effect in possession or
enjoyment at or after death, or of which he has
at any time made a transfer, by trust or
otherwise, under which he has retained for his
life or for any period which does not in fact end
before his death the following:
a. The possession or enjoyment thereof;
b. The receipt of the income or the fruits
notwithstanding the transfer; or
c. The right either alone or in conjunction with
any person, to designate person who shall
possess or enjoy the said property or
income therefrom.
Meaning of the term in contemplation of death
 Means that the thought of the death is the
impelling cause of the transfer, and while the
belief of death may afford convincing evidence,
the statute is not to be limited and its purpose
thwarted by a rule of construction which in
place of contemplation of death makes the final
criterion to be an apprehension that death is
near at hand.
 Does not constitute any transfer made by a
dying person but rather to the retention of
some type of control over the property
transferred. In effect, there is no full transfer of
all interest during the lifetime of the decedent.
When donation inter vivos given by the decedent
during his lifetime to his heirs be considered transfer
in contemplation of death.
 Inter vivos gifts made by a decedent to his
children within a very short time before he died
due to his incurable sickness.
 When the decedent, during his lifetime, makes
his will within a short time, or simultaneously
with, the giving or gifts.
 When the donor makes inter vivos gifts,
especially when he knows that his sickness can
no longer be cured, his purpose for donating his
properties to his heirs is to avoid the payment
of the estate tax.
 Subject properties donated during his lifetime
shall form part of his gross estate which shall be
subject to the estate tax, not the donor’s tax.
Meaning of transfer with retention or reservation of
certain rights.
 Involves cases where the owner transfers his
property during life but still retains economic
benefits.
 By reason of the restriction, the transferee is
incapable of freely enjoying or disposing of the
property until the transferor’s death.
Revocable transfer
 Included in the gross estate because of the
tremendous power and control which the
transferor can exercise over the property since
at anytime, he can always revoke the transfer,
hence, there was really no genuine transfer of
the property made by the transferor.
 It consists of transfers made by the decedent to
the extent of any interest he had therein, of
which he has at any time made by trust or
otherwise, where the enjoyment thereof was
subject at the date of his death to any change
through the exercise of a power by:
a. The decedent alone
 b. The decedent in conjunction with any other
person to alter, amend, revoke or
terminate. The power to alter, amend or
revoke must be retained by the donor-
decedent on the date of his death in order
that the gift may be considered revocable.
c. Where any such power is relinquished in
contemplation of the decedent’s death.
 Refer to transfers where the transferor has
reserved the right to alter, amend or revoke
such transfer, regardless of whether or not the
power should be exercised by him alone or in
conjunction with some else.
Property passing under general power of
appointment.
 Form part of the gross estate if exercised by the
decedent
a. By will
b. By deed executed in contemplation of, or
intended to take effect in possession or
enjoyment at, or after his death; or
c. By deed under which he has retained for his
life or any period not ascertainable without
reference to his death or for any period
which does not in fact end before his death
i. The possession or enjoyment of, or the
right to the income from, the property,
or
ii. The right, either alone or in conjunction
with any person, to designate the
persons who shall possess or enjoy the
property or the income therefrom.
 The property passing under a general power of
appointment comes from the donor and the
done-decedent. The power to dispose of
property at death by the exercise of a power of
appointment is the equivalent of ownership. It
is a potential source of wealth to the appointee
and the disposition of wealth affected by its
exercise or relinquishment at death is one from
of the enjoyment of wealth.
Meaning of the term power of appointment.
 A power of appointment is a right to designate
by will or deed the person or persons who are
to receive certain property from the estate of a
prior decedent.
 Such power is held by one who has enjoyed a
life income from the property.
 It is possible for one person to have a life
income and another person to have the right to
designate who shall receive the property after
death of the life tenant.
 Considered general power when it gives to the
donee the power to appoint any person he
pleases, including himself, his spouse, his
estate, executor or administrator, and his
creditor, thus having a full dominion over the
property as though he owned it.
 It is special when the done can appoint only
among a restricted or designated class of
persons other than himself.
Proceeds of life insurance.
 The amount includible in the gross estate would
be to the extent of the amount receivable by
the estate of the deceased, his executor, or
administrator, under policies taken out by
decedent upon his own life, irrespective of
whether or not the insured retained the power
of revocation, or to the extent of the amount
receivable by any beneficiary designated in the
policy of insurance, except when it is expressly
stipulated that the designation of the
beneficiary is irrevocable.
Prior Interests
 Transfers in contemplation of death, revocable
transfer and property passing under general
power of appointment shall apply to the
transfers, trusts, estates, interests, rights,
powers and relinquishment of powers, as
severally enumerated and described, whether
made, created, arising, existing, exercised or
relinquished before or after the effectivity of
this Code.
Transfers for insufficient consideration.
 Refers to the transfer that is NOT a bona fide
sale of property for an adequate and full
consideration in money and money’s worth.
 If it is not a bona fide sale, the excess of the fair
market value at the time of death over the
value of the consideration received by the
decedent shall form part of his gross income.
  If the inter vivos transfer is proven fictitious or
simulated, the total value of the property at the
time of death should be included in the gross
estate.
 This transfer falls under any of the ff:
a. Transfer in contemplation of death
b. Revocable transfer
c. Transfer of property passing under a
general power of appointment.
Items which are not part of the gross estate.
1. Capital of surviving spouse – refers to the
exclusive property of the surviving spouse and
shall not, for estate tax purposes, be deemed as
part of his/her gross estate:
a. That which is brought to the marriage as his
or her own
b. That which each acquires during the
marriage by lucrative title;
c. That which is acquired by right of
redemption or by exchange with other
property belonging to only one of the
spouses;
d. That which is purchased with exclusive
money of the surviving spouse;
e. The sums collected by installments during
the marriage from credit payable in certain
number of years are considered of the
souse whom the credit belongs;
f. The right of an annuity, whether perpetual
or for life, and the right of usufruct,
belonging to one of the spouses, form part
of his or her separate property, but its
fruits, pensions and interests, due during
the marriage belong to the partnership.
2. Amounts received as compensation for
personal injuries and damages which led to
the death of a decedent.
 Considering that the said amount is
not yet a property of the decedent at
the time of his death, it cannot be
said that the same shall be subject to
the estate tax, hence, not taxable.
Meaning of the term net estate of the deceased
person.
 Determined by deducting from the gross estate
the exemption under Section 84 and the
allowable deductions under Section 86 of the
Tax Code. It is that portion of the gross estate
which is the one being subjected to the estate
tax after considering all the exemptions and
deductions.
Distinction between gross estate and net estate.
 Gross estate refers to all properties and interest
in properties of the decedent at the time of his
death, while the term net estate refers to the
value of the estate after all the deductions have
been made against the gross estate; but will be
subject to the graduated tax rates.
COMPUTATION OF THE NET ESTATE OF A DECEDENT
WHO IS A CITIZEN OR A RESIDENT ALIEN
Deductions from the gross estate.
 The value of the net estate shall be determined
by deducting from the value of the gross estate
the following items of deductions:
I. Ordinary Deductions
1. Expenses, losses, indebtedness, and taxes –
such amounts for:
a. Actual funeral expenses or 5% of the
gross estate, whichever is lower, but in
no case to exceed P200,000
b. Judicial expenses of the testamentary or
intestate proceedings
c. Claims against the estate
d. Claims of the deceased against
insolvent persons
e. Unpaid mortgages or any indebtedness
in respect to property
f. Taxes
g. Casualty losses
2. Property previously taxed
3. Transfers for public use.
II. Special deductions
1. Family home
2. Standard deduction
3. Medical expenses
4. Amount received by heirs under RA 4917
III. Net share of the surviving spouse in the
conjugal partnership or community property.
ORDINARY DEDUCTIONS
1. Funeral Expenses
 Actual funeral expenses, whether paid or
unpaid, up to the time of interment, or an
amount equal to 5% of the gross estate,
whichever is lower, but in no case to exceed
200k. – those which are actually incurred in
connection with the interment or burial of the
deceased. Must be duly supported by receipts
or invoices or other evidence
 They include:
a. the mourning apparel of the surviving
spouse and unmarried minor children of the
deceased bought and used on the occasion
of the burial;
b. expenses of the deceased’s wake, including
food and drinks;
c. publication charges for death notices;
d. telecommunications expenses incurred in
informing relatives of the deceased;
e. cost of burial plot, tombstones, monument
or mausoleum but not their upkeep.
f. Interment and/or cremation fees and
charges
g. All other expenses
Not deductible funeral expenses.
1. Expenses incurred after interment
2. Any portion of the funeral or burial expenses
borne or defrayed by relatives and friends of
the deceased.
3. Any amount of funeral expenses in excess of the
200k threshold.
Cost of dinner to commemorate the first death
anniversary of the deceased is not an allowable
funeral expenses.
 Does not fall under the meaning of the funeral
expenses.
2. Judicial expenses of the testamentary or
intestate proceedings.
 These expenses are incurred during the
settlement of the estate but not beyond the last
day prescribed by law, or the extension thereof,
for the filing date of the estate return.
 Includes:
a. Fees of executor or administrator
b. Attorney’s fees
c. Court fees
d. Accountant’s fees
e. Appraiser’s fees
f. Clerk hire````
g. Cost of preserving and distributing the
estate
h. Cost of storing or maintaining property of
the estate
i. Brokerage fees for selling property of the
estate
j. Commissions for selling or disposing of the
estate, and the like.
 Should be supported by a sworn statement of
account issued and signed by the creditor.
 Includes expenses incurred in extrajudicial
proceedings. But only administration expenses.
 Fees to litigate case among the heirs are not
deductible.
Administration Expenses.
 Those which are necessary for the management
of the estate, for protecting it against
destruction or deterioration, and for the
production of fruits.
 Limited to such expenses as are actually and
necessarily incurred in the administration of a
decedent’s estate.
 The expenses must be essential to the proper
settlement of the estate.
Notarial fee paid for the extrajudicial settlement.
 Should be allowed as deduction.
 There is no requirement for formal
administration. It is sufficient that the expense
be a necessary contribution toward the
settlement of the case.
 Attorney’s fee to be deductible must be
essential to the collection of assets, payment of
debts or the distribution of property to the
persons entitled to it.
Attorney’s fees in guardianship proceedings.
 Must be essential to the collection of assets,
payment of debts or the distribution of the
property tot eh persons entitled to it.
 Attorney’s fees and guardian’s fees incurred in a
trustee’s accounting of a taxable inter vivos
trust attributable to the usual issues involved in
such an accounting was held to be proper
deductions because these are expenses
 incurred in terminating an inter vivos trust that
was includible in the decedent’s estate.
Substantiation requirements in case the settlement
is made through the court in a testate or intestate
proceeding.
 Pertinent documents evidencing claims against
the estate are necessary.
Claims against the estate.
 The word claims is generally construed to mean
debts or demands of a pecuniary nature which
could have been enforced against the deceased
in his lifetime and could have been reduced to
simple money judgments. It may arise out of
contract, tort or by operation of law.
Requisites for the deductibility of claims against the
estate.
1. The liability represents a personal obligation of
the deceased existing at the time of his death
except unpaid obligation incurred incident to his
death.
2. The liability was contracted in good faith and for
adequate and full consideration in money or
money’s worth.
3. The claim must be a debt or claim which is valid
in law and enforceable in courts
4. The indebtedness must not have condoned by
the creditor or the action to collect from the
decedent must not have prescribed.
Substantiation requirements in case of simple loan
(including advances).
 The ff requirements or documents must be
complied with or submitted:
1. The debt instrument must be duly notarized
at the time the indebtedness was incurred
2. Duly notarized certification from the
creditor as to the unpaid balance of the
debt, including interest as of the time of
death.
 If the creditor is a corporation, the
sworn certification must be signed by
the President, VP or other principal
officer of the corporation.
 If partnership, must be signed by any
general partners.
 If a bank or other financing institution,
the branch manager which monitors
and manages the loan.
 If individual, he should sign.
 In any of all these cases, the one who
should certify must not be a relative of
the borrower within the 4th civil degree
of consanguinity or affinity.
 If the one who certifies is a relative, a
copy of the promissory note or other
evidence of the indebtedness must be
filed with the RDO within 15 days.
3. Proof of financial capacity of the creditor to
lend the amount at the time the loan was
granted, as well as its latest audited balance
sheet with a detailed schedule of its
receivable showing the unpaid balance of
the debtor-decedent.
 If the debtor is no longer required to file
income tax returns, a duly notarized
declaration of the creditor of his
capacity to lend at the time when the
loan was granted.
 If the creditor is nonresident, the
executor or administrator or any of the
legal heirs must submit a duly notarized
declaration by the creditor of his
capacity to lend at the time when the
loan was granted, authenticated or
certified to as such by the tax authority
of the country here the nonresident
creditor is a resident.
4. A statement under oath executed by the
administrator or executor of the estate
reflecting the disposition of the proceeds of
the loan if said loan was contracted within 3
years prior to the death of the decedent.
Substantiation requirements in case the unpaid
obligation arose from purchase of goods or services.
1. Pertinent documents evidencing the purchase
of goods or services.
2. Duly notarized certification from the creditor as
to the unpaid balance of the debt, including
interest as of the time of death.
3. Certified true copy of the latest audited balance
sheet of the creditor with a detailed schedule of
its receivable showing the unpaid balance of the
decedent-debtor. A certified true copy of the
 updated latest subsidiary ledger/records of the
debt of the debtor-decedent should likewise be
submitted.
Substantiation requirements where the settlement
of the estate is made through the court.
 Pertinent documents filed with the court
evidencing the claims against the estate, and
the court order approving the said claims, if
already issued.
Whether actual claims of creditors can be fully
allowed as deductions from the gross estate despite
the fact that the said claims were reduced or
condoned through compromise agreements entered
into by the estate with its creditors.
 Where a lien claimed against the estate was
certain and enforceable on the date of the
decedent’s death, the fact that the claimant
subsequently settled for lesser amount did not
preclude the estate from deducting the entire
amount of the claim for estate tax purposes.
This pronouncement essentially confirm the
general principle that post-death developments
are not material in determining the amount of
the deduction.
 Date-of-death valuation rule. Reasons:
1. There is no law, nor any legislative intent in
tax laws, which disregards the date-of-
death valuation principle, and particularly
provides that post-death developments
must be considered in determining the net
value of the estate.
2. Such construction finds relevance and
consistency with the Rules on Special
Proceedings where the term claims required
to be presented against a decedent’s estate
is generally construed to mean debts or
demands of a pecuniary nature which could
have been enforced during his lifetime.
 Therefore, the claims existing at the time of
death are significant to, and should be made the
basis of, the determination of allowable
deductions, and that post-death development
should not be considered.
Requisites for the deductibility of claims of the
deceased against insolvent persons.
1. The value of the claims against insolvent
persons had been included as part of the gross
estate
2. It must be shown that the debtors are incapable
of paying their indebtedness.
Requisites for the deductibility of unpaid mortgages
or indebtedness.
1. Unpaid mortgages upon, or any indebtedness in
respect to, property where the value of the
decedent’s interest therein, undiminished by
such mortgage or indebtedness, should be
included in the value of the gross estate.
2. The deduction allowed, unpaid mortgages or
any indebtedness shall, when founded upon a
promise or agreement, be limited to the extent
that they were contracted bona fide and for an
adequate and full consideration in money or
money’s worth.
3. In case the unpaid mortgage payable is being
claimed by the estate, verification must be
made as to who was the beneficiary of the loan
proceeds.
 If the loan is found to be merely an
accommodation loan where the loan
proceeds went to another person, the value
of the unpaid loan must be included in the
receivable of the estate.
 If there is a legal impediment to recognize
the same as receivable, said unpaid
obligation/mortgage payable shall not be
allowed as a deduction from the gross
estate.
4. In all instances, the mortgaged property, to
the extent of the decedent’s interest therein,
should always be a part of the gross taxable
estate.
Requisites for the deductibility of losses from the
gross estate.
1. Losses must be incurred during the settlement
of the estate
2. Losses arose from fires, storms, shipwreck, or
other casualties, or from robbery, theft or
embezzlement
3. Said losses are not compensated for by
insurance or otherwise
 4. Losses claimed must not have been claimed as
deduction from gross income for income tax
purposes
5. Such losses were incurred not later than the last
day for the payment of the estate tax – 6
months from the date of death.
Requisites for the deductibility of taxes from the
gross estate.
1. Said taxes must have accrued as of the time of
death of the decedent
2. Said taxes were unpaid as of the time of death
3. There taxes will not include:
a. Income tax upon income received after
death
b. Property taxes not accrued before his death
c. The estate tax due from the transmission of
his estate.
Property previously taxed (Vanishing Deduction)
 Vanishing deduction refers to the diminishing
deductibility allowed from the gross estate of
the decedent on the property left behind by the
decedent which he had acquired previously by
inheritance or donation.
 Vanishing deduction is deducted only from the
exclusive properties of the decedent which form
part of his gross estate.
Rationale for the allowance of the Vanishing
Deduction.
 A property can only be allowed a vanishing
deduction if it had been subjected to the estate
tax or donor’s tax within 5 years prior to the
death of the present decedent.
 The said property has already been subjected to
a transfer tax (either donor’s tax or estate tax)
and now that the recipient is dead, the same
property will again be subjected to tax, this
time, estate tax.
 In order to mitigate the harshness of successive
taxation of the same property occasioned by
death occurring within a short period of time,
the law allows a vanishing deduction to be
claimed on the said property.
 An estate tax is considered to have been paid in
the previous estate if a return was filed even if
there was no tax due in that return.
Requisites for the deductibility from gross estate of
property previously taxed.
1. The property involved must have been
transferred by a prior decedent either thru
estate donation, or which can be identified as
having been acquired in exchange for property
so received.
2. The present decedent must have died within 5
years from the receipt of the property from a
prior decedent or donor
3. The property can be identified as the one
received from the prior decedent or donor, or
as the property acquired in exchange for the
original property so received
4. The property must have formed part of the
gross estate of a prior decedent, or the total
amount of the gifts of the donor
5. Donor’s tax on the gift or the estate tax on the
inheritance must have been already paid
6. Said property must be situated in the
Philippines and now forms part of the gross
estate of the present decedent
7. The amount of the deduction is the full value of
the property being taxed if the present
decedent died within one year from the death
of the prior decedent, and that the amount
deductible diminishes yearly and is finally lost
after the 5th year from the death of the prior
decedent
8. The vanishing deduction on the property must
not have been claimed by the previous estate
involving the same property.
Amounts that may be deducted from the gross
estate of a decedent insofar as the property
previously taxed is concerned.
1. 100% of the value, if received within one year
prior to the death of the decedent
2. 80% of the value, if received more than one
year but not more than 2 years prior to the
death of the decedent
3. 60% of the value, if received more than 2 years
but not more than 3 years prior to the death of
the decedent
4. 40% of the value, if received more than 3 years
but not more than 4 years prior to the death of
the decedent
 5. 20% of the value, if received more than 4 years
but not more than 5 years prior to the death of
the decedent
 Where the deduction was allowed of any
mortgage or other lien in determining the
donor’s tax, or the estate tax of the prior
decedent, which was paid in whole or in part
prior to decedent’s death, then the deduction
allowable shall be reduced by the amount so
paid.
 Where the property referred to consists of two
or more items, the aggregate value of such
items shall be used for the purpose of
computing the deduction.
Requisites for the deductibility of transfers for public
use.
1. The disposition is in the last will and testament
2. Disposition should take effect after death
3. In favor of the government of the Philippines or
any of its subdivisions
4. Exclusively for public use
5. The value of the property given is included n the
gross estate.
SPECIAL DEDUCTIONS
Family Home
 The place where the family actually resides.
 CC: a family home has to be constituted
judicially or extra judicially.
 FC: there is no need to constitute it as a family
home, as it is deemed constituted thereunder.
 Exempt from execution, forced sale or
attachment
 Refers to the dwelling house, including the land
on which it is situated, where the husband and
wife, or a head of the family, and the members
of their family reside, as certified to by the
Barangay Captain of the locality
 It is deemed constituted on the house and lot
from the time it is actually occupied as a family
residence and is considered as such for as long
as any of its beneficiaries actually resides
therein.
 The family home is generally characterized by
permanency, has an intention to return.
 The family home must be part of the properties
of the absolute community or of the conjugal
partnership, or of the exclusive properties of
either spouse depending upon the classification
of the property and the property relations
prevailing on the properties of the husband and
the wife.
 It may also be constituted by an unmarried
individual on his or her own property.
 For purposes of deduction, a person may
constitute only one family home.
What constitutes the family home which is
deductible from the gross estate.
 An amount equivalent to the current fair market
value of the decedent’s family home shall be
deducted from the gross estate.
 If the said current fair market value exceeds
P1M, the excess shall be subjected to estate tax.
 The family home must have been the
decedent’s family home as certified by the
barangay captain of the locality.
Conditions for the allowance of family home as
deduction from gross estate.
1. It must be the actual residential home of the
decedent and his family at the time of his death,
as certified by the Barangay Captain of the
locality where the family home is situated;
2. Total value of the family home must be included
as part of the gross estate of the decedent;
3. Allowable deduction must be in an amount
equivalent to the current fair market value of
the family home as declared or included in the
gross estate, or the extent of the decedent’s
interest, whichever is lower, but not exceeding
P1M.
Standard deduction.
 Standard deduction, which is a deduction in the
amount of P1M, shall be allowed as an
additional deduction without need of
substantiation. Full amount shall be deducted
for the benefit of the decedent.
Medical expenses; Requisites of deductibility of
medical expenses from the gross estate of the
decedent.
1. The medical expenses were incurred within one
year prior to the death of the decedent;
 2. The expenses are duly substantiated with
official receipts, invoices, statements of account
duly certified by the hospital, and such other
documents in support thereof;
3. The total amount thereof, whether paid or
unpaid, does not exceed P500k.
Amount received by heirs under RA 4917.
 Any amount received by the heirs from the
decedent’s employer as a consequence of the
death of the decedent-employee shall be
allowed as deduction from gross estate,
provided that such amount is included in the
gross estate of the decedent.
NET SHARE OF THE SURVIVING SPOUSE IN THE
CONJUGAL COMMUNITY PROPERTY
Net share of the surviving spouse in the conjugal
property.
 After deducting the allowable deductions
appertaining to the conjugal or community
properties included in the gross estate, the
share of the surviving spouse must be removed
to ensure that only the decedent’s interest in
the estate is taxed.
Note: if decedent is a nonresident alien, no deduction
shall be allowed unless the executor, administrator or
any of the heirs, includes in the return the value at the
time of decedent’s death of that part of the gross
estate not situated in the Philippines.
Rules on situs of taxation with respect to the
imposition of the estate tax on property left behind
by a nonresident decedent.
1. If the nonresident decedent is a Filipino citizen
at the time of his death, the value of the gross
estate shall be determined by including the
value, at the time of his death, all the property,
real or personal, tangible or intangible,
wherever situated to the extent of the interest
therein of the decedent at the time of his death.
2. In case of a nonresident decedent who at the
time of his death was not a citizen of the
Philippines, only that part of the entire gross
estate which is situated in the Philippines to the
extent of the interest therein of the decedent at
the time of his death shall be included in his
taxable estate.
 With respect to intangible personal property,
only those located in the Philippines shall be
taxable, unless exempted on the basis of the
ff:
a. The foreign country where the resident
alien was a citizen at the time of his death
did not impose estate tax in respect of
intangible personal property of citizens of
the Philippines not residing in that foreign
country; or
b. If the laws of the foreign country of which
the decedent was a citizen and resident at
the time of his death allows similar
exemption from estate taxes of every
character or description in respect of
intangible personal property owned by
citizen of the Philippines not residing in
that foreign country.
Tax credit for estate taxes paid in foreign country of
a citizen or resident alien.
 To minimize the onerous effect of taxing the
same property twice, tax credit against
Philippine estate tax is allowed for estate taxes
paid to foreign countries.
 Only the estate of a decedent who was a citizen
or a resident of the Philippines at the time of his
death can claim tax credit for any estate tax
paid to a foreign country.
Amount allowable as tax credit.
 The general rule is the estate tax imposed by
the Philippines shall be credited with the
amounts of any estate tax imposed by the
authority of a foreign country.
Limitation on credit.
 Per country basis. The amount of the credit in
respect to the tax paid to any country shall not
exceed the same proportion of the tax against
which such credit is taken, which the decedent’s
net estate situated within such country taxable
under the NIRC bears to his entire net estate.
 Overall basis. The total amount of the credit
shall not exceed the same proportion of the tax
against which such credit is taken, which the
decedent’s net estate situated outside the
 Philippines taxable under the NIRC bears to his
entire net estate.
Exemptions of certain acquisitions and
transmissions.
 Exempt from estate tax:
1. The merger of usufruct in the owner of the
naked title;
2. The transmission or delivery of the inheritance
or legacy by the fiduciary heir or legatee to the
fideicommisary;
3. The transmission from the first heir, legatee or
done in favor of another beneficiary, in
accordance with the desire of the predecessor;
4. All bequests, devises, legacies or transfers to
social welfare, cultural and charitable
institutions, no part of the net income of which
inures to the benefit of any individual
 Not more than 30% of the said bequests,
devises, legacies or transfers shall be used
by such institutions for administration
purposes.
Purposes of the exemption from the estate tax of the
abovementioned acquisitions and transmissions.
 The estate tax is predicated upon the
transmission of property from the decedent to
his heirs or legatees. In these cases, there is
only one transmission of property, i.e., the
transmission from the testator to the ultimate
heir thru the fiduciary.
Fideicommissary substitution.
 An obligation is clearly imposed upon a first heir
to preserve and transmit to another the whole
or part of the estate bequeathed to him, upon
his death or upon the happening of a particular
event.
Net estate of not exceeding P200k exempt from
estate tax.
 After deducting all the allowable deductions
from the gross estate, the net estate of the
deceased not exceeding P200K shall be exempt
from estate tax.
Exclusions from the gross estate.
1. Proceeds of:
a. Life insurance policy taken out by the
decedent upon his own life when the
beneficiary is other than the estate,
executor or administrator; and the
designation of the beneficiary is irrevocable;
b. Group life insurance policy taken out by a
company for its employees;
c. Life insurance policies issued by the GSIS to
government officials or employees, as they
are exempt by law from taxes of all kinds;
2. Death benefits received from the SSS,
accruing by reason of death;
3. Amounts received from the Philippine and US
governments from the damages suffered
during WWII
4. Benefits received by beneficiaries residing in
the Philippines under the laws administered
by the US Veterans Administration
5. Properties held in trust by the decedent
6. Transfers by way of bona fide sales
7. Capital or exclusive property of the surviving
spouse is not deemed part of the gross estate
of the decedent spouse
8. Share of the surviving spouse in the conjugal
property.
Valuation of the properties compromising the gross
estate.
 The properties comprising the gross estate be
valued based on their fair market value as of the
time of death.
 If the property is a real property, the fair market
value shall be the fair market value as
determined by the Commissioner or the fair
market value fixed by the provincial or city
assessor, whichever is higher.
 Unlisted common shares are valued based on
their book value.
 Unlisted preferred shares are valued at par
value.
 For shares listed in the stock exchanges, fair
market value shall be the arithmetic mean
between the highest and the lowest quotation
at a date nearest the date of death, if none is
available on the date of death itself.
 To determine the value of the right of usufruct,
use or habitation, as well as annuity, there shall
be taken into account the probable life of the
 beneficiary in accordance with the latest basic
standard mortality table.
Requirements for the filing of a notice of death of
the decedent.
1. Whenever there are properties left by the
decedent which are registered or registrable
subject to estate tax
2. If the same are exempt from estate tax, the
gross value of the estate exceeds P20K
3. The executor, administrator or any of the legal
heirs, as the case may be, shall file a written
notice of death
4. The notice of death shall be filed within 2
months after the decedent’s death, or within a
like period after qualifying as such executor or
administrator
5. A notice of death to be filed with the RDO
having jurisdiction over the place of residence
of the deceased.
Requirements before the heirs file an estate tax
return when the decedent has registered or
registrable properties.
 In cases where a registered taxpayer dies, the
administrator or executor shall register the
estate of the decedent and a new TIN shall be
supplied.
 In the case of a nonresident decedent, the
executor or administrator of the estate shall
register the estate with the RDO where he is
registered, provided, that in case such executor
or administrator is not registered, registration
of the estate shall be made with and the TIN
supplied by the RDO having jurisdiction over his
legal residence.
When and in what cases must an estate tax return be
filed.
 Required
1. In all cases of transfers subject to the estate
tax;
2. Where though exempt from tax, the gross
value of the estate exceeds P200k;
3. Regardless of the gross value of the estate,
where the said estate consists of registered
or registrable property, such as real
property, motor vehicle, shares of stock or
other similar property for which a clearance
from the BIR is required as a condition
precedent for the transfer of ownership
thereof in the name of the transferee.
Contents of the estate tax return.
1. The value of the gross estate of the decedent at
the time of his death, or in case of a
nonresident, not a citizen of the Philippines, of
that part of his gross estate situated in the
Philippines;
2. The deductions allowed from gross estate in
determining the net taxable estate;
3. Such part of such information as may at the
time be ascertainable and such supplemental
data as may be necessary to establish the
correct taxes;
4. For estate returns showing a gross value
exceeding P2M, there must be a statement duly
certified by a CPA containing the ff:
a. Itemized assets of the decedent with their
corresponding gross value at the time of his
death, or in the case of a nonresident, not a
resident of the Philippines, of that part of
his gross estate situated in the Philippines;
b. Itemized deductions from gross estate
allowed
c. The amount of tax due, whether paid or still
due and outstanding.
When the Commissioner may file a return for the
estate of a deceased person; Effect of filing.
 In case the executor, administrator, or any heir
fails to file a return within 6 months from the
date of death of the decedent or makes,
willfully or otherwise, a false or fraudulent
return, the CIR shall make the return from his
own knowledge and from such information as
he can obtain thru third party information.
 Any return made by the CIR shall be prima facie
good and sufficient for all legal purposes.
Time of filing of estate tax returns.
 Within 6 months from the decedent’s death.
 In case of judicial settlement of the estate, the
court approving the project of partition shall
furnish the CIR with a certified copy thereof and
its order within 30 days after promulgation of
such order.
Extension of time to file estate tax returns.
 The CIR have authority to grant, in meritorious
cases, a reasonable extension, not exceeding 30
days
 File application for extension with the RDO
where the estate is required to secure its TIN
and file the tax returns
Place of filing of the estate tax returns and payment
of tax.
1. An authorized agent bank;
2. RDO;
3. Collection Office;
4. Duly authorized treasurer of the city or
municipality in which the decedent was
domiciled at the time of his death
5. If there be no legal residence in the Philippines,
with the office of the Commissioner.
 The Commissioner has the power to allow a
different venue/place in the filing of tax returns.
Time and place of payment of estate tax.
 Within 6 months from the decedent’s death at
the same time that the estate tax return is filed
in an Authorized Agent Bank having jurisdiction
over the decedent.
Requirements for the request extension to file the
estate tax return and pay the estate tax.
1. A request for extension to file the estate tax
should be filed before the expiration of the
original period to pay which is within 6 months
from death of the decedent
2. The application for extension of time to file the
return and extension of time to pay estate tax
shall be filed with the RDO
3. There must be a finding that the payment on
the due date of the estate tax would impose
undue hardship upon the estate or any of the
heirs; and
4. The extension must be for a period not
exceeding 5 years if the estate is settled
judicially or 2 years if settled extra judicially.
Effect of granting an extension of time for the
payment of the estate tax.
1. The amount in respect of which the extension is
granted shall be paid on or before the date of
the expiration of the period of the extension;
2. The running if the period of the Statute of
Limitations on the making of assessment shall
be suspended within the period of such granted
request for extension;
3. The Commissioner may require to furnish a
bond in an amount not exceeding double the
amount of the tax
4. Any amount paid after the statutory due date
for the payment of the tax, but within the
extension period, shall be subject to interest but
not to surcharge.
When the extension to file the estate tax return and
pay the tax may not be granted by the
Commissioner.
 By reason of negligence, intentional disregard of
rules and regulations, or fraud on the part of
the taxpayer.
Persons liable to pay the estate tax before the
delivery of the distributive share to any of the heir or
beneficiary.
1. The executor or administrator. If there are two
or more executors or administrators, all of them
are severally liable for the payment of the tax.
 The estate tax clearance issued by the
Commissioner or the RDO, will serve as the
authority to distribute the
remaining/distributable properties/share in
the inheritance to the heir or beneficiary.
2. The heir or beneficiary has subsidiary liability
for the payment of that portion of the estate
which his distributive share bears to the value
of the total net estate.
 The extent of his liability shall be the extent
of his share in the inheritance.
Who is considered as executor or administrator for
estate taxation purposes.
 Means the executor or administrator of the
decedent, or if there is no executor or
administrator appointed, qualified, and acting
within the Philippines, then any person in actual
or constructive possession of any property of
the decedent.
Obligations of an administrator.
 The administration bond is for the benefit of the
creditors and the heirs, as it compels the
 administrator to perform the trust reposed in
and discharge the obligations incumbent upon
him:
1. To administer the estate and pay the debts
2. To perform all judicial orders
3. To account within one year and at any
other time when required by the probate
court; and
4. To make an inventory within 3 months from
the date of death of the decedent.
 More specifically, the bond is conditioned on
the faithful execution of the administration
1. Make and return a true inventory of the
goods, chattels, rights, credits, and estate of
the deceased which come to his possession
or knowledge;
2. Truly account for such as received by him
when required by the court; and
3. Deliver the same to the person appointed as
executor or regular administrator, or to
such other person as may be authorized to
receive by them.
Payment of the estate tax by installment.
 In case the available cash of the estate is not
sufficient to pay its total estate tax liability, the
estate may be allowed to pay the tax by
installment and a clearance shall be released
only with respect to the property
corresponding/computed tax on which it has
been paid.
 The computation of the estate tax shall always
be on the cumulative amount of the net taxable
estate.
 If the payment of the tax after the due date is
approved by the CIR, the imposable penalty
thereon shall only be the interest.
Extent of liability of the executor or administrator.
 His liability is personal.
 Even if the properties of the estate have been
distributed to the heirs, the executor or
administrator can still be held liable for the
unpaid tax.
When executor or administrator may be discharged
from personal liability.
 If the executor or administrator makes a written
application to the CIR for determination of the
amount of the estate tax and discharge from
personal liability therefor, the Commissioner, as
soon as possible, and in any event within 1 year
after the making of such application, or, if the
application is made before the return is filed,
then within one year after the return is filed,
but not after the expiration of the prescribed
for the assessment of the tax, shall notify the
executor or administrator of the amount of tax.
 Upon payment, the executor or administrator,
shall be discharged from personal liability for
any deficiency in the tax thereafter found to be
due and shall be entitled to a receipt or writing
showing such discharge.
Remedies of the government when the estate has
already been distributed to the heirs without the
payment of the estate tax.
1. Sue all heirs and collect from each of them the
amount of tax proportionate to the inheritance
received;
2. By virtue of tax lien, sue only one heir (executor
or administrator) and subject the property
received from the estate to the payment of the
estate tax.
Remedy of the heir who paid the estate tax.
 Reimburse from the others
BIR can collect the estate tax deficiencies by the
summary remedy of levy upon and sale of real
properties of the decedent without first securing the
authority of the court.
 Because the collection of tax is executive in
character.
 The probate court is forbidden to authorize the
executor or administrator to deliver any
distributive share to any party interested in the
estate, unless a certification from the CIR that
the estate tax has been paid is shown.
 Payment of estate tax is condition precedent for
the distribution of the properties of the
decedent and the collection of estate taxes is
executive in nature for which the court is devoid
of any jurisdiction.
Nature of the process of estate tax collection.
 It is not against the property of decedent, nor is
it a claim against the estate as such, but it is
 against the interest or property right which the
heir, legatee, devisee has in the property
formerly held by the decedent.
 Proceeding in rem.
 Executive in nature.
 Such taxes were exempted from the application
of the statute of non-claims, and this is justified
by the necessity of government. Funding,
immortalized in the maxim that taxes are the
lifeblood of the government.
 The court may direct the payment of such taxes
upon motion showing that the taxes have been
assessed against the estate.
 It allows the enforcement of tax obligations
against the heirs of the decedent, even after
distribution of the estate’s properties.
DOJ is not the proper party to determine the amount
of taxes due upon the estate, but the BIR.
 The BIR’s determinations and assessments are
presumed correct and made in good faith.
Duties of certain officers and debtors.
1. The ROD shall not register in the Registry of
Property any document transferring real
property or real rights therein or any chattel
mortgage, by way of gifts inter vivos or mortis
causa, legacy or inheritance, unless a
certification from the Commissioner that the
estate tax actually due thereon had been paid is
shown.
2. They shall immediately notify the
Commissioner, Regional Director, RDO or RCO
or Treasurer of the city of municipality where
their offices are located, of the nonpayment of
the tax discovered by them.
3. Any lawyer, notary public, or any government
officer who, by reason of his official duties,
intervenes in the preparation and
acknowledgment of documents regarding
partition or disposal of donation inter vivos or
mortis causa, legacy or inheritance, shall have
the duty of furnishing the CIR, RD, RDO or RCO
of the place where he may have his principal
office, with copies of such documents and any
information whatsoever which may facilitate
the collection of the tax.
4. Neither shall a debtor of the deceased pay his
debts to the heirs, legatee, executor or
administrator of his creditor, unless the
certification of the CIR that the estate tax had
been paid is shown.
5. But the debtor may pay the executor or
administrator without said certification if the
credit is included in the inventory of the estate
of the deceased.
Effects of nonpayment of estate tax.
1. Shares, bonds or obligations cannot be
transferred in the names of the new owners in
the books of the corporation, partnership,
business, or industry, unless evidence of
payment of tax is shown.
2. If a bank has knowledge of the death of a
person, who maintained a bank deposit account
alone, or jointly with another, it shall not allow
any withdrawal from the said deposit account,
unless the CIR has certified that the estate taxes
imposed thereon had been paid.
3. A bank with knowledge of the death of a person
who maintained a deposit account with such
bank shall allow withdrawals therefrom only if
mandatory requirement of a certification from
the CIR that the taxes due thereon have been
paid count be resented by an heir. Absent such
certification, a bank is not authorized to
withhold the release of deposits of a decedent.
However, the CIR may authorize the withdrawal
of an amount not exceeding P20K without the
said certification of payment of estate tax.
4. The executor or administrator is prohibited
from delivering the distributive share of any heir
or beneficiary unless the tax has been paid.
5. RODs cannot register transfers of real property
or real rights therein or any chattel mortgage.
Banks cannot refuse to disclose the amount of bank
deposits of the decedent.
 The CIR has the authority to inquire into bank
deposit accounts of a decedent to determine his
gross estate notwithstanding the provisions of
the Bank Secrecy law.
 The fact the deposit is a joint account will not
preclude the CIR from inquiring thereon
because the law mandates that if a bank has
knowledge of the death of a person, who
maintained a bank deposit account alone, or
 jointly with another, it shall not allow any
withdrawal therefrom.
DONOR’S TAX
 A tax levied, assessed, collected and paid upon
the transfer by any person (whether individual
or corporation), resident or nonresident, of the
property by gift.
 It is a tax on the privilege of transmitting one’s
property or property rights to another or others
without adequate and full valuable
consideration.
 The subject of the donor’s tax is the gift or
donation which is an act of liberality whereby a
person disposes gratuitously of a thing or right
in favor of another who accepts it.
Imposition of donor’s tax.
 Imposed on donations inter vivos or those made
between living persons to take effect during the
lifetime of the donor.
 The donor’s tax supplements the estate tax by
preventing the avoidance of the latter through
the device of donating the property during the
lifetime of the deceased.
Classification of donors.
 The law imposes the donor’s tax only on the
donor.
1. Citizens (whether resident or nonresident)
and resident aliens – with respect to
properties located within and without the
Philippines
2. Nonresident aliens – within the Philippines,
including intangible personal property with
a situs in the Philippines, unless exempted
on the basis of reciprocity.
Nature of Donor’s Tax.
 Not a property tax, but is a tax imposed on the
transfer of property by way of gift inter vivos.
 It is an excise tax imposed on the exercise of the
donor’s right during life to transfer property to
others in the form of gift.
Purposes/Objectives of donor’s tax.
1. To forestall the eventuality of property owners
attempting to avoid the payment of the estate
tax by transferring their property to another
during their lifetime so that such estates may
pass to the objects of their bounty unimpaired.
2. Whatever loss the Government may sustain as a
consequence of the transfer will be
compensated by the earlier payment of the
donor’s tax and by the acceleration of the
redistribution of wealth.
3. To prevent the avoidance of income tax through
the device of splitting the income of the
property among all the donees, who are
members of the family or of many trusts, with
the donor thereby escaping the effect of the
progressive rates of income tax.
Law that governs the imposition of donor’s tax.
 The donor’s tax shall not apply unless and until
there is a completed gift.
 The transfer of property gift is perfected from
the moment the donor knows of the acceptance
by the done; it is completed by the delivery,
either actually or constructively, of the donated
property to the donee.
 The law in force at the time of
perfection/completion of the donation shall
govern the imposition of the donor’s tax.
Meaning of the term donation.
 An act of liberality whereby a person, called the
donor, disposes gratuitously of a thing or right
in favor of another, who is called the donee,
who accepts it.
 There is also a donation when a person gives to
another a thing or right on account of the
latter’s merits or of the services rendered by
him to the donor provided they do not
constitute a demandable debt or when the gift
imposes upon the donee a burden which is less
than the value of the thing given.
 Tax Code: there is donation which is subject to
donor’s tax when a person, whether resident or
nonresident, transfers a property by gift,
whether the transfer is in trust or otherwise,
whether the gift is direct or indirect, or whether
the property is real or personal, tangible or
intangible.
Requisites of valid donation.
1. The donor must have the capacity to donate;
 2. The donor must have the intent to donate his
property to the donee;
3. The donee accepts the donation;
4. The donation must be in writing and fully
executed; and
5. There must be actual or constructive delivery of
the gift to the donee or to someone else for
him.
3 requisites for the validity of donation of real
property.
1. It must be made in a public instrument
document specifying therein the property
donated;
2. It must be accepted during the lifetime of the
donor, which acceptance may be made either in
the same Deed of Donation or in a separate
public instrument;
3. If the acceptance is made in a separate
instrument, the donor must be notified in an
authentic form, and the same must be noted in
both instruments.
When gift is considered as perfected and completed.
1. The transfer of property by gift is perfected
from the moment the donor knows of the
acceptance by the donee
2. It is completed by delivery, either actually or
constructively, of the donated property to the
donee.
 A gift that is incomplete because of reserved
powers, becomes complete when either:
1. The donor renounces the power; or
2. His right to exercise the reserved power
ceases because of the happening of some
event or contingency or the fulfillment of
some condition, other than because of the
donor’s death.
Tax base and rates of donor’s tax.
 Donor’s tax shall be computed on the basis of
the total net gifts made during the calendar
year.
 If the donee is a relative (brother or sister),
spouse, ancestor, and lineal descendant, or a
relative by consanguinity in the collateral line
within the 4th civil degree, then the tax for each
calendar year shall be computed on the basis of
the total net gifts made during the calendar
year with donor’s tax rate staring with 2% and a
maximum of 15%, the first P100K being exempt
from donor’s tax.
 If the donee is a stranger, there is only one rate
and that is 30% on the net gifts.
Determination of the net gifts subject to donor’s tax.
 Net gift is the net economic from the transfer
that accrues to the donee.
 If a mortgaged property is transferred as a gift,
but imposing upon the donee the obligation to
pay the mortgage liability, then the net gift is
measured by deducting from the fait market
value of the property the amount of mortgage
assumed.
 In ascertaining the rates applicable to the net
gifts for any year, all the gifts made previously
during the same calendar year must be
considered. Computation involves 3 operations.
1. A computation of the tax at graduated rates
on all gifts made including those made
previously in the same year;
2. A computation of the tax at the graduated
rates on the gifts made previously in the
same year; and
3. The subtraction of the result of the second
computation from that of the first.
Computation of donor’s tax.
 The computation of the donor’s tax is on a
cumulative basis over a period of one calendar
year.
 Husband and wife are considered as separate
and distinct taxpayers for purposes of donor’s
tax.
 If what was donated is a conjugal or community
property and only the husband signed the deed
of donation, there in only one donor, without
prejudice to the right of the wife to question the
validity of the donation without her consent.
How to reduce donor’s tax on donation to relatives.
 In order to reduce the donor’s tax on donation
to relatives, the donation can be splitted.
 Giving a one-time donation would mean that it
will be subject to a higher tax bracket under the
graduated tax structure thereby necessitating
the payment of donor’s tax.
  If splitted, it may relieve the donor from paying
the tax because the first P100K is exempted.
Waiver or renunciation by the surviving spouse of
his/her share in the conjugal partnership or absolute
community after the dissolution of the marriage in
favor of the heirs is subject to donor’s tax.
Waiver or renunciation by an heir of his/her share in
the hereditary estate is not subject to donor’s tax.
 Unless specifically and categorically done in
favor of identified heir/s to the exclusion or
disadvantage of the other co-heirs in the
hereditary estate.
Treatment of donation made by the husband alone
our of the conjugal partnership property.
 Treated as made by the husband alone, unless
the wife expressly joins in making the gift.
 If the gift is made jointly, it would be taxable to
both, that is, one-half would be taxable to the
husband and the other half to the wife.
Effect on the creditor of condonation/remission of
debt of the debtor.
 The condonation of a debt of a corporation has
the effect of a donation made on the part of the
creditor. The amount of the debt cancelled is a
gift from the creditor to the debtor but need
not be included in the latter’s gross income.
 The creditor merely desires to benefit the
debtor.
 The amount of the debt is considered as a gift
from the creditor to the debtor and need not be
included in the latter’s gross income.
 The creditor shall be subject to 30% donor’s tax
– stranger.
Contributions to a candidate for an elective post and
to the political party of the candidate not subject to
donor’s tax; conditions for exemption.
 Exempted provided the recipient candidates
and political parties had complied with the
requirement for filing of returns of
contributions with the COMELEC.
 Political contributions made prior to RA 7166
were subjected to donor’s tax, since the same
were made prior to the exempting legislation.
Meaning of the term adequate consideration.
 Means money of equal value or some goods or
services capable of being evaluated in money.
 Where consideration is fictitious, the entire
value of the property transferred is taxable.
Transfers which may be constituted as donation.
1. Sale, barter or exchange of property for less
than adequate or full consideration in money or
money’s worth;
 The element of donative intent is
conclusively presumed in transfers of
property for less than an adequate or
full consideration in money or money’s
worth, thus subject to donor’s tax.
2. Condonation or remission of debt
Sale of ordinary assets for less than adequate and
full consideration.
 Then the amount by which the fair market value
of the property at the time of the execution the
Contract to Sell or execution of the Deed of Sale
which is not preceded by a Contract to Sell
exceeded the value of the agreed or actual
consideration or selling price shall be deemed a
gift, and shall be included in computing the
amount of gifts made during the calendar year.
 In case of capital assets, the difference in the
supposed taxable value cannot legally be
subjected to donor’s tax because the sale here
is a capital asset and not for an insufficient
consideration. A deemed gift subject to tax
arises only if a tax is avoided as a result of
selling a property at a price lower than its fair
market value.
 In a sale of capital asset subject to the capital
gains tax, the tax is always based on the gross
selling price or fair market value, whichever is
higher, and therefore, there is no instance
where the seller can avoid any tax by selling his
capital assets below its fair market value.
Transfers not considered as donation.
1. Transfers in contemplation of death, or
intended to take effect in possession or
enjoyment at or after death; or
2. Other transfers mortis cause, as such transfers
are subject to the estate tax.
When donation propter nuptias (dowries) exempt
from donor’s tax.
1. The gifts must be made on account of marriage
before its celebration or within one year
thereafter;
2. The donor/s must be the parent/s of the donee
who is/are resident/s of the Philippines;
3. The donee must be a legitimate, recognized
natural, or legally adopted child;
4. The amount of the donation is to the extent of
the first P10,000.
 In case of donation of real property. A father is
considered to be making 2 donations: first to his
son who is a relative, and second, in favor of his
son’s wife who is a stranger. The taxable gift to
the son is computed by deducting from the gross
gift the dowry exclusion of P10K. The net gift is
subject to the graduated tax rates of 2% to 15%.
The taxable gift to his son’s wife is ¼ of the fair
market value of the property subject to the 30%
rate on donation to strangers.
 The mother is subject to the donor’s tax in exactly
the same manner as the father.
Gifts made by a resident citizen or alien to or for the
use of the National Government or any entity
created by any of its agencies which is not conducted
for profit, or to any political subdivision of the said
Government are exempt from donor’s tax.
Donation of a parcel of land to the Government
made by a Philippine corporation to be used as a
relocation site for the less fortunate exempt from
donor’s tax.
 Because it qualifies as a gift to or for the use of
any political subdivision of the National
Government.
 It may be considered as an undertaking for
human settlements, hence the value of the land
may be deductible in full from the gross income
of the donor if in accordance to a national
Priority Plan determined by the NEDA. If the
utilization is not in accordance to a NPP
determined by NEDA, then the domestic
corporation may deduct the value of the land
donated only to the extent of 5% of its taxable
income derived from trade or business as
computed without the benefit of the donation.
Requirements for exemption from donor’s tax of
donations to qualified-donee institutions (NGOs).
1. The donation must be made in favor or a
qualified-donee institutions duly accredited by
the Philippine Council for NGO Certification,
INC. which must be an educational, charitable,
religious, cultural or social welfare or research
institution;
2. The donor must be engaged in business or
engaged in the practice of profession;
3. The donor shall give a notice of donation on
every donation worth at least P50,000 to the
RDO which has jurisdiction over his place of
business within 30 days after receipt of the
qualified-donee institution’s duly issued
Certificate of Donation.
4. The certificate of donation shall be attached to
the said Notice of Donation, stating that not
more than 30% of the said donation/gifts for
the taxable year shall be used by such
accredited non-stock, non-profit
corporation/NGO institution (qualified-donee
institution) for administration purposes.
Donations to parish church exempt from donor’s tax.
 Religious organization, exempt provided that
not more than 30% of the said gifts shall be
used by such donee for administration
purposes.
Conditions in order that donations to nonstock
nonprofit educational institution may be exempt
from the donor’s tax.
1. Not more than 30% of said gifts shall be used by
such donee for administration purposes
2. The educational institution is incorporated as a
nonstock nonprofit entity, declaring no
dividends, governed by trustees who receive no
compensation, and devoting all its income,
whether students’ fees or gifts, donations,
subsidies or other forms of philanthropy, to the
accomplishment of the purposes enumerated in
its Articles of Incorporation.
3. The donation must be used actually, directly
and exclusively for educational purposes only.
4. The donee, being a nonstick nonprofit
educational institution, is a qualified entity to
receive an exempt donation subject to the
conditions prescribed by law.
Donation to an alumni association not exempt from
donor’s tax unless.
 Not exempt because it is not an educational or
research institution.
 If it can be proven that it is an accredited
nonstick nonprofit charitable association paying
no dividends, governed by trustees who receive
no compensation and devoting all its income to
the accomplishment and promotion of the
purposes enumerated in its articles of
incorporation, such as charitable, religious,
cultural or social welfare purposes, and not
more than 30% of the gift should be used for
administration purposes by the donee, then the
donation may qualify for exemption.
Gifts that are exempt from donor’s tax which are
extendible to both residents and nonresident aliens
of the Philippines.
1. Gifts made to or for the use of the National
Government or any entity created by any of its
agencies which is not conducted for profit, or to
any political subdivision of the said government
2. Gifts in favor or an educational and/or
charitable, religious, cultural or social welfare
corporation, institution, foundation, or trust or
philanthropic organization or research
institution or organization, provided, however,
that not more than 30% of said gifts shall be
used by such donee for administration
purposes.
Donations of a foreign corporation of its own shares
of stock to a resident employee in the Philippines is
not subject to donor’s tax.
 Foreign corporations effecting donation in the
Philippines is subject to donor’s tax only if the
property donated is located in the Philippines.
 If 85% of the business of the foreign corporation
is located in the Philippines, or the shares
donated have acquired business situs in the
Philippines, the donation may be taxed in the
Philippines subject to the rule on reciprocity.
Donor’s tax paid to a foreign country may be
credited against Philippine donor’s tax.
 The tax credit for donor’s tax pain in a foreign
country may be claimed only be a citizen and a
resident alien at the time of the donation.
 GR. The donor’s tax imposed by the Philippines
upon a donor who was a citizen or a resident of
the Philippines at the time of donation shall be
credited with the amount of any donor’s tax of
any character and description imposed by the
authority of a foreign country.
Limitation on Credit.
1. Per Country Basis. The amount of the credit
with respect to the tax paid to any country shall
not exceed the same proportion of the tax
against which such credit is taken, which the
gifts situated within such country taxable under
NIRC bears to his entire net gifts;
2. Overall basis. The total amount of the credit
shall not exceed the same proportion of the tax
against which such credit is taken, which the
donor’s net gifts situated outside the Philippines
taxable under the BIRC bears to his entire net
gifts.
Valuation of gifts made in property for purposes of
computing donor’s tax.
 If the gift is in the form of real property, the
value of the real property should be the higher
of 2 values as of the time of donation which are:
1. The fair market value as determined by the
CIR; or
2. The fair market value as shown in the
schedule of values fixed by the Provincial
and City Assessors.
 In case of improvements, the basis is
the fair market value as appearing in
the latest tax declaration at the time of
donation.
 If the gist is in the form of property other than
real property, then the amount of the gift s hall
be the fair market value thereof at the time of
the gift.
Person liable for the donor’s tax.
 Personal liability of the donor.
 The question as to who shall ay any given tax
and what shall be the basis thereof are
determined by law, the operation of which
cannot be affected by the provisions of a
contract to which the Government is not a
party.
Requirements for the filing and payment of donor’s  XPN. Considered by law as situated in the
tax. Philippines:
 Accomplish under oath a donor’s tax return in 1. Franchise which must be exercised in the
duplicate: Philippines;
1. Each gift made during the calendar year 2. Shares, obligations or bonds issued by any
which is to be included in computing net corporation or sociedad anonima organized
gifts; or constituted in the Philippines in
2. The deductions claimed and allowable accordance with its laws;
3. Any previous net gifts made during the 3. Shares, obligations or bonds issued by any
same calendar year foreign corporation 85% of the business is
4. The name of the donee located in the Philippines;
5. Relationship of the donor to the donee 4. Shares, obligations or bonds issued by any
6. Such further information as the foreign corporation of such shares,
Commissioner may require. obligations, or bonds have acquired a
business situs in the Philippines; and
Time and place of filing and payment of donor’s tax. 5. Shares or rights in any partnership, business
 File within 30 days after the date the gift is or industry established in the Philippines.
made or completed and the tax due thereon
shall be paid at the same time that the return is Properties Citizens and Nonresident
filed. resident aliens aliens
 File with the AAB, RDO or RCO or duly 1. Real property / /
authorized Treasurer of the city or municipality within
where the donor was domiciled at the same 2. Real property / X
time of the transfer, or if there be no legal without
residence in the Philippines, with the Office of 3. Tangible / /
the Commissioner. personal
 If made by nonresident alien, file with the within
Philippine embassy or Consulate in the country 4. Tangible / X
where he is domiciled at the time of the personal
transfer, or directly with the Office of without
Commissioner(RDO). 5. Intangible / / except
personal when
Situs of Intangible personal properties. within exempted on
 GR. The domicile or residence of the owner. the basis of
 XPN. reciprocity
1. When it is inconsistent with the express 6. Intangible / X
provisions of the law; or personal
2. Justice does not demand that it should be, without
as where the property has in fact a situs
elsewhere. When does reciprocity rule apply.
 Applies if the foreign country of which the
Intangible properties which are considered by law as nonresident alien decedent was a citizen and
situated in the Philippines. resident at the time of his death:
 GR. The intangible properties of a nonresident 1. Did not impose a transfer tax of any
alien at the time of his death or donation, as the character, in respect of intangible personal
case may be, transferred outside the Philippines property of Filipino citizens not residing in
shall not be considered as art of his gross estate that foreign country; or
or gross gift, hence, not subject to estate or 2. Allows similar exemption from transfer tax
donor’s tax. of every character or description in respect
 of intangible personal property owned by
Filipino citizens not residing in that foreign
country.
 There must be a total reciprocity, meaning both
countries must exempt nonresidents from
transfer taxes in respect of intangible personal
property.

Whether or not the reciprocity rule requires the

foreign country to possess international personality.
 Reciprocity in exemption does not require the
foreign country to possess international
personality in traditional sense, i.e. compliance
with the requisites of statehood.

Donation of shares of stock in a foreign company by

a nonresident alien to his son residing in the
Philippines not subject to donor’s tax.
 Because the donor is a nonresident alien and
the personal property donated is a property not
situated in the Philippines.
 The rule on reciprocity applies only if the
property is an intangible personal property
located in the Philippines.

Meaning of deficiency tax.

1. The amount by which the donor’s tax exceeds
the amount shown as the tax by the donor upon
his return; but the amount shown on the return
shall first be increased by the amount previously
assessed as deficiency, and decreased by the
amounts previously abated, refunded or
otherwise repaid in respect of such tax; or
2. If no amount is shown as the tax by the donor,
then the amount by which the donor’s tax
exceeds the amounts previously assessed as a
deficiency, but such amount previously
assessed, or collected without assessment, shall
first be decreased by the amount previously
abated, refunded or otherwise paid in respect
of such tax.
VALUE-ADDED TAX
Persons liable to VAT.
 Any person who, in the course of his trade or
business, sells, barters, exchanges, or leases
goods or properties, or renders services, and
any persons who imports goods.
When taxpayers should register as VAT taxpayers.
 Any person who, in the course of trade or
business, sells, barters, exchanges goods or
properties, or engages in the sale of services
subject to VAT shall register with the RDO and
ay an annual registration fee of P500 for every
separate or distinct establishment or place of
business before the state of the business or
every year thereafter on or before the 31st day
of January.
 If a person maintains a head or main office and
branches in different places, the registration fee
shall be paid to any accredited bank in the
Revenue District where the head office or
branch is registered provided that in areas
where there are no accredited banks, the same
shall be paid to the RDO, collection agent, or
duly authorized treasurer of the municipality
where each place of business or branch is
situated.
 Each VAT-registered person shall be assigned
only one TIN.
Mandatory VAT registration.
1. His gross sales or receipts for the past 12
months, other than those that are exempt, have
exceeded P1,919,500; or
2. There are reasonable grounds to believe that
those that are exempt will exceed P1,919,500.
 If a person fails to register, he shall be liable to
pay the output tax as if he were a VAT-
registered person, but without the benefit of
input tax credits for the period in which he was
not properly registered.
 Franchise grantees of radio and television
broadcasting, whose gross annual receipt for
the preceding taxable year exceeded P10M,
shall register within 30 days from the end of the
taxable year.
Optional VAT registration.
1. Any person who is exempt from VAT.
2. Any person who is VAT-registered but enters
into transactions which are exempt from VAT
may opt that the VAT apply to his transactions
which would have been exempt
3. Franchise grantees of radio and/or television
broadcasting whose annual gross receipts of the
preceding year does not exceed 10M. If it
chooses to register, it shall be irrevocable.
 Any person who elects to register under 1 and 2
shall not be allowed to cancel his registration
for the next 3 years.
 May register not later than 10 days before the
beginning of the taxable quarter.
 Once registered, the taxpayer shall be liable to
output tax and be entitled to input tax credit
beginning on the first day of the month
following registration.
Registration of Non-VAT or VAT-exempt taxpayer.
 Register, on or before the commencement of
his business, or whenever he transfers to
another revenue district, register with the RDO
concerned within 10 days from the
commencement of business or transfer.
 The fee shall be paid in any AAB, absence, RDO,
RCO or authorized municipal treasurer.
 Required to register as Non-VAT
1. VAT exempt persons who did not opt to
register as VAT taxpayers;
2. Individuals engaged in business where the
gross sales or receipts do not exceed P100K
during the 12-month period, but will not
pay registration fee.
3. Non-stock, non-profit organizations and
associations engaged in trade or business
whose gross sales or receipts do not exceed
P1,919,500 for any 12-month period or in
an amount as adjusted thereafter every 3
years;
4. Cooperatives other than electric
cooperatives, but not required to pay the
registration fee.
5. Radio and TV broadcasting whose gross
annual receipts do not exceed P10M and
which do not opt to be VAT registered
6. PEZA and other ecozone registered
enterprises enjoying the preferential tax
rate or 5% in lieu of all taxes;
 7. SBMA and other Freeport zone-registered
enterprises enjoying the preferential tax
rate of 5% in lieu of all taxes.
Application for registration.
 File with the RDO where the principal place of
business, branch, storage place or premises is
located before commencement of the business
or production or qualification as a withholding
agent.
 In the case of storage places, the application
shall be filed within 30 days from the date the
aforesaid premises have been used for storage.
 The Commissioner may deny or revoke any
application for registration.
Certificate of registration.
 Issued by the BIR office after compliance with
the requirements for registration.
Posting of registration Certificate.
 Post at a conspicuous place in his principal place
of business and at each branch in such a way
that it is clearly and easily visible to the public.
Nature and characteristics of the VAT.
1. It is a broad-based tax on consumption of
goods, properties or services in the Philippines.
There is vat on every stage of the taxable sales
of goods, properties or services either 0 to 12%
tax rates. It is imposed on each sale, barter,
exchange or lease of goods or business as they
pass along the production and distribution chain
and levied on every importation of goods,
whether or not in the course of trade or
business.
2. It is an indirect tax that may be shifted or
passed on by the seller to the buyer, transferee
or lessee of the goods, properties or services.
The seller is the one statutorily liable for the
payment of the tax but the amount of the tax
may be shifted or passed on the buyer,
transferee or lessee of the goods, properties or
services. In the case of importation, the
importer is the one liable for the VAT.
3. VAT is collected through the tax credit method.
An entity can credit or subtract from the VAT
charged on its sales or outputs the VAT paid on
its purchases, inputs and imports.
 If at the end of a taxable quarter, the output
taxes charged by a VAT registered seller are
equal to the input taxes passed on by the
suppliers, no payment is required.
 It is when the output taxes exceed the input
taxes that the excess has to be paid. If the input
taxes exceed the output taxes, the excess shall
be carried over to the succeeding quarter/s.
 Should the input taxes result from zero-rated or
effectively zero-rated transactions, any excess
over the output taxes shall instead be refunded
to the taxpayer.
4. VAT is not a cascading tax. If at the end of a
taxable quarter, the seller charges output taxes
equal to the input taxes that his suppliers
passed on to him, no payment is required of
him. It is when his output taxes exceed his input
taxes that he has to pay the excess. If the input
taxes exceed the output taxes, the excess
payment shall be carried over to the succeeding
quarter/s. Should the input taxes result from
zero-rated or effectively zero-rated transactions
or when the taxpayer would be cancelling his
VAT-registration, any excess input taxes over
the output taxes may instead be refunded to
the taxpayer. In other words, the tax does not
cascade because what had been subjected to
VAT before is not thereafter further subjected
to VAT. Hence, there is no tax pyramiding.
5. VAT is not a tax on tax. VAT on toll way
operations cannot be deemed a tax on tax due
to the nature of VAT as an indirect tax. In
indirect taxation, the seller who is liable for the
VAT may shift or pass on the amount of VAT it
paid on goods, properties or services to the
buyer. In such a case, what is transferred is not
the seller’s liability but merely the burden of the
VAT.
 VAT on toll way operations is not really
a tax on the toll way user, but on the
toll way operator. The seller of services,
who in this case is the toll way operator,
is the person liable for VAT.
 For this reason, VAT on toll way
operations cannot be a tax on tax even
if toll fees were deemed as a user’s tax.
VAT is assessed against the toll way
operator’s gross receipts and not
necessarily on the toll fees. The shifted
 VAT burden simply becomes part of the
toll fees that one has to pay in order to
use the toll ways.
6. VAT is a transparent form of sales tax because
the law requires that the tax be shown as a
separate item in the VAT sales invoice or VAT
official receipt.
7. VAT adheres to the cross border doctrine/
destination doctrine. Cross Border Doctrine, no
VAT shall be imposed to form part of the cost of
goods for consumption outside of the territorial
border of the taxing authority. Actual export of
goods and services from the Philippines to a
foreign country must be free of VAT; while
those destined for use or consumption within
the Philippines shall be imposed with 12% VAT.
 Destination principle, goods and services
are taxed only in the country where these
are consumed.
 Based on the cross border doctrine, PEZA-
registered enterprises are VAT-exempt and
no VAT can be passed on to them. They are
tax exempt, not because of the imposition
of the 5% preferential tax rate on gross
income but rather because of Ecozones are
foreign territory.
Impact and incidence of VAT.
 The impact of VAT is on the seller because it is
the one who is statutorily liable for the payment
of the tax, but in case of importation, the
importer is the one liable for the VAT.
 The incidence of the tax is on the final consumer
where the tax comes to rest. The amount of
VAT may be shifted of passed on to the buyer.
Meaning of the term in the course of trade or
business.
 Means the regular conduct or pursuit of a
commercial or economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person
engaged therein is a non-stock, non-profit
private organization or government entity.
 Nonresident persons who perform services in
the Philippines are deemed to be making sales
in the course of trade or business, even if the
performance of services is not regular.
Incidental transactions also subject to VAT.
 A transaction will be characterized as having
been entered into by a person in the course of
trade or business if it is:
1. Regularly conducted; and
2. Undertaken in pursuit of a commercial or
economic activity.
 Incidental to the pursuit of a commercial or
economic activity are considered as entered
into in the course of trade or business.
Incidental means something else as primary;
something necessary, appertaining thereto, or
depending upon another, which is termed the
principal.
 An isolated transaction is not necessarily
disqualified from being made incidentally in the
course of trade or business.
 Once activity has been identified as a business,
any supply made while carrying it on is likely to
be made in the course or furtherance of
business. No distinction is made between
capital and revenue items.
 A supply in the course or furtherance of
business includes:
1. The disposition of the assets and liabilities
of a business;
2. The disposition of a business as going
concern; and
3. Anything done in connection with the
termination or intended termination of a
business.
Even a non-stock non-profit organization or a
government entity engaged in the sale of goods or
services may be subject to VAT.
 VAT is a tax on transactions, imposed at every
stage of the distribution process on the sale,
barter, exchange of goods or property, and on
the performance of services, even in the
absence of profit attributable thereto.
 It is immaterial whether the primary purpose of
a corporation indicates that it receives
payments for services rendered to its affiliated
on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining
liability for VAT on services rendered.
 As long as the entity provides for a fee,
remuneration or consideration, then the service
rendered is subject to VAT.
Recreational clubs organized and operated
exclusively for pleasure, recreation, and other non-
profit purposes subject to VAT.
 The gross receipts of recreational clubs,
including but not limited to membership fees,
assessment dues, rental income, and service
fees are subject to VAT.
Sale of service by a nonresident foreign corporation
in the Philippines to one who is doing business in the
Philippines subject to VAT.
 When the provider nonresident foreign
corporation and recipient of services are both
doing business in the Philippines, subject to
regular VAT.
Subsidy subject to VAT.
 The court does not agree that the same subsidy
which had been subjected to income tax should
be subject to VAT. The said subsidy termed by
the CIR as reimbursement was not even
exclusively earmarked for Sony’s advertising
expense for it was but an assistance or aid in
view of Sony’s dire or adverse economic
conditions, and was only equivalent to the
latter’s advertising expenses.
 VAT may be imposed or exacted when there is a
sale, barter or exchange of goods or properties
before any VAT may be levied.
 SIS just gave assistance to Sony in the amount
equivalent to the latter’s advertising expense
but never received any goods, properties or
service from Sony.
 CIR vs. Sony Philippines, Inc.
VAT on sale of goods or properties.
 VAT is imposed and collected on every sale,
barter or exchange, or transactions deemed sale
of taxable goods or properties at the rate of
12% of the gross selling price or gross value in
money of the goods or properties sold,
bartered, or exchanged, or deemed sold in the
Philippines.
Sale of goods or properties which are subject to 12%
VAT.
 Requisites:
1. The seller must be VAT-registered, or even
if not, he/it is a VAT registrable person and
his/its gross annual sales exceeds
P1,919,500;
2. The goods or properties sold may either be
tangible or intangible objects which are
capable of pecuniary estimation;
3. The sale must be actual or constructive sale
or a transaction deemed sale;
4. The sale must be undertaken in the course
of trade or business;
5. The sale must be done in the Philippines;
6. The sale must be for use or consumption in
the Philippines;
7. The sale must not be considered as a zero-
rated sale; and
8. The sale must not be exempt from VAT
under the Tax Code, special law or
international agreement.
Meaning of the term goods or properties.
 Refer to all tangible and intangible objects
which are capable of pecuniary estimation and
shall include, among others:
1. Real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business;
2. The right or privilege to use patent,
copyright, design or model, plan, secret
formula or process, goodwill, trademark,
trade brand or other like property or right;
3. The right or the privilege to use any
industrial, commercial or scientific
equipment;
4. The right or privilege to use motion picture
films, films, tapes and discs; and
5. Television, radio, satellite transmission and
cable television time.
Statutory definition of the term goods or properties
in relation to the real properties held primarily for
sale to customers or held for lease in the ordinary
course of business for VAT purposes.
 Real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business.
 Goods refer to the product which the VAT-
registered person offers for sale to the public.
 With respect to real estate dealers, it is the real
properties themselves which constitute their
goods.
  RA 7716 clarifies that it is the real properties
held primarily for sale to customers or held for
lease in the ordinary course of trade or business
that are subject to the VAT, and not when the
real estate transactions are engaged in by
persons who do not sell or lease properties in
the ordinary course of trade or business.
Sale of real properties, when subject to VAT.
1. Sale of real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business of the seller.
2. Sale of residential lot with gross selling price
exceeding P1,919,500 and residential house and
lot or other residential dwelling with gross
selling price exceeding P3,919,200 whether the
instrument of sale is nominated as a deed of
absolute sale, deed of conditional sale or
otherwise.
 Includes sale, transfer or disposal within 12-
month period of two or more adjacent
residential lots, house and lots or other
residential dwellings in favor of one buyer from
the same seller, for the purpose of utilizing the
lots, house and lots or other residential dwelling
as one residential area wherein the aggregate
value of the adjacent properties exceeds
P1,919,500 for residential lots and P3,919,200
for residential house and lots or other
residential dwellings.
 Does not include the sale of parking lot which
may or may not include in the sale of
condominium units – subject to VAT regardless
of the amount.
3. Installment of real properties, as follows:
a. Installment sale of residential house and lot
or other residential dwellings with gross
selling price exceeding P1M where the
instrument of sale was executed prior to
November 1, 2005, shall be subject to 10%
output VAT.
b. The seller shall be subject to output VAT on
the installment payments received,
including the interests and penalties for late
payment. The buyer of the property can
claim the input tax in the same period as
the seller recognized the output tax.
 12% starting February 1, 2006.
c. In the case of sale of real properties on a
deferred basis not on the installment plan,
the transaction shall be treated as cash sale
which makes the entire selling price taxable
in the month of sale. Output tax shall be
recognized by the seller and input tax shall
accrue to the buyer at the time of the
execution of the instrument of sale.
Payment subsequent to initial payments
shall no longer be subjected to output VAT.
4. Pre-selling of real estate properties by real
estate dealers shall be subject to VAT.
5. Transmission of property to a trustee shall not
be subject to VAT if the property is to be merely
held in trust for the trustor and/or beneficiary.
However, if the property transferred is one for
sale, lease or use in the ordinary course of trade
or business and the transfer constitutes a
completed gift, the transfer is subject to VAT as
a deemed sale transaction.
 The transfer is a completed gift if the
transferor divests himself absolutely of
control over the property.
Meaning of the term Gross Selling Price.
 Means the total amount of money or its
equivalent which the purchaser pays or is
obligated to pay to the seller in consideration of
the sale, barter, or exchange of the goods or
properties, excluding VAT.
 The excise tax, if any, on such goods or
properties shall form part of the gross selling
price.
What constitutes gross selling price in the case of
sale, barter or exchange of real property for VAT
purposes.
 Shall mean the consideration stated in the sales
document or the fair market value, whichever is
higher.
 If the VAT is not billed separately in the
document of sale, the selling price or the
consideration stated therein shall be deemed to
be inclusive of VAT.
 The term fair market value shall mean
whichever is higher of:
1. The fair market value as determined by the
Commissioner (zonal value); or
 2. The fair market value as in schedule of
values of the Provincial and City Assessors.
 If the gross selling rice is based on the zonal
value or market value of the property, the zonal
or market value shall be deemed exclusive of
VAT.
 If the sale of real property is on installment plan
where the zonal value/fair market value is
higher than the consideration/selling rice,
exclusive of the VAT, the VAT shall be based on
the ratio of actual collection of the
consideration, exclusive of the VAT, against the
agreed consideration, exclusive of the VAT
appearing in the Contract to Sell/Contract of
Sale applied to the zonal value/fair market value
of the property at the time of the execution of
the Contract to Sell/Contract of Sale applied to
the zonal value/fair market value of the
property at the time of the execution of the
Contract.
 The input vat that can be availed by the buyer
shall be the separately-billed output VAT in the
sales document issued by the seller.
Zero-rated sales of goods or properties.
 A zero-rated of goods or properties is a taxable
transaction for VAT purposes, but shall not
result in any output tax.
 The input tax shall be available as tax credit or
refund.
Distinction between automatically zero-rated sale
and effectively zero-rated transactions.
 Although both are taxable and similar in effect,
they differ as to source.
 Automatically zero-rated transactions refer to
the actual export sale of goods and supply of
services. The tax rate is set at zero. When
applied to the tax base, such rate obviously
results in no tax chargeable against the
purchaser.
 Effectively zero-rated transactions refer to the
local sale of goods or supply of services to
persons or entities who were granted indirect
tax exemption.
Requirements for the effective zero-rating of sale
transactions.
 The taxpayer has to be VAT-registered and must
comply with invoicing requirements.
 The taxpayer’s failure to comply with invoicing
requirements will result in the disallowance of
his claim or refund. Nonetheless, this treatment
is without prejudice to the right of the taxpayer
to charge the input taxes to the appropriate
expense account or asset account subject to
depreciation, whichever is applicable.
Purpose of effective zero-rating.
 Zero-rating is not intended as a benefit to the
person legally liable to pay the tax, but to relieve
certain exempt entities from the burden of
indirect tax so as to encourage the development
of particular industries.
 Effective zero-rating was intended to relieve the
exempt entity from being burdened with the
indirect tax which is or which will be shifted to it
had there been no exemption.
Intention of the Legislature in granting tax relief such
as automatic zero-rating or effective zero-rating on
the sales of certain VAT registered enterprise.
 The legislative grant of tax relief constitutes a
sovereign commitment of Government to
taxpayers that the latter can avail themselves of
certain tax reliefs and incentives in the course of
their business activities here.
 Such a commitment is particularly to foreign
investors who have been enticed to invest heavily
in our country’s infrastructure, and who have
done so on the firm assurance that certain tax
reliefs and incentives can be availed of in order to
enable them to achieve their projected returns on
these very long-term and heavily funded
investment.
What are considered zero-rated export sales of
goods or properties under the Tax Code.
1. The sale and actual shipment of goods from
the Philippines to a foreign country,
irrespective of any shipping arrangement that
may be agreed upon which may influence or
determine the transfer of ownership of goods
so exported, paid for in acceptable foreign
currency or its equivalent in goods or services,
and accounted for in accordance with the
rules and regulations of the BSP;
 2. The sale of raw materials or packaging
materials to a nonresident buyer delivery to a
resident local export-oriented enterprise to
be used in manufacturing, processing, packing
or repacking in the Philippines of the said
buyer’s goods, paid for in acceptable foreign
currency, and accounted for in accordance
with the rules and regulations of the BSP;
3. The sale of raw materials or packaging
materials to an export-oriented enterprise
whose export sales exceed 70% of total
annual production.
Any enterprise whose export sales
exceed 70% of the total annual production of
the preceding taxable year shall be
considered an export-oriented enterprise.
4. Sale of gold to BSP;
5. Transactions considered export sales under
EO 226, Omnibus Investments Code of 1987,
and other special laws; and
6. The sale of goods, supplies, equipment and
fuel to persons engaged in international
shipping or international air transport
operation; Provided, that the same is limited
to goods, supplies, equipment and fuel
pertaining to or attributable to the transport
of goods and passengers from a port in the
Philippines directly to a foreign port, or vice
versa, without docking or stopping at any port
in the Philippines unless the docking or
stopping ay any other port in the Philippines is
for the purpose of unloading passengers
and/or cargoes that originated from abroad,
or to load passengers and/or cargoes bound
abroad; Provided, further, That if any portion
of such fuel, goods or supplies is used for the
purposes other than that mentioned, such
portion of fuels, goods or supplies shall be
subject to 12% output VAT effective February
1, 2006.
Meaning of the term export sales.
 Export sales or sales outside the Philippines are
subject to VAT at 0% rate if made by a VAT-
registered person.
 When applied to the tax base, the 0% rate
obviously results in no tax chargeable against the
purchaser.
 The seller of such transactions charges no output
tax, but can claim a refund or tax credit certificate
to the VAT previously charged by suppliers.
Rationale for the zero-rating of export sale of goods.
 Zero-rated transactions generally refer to the
export sale of goods. The tax rate in this case is
set at zero.
 When applied to the tax base or the selling price
of the goods sold, such zero rate results in no tax
chargeable against the purchaser, foreign buyer
or customer.
 Although the seller in such transaction charges no
output tax, said seller can claim a refund of the
VAT that his suppliers charged him.
 The seller thus enjoys automatic zero-rating,
which allows him to recover the input taxes he
paid relating to the export sales, making him
internationally competitive.
 A sale by a VAT-registered taxpayer of goods
taxed at 0% shall not result in any output VAT,
while the input VAT on its purchases of goods or
services related to such zero-rated sale shall be
available as tax credit or refund.
When a taxpayer is deemed to be engaged in the
sale and actual shipment of goods in the Philippines
to a foreign country.
 The taxpayer is considered engaged in export
sales (a zero-rated transaction) if made by a VAT-
registered entity.
When payments are considered made in acceptable
foreign currency or its equivalent in goods or
services, and accounted for in accordance with the
rules and regulations of the BSP.
 The certification of inward remittances attests to
the fact of payment.
Local sales of raw materials to export-oriented
enterprises.
 Sale of raw materials to export-oriented BOI-
registered enterprises whose export sales, under
rules and regulations of the BOI, exceed 70% of
total annual production, shall be subject to zero-
rate under the following conditions:
1. The seller shall file an application for zero-
rating for each and every separable year. The
 application should be accompanied with a
favorable recommendation from the BOI;
2. The raw materials sold are to be used
exclusively by the buyer in the manufacture,
processing or repacking of his own registered
export product;
3. The words “zero-rated rates” shall be
prominently indicated in the sales invoice.
Sales of gold to BSP considered as export sales.
 The BIR interpreted Section 106 of the NIRC in
relation to Section 2 of EO 581 which prescribed
that gold sold to the BSP shall be considered
export and therefore shall be subject to the
export and premium duties.
 The BIR also considered section 169 of the Central
Bank Circular No. 960 which states that all sales of
gold to the Central Bank are considered
constructive exports.
 It is only the sale of gold, not silver or other
metallic minerals which is considered export sale.
Duties and obligations of the taxpayer when buying
gold.
 Sales of metallic minerals to persons and entities
is subject to 12% VAT if the value thereof exceeds
the threshold set by the NIRC and existing
issuances.
Meaning of the term considered export under EO
226 and other special laws.
 The following sales are considered as export sales
under EO 226
1. Actual exports :
a. Considered export sales shall mean the
Philippine port FOB value, determined
from invoices, bills of lading, inward
letters of credit, landing certificates, and
other commercial documents, of export
products exported directly by a registered
export producer;
 FOB stands for free on board, wherein
the seller shall deliver and load the
goods at seller’s point at his expense or
free of charge to the buyer but the duty
to pay the freight charges from seller’s
point of view to the point of destination
is on the buyer.
b. The net selling price of export products
sold by a registered export producer to
another export producer, provided that
sales of export products to another
producer shall only be deemed export
sales when actually exported by the
latter. For purposes of VAT zero-rating,
such producer must be registered with
the BOI and is required to actually export
more than 70% of its total annual
production.
c. The net selling price of export products
sold by a registered export producer to an
export trader, Provided, That the sales of
export products to an export trader shall
only be deemed export sales when
actually exported by the latter, as
evidenced by landing certificated or
similar commercial documents. The
export sales of registered export traders
shall include commission income.
2. Constructive exports:
a. Sales to bonded manufacturing
warehouses of export-oriented
manufacturers;
b. Sales to export processing zones pursuant
to RA Nos. 7916, as amended, 7903, 7922
and other similar export processing zones.
Sales to processing zones are subject to
special tax treatment. Merchandise
purchased by a registered zone enterprise
from the customs territory and
subsequently brought into the zone, shall
be considered as export sales.
c. Sales to enterprises duly registered and
accredited with the SMBA pursuant to RA
7227;
d. Sales to registered export traders
operating bonded trading warehouses
supplying raw materials in the
manufacture of export products;
e. Sales to diplomatic missions and other
agencies and/or instrumentalities granted
tax immunities, of locally manufactured,
assembled or repacked products whether
paid for in foreign currency or not.
 Exportation of goods on consignment shall not be
deemed export sales until the export products
consigned are in fact sold by the consignee.
 Sales of goods or properties made by a VAT-
registered supplier to a BOI-registered
manufacturer/producer whose products are 100%
exported are considered export sales. As
certification to this effect must be issued by the
BOI which shall be good for one year unless
subsequently re-issued by the BOI.
Foreign currency denominated sale of goods.
 Means the sale to a nonresident of goods, except
automobiles and non-essential goods (jewelry,
perfume, yachts), assembled or manufactured in
the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the BSP.
 Sales of locally manufactured or assembled goods
for household and personal use paid for in
convertible foreign currency and accounted in
accordance with the rules and regulations of the
BSP shall also be considered export sales.
Sales to persons or entities deemed tax-exempt
under special law or international agreement.
 Ex. ADB, IRRI – effectively subject to VAT at zero-
rate.
 There should be a special law or an international
agreement which declared that the buyer is
exempt from VAT. Burden of proof: buyer.
 Rationale for the exemption: CIR vs. John
Gotamco & Sons, Inc. The manifest intention of
the agreement is to exempt the contractor so that
no contractor’s tax may be shifted to the
contractee.
Tax treatment of sales made by a VAT-registered
supplier from the Customs Territory to PEZA-
registered enterprise under the old rule and under
the new rule.
 If the buyer is a PEZA-registered enterprise which
is subject to 5% special tax regime, in lieu of all
taxes, except property tax, pursuant to RA 7916,
as amended:
a. Sale of goods – shall be treated as indirect
export, hence, considered subject to 0% VAT.
b. Sale of service – shall be treated subject to 0%
VAT under the cross border doctrine.
 If buyer is a PEZA registered enterprise which is
not embraced by the 5% special tax regime,
hence, subject to taxes under the NIRC:
a. Sale of goods – treated as indirect export,
hence, considered subject to 0% VAT.
b. Sale of service – treated as subject to 0% VAT
under the cross border doctrine.
 No output VAT may be passed on to an ecozone
enterprise since it is a vat-exempt entity.
Zero-rating of sale by a supplier from the Customs
Territory to a PEZA-registered enterprise was only
clearly established on October 15, 1999, upon the
issuance of RMC 74-99.
 CIR vs. Toshiba Information Equipment (Phils.)
 Prior to October 15, 1999, whether a PEZA-
registered enterprise was exempt or subject to
VAT depended upon the type of fiscal incentives
availed of by the said enterprise. 2 types of fiscal
incentives:
1. The 5% preferential tax rate on it gross
income; and
2. The income tax holiday.
Transactions-deemed sale.
1. Transfer, use or consumption not in the
course of business of goods or properties
originally intended for sale or for use in the
course of business. Transfers of goods or
properties not in the course of business can
take place when VAT-registered person
withdraws goods from his business for his
personal use;
2. Distribution or transfer to:
a. Shareholder or investors share in the
profits of VAT-registered person.
 Property dividends which constitute
stocks in trade or properties primarily
held for sale or lease declared out of
retained earnings on or after January
1, 1996 and distributed by the
company to its shareholders shall be
subject to VAT based on the zonal
value or fair market value at the time
of distribution, whichever is
applicable.
b. Creditors in payment of debt or
obligation.
 3. Consignment of goods if actual sale is not
made within 60 days following the date such
goods were consigned.
4. Retirement from or cessation of business with
respect to all goods on hand, whether capital
goods, stock-in-trade, supplies or materials as
of the date of such retirement or cessation,
whether or not the business is continued by
the new owner or successor. Also deemed
sale:
a. Change of ownership of business. There is
a change of ownership of the business
when a single proprietorship
incorporates; or the proprietor of a single
proprietorship sells his entire business.
b. Dissolution of a partnership and creation
of a new partnership which takes over the
business.
Sale of NPC during the testing period which is similar
to a mere cost recovery scheme considered as falling
within the contemplation of the term transaction
deemed sale.
 Not a commercial sale.
 The imposition of VAT does not limit the term sale
to commercial sales, rather it extends the term to
transactions that are deemed sale.
 PAL vs. CIR. When the term sale is made to
include certain transactions for the purpose of
imposing a tax, these same transactions should be
included in the term sale when considering the
availability of an exemption or tax benefit from
the same revenue measures. The fact that it was
not transferred thru a commercial sale or in the
normal course of business does not deflect from
the fact that such transaction is deemed as a sale
under the law.
Change or cessation of status as VAT-registered.
 Subject to VAT. The VAT shall apply to goods or
properties originally intended for sale or use in
business, and capital goods which are existing as
of the occurrence of the following:
1. Change of business activity from VAT taxable
status to exempt;
2. Approval of a request for cancellation of
registration due to reversion to exempt
status;
3. Approval of a request for cancellation of
registration due to a desire to revert exempt
status after the lapse of 3 consecutive years
from the time of registration by a person who
voluntarily registered despite being exempt;
4. Approval of a request for cancellation of
registration of one who commenced business
with the expectation of gross sales or receipts
exceeding P1,919,500 but who failed to
exceed this amount during the first 12
months.
 Not subject to VAT. Those goods or properties
which are originally intended for sale or for use in
the course of business existing as of the
occurrence of the following:
1. Change of control of a corporation by the
acquisition of the controlling interest of such
corporation by another stockholder or group
stockholders. However, the exchange of
goods or properties including the real estate
properties used in business or held for sale or
for lease by the transferor, for shares of
stocks, whether resulting in corporate control
or not, is subject to VAT.
2. Change in the trade or corporate name of the
business; and
3. Merger or consolidation of corporations. The
unused input tax of the dissolved corporation,
as of the date of merger or consolidation,
shall be absorbed by the surviving or new
corporation.
Allowable deductions from Gross Selling Price.
1. Discounts determined and granted at the time
of sale, which are expressly indicated in the
invoice, the amount thereof forms part of the
gross sales duly recorded in the books of
accounts.
2. Sales returns and allowance for which a
proper credit or refund as made during the
month or quarter to the buyer for sales
previously recorded as taxable sales.
Authority of the CIR to determine the appropriate
tax base in the case of transaction deemed sale.
 If the transaction is deemed sale, barter or
exchange, or where the gross selling price is
unreasonably lower than the actual market value.
 The gross selling rice is unreasonably lower than
the actual market value if it is lower by more than
30% of the actual market value of the same goods
of the same quality or quantity sold in immediate
locality on or nearest the date of sales.
 If one of the parties is the government, the output
VAT on the transaction shall be based on the
actual selling price.
 For transactions deemed sale, the output tax shall
be based on the market value of the goods
deemed sold as of the time of the occurrence of
the transaction.
 In the case of retirement or cessation of business,
the tax base shall be the acquisition cost or the
current maker price of the goods or properties,
whichever is lower.
 Where the gross selling price is unreasonably
lower than the fair market value, the actual
market value shall the tax base.
VALUE-ADDED TAX ON IMPORTATION OF GOODS.
 Importation begins when the carrying vessels or
aircraft enters in the jurisdiction of the Philippines
with the intention to unlade therein.
 Importation is deemed terminated upon payment
of duties, taxes and other charges due upon the
articles or secured to be paid, at a port of entry
and the legal permit for withdrawal shall have
been granted, or in case said articles are free of
duties, taxes and other charges, until they have
legally left eh jurisdiction.
General Rule on the imposition of VAT on
importation of goods.
 VAT is imposed on goods brought into the
Philippines, whether for use in business or not.
 Shall be based on the total value used by the BOC
in determining tariff, and other charges, such as
postage, commission, and similar charges, prior to
the release of the goods from customs custody.
 In case the valuation used by the BOC in
computing customs duties is based on the volume
or quantity of the imported goods, the landed
cost shall be the basis for computing VAT.
 Landed cost consists of the invoice amount,
custom duties, freight, insurance and other
charges.
 If the goods imported are subject to excise tax,
the excise tax shall form part of the tax base.
 Same rule applies to technical importation of
goods sold by a person located in a Special
Economic Zone to a customer located in a
customs territory.
Applicability and payment of VAT on importation.
 The VAT on importation shall be paid by the
importer prior to the release of such goods from
customs custody.
When customs duties and VAT on imported goods
paid; Bases of the tax; and Venue for payment of
VAT.
 If the motor vehicles are sold to the customs
territory, the duties and taxes must be paid first
before they are physically brought out of the SBFZ
because that will be considered as technical
importation.
 The tax base for the customs duties is the
transaction value while the tax base for VAT
purposes is the value used in computing custom
duties plus custom duties, excise taxes, and other
charges incident to importation.
 These customs duties and taxes on importation
must be paid first by the buyer to the Bureau of
Customs before an ATRIG will be issued to the
BIR.
 An importer refers to any person who brings
goods into the Philippines WON made in the
course of trade or business.
Concessionaires of PAGCOR, such as the Philippine
Casino Operators Corporation, not exempt from the
payment of VAT on importation.
 Commissioner of Customs vs. CTA. Not exempt on
importations of auto parts, elevators, escalators,
and other heavy equipment even if PAGCOR is an
exempt entity.
Sale, transfer or exchange of imported goods by tax-
exempt persons.
 If goods are subsequently sold, transferred or
exchanged in the Philippines to non-exempt
persons or entities, the latter shall be considered
the importers thereof and shall be liable for VAT
due on such importation.
 The tax due on such importation shall constitute a
lien on the goods, superior to all charges or liens,
irrespective of the possessor of said goods.
Subsequent sale of car by an alien employee of ADB
which was imported tax-free is subject to VAT when
sold to non-exempt person.
 The Tax Code provides that in the case of tax-free
importation of goods into the Philippines by
persons, entities or agencies exempt from tax
where such goods are subsequently sold,
transferred or exchanged in the Philippines to
non-exempt persons or entities, the purchasers,
transferees or recipients shall be considered the
importer thereof, who shall be liable for any
internal revenue tax on such importation and the
tax due on such importation shall constitute a lien
on the goods superior to all charges or liens on
goods, irrespective of the possessor thereof.
VAT-exempt importations.
 No VAT. They are specifically exempt under the
TAX Code.
Importations of motor vehicles to the SBFZ not
subject to customs duties and VAT.
 Subic Bay Freeport Zone
 Seagate Technology, Inc. vs. CIR. Exempt because
the SBFZ is considered as a foreign territory,
hence all motor vehicles imported by a duly
registered enterprise engaged in the importation
and sale of motor vehicles in the SMBA and while
still within the secured perimeter of SMBA is not
subject to Philippine taxes.
Tax treatment of all petroleum and petroleum
products imported and its subsequent exportation or
sales to Freeport and economic zone locators or
other persons/entities; Refund of taxes paid; ATRIG
and other administrative requirements.
 The VAT and excise taxes which are due on all
petroleum and petroleum products that are
imported and/or brought directly from abroad to
the Philippines, including Freeport and economic
zones, shall be paid by the importer thereof to the
BOC.
 The subsequent exportation or sale/delivery to
registered enterprises enjoying tax privileges
within the Freeport and Ecozones, as well as the
sale of said goods to persons engaged in
international shipping or international air
transport operations, shall be subject to 0% VAT.
 With respect to the VAT paid by the importer on
account of the 0% VAT transactions/entities and
the excise taxes paid on account of sales to
international carriers of Philippine or foreign
registry for use or consumption outside the
Philippines or exempt entities or agencies covered
by tax treaties, conventions and international
agreements for their use or consumption, as well
as entities which are by law exempt from indirect
taxes, the importer may file a claim for fund or
refund with the BOC, subject to the favorable
endorsement of the BIR.
 No claim for refund shall be granted unless it is
properly shown to the satisfaction of the BIR that
said petroleum or petroleum products have been
sold to a duly registered locator and have been
utilized in the registered activity/operator of the
locator, or that such have been sold and have
been used for international shipping or air
transport operations, or that the entities to which
the said goods were sold are statutorily zero-rated
for VAT, and/or exempt from excise taxes.
 If the said freeport/ecozone registered enterprise
shall subsequently sell/introduce the petroleum
or petroleum products, or part of the volume
thereof, into the customs territory, except sales of
fuel for use in international operations or another
Freeport/ecozone registered enterprise not
enjoying tax privileges, no refund for excise taxes
shall be granted to the importer for the product
sold.
 The possessor shall present sufficient evidence
that the excise tax thereon have been paid,
otherwise, the excise taxes due on said goods
shall be collected from him.
 In case of sale or introduction by a
Freeport/ecozone registered enterprise into the
customs territory or to a Freeport/ecozone
registered enterprise not enjoying 0% VAT rate,
the seller shall be liable for 12% VAT. In this
instance, no refund for VAT shall be allowed the
importer or an assessment for VAT shall be issued
to said importer, if the refund has already been
granted, and another assessment for VAT shall be
made against the seller.
 For every importation, the importer shall secure
from the prescribed ATRIG form the BIR’s excise
Tax Regulatory Board, and pay the VAT and excise
tax before the release of the products. In case of
 subsequent sale to customs territory by a
Freeport/ecozone-registered enterprise, the
importer shall secure the necessary withdrawal
certificate.
 For excise tax purposes, all importers of
petroleum and petroleum products shall secure a
permit to operate with the BIR’s ETRD.
VAT ON THE SALES OF SERVICES AND USE OR LEASE
OF PROPERTIES
 Subject to VAT, equivalent to 12% of the gross
receipts (excluding VAT).
Sale of services which are subject to 12% VAT.
 Requisites:
1. The seller must be a VAT-registered, or even if
not, he/it is a VAT-registerable person and
his/its gross annual receipts exceeds to
P1,919,500;
2. The sale must be performed in the course of
trade or business;
3. The sale of services must be for a valuable
consideration actually or constructively
received;
4. The sale must have been done and for use or
consumption in the Philippines;
5. The sale must not be considered as a zero-
rated sale;
6. The sale must not be exempt from VAT under
the tax Code, special law or international
agreement;
7. In the case of lease of properties, the
property being leased should be located in
the Philippines irrespective of the place where
the contract of lease or licensing agreement
was executed.
Meaning of gross receipts.
 Refer to the total amount of money or its
equivalent representing the contract price,
compensation, service fee, rental or royalty,
including the amount charged for materials
supplied with the services and deposits applied as
payment for services rendered and advance
payments actually or constructively received
during the taxable period for the services
performed or to be performed for another
person, excluding VAT, except those amounts
earmarked for payment to unrelated third party
or received as reimbursement for advance
payment on behalf of another which do not
redound to the benefit of the payor.
When constructive receipt occurs.
 It occurs when the money consideration or its
equivalent is placed at the control of the person
who rendered the service without restrictions by
the payor.
 Examples:
1. Deposit in banks which are made available to
the seller of services without restrictions;
2. Issuance by the debtor of a notice to offset
the debt or obligation and acceptance thereof
by the seller as payment for services
rendered; and
3. Transfer of the amount retained by the payor
to the account of the contractor.
Meaning of sale or exchange of services.
 Means the performance of all kinds of services in
the Philippines for others for fee, remuneration or
consideration, whether in kind or in cash,
including those performed or rendered by the
following:
1. Construction and service contractors;
2. Stock, real estate, commercial, customs and
immigration brokers;
3. Lessors of property, whether personal or real;
4. Persons engaged in warehousing services;
5. Lessors or distributors of cinematographic
films;
6. Persons engaged in milling processing,
manufacturing or repacking goods for others;
7. Proprietors, operators, or keepers of hotels,
motels, rest houses, pension houses, inns,
resorts, theaters, and movie houses;
8. Proprietors or operators of restaurants,
refreshment parlors, cafes and other eating
places, including clubs and caterers;
9. Dealers in securities;
10. Lending investors;
11. Transportation contractors on their transport
of goods or cargoes, including persons who
transport goods or cargoes for hire and other
domestic common carriers by land relative to
their transport of goods or cargoes;
12. Common carriers by air and sea relative to
their transport of passengers, goods or
 cargoes from one place in the Philippines to
another place in the place in the Philippines;
13. Sales of electricity by generation,
transmission, and/or distribution companies;
14. Franchise grantees of electric utilities,
telephone and telegraph, radio and/or
television broadcasting and all other franchise
grantees, except franchise grantees of radio
and/or television broadcasting whose annual
gross receipts of the preceding year do not
exceed 10M and franchise grantees of gas and
water utilities;
15. Non-life insurance companies (except their
crop insurance), including surety, fidelity,
indemnity and bonding companies; and
16. Similar services regardless of whether or not
the performance thereof calls for the exercise
or use of the physical or mental faculties.
 The phrase sale or exchange of services shall
likewise include:
1. The lease or the use of or the right or privilege
to use any copyright, patent, design or model,
plan, secret formula or process, goodwill,
trademark, trade brand or other like property
or right;
2. The lease or the use of, or the right to use any
industrial, commercial or scientific
equipment;
3. The supply of scientific, technical, industrial or
commercial knowledge or information;
4. The supply of any assistance that is ancillary
and subsidiary to and is furnished as a means
of enabling the application or enjoyment of
any such property;
5. The supply of services by a nonresident
person or his employee in connection with
the use of property or rights belonging to, or
the installation or operation of any brand,
machinery or other apparatus purchased from
such nonresident person;
6. The supply of technical advice, assistance or
services rendered in connection with
technical management or administration of
any scientific, industrial or commercial
undertaking, venture, project or scheme.
7. The lease of motion picture films, films, tapes
and discs; and
8. The lease or use of, or the right to use radio,
television, satellite transmission and cable
television time.
Special VAT rules on Selected services.
Services of contractors; salaries of security guards
form part of the gross receipts of the security
agency; rationale behind the imposition.
 The reason is the salaries of the security guards
are actually the liability of the agency and that
guards are considered their employees.
Tax treatment of payments for media advertising
placements.
 Advertising agencies, media suppliers and
advertisers comprise the tripartite institutional
structure of the advertising industry.
 Clients/advisers make income payments for
media advertisement contracts directly to the
advertising agency or directly to the media supply
for the total cost of the media advertisement,
inclusive of creative and media services,
advertising commission or service fees and VAT.
 In contracts for media advertisements, the media
supplier shall bill the client for the total cost of
production and media placement. The
client/advertiser shall pay the media supplier
directly for the amount billed by it.
1. On the income payment by client/advertiser
to the media supplier. The media supplier
shall bill the client/advertiser for the total
amount of media placement. Upon payment,
client/advertiser shall withhold 2% EWT on
the entire invoice amount. Client/advertiser
shall likewise issue certificate of CWT in the
name of the supplier.
2. On the gross receipts of the media supplier.
Upon the receipt of the income payment from
the advertiser, the media supplier shall issue
VAT invoice/official receipt to
client/advertiser and shall report the entire
amount as business income for income tax
purposes.
 Commission/service fee of advertising agency
relative to the media advertisement and
placement contracted.
1. On the payment of commission/service fee by
the media supplier to the advertising agency.
 The advertising agency shall bill the media
supplier for its commission/service fee. Upon
payment by the media supplier to the
advertising agency, it shall withhold 2% from
the commission/service fee of the advertising
agency. It shall likewise issue certificate of
CTW in the name of the advertising agency.
2. On the receipt of commission/service fee by
the advertising agency. The advertising
agency shall issue its VAT invoice/official
receipt to the media supplier for amount of
commission/service fee received. The amount
of VAT shall be reported based on the
commission/service fee of the advertising
agency.
Services rendered by brokers.
 Subject to VAT.
 A broker is one who is engaged for others on a
commission, to negotiate contract relative to a
property the custody of which he has no concern.
 The duty assumed by a broker is to bring the
minds of the buyer and the seller to an agreement
for a sale and the price and terms on which it is to
be made.
Lessors of properties, whether personal or real.
 Subject to VAT, regardless of the place where the
contract of lease or licensing agreement was
executed if the property leased or used is located
in the Philippines.
Treatment of advance payment in a lease contract.
 The advance payment of the lessee may be:
1. A loan to the lessor from the lessee;
2. An option in money for the property;
3. A security deposit to insure the faithful
performance of certain obligations of the
lessee to the lessor; or
4. Pre-paid rental.
 1, 2 and 3, advance payment is not subject to VAT.
 A security deposit that is applied to rental shall be
subject to VAT at the time of its application.
 If #4, such payment is taxable to the lessor in the
month when received, irrespective of the
accounting method employed by the lessor.
VAT on rental and/or royalties payable to
nonresident foreign corporations or owners.
 For the sale of services and use or lease of
properties in the Philippines shall be based on the
contract price agreed upon by the licensor and
the licensee.
 The licensee shall be responsible for the payment
of VAT on such rentals and/or royalties in behalf
of the nonresident corporation or owner.
Payments for software transactions subject to VAT.
 Payments for computer software transactions
subject to 12% VAT:
1. Royalty payments for the use of a copyright
over a software;
2. Payments made to
resellers/distributors/retailers who are
engaged in the trade or business of
distributing or selling software; and
3. Payments for services rendered in the
Philippines in connection with software
purchased.
 The payor in control of the VAT shall be
responsible for payment of the withholding of the
VAT on such fees on behalf of the nonresident
payee, by filing a separate VAT return for and on
behalf of such payee.
 The filed return and proof of payment thereof
shall serve as sufficient basis for the claim of input
tax to be applied against the output tax that may
be due the payor.
 The payor is also required to issue the certificate
of Final Tax withheld at source at quadruplicate
upon the request of the payee, the first three
copies thereof to be given to the payee and the
4th coy be retained to the payor as its file copy.
Warehousing subject to VAT.
 Means rendering personal services of a
warehouseman such as:
1. Engaging in the business of receiving or
storing goods of others for compensation or
profit;
2. Receiving goods and merchandise to be
stored in his warehouse for hire; or
3. Keeping and storing goods for others, as a
business and for use.
Lessors or distributors of cinematographic films; But
Legislature never intended to include
cinema/theater operators or proprietors in the
coverage of the VAT.
 Has always been considered a form of
entertainment subject to amusement tax.
 Only lessors or distributors of cinematographic
films are included in the coverage of VAT.
 None pertain to cinema/theater operators or
proprietors. This reveal the intent of the
legislative not to impose VAT on persons already
covered by the amusement tax.
 This holds true even under the LGC of 1991
precisely because the VAT laws was intended to
replace the percentage tax on certain services.
The mere fact that they are taxed by local
government unit and not by the national
government is immaterial.
 The transfer of the power to tax did not intend to
treat cinema/theater houses as a separate class.
 Amusement tax – 10%
Persons engaged in milling, processing,
manufacturing or repacking goods for others subject
to VAT.
 A miller, who is engaged in milling for others
(except palay into rice, corn into corn grits, and
sugarcane into raw sugar), is subject to VAT on
sale of services.
 If he is paid in cash, VAT shall be based on his
gross receipts for the month or quarter.
 If otherwise, VAT shall be based on the actual
market value of his shares of the milled product
(except rice, corn grits and raw sugar) shall be
subject to VAT.
Hotels and similar establishments.
 Proprietors, operators or keepers, motels, rest
houses, pension houses, inns, resorts and similar
establishments are subject to VAT.
Restaurants and similar establishments.
 Proprietors or operators of restaurants,
refreshment parlors, cafes and other eating
places, including clubs and caterers, and similar
establishments shall be subject to VAT.
Dealers in securities and lending investors.
 Subject to VAT on the basis of their gross receipts.
 For dealer in securities, the term gross receipts
shall mean gross selling price less cost of the
securities sold.
Whether a lending investor is the same as a lending
company.
 Lending investor – one who makes a practice of
lending money for themselves or others at
interest.
 A bank depositor is not a lending investor because
the opening and maintain a deposit in a bank
cannot be considered as a business.
 A lending company shall refer to a corporation
engaged in granting loans from its own capital
funds or from funds sourced from not more than
19 persons. Synonymous with lending inverstors.
 Not deemed to include banking institutions,
investment houses, savings, loan associations,
financing companies, pawnshops, insurance
companies, cooperatives and other credit
institutions already regulated by law.
Pawnshops not considered as lending investors.
 Reason: not enumerated as one of those engaged
in sale or exchange of services in section 108
 The nature of business of pawnshop does not fall
under service.
Transportation contractors on their transport of
goods or cargoes.
 Including persons who transport goods or cargoes
for hire and other domestic common carriers by
land relative to their transport of goods or
cargoes shall be subject to VAT.
 All receipts from service, hire or operating lease of
transportation equipment not subject to
percentage tax on domestic common carriers and
keepers of garage shall be subjected to VAT.
Transport of passengers of domestic common
carriers by land not subject to VAT.
 Common carriers by land with respect to their
gross receipts from the transport of passengers
including operators of taxicabs, utility cars for rent
or hire driven by the lessees and tourist buses
used for the transport of passengers shall be
subject to the percentage tax, but not to VAT.
 Common carriers by land engaged in the transport
of cargo shall be subject to VAT.
But transport of passengers of domestic common
carriers by air and sea subject to VAT.
 12% VAT on their gross receipts from their
transport of passengers, goods or cargoes from
one place in the Philippines to another place in
the Philippines.
 Foreign international carriers shall be subject to
3% international carriers tax.
 Domestic carriers with international flight shall be
subject to 0% VAT.
Tax implications of integrating the domestic
passenger service charge (DPSC) at the point of sale
of airline tickets.
 The DPSC shall be collected from passengers at
the time they purchase airline tickets from airline
companies or general sales agents/travel agents.
 In turn, the companies shall receive service fees
from MIAA as compensation for collecting the
DPSC on behalf of MIAA.
 The tax implications of the integration of the
DPSC:
1. Collection of DPSC from passengers. It will be
included in the OR to be issued by the airline
to the passenger. The share of the airport
authority is the DPSC should be shown in the
airline company’s OR as art of receipts subject
to VAT while the ASF should be reflected as
VAT exempt. The VAT component of the DPSC
should be included in the total VAT.
2. Payment of D PSC by airline company to
airport authority. The airport authority shall
issue an OR to the airline. The OR shall
indicate the full amount of the DPSC. The
DPSC shall not form part of the gross receipts
of the airport authority for purposes of
computing creditable withholding taxes.
3. Payment of service Fees by airport authority
to airline company. Governed by the rules on
government money payments and be
subjected to withholding VAT and the rate of
5% and EWT of 2% of gross payments.
 The entries to record payment/receipt of DSC and
entries to take up the receipt/payment of service
fees may be consolidated if the actual remittance
of DSPC by the airline company to the airport
authority is net of the service fees.
Taxes imposable eon domestic airline companies.
VAT on sale of electricity.
 Sale of electricity by generation, transmission and
distribution companies shall be subject to 12%
VAT on their gross receipts, Provided, that sale of
power or fuel generated through renewable
sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal,
ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen
shall be subjected to 0% VAT.
Meaning of gross receipts on sale of electricity.
 Refer to:
1. Total amount charged by generation
companies for the sale of electricity and
related ancillary services; and/or
2. Total amount charged by transmission
companies for transmission of electricity and
related ancillary services; and/or
3. Total amount charged by distribution
companies and electric cooperatives for
distribution and supply of electricity and
related electric service.
 The universal charge passed on and collected by
distribution companies and electric cooperatives
shall be excluded from the computation of the
Gross Receipts.
Tax treatment of the generation and other power
related charges, including the VAT thereon, which
are pass through charges of the Distribution
Companies and Electric Cooperatives.
 The generation companies, aggregators, market
operators, retail electricity suppliers, and other
suppliers of electricity shall bill the distribution
companies and electric cooperatives for the sale
and transmission of electricity and ancillary
services including the VAT thereon, if applicable.
 The VAT shall be remitted by the distribution
companies and electric cooperatives to the
generation companies, aggregators, market
operators, retail electricity suppliers and other
suppliers of electricity together with the payment
for generation and transmission services.
 All collections by generation companies,
aggregators, market operators, retail electricity
suppliers and other suppliers of electricity from
distribution companies and electric cooperatives
shall be deemed included in the VAT.
 The amount collected by the distribution
companies and electric cooperatives from the
end-user for such charges, including the VAT
thereon, shall not form part of the gross receipts
of the distribution companies and electric
cooperatives.
 The distribution companies and electric
cooperatives shall not claim an input tax on such
pass-through charges.
 The amount collected from the end-user as
payment for the generation and other VATable
charges including the VAT thereon shall form part
of the gross receipts and output VAT of the
generation company or transmission company,
accordingly.
 If the distribution company or the transmission
cooperatives pay in advance the generation fee to
the generation company, the amount paid shall
be inclusive of the corresponding VAT. The
amount advanced may be offset against the
amount collected from the end-user.
Tax Consequences of power sector assets and
liabilities management corporation (PSALM)
transactions.
 On the sale of the NPC generation Assets and
other real properties in view of the privatization:
1. No income and withholding taxes are due
from the sale of the NPC generation assets
and other real properties to winning bidders;
2. The sale of PSALM to NPC generation assets
and other real properties to winning bidders is
subject to VAT;
3. The sale of PSALM to NPC generation assets
and real properties is subject to DST;
4. The rental income of PSALM from the NPC
generation assets and other real properties
prior to its sale to winning bidders is subject
to income tax and VAT.
 On the operation of generation facilities:
1. Income tax and withholding tax
 PSALM is not one of the exempt GOCCs
under the law.
 The operation of PSALM of the NC assets
transferred to it is not its principal
purpose but not only incidental to its
mandate to privatize the generating
plants of the NPC in order to avoid a
massive interruption in the supply of
electricity. In this regard, any income
derived therefrom is subject income tax.
2. VAT
 Since the sale of the electricity and sale of
service by PSALM are deemed made in
the course of its business, the same is
subject to VAT.
 However, sale of power generated though
renewable sources of energy is subject to
VAT at 0%.
3. Miscellaneous activities.
 Such as performance bonds, interest
income from persons other than the
winning bidders, and from other activities
not related with its mandate are subject
to all applicable taxes under the TAX
Code.
Services of franchise grantees subject to VAT;
Services which are not subject to VAT.
1. Services of franchise grantees of telephone
and telegraph, radio and/or television
broadcasting, toll road operations and all
other franchise grantees, except gas and
water utilities, shall be subject to the 12%
VAT, in lieu of franchise tax.
2. However, franchise grantees of radio and/or
television broadcasting whose annual gross
receipts of the receding year do not exceed
P10M shall not be subject to VAT, but to the
3% franchise tax, subject to optional
registration. If the option is exercised, said
option is irrevocable.
3. Franchise grantees of gas and water utilities
shall be subject to 2% franchise tax on their
gross receipts derived from the business
covered by the law granting the franchise.
4. Gross receipts of all other franchises,
regardless of how their franchises may have
been granted, shall be subject to 12% VAT.
5. Franchise grantees of telephone and
telegraph shall be subject to VAT on their
gross receipts derived from their telephone,
telegraph, telewriter exchange, wireless and
other communication equipment services.
6. Amounts received by Telephone and
telegraph companies for overseas dispatch,
message or conversation originating from the
 Philippines are subject to percentage tax, but
exempt from VAT.
PAGCOR is still exempt from VAT despite the
enactment of RA 9337; Provision subjecting PAGCOR
to VAT under RR-16-2005 is invalid for being contrary
to RA 9337.
 Nowhere in RA 9337 is it provided that PAGCOR
can be subjected to VAT. RA 9337 is clear only as
to the removal of PAGCOR’s exemption from the
payment of corporate income tax.
 PAGCOR is exempt from VAT because PACGOR’s
charter, PD 1869, is a special law that grants it
exemption from taxes.
VAT exemption of PAGCOR extends to Acesite.
 CIR vs. Acesite. Acesite was the owner and
operator of the Holiday Inn Manila Pavilion Hotel.
It leased a portion of the hotel’s premises to
PAGCOR. While it was proper not to pay the VAT
charged by Acesite, the latter is not liable for
payment of it as it is exempt in this particular
transaction by operation of law to pay the indirect
tax.
VAT replaced the national franchise tax, but did not
prohibit nor abolish the imposition of local franchise
tax by cities or municipalities.
 The power of tax by LGUs emanates from Section
5, Article X of the Constitution which empowers
them to create their own sources of revenues and
to levy taxes, fees and charges subject to such
guidelines and limitations as to the Congress may
provide. VAT inures to the benefit of the national
government, while a local franchise tax is a
revenue of the LGU.
Meaning of “In Lieu of All Taxes” clause in a
legislative franchise.
 The in lieu of all taxes clause in a legislative
franchise should categorically state that the
exemption applies both to local and national
taxes; otherwise the exemption claimed should be
strictly construed against the taxpayer and
liberally in favor of the taxing authority.
Non-life insurance companies subject to VAT.
 Non-life insurance companies, except their crop
insurances, including surety, fidelity, indemnity
and bonding companies are subject to VAT.
 They are not liable to payment of premium tax.
Tax base of VAT on non-life insurance companies.
 The gross receipts – the total premiums collected,
whether paid in money, notes, credits or any
substitute for money.
 The gross receipts does not include:
1. Premiums refunded within 6 months after
payment on account of rejection of risk or
returned for other reason to the person
insured;
2. Premiums on reinsurance of a company that
has already paid the tax;
3. Premiums on account of any reinsurance, if
the risk insured against covers property
located outside the Philippines;
4. DST and local taxes passed on by the
insurance company to the insured; and
5. VAT passed on to the insured.
 Premiums received from a health and accident
insurance contract underwritten by the non-life
insurance companies, inasmuch as the same
partakes the nature of a life insurance policy, is
subject to the premium tax.
Non-life reinsurance premiums not subject to VAT.
 Non-life insurance premiums are subject to VAT
whereas non-life reinsurance premiums are not
subject to VAT, the latter being already subjected
to VAT upon receipt of the insurance premiums.
 Insurance or reinsurance commissions, whether
life or non-life, are subject to VAT.
Basis of VAT in the case of pre-need companies.
 Pre-need companies are corporations registered
with the SEC and authorized/licensed to sell or
offer for sale re-need plans, whether single plan
or multi-plan.
 They are engaged in business as seller of services
providing services to plan holders by managing
the funds provided by them and making payments
at the time of need or maturity of the contract.
 As service providers, the compensation for their
services is the premium or payment received from
the plan holder.
Zero-rated sale of services.
 In general, a zero-rated sale of service by a VAT-
registered person is a taxable transaction for VAT
purposes, but shall not result in output tax.
However, the input tax on purchases of goods,
properties or services related to such zero-rated
sale shall be available as tax credit or refund.
the use or lease of properties that is not such to
VAT (output tax) and the seller is not allowed any
tax credit of VAT (input tax) on purchases.
 The person making the exempt sale of goods,
properties or services shall not bill any output to
his customers because the said transaction is not
subject to VAT.

Meaning of the term “Effectively Zero-rated sale of Agricultural and marine food products in their
services”. original state exempt from VAT.
 Refer to the local sale of services by a VAT
registered person to a person or entity who was
granted indirect tax exemption under special laws
or international agreement.

Essential conditions for the zero-rating of sale of

services.
1. The processing, manufacturing or repacking goods
must be performed in the Philippines;
2. The recipient of said services is another person
doing business outside the Philippines;
3. The goods which were processed, manufactured
or repacked are subsequently exported; and
4. The services rendered are aid for in acceptable
foreign currency and accounted for in accordance
with the rules and regulations of the BSP.

Distinction between VAT-exempt transaction and

VAT-exempt party/entity.
 The object of exemption from the VAT may either
be the transaction itself or any of the parties to
the transaction.
 An exemption transaction involves goods or
services, which, by their nature, are specifically
listed in and expressly exempted from the VAT
under the Tax Code, without regard to the tax
status – VAT-exempt or not – of the party to the
transaction. Such transaction is not subject to
VAT, but the seller is not allowed to any tax
refund or tax credit for any input taxes paid.
 An exempt party is a person or entity granted VAT
exemption under the Tax Code, a Special Law or
an international agreement. Such party is not
subject to VAT, nut may be allowed a tax refund
or credit for input taxes paid.

VAT-exempt Transactions.
 The term VAT-exempt transactions refers to the
sale of goods or properties and/or services and
When senior citizen may be subject to VAT.
 If he is self-employed or engaged in business or
practice of profession, and his gross annual sales
and/or receipts exceeds P1,919,500 or such
amount to which he may be adjusted pursuant to
the Tax Code, his gross sales/receipts derived
from such business or practice of profession shall
be subject to VAT.
 Otherwise, he shall be subject to the percentage
tax.
VAT-exempt transactions of cooperatives.
1. Sales by agricultural cooperatives duly registered
and in good standing with the CDA
a. To their members;
b. Sale of their produce, whether in its original
state or processed form to non-members;
 Exempted from VAT if the producer of
the agricultural products sold is the
cooperative itself.
 If the cooperative is not the producer,
only the sales to its members shall be
exempt.
c. Their importation of direct farm inputs,
machineries and equipment, including spare
parts thereof, to be used directly and
exclusively in the production and/or
processing of their produce.
 The sale or importation of agricultural
products in their original state is
exempt from VAT irrespective of the
seller and buyer thereof.
2. Gross receipts from lending activities by credit or
multi-purpose cooperatives duly registered and in
good standing with the CDA.
3. Sales and non-agricultural, non-electric and non-
credit cooperatives duly registered with and in
good standing with the CDA; Provided, That the
share capital contribution of each member does
not exceed P15K and regardless of the aggregate
capital and net surplus ratably distributed among
the members.
 Importation by non-agricultural, non-electric and
non-credit cooperatives of machineries and
equipment, including spare parts thereof, to be
used by them are subject to VAT.
 A cooperative is not exempt from the VAT passed
on to it by it VAT-registered supplier. The VAT
passed on to it by the said seller is not a tax on
the part of the cooperative but just part of the
cost of the goods that it buys from its suppliers.
Export sales which are exempt from VAT.
 Export sales of non-VAT registered taxpayers are
exempt from VAT.
 Export sales of VAT registered taxpayers are
considered zero-rated.
Real property transactions which are exempt from
VAT.
1. Sale of real properties primarily held for sale to
customers or held for lease in the ordinary course
of trade or business.
 However, if such are used in the trade
or business of the seller, the sale
thereof shall be subject to VAT being
a transaction incidental tot eh
taxpayer’s main business.
2. Sale of real properties utilized for low-cost
housing as defined by RA 7279, Urban
Development and Housing Act of 1992, and other
related laws, such as RA 7835 (Comprehensive
and Integrated Shelter Financing Act of 1994) and
RA 8763 (Home Guaranty Corporation Act of
2000.
3. Sale of real properties utilized for socialized
housing wherein the price ceiling per unit is
P400,000 or as may be from time to time be
determined by the HUDCC or the NEDA and other
related laws.
4. Sale of residential lot valued at P1,919,500 and
below, or house and lot and other residential
dwellings valued at P3,919,200 and below.
5. If two or more adjacent residential lots, house and
lots or other residential dwellings are sold or
disposed in favor of one buyer, from the same
seller, for the purpose of utilizing the lots, house
and lots or other residential dwellings as one
residential area, the sale shall be exempt from
VAT only if the aggregate value of the said
properties do not exceed P1,919,500 for
residential lots, and P3,919,200 for residential
house and lots or other residential dwellings.
 Does not include the sale of parking
lot which may or may not be included
in the sale of condominium units.
6. Lease of residential units with a monthly rental
per unit not exceeding P12,800 regardless of the
 amount of aggregate rentals received by the
lessor during the year.
7. Lease of residential units where the monthly
rental per unit exceeds P12,800 but the aggregate
of such rentals of the lessor during the year do
not exceed P1,919,500.
 Exempt from VAT but subject to 3%
percentage tax.
8. In a case where a lessor has several residential
units for lease, some are leased out for a monthly
rental per unit of not exceeding P12,800 while
others are leased out for more than P12,800 per
unit, his tax liability will be:
a. The gross receipts of rentals not exceeding
P12,800 per month per unit shall be exempt
from VAT regardless of the aggregate annual
gross receipts;
b. The gross receipts from rentals exceeding
P12,800 per month per unit shall be subject to
VAT if the aggregate annual gross receipts
from said units only exceeds P1,919,500.
 Otherwise, the gross receipts shall be
subjected to 3% percentage tax.
9. Transfer of real property to a trustee if the
property is to be held merely in trust for the
trustor.
10. Advance payment of the lessee in a lease
contracts, when the same is actually a loan tot eh
lessor from the lessee;
11. Security deposits for lease arrangements to insure
the faithful performance of certain obligations of
the lessee to the lessor.
Sale, importation, printing, or publication of books,
newspapers, magazines, reviews or bulletins.
 Conditions for exemption:
1. A newspaper, magazine, review or bulletin
must be:
a. Printed or published at regular intervals;
b. Available for subscription and sale at fixed
price; and
c. Are not principally devoted to the
publication of paid advertisement.
2. The terms book, newspaper, magazine,
review and bulletin shall refer to printed
materials in hard copies.
Transport of passengers by international carriers.
 International air carriers and international
shipping carriers doing business in the Philippines
which are subject to the 3% percentage tax on
their quarterly gross receipts.
Sale or importation of vessels and aircrafts, including
engine, equipment and spare parts for domestic or
international transport operations.
1. The exemption from Vat on the importation and
local purchase of passenger and/or cargo vessels
shall be limited to those of 150 tons and above,
including engine and spare parts of the said
vessels; Provided, That the vessels be imported
shall comply with the age limit requirement, at
the time of acquisition counted from the date of
the vessel’s original commissioning, as follows:
a. For passenger and/or cargo vessels, the age
limit is 15 years old;
b. For tankers, the age limit is 10 years;
c. For high-speed passenger craft, the gage limit
is 5 years.
 Exemption shall be subject to the
provisions of Section 4 of RA 9295, The
Domestic Shipping Development Act of
2004.
2. Importation of life-saving equipment, safety and
rescue equipment and communication and
navigational safety equipment, steel plates and
other metal plates including marine-grade
aluminum plates, used for shipping transport
operations.
 Exemption shall be subject to RA9295,
The Domestic Shipping Development Act
of 2004.
3. Importation of capital equipment, machinery,
spare parts, life-saving and navigational
equipment, steel plates and other metal plates
including marine-grade aluminum plates to be
used in the construction, repair, renovation or
alteration of any merchant marine vessel
operated or to be operated in the domestic trade.
 Exemption shall be subject to RA9295,
The Domestic Shipping Development Act
of 2004.
4. Importation of fuel, goods and supplies by
persons engaged in international shipping or air
transport operations.
 Provided such shall be used exclusively or
shall pertain to the transport of goods
 and/or passenger from a port in the
Philippines directly to a foreign port, or
vice versa, without docking or stopping at
any other port in the Philippines unless
the docking or stopping at any other
Philippine port is for the purpose of
unloading passengers and/or cargoes that
originated from abroad, or to load
passengers and/or cargoes bound for
abroad.
 If any portion of such is used for purposes
other than that mentioned, such portion
shall be subject to 12% VAT.

Ho to determine the VAT threshold of P1,919,500 in

the case of husband and wife for purposes of the
VAT exemption.
 The husband and the wife shall be considered as
separate taxpayers.
 The aggregation rule for each taxpayer shall apply.
 If the husband, aside from the practice of
profession, also derives revenue from other lines
of business which are otherwise subject to VAT,
the same shall be combined for purposes of
determining whether the threshold has been
exceeded.
 The VAT-exempt sales shall not be included.
 If the revenue aggregates to exceeding
P1,919,500 in one year, then he will be subject to
VAT. Otherwise, he will be subject to 3%
percentage tax.

How a VAT-registered taxpayer may elect that its

VAT-exempt transactions be subject to VAT; Effect
when election is made.
 A VAT-registered person may elect that its VAT
exempt transactions shall not apply to his sales of
goods or properties or services.
 Once the election to be covered by the VAT is
made, the previously exempt sale shall be subject
to VAT and the same shall be irrevocable for 3
years counted from the quarter when the election
was made, except for the franchise grantees of
radio and TV broadcasting whose annual gross
receipts for the preceding year do not exceed
P10M, wherein in case of exercise of such option,
the said option becomes perpetually irrevocable.
MIDTERM COVERAGE
Input Tax.
 Means the VAT due on or paid by a VAT-
registered person on importation of goods,
properties or services, including lease or use of
properties, in the course of trade or business.
 It includes the transitional input tax and the
presumptive input tax.
 It includes input taxes which are directly
attributed to transactions subject to the VAT plus
a ratable portion of any input tax which cannot be
directly attributed to either the taxable or exempt
activity.
Sources of credible input taxes.
 Any input tax on the ff transactions evidenced by
a VAT invoice or official receipt issued by a VAT-
registered person shall be creditable against the
output tax:
1. Purchase or importation of goods;
a. For sale;
b. For conversation into or intended to form
part of a finished product for sale,
including packaging materials;
c. For use as supplies in the course of
business;
d. For use as raw materials supplied in the
sale of services; or
e. For use in trade or business for which
deduction for depreciation or
amortization is allowed under the Tax
Code;
2. Purchase of real properties for which a VAT
has actually been paid;
3. Purchase of services in which a VAT has
actually been paid;
4. Transactions deemed sale;
5. Transitional input tax;
6. Presumptive input tax;
7. Transitional input tax credits allowed.
Persons who can avail of the input tax credit.
 The input tax credit on importation of goods or
local purchases of goods, properties or services by
a VAT-registered person shall be creditable:
1. To the importer upon payment of VAT prior to
the release of goods from customs custody,
provided that claim for input taxes on capital
goods shall be subject to certain conditions as
provided for by law;
2. To the purchaser of the domestic foods or
properties upon consummation of the sale,
also subject to the conditions provided above;
3. To the purchaser of services or the lessee or
licensee upon payment of the compensation,
rental, royalty or fee.
Claim for input tax on depreciable capital goods.
 Where a VAT-registered person purchases or
imports capital goods, which are depreciable
assets for income tax purposes, the aggregate
acquisition cost of which (exclusive of VAT) in a
calendar month exceeds P1M, regardless of the
acquisition cost of each capital goods, shall be
claimed as credit against output tax in the ff
manner:
a. If the estimated useful life of a capital good is
5 years or more. The input tax shall be spread
evenly over a period of 60 months and the
claim for input tax credit will commence in
the calendar month when the capital goods
are acquired. The total input taxes on
purchases or importation of this type of
capital goods shall be divided by 60 and the
quotient will be the amount to be claimed
monthly.
b. If the estimated useful life of a capital food is
less than 5 years. The input tax shall be spread
evenly on a monthly basis by dividing the
input tax by the actual number of months
comprising the estimated useful life of the
capital goods. The claim for input tax credit
shall commence in the calendar month that
the capital goods were acquired.
 Where the aggregate acquisition cost (exclusive of
VAT) of the existing or finished depreciable capital
goods purchased or imported during any calendar
month does not exceed P1M, the total input taxes
will be allowable as credit against output tax in
the month of acquisition.
What are considered as capital goods.
 Capital goods or properties refer to goods or
properties with estimated useful life greater than
one year and which are treated as depreciable
assets, used directly or indirectly in the
production or sale of taxable goods or services.
 For domestic goods and services to be considered
as capital goods or properties, 3 requisites must
concur:
1. Useful life of goods or properties must exceed
1 year;
2. Said goods or properties are treated as
depreciable assets;
3. Foods or properties must be used directly or
indirectly in the production or sale of taxable
goods and services.
Illustration of how to amortize input taxes on capital
goods.
 The aggregate acquisition cost of a depreciable
asset in any calendar month refers to the total
price, excluding the VAT, agreed upon for one or
more assets acquired and not on the payments
actually made during the calendar month. Thus,
an asset acquired on installment for an acquisition
cost of more than P1M, excluding the VAT, will be
subject to amortization of input tax despite the
fact that the monthly payments/installments may
not exceed P1M.
Purchases recorded under inventory accounts,
instead of depreciable accounts, cannot be
considered as capital goods.
 The goods or services must be recorded and
treated as depreciable assets.
 A general ledger is a record or a business entity’s
accounts which make up its financial statements.
Information contained in a general ledger is
gathered from source documents such as account
vouchers, purchase orders and sales invoices. In
case of variance between the source document
and the general ledger, the former is preferred.
 The purchasers are not qualified as capital goods
if they are held as inventory items and not
charged to any depreciable asset account.
Disallowance of input taxes on purchase of non-
depreciable vehicles.
 GR. It cannot be presumed that the purchase of a
vehicle is a purchase of a property used in
business.
 Guidelines to determine whether depreciation
expense can be claimed or not on account of
vehicles capitalized by tax payer, or in claiming
other expenses and input taxes on account of said
vehicle:
1. No deduction from gross income for
depreciation shall be allowed unless
substantiated with sufficient evidence, such
as official receipts or other adequate records
containing:
a. Specific motor vehicle identification
number, chassis number, or other
registrable identification numbers of the
vehicles;
b. The total rice of the specific vehicle
subject to depreciation; and
c. The direct connection or relation of the
vehicle to the development,
management, operation, and/or conduct
of the trade or business or profession of
the taxpayer.
2. Only one vehicle for and transportation is
allowed for the use of an official or employee,
the value of which should not exceed
P2,400,000;
3. No depreciation shall be allowed to yachts,
helicopters, airplanes and/or crafts and land
vehicles which exceed the above threshold
amount, unless the taxpayer’s main line
business is transport operations or lease of
transportation equipment and the vehicles
purchased are used in said operations;
4. All maintenance expenses on account of non-
depreciable vehicles for taxation purposes are
disallowed in its entirety;
5. The input taxes on the purchase of non-
depreciable vehicles and all input taxes on
maintenance expenses incurred thereon are
likewise disallowed for taxation purposes.
How to claim input tax in the case of construction in
progress.
 Construction in progress is considered for
purposes of claiming input tax, as a purchase of
service, the value of which shall be determined
based on the progress billings.
 Until such time the construction has been
completed, it will not qualify as capital goods, in
which case, input tax credit on such transaction
can be recognized in the month the payment was
made; Provided, That an official receipt of
 payment has been issued based on the progress
billing.
 In case of contract of sale of services where only
the labor will be supplied by the contractor and
the materials will be purchased by the contractee
from other suppliers, input tax credit on the labor
contracted shall still be recognized on the month
the payment was made based on a progress
billings while input tax on the purchase of
materials shall be recognized at the time the
materials were purchased.
 Once the input tax has already been claimed while
the construction is still in progress, no additional
input tax can be claimed upon completion of the
asset when it has been reclassified as a
depreciable capital asset and depreciated.
Apportionment of input tax on mixed transaction.
 A VAT-registered person who is also engaged in
transactions not subject to VAT shall be allowed
to recognize input tax on credit on transactions
subject to VAT as follows:
1. All the input taxes that can be directly
attributed to transactions subject to VAT may
be recognized for input tax credit; Provided,
That input taxes that can be directly
attributable to VAT taxable sales of goods and
services to the Government or any of it
political subdivisions, instrumentalities or
agencies, including GOCCs shall not be
credited against output taxes arising from
sales to non-Government entities.
 Claims for VAT refund or Tax Credit
Certificate with the BIR, BOI and one-
stop-shop and Duty Drawback Venter of
the DOF should be deducted from the
allowable input tax that are attributable
to zero-rated sales.
2. If any input tax cannot be directly attributed
to either a VAT taxable or VAT exempt
transaction, the input tax shall be prorated to
the VAT taxable and VAT-exempt transactions
and only the ratable portion pertaining to the
transactions subject to VAT may be
recognized for input tax credit.
 The input attributable to VAT-exempt sales shall
not be allowed as credit against the output tax
but should be treated as part of cost or expense.
 For persons engaged in both zero-rated sales and
non-zero rated sales, the aggregate input taxes
shall be allocated ratably between the zero-rated
sale and the non-zero rated sale.
VAT payable (excess output tax) or excess input tax.
 If at the end of any taxable quarter, the output tax
exceeds the input tax, the excess shall be paid by
the VAT-registered person.
 If the input tax inclusive of the input tax carried
over from the previous quarter exceeds the
output tax, the excess input tax shall be carried
over to the succeeding quarter or quarters;
Provided, however, That any input tax
attributable to zero-rated sales by a VAT-
registered person may at his option be refunded
or applied for a tax credit certificate which may be
used in the payment of internal revenue taxes,
subject to the limitations as may be provided for
by the law, as well as, other implementing rules.
Determination of the output tax and VAT payable
and computation of VAT payable or excess tax
credits.
 In a sale of goods or properties, the output tax is
computed by multiplying the gross selling rice by
the regular rate of VAT.
 For sellers of services, the output tax is computed
by multiplying the gross receipts by the regular
rate of VAT.
 If the amount of VAT is erroneously billed in the
invoice, the total invoice amount shall be
presumed to be comprised of the gross selling
price/gross receipts plus the correct amount of
VAT. Hence, the output tax shall be computed by
multiplying the total invoice amount by a fraction
using the rate of VAT as numerator and 100% plus
rate of VAT as denominator. Accordingly, the
input tax that can be claimed by the buyer shall
be the corrected amount of VAT computed in
accordance with the formula herein prescribed.
 There shall be allowed as a deduction from the
output tax the amount of input tax deductible to
arrive at VAT payable on the monthly VAT
declaration and the quarterly VAT returns.
Determination of input tax creditable during a
taxable month or quarter.
 Add all creditable input taxes arising from the
transactions during the month or quarter plus any
amount of input tax carried-over from the
preceding month or quarter, reduced by the
amount of claim for VAT refund or tax credit
certificate and other adjustments.
 Once proved that the taxpayer used the
purchased capital goods in both VAT taxable and
non-VAT taxable business, the proportional
allocation of tax credits stated in the law
necessarily applies.
 In VAT-exempt sales, the taxpayer/seller shall not
bill any output tax on his sales to his customers
and, corollary, is not allowed any credit or refund
in the input taxes he paid on his purchases.
Substantiation of input tax credits for purposes of
claiming creditable input taxes.
 For the importation of goods – import entry or
other equivalent document showing actual
payment of VAT on the imported goods.
 For the domestic purchase of goods and
properties – Invoice
 For the purchase of real property – public
instrument of the deed together with VAT invoice
issued by the seller.
 For the purchase of services – official receipt.
 Transitional input tax shall be supported by an
inventory of goods as shown in a detailed list to
be submitted to the BIR.
 Input tax on deemed sale transactions shall be
substantiated with invoice.
 Input taxes from payments made to nonresidents
shall be supported by a copy of the Monthly
Remittance Return of VAT Withheld filed by the
resident payor in behalf of the nonresident
evidencing the remittance of VAT due which was
withheld by the payor.
 Advance VAT on sugar shall be supported by the
Payment Order showing payment of the advance
VAT.
Taxpayer cannot claim input taxes without any
supporting VAT invoice or official receipt.
 It is the only means by which the CTA may
ascertain and verify the truth of the refund claim.
How to determine the validity of taxpayer’s claim of
unutilized input VAT.
 Invoice would suffice.
 Sales invoice are recognized commercial
documents to facilitate trade or credit
transactions. They are proofs that a business
transaction has been concluded, hence, should
not be considered bereft of probative value.
Transitional input tax credits on beginning
inventories.
 Taxpayers who became VAT-registered persons
upon exceeding the minimum turnover of
P1,919,500 in any 12-month period, or who
voluntarily register as VAT taxpayer even if their
turnover does not exceed P1,919,500 (except
franchise grantees for radio and television
broadcasting whose threshold is P10M) shall be
entitled to a transitional input tax on the
inventory on hand as of the effectivity of their
VAT registration on the following:
1. Goods purchased for resale in their present
condition;
2. Materials purchased for further processing,
but which have not yet undergone processing;
3. Goods which have been manufactured by the
taxpayer;
4. Goods in process for sale; or
5. Goods and supplies for use in the course of
the taxpayer’s trade or business as a VAT-
registered person.
 The transitional input tax shall be 2% of the value
of the beginning inventory on hand or actual VAT
paid on such goods, materials and supplies,
whichever is higher, which amount shall be
creditable against the output tax of VAT-
registered person.
 The value allowed for income tax purposes on
inventories shall be the basis for the computation
of the 2% transitional input tax, excluding the
goods that are exempt from VAT.
Meaning of the term transitional in the term
transitional input taxes.
 There is hardly any constricted definition of
transitional that will limit its possible meaning to
the shift from sales tax regime to the VAT regime.
 It could also allude to the transition one
undergoes from not being a VAT-registered
person to becoming a VAT-registered person.
 It could also occur when one decides to start
business.
 Transitional input tax credits become available
either to a person who becomes liable to VAT or
any person who elects to be VAT-registered.
Who may claim presumptive input tax credits.
 Persons or firms engaged in the processing of
sardines, mackerel, and milk, and in
manufacturing refined sugar, cooking oil and
packed noodle-based instant meals, shall be
allowed a presumptive input tax, creditable
against the output tax, equivalent to 4% of the
gross value in money of their purchases of
primary agricultural products which are used as
inputs to their production.
 The term processing shall mean pasteurization,
canning and activities which through physical or
chemical process alter the exterior texture or
form or inner substance of a product in such
manner as to prepare it for special use to which it
could not have been put in its original form or
condition.
Distinguish presumptive input tax from the
transitional input tax credit.
 As with the transitional input tax credit, the
presumptive input tax credit is creditable against
the output VAT.
 EO 273. Presumptive input tax credit is one of the
transitory measures in the shift from sales taxes
to VAT.
 Presumptive input tax is highly limited in
application as it may be claimed only by persons
or firms engaged in the processing of sardines,
mackerel and mild and in manufacturing refined
sugar and cooking oil; and public works
contractors.
Tax Refund, How construed.
 Tax refunds, in relation to the VAT, are in nature
of exemptions.
 Taxes are the lifeblood of the nation. Therefore,
statutes that allow exemptions are construed
strictly against the grantee and liberally in favor of
the government.
Rationale for the refund of taxes.
 A taxpayer is entitled to a refund either by
authority of a statute expressly granting such
right, privilege, or incentive in his favor, or under
the principle of solution indebiti requiring the
return of taxes erroneously or illegally collected.
 The monetary amounts which are currently in the
hands of the government must rightfully be
returned to the taxpayer.
Invoice-based method of determining tax refund.
 We adopt the tax credit method.
 Under the present method that relies on invoices,
an entity can credit against or subtract from the
VAT charged on it sales or outputs the VAT paid
on its purchases, inputs and imports.
 Should the input taxes result from zero-rated or
effectively zero-rated transactions, any excess
over the output taxes shall instead be refunded to
the taxpayer or be issued a tax credit certificate
which can be used to pay VAT and other internal
revenue taxes.
Proper party to claim VAT refund.
 Ecozone registered enterprise in not the proper
party for VAT refund passed on to it by its supplier
of raw materials whose sale is a zero-rated sale.
Rather, the proper party is the supplier. The buyer
is not the taxpayer in so far as the passed-on tax is
concerned and therefore, it cannot claim for a
refund of a tax merely shifted to it.
 For indirect taxes like VAT, the proper party to
question or seek a refund of the tax is the
statutory taxpayer/seller or the payor, not the
end consumer.
 Only taxpayers are allowed to claim for refund.
Instances when a taxpayer may claim for refund or
Tax Credit of excess input taxes.
1. Zero-rated and effectively zero-rated sales of
goods, properties or services.
 The input tax may be subject of the claim
shall exclude the portion of input tax that
has been applied against the output tax.
The application should be filed within 2
years after the close of the taxable
quarter when such sales were made.
 The payments must have been made in
acceptable foreign currency duly
 accounted for in accordance with the BSP
rules and regulations.
 Only the proportionate share of input
taxes allocated to zero-rated or effectively
zero-rated sales can be claimed for refund
or issuance of a tax credit certificate.
 In the case of a person engaged in the
transport of passenger and cargo by air or
sea vessels from the Philippines to a
foreign country, the input taxes shall be
allocated ratably between the zero-rated
sales to non-zero-rated sales.
2. Cancellation of VAT registration.
 Due to retirement from or cessation of
business, or due to changes in or
cessation of status may, within 2 years
from the date of cancellation, apply for
the issuance of a tax credit certificate for
any unused input tax which he may use in
payment of his other internal revenue
taxes; Provided, That he will be entitled to
a refund if he has no internal revenue
liabilities against which the tax credit
certificate may be utilized.
Criteria governing claims for VAT refund of unutilized
input taxes attributable to zero-rated or effectively
zero-rated sales.
1. The one applying for refund must be the seller,
who must be VAT-registered;
2. The taxpayer is engaged in sales which are zero-
rated or effectively zero-rated;
3. The input taxes are due or paid;
4. The input taxes are not transitional input taxes;
5. The input taxes have not been applied against
output taxes during and in the succeeding
quarters;
6. The input taxes claimed are attributable to zero-
rated or effectively zero-rated sales;
7. For zero-rated sales, the acceptable foreign
currency exchange proceeds have been duly
accounted for in accordance with BSP rules and
regulations;
8. Where there are both zero-rated or effectively
zero-rated sales and taxable or exempt sales, and
the input taxes cannot be directly or entirely
attributable to any of these sales, the input taxes
shall be proportionately allocated on the basis of
sales volume;
9. The claim is filed within 2 years after the close of
the taxable quarter when such sales were made;
and
10. The ff documents, among other, must be
presented:
a. Sales invoice or receipts with the words zero-
rated imprinted on it;
b. Purchase invoices or receipts from another
VAT-registered taxpayer;
c. Evidence of actual receipt of goods;
d. BOI statement showing the amount and
description of sale of goods, etc.;
e. Original or attested copies of the invoice or
receipt on capital equipment locally
purchases; and
f. Photocopy of import entry document and
confirmation receipt on imported capital
equipment.
VAT registration indispensable to VAT refund; Not
application for effective zero rating.
 Other than the general registration of a taxpayer
the VAT status of which is aptly determined, no
provision under out VAT law requires an
additional application to made for such taxpayer’s
transactions to be considered effectively zero-
rated.
 The application may be denied.
 A VAT-registered status, as well as compliance
with the invoicing requirements, is sufficient for
the effective zero rating of the transactions of a
taxpayer.
Taxpayer’s failure to indicate on its invoices the “BIR
Authority to Print” not a ground for the denial of
claim for refund.
 It is not one of the items required on the invoices
or receipts. Required to be reflected on the
invoice:
1. Name, tin and address of the seller;
2. Date of transaction
3. Quantity, unit cost and description of
merchandise or nature of service;
4. Name, tin, business style, if any, and address
of the VAT-registered purchaser, customer or
client;
5. The word zero-rated imprinted on the invoice
covering zero-rated sales; and
6. The invoice value or consideration.
For purposes of VAT refund, taxpayer should prove
that its sales invoices state on its face that its sale
are zero-rated.
 Panasonic vs. CIR. The appearance of the word
zero-rated on the face of the invoices covering
zero-rated sales prevents buyers from falsely
claiming input VAT from their purchases when no
VAT is actually paid. Absent such word, the
government may be refunding taxes it did not
collect.
Rationale for the rule.
 Zero-rated transactions generally refer to the
export sale of goods and services. The tax rate in
this case is set at zero. When applied to the tax
base or the selling price of goods or services sold,
such zero rate results in no tax chargeable against
the foreign buyer or customer. But, although the
seller in such transactions charges no output tax,
he can claim a refund of the VAT that his suppliers
charged him. the seller thus enjoys automatic
zero rating which allows him to recover the input
taxes he paid relating to the export sales, making
him internationally competitive.
But in another case, the failure of the taxpayer to
indicate its zero-rated sales in its VAT returns and in
its official receipts is not sufficient reason to deny its
claim for tax credit or refund when there are other
documents from which the court can determine the
veracity of the taxpayer’s claim.
 Only a preponderance of evidence is needed to
grant a claim for tax refund based one excess
payment.
 Southern Philippines Power Corp. vs. CIR
Whether input taxes derived when the project was
still under construction and when no commercial
sale has yet been made may be refunded.
 The NIRC does not limit the term “sale” in the
imposition of VAT to commercial sales alone,
rather it extends to the term transactions that the
deemed sale.
 The transaction is deemed as a sale.
Sales invoices are recognized in the commercial
world as valid between the parties and serve as
memorials of their business transactions.
 Such documents have probative value.
Cancellation of VAT registration.
A. He makes written application and can
demonstrate to the CIR satisfaction that his
gross sales or receipts for the following 12
months, other than those that are exempt,
will not exceed P1,919,500; or
B. He has ceased to carry on his trade or
business, and does not expect to recommence
any trade or business within the next 12
months.
 Other instances:
1. A change of ownership, in the case of a single
proprietorship;
2. Dissolution of a partnership or corporation;
3. Merger or consolidation with respect to the
dissolved corporation(s);
4. A person who has registered prior to planned
business commencement, but failed to
actually start his business.
 Instances when the taxpayer will update his
registration:
1. A person’s business has become exempt;
2. A change in the nature of the business itself
from sale of taxable goods and/or services to
exempt sales and/or services;
3. A person whose transactions are exempt from
VAT who voluntarily registered under VAT
system, who after the lapse of 3 years after
his registration, applies for cancellation of his
registration as such; and
4. A VAT-registered person whose gross sales or
receipts for the 3 consecutive years did not
exceed P1,919,500.
Period when a VAT-registered taxpayer apply for
issuance of tax credit when the VAT registration has
been cancelled.
 Within 2 years from the date of cancellation.
ADMINISTRATIVE CLAIM FOR VAT REFUND/TAX
CREDIT CERTIFICATE
How to file and administrative claim for refund of
excess input taxes with the CIR.
 File an administrative claim with the CIR or his
duly authorized representative for the issuance of
a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales to
the extent that such input tax has not been
 applied against output tax refund within 2 years
after the close of the taxable quarter when the
sales were made; and
 In case of full or partial denial of the claim for tax
refund or tax credit, or the failure on the part of
the CIR to act on the application within 120 days
from the date of submission of complete
documents in support of the application filed, the
taxpayer affected may, within 30 days from the
receipt of the decision denying the claim or after
the expiration of the 120-day period, appeal the
decision or the unacted claim with the CTA and to
the SC, if necessary
Where to file the administrative claim for VAT
refund.
 Appropriate BIR office (Large taxpayers Service or
RDO) having jurisdiction over the principal place
of business of the taxpayer.
 Direct exporters may file their claim with the One
Stop Shop Center of the DOF.
 The filing of the claim with one office shall
preclude the filing of the same with another.
Requirements for application for administrative
claims for VAT refund or Tax Credit Certificate.
 Sufficient evidence that the sale were actually
made and resulted in refundable or creditable
input VAT in the amount being claimed.
Whether or not the excess creditable input VAT can
be considered as erroneous payment that could be
claimed as a refund that could be claimed as a
refund under Section 229.
 Section 112 is the pertinent provision for the
refund/credit of input VAT. Thus, the 2 year
period should be reckoned from the close of the
taxable quarter when the sales were made.
Reckoning of the 2-year prescriptive period for
purposes of the administrative claim for refund of
input tax in the case of zero-rated or effectively zero-
rated sales.
 Unutilized input VAT payments not otherwise
used for any internal revenue tax due to the
taxpayer must be claimed within 2 years reckoned
from the close of the taxable quarter when the
relevant sales were made pertaining to the input
VAT regardless of whether said tax was paid or
not.
 Prescriptive period commences from the close of
the taxable quarter when the sales were made
and not from the time the input VAT was paid nor
from the time the official receipt was issued.
Reckoning of the 2-year prescriptive period for
purposes of claiming tax refund under Sections 204
(c) and 229 not applicable to claim of VAT refund.
 The said provisions are inapplicable for the
purpose of application for refund/credit of input
taxes in cases of zero-rated or effectively zero-
rated sales.
 The two-year period should be reckoned from the
date of payment of the tax or penalty.
 Both provisions apply only to instances of
erroneous payment or illegal collection of internal
revenue taxes.
 Atlas Consolidated vs. CIR. The very same reasons
concerning the two-year prescriptive period for
claims for refund of illegally or erroneously
collected income tax may also apply to the
petitions involving the same prescriptive period
for claims for refund/credit of input VAT on zero-
rated sales.
Administrative Code of 1987 governs computation of
the legal periods.
 As between the Civil Code, which provides that a
year is equivalent to 365 days, and the
Administrative Code of 1987, which states that a
year is composed of 12 calendar months, it is the
latter that must prevail following the legal maxim,
Lex posteriori derogate priori.
Meaning of the phrase “within 2 years apply for the
issuance of a tax credit certificate or refund.
 A taxpayer has to wait for the decision of the CIR
or the lapse of the 120-day period before he could
file his judicial claim with the CTA because non-
observance of the 120-day period id fatal to the
filing of a judicial claim.
 It means application for refund/credit filed with
the CIR and not appeals made to the CTA.
Requirement in order that the application for VAT
refund or tax credit may be approved.
 The VAT-registered taxpayer must be able to
establish that it does not have refundable or
creditable input VAT, and the same has not been
applied against its output VAT liabilities –
information which are supposed to be reflected in
the taxpayer’s VAT returns.
 Thus, an application for refund/credit must be
accompanied by copies of the taxpayer’s VAT
return/s for the taxable quarter/s concerned.
Franchise grantees cannot claim refund of the
franchise tax they paid prior to the implementation
of the VAT on franchise grantees.
 CIR vs. Phil. Global Communications. To grant
refund of franchise tax it paid prior to the
effectivity and implementation of the VAT would
create a vacuum and thereby deprive the
government from collecting either the VAT or the
franchise tax.
JUDICIAL CLAIM FOR VAT REFUND/CREDIT
Requirements for the grant of judicial claim for VAT
refund or credit.
 No refund of input VAT shall be allowed unless
the VAT-registered taxpayer filed an application
for refund with the CIR within the two-year
prescriptive period.
Rules governing the presentation of voluminous
documents and/or long accounts.
 CTA Circular No. 1-95, as amended.
 Compania Maritima vs. Allied Free Workers
Union.
1. The party who desires to introduce as
evidence such voluminous documents must,
after motion and approval by the court,
present:
a. A summary containing, among others, a
chronological listing of the numbers,
dates and amounts covered by the
invoices or receipts and the amount/s of
tax paid; and
b. A certification of an independent CPA
attesting to the correctness of the
contents of the summary after making an
examination, evaluation and audit of the
voluminous receipt and invoices. The
name of the accountant should be named
in the motion so that he may be
commissioned by the court.
Certification of an independent CPA not sufficient to
prove the correctness of the Summary of Suppliers’
Invoices or Receipts for purposes of the claim for
VAT refund.
 There is nothing in the CTA Circular No. 1-95, as
amended by CTA Circular No. 10-97, which either
expressly or impliedly suggests that summaries
and schedules of input VAT payments, even if
certified by an independent CPA, suffice the
evidence of input VAT payments.
 The circular, in the interest of speedy
administration of justice, was promulgated to
avoid the time-consuming procedure of
presenting, identifying and marking of documents
before the Court. It does not relieve the taxpayer
of its imperative task of pre-marking photocopies
of sales receipts and invoices and submitting the
same to the court after the independent CPA shall
have examined and compared them with the
originals.
 Without presenting these pre-marked documents
as evidence, the court cannot verify the
authenticity and veracity of the independent
auditor’s conclusions.
Summaries and schedules of input VAT payments not
sufficient proofs for the grant of judicial claims for
VAT refund.
 For a judicial claim for refund to prosper, the
taxpayer must not only prove that it is a VAT-
registered entity and that it filed its claims within
the prescriptive period. It must substantiate the
input VAT paid by purchase or official receipts.
Input taxes not formally offered as evidence cannot
be the source of a tax refund.
 Where the pertinent invoices or receipts
purportedly evidencing the VAT paid by the
taxpayer were not submitted, the courts a quo
evidently could not determine the veracity of the
input VAT such taxpayer has paid.
Taxpayer has the burden of proof in proving his claim
in actions involving claims for refund of taxes
assessed and collected.
 He should be able to present the following
documents:
1. Sales invoices or receipts;
2. Purchase invoices or receipts;
3. Evidence of actual receipt of goods;
4. BOI statement showing the amount and
description of sale of goods, etc.;
5. Original or attested copies of invoice receipt
on capital equipment locally purchased; and
6. Photocopy of import entry document and
confirmation receipt on imported capital
equipment.
When the SC may re-examine the facts and evidence
offered by the parties in case of claim for refund or
credit or creditable input taxes.
 Where the judgment is premised on a
misapprehension of facts, or when the appellate
court failed to notice certain relevant facts which
if considered would justify a different conclusion.
CHAPTER II – COMPLIANCE REQUIREMENTS
Invoicing requirement for VAT-registered taxpayers,
in General.
 A VAT-registered person shall issue:
1. A VAT invoice for every sale, barter or
exchange of goods or properties; and
2. A VAT official receipt for every lease of goods
or properties, and for every sale, barter,
exchange of services.
 Only VAT-registered persons are required to print
their TIN followed by the word VAT in their
invoice or official receipts. Said documents shall
be considered as a VAT invoice or VAT official
receipts. All purchases covered by
invoices/receipts other than VAT invoice/VAT
official receipts shall not give rise to any input tax.
 Should be prepared at least in duplicate.
Distinction between an invoice and a receipt.
 A VAT invoice is necessary for every sale, barter or
exchange of goods or properties, while a VAT
official receipt properly pertains to every lease of
goods or properties, and for every sale, barter or
exchange of services.
Information contained in VAT invoice or VAT official
receipt.
1. A statement that the seller is a VAT-registered
person, followed by his TIN;
2. The total amount which the purchaser pays or is
obligated to pay to the seller with the indication
that such amount includes the VAT; Provided,
That:
a. The amount of tax shall be shown as a
separate item in the invoice or receipt;
b. If the sale is exempt from VAT, the term VAT-
exempt sale shall be written or printed
prominently on the invoice or receipt;
c. If the sale is subject to 0% VAT, the term zero-
rated sale shall be written or printed
prominently on the invoice or receipt;
d. If the sale involves goods, properties or
services some of which are subject to and
some of which are VAT-zero-rated or VAT-
exempt, the invoice or receipt shall clearly
indicate the breakdown of the sale price
between its taxable, exempt and zero-rated
components, and the calculation of the VAT
on each portion of the sale shall be shown on
the invoice or receipt. The seller has the
option to issue separate invoices or receipts
for the taxable, exempt and zero-rated
components of the sale.
3. In case of sales in the amount of P1,000 or more
where the sale or transfer is made to a VAT-
registered person, the name, business style, if
any, address and TIN of the purchaser, customer
or client, shall be indicated in addition to the
information required in 1 and 2.
Invoicing and recording requirements for “Deemed
Sale Transactions”.
 A memorandum entry in the subsidiary sales
journal to record withdrawal of goods for
personal use is required.
 The total amount of deemed sale shall be
included in the return to be filed for the month or
quarter.
 The invoice need not enumerate the specific
items appearing in the inventory, but is must
show the total amount.
Accounting requirements for VAT-registered
taxpayers.
 All persons subject to VAT shall, in addition to the
regular accounting records required, maintain a
 subsidiary sales journal and subsidiary purchase
journal on which every sale or purchase on any
given day is recorded.
 The subsidiary journal shall contain such
information as may be required by the CIR.
 A subsidiary record in ledger form shall be
maintained for the acquisition, purchase or
importation of depreciable assets or capital goods
which shall contain, among others, information on
the total input tax thereon as well as the monthly
input tax claimed in VAT declaration or return.
Issuance of a VAT sales invoice or VAT official receipt
by a non-VAT person.
 If a person who is not VAT-registered issues an
invoice or receipt showing his TIN, followed by the
word VAT, the erroneous issuance shall result in:
1. The non-VAT person shall be liable to:
a. Percentage taxes applicable to his
transactions;
b. VAT due on the transactions, without the
benefit of any input tax credit; and
c. A 50% surcharge.
2. Vat shall be recognized as an input tax credit
to the purchaser.
Issuance of a VAT invoice or VAT official receipt on
an exempt transaction by a VAT-registered person.
 But fails to display prominently on the invoice or
receipt the words “VAT-exempt sale”, the
transaction shall become taxable and the issuer
shall be liable to pay VAT thereon. The purchaser
shall be entitled to claim an input tax credit on his
purchase.
Rules on the filing of VAT returns, in general.
 Every person liable to pay VAT shall file a
quarterly return of the amount of his quarterly
gross sales or receipts within 25 days following
the close of taxable quarter.
 The term taxable quarter shall mean the quarter
that is synchronized to the income tax quarter of
the taxpayer.
 Amounts reflected in the monthly VAT
declarations for the first 2 months of the quarter
shall still be included in the quarterly VAT return
which reflects the cumulative figures for the
taxable quarter.
 Payments in the monthly VAT declarations shall,
however, be credited in the quarterly VAT return
to arrive at the net VAT payable or excess input
tax/over-payment as of the end of the quarter.
Rules on the filing of VAT returns under the EFPS.
 For purposes of filing returns under the Electronic
Filing and Payment System, the taxpayers
classified under certain specific business
industries shall be required file a monthly VAT
declarations on staggered basis.
 The return for withholding of VAT shall be filed on
or before the 10th day of the following month,
which is likewise the due date for the payment of
this type of withholding tax.
 The electronic return shall be filed on or before
10pm.
Transactions which allow the advance payment of
VAT.
1. Transport of naturally grown and planted timber
products;
2. Sale of refined sugar;
3. Sale of flour;
4. Sale of jewelry, gold and other metallic minerals
to nonresident alien individuals not engaged in
trade or business within the Philippines or to
nonresident foreign corporations.
When a short period VAT return required to be filed.
 Any person who retires from business or whose
VAT registration has been cancelled shall file a
final quarterly return and pay the tax due thereon
within 25 days from the end of the month when
the business ceases to operate or when the VAT
registration has been officially cancelled.
Final adjustment return at the end of the taxable
year not required in the filing and payment of VAT;
VAT computed and paid on a purely quarterly basis.
 VAT is computed and paid on a purely quarterly
basis without need for a final adjustment at the
end of the taxable year.
Withholding of Final VAT on Government money
payments and on sale of services rendered to
nonresidents.
 On sales to the government
  Shall, before making payment on account of
each purchase of goods and/or of services
taxes at 12% VAT, deduct and withhold a final
VAT due at the rate of 5% of the gross
payment thereof.
 The 5% final VAT withholding rate shall
represent the net VAT payable of the seller.
 The remaining 7% effectively accounts for the
standard input VAT for sales of goods or
services to government, in lieu of the actual
input VAT directly attributable or ratably
apportioned to such sales.
 Should the actual input VAT attributable to
sale for government exceeds 7% of gross
payments, the excess may form part of the
sellers’ expense or cost.
 If actual input VAT attributable to sale to
government is less than 7% of gross payment,
the difference must be closed to expense or
cost.
 On sale of services rendered by nonresidents.
 The Government as well as private
corporations, individuals, estates and trusts
shall withhold 12 % VAT with respect to the ff
payments:
1. Lease or use of properties or property
rights owned by nonresidents; and
2. Other services rendered in the Philippines
by nonresidents.
 VAT withheld and aid for the nonresident
recipient, which VAT is passed on to the
resident withholding agent by the
nonresident recipient of the income, may be
claimed as input tax by said VAT-registered
withholding agent upon filing his VAT Return,
subject to the rule on allocation of input tax
among taxable sales, zero-rated sales and
exempt sales.
 If the resident withholding agent is a non-VAT
taxpayer, said passed on VAT by the
nonresident recipient of the income shall
form part of the cost of purchased services,
which may be treated either as asset or
expense, whichever is applicable, of the
resident withholding agent.
 VAT withheld shall be remitted within 10 days
following the end of the month the
withholding was made.
Withholding of the VAT in software transactions for
nonresident payees.
 The payor in control of the payment of VAT in the
software transactions shall be responsible for the
withholding of VAT on such fees on behalf of the
non-resident payee, by filing a VAT return for and
on behalf of the such payee.
Issuance of Certificate of VAT withheld at Source.
 A copy of which should be issued to the payee.
Penalty clause
1. Payors reported by the payees for not having
issued the COTWAT shall be subject to mandatory
audit on their withholding tax liabilities and to
other appropriate sanctions under the TAX Code
and applicable regulations.
2. Penalties in case of failure to submit quarterly
summary list of sales and purchases.
 Pay P1000 for each failure
 The aggregate amount to be imposed for all
such failures during a taxable year shall not
exceed P25K.
3. Willful failure to keep any record and to supply
the correct and accurate information shall be
subject to criminal penalty.
Persons required to submit summary list of sales or
Purchases
1. Persons required to submit summary list of sales.
All persons liable for VAT.
2. Persons required to submit summary list of
purchasers. All persons liable for VAT.
When and where to file the Summary Lists of
Sales/Prurchasers.
 Submit in diskette from to the RDO or LTDO or
LTAD having jurisdiction over the taxpayer, on or
before the 25th day of the month following the
close of the taxable quarter.
 Taxpayers under the jurisdiction of the LTS, and
those enrolled under the EFPS, shall thru
electronic filing facility submit to the
RDO/LTDO/LTAD on or before the 30th say of the
month following the close of the taxable quarter.
Information that must be contained in the Quarterly
Summary List of Sales.
 Must contain the monthly total sales generated
from regular buyers/customers, regardless of the
amount of sale per buyer/customer, as well as
from casual buyers/customers with individual
sales amounting to P100,000 or more.
 Regular buyers/customers – those who are
engaged in business or exercise of profession and
those with whom the taxpayer has transacted at
least 6 transactions regardless of amount per
transaction either in the previous year or current
year.
 Casual buyers/customers – those who are
engaged in business or profession but did not
qualify as regular buyers or customers.

Oplan Kandado
 An initiative involving the strengthening of the
Bureau’s imposition of prescribed administrative
sanctions for non-compliance with such essential
requirements as: the issuance of receipts, filing of
returns, declaration of taxable transactions,
taxpayer registration, and paying the correct
amount of taxes as mandated by the norms or
standards of their particular industry or line of
business.

Instances where the Commissioner may exercise to

suspend the operations of the business.
 Of a period not less than 5 days of the ff
violations:
1. Failure to issue receipts and invoices;
2. Failure to file VAT return;
3. Understatement of taxable sales or receipts
by 30% or more of his correct taxable sales or
receipt for the taxable quarter;
4. Failure to register.

Penalties that may be imposed to a taxpayer in case

of violation of VAT.
 Interest on unpaid amount of tax, civil penalties,
and criminal penalties.
TITLE V – OTHER PERCENTAGE TAXES
Persons liable to other percentage taxes.
 Refers specifically to business taxes covered by
Title V payable by any person or entity whose sale
of goods or services is not covered by the VAT
system and classified as follows:
1. Sale of goods or services of persons who are
exempt from VAT and who is not a VAT-
registered person and whose gross annual
sales or receipts do not exceed P1,919,500.
2. Other kinds of business subject to the other
percentage taxes under Title V, regardless of
whether or not the gross annual receipts
exceed P1,919,500:
a. Domestic carriers by land and keepers of
garages;
b. International carriers;
c. Franchise grantees;
d. Overseas dispatch, message or
conversation originating from the
Philippines;
e. Banks and non-bank financial
intermediaries;
f. Other non-bank financial intermediaries;
g. Life insurance companies;
h. Agents of foreign insurance companies;
i. Proprietors of amusement places;
j. Winnings;
k. Sale, barter or exchange of shares of stock
listed and traded thru the local exchange
or thru initial public offerings.
Nature of other percentage taxes.
 Essentially a tax on transaction and not on the
articles sold, bartered or exchanged.
 They are indirect taxes which can be passed on to
the buyer.
Meaning of the term business.
 Since the term business is being used without
qualification in the Tax Code, it should therefore
be construed in its plain and ordinary meaning,
restricted to activities for profit or livelihood.
Whether a single transaction, or a few isolated
transactions would constitute doing business.
 If it is with intent of carrying on a business.
Whether sales consummated outside the Philippines
is subject to the other percentage taxes.
 Beyond the taxing power of the Philippine
Government.
Whether the successor is liable for the tax from the
date of transfer in case of death or transfer of
ownership of a doing business.
 Where a person engaged in taxable business dies
and the same business is continued by the
person/s interested in his estate, no additional
payment is required for the residue of the term
for which the tax was paid.
 It is, however, required that the successor within
30 days from the death of the decedent, submit
to the BIR or the regional or provincial revenue
office inventories of goods or stocks has at the
time of such death.
 The same rule applies in the case of transfer of
ownership or change of name of the business
establishment.
Common carriers, defined; Only transport of
passenger of common carriers by land subject to
percentage tax.
 Common carriers – refer to persons, corporations,
firms or associations engaged in the business of
carrying or transporting passengers or goods or
both, by land, water, or air, for compensation,
offering their services to the public and shall
include transportation contractors.
 Only the gross receipts of common carriers by
land from the transport of passengers, including
operators of taxicabs, utility cars for rent or hire
driven by the lessees, and tourist buses used for
the transport of passengers shall be subject to the
percentage tax.
 All receipts from service, hire, or operating lease
of transportation equipment not subject to the
percentage tax on domestic common carriers and
keepers of the garages shall be subject to VAT.
 Domestic common carriers by sea and air are
subject to VAT from their transport of passengers,
goods or cargoes from one place in the Philippines
to another place in the Philippines.
Meaning of the term gross receipts for purposes of
international common carrier’s tax.
 For purposes of determining the international
common carrier’s tax liability, gross receipts shall
be the same as the tax base for calculating gross
Philippine Billings Tax.
International carriers of foreign registry, defined.
 International carriers referred to herein which are
subject to the 3% international carriers tax are
those international carriers of foreign registry as
distinguished from international carriers of
Philippine registry which are subject to VAT on
their domestic transport of both passengers and
cargo, but zero-rated on their transport of
passengers and cargo from the Philippine port to
a foreign port.
Taxes imposed on an off-line air carrier having
branch office or a sales agent in the Philippines
 An offline airline having a branch office or a sales
agent in the Philippines which sells passage
documents for compensation or commission to
cover off-line flights of its principal or head office,
or for other airlines covering flights originating
from Philippine ports or off-line flights, is not
considered engaged in business as an
international air carrier in the Philippines and is,
therefore, not subject to the Gross Philippine
Billings Tax nor the 3% common carrier’s tax.
 This is without prejudice to classifying such
taxpayer under a different category.
Nature of legislative franchise; whether or not a
legislative franchise grantee may be subject to both
the national and local franchise taxes at the same
time.
 A legislative franchise partakes of the nature of a
contract entered into between the sovereign
power and private citizens.
 Franchise is the law of the parties and they are
bound by the terms thereof.
 Aside from the national franchise tax, the
franchisee is still liable to pay the local franchise
tax, unless it is expressly and unequivocally
exempted from the payment thereof under its
legislative franchise.
 The in lieu of all taxes clause in a legislative
franchise should categorically state that the
exemption applies to both local and national
taxes; otherwise the exemption claimed should be
strictly construed against the taxpayer and
liberally in favor of the taxing authority.
Taxes imposed on services rendered by franchise
grantees.
1. Services of franchise grantees of telephone or
telegraph, radio and/or television broadcasting,
toll road operations and all other franchise
grantees, except gas and water utilities, shall be
subject to VAT, in lieu of franchise tax.
 Franchise grantees of radio and/or television
broadcasting whose annual gross receipts of
the preceding year do not exceed P10M shall
not be subject to VAT, but to the 3% franchise
tax.
2. Franchise grantees of gas and water utilities shall
be subject to 2% franchise tax on their gross
receipts derived from the business.
3. Gross receipts of all other franchisees, not
covered by Section 119, regardless of how their
franchise may have been granted, shall be subject
to the 12% VAT.
4. Franchise grantees of telephone and telegraph
shall be subject to VAT on their gross receipts.
 Amounts received for overseas dispatch,
message, or conversation originating from the
Philippines are subject to percentage tax.
Local water districts now exempt from corporate
income tax but subject to franchise tax.
 RA 10026 exempts them from corporate income
tax.
Electric utility no longer subject to franchise tax.
 But subject to VAT on their generation,
transmission and distribution of electricity.
Effect of repeal of franchise tax on certain franchise
grantees prior to the effectivity of RA 9337 (R-VAT
Law)
 The franchise grantee has to pay the franchise tax
under its legislative franchise until the new law
takes effect.
 CIR vs. Phil. Global Commission. To grant refund
of franchise tax it paid prior to the effectivity and
implementation of the VAT would create a
vacuum and thereby deprive the government
from collecting either the VAT or the franchise
tax.
Taxes on overseas communication
 Amounts received from overseas dispatch,
message or conversation originating from the
Philippines are subject to the percentage tax,
hence, exempt from VAT.
 Franchise grantees of telephone and telegraph
shall be subject to VAT on their gross receipts
derived from their telephone, telegraph,
telewriter exchange, wireless and other
communication equipment services.
Exemption from overseas communication.
1. Government;
2. Diplomatic services (embassy and consular offices
of a foreign government);
3. International organizations;
4. News services
What would constitute the gross receipts of banks
and non-bank financial intermediaries performing
quasi-banking functions.
 Gross receipts of banks and non-bank financial
intermediaries performing quasi-banking
functions shall refer to the compensation for all
financial and non-financial services, or
combination thereof, performed by financial
institutions within the Philippines, which include:
1. Financial intermediation service fee;
2. Financial leasing income;
3. Rentals on properties, real or personal;
4. Royalties;
5. Commissions;
6. Trust fees;
7. Estate planning fees;
8. Service fees;
9. Other charges or fees received as
compensation for services;
10. Net trading gains;
11. Net foreign gains;
12. Gain on sale or redemption investments;
13. Net gain from the sale of properties acquired
thru foreclosure lodged under the account
Real and Other Properties Owned and
Acquired (ROPOA) or under any other
appropriate account.
14. All other receipts of gross income specified in
Section 32(A) not otherwise enumerated
above.
 In determining gross receipts, any amount
withheld by the payor of the income as taxes shall
from part thereof under the doctrine of
constructive receipt of income.
 Banks or banking institutions – refer to those
entities defined in Section 3 of the General
Banking Law of 2000.
 Non-bank financial intermediaries – refer to
persons or entities whose principal functions
include the lending, investing or placement of
funds or evidences of indebtedness or equity
deposited with them, acquired by them or
otherwise coursed through them, either for their
own account or for the account of others.
 Quasi-banking activities – refer to the borrowing
of funds from 20 or more personal or corporate
lenders at any one time, through the issuance,
endorsement or acceptance of debt instruments
of any kind other than deposits for the borrower’s
own account or through the issuance of
certificates of assignment or similar instruments,
with recourse, or of repurchase agreements for
purposes of relending or purchasing receivables
and other similar obligations.
 Financial institution – refer to banks, non-bank
financial intermediaries, including finance
companies. Does not include insurance
companies.
 Financial leasing – refer to the mode of extending
credit through non-cancellable lease contract
under which the lessor purchases or acquires, at
the instance of the lessee, machinery, equipment,
motor vehicles, appliances, business and office
machines, and other movable or immovable
property in consideration of the periodical
payment of the lessee at a fixed amount of
money.
Imposition of gross receipts tax (GRT) on banks and
non-bank financial intermediaries performing quasi-
banking functions.
 There shall be collected a tax on gross receipts
derived from sources within the Philippines by all
banks and non-bank financial intermediaries in
accordance with the following schedule:
1. On interest, commissions and discounts from
lending activities as well as income from
financial leasing, on the basis of remaining
 maturities of instruments from which such
receipts are derived:
o Maturity period is 5 years or less (5%)
o Maturity period is more than 5 years
(1%)
o On dividends and equity shares and
net income subsidiaries (0%)
o On royalties, rentals of property, real
or personal, profits, from exchange
and all other items treated as gross
income (7%)
o On net trading within the taxable year
on foreign currency, debt securities,
derivatives, and other similar financial
instruments (7%)
 In computing the net trading gain, the figure to be
reported in the monthly percentage tax return
(GRT) shall be the cumulative total of the net
trading gain/loss since the first month of the
applicable taxable year less the figure already
reflected in the previous month.
 In the case of financial leasing, the taxable gross
receipts shall consist of the interest income only
whereas in the case of transactions under
operating lease agreements, the gross receipts is
the gross rental.
 Whether the lease transaction is finance lease or
operating lease shall be determined by the
contents of the document evidencing the lease
agreement or, in short, the substance of the
agreement rather than the form used to evidence
such agreement between the lessor and the
lessee.
 If the maturity period is shortened thru pre-
termination, then the maturity period shall be
reckoned to end as of the date of pre-termination
for purposes of classifying the transaction and the
application of the correct tax rate.
 The generally accepted accounting principles as
may be prescribed by the BSP for the bank or non-
bank financial intermediary performing quasi-
banking functions shall be the basis for the
calculation of gross receipts.
 Nothing in these regulations shall preclude the
Commissioner from imposing the same tax herein
provided on persons performing similar banking
activities.
Pre-Termination
 In case of pre-termination, the maturity period
shall be reckoned to end as of the date of pre-
termination for purposes of classifying the
transaction and applying the correct rate of tax.
 Any adjustment in tax due caused by pre-
termination of existing agreements shall be
reflected as a separate item in the GRT return
covering all transactions of the month in which
the pre-termination take place.
Time and venue for the filing and payment of GRT.
 GRT shall be paid monthly within 20 days
following the end of the taxable month to the AAB
of the RDO/LTDO/LTAID where the taxpayer is
registered or required to register.
 If the taxpayer is an EFPS taxpayer, the rules and
regulations governing the filing of returns and
payment of taxes under EFPS shall be observed.
20% final withholding tax on a bank’s passive income
forms part of its taxable gross receipts for purposes
of computing the gross receipts tax.
 The BIR can collect a 5% gross receipts on the
interest income of the bank without deducting
the 20% final withholding tax from its time
deposits with the bank.
 Since the final withholding tax on the interest
income is an income owned by the depositor, and
the withholding tax is remitted to the government
on its behalf in satisfaction of its withholding
taxes from the said interest income derived from
the bank, the same forms part of its gross
receipts.
Taxation of rural banks formed through
consolidation.
 Rural banks formed through consolidation
(consolidated rural bank) of existing rural banks
shall not be entitled to tax exemption under RA
7353 in cases when the constituent rural banks
previously availed of this exemption.
 Should any or both of the constituent rural banks
not be able to enjoy the tax exemption for the
entire 5-year-period, then the consolidated rural
bank shall be entitled to the exemption for the
remaining period.
 The tax exemption may no longer availed by
consolidated rural banks for the following
reasons:
1. The processes of consolidation involve
existing and operating rural banks that
already cater to the public. For this reason,
these processes do not significantly promote
the policy enunciated in RA 7353. It merely
prolongs the exemption beyond the period
prescribed by law, thereby depriving the
government of much-needed revenues.
2. Section 80 of the Corporation Code sets forth
the effects of consolidation:
a. The surviving or the consolidated
corporation shall possess all the rights,
privileges, immunities and powers and
shall be subject to all the duties and
liabilities of a corporation under this code;
b. The surviving or the consolidated
corporation shall thereupon and
thereafter possess all the rights,
privileges, immunities and franchises of
each of the constituent corporations; and
all property, real or personal, and all
receivables due on whatever account,
including subscriptions to shares and
other chooses in action, and all and every
other interest of, belonging to, or due to
each constituent corporation, shall be
deemed transferred to and vested in such
surviving or consolidated corporation
without further act or deed; and
c. The surviving or consolidated corporation
shall be responsible and liable for all the
liabilities and obligations of each of the
constituent corporations in the same
manner as if such surviving or
consolidated corporation had itself
incurred such liabilities or obligations; and
any pending claim, action or proceeding
brought by or against any of such
constituent corporation may be
prosecuted by or against the surviving or
consolidated corporation, as the case may
be.
Imposition of gross receipts tax on other non-bank
financial intermediaries.
 Gross receipts of other non-bank financial
intermediaries (non-bank financial intermediary
not performing quasi-banking functions) doing
business in the Philippines shall be subject to GRT.
 Interest, commissions, discounts and all other
items treated as gross income (5%)
 On interests, commissions and discounts from
lending activities, as well as income from financial
leasing, on the basis of the remaining maturities
of the instruments from which such receipts are
derived, in accordance with the following
schedule:
a. Maturity period is 5 years or less (5%)
b. Maturity period is more than 5 years (1%)
 In case of financial leasing, the taxable gross
receipts shall consist only of the interest income.
 In the case of transactions under operating lease
agreements, the gross receipts is the gross rental
amount.
Financing lease vis-à-vis operating lease.
 In financial lease, a finance company purchases on
behalf or at the instance of the lessee the
equipment or machinery which the latter is
interested to buy but has insufficient funds for the
purpose.
 The finance company thereafter leases the
equipment to the lessee in consideration of the
periodic payment by the lessee of a fixed amount
of rental sufficient to amortize at least 70% of the
acquisition cost of the equipment, including any
incidental expenses and a margin of profit, over
the lease period during which the lessee has the
right to possess and use the leased equipment
and to purchase it at the end of the lease period.
 It is different form an operating lease.
 Operating lease – a contract under which the
asset is not wholly amortized during the primary
period of the lease, and when the lessor does not
rely solely on the rentals during the primary
period for the profits, but looks for the recovery
of the balance of his costs and for the rest of his
profits from the sale or release of the returned
asset at the end of the primary lease period.
Banks distinguished from financial intermediaries.
 RA 8791 provides that banks shall refer to entities
engaged in the lending of funds obtained in the
form of deposits.
 Financial intermediaries are defined as persons or
entities whose principal functions include the
lending, investing or placement of funds or
evidences of indebtedness or equity deposited
with them, acquired by them, or otherwise
coursed through them, either for their own
account or for the account of others.
Bases of qualifying pawnshops as non-bank financial
intermediaries.
 Pawnshop which a person or entity engaged in
the business of lending money, falls within the
classification of non-bank financial intermediaries.
 Within the supervision of the BSP.
Imposition of GRT on pawnshops.
 Subject to 5% GRT because it falls under non-bank
financial intermediaries.
 This effectively removed the services rendered by
pawnshops from the VAT system unless otherwise
a similar legislation is enacted to place it under
the VAT system.
Tax treatment of pawnshop from 1996 and
thereafter.
 First Planters Pawnshop, Inc. vs. CIR. Prior to the
passing of the EVAT Law in 1994, pawnshops were
treated as lending investors subject to lending
investor’s tax. RA 9238 (1994) finally classified
pawnshops as Other Non-Bank Financial
Intermediaries.
Law governing the business and operations of
pawnshops.
 PD 114 and CB Circular 374 (rules and regulations
for Pawnshops)
What are insurance companies.
 Refer to entities that undertakes for a
consideration to indemnify another against loss,
damage or liability from an unknown or
contingent event.
Primary and predominant business activity of an
insurance company.
 The writing of insurance or the reinsuring of risks
underwritten by insurance companies which are
subject to the supervision by the Insurance
Commissions.
Meaning of the term doing an insurance business.
 Include:
1. Making or proposing to make, as insurer, any
insurance contract;
2. Making or proposing to make, as surety, any
contract of suretyship as a vocation and not
as merely incidental to any other legitimate
business activity of the surety;
3. Doing any kind of business, including a
reinsurance business, specifically recognized
as constituting the doing of an insurance
business within the meaning of the Insurance
Code; or
4. Doing or proposing to do any business in
substance equivalent to any of the foregoing
in a manner designed to evade the provision
of the Code.
Meaning the term variable contracts.
 The term variable contract shall mean any policy
or contract on either a group or an individual
basis issued by an insurance company providing
for benefits or other contractual payments or
values thereunder to vary so as to reflect
investment results of any segregated portfolio or
of a designated separate account in which
amounts received in connection with such
contracts shall have been placed on accounted for
separately and apart from other investments and
accounts.
 This contract may also provide benefits or values
incidental thereto payable in fixed or variable
amounts, or both.
 It shall not be deemed to be a security.
Types of insurance companies.
1. Life insurance company – a company which deals
with the insurance on human lives and insurance
appertaining thereto or connected therewith.
 Group insurance is essentially a single
insurance contract that provides coverage for
many individuals.
2. Non-life insurance company – one which solicits
insurance on the security of property.
Business taxes of various activities of a life insurance
company.
 Inasmuch as life insurance companies are allowed
to pursue ancillary business activities pursuant to
the provisions of the Insurance Code, the same
should be treated as separate business
independent from its main business activity
underwriting life insurance contracts.
1. Direct writing/premiums. Subject to premium
tax of 2%.
- Re-insurance fees, reinstatement fees,
renewal fees as well as penalties paid to
the life insurance company which are
incidental to or in connection with the
insurance policy contracts issued are
considered akin to premiums. Subject to
2% premium tax rate.
2. Management fees, rental income, commission
income, re-issuance fees, renewal fees, other
income/fees.
- Those which can be pursued
independently of the insurance business
activity are treated as income for services
that are subject to VAT or the percentage
tax, not on premium tax.
3. Investment income
a. Investment income realized from the
investment of premiums earned –
considered exempt from further
imposition of business tax since the
premiums which have been the source of
the funds invested had already been
subject to the 2% premium tax.
b. Investment income realized from the
investment of funds obtained from others
– if these have been allowed and
approved by the Insurance Commission,
the same are considered as incidental
activities to the main activity and,
therefore, are subject to the 2% premium
tax.
c. Manner of apportionment to determine
exempt investment income and
investment income subject to the
applicable gross receipts tax. Investment
income that is exempt from the
imposition of business only pertains to
that portion of investment income where
the source of the funds used in the
investment activities comes from the
owned funds of the life insurance
company.
 In order to determine which portion of the
investment income earned for the month is
exempt and which portion is taxable, the
investment income earned for the month shall be
allocated between the following:
1. Liability account balance pertinent to other
funds solicited from the policyholders as of
the end of such month; and
2. The total premiums earned for the month.
Purely cooperative life insurance companies entitled
to exemption from the payment of taxes on life
insurance premiums and documentary stamp tax.
Consideration for the services rendered by an
insurance company.
 Premium payment.
Taxation of other financial services/products sold by
the life insurance company, in addition to the life
insurance policy solicited.
 The insurance company offers to its policyholders
other financial services/products, which upon
acceptance by the policyholder, are made as a
rider, clause, warranty or endorsement attached
to and formed part of the insurance policy
contract issued.
 Examples of such are the Variable Unit Link (VUL)
or the Premium Deposit Fund (PDF).
 VUL. Features:
1. In addition to the life insurance policy
contracted, policyholders are made to
contribute to a fund set up the life insurance
company;
2. Of the total amount given by the policyholder
for the life insurance policy and the
contribution to be made to such fund, only 2%
to 5% represents the premium payment for
the life insurance policy, while the 95% to
98% of the amount paid pertains to the
amount contributed to the fund;
3. The contribution to the fund is represented by
units of shares;
4. A fixed amount is set for each unit of share,
thus, the percentage of contribution of the
policyholder to the fund corresponds to the
number of unit of shares he owns therein;
5. The amount pooled to the fund is then
invested in stocks, securities, debt
 instruments, and other similar passive
investments, income derived from which are
those that are either exempt from tax or
subject to final tax;
6. The life insurance company merely acts as
fund manager. As such, the fund is not
commingled with the owned funds of the said
life insurance company;
7. The life insurance company does not share in
the income derived by the fund from the
investment activities but rather derives
income by charging management fees based
on a certain fixed rate; and
8. The income earned by the fund together with
the contributions made are then distributed
to the policyholders upon
surrender/redemption units of shares.
 The amounts received on account of the life
insurance solicited from the policyholder, being
the main business activity of the life insurance
company is, in addition to income tax, subject to
business tax/premium tax and DST.
 For the management fees earned by the life
insurance company in making the investment
portfolio of the VUL Fund, such management fees,
in addition to income tax or to the percentage tax.
 The certificated issued to the policyholder
evidencing his contribution to the VUL fund which
partake the nature of deeds of trust shall not be
subject to DST.
 For the gain realized by the policyholder from the
redemption of his units of shares in the VUL fund,
the same must be declared and reported by the
said policyholder for income tax purposes.
 PDF. Features:
1. In addition to the life insurance policy
contracted, policyholders are made to make
deposits for the future premium payment;
2. Deposit of at least P500 each may be made to
this fund for payment of future premium on
the policy;
3. The fund will be used in investment activities;
4. Interest shall be credited to the fund annually
on each policy anniversary;
5. That the balance of the deposit inclusive of
the interest earned, may be withdrawn
anytime at the option of the policyholder; and
6. That the insurance company treats such
deposits in its books of accounts as liabilities
to the policyholders.
 Having no fixed term or period, whereby these
deposits can be withdrawn anytime at the option
of the policyholder, the instrument issued to the
policyholder evidencing such deposit is exempt
from the imposition of DST.
 The interest earned by the policyholder from the
premium deposit fund shall not be subject to 20%
FWT as the same has already been subjected to
final tax as part of investment.
Business tax of insurance agents who transact with
foreign insurance companies.
 A tax equal to 4% shall be imposed on every agent
of foreign insurance company authorized under
the insurance Code to procure policies of
insurance as he may have previously been legally
authorized to transact on risks located in the
Philippines for companies not authorized to
transact business in the Philippines.
Transactions not covered by Section 124.
 Reinsurance
 The right of an owner of property to apply for and
obtain for himself policies in foreign companies in
cases where said owner does not make use of the
services of any agent, company or corporation
residing and doing business in the Philippines.
Premium tax payable by owners of property who
directly obtain property insurance from foreign
companies.
 It shall be the duty of the said owners to report to
the Insurance Commissioner and to the
Commissioner each case where insurance has
been so effected, and pay the tax of 5% on
premiums paid.
Amusement tax.
 For the purpose of the amusement tax, the term
gross receipt embraces all the receipts of the
proprietor, lessee or operator of the amusement
place.
 Amusement tax is ayable at the end of each
quarter and it shall be the duty of the proprietor,
lessee or operator concerned, as well as any party
liable, within 20 days after the end of each
 quarter, to make a true and complete return of
the amount of the gross receipts derived during
the preceding quarter and pay the tax due
thereon.
Repeal of the Local Tax Code by the LGC of 1991 is
not a legal basis for the imposition of amusement tax
on the exhibition or showing of motion pictures by
local cinema houses.
 The removal of the prohibition under the Local
Tax Code did not grant nor restore to the national
government the power to impose amusement tax
on cinema/theater operators or proprietors.
 Neither did it expand the coverage of VAT.
 Since the imposition of a tax is a burden on the
taxpayer, it cannot be presumed nor can it be
extended by implication.
 The power to impose amusement tax on
cinema/theater operators or proprietors remains
with the local government.
Proprietors, lessees or operators of videoke bars,
karaoke bars, karaoke televisions, karaoke boxes and
music lounges covered by Section 125(b).
 Subject to 18% amusement tax.
Amusement tax on professional basketball fames a
national internal revenue tax.
 With reference to PD 871, there is a recognition
under the laws of this country that the
amusement tax on professional basketball games
is a national, and not a local tax.
Persons liable to pay tax on winnings; Rates of tax.
1. Winners in horse races – 10% of the winnings or
dividends based on the actual amount paid to him
for every winning ticket after deducting the cost
of the ticket;
2. Winners from double, forecast/quinella and
trifecta bets – 4%;
3. Owners of winning racehorses – 10% of the prize.
Tax on winnings, how collected.
 If 1 and 2, the tax on winnings shall be deducted
from the dividends corresponding to each winning
ticket before paying the dividends to the winners
by the operator, manager or person in charge of
horse races.
 If 3, the tax shall be withheld by the operator,
manager or person in charge of the horse races
before paying prizes to the owners of the winning
race horses.
 The operator, manager or person in charge of the
horse races shall, within 20 days from the date
the tax was deducted and withheld, file a true and
correct return with the Commissioner and pay
within the same period.
Persons liable to the tax.
 The following sellers or transferors of stock are
liable to the tax on sale, barter or exchange of
shares of stock listed and traded through the local
stock exchange:
1. Individual taxpayer, whether citizen or alien;
2. Corporate taxpayer, whether domestic or
foreign; and
3. Other taxpayers not falling under 1 and e,
such as estate, trust, trust funds and pension
funds, among others.
Persons not liable to the tax.
1. Dealers in securities;
2. Investor in shares of stock in a mutual fund
company in connection with the gains realized by
said investor upon redemption of said shares of
stock in a mutual fund company; and
3. All other person, whether natural or juridical, who
are specifically exempt from all national internal
revenue taxes under existing investment
incentives and other special laws.
Tax on the sale, barter or exchange of shares of stock
listed and traded through the Local Stock Exchange.
 There shall be levied, assessed and collected on
every sale, barter, exchange or disposition of
shares of stock listed and traded thru Local Stock
Exchange other than the sale by a dealer of
securities, under the following rules:
1. Tax rate. A stock transaction at the rate of ½
or 1% based on the amount determined in the
tax base.
2. Tax base. Gross selling price or gross value in
money of the shares of stock sold, bartered,
exchanged or otherwise disposed which shall
be assumed and paid by the seller or
transferor thru the remittance of the stock
transaction tax by the seller or transferor’s
broker.
Tax on sale, barter or exchange, or issuance of shares
of stock thru Initial Public Offering (IPO).
 There shall be levied, assessed and collected on
every sale, barter, exchange or disposition thru
IPO of shares of stock in closely held corporations,
under the following rules:
1. Tax rates.
Proportion of Disposed Shares to Tax Rate
Outstanding Shares
Up to 25% 4%
Over 25% but not over 33 1/3% 2%
Over 33 1/3% 1%
2. Tax base. Gross selling price or gross value in
money of the shares of stock sold, bartered,
exchanged or otherwise disposed of.
3. Determination of the persons liable to pay the
tax.
a. Primary offering. The tax herein imposed
shall be paid by the issuer corporation
with respect to the shares of stock
corresponding to the Primary Offering.
b. Secondary Offering. The tax herein
imposed shall be paid by the selling
shareholder with respect to the shares of
stock corresponding to the Secondary
offering.
 In case of follow-on or follow through sale by the
corporation which are shares issued subsequent
to IPO, shall no longer be taxed. The transaction,
however, is subject to DST similar to the
transaction covered by Primary Offering as well as
Secondary offering of shares of stock.
 In case another existing shareholder decides to
offer his existing shares to the public subsequent
to IPO, he shall be taxed accordingly.
 Follow on or follow through offering of shares
refer to an offering of shares to the investing
public subsequent to an IPO.
Time of payment of tax and manner of filing returns.
1. Tax on sale of shares of stock listed and traded
thru the Local Stock Exchange.
- The stockbroker who effected the sale has the
duty to collect the tax from the seller upon
issuance of the confirmation of sale, issue the
corresponding official receipt thereof and
remit the same to the collecting bank/officer
of the RDO where the broker is registered
within 5 banking days from the date of
collection thereof and to submit on Mondays
of each week to the secretary of the Local
Stock Exchange, of which he is a member, a
true and complete return, which shall contain
a declaration, that he made under the
penalties of perjury, of all the transactions
effected thru him during the preceding week
and of taxes collected by him and turned over
to the concerned RDO.
- The secretary of the Local Stock Exchange
shall reconcile the records of the Local Stock
Exchange with the weekly reports of
stockbrokers and in turn transmit to the RDO,
on or before the 15th day of the following
month, a consolidated return of all
transactions effected during the preceding
month thru the LSE.
- Stockbroker includes all persons whose
business it is, for other brokers, to negotiate
purchases or sales of stocks, or engaged in the
business of effecting transactions in securities
for the account of others but does not include
a bank or underwriters for one or more
investment companies as defined in the
Investment Company Act.
- Broker is a person engaged in the business of
buying and selling securities for the account
of others.
2. Tax on shares of stock sold or exchanged thru
IPO.
 - The corporate issuer in Primary Offering shall
file the return and pay the corresponding tax
to the RDO which has jurisdiction over said
corporate issuer within 30 days from the date
of listing of the shares of stock in the LSE. The
return shall be accompanied with a copy of
the instrument of sale.
- In the case of stock sold or exchanged thru
Secondary Offering at the time of listing at the
LSE of shares of closely-held corporations (1)
applies.
Effect of non-payment of tax.
 No sale, exchange, transfer or similar transaction
intended to convey ownership of, or title to any
share of stock shall be registered in the books of
the corporation unless the receipts of payment of
the tax is filed with and recorded by the stock
transfer agent or secretary of the corporation.
Sale of shares of stock listed and traded in the LSE
not subject to the capital gains tax.
 The sale of shares of stock thru his stockbroker is
presumed to be a sale of shares listed and traded
in the stock exchange subject to the percentage
tax of ½ of 1% of the gross selling price, but not to
the income tax or capital gains tax.
Tax treatment of sales, barters, exchanges or other
dispositions of shares of stock of publicly-listed
companies whose public ownership levels fall below
the mandatory Minimum Public Ownership (MPO)
level, monitoring of these companies and their stock
transactions.
1. Rule on MPO.
- All publicly-listed companies are required, at
all times, to maintain a minimum percentage
of listed securities held by the public or public
float of the higher rate of 10% of the publicly-
listed companies’ issued and outstanding
shares, exclusive of any treasury shares or at
such percentage as may be prescribed by the
SEC or PSE.
- The sale, barter, transfer and or assignment of
publicly-listed companies that still fail to meet
the MPO after the lapse of the grace period
shall be subject to final tax at the rate 5% or
10% on the net capital gains.
2. Reportorial requirements.
3. Tax treatment of sales, barters, exchanges or
other dispositions of shares of stock of a
publicly-listed company that is non-compliant
with the MPO.
a. Transactions up to Dec. 31, 2012. Non-
compliant – subject to a stock transaction tax
at the rate of ½ of 1% of the gross selling price
or gross value in money of the shares of stock.
b. Transactions after Dec. 31, 2012. Non-
compliant – subject to a final tax of either 5%
or 10% on the net capital gains.
4. Persons not liable to the tax.
a. Dealers in securities, provided that, they shall
be subject to VAT on the basis of their gross
receipts and Income Tax from their sale or
exchange of securities.
b. Investors in shares of stock in a mutual fund
company, in connection with the gains
realized by said investor upon redemption of
said shares of stock in a mutual fund
company; and
c. All other persons, whether natural or juridical,
who are specifically exempt from national
internal revenue taxes under existing
investment incentives and other special laws.
5. Effect of non-payment of tax.
- It will not be registered in the books of the
corporation.
Persons liable to pay percentage taxes; time for filing
of the Percentage Tax Return.
 Every person subject to the percentage taxes shall
file a quarterly return of the amount of his gross
sales, receipts or earnings and pay the tax due
thereon within 25 days after the end of each
taxable quarter: Provided, that in case of a person
whose VAT registration is cancelled and who
become VAT exempt, the tax accrue from the
date of cancellation and shall be paid in
accordance with the provisions of this section.
 The Percentage Tax returns shall be filed by
taxpayers, whether large or non-large, on a
monthly basis, and taxes paid, not later than the
20th day following the end of each month;
Provided, however, That with respect to taxpayers
enrolled with the EFPS, the deadline of filing shall
be 5 days later than the deadline set herein.
Place of filing the Percentage Tax Return
 Except as the Commissioner otherwise permits,
every person liable may, at his option, file a
separate return for each branch or place of
business, or a consolidated return for all branches
or places of business with the AAB, RDO,
Collection Agent or duly authorized Treasurer of
the city or municipality where the business or
principal place of business is located, as the case
may be.
Person retiring from business.
 Shall notify the nearest internal revenue officer,
file his return and pay the tax due thereon within
20 days after the closing of his business.
Determination of correct sales or receipts.
 When it is found that a person has failed to issue
receipts or invoices, or when no return is filed, or
when there is reason to believe that the books of
accounts or other records do not correctly reflect
the declarations made or to be made in a return
as required, the Commissioner may prescribe a
minimum amount of such gross receipts, sales
and taxable base and such amount so prescribed
shall be prima facie correct for purposes of
determining the internal revenue tax liabilities of
such person.
TITLE VI
EXCISE TAXES ON CERTAIN GOODS
CHAPTER 1
GENERAL PROVISIONS
Goods subject to excise tax.
1. Certain goods manufactured or produced in
the Philippines for domestic sale or
consumption or for any other disposition; and
2. Certain goods/things imported in the
Philippines.
 These goods/articles are subject to excise taxes:
1. Alcohol products;
2. Tobacco products;
3. Petroleum products;
4. Automobiles;
5. Non-essential goods; and
6. Mineral products.
Other tax that may be imposed on goods subject to
excise tax.
 In addition to VAT.
Kinds of excise tax.
1. Specific tax – refers to the excise tax imposed
which is based on weight or volume capacity
or any other physical unit of measurement;
and
2. Ad valorem tax – refers to the excise tax
which is based on selling price or other
specified value of the goods.
Excise taxes, defined; Concept and nature.
 Excise tax apply to taxes on goods manufactured
or produced in the Philippines for domestic sale or
consumption or for any other disposition and to
things imported, which tax shall be in addition to
the VAT.
 The current definition of excise tax is that of a tax
levied on a specific article rather than one upon
the performance, carrying on, or the exercise of
an activity.
 Starting in 1986, excise tax in this jurisdiction
refers exclusively to specific tax or ad valorem tax.
 As used in the NIRC, excise tax refer to the taxes
applicable to certain specified or selected goods
or articles manufactured or produced in the
Philippines for domestic sale or consumption or
for any other disposition and to things imported
into the Philippines.
 Basically an indirect tax, excise taxes are directly
levied upon the manufacturer or importer upon
removal of the taxable goods from its place of
production or from the customs custody. These
taxes, however, may be actually passed on to the
end consumer as art of the transfer value or
selling price of the goods sold, bartered or
exchanged.
Persons liable to file and pay excise taxes.
1. In the case of domestic articles.
- The excise taxes are collected from
manufacturers or producers before removal
of the domestic products from the place of
production.
- The manufacturer, producer, owner or person
having possession of the article is the one
liable for the tax. The mere fact of possession
is enough to make a person liable for the tax.
2. In the case of imported articles.
 - The importer or owner of an imported article
is the one liable for the excise tax.
- An importer is the consignee of an imported
article designated as such in the bill of lading,
or the person to whom the bill of lading has
been duly assigned or indorsed. In other
words, the importer is the owner of the goods
at the time of withdrawal thereof from the
customhouse.
 Every person liable to pay the excise tax shall file a
separate return for each place of production
setting forth, among others, the description and
quantity or volume of products to be removed,
the applicable tax base and the amount of tax due
thereon.
 In the case of indigenous petroleum, natural gas
or liquefied natural gas, the excise tax shall be
paid by the first buyer, purchaser or transferee for
local sale, barter or transfer, while the excise tax
on exported products shall be paid by the owner,
lessee, concessionaire or operator of the mining
claim.
 Should domestic products be removed from the
place of production without the payment of the
tax, the owner or person having possession
thereof shall be liable for the tax due thereon.
Time for filing the return and payment of the excise
tax; General Rule.
 The return shall be filed and the excise tax paid by
the manufacturer or producer before removal of
domestic products from place of production.
 On locally manufactured petroleum products and
indigenous petroleum, the excise tax shall be paid
before removal from the place of production.
 On nonmetallic mineral or mineral products, or
quarry resources, the excise tax shall be due and
payable upon removal of such products from the
locality where mined or extracted.
 On locally produced or extracted metallic mineral
or mineral products, the excise tax shall be paid
within 15 days after the end of the calendar
quarter when such products were removed. For
this purpose, the taxpayer shall file a bond in an
amount which approximates the amount of excise
tax due on the removals for the said quarter.
 On imported mineral or mineral products,
whether metallic or nonmetallic, the excise tax
shall be paid before removal from customs
custody.
Place for filing of the return and payment of the tax.
 File with and the tax paid to any AAB or RCO, or
duly authorized City or Municipal Treasurer in the
Philippines.
Determination of gross selling price of goods subject
to ad valorem tax.
1. The whole sale price, excluding the VAT, at which
the goods are sold in the place of production or
through their sales agents to the public shall
constitute the gross selling price.
2. If the manufacturer also sells or allows such goods
to be sold at wholesale in another establishment
of which he is the owner or in the profits of which
he has an interest, the wholesale price in such
establishment shall constitute the gross selling
price.
3. Should such price be less than the cost of
manufacture plus expenses incurred until the
goods are finally sold, then a proportionate
margin of profit, not less than 10% of such
manufacturing cost and expenses, shall be added
to constitute the gross selling price.
Manufacturer’s or Producer’s Sworn statement.
 Every manufacturer or producer of goods or
products subject to excise taxes shall file with the
Commissioner, on the date or dates designated by
the latter, and as often as may be required, a
sworn statement showing certain information, as
follows:
1. The different goods or products
manufactured or produced;
2. Their corresponding gross selling price or
market value;
3. The cost of manufacture or production;
4. Expenses incurred or to be incurred until the
goods or products are finally sold.
Credit for excise tax on goods actually exported.
 When goods locally produced or manufactured
are removed and actually exported without
retuning to the Philippines, whether so exported
in their original state or as ingredients or parts of
any manufactured goods or products, any excise
tax paid thereon shall be credited or refunded
 upon submission of the proof of actual
exportation and upon receipt of the
corresponding of foreign exchange payment.
 The excise tax on mineral products, except coal
and coke, shall not be creditable or refundable
even if the mineral products are actually sold.
Exceptions to the general rule.
 The SOF, upon recommendation of the
Commissioner, may, by rules and regulations,
prescribe:
a. The time for filing the return; and
b. The manner and time of payment of excise
taxes.
Excise tax may be passed on to the end consumer
but direct liability for the tax remains with the
manufacturer or producer.
 Excise, whether classified as specific or ad
valorem tax, is basically an indirect tax imposed
on the consumption of a specified list of goods or
products.
 The tax is directly levied on the manufacturer
upon removal of the taxable goods from the place
of production but in reality, the tax is passed on to
the end consumer as part of the selling price of
the goods sold.
 An excise tax is an indirect tax where the tax
burden can be shifted to the consumer but the tax
liability remains with the manufacturer or
producer.
 Where the burden is shifted, the amount passed
on to the buyer is no longer a tax but a part of the
purchase price of the goods sold.
Owner of person having possession of excisable
domestic product liable to the tax due thereon.
 BSP vs. CIR. Should domestic products be
removed from the place of production without
the payment of excise taxes, the owner or person
having possession thereof shall be liable for the
tax due thereon.
 Minerals, mineral products and quarry resources
– 2% excise tax based on the actual market value
of the gross output thereof at the time of
removal, in the case of those locally extracted or
produced; or the value used by the BOC in
determining tariff or customs duties, net or excise
and VAT, in the case of importation.
Proper party to claim for the refund/tax credit of
excise taxes paid on aviation fuel; End consumer
who paid the excise tax cannot apply for a refund of
the excise tax paid.
 The proper party to question, or seek refund of,
an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and
who paid the same even if he shifts the burden
thereof to another.
Persons liable to excise tax on imported articles.
1. By the owner or importer to the Customs Officers
before the release of such articles from the
customhouse; or
2. By the person who is found in possession of
articles which are exempt from excise taxes other
than those legally entitled to exemption;
3. In the case of tax-free articles brought or
imported into the Philippines, by persons,
entitled, or agencies exempt from tax which are
subsequently sold, transferred or exchanged in
the Philippines to non-exempt persons or entities,
the purchasers or recipients shall be considered
the importers thereof.
Excise tax on importation of cigars and cigarettes,
distilled spirits, fermented liquors and wines in the
Philippines.
1. Even if destined tax and duty-free shops, shall be
subject to all applicable taxes, duties, charges,
including excise taxes due thereon.
2. RA 10351. The importation of any alcohol or
tobacco product bearing suffixes or prefixed to
the root name, color and/or form of packaging or
size of container of the product that is different
from that already registered and locally being sold
in the domestic market shall be treated as a newly
introduced product.
Rate and basis of the excise tax on imported articles.
 The same rates and basis of excise taxes
applicable to locally manufactured articles.
Whether or not the Congress can enact a law
withdrawing a tax exemption privilege on
importation.
 A tax exemption cannot be grounded upon the
continued existence of a statute which precluded
its change or repeal. Flowing from the basic
 precept of constitutional law that no law is
irrepealable, Congress, in the legitimate exercise
of its lawmaking powers, can enact a law
withdrawing a tax exemption.
Whether or not a judge can issue a writ of
preliminary injunction to enjoin the collection of
taxes on importation of alcohol and tobacco by
SMBA-registered enterprises.
 No. For a writ of preliminary injunction to issue,
the applicant must establish that:
1. There is a clear mistake and unmistakable
right to be protected;
2. The invasion of the right sought to be
protected is material and substantial; and
3. There is an urgent and paramount necessity
for the writ to prevent serious damage.
Rules on computing contents of cask or package.
1. Every fractional part of a proof liter equal to or
greater than a half liter in a cask or package
containing more than one liter shall be taxed as
one liter;
2. Any smaller fractional part shall be exempt;
3. But any package of spirits, the total contents of
which are less than a proof liter, shall be taxed as
one liter.
CHAPTER II – EXEMPTION AND CONDITIONAL TAX-
FREE REMOVAL OF CERTAIN ARTICLES
Removal of wines and distilled spirits for treatment
of tobacco leaf.
 Manufacturers of cigars and cigarettes may
withdraw from bond, free of excise tax, local and
imported wines and distilled spirits in specific
quantities and grades for use in the treatment of
tobacco leaf to be used in the manufacture of
cigars and cigarettes (but such wines and distilled
spirits must first be suitably denatured), upon
issuance of a permit from the Commissioner and
subject to the rules and regulations prescribed by
the SOF.
Domestic denatured alcohol.
1. Domestic alcohol of not less than 180 degrees
proof (90% absolute alcohol) shall, when suitably
denatured and rendered unfit for oral intake, be
exempt from excise tax but shall be subject to
VAT.
2. If such alcohol, however, is to be used for motive
power, it shall be subject to excise tax.
3. Any alcohol, previously rendered unfit for oral
intake after denaturing but subsequently
rendered fir for oral intake after undergoing
fermentation, dilution, purification, mixture or
any other similar process shall be subject to excise
tax, and the person in possession of such will pay
for the tax.
Petroleum products sold to International Carriers
and exempt entities or agencies.
 Petroleum products sold to the following are
exempt from excise tax:
1. International carriers of Philippine or foreign
registry on their use or consumption outside
the Philippines: Provided, That the petroleum
products sold to these international carriers
shall be stored in a bonded storage tank and
may be disposed of only in accordance with
the rules and regulations to be prescribed by
the SOF, upon recommendation of the
Commissioner.
2. Exempt entities or agencies covered by tax
treaties, conventions and other international
agreements for their use or consumption:
Provided, That the country of said foreign
international carrier or exempt entities or
agencies exempts from similar taxes
petroleum products sold to the Philippine
carriers, entities or agencies; and
3. Entities which are by law exempt from direct
and indirect taxes.
Objectives of Regulations regarding the grant of
outright excise tax exemption on removal of
excisable articles intended for export or
sale/delivery to international carriers or to tax-
exempt entities/agencies and prescribing the
provisions for availing claims for product
replenishment.
 To regulate the grant of tax relief in order to
prevent possible abuses.
 As a general rule, all withdrawals of excisable
articles from their place of production must be
subject to excise tax. The grant of outright tax
exemption is discouraged because it deprives the
 BIR the opportunity to evaluate thoroughly the
factual and legal bases of the tax relief sought. It
is for this reason that remedies after payment of
the tax is more favored because this option will
five more protection to revenue collections
without diminishing the impact of the tax relief to
which the taxpayers are entitled. These remedies
may either come in the form of:
1. A claim for excise tax credit/refund ; or
2. A product replenishment.
 These revenue regulations are being issued for
the sole purpose of attempting to maintain the
enjoyment of tax privileges by these tax-exempt
persons or entities but, at the same time,
maintaining the equilibrium between stability of
revenue collections on one side, and giving the
taxpayers what is legally due them on the other.
 These regulations likewise intend to minimize the
rising incidents of reported diversions of declared
articles for export to the local market, as well as
domestic sales originally declared as intended to
tax-exempt persons and entities but are
subsequently found in possession of persons or
entities that are not entitled to such tax
exemption privilege.
 These regulations also intend to rationalize the
practice of some taxpayers of immediately
availing outright tax exemption but are delaying
and/or totally ignoring the prescribed submission
and full liquidation of their claimed tax-exempt
shipments with complete supporting documents.
Imposition of excise tax on removal of excisable
articles for export or sale/delivery to international
carriers and other tax-exempt entities/agencies.
 Subject to the subsequent filing of a claim for
excise tax credit/refund or product
replenishment, all manufacturers of articles
subject to excise tax shall pay the excise tax that is
otherwise due on every removal thereof from the
place of production that is intended for
exportation or sale/delivery to international
carriers or to tax-exempt entities/agencies:
Provided, That in case the said articles are
likewise being sold in the domestic market, the
applicable excise tax rate shall be the same as the
excise tax rate imposed on the domestically sold
articles.
 In the absence of a similar article being sold in the
domestic market, the applicable excise tax shall
be computed based on the value appearing in the
manufacturer’s sworn statement converted to
Philippine currency, as may be applicable.
Discovery in the domestic market of tax-paid articles
intended for exports.
 The payment of excise tax prescribed herein for
articles exclusively intended for export or for
sale/delivery to tax-exempt entities/agencies or
international carriers, but later found in the
domestic market, shall not give rise to the
automatic amendment of the previous permit to
export issued for such purpose.
 The same shall be subject to the applicable
penalties attendant thereto.
Failure to comply with printing requirements, not
entitled to Tax Credit/Refund or product
replenishment.
 The printing requirement on labels and packages
on the articles exported or sold/delivered to tax-
exempt agency or international carrier shall be
complied with strictly, the same shall not be
entitled to any tax credit/refund or product
replenishment.
Exemption from the imposition of excise tax upon
removal.
 In case of sale/delivery to embassies, legated such
as the Office of the Papal Nuncio or international
organizations, the excisable articles may be
removed from the place of production of the
manufacturer without payment of the excise tax,
subject to the following conditions:
1. For each and every transaction, a prior
written permit therefor shall be secured from
the LT Assistance Division II (LTAD II); and
2. No subsequent permit shall be approved and
issued unless a liquidation report on the
previously purchased tax-exempt articles has
been submitted by the said tax-exempt
entities to LTAD II within 30 days from the
date of removal of the tax-exempt article
from the place of production.
 The liquidation report shall be accompanied by
copies of the following documents:
 1. Commercial invoice issued by the
manufacturer;
2. Delivery of receipt issued by the
manufacturer;
3. Official receipt issued by the manufacturer;
4. Certificate of registration with the LTO, in case
of automobiles; and
5. Withdrawal certificate, official delivery invoice
or any BIR-prescribed forms to document
removal of excisable articles from the place of
production.
Claim for product replenishment.
 In case the excisable products were removed by
the manufacturer thereof from his place of
production or from any storage facility located
outside his place of production after prepayment
of the excise tax for purposes of exportation or
sale/delivery to tax-exempt entities/agencies or
international carriers, the said manufacturer may,
at its option, avail a claim for product
replenishment, instead of filing a claim for tax
credit/refund of the excise tax that has been
previously paid on the articles removed for such
purposes.
Conditions for product replenishment.
1. Excisable articles, regardless of volume and value,
which are, likewise, intended for exportation or
sale/delivery to international carriers or tax-
exempt entities/agencies may be allowed to be
removed from the place of production without
the payment of the excise tax in order to
replenishment the excise tax-paid article that was
previously exported or sold-delivered to
international carriers or tax-exempt
entities/agencies: Provided, That the total excise
tax due on the subsequent exportation or
sale/delivery to international carriers or tax-
exempt entities/agencies.
2. In case of excise tax that has been actually paid in
the previous exportation or sale/delivery to tax-
exempt entities/agencies or international carriers
is less than the excise tax that is otherwise due on
the articles applied for product replenishment,
the difference shall be paid by the manufacturer
before the removal thereof from the place of
production.
- In case the same is more than the excise tax
that is otherwise die on articles applied for
product replenishment, the difference thereof
may be utilized for any future application for
product replenishment.
- In lieu thereof, or at the option of the
manufacturer, he may also file a claim for tax
credit/refund with the appropriate office in
the BIR, subject to the prescriptive period
requirements of the Tax Code.
3. In case the rate of excise tax imposed at the time
of application for replenishment shall be different
from that imposed and paid at the time of the
previous exportation or sale/delivery to tax-
exempt entities/agencies or international carriers,
or in case the articles applied for replenishment
are no longer subject to excise tax, the following
rules shall apply:
a. If the equivalent excise tax that was paid is
more than the equivalent excise tax that is
otherwise due on the articles applied for
replenishment, the volume of articles
representing the difference may be the
subject of any future application for product
replenishment, or the manufacturer, may, at
his option, file a claim for tax credit/refund
with the appropriate office in the BIR for the
excess excise tax paid which represents such
difference, subject to the prescriptive period
requirements of the Tax Code.
b. If the equivalent excise tax that was
previously paid is less than the equivalent
excise tax that is otherwise due on the articles
applied for replenishment, the volume of
articles applied for replenishment
representing the difference shall be
disallowed from the said application and the
corresponding excise tax due shall be paid by
the manufacturer before removal from the
place of production.
c. If the articles applied for replenishment are
no longer subject to excise tax, the
manufacturer shall file a claim for tax
credit/refund for the excise tax that has been
pain on the previous exportation or
sale/delivery to tax-exempt entities/agencies
or international carriers, subject to the
prescriptive requirements of the Tax Code.
4. The excise tax on articles intended for export or
sale/delivery to tax-exempt entity/agency or
international carrier upon which a claim for
replenishment shall be subsequently filed with
the BIR should ne actually paid before removal
from the place of production. Accordingly, claims
for replenishment of articles upon which the
excise tax was paid under the advance deposit
schemes shall not be accepted.
5. For purposes of continuity on the availment of the
product replenishment on subsequent
exportations or sales/deliveries to international
carriers or tax exempt entities/agencies of
excisable articles, file an application for product
replenishment, together with a copy of the
payment form as roof of additional excise tax
payment.
Time for filing a claim for product replenishment.
 File within 90 days from the actual date of
exportation or sale/delivery to the tax-exempt
entity/agency or international carrier: Provided,
That the failure to file the said application within
the prescribed period or the denial of the said
application shall not preclude the applicant from
filing an application for tax credit/refund.
Validity of the product replenishment certificate.
 It shall remain valid for 5 years from the date of
issuance.
 In the event that the certificate has not been
utilized within the said prescribed period, a
onetime revalidation thereof shall be allowed by
filing an application for revalidation with the BIR
before the expiration of its validity.
 The duly-approved PRC, based on the outstanding
balance, may be converted into a TCC or tax
refund at anytime during the validity thereof.
 The period of the validity of the TCC shall be the
same with the remaining period of validity of the
PRC.
 The sale, assignment or transfer of any PRC to
another person is prohibited.
Disallowances on claims for Tax Credit
Certificate/Refund or Product Replenishment.
 For purposes of filing a claim with the BIR for tax
credit/refund or product replenishment on excise
taxes that have been paid on excisable article is
composed of locally manufactured excisable
article and imported article, the claim for excise
tax on the imported article shall not be allowed.
Meaning of the term exempt from all taxes.
 Excludes indirect taxes, unless the exempting
statute is so couched as to include indirect tax
from the exemption.
Person who has the legal personality to file an
administrative claim for refund of excise taxes
alleged to have been erroneously paid to supplier of
aviation fuel in the Philippines.
 The statutory taxpayer.
Tax treatment of all petroleum and petroleum
products imported and its subsequent exportation or
sales to Freeport and Economic Zone Locators or
Other Persons/Entities; Refund of Taxes Paid;
Authority to release imported goods and other
administrative requirements.
 Shall be paid by the importer to the BOC.
Rules on removal of spirits under bond for
rectification.
 Spirits requiring rectification may be removed
from the place of production to another
establishment for the purpose of rectification
without the prepayment of the excise tax;
 The distiller removing such spirits and the rectifier
receiving them shall file with the Commissioner
their joint bond conditioned upon the payment by
the rectifier of the excise tax due of the rectified
alcohol;
 In cases where alcohol has already been rectified
either by original and continuous distillation or by
re-distillation, no loss for rectification and
handling shall be allowed and the rectifier thereof
shall ay the excise tax due on such losses;
 Where a rectifier makes use of spirits upon which
the excise tax has not been paid, he shall be liable
for the payment of the tax otherwise due
thereon.
Rules on removal of fermented liquors to bonded
warehouse.
 Any brewer may remove or transport from his
brewery or other place of manufacture to a
bonded warehouse used by him exclusively for
 the storage or sale in bulk of fermented liquors,
not less than 1,000 liters at one removal, without
prepayment of the tax t/hereon under a permit
which shall be granted by the CIR.
 Such permit shall be affixed to every package so
removed and shall be cancelled or destroyed in
such manner as the Commissioner may prescribe.
 Thereafter, the manufacturer of such fermented
liquors shall pay the tax in the same manner and
under the same penalty and liability as when paid
at the brewery.
Rules on removal of damaged liquors free of tax.
 Brewers may sell any fermented liquor which has
become sour or damaged so as to be unfit for use
as such, and after securing a special permit from
the Commissioner, remove the same without the
payment of tax thereon, in cask or other
packages, distinct from those ordinarily used for
fermented liquors, each containing not less than
175 liters with a note of their contents
permanently affixed thereon.
Rules on Removal of tobacco products without
prepayment of tax.
 Products of tobacco entirely unfit for chewing or
smoking may be removed free of tax for
agricultural or industrial use.
 Stemmed leaf tobacco, fine-cut shorts, the refuse
of fine-cut chewing tobacco, scraps, cuttings,
clippings, stems or midribs, and sweepings of
tobacco may be sold in bulk as raw material by
one manufacturer directly to another without
payment of the tax.
CHAPTER III – EXCISE TAX ON ALCOHOL PRODUCTS
Tax classification of alcohol and tobacco products.
 Any alcohol or tobacco product that is introduced
in the domestic market on or after the effectivity
of RA 10351 shall be initially tax classified
according to their suggested net retail prices as
declared in the prescribed manufacturer’s or
importer’s sworn statement.
 In case of alcohol and or tobacco product that was
duly registered with the BIR before the effectivity
of RA 10352 but was not tax classified by the BIR
according to the new tax rates provided under the
Act, such product shall be treated as a newly
introduced product upon re-introduction thereof
in the domestic market after the effectivity of the
Act, such product upon re-introduction thereof in
the domestic market after the effectivity of the
Act. Accordingly, the tax classified thereof shall be
based on the suggested net retail price declared
in the aforesaid sworn statement, subject to the
initial validation and revalidation requirements.
 The proper tax classification of all fermented
liquors and tobacco products, whether registered
before or after the effectivity of the said Act, shall
be determined every two years from the date of
effectivity thereof.
 For purposes of tax classification, alcohol and
tobacco products, whether imported or
domestically manufactured, shall be taxed
according to their individual brand name, color
and/or design of label, manner and/or form of
packaging or size of container of the product.
 The following instances, but not limited to, shall
be taxed differently:
1. Two products bearing exactly the same root
name but with different suffixes or prefixes.
2. Two products bearing exactly the same brand
name but with different colors and/or design
of labels.
3. Two products bearing exactly the same brand
name and label but with different forms of
packaging.
4. Two products bearing exactly the same brand
name and label but with different sizes of
container for alcohol products.
5. One product is sold in a regular basis while
the other product is introduced in a limited
basis such as a special edition, for specific
occasion and other similar instances.
Revised revalidation period for newly introduced
alcohol and tobacco products.
 The revalidation of the suggested net retail price
of a newly introduced alcohol or tobacco product
shall be conducted after the end of nine months
from the initial validation.
 Shall be conducted exclusively by the authorized
representatives of the BIR.
Submission of sworn statement.
 Every local manufacturer or importer shall file a
duly notarized manufacturer’s or importer’s
sworn statement for alcohol or tobacco product.
 The sworn statement shall be subject to
verification by the BIR to validate its contents with
respect to its accuracy and completeness.
Understatement of the suggested net retail price.
 The understatement by as much as 15% of the
actual net retail price shall render the
manufacturer or importer liable for additional
excise tax equivalent to the tax due and
difference between the understated suggested
net retail and the actual net retail price.
Locally produced wines derived from fruits and
berries are subject to excise tax.
 In its general meaning, the term wines is different
from the term fermented liquors, although the
two products are both the results of fermented
process.
 There are commonly accepted wines which derive
from other basic raw materials other than fruits,
under which classification tuba, basi and tapuy
falls.
 Under the class of wine using non-fruits as basic
raw materials, the provisions of Section 143 of the
NIRC that prescribes for the exemption thereof
from excise tax applies. The exemption is
applicable only to domestically produced
fermented liquors.
 The term wines referred to under Section 142 that
are subject to excise tax pertain specifically to
wines that are derived from fruits.
Downward reclassification of fermented liquors.
 Any downward classification of any fermented
liquor product that is duly registered with the BIT
at the time of the effectivity of RA 10351 which
will reduce the tax imposed herein, or the
payment thereof, shall be prohibited.
CHAPTER IV – EXCISE TAX ON TOBACCO PRODUCTS
Revised provisions for the manner of packaging of
cigarettes.
 All cigarettes whether packed by hand or acked by
machine shall only be packed in 20s, and thru
other packaging combinations which shall result
to not more than 20 sticks of cigarettes.
 In case of cigarettes packed in not more than 20
sticks, the net retail price of each individual
packages shall be the basis of imposing the tax
rate prescribed under RA 10351.
Raising government revenue is not the sole objective
of RA 8240.
 Congressional deliberation show that the shift
from ad valorem to specific taxes introduced by
the law was not intended to curb the corruption
that became endemic to the imposition of ad
valorem taxes. Since ad valorem taxes were based
on the value of goods, the prices of the goods
were often manipulated to yield lesser taxes. The
imposition of specific taxes, which were based on
the volume of goods produced, would prevent
price manipulation and also cure the unequal tax
treatment created by the skewed valuation of
similar goods.
What makes tobacco inspection fee a miscellaneous
tax?
 Tobacco inspection fees are collected both for
purposes of regulation and control and for
purposes of revenue regulation: half of the said
fees accrues to the tobacco Inspection Fund,
while the other half accrues to the Cultural Center
of the Philippines.
 Tobacco inspection fees are imposed both as a
regulatory measure and as a revenue-raising
measure.
Definition of terms.
 Cigars – all rolls of tobacco or any substitute
thereof, wrapped in leaf tobacco.
 Cigarettes – all rolls of finely-cut leaf tobacco, or
any substitute therefor, wrapped in paper or in
any other material.
 Wholesale price – the amount of money or price
paid for cigars or cigarettes purchased for the
purpose of resale, regardless of quantity.
 Retail price – the amount of money or price which
an ultimate consumer or end-user pays for cigars
or cigarettes purchased.
CHAPTER V – EXCISE TAX ON PETROLEUM PRODUCTS
Local government units cannot impose excise tax on
petroleum products.
 Congress has the constitutional authority to
impose limitations of the power to tax of local
government.
 The prohibition extends to all taxes, fees and
charges.
Aviation jet fuel is considered as subject to specific
tax.
 P3.67 per liter of volume capacity.
 Since the tax imposed is based on volume
capacity, the tax is referred to as specific tax.
CHAPTER VI – EXCISE TAX ON MISCELLANEOUS
ARTICLES
Persons liable for the payment of ad valorem tax on
automobiles.
1. On locally manufactured/assembled automobiles
– paid by the manufacturer/assembler.
- Should the automobiles be removed from the
place of manufacture/assembly without
payment of tax, the dealer/trader, owner, or
person having possession thereof shall be liable
for the excise tax due thereon.
- In case of transfer of locally
manufactured/assembled automobiles from a
tax-exempt person to a non-tax exempt
individual or entity, the transferee or possessor
thereof shall be liable for the excise tax.
2. On imported automobiles.
- Paid by the owner or importer of the
automobile or by the dealer/trader, or by any
person who is found in possession of any
untaxed automobiles including any person
other than the one legally entitled to exemption
from the ad valorem tax in the proper case.
- In cases where the automobiles are imported
tax free into the country by any one exempt
from tax and are subsequently sold, transferred,
or exchanged in the Philippines to non-exempt
persons, including the introduction and re-
introduction into customs the territory of
automobiles intended for exclusive use within
the Freeport zones, the purchaser or transferee,
owner/possessor of the automobiles shall be
considered as the importer, and shall be liable
for the excise tax due on such importation.
Tax treatment on subsequent sale, transfer or
exchange of tax-exempt automobile by a tax-exempt
person/entity to a non-exempt person/entity.
 In cases where a tax-exempt person/entity
acquired an automobile, whether locally
purchased or imported, without payment of the
tax by reason of his/their exemption, the
purchase thereof by a non-exempt shall be
subject to the ad valorem tax based on the higher
of actual consideration between the tax-exempt
person/entity and the non-exempt; or the
depreciated value of the automobile at the time
of sale, transfer, exchange which depreciated rate
shall be 10% per year, but in no case shall the
amount of depreciation be more than 50% of the
original cost or value.
 Where a tax-exempt automobile subsequently
sold by a tax-exempt person was determined to
be originally acquired primarily for the purpose of
avoiding the payment of excise tax, the ad
valorem tax shall be computed based on the
original purchase price or value of importation of
such motor vehicle at the time of its original
purchase without the benefit of any deduction for
depreciation.
Meaning of the term manufacturer’s or importer’s
selling price.
 Refer to the price, net of excise and VAT, at which
the locally manufactured/assembled or imported
automobiles are offered for sale by the
manufacturer/assembler or importer to the
dealers, as reflected in the sworn statement.
 In computing the manufacturer’s selling price, it
shall always include the value of car, air
conditioner, radio and wag wheels including the
cost of installation thereof WON the same were
actually installed.
 The suggested retail price shall not be less than
the actual selling rice.
When automobile considered as brand new.
1. Of current or advance year model in the country
of origin and/or manufacture; or
2. Year model of immediately preceding year in the
country of origin and/or manufacture provided
that:
a. The motor vehicle has a mileage of not more
than 300 kms.; and
 b. The motor vehicle has been acquired by the Duties and obligations of the buyers of metallic
importer from the dealer as first owner. minerals.
 #2 shall not be accorded any depreciation  Metallic minerals are subject to the 2% excise tax
allowance. based on either the actual market value of the
gross output thereof at the time of removal, in
When a motor vehicle deemed personally-owned or case of those locally extracted or produced; or the
for personal use. value used by the BOC in computing tariff and
 If the invoice, bill of sale and bill of lading are duties, in case of importation.
made out in the name of a natural person  For purposes of these regulations, possession
provided that the number of units imported by shall mean, not only the actual current physical
that person shall not exceed 2 in any given 12 possession of said metallic minerals, but shall
months. likewise cover the inclusion of said mineral in the
 Should there be importations of automobiles inventory of a person or entity at any given point
made in the name of several buyers but in time.
represented by a single person/entity, such
importation shall be deemed an importation of Owner or person having possession of excisable
automobile for resale; therefore subject to ad domestic product liable to the tax due thereon.
valorem tax based on importer’s selling price to
be paid by such person/entity representing the Mode of collection and payment of taxes.
individual buyers.  All buyers of metallic minerals are hereby
constituted as agents for the collection of the 2%
When imported motor vehicles for sale may be excise tax on metallic minerals and the 5% CWT
released from custom’s custody. thereon.
 After payment of ad valorem tax and the issuance
of the appropriate Authority to Release Imported Time and manner of filing of taxes withheld.
Goods (ATRIG) by the BIR.  On or before the 10th day of the following month
to the BIR.
What is the so called special purpose vehicle.
 Special purpose vehicle refers to a motor vehicle
other than trucks, cargo van, jeep, bus, single cab
chassis designed for specific application such as
cement mixer, fire truck, boom truck, ambulance
and/or medical unit and off-road vehicles for
heavy industries and not for recreational
activities.
 The motor vehicle is designed in such a manner
that it can only be used strictly for the intended
purpose for which it was manufactured.
 In order that a vehicle be classified as a SPV, and
therefore exempt from excise tax, the same must,
in its original state, be ready for exclusive use for
the specific purpose for which it is being
categorized as a SPV.

CHAPTER VII – EXCISE TAX ON MINERAL PRODUCTS

Who is liable to pay the excise tax of small scale

miners upon extraction of the minerals.
 The one who removed the minerals.
TITLE VII – DOCUMENTARY STAMP TAX
Documentary stamp tax defined; Nature of
documentary stamp tax (DST)
 DST is a tax on documents, instruments, loan
agreements, and papers evidencing the
acceptance, assignment, sale or transfer of an
obligation, right or property incident thereto.
 A DST is in the nature of an excise tax levied on
the exercise by persons of certain privileges
conferred by law for the creation, revision, or
termination of specific legal relationships thru the
execution of specific instruments.
 i.e. Leases of lands, mortgages, pledges and trusts
and conveyances of real property.
 In imposing the DST, the court considers not only
the document but also the nature and character
of the transaction.
Documents subject to the DST.
 Applicable on all documents not otherwise
expressly exempted by RA 9243, notwithstanding
the fact that they are in electronic form.
 Electronic Commerce Act. Electronic documents
are the functional equivalent of a written
document under existing laws, and the issuance
thereof is therefore tantamount to the issuance a
written document, and therefore subject to DST.
When documentary stamp tax should be paid.
 DST is levied independently of the legal status of
the transactions giving rise to thereto.
 They must be paid upon the issuance of the said
instruments, without regard to whether the
contracts which give rise to them are rescissible,
void, voidable or unenforceable.
 The DST return shall be filed within 5 days after
the close of the month when the taxable
document was made, signed, accepted or
transferred, and the tax thereon shall be paid at
the same time the aforesaid return is filed.
Persons liable for DST.
 It is imposed against the person making, signing,
issuing accepting or transferring the document or
facility evidencing the aforesaid transactions.
 In general, it may be imposed on the transaction
itself or upon the document underlying such act.
 Any of the parties thereto shall be liable for the
full amount of the tax due: Provided, That as
between themselves, the said parties may agree
upon themselves on who shall be liable for the
tax.
 XPN. Whenever one of the parties to the taxable
transaction is exempt from tax, the other party
thereto who is not exempt shall be the one
directly liable for the tax.
Distinguish shares of stock from certificate of stocks.
 Shares of stock shall include shares of stock of a
corporation; warrants and/or options to purchase
shares of stock, as well as units of participation in
a partnership (except GPP), joint stock companies,
joint accounts, joint ventures taxable as
corporations, associations, and recreation or
amusement clubs (such as golf, polo or similar
clubs); and mutual fund certificates.
 Certificates of stock are certificates representing
the capital stock of stock corporations divided
into shares signed by the President or VP,
countersigned by the secretary or assistant
secretary, and sealed with the seal of the
corporation, issued in accordance with the by-
laws.
Rationale for the imposition of DST on the original
issue of shares of stock.
 DST is imposed on the original issue of shares of
stock.
 The DST, as an excise tax, is levied upon the
privilege, the opportunity and the facility of
issuing shares of stock.
 CIR vs. Construction Resources of Asia, Inc. The
DST attaches upon acceptance of the
stockholder’s subscription in the corporation’s
capital stock regardless of actual or constructive
delivery of the certificates of stock.
When the certificate of stock deemed issued for the
purpose of imposing the DST.
 The DST under Section 174 (shares of stock) may
be levied only once, that is upon the original issue
of the certificate.
 CIR vs. Construction Resources of Asia, Inc. The
DST accrues at the time the shares are issued, not
from the delivery of the certificates of stock.
Deposit on stock subscription NOT subject to DST.
 The deposit on stock subscription, as reflected in
the Balance Sheet, is not a subscription
agreement subject to the payment of DST.
 The deposit on stock subscription is merely an
amount of money received by a corporation with
a view of applying the same as payment for
additional issuance of shares in the future, an
event which may or may not happen.
 The person making the deposit on stock
subscription does not have the standing of a
stockholder and he is not entitled to dividends,
voting rights or other prerogatives and attributes
of a stockholder.
 A taxpayer is not liable for the payment of DST on
its deposit on subscription because there is yet no
subscription that creates rights and obligations
between the subscriber and the corporation.
 Capital stock issued connotes permanence of
funds flowing into a corporation which cannot be
withdrawn.
 The phrase issuance of shares of stock must be
viewed as permanent in character.
 Future subscription to an increase in capital stock
is not an original issue of shares of stock nor is it a
sale or transfer of shares of stock, but it is a
standard accounting term which refers to an
amount of money transmitted by a stockholder to
a corporation on deposit with the possibility of
the same being later subscribed in the company’s
capital.
 Campagnie Financiere Sucres et Denrees vs CIR.
Sales to secure the future transfer of due-bills,
certificates of obligation or certificates of stock
are subject to DST. The transfer or assignment of
deposits on stock subscription is subject to DST.
Guidelines on the corporate stock DST program.
 RMO 8-98. All existing corporations shall file the
Corporation Stock DST Declaration, and the DST
Return, if applicable, when DST is still due on the
subscribed share issued by the corporation, on or
before the 5th day of the month following the
publication of this Order.
 All existing corporations with authorization for
increased capital stock shall file their Corporate
Stock DST Declaration, together with the DST
Return, if applicable when DST is due on
subscriptions made after the authorization, on or
before the 5th day of the month following the date
of authorization.
 What is being taxed is the privilege on issuing
shares of stock, and, therefore, the taxes accrue
at the time the shares are issued.
 Issuance – the point in which the stockholder
acquires and may exercise attributes of ownership
over the stocks.
Person required to remit the DST.
 The corporation, which issued the shares of stock,
shall remit the tax due on the said issuance.
 The share of stock is considered issued upon
acceptance by the corporation of the subscriber’s
subscription for stock in the corporation, the
actual delivery by the corporation of the
certificate evidencing the share of stock to the
contrary notwithstanding.
Stock Dividend and the basis of the DST on stock
dividend.
 A stock dividend is any dividend payable in shares
of stock of the corporation declaring or
authorizing such dividend.
 A stock dividend of a corporation is a dividend
paid in shares of stock instead of cash, and is
properly payable only out of the surplus profits.
 A stock dividend is actually 2 things:
1. A dividend; and
2. The enforced use of the dividend money in
purchase additional shares of stock at par.
 Stock dividends are shares of stock and not
certificates of stock which merely represent them.
There is no reason for determining the actual
value of such dividends for purposes of the DST if
the certificates representing them indicate a par
value.
Shares of stock issued at the exercise of the stock
option plan subject to DST.
 If the shares to be issued at the exercise of the
stock options come from the unissued shares of
stock of the issuing corporation, the original
issuance of the said shares is subject to DST.
 Subsequent sale or transfer of the said shares
issued at the exercise of the stock option plan is
subject to DST upon the execution of the deed
transferring ownership or rights thereto, or upon
 delivery, assignment or indorsement of such
shares in favor of another.
Whether or not a tax-free exchange of properties for
shares of stock subject to DST.
 The exchange shall be exempt from DST.
 The exemption on transfer of property refers only
to the DST due on the deed transferring the
property. The shares of stock issued in exchange
of said property is subject to the DST.
How shares of stock transferred to another person.
 Shares of stock so issued are personal property
and may be transferred by delivery of the
certificate or certificates of stock indorsed by the
owner or his attorney-in-fact or other person
legally authorized to make the transfer.
 No transfer shall be valid except as between the
parties, until the transfer is recorded in the books
of the corporation so as to show the names of the
parties to the transaction, the date of the
transfer, the number of certificate or certificates
and the number of shares transferred.
 The transfer of shares of stocks is subject to DST
upon execution of the deed transferring
ownership or rights thereto, or upon delivery,
assignment or indorsement of such shares in favor
of another.
 No transfer of shares of stock shall be recorded
unless DST thereon has been duly paid.
Instrument contemplated under 174 and 175.
 Contemplate a subscription agreement in order
for the taxpayer to be liable to pay the DST.
 A subscription contract is a contract by which the
subscriber agrees to take a certain number of
shares of capital stock of a corporation, paying for
the same or expressly or impliedly promising to
pay for the same.
 The DST is imposed on the sales, agreements to
sell, memoranda of sales, deliveries or transfer of
shares or certificates of stock in any association,
company, or corporation, or transfer of such
securities by assignment in blank, or by delivery,
or by any paper or agreement, or memorandum
or other evidence of transfer or sale whether
entitling the holder in any manner to the benefit
of such certificates of stock or to secure the future
payment of money, or for the future transfer of
certificates of stock.
Tax treatment of the subsequent sale of stocks
obtained from the exercise of the stock option.
 The sale or transfer of said shares is subject to
DST upon the execution of the deed transferring
ownership or rights thereto, or upon delivery,
assignment or indorsement of such shares in favor
of another.
Bonds referred to as subject to DST.
 Refer to written obligations or undertakings that
are sufficiently secured by either cash or personal
or real property or surety.
 Bonds issued in foreign countries but being sold
or transferred in the Philippines.
Definition of a bank check.
 A bank check is a bill of exchange drawn on a bank
payable on demand.
 It is a negotiable instrument that serves as a
substitute for money and as a convenient form of
payment in financial transactions and obligations.
Definition of a bank draft.
 A bank draft is a bill of exchange drawn by a bank
upon it correspondent bank, issued at the
solicitation of a stranger who purchases and pays
therefor.
 An order for payment of money.
Certificates of deposit covered by Section 178 which
are subject to DST.
 A certificate of deposit is a written
acknowledgment by a bank or banker of the
receipt of a sum of money on deposit which the
bank or banker promises to pay to the depositor,
to the order of the depositor, or to some other
person or his order, whereby the relation of
debtor and creditor between the bank and the
depositor is created.
 The Certificates of deposit which are subject to
DST of P1.50 are those not drawing interest.
Meaning of the term debt instruments.
 Mean instruments representing borrowing and
lending transactions including, but not limited to.
debentures, certificates of indebtedness, due bills,
 bonds, loan agreements, including those signed
abroad wherein the object of contract is located
or used in the Philippines, instruments and
securities issued by the government or any of its
instrumentalities, deposit substitute debt
instruments, certificates or other evidences of
deposits that are either drawing interest
significantly higher than the regular savings
deposit taking into consideration the size of the
deposit and the risks involved or drawing interest
and having specific maturity date, orders of
payment of any sum of money otherwise than at
sight or on demand, promissory notes, whether
negotiable or non-negotiable, except bank notes
issued for circulation.
Purpose of the amendment of Section 179 of the
NIRC 1997.
 The amendment does not mean that prior to its
further amendment, time deposits for which
passbooks were issued were exempted from
payment of DST.
 The further amendment was intended to
eliminate precisely the scheme used by banks of
issuing passbooks to cloak its time deposits as
regular savings deposits.
Meaning of the term issue price.
 Refer to the face value of the debt instrument.
Person liable to remit the tax imposed under Section
179 (debt instrument).
 It shall be remitted by the person who issued the
instrument.
Basis of the DST under Section 179.
 All loan agreements, whether made or signed in
the Philippines, or abroad, when the obligation or
right arises from the Philippine sources or the
property or object of the contract is located or
used in the Philippines shall be subject to DST.
 In cases where no formal loan agreements or
promissory notes have been executed to cover
credit facilities, the DST shall be based on the
amount of drawings or availment of the facilities,
which may be evidences by credit/debit memo,
advice or drawings by any form of check or
withdrawal slip.
DST on Government debt instruments and securities.
 Deposit substitutes mean an alternative form of
obtaining funds from the public, other than
deposits, through the issuance, endorsement, or
acceptance of debt instruments for the
borrower’s own account, for the purpose of
relending or purchasing of receivables and other
obligations, or financing their own needs or the
needs of their agent or dealer.
 Government debt instruments and securities,
including bureau of treasury issued instruments
and securities, such as Treasury bonds, Treasury
Bills, and treasury notes, shall be considered as
deposit substitutes irrespective of the number of
lenders at the time of origination if such debt
instruments and securities are to be traded and
exchanged in the secondary market.
 The original issuance of these debt instruments is
subject to DST.
 Any assignment or re-assignment of said debt
instruments shall be subject to the same DST if
the assignment or re-assignment entails changing
the maturity date or remaining period of coverage
from that of the original instruments in the name
of the transferee to replace the old ones.
Otherwise, the assignment or re-assignment shall
be exempt from DST.
Advances extended to affiliates evidenced by
instructional letters, credit/debit memo, advice or
drawings, journal or cash vouchers or by any form of
check or withdrawal slip shall be considered as loan
agreements subject to DST.
 Loan agreement – refers to a contract in writing
where one of the parties delivers to another
money or other consumable thing, upon the
condition that the same amount of the same kind
and quality shall be paid. The term shall include
credit facilities, which may be evidenced by credit
memo, advice or drawings.
Only one DST imposed where a loan agreement and
promissory note are simultaneously issued.
 In cases where a loan agreement and a
promissory note are simultaneously issued and
executed, the loan having been secured by the
promissory note, only one DST shall be imposed
on either loan agreement or promissory note,
whichever is higher tax.
Rationale for imposing only one DST on a loan
agreement which was secured by a promissory note.
 RA 9243 was meant to minimize, if not remove,
the heavy transaction costs arising from the
multiple imposition of DST on each and every
phase of a business transaction and movement of
capital.
 This is particularly true in the case of a single
continuous transaction, which refers to
transactions consisting of a single act and a single
purpose but which may have as its component
more than one taxable transaction, if taken
separately.
What are bank deposits?
 Bank deposits are in the nature of irregular
deposits; they are really loans because they bear
interest, and the relationship between a depositor
and a bank is one of creditor and debtor, and one
fiduciary in nature, in which the bank is under
obligation to treat the accounts of its depositors
with meticulous care and utmost fidelity.
Meaning of the term Certificate of deposit.
 A certificate deposit is a written acknowledgment
by a bank or banker of the receipt of a sum of
money on deposit which the bank or banker
promises to pay to the depositor, to the order of
the depositor, or to some other person or his
order, whereby the relation of debtor and
creditor between the bank and the depositor is
created.
 It is a receipt issued by a bank for an interest-
bearing time deposit coming due at a specified
future date.
 Refers to a time deposit account.
 Demand deposits – deposits subject to
withdrawal either by check or thru the automated
tellering machines which are otherwise known as
current or checking accounts. The Bank may or
may not pay interest on these accounts.
 Savings deposits – are interest-bearing deposits
which are withdrawable either upon presentation
of a property accomplished withdrawal slip
together with the corresponding passbook or thru
the automated tellering machines.
 Negotiable order of withdrawal accounts –
interest-bearing savings deposit which are
withdrawable by means of Negotiable Orders of
Withdrawal.
 Time deposits – interest-bearing deposits with
specific maturity dates and evidences by
certificates issued by the bank.
 The definition of certificate of deposit is all
encompassing to include a savings account
deposit.
Certificate of deposit drawing interest being referred
to under 179.
 Refers to a time deposit account. the distinct
features of a certificate of deposit from a
technical point of view are as follows:
1. Minimum deposit requirement;
2. Stated maturity period;
3. Interest rate is higher than the ordinary
savings account;
4. Not payable on sight or demand, but upon
maturity or in case of pre-termination, prior
notice is required; and
5. Early withdrawal penalty in the form of partial
loss or total loss of interest in case of pre-
termination.
Savings Plus deposit Accounts (SSDAs) and Fixed
Savings deposit (FSDs) subject to DST.
 The SSDA is for depositors who maintain savings
deposits with substantial average daily balance
and which earn higher interest rates.
 There is not pre-termination of accounts in an
SSDA because the account is simply reverted to an
ordinary savings status in case of early or partial
withdrawal or if the required holding period is not
met.
 The SSDA has all of the distinct features of a
certificate of deposit.
 The FSD, like a time deposit, provides for a higher
interest rate when the deposit is not withdrawn
within the required fixed period; otherwise, it
earns interest pertaining to a regular savings
deposit.
What are tiered deposits?
 Tiered deposits are usually long-term bond notes
that are being floated to the public to raise capital
and the interest rates are usually fixed according
to their capital brackets.
 These are considered as debt instruments subject
to DST upon placement of the deposit by the
subscriber or upon renewal of the placement.
 All debt instruments are subject to DST at P1.00
on each P200 or fractional part thereof, of the
issue price of any such debt instrument.
 If the term of the instrument is less than one year,
the DST is computed by taking into consideration
the number of days that the instrument is
outstanding as a fraction 365 days.
 If the debt instrument has a term of one year or
longer, the DST due shall be computed based on
the issue price of the debt instrument.
Regular savings deposit not subject to DST.
 Orders for the payment of sum of money payable
at sight or on demand are exempted from the
payment of DST. Thus, a regular savings account
with a passbook which is withdrawable at any
time is not subject to DST, unlike a time deposit
which is payable on a fixed maturity date.
Negotiable character of any document under Section
179 is immaterial for purposes of imposing DST.
 A certificate of deposit may or may not be
negotiable as gathered from the use of the
conjunction or, instead of and, in its definition.
Meaning of Bill of Exchange.
 An unconditional order in writing addressed by
one person to another, signed by the person
giving it, requiring the person whom it is
addressed to pay on demand or at a fixed or
determinable future time a sum certain in money
to order or to bearer.
When remittances of OFWs or OCWs exempt from
the payment of DST.
 The remittances of all OCWs or OFWs, upon
showing of the OEC or valid OWWA membership
certificate, or electronic receipt issued by POEA,
by the OCWs or OFWs beneficiary or recipient,
shall be exempt for the payment of DST.
Meaning of letter of credit.
 One of the modes of payment, by which
commercial banks sell foreign exchange to service
payments for the primary purpose of which is to
substitute for, and therefore support , the
agreement of the buyer/importer to pay money
under a contract or other arrangement.
Telegraphic transfers subject to DST.
Contract of insurance, defined.
 A contract of insurance is an agreement whereby
one undertakes for a consideration to indemnify
another against loss, damage or liability arising
from an unknown or contingent event.
 An unknown event is something which is certain
to happen but the time of its happening is not
known, while a contingent event is something
which is not certain to take place.
Amount of insurance is the basis for the computation
of the DST for Personal Accident Insurance Policy.
 RA 10001. The basis for the computation of DST is
the amount of insurance or the insurance
coverage, not anymore to the amount of premium
collected.
 This is the rule regardless of whether the issuer is
a life or non-life insurance company because the
transaction is in the nature of a life insurance
policy.
Effective date for the implementation of RA 10001.
 April 1, 2010.
 If an insurance company used the old DST rates as
basis in computing and paying its DST liabilities on
life insurance policies issued despite the
effectivity of RA 10001, said insurance company
can recover any over-payments made by filing a
claim for DST refund/credit with the RDO having
jurisdiction over its business within 2 years from
the payment of the tax.
 Any overpayments made due to the late
application of the provisions of RA 10001 shall
neither give rise to the direct offsetting of DST
liability in succeeding period not to the crediting
of such overpayment to the taxpayer’s eDST
ledger.
Provisions of the RA 10001 regarding the DST of life
insurance policies five years after the effectivity of
the said law.
 No tax on life insurance premium shall be
collected.
 On the said date, all policies of insurance or other
instruments by whatever name the same shall be
called whereby any insurance shall be made upon
any life or lives shall be exempt from the DST.
DST on automatic increase clause of life insurance
policies.
 Automatic increase clause in the original
insurance policy is subject to separate DST.
Cooperatives engaged in the insurance business NOT
subject to DST.
 Being a bona fide cooperative, taxpayer is exempt
from payment of taxes on life insurance
premiums and DST because neither the Tax Code
not the Insurance Code mandates that it should
be registered with the CDA.
 The subjectivity of transactions of cooperatives to
DST are as follows:
1. If the insurance cooperative transacts
exclusively with members, insurance policies
issued are not subject to DST.
2. If the insurance cooperatives are transacting
with both members and non-members and
the accumulated reserves and undivided net
savings of these cooperatives are not more
than P10M, the transactions with members
are exempt from DST.
- With respect to non-members, they are liable
for the payment of the DST.
3. If the insurance cooperatives are transacting
with both members and non-members and
their accumulated reserves and undivided net
savings are more than P10M, all transactions
shall be treated as taxable for DST purposes.
Treatment of DST on group insurance policy on
personal accident.
 The payment of DST on issued group insurance
policies shall be based on the amount of
insurance or insurance coverage on the group
master insurance policy.
 For individual certificate issued to each and every
ee covered by the group insurance, considering
that these individual certificates are separate and
distinct from the issued group master insurance
policy, DST is likewise imposed thereon.
 In case there are changes in the ees covered by
the group insurance policy and/or the amount of
insurance coverage, the following rules shall
apply:
1. If there is a reduction in covered ees and the
corresponding amount of insurance coverage,
this will not give rise to the imposition of DST
on the amended insurance coverage.
2. If there is an increase in the covered ees as
well as in the corresponding amount of
insurance coverage and such increase is
covered by the appropriate endorsement, this
will result to imposition of the DST on the
revised/amended group insurance policy as
well as on new certificates of cover.
3. If there is no change in the covered ees but
the amount of group insurance coverage
increased and the amount of coverage per ee
increased, this will result to imposition of the
DST on the revised/amended group insurance
policy as well as on new certificates of cover.
4. If there is no change in the number of covered
ees but there was a change in the imposition
of ees, this will result to imposition of DST on
the new Certificates of Cover.
 The DST for each and every Certificate of Cover
required to be issued shall be paid by the
insurance company, WON the individual
certificate are actually issued to the covered ees.
DST on insurance other than health and accident
insurance policies issued by non-life insurance
companies.
 Subject to DST regardless of the fact that policies
may have become ineffective due to non-
payment of the corresponding premiums.
 With regard to health and accident insurance
policies issued by non-life insurance companies,
the basis for the payment of DST shall be the
same as that imposed on life insurance
companies.
 Certificate of Cover issued pertinent to motor
vehicle insurances shall be subject to DST.
Reason for the imposition of DST on fidelity bonds
and other insurance policies.
 The DST on insurance policies, though imposed on
the document itself, is actually levied on the
privilege to conduct insurance business.
 It is imposed on the privilege of making or
renewing any policy of insurance (except life,
 marine, inland and fire insurance), bond or
obligation in the nature of indemnity for loss,
damage or liability.
HMOs are not engaged in the insurance business;
hence, Not subject to the DST on other insurance
policies.
 HMO – an entity that provides, offers or arranges
for coverage of designated health services needed
by plan members for a fixed prepaid period.
 2 requisites concur before the DST can apply:
1. The document must be a policy of insurance
or an obligation in the nature of indemnity;
and
2. The maker should be transacting the business
of accident, fidelity, er’s liability, plate, glass,
steam boiler, burglar, elevator, automatic
sprinkler, or other branches of insurance
(except life, marine, inland and fire
insurance).
Health Case agreement NOT considered insurance
contract.
 Tax laws may not be extended by implication
beyond the clear import of their language, not
their operation enlarged so as to embrace matters
not specifically provided. Tax statutes are strictly
construed against the taxing authority.
No legislative intent to impose DST on Health care
Agreements of HMOs.
 If it had been the intent of the legislature to
impose DST on health care agreements, it could
have done so in clear and categorical terms.
Basis and the rate of the DST in the case of policies of
annuities.
 On policies of annuities, the old tax base of capital
of the annuity or annual income has been
removed and in its place, the tax is not based on
the premium or installment payment or contract
price collected.
Basis and rate of the DST in the case of pre-need
plans.
 Based on premium or contribution collected.
Requirements to all taxpayers issuing annuities and
pre-need plans.
 Shall submit in hard and soft copy an inventory of
all issued, outstanding and valid life annuities and
pre-need plans.
Documents or instruments subject to DST.
 Certificates and other necessary documents
issued by the Construction Industry Authority of
the Philippines, which are not mentioned in
Section 199, are subject to DST of P15 as
prescribed under Section 188:
1. Certificate of registration of overseas
contractors;
2. Certificate of Renewal of registration of
overseas contractors;
3. Contractor’s License (original);
4. Certificate of whether a certain contraction is
licensed;
5. Certified true copies of license certificates;
6. Certified true copies of documents such as
Affidavit of Undertaking of Sustaining
Technical Employee and Curriculum Vitae of
STE;
7. Certificate of Accreditation of Arbitrators; and
8. Case documents to be used to support
petition to appeal in CA.
Meaning of warehouse receipt.
 A receipt issued by a warehouseman for
commodity delivered to him in store for a person
to whom the receipt is issued.
 A warehouseman is a person lawfully engaged in
the business of storing goods for profit.
Person liable to remit the DST of jai-alai, horse race
tickets, lotto or other authorized numbers games.
 The proprietor or operator shall remit the tax.
 If such proprietor or operator is exempt from tax,
he shall collect the tax from the other party who is
not exempt from the tax, and shall remit the
same.
Meaning of bill of lading.
 A written acknowledgement or the receipt of the
goods and an agreement to transport and deliver
theme at a specified place to a person named or
on his order.
 A bill of lading has a two-fold character: it is a
receipt as to the quantity and description of the
goods shipped and a contract to transport the
 goods to the consignee or other person therein
designated, on the terms specified in such
instrument.
Meaning of the term chattel mortgage.
 A contract which purports to be and in form a sale
of personal property, intended as security for the
payment of a debt, or the performance of some
other obligation specified therein, uon the
condition subsequent that such sale shall be void
upon payment of the debt or performance of the
specified obligation according to the terms of the
contract.
Meaning of antichresis.
 Antichresis is a mortgage in possession.
 It entails the lawful acquisition by the mortgagee
of the possession, actually or constructively, of
immovable property mortgaged, with the creditor
standing upon his rights merely as mortgagee, not
as owner, for the purpose of enforcing his security
upon such property and allowing its income to
pay for the debt.
Antichresis distinguished from mortgage.
 To be an antichresis, it must be expressly agreed
upon between the creditor and the debtor that
the former, having been given possession of the
property as security for a debt, is to apply the
fruits to the payment of the interest, if any, and
thereafter to the principal of the credit.
 In the absence of such agreement, the contract is
one of mortgage, even though the possession of
the property is given to the mortgagee.
Meaning of the term deed of trust.
 A deed of trust in the nature of a mortgage is a
conveyance in trust by way of security, subject to
a condition of defeasance, or redeemable at any
time before the sale of the property.
Reason why pledge is subject to DST.
 A DST is an excise tax on the exercise of a right or
privilege to transfer obligations, rights or
properties incident thereto.
 A pledge is among the privileges.
 It is an accessory, real and unilateral contract by
virtue of which the debtor or a third person
delivers to the creditor or to a third person
movable property as security for the performance
of the principal obligation, upon the fulfillment of
which the thing pledged, with all its accessions
and accessories, shall be returned to the debtor
or to the third person.
 i.e. pawnshops, as persons or entities engaged in
lending money on personal property delivered as
security for loans.
 Contents of a pawnshop ticket:
1. Amount of loan;
2. Date the loan was granted;
3. Rate of interest; and
4. Name and residence of the pawnee.
 Antam Pawnsho Corp. vs. CIR. The law does not
consider the pawn ticket as a security nor a
printed evidence of indebtedness. However, what
is subject to DST is not the ticket itself but the
privilege of entering into a contract of pledge.
When interest and surcharges may not be imposed
for failure to pay DST on pledge transaction.
 MLhuillier vs. CIR. It is settled that ,good faith and
honest belief that one is not subject to tax on the
basis of previous interpretations of the
government agencies tasked to implement the tax
law are sufficient justification to delete the
imposition of surcharges and interest.
Tax implications of issuing two deeds of sale
indicating the zonal value and the other one, the
true gross selling price.
 A final tax of 6% based on the gross selling price
or current fair market value, whichever is higher,
is imposed upon capital gains presumed to have
been realized from the sale, exchange, or other
disposition of real property located in the
Philippines, classified as capital assets, including
pacto de retro sales and other forms of
conditional sales, by individuals, including estates
and trusts.
 All conveyances or deeds whereby any land sold
or transferred to the purchaser shall be subject to
the DST of P15 for every P1,000, or fractional part
thereof, based on the consideration contracted to
be paid for such realty or on its fair market value,
whichever is higher.
 When it appears the taxes paid have been
incorrectly stated, the Commissioner shall assess
 the property of its true market value and collect
the proper tax thereon.
Meaning of the term charter party.
 It is a charter party where there is an entire
surrender by the owner of the vessel to the
charterer, and provides the officers and
provisions, and, in short, the entire outfit.
 In such a contract, the charterer is substituted in
place of the owner and becomes the owner for
the voyage.
Whether DST is imposed in all cases of assignments
or re-assignments of debt instruments.
 Any assignment or re-assignment of debt
instruments shall be subject to DST at the same
rate imposed on the original instrument.
 This occurs only when the assignment or
reassignment of the debt instrument entails
changing the maturity date or remaining period of
coverage from that of the original instrument or
carries with it a renewal or issuance of new
instruments in the name of the transferee to
replace the old ones. Otherwise, the assignment
or reassignment shall be exempt from DST.
General Rule regarding tax exemption.
 Exemption for taxation is never presumed. For tax
exemption to be recognized, the grant must be
clear and express, it cannot be made to rest on
doubtful implications.
Only documents enumerated under Section 199 are
exempt from DST.
Insurance policies and annuities exempt from DST.
 Policies of insurance or annuities made or granted
by a fraternal or beneficiary society, order,
association or cooperative company, operated on
the lodge system or local cooperation plan and
organized and conducted solely by the members
thereof for the benefit of exclusive benefit of each
member and not for profit are the ones exempt
from DST.
Basis of exemption from DST of insurance
cooperatives.
 Neither the Tax Code nor the Insurance Code
mandates that it should be registered with the
CDA.
Certificates exempted from DST.
1. Certificate of oaths administered by any
government official in his official capacity or of
acknowledgment by any government official in
the performance of his official duties;
2. Written appearance in any court by any
government official, in his official capacity;
3. Certificates of the administration of oaths to any
person as to the authenticity of any paper
required to be filed in court by any person or
party thereto, whether the proceedings be civil or
criminal;
4. Papers and documents filed in courts by or for the
national, provincial, city or municipal
governments;
5. Affidavits of poor persons for the purpose of
proving poverty;
6. Statements and other compulsory information
required of persons or corporations by the rules
and regulations of the national, provincial, city or
municipal governments exclusively for statistical
purposes and which are wholly for the use of the
bureau or office in which they are files, and not at
the instance or for the use or benefit of the
person filing them;
7. Certified copies and other certificates placed upon
documents, instruments and papers for the
national, provincial, city or municipal
governments, made at the instance and for the
sole use of some other branch of the national,
provincial, city or municipal governments; and
8. Certificates of assessed value of lands, not
exceeding P200 in value assessed, furnished by
the provincial, city or municipal treasurer to
applicants for registration of title to land.
Securities exempted from DST.
 The borrowing and lending of securities executed
under the Securities Borrowing and Lending
Program of a registered exchange, or in
accordance with regulations prescribed by the
appropriate regulatory authority are the ones
exempt from the payment of DST.
Loan agreements exempted from DST.
 Loan agreements or promissory notes, the
aggregate of which does not exceed P250,000 or
any such amount as may be determined by the
SOF, executed by an individual for his purchase on
installment for his personal use or that of his
family and not for business or resale, barter or
hire of a house, lot, motor vehicle, appliance or
furniture shall be exempt from the payment of
DST.
 The amount to be set by the SOF shall be in
accordance with a relevant price index but not to
exceed 10% of the current amount and shall
remain in force at least for 3 years.
Basis of the exemption from DST of the sale, barter
or exchange of shares of stock listed and traded thru
local stock exchange.
 RA 9648. This act shall take effect on March 20,
2008 or immediately upon the expiration of the 5-
year exemption from the DST on the sale, barter
or exchange of shares of stock listed and traded
thru the local stock exchange pursuant to RA
9243.
Requirements in order that assignment or transfer of
any mortgage, lease or policy of insurance, or the
renewal or continuance of any agreement or
contract or any evidence of obligation or
indebtedness may be exempted from DST.
 The law requires that there should be no change
in the maturity date or remaining period of
coverage from that of the original instrument.
Securities exempted from DST.
 Fixed income and other securities traded in the
secondary market or through an exchange.
Derivatives are exempted from DST.
 For purposes of this exemption, repurchase
agreements and reverse repurchase agreements
shall be treated similarly as derivatives.
Advances are exempted from DST.
 Interbranch or interdepartmental advances within
the same legal entity.
Forbearances exempted from DST.
 All forbearances arising form sales or service
contracts, including credit card and trade
receivables.
 The exemption shall be limited to those executed
by the seller or service provider itself.
Bank deposit exempted from DST.
 The exemption for bank deposit accounts without
a fixed term or maturity shall apply only to
deposit account which does not qualify under the
provisions of Section 5 of RR 13-2004.
Contracts, deeds and documents exempted from
DST.
 Those which are related to the conduct of
business of the BSP.
Transfer of property exempted from DST.
 Exemption refers to the DST due on the deed
transferring the property.
 The shares of stock issued in exchange of such
property is subject to DST if they are original
issues.
Interbank call loans exempted from DST.
 For interbank call loans with maturity of not more
than 7 days, including those between and among
banks and quasi-banks, the same must have been
made strictly to cover deficiency in reserves
against deposit liabilities for the same to be
exempted from DST.
Regulations implementing the eDST system;
Taxpayers covered by the eDST system.
 eDST System – a web-based application created
for taxpayers and the BIR that is capable of
affixing a secured documentary stamp on the
taxable documents thru the use of a computer
unit.
 Mandated to use the eDST system:
1. Bank, quasi-bank or non-bank financial
intermediary, finance company, or insurance,
surety, fidelity, or annuity company;
2. Shipping and airline companies;
3. Pre-need company on sale of pre-need plans;
4. Educational institutions, in respect to the
issuance of taxable certificates such as
diploma, transcript of records and other
documents taxable as certificates;
 5. Such other industries as may be required by
the Commissioner.
 It shall also apply to taxpayers, who, at their
option, choose to pay their DST liabilities thru the
eDST system.
 Payment of DST arising from transfers of shares of
stocks classified as capital asset or real property
classified as capital or ordinary assets, shall not be
covered by the eDST system.
Regulations prescribing the manner of purchase and
affixture or payment of DST on taxable transactions.
 Generally, the payment of the DST due on any
taxable document/transaction, irrespective of the
amount thereof, shall be made by the filing of a
tax return and the payment of the tax in
accordance with the existing rules and
regulations.
 If the amount is P15 or less, the taxpayer has the
option to buy the DST due by way of purchasing
loose documentary stamps.
 This general manner is called constructive
stamping of DST on the taxable document/facility
evidencing the transaction or the receipt system.
3. Stamp tax on jai-alai, horse race lotto or other
authorized number games – proprietor or
operator.
Effect of failure to stamp a taxable document.
 Does not affect its validity.
 However, such document cannot be recorded, nor
may it or any copy thereof or any record of
transfer of the same be admitted thereof or used
in evidence in any court until the requisite stamp
has been affixed.
Treatment of documents acknowledged before
notaries public.
 No notary public or other officer authorized to
administer oath shall add his jurat or
acknowledgement to any document subject to
documentary stamp tax unless the proper
documentary stamps are affixed thereto and
cancelled.

Modes of payment and remittance of DST.

 GR. any of the parties to the taxable transaction
shall pay and remit the full amount of the tax.
 XPN.
1. If one of the parties is exempt from the tax,
the other party who is not exempt shall be
directly liable for the tax.
2. If the said tax-exempt party is one of the
persons enumerated in Section 3(c)(4) hereof,
he shall be constituted as agent of the
Commissioner for the collection of the tax;
3. The said tax-exempt arty who is constituted
as agent shall issue an acknowledgement
receipt.

Persons liable to remit DST.

 GR. Any party or parties to the taxable transaction
 XPN.
1. Stamp on bonds, debentures, certificates of
indebtedness, deposit substitute, or other
similar instrument. – remitted by the person
who issued the instrument.
2. Stamp tax on original issue of shares of stock
in a corporation – the corporation
TITLE VIII – REMEDIES
CHAPTER I – REMEDIES IN GENERAL
When a final Deed of Sale may be issued to the
purchaser of a property which had been subjected to
a tax lien.
 In the event that the delinquent taxpayer shall not
redeem his property that had been auctioned in
order for the BIR to collect the delinquent taxes,
the RDO shall execute an Absolute Deed of Sale to
the buyer of the property that had been sold, free
from all liens of any kind whatsoever, with a
recitation of all the proceedings that took place
upon which the validity of the sale would now
depend.
Purpose of the period of limitation upon assessment
and collection of taxes.
 The law prescribing a limitation of actions for the
collection of the income tax is beneficial both to
the government and to its citizens; to the
Government because tax officers would be
obliged to act promptly in the making of
assessment, and to the citizens because after the
lapse of the period of prescription, citizens would
have a feeling of security against scrupulous tax
agents who will always find an excuse to inspect
the books of taxpayers, not to determine the
latter’s real liability, but to take advantage of
every opportunity to molest peaceful, law-abiding
citizens.
 The law on prescription, being a remedial
measure, should be liberally construed in order to
afford protection.
Two kinds of prescriptive periods for the assessment
and collection of taxes.
1. Normal/regular prescriptive period of assessment
and collection.
- Available tot eh government if the taxpayer filed a
return and the return filed is not false or
fraudulent.
2. Exceptional prescriptive period of assessment and
collection.
a. The taxpayer failed to file a return;
b. The taxpayer filed a false return with intent to
evade tax;
c. The taxpayer filed a fraudulent return with
intent to evade tax; or
d. The taxpayer and the Commissioner agreed in
writing to waive the prescriptive period of
assessment of tax.
Normal/regular prescriptive period for the
assessment and collection of taxes.
 The Tax Code expressly provides only for the 3-
year prescriptive period for assessment but it is
silent as to the prescriptive period for collection.
 Author’s opinion. The normal/regular prescriptive
period for the collection of taxes is 3 years in
contradistinction with the exceptional prescriptive
period for collection of 5 years.
How to count the normal 3-year prescriptive period
of assessment.
1. If the return was filed before or on the last day
prescribed by law for the filing of return, it shall
be counted from the date of deadline, which is
the last day for filing of the return.
2. If the return was filed after the last day prescribed
by law for filing the return, it shall be counted
from the day the return was filed.
3. If the return is amended substantially different
from the original return, it shall be counted from
the filing of the amended return.
 The normal 3-year prescriptive period expires on
the 1095th day, notwithstanding the fact that
within the period, there is a leap which is 366
days.
Rules on prescriptive period for the collection of
taxes
 The normal prescriptive period for the collection
of taxes is applicable on in case a return was filed,
and the return is not fraudulent or false.
 In case there is a prior assessment, collection shall
be made within 3 years from the date of the final
assessment notice of the tax due, either or both
simultaneously:
1. By distraint of personal property, or by levy
of real property of the taxpayer; or
2. By judicial proceedings, thru civil or criminal
action.
 In case there is no prior assessment, collection
proceedings shall be begun within 3 years from
the date of the filing of the return, or from the
last day prescribed of the filing of the return,
 whichever is later, but only be judicial receive notice of assessment and there is
proceedings. reason to believe that the assessment is
lacking in legal and/or factual basis;
Construction of prescription of collection in civil tax 4. The taxpayer failed to file a request for
cases and criminal tax cases. reinvestigation/reconsideration within 30
 In civil tax cases involving the collection of days from receipt of final assessment notice
internal revenue taxes, prescription is construed and there is reason to believe that the
strictly against the government and liberally in assessment is lacking in legal and/or factual
favor of the taxpayer. basis;
 In criminal tax cases, prescription is construed 5. The taxpayer failed to elevate to the CTA an
strictly against the taxpayer. adverse decision of the Commissioner, or his
authorized representative, in some cases,
Commissioner cannot legally enforce collection of within 30 days from receipt thereof and there
the delinquent tax, if the right to collect has already is a reason to believe that the assessment is
prescribed. lacking in legal and/or factual basis;
6. The assessments were issued on or after Jan.
Distinction between compromise and abatement. 1, 1998, where the demand notice allegedly
Compromise Abatement failed to comply with the formalities as
The reduction of the The cancellation of the prescribed under Section 228;
taxpayer’s tax liability. taxpayer’s tax liability. 7. Assessments made based on the best
CIR and NEB & REB are CIR has the sole authority evidence obtainable rule and there is reason
authorized to enter into a to abate or cancel tax that the same can be disputed by sufficient
compromise. liability of a taxpayer and competent evidence;
Grounds: Grounds: 8. The assessment was issued within the
1. Reasonable doubt as 1. The tax or any portion prescriptive period for assessment as
to validity of thereof appears to be extended by the taxpayer’s execution of
assessment; or unjustly or excessively Waiver of the Statute of Limitation the validity
2. Financial incapacity assessed; or or authenticity of which is being questioned
of taxpayer. 2. The administration or at issue and there is strong reason to
and collection costs believe and evidence to prove that it is not
involved do not justify authentic; or
the collection of the 9. The assessment is based on an issue where a
amount due. court of competent jurisdiction made an
adverse decision against the Bureau, but for
Commissioner’s authority to compromise tax cases; which the SC has not decided upon yet.
Grounds for acceptance of compromise settlement.  The offer to compromise based on financial
 The offer to compromise a delinquent account or incapacity may be accepted upon showing that:
disputed assessment on the ground of reasonable 1. The corporation ceased operation or is
doubt as to the validity of the assessment may be already dissolved. The tax liabilities
accepted when it is shown that: corresponding to the Subscription Receivable
1. The delinquent account or disputed or Assets distributed/distributable to the
assessment is one resulting from a jeopardy stockholders representing return of capital at
assessment; or the time of cessation of operation or
2. The assessment seems arbitrary in nature, dissolution of business shall not be considered
appearing to be based on presumptions and to compromise;
there is reason to believe that it is lacking in 2. The taxpayer, as reflected in its latest Balance
legal and/or factual basis; Sheet is suffering from surplus or earnings
3. The taxpayer failed to file an administrative deficit resulting to impairment in the original
protest on account of the alleged failure to capital by at least 50%. The taxpayer has no
 sufficient liquid assets to satisfy the tax
liability.
3. The taxpayer is suffering from a net worth
deficit, taken from the latest audited financial
statements, provided that in the case of an
individual taxpayer, he has no other leviable
properties under the law other than his family
home;
4. The taxpayer is a compensation income
earner with no other source of income and
the family’s gross monthly compensation
income does not exceed the levels of
compensation income, and it appears that the
taxpayer possesses no other liable or
distrainable assets, other than his family
home; or
5. The taxpayer has been declared by any
competent authority as bankrupt or insolvent.
 No offer of compromise shall be entertained
unless and until the taxpayer waives in writing his
privilege of the secrecy of bank deposits.
Cases which may be compromised.
1. Delinquent accounts;
2. Cases under administrative protest after issuance
of the final assessment notice to the taxpayer
which are still pending in the regional offices,
RDOs, Legal Service, LTS, Collection Service;
3. Civil cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, except those already filed in
court, or those involving criminal tax fraud.
 Exceptions:
1. Withholding tax cases, unless the applicant-
taxpayer involves provisions of law that cast
doubt on the taxpayer’s obligation to
withhold;
2. Criminal tax fraud cases confirmed as such by
the CIR or his duly authorized representative;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved
schedule of installment payments;
5. Cases where final reports of reinvestigation or
consideration have been issued resulting to
reduction in the original assessment and the
taxpayer is agreeable to such decision by
signing the required agreement form for the
purpose;
6. Cases which become final and executor after
final judgment of a court, where compromise
is requested on the ground of doubtful
validity of the assessment; and
7. Estate tax cases where compromise is
requested on the ground of financial
incapacity of the taxpayer.
Approval of offer of compromise.
 Except for offers of compromise where the
approval is delegated to the REB pursuant to the
succeeding paragraph, all compromise
settlements within the jurisdiction of the NOR
shall be approved of the Commissioner and the 4
deputy Commissioners. All decisions of the NEB
shall have the concurrence of the Commissioner.
 Offers of compromise issued by the RO involving
basic deficiency taxes of P500,000 or less and for
minor criminal violations shall be subject to the
approval of the REB.
 The compromise offer shall be paid by the
taxpayer upon filing of the application for
compromise settlement.
 In case of disapproval of the application for
compromise, the amount paid shall be deducted
from the outstanding liabilities.
Commissioner not authorized to compromise the
payment of withholding tax.
 The subsequent inability of the withholding agent
to pay/remit the tax withheld is not a ground for
compromise because the withholding tax is not a
tax upon the withholding agent but it is only a
procedure for the collection of tax.
Criminal violation which is already filed in court may
not be compromised.
 The compromise settlement of the criminal
violations will not relieve the taxpayer from its
civil liability. But the civil liability for taxes may be
compromised if the financial position of the
taxpayer demonstrates a clear inability to pay the
tax.
Report of the Commissioner on the exercise of his
authority to compromise to the Congressional
Oversight Committee.
 Every 6 months of each calendar year.
Commissioner has the sole authority to abate or
cancel tax, penalties and/or interest.
 This authority is generally applicable to surcharges
and compromise penalties only. However, in
meritorious instances, the Commissioner may
likewise abate the interest, as well as the basic tax
assessed
When penalties and/or interest imposed on taxpayer
may be abated or canceled on the ground that the
imposition thereof is unjust or excessive.
1. When the filing of the return/payment of the tax
is made at the wrong venue;
2. When the taxpayer’s mistake in payment of his
tax is due to erroneous written official advice of a
revenue officer;
3. When taxpayer fails to file the return and pay the
tax on time due to substantial losses from
prolonged labor dispute, force majeure,
legitimate business reverses.
4. When the assessment is brought about or the
result of taxpayer’s non-compliance with the law
due to difficult interpretation of said law;
5. When the taxpayer fails to file the return and pay
the correct tax on time due to circumstances
beyond his control. Abatement shall cover only
the surcharge and the compromise penalty and
not the interest;
6. Late payment of the tax under meritorious
circumstanced.
When the tax liabilities, penalties and/or interest
may be abated or cancelled on the ground that the
administration and collection cost are more than the
amount sought to be collected.
 The assessment may be reduced through
abatement or entirely cancelled.
 Instances:
1. Abatement of penalties on assessment
confirmed by the lower court but appealed by
the taxpayer to a higher court;
2. Abatement of penalties on withholding tax
assessment under meritorious circumstances;
3. abatement of penalties on delayed
installment payment under meritorious
circumstances;
4. Abatement of penalties on assessment
reduced after the reinvestigation but taxpayer
is still contesting reduced assessment;
5. Such other instances which the CIR may deem
analogous to the enumeration.
 For items 1 and 4, the abatement of the surcharge
and compromise penalty shall be allowed only
upon written application by the taxpayer
signifying his willingness to pay the basic tax and
interest or basic tax only, whichever is applicable
under the prevailing circumstances.
Processing time.
 The application for abatement or cancellation of
tax, penalties and/or interest should be acted
upon by the processing office and reviewing office
within 5 days from receipt by said office.
 The BIR NO has 30 days within which to act on the
case.
Report of the CIR to the Congressional Committee.
Commissioner’s authority to refund erroneously or
illegally collected taxes.
1. Credit or refund taxes erroneously or illegally
received;
2. Credit or refund penalties imposed without
authority;
3. Credit or refund any sum of money alleged to
have been excessively or in any manner
wrongfully collected;
4. Refund the value or internal revenue stamps
when they are returned in good condition by the
purchaser; and
5. In his discretion, redeem or change unused
stamps that have been rendered unfit for use and
refund their value upon proof of destruction.
Nature of a tax refund.
 In the nature of a tax exemption which must be
construed strictissimi juris against the taxpayer.
 The return of what was erroneously paid is
founded on the principle of solution indebiti, a
basic postulate that no one should be unjustly
enriched himself at the expense of another.
When there is parity between refund and tax
exemption.
 There is parity between tax refund and tax
exemption only when the former is based either
on a tax exemption statute or a tax refund
statute.
Tax refund vis-à-vis tax credit.
 Tax refund refers to the actual reimbursement of
the erroneously or illegally collected taxes, while
tax credit refers to a Tax Credit Certificate which
may be utilized in the payment of the internal
revenue taxes, excluding withholding taxes, for
which the taxpayer is directly liable.
Conditions required by the Tax Code before
application for refund or TCC due to taxes
erroneously or illegally received may be granted by
the CIR.
1. That the taxpayer should file a written claim for
refund or tax credit with the BIR within 2 years
from the date of payment of the tax or penalty,
noncompliance with which the latter is precluded
from exercising his authority thereon.
2. If denied or not acted upon within said period, the
petition for refund be filed with the CTA within 30
days from receipt of the denial and within 2-year
period from the date of payment of the tax or
penalty regardless of any supervening cause,
otherwise, the claim for refund shall have
prescribed.
3. The claim for refund must be a categorical
demand for reimbursement;
4. There must be a proof for payment of the
erroneously or illegally collected taxes; and
5. No refund shall be given resulting from availment
of incentives granted pursuant to special laws for
which no actual payment was made.
 The claim for refund or tax credit are mutually
exclusive such that resort to one bars the
application of the other.
Conditions in order that a claim for refund of
creditable withholding taxes may be granted.
1. A written claim must be filed with the CIR within 2
years from the date of payment of the tax;
2. It is shown on the return of the recipient that the
income payment received was declared as part of
the gross income; and
3. The fact of withholding is established by a copy of
a statement duly issued by the payor to the payee
showing the amount paid and the amount of the
tax withheld therefrom.
Person entitled to claim for a tax refund;
Withholding agent has the right to file an application
for tax refund.
 The person entitled to claim a tax refund is the
taxpayer, but in case the taxpayer does not file a
claim for refund, the withholding agent may file
the claim.
 While the withholding agent has a legal right to
claim for refund, he nevertheless has the
obligation to remit the same to the principal
taxpayer.
Persons entitled to claim for a refund of excise tax.
 The one who is statutorily liable to pay the tax.
When the CIR may also grant a refund even without
a written claim for it.
 When the taxpayer files a return which on its face
shows an overpayment of the tax and the option
to refund/claim a tax credit was chosen by the
taxpayer.
When request for the issuance of tax credit
certificate may not be subject to the 2-year
limitation period.
 Upon basic consideration of equity and fairness.
CHAPTER 2 – CIVIL REMEDIES FOR COLLECTION OF
TAXES
When is tax considered delinquent?
 A revenue tax is considered delinquent when it is
unpaid after the lapse of the last day prescribed
for its payment.
 It is considered where an assessment for
deficiency tax has become final, executory and
demandable and the taxpayer has not paid it
within the period given in the notice of
assessment.
When the government may avail of the remedy of
collection.
 When the assessment shall have become final,
executory and demandable.
 The BIR can collect delinquent internal revenue
taxes either by distraint, levy or judicial action or
both simultaneously. There should, however, first
be an assessment, except in case of false or
 fraudulent return with intent to evade the tax or
of a failure to file a return.
 The taxpayer’s failure to appeal to the CTA in due
time makes the assessment final, executory and
demandable, and the taxpayer is barred from
disputing the correctness of the assessment or
invoking any defense that would reopen the
question of its liability on the merits in the
collection case that the BIR may file.
Remedies of the BIR to collect delinquent taxes.
1. By distraint – refers to the remedy whereby the
collection of delinquent taxes is enforced thru
seizure on the personal property, goods, chattels
or effects and other personal property of
whatever character of the taxpayer, including
stocks and securities, debts, credits, bank
accounts and interests in and rights to personal
property, followed by the public sale of such
property, if the taxpayer fails to pay the taxes
voluntarily.
- Kinds
a. Constructive distraint – a preventive remedy
by the government issued when no actual tax
delinquency of the taxpayer is necessary
before the same is resorted to. It aims to
forestall the possible dissipation of the
taxpayer’s assets when delinquency sets in.
Here, the property of the delinquent taxpayer
is not actually confiscated or seized by the
revenue officer.
b. Actual distraint – a remedy to collect actual
delinquent taxes when at the time required
for payment of tax, a taxpayer fails to pay his
delinquent obligation. It consists in actual
seizure and taking possession of personal
property of the taxpayer. The personal
property is personally taken by the distraining
officer.
2. By Levy – a remedy resorted to by the
Government enforced on the real property
belonging to the delinquent taxpayer to collect
delinquent taxes when at the time required for
payment of tax, a taxpayer fails to pay his
delinquent tax obligation.
- It may be exercised upon, before, simultaneously,
or after the distraint of personal property
belonging to the delinquent taxpayer.
- The remedies of distraint and levy shall not be
availed of where the amount of tax involved is not
more than P100.
3. By court actions
a. By filing a civil action for collection of sum of
money with the proper regular court;
b. By filing a criminal action against the
delinquent taxpayer with the proper regular
court; or
c. Both simultaneously.
 Any of these remedies or all of them
simultaneously may be pursued in the discretion
of the authorities charged with the collection of
such taxes.
When civil remedies for the collection of delinquent
tax resorted to by the Government.
1. When tax is assessed and the assessment
becomes final and unappealable because the
taxpayer fails to file an administrative protest
with the CIR within 30 days from receipt of the
FAN;
2. When a protest against assessment is filed and a
decision of the CIR was rendered but the said
decision becomes final, executory and
demandable for failure of the taxpayer to appeal
the decision to the CTA within 30 days from
receipt of the decision; or
3. When the protest is not acted upon by the CIR
within 180 days from submission of documents
and the taxpayer failed to appeal with the CTA
within 30 days from the lapse of the 180-day
period.
Necessity of assessment in case of civil actions.
 GR. There should be an assessment before
resorting to judicial proceedings.
 XPN. In case of false or fraudulent return with
intent to evade the tax or of a failure to file a
return.
Dismissal of the criminal case filed against a taxpayer
not a meritorious ground to dismiss civil case for
collection filed against him.
 Reason: the criminal complaint was instituted not
to demand payment, but to penalize the taxpayer
for violation of the Tax Code.
Why a criminal action considered as a collection
remedy.
 Because the judgment in the criminal case shall:
a. Impose the penalty; and
b. Order the payment of taxes subject of the
criminal case as finally decided by the CIR.
BIR is authorized to collect estate tax deficiencies by
the summary remedy of levy upon and sale of real
properties of the decedent without first securing the
authority of the court sitting in probate over the
supposed will of the decedent.
 Because the collection of estate tax is executive in
nature. As such, the estate tax is exempted from
the application of the statute of non-claims, and
this is justified by the necessity of government
funding, immortalized in the maxim that taxes are
the lifeblood of the government.
BIR to defray costs of collection.
 The BIR shall advance the amounts needed to
defray costs of collection by means of civil or
criminal action, including preservation or
transportation of personal property distrained
and the advertisement and sale thereof, as well as
of real property and improvements thereon.
When property of taxpayer may be placed under
constructive distraint.
1. The taxpayer is retiring from any business subject
to tax; or
2. The taxpayer is intending to leave the Philippines;
or
3. The Taxpayer is intending to remove his property
from the Philippines; or
4. The taxpayer is intending to hide or conceal his
property; or
5. The taxpayer is intending to perform any act
tending to obstruct the proceedings for collection
the tax due or which may be due from him.
How to effect constructive distraint.
1. By requiring the taxpayer or any person in
possession or control of such property to sign a
receipt covering the property distrained and
obligate himself to preserve the same intact and
unaltered and not to dispose of the same in any
manner whatever, without the express authority
of the CIR.
2. If the taxpayer or person in possession or control
of the property sought to be placed under
constructive distraint refuses to sign the receipt,
the revenue officer shall prepare a list of the
property and leave a copy of the such list in the
premises where the properties are located, after
which the property shall be deemed to have been
placed under constructive distraint.
ACTUAL DISTRAINT OF PROPERTY
Who shall commence the distraint proceedings.
1. The CIR or his duly authorized representative, if
the amount involved is in excess of P1M; or
2. The RDO, if the amount involved is P1M or less.
How actual distraint of personal property effected.
1. Upon failure of the taxpayer to pay the delinquent
tax at the time required by law, the distraining
officer shall seize the and distraint any goods,
chattels, or effects, and the personal property,
including stocks and other securities, debts,
credits, bank accounts, and interests in and rights
to personal property of such persons in sufficient
quantity to satisfy the tax, or charge, together
with any increment thereto incident to
delinquency, and the expenses of the distraint
and the cost of the subsequent sale.
2. Within 10 days from the receipt of the warrant, a
report on the distraint shall be submitted by the
distraining officer of the RDO and to the RD,
provided that a consolidated report by the RD
may be required by the CIR as often as necessary.
Remedy of a taxpayer once the CIR or other revenue
officer issues a warrant of distraint.
 The taxpayer may request the CIR that the
warrant of distraint be lifted. The CIR may, in his
discretion, allow the lifting of the order of
distraint. He may, however, ask for a bond as a
condition for the cancellation of the warrant.
LEVY OF REAL PROPERTY
What should the notice to levy contain.
1. Name of the taxpayer; and
2. Amounts of the tax and penalty due from him.
 The certificate shall operate with the force of a
legal execution throughout the Philippines.
How is levy effected.
1. Levy shall be effected by writing upon said
certificate the description of the property upon
which levy is made.
2. At the same time, written notice of the levy shall
be mailed to or served upon the ROD of the
province or city where the property is located and
upon the delinquent taxpayer, or if he be absent
from the Philippines, to his agent or the manager
of the business in respect to which the liability
arose, or if there be none, to the occupant of the
property in question.
3. In case the warrant of levy is not issued before or
simultaneously with the warrant of distraint on
personal property, and the personal property of
the taxpayer is not sufficient to satisfy the tax
delinquency, the CIR or his authorized
representative shall, within 30 days after
execution of the distraint, proceed with the levy
on the taxpayer’s real property.
4. Within 10 days after receipt of warrant, a report
on any levy shall be submitted by the levying
officer to the CIR or his duly authorized
representative.
5. The RD may also be required by the CIR to submit
a consolidated report as often as necessary.
Remedy of a taxpayer once the CIR or other revenue
officer issues the warrant of levy.
 Same with distraint.
RULES ON THE ISSUANCE OF WARRANTS OF
DISTRAINT OR LEVY
Person to issue the warrants of
distraint/garnishment and/or levy.
 Upon the issuance by the CIR or its authorized
representative of the final decision on the
disputed assessment against the taxpayer or upon
filing of a petition for Review before the CTA in
Division or En Banc of its decision upholding the
assessment, warrants of distraint and
garnishment, and/or levy shall forthwith be
immediately issued and served.
Salient provisions of RMO 39-2007 regarding the
issuance of warrants of distraint and garnishment,
and/or levy of real property.
1. No appeal taken to the CTA from the decision of
the CIR shall suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for
the satisfaction of his tax liability, unless the CTA
suspends the collection under certain conditions.
2. Upon the issuance of any ruling, order or decision
of the CTA favorable to the national government,
the CTA shall issue an order authorizing the BIR to
seize and distraint any goods, chattel, or effects
and the personal property, including stocks and
other securities, debts, credits, bank accounts,
and interests in and rights to personal property
and/or levy the real property of the taxpayer in
sufficient quantity to satisfy the tax together with
any increment thereto incident to delinquency.
3. No court, except the CTA, shall have the authority
to grant an injunction to restrain the collection of
any national internal revenue tax, fee or charge
imposed by the Tax Code.
4. These rules are applicable to:
a. Disputed assessments finally decided by the
CIR or RD, as the case may be, against the
taxpayer.
b. Assessment upheld by the CTA in Division
WON appealed to the CTA en banc, or upheld
by the CTA en banc, WON appealed to the SC.
How a sheriff should effect the a levy upon real
property.
1. He shall file with the ROD a copy of the order,
description of the property attached and notice of
attachment; and
2. Leave with the occupant of the property copy of
the same order, description and notice.
 Non-compliance with any of such requisites is
fatal.
 A levy of execution or attachment of land earlier
recorded than a deed of sale covering the same
property executed before the levy but recorded
thereafter takes precedence over the sale. The
auction sale following the levy retroacts to the
date of the levy and the purchaser at the public
sale acquires a superior right to the land than that
of the buyer in the said deed of sale.
BIR is authorized to issue a warrant of garnishment
against the bank account of a taxpayer despite the
pendency of the taxpayer’s protest.
 Nowhere in the Tax Code is the CIR required to
rule first on the protest before he can institute
collection proceedings on the tax assessed.
 The legislative policy is to give the CIR much
latitude in the speedy and prompt collection of
taxes because it is in taxation that Government
depends to obtain the means to carry on its
operations.
Procedure for distraint and garnishment of the
different kinds of personal properties.
1. Personal properties – the distraining officer shall
account the personal property distrained by
leaving a copy to the owner or person from whose
possession such personal property were taken, or
at the dwelling or place of business of such person
and with someone of suitable age and discretion,
to which list shall be added a statement of the
sum demanded and note of the time and place of
sale, signed by the said distraining officer.
2. Stocks and securities – these shall be distrained by
serving a copy of the warrant of distraint upon the
taxpayer and upon the president, manager,
treasurer or other responsible officer of the
corporation, company or association which issued
the said stocks or securities.
3. Debts and credits – these shall be distrained by
leaving with the person owing the debts or having
in his possession or under his control such credits,
or his agent, a copy of the warrant of distraint.
This warrant of distraint shall be sufficient
authority to the person owing the debts or having
in his possession or under his control any credits
belonging to the taxpayer to pay to the CIR the
amount of such debts or credits.
4. Bank accounts – these shall be garnished by
serving a warrant of garnishment upon the
taxpayer and upon the president, manager,
treasurer, or other responsible officer of the bank.
Upon the receipt of the warrant of garnishment,
the bank shall turn over to the CIR so much of the
bank accounts as may be sufficient to satisfy the
claim of the government.
Garnishment of bank deposit.
 The garnishment of bank deposit of a defendant
does not involve examination or inquiry into the
deposit, but is merely to inform the court whether
defendant has a deposit in the bank which may be
garnished.
Sale of property distrained and disposition of
proceeds.
 If the taxpayer does not request for the lifting of
the warrant, the properties will be sold in a public
sale. Procedure:
Requirement of notice.
1. The RDO or his duly authorized representative,
other than the distraining officer, shall cause a
notification to be exhibited in not less than 2
public places in the municipality or city where the
distraint is made.
2. Notice shall specify the time and place of sale and
the articles distrained.
3. The time of sale shall not be less than 20 days
after notice of the owner or possessor of the
property and the publication or posting of such
notice. One place for the posting of such notice
shall be at the Office of the Mayor of the city or
municipality in which the property is distrained.
Rules governing sale at public auntion.
1. Sale shall be made at the time and place fixed in
such notice;
2. Sale shall be conducted by the said revenue
officer at public auction, to the highest bidder for
cash; or
3. In the case of shares of stock and other securities,
sale shall be conducted by a duly licensed
commodity or stock exchanges with the approval
of the CIR. The officer making the sale shall
execute a bill of sale which he shall deliver to the
buyer and a copy thereof furnished the
corporation, company or association which issued
the stocks or other securities. Upon receipt of the
copy of the bill of sale, the corporation, company
or association shall make the corresponding entry
in its books, transfer the stocks or other securities
sold in the name of the buyer, and issue, if
required to do so, the corresponding certificates
of stock or other securities;
4. Any residue over and above what is required to
pay the entire claim, including expenses, shall be
returned to the owner of the property sold;
5. The expenses chargeable upon each seizure and
sale shall embrace only the actual expenses of
 seizure and sale shall embrace only the actual
expenses of seizure and preservation of the
property pending the sale, and no charge shall be
imposed for the services of the revenue officer or
his deputy;
6. The officer making the sale shall make a written
report of the proceedings to the CIR within 2 days
after the sale.
Right of pre-emption.
 If at any time prior to the consummation of the
sale, all proper charges are paid to the officer
conducting the sale, the goods or effects
distrained shall be restored to the owner.
 There shall be no right of redemption in the case
of sale of personal property, only a right pre-
emption.
Report of sale to the CIR.
 The officer making the sale shall make a written
report of the proceedings within 2 days after the
sale and shall himself preserve a copy of such
report as an official record.
Purchase by Government at sale upon distraint.
 The CIR or his deputy may purchase the personal
property involved in behalf of the National
Government for the amount of taxes, penalties
and costs due thereon when the amount of bid
for the property under distraint is:
1. Not equal to the amount of the tax; or
2. Very much less than the actual market value
of the articles offered for sale.
 Property so purchased may be resold by the CIR
or his deputy, and the net proceeds therefrom
shall be remitted to the National Treasury and
account for as internal revenue.
When advertisement of sale of property should be
made.
 Should be made within 20 days after the levy, and
the same shall be for a period of at least 30 days.
How the advertisement of sale of property be
effectuated.
1. By posting a notice at the main entrance of the
municipal or city hall and in a public and
conspicuous lace in the barangay or district in
which the real estate lies; and
2. Publication once a week for 3 weeks in a
newspaper of general circulation in the
municipality or city where the property is located.
What the advertisement should contain.
1. The amount of tax and penalties due;
2. Time and place of sale;
3. Name of the taxpayer against whom taxes are
levied; and
4. Short description of the property to be sold.
Right of pre-emption.
 At any time before the day fixed for the sale, the
taxpayer may discontinue all proceedings by
paying the taxes, penalties and interest.
Public auction of property under levy.
1. If the taxpayer does not pay the taxes, penalties
and interest, the sale shall proceed and shall be
held either at the main entrance of the municipal
building or the city hall, or on the premises to be
sold, as the officer conducting the proceedings
shall determine and as the notice of sale shall
specify.
2. Within 5 days after the sale, a return by the
levying officer of the proceedings shall be entered
upon the records of the RCO, the RDO and the RD.
3. The RCO, in consultation with the RDO, shall then
make out and deliver to the purchaser a
certificate of sale from his records, showing the
proceedings of the sale, describing the property
sold, stating the name of the purchaser and
setting out the exact amount of all taxes,
penalties and interest.
4. In case the proceeds of the sale exceed the claim
and cost of sale, the excess shall be turned over
the owner of the property.
5. The RCO, upon the approval by the RDO, out of
his collection, advance an amount sufficient to
defray the costs of collection by means of the
summary remedies, including the preservation or
transportation in case of personal property, and
the advertisement and subsequent sale, both in
cases of personal and real property including
improvements found on the latter.
On levy to satisfy the delinquent estate tax,
delinquent taxpayer is the Estate of the deceased.
 In case of notices of levy issued to satisfy the
delinquent estate tax, the delinquent taxpayer is
the estate, and not necessarily, and exclusively,
the heirs of the deceased.
Period of redemption.
 Real property – within 1 year from the date of
sale.
 They shall have the right of paying to the RDO the
amount of the:
1. Public taxes;
2. Penalties;
3. Interest from the date of delinquency to the
date of sale; and
4. Interest on the said purchase price at the rate
of 15% per annum form the date of sale to the
date of redemption.
Effects of redemption of property sold.
1. Such payment shall entitle the person paying to
the delivery of the certificate of sale issued to the
purchaser and a certificate from the said RDO that
he has thus redeemed the property; and
2. The RDO shall forthwith pay over to the purchaser
the amount b which such property has thus been
redeemed, and said property thereafter shall be
free from the lien of such taxes and penalties.
Rights of the owner during the one-year period of
redemption.
 The owner shall not be deprived of the possession
of the said property and shall be entitled to the
rents and other income thereof until the
expiration of the time allowed for its redemption.
Difference between seizure under forfeiture and
seizure to enforce a tax lien.
 Seizure under forfeiture – all the proceeds
deprived from the sale of the thing forfeited are
turned over to the CIR.
 Seizure to enforce a tax lien – the residue of such
proceeds over and above what is required to pay
the tax sought to be realized, including expenses,
is returned to the owner of the property.
When real property may be forfeited in favor of the
Government.
1. In case there is no bidder for real property
exposed for sale; or
2. If the highest bid is for an amount insufficient to
pay the taxes, penalties and costs.
When the Revenue Officer shall make a return of the
proceedings of forfeiture.
 Within 2 days from the date of forfeiture.
Duty of the ROD after the forfeiture proceedings.
 To transfer the title of the property forfeited to
the Government without the necessity of an order
form a competent court.
Period of redemption.
 Within 1 year from the date of forfeiture.
Effect when property is not redeemed by the
taxpayer.
 The forfeiture shall become absolute.
 The Declaration of Absolute Forfeiture should be
prepared and registered with the ROD and
simultaneously a request be made to transfer the
title of the property from the name of the
taxpayer to the RP.
Administration and management.
 The Revenue Regional Officer and/or the RDO
shall take possession of the property, administer
and manage the same, gather its civil fruits and
account the proceeds thereof and he shall see to
it that the title and/or declaration of the property
is transferred from the name of the taxpayer to
the RP.
Resale of real estate taken for taxes.
 After registration in the name of the RP, the same
property may still be disposed of either at public
or at private sale.
 If at public auction, the CIR must give not less
than 20 days notice.
 If private sale, it should be with the approval of
the SOF.
 Fair market value at the time of sale
 Proceeds shall be deposited with the National
Treasury.
Procedures for the resale of absolutely forfeited
properties.
1. All acquired/forfeited properties transferred in
the name of the RP, having passed the one-year
 redemption period, shall be converted into cash
from the date of the acquisition or forfeiture.
2. The sale of acquired/forfeited properties shall be
by sealed bids in a public auction to be witnessed
by a representative of the COA.
3. The notice of sale shall be published once a week
for 2 consecutive weeks in a newspaper of general
circulation in the Philippines which must be
completed at least 20 days prior to the date of
such public auction.
4. Unless the CIR provides otherwise, the Minimum
Bid Price/Floor price shall be the latest fair market
value.
5. Anyone could bid, except foreign nationals,
including the ees of the BIR.
6. Bidders shall be required to post a bond in cash or
manager’s check in an amount representing 10%
of the minimum bid price at least one day before
the scheduled public auction.
7. Unless the CIR allows extension of time to pay, in
meritorious cases, the winning bidder shall pay
the full amount of his bid cash or manager’s check
within 2 days after receipt of notice of award.
8. All taxes and expenses relative to the issuance of
title be borne by the winning bidder.
9. The winning bidder shall be responsible at his own
expense for the ejectment of squatters and/or
occupants, if any, of the auctioned property.
10. Negotiated or private sale be resorted to as a
consequence of failed public bidding for 2
consecutive times.
11. Negotiated or private sale shall in all cases be
approved by the SOF.
12. Public auction sale shall be approved by the CIR or
his authorized representative.
13. The Government reserves the right to reject or
cancel any or all bids.
Rationale of Section 218.
 Taxes are the lifeblood of the government should
be collected promptly.
 No court shall have the authority to grant an
injunction to restrain the collection of any
national internal revenue tax, fee or charge by the
NIRC.
 If given by other courts, it must be annulled and
cancelled for lack of jurisdiction, with an
appropriate administrative case against the erring
judge.
No court, except the CTA, shall have authority to
grant injunction to restrain the collection of any
national internal revenue tax.
 This prohibition shall apply to the following:
1. All collection activities, including imposition
and collection of taxes prescribed in tax laws;
2. Issuance of warrants of distraint and
garnishment, and/or levy on final decisions of
the BIR on disputed assessments;
3. Cases filed before the CTA; and
4. The sale of property distrained and garnished.
 No appeal taken to the CTA from the decision of
the BIR on disputed assessment shall suspend the
payment, levy, distraint, and/or sale of any
property of the taxpayer for the satisfaction of his
tax liability, unless the CTA suspends the
collection under certain conditions.
When injunction may be allowed by the CTA.
1. When there is an appeal to the CTA from a
decision of the CIR;
2. In the opinion of the CTA, the collection may
jeopardize the interest of the Government and/or
the taxpayer;
3. The taxpayer may be required to deposit the
amount claimed or to file a surety bond for not
more than double the amount with the Court.
Tax Lien
 Denotes a legal claim or charge on property,
whether real or personal, as security for the
payment of some debt or obligation.
Nature of tax lien.
 When a taxpayer is liable to pay an internal
revenue tax, neglects or refuses to pay his internal
revenue tax liability after demand, the amount so
demanded shall be a lien in favor of the
government from the time the assessment was
made by the CIR until paid, with interest,
penalties and costs that may accrue in addition
thereto upon all property and rights to property
belonging to the taxpayer.
When tax lien against a mortgagee, purchases or
judgment creditor considered valid.
 When notice of such lien shall be filed by the CIR
in the office of the ROD of the province or city
 where the property of the taxpayer is situated or
located.
When tax lien in favor of the Government may arise.
1. With respect to personal property, the lien in
favor of the Government arises from the time the
tax became due and payable.
2. With respect to real property, the lien in favor of
the Government arises from the time of
registration with the ROD.
Collection remedies of the government in a case
where the estate had already been distributed to the
heirs.
1. Sue all the heirs and collect from each the amount
of tax proportionate to the inheritance received;
or
2. By virtue of the lien, sue only one heir and subject
the property he received from the estate to the
payment of the estate tax.
Form and mode of proceedings of court actions
instituted in behalf of the Government.
1. Civil and criminal actions and proceedings
instituted in behalf of the government shall be
brought in the name of the Government of the
Philippines.
2. They shall be conducted by legal officers of the
BIR.
3. No civil or criminal action for recovery of taxes or
the enforcement of any fine, penalty or forfeiture
shall be filed in court without the approval of the
CIR.
4. The approval of the SolGen for civil actions for
collection of delinquent taxes is required before
they are filed.
SolGen has the primary responsibility to appear for
the government in appellate proceedings.
 This finds justification in the various laws defining
the Office of the SolGen.
How should approval of the CIR for the filing of
information in Court be signified.
 His signature need not appear on the Resolution
of the State Prosecutor or the Information itself.
Who has the obligation to determine the existence
of tax fraud for the imposition of criminal penalties.
 RTC
Jurisdiction of courts over civil tax cases.
1. CTA – original jurisdiction on civil cases where the
principal amount of taxes and fees, exclusive of
charges and penalties claimed is P1M and above.
2. RTC, MTC, MeTC – original jurisdiction on civil tax
cases where the principal amount of taxes and
fees, exclusive of charges and penalties claimed in
less than P1M.
Jurisdiction of courts over criminal cases.
1. CTA – principal amount of taxes and fees,
exclusive of charges and penalties, claimed is P1M
and above.
2. RTC, MeTC, MTC – less than P1M or where there
is no specified amount claimed.
What should be imposed in the judgment in a
criminal case.
 Shall not only imposed penalty, but shall also
order the payment of taxes subject of the criminal
case as finally decided by the CIR.
Principles in criminal actions.
1. Assessment is not a prerequisite in the filing of a
criminal action. What is involved here is not the
collection of taxes where the assessment of the
CIR may be reviewed by the CTA, but a criminal
prosecution for violation of the NIRC which is
within the cognizance of the RTC.
2. But filing of criminal action is not an implied
assessment by the CIR. an assessment contains
not only a computation of tax liabilities, but also a
demand for payment within a prescribed period.
3. Criminal action may be filed during the pendency
of an administrative protest in the BIR. It is not a
requirement for the filing of criminal action that
there be a precise computation and assessment of
the tax, since what is involved in the criminal
action is not the collection of tax but a criminal
prosecution for the violation of the NIRC, for as
long as there is a prima facie showing of a willful
attempt to evade taxes or failure to file the
required return.
4. Effect of acquittal of the taxpayer in a criminal
action. Does not necessarily result in the
exoneration of said taxpayer from his civil liability
to pay taxes. The civil liability to pay taxes arises
 not because of felony but upon taxpayer’s failure
to pay taxes. Criminal liability in taxation arises as
a result of one’s ability to pay taxes.
5. Effect of subsequent satisfaction of civil liability.
Does not extinguish the taxpayer’s criminal
liability.
6. No subsidiary imprisonment. In case of insolvency
on the part of the taxpayer, subsidiary
imprisonment cannot be imposed as regards the
tax which he is sentenced to pay. However, it may
be imposed in cases of failure to pay the fine
imposed upon him by the court.
Rationale of the prescriptive period for the
assessment and collection of taxes.
 In order to safeguard the interest of the taxpayer
against unreasonable investigation.
When the exceptional prescriptive periods for
assessment and collection of taxes apply.
1. When the taxpayer filed a false return with intent
to evade tax;
2. When the taxpayer filed a fraudulent return with
intent to evade tax;
3. When the taxpayer failed to file a return; and
4. In case the Cir and the taxpayer have agreed in
writing to extend the period of assessment after
the normal prescriptive period of assessment.
 1, 2, 3 – at any time within 10 years after the
discovery of the falsity, fraud or omission.
 A proceeding in court for the collection of tax may
be filed without assessment at any time within 10
years after the discovery of the falsity, fraud or
failure to file a return.
False return and fraudulent return not one and the
same.
 A false return implies deviation from the truth or
fact, whether intentional or not. It may be due to
mistakes, carelessness or ignorance of the person
preparing the return
 A fraudulent tax return implies intentional or
deceitful entry with the sole object of evading the
tax.
 It must be an intentional fraud, consisting of
deception willfully and deliberately done or
resorted to in order to induce another to give up
some legal right.
 Negligence, whether slight or gross, is not
equivalent to intentional wrongdoing.
Distinguish tax avoidance and tax evasion.
 Tax avoidance is the tax saving device within the
means sanctioned by law.
 Tax evasion is a scheme used outside of those
lawful means and when availed of, it usually
subjects the taxpayer to additional civil or criminal
liabilities.
Essential elements of tax evasion.
1. The end to be achieved, i.e., the payment of less
than that known by the taxpayer to be legally
dues, or the non-payment of tax when it is shown
that a tax is due.
2. An accompanying state of mind which is described
as being evil, in bad faith, willful, or deliberate and
not accidental; and
3. A course of action or failure of action which is
unlawful.
Tax fraud and tax evasion case basically a criminal
case.
 The crime of tax evasion is complete when the
taxpayer had knowingly and willfully filed a
fraudulent return with intent to evade and defeat
tax.
 The presumption that an officer of the
government has performed his duty regularly as
in the case of correctness of deficiency
assessments, is not applicable in fraud cases.
Assessment is NOT necessary before filing a criminal
complaint for tax evasion.
 Section 222 says so.
Prescriptive period for the assessment of tax in case
of failure to file a return.
 At any time within 10 years after the discovery of
the omission.
In case of failure to file an estate tax return, the tax
may be assessed at any time within 10 years after
the omission.
 And any tax so assessed may be collected by levy
upon real property within 3 years following the
assessment of the tax.
When the statute of limitations may be waived.
 If before the expiration of the time, both the CIR
and the taxpayer agreed in writing to its
assessment after such time, the tax may be
assessed within the period agreed upon.
 The waiver of the Statute of Limitations does not
mean that the taxpayer relinquishes the right to
invoke prescription unequivocally, particularly
where the language of the document is equivocal.
Waiver of the statute of limitations; how construed.
 A waiver of the statute of limitations, being a
derogation of the taxpayer’s right to security
against prolonged and unscrupulous
investigations, must be carefully and strictly
construed.
Requisites of a valid waiver of the Statute of
Limitations.
1. It must be in writing;
2. It must be agreed upon and signed by the CIR or
his duly authorized representative and by the
taxpayer before the expiration of the time
prescribed to extend the period of assessment;
3. There must be a definite agreed date;
4. The date of acceptance must be indicated; and
5. The taxpayer must be furnished with a copy of the
waiver.
Revenue officials authorized to sign waiver.
 Assistant CIR – for tax fraud and policy
enforcement services cases.
 Assistant heads
 In case the authority is delegated by the taxpayer
to a representative, the concerned revenue
official shall see to it that such delegation is in
writing and duly notarized.
 The waiver should not be accepted by the
concerned BIR office and official unless duly
notarized.
Effect of the execution by a taxpayer of a waiver of
the statute of limitations on his defense of
prescription.
 It signifies the acceptance of the BIR and the
perfection of an agreement that the making of an
assessment and the collection of taxes are
suspended during the period of the said
agreement.
Taxpayer who paid the tax assessment covered by
waivers of the Statute of Limitations is estopped
from questioning the validity of the waivers with
respect to the other assessment of deficiency
onshore tax.
 RCBC vs. CIR. RCBC, through its partial payment of
the revised assessments issued within the
extended period as provided for in the questioned
waivers, impliedly admitted the validity of those
waivers. Had petitioner truly believed that the
waivers were invalid and that the assessments
were issued beyond the prescriptive period, then
it should not have paid the reduced amount of
taxes in the revised assessment.
Rules on exceptional prescriptive period for the
collection of taxes.
1. In case there is a prior assessment, collection shall
be made within 5 years from the date of the final
assessment notice (FAN) of the return either or
both simultaneously:
a. By distraint of personal property, or by levy of
the real property of the taxpayer; or
b. By judicial proceedings, thru civil or criminal
actions.
2. In case there is no prior assessment, actions for
collection of tax may be filed within 10 years after
the discovery of the falsity, fraud or failure to file
a return, but only by judicial proceedings.
Construction of prescription of collection in civil
taxes and criminal taxes cases.
 In civil cases, prescription is construed against the
government and liberally in favor of the taxpayer.
 In criminal cases, prescription is construed strictly
against the taxpayer.
No proceedings could be initiated in court for the
collection of tax, and claim for collection barred for
having been made beyond the 5-year prescriptive
period set by law.
 Absent the assessment, no proceedings could be
initiated in court for the collection of said tax, and
claim for collection, filed with the probate court,
was barred for having been made beyond the 5-
year prescriptive period set by law.
Doctrine of estoppel prevented the taxpayer from
raising the defense of prescription.
 CIR vs. Suyoc Consolidated Mining Co. After
inducing the BIR to delay collection as he in fact
did, it is most unfair for taxpayer to now take
advantage of such desistance to elude his
deficiency income tax liability to the prejudice of
the Government invoking the technical ground of
prescription. He who prevents a thing from being
done may not avail himself of the
nonperformance which he has himself
occasioned, for the law says to him in effect “this
is your own act, and therefore you are not
damnified”.
Grounds for the suspension of the running of the
Statute of Limitations.
 The BIR is prohibited from making assessment or
collection in respect of any tax deficiency of a
taxpayer for that period for which it is prohibited
and for 60 days thereafter on the following
grounds:
1. When the taxpayer filed a protest thru a
request for reinvestigation which is granted
by the CIR;
2. When the taxpayer cannot be located in the
address given him in the return filed upon
which a tax is being assessed or collected,
unless the taxpayer informs the CIR of any
change in his address.
3. When the warrant of distraint or levy is duly
served upon the taxpayer, his authorized
representative, or a member of his household
with sufficient discretion, and no property
could be located; and
4. When the taxpayer is out of the Philippines.
Difference between a Request for Reconsideration
and a Request for Reinvestigation.
 Reconsideration – refers to a plea of re-evaluation
of the assessment on the basis of existing records
without need of additional evidence. It may
involve both question of fat or of question of law
of both. A request for reconsideration does not
toll the running of the prescriptive period for the
collection of an assessed tax.
 Re-investigation – refers to a plea of re-evaluation
of the assessment on the basis of newly
discovered evidence that a taxpayer intends to
present in the reinvestigation. It may also involve
a question of fact or of law or both. The grant
suspends the running of the prescriptive period to
collect the tax due a taxpayer.
Enforcement of forfeitures of personal properties
and real properties.
 The forfeiture of personal properties of all sorts
shall be enforced by the seizure and sale, or
destruction, of the specific forfeited properties.
 The forfeiture of real properties shall be enforced
by a judgment of condemnation and sale in a legal
action or proceeding, civil or criminal, as the case
may require.
Enforcement of the remedy of forfeiture of personal
property.
 Sales of forfeited chattels and removable fixtures
shall be effected, do far as practicable, in the
same manner and under the same conditions as
the public notice and the time and manner of sale
as are prescribed for sales of property distrained
for the non-payment of taxes.
 Distilled spirits, liquors, cigars, cigarettes, other
manufactured products of tobacco, and all
apparatus used in or about the illicit production of
such articles may, upon forfeiture, be destroyed
by order of the CIR, when the sale of the same for
consumption or use would be injurious to the
public health or prejudicial to the enforcement of
law.
 All other articles subject to excise tax, which have
been manufactured or removed in violation of
this Code, as well as dies for the printing or
making of internal revenue stamps and labels
which are in imitation of or purport to be lawful
stamps, or labels may, upon forfeiture, be sold or
destroyed in the discretion of the CIR.
 Forfeited property shall not be destroyed until at
least 20 days after seizure.
Disposition of funds recovered in legal proceedings
or obtained from forfeitures.
 All judgments and monies recovered and received
for taxes, costs, forfeitures, fines and penalties
shall be paid to the BIR just like any other taxes
which are required to be paid, and except as
specially provided, shall be accounted for and
dealt with in the same way.
Distinction between the effects of the forfeiture of
personal property and seizure for the enforcement
of tax lien.
 The effect is to transfer the title to the specific
thing from the owner to the government. All the
proceeds in case of a sale go to the coffers of the
government.
 In the case of seizure for the enforcement of a tax
lien, the residue, after deducting the tax liability
and expenses will go to the taxpayer.
Satisfaction of judgment recovered against any
internal revenue officer.
 If by reason of any act done in the performance of
the official duty, an action is brought against the
Internal Revenue Officer to recover damages and
the CIR is notified of such action in time to make
defense against the same thru the SolGen, any
judgment, damages or costs recovered in such
action shall be satisfied by the CIR, upon approval
of the SOF.
 If the same is paid by the Revenue Officer sued,
the same shall be repaid or reimbursed to him.
 It the Revenue Officer acted negligently or in bad
faith, or with willful oppression, no judgment,
damages, or costs shall be paid or reimbursed to
him.
CHAPTER 3 – PROTESTING AN ASSESSMENT,
REFUND, ETC.
ASSESSMENT PROCESS
I. TAX AUDIT OR INVESTIGATION BY THE REVENUE
EXAMINER/OFFICER
What is tax audit.
 In a tax audit, revenue officers examine the books
of account and other accounting records of
taxpayers to determine their correct tax liability.
 This is done through the issuance of letter of
authority.
Issuance of a Letter of Authority.
 A taxpayer’s first encounter with the BIR after
filing his return/s, whether on income tax, VAT or
other types of internal revenue taxes, is when he
is served with a LA by a revenue enforcement
officer or investigating officer of the BIR.
 LA – an official document that empowers a
Revenue Officer to examine and scrutinize a
taxpayer’s books of accounts and other
accounting records, in order to determine the
taxpayer’s correct internal revenue tax liabilities
for a particular period.
 In the absence of such an authority, the
assessment or examination is a nullity.
Persons authorized to issue LA.
1. CIR or his duly authorized representative – for
audit/investigation of taxpayers under the
jurisdiction of the National Office;
2. RD – for audit of taxpayers under the jurisdiction
of the regional offices.
When must an LA be served.
 Within 30 days from its date of issuance,
otherwise, it shall become null and void. The
taxpayer shall then have the right to refuse the
service of this LA, unless the same is revalidated.
How often can an LA be revalidated.
 An LA is revalidated thru the issuance of a new LA.
 An LA issued in the Revenue Regional Offices can
be revalidated only once; but an LA issued by the
National Office can be revalidated twice.
 Any suspended LA must be attached to the new
LA issue.
Tax Cases which need not be covered by an LA.
1. Cases involving civil or criminal tax fraud which
shall fall under the jurisdiction of the National
Investigation Division (NID) under the
Enforcement and Advocacy Services (EAS) of the
BIR; and
2. Policy cases under audit by the special teams in
the National Office.
Effect of issuance of LA.
 A tax return, statement or declaration filed by a
taxpayer in any office authorized to receive the
same shall not be withdrawn, but the same may
be modified, changed or amended within three
years from the date of such filing.
 When an LA or investigation of such return,
statement or declaration has been actually served
upon the taxpayer, said return, statement or
 declaration shall no longer be allowed to be
amended.
Extent of authority of a Revenue Officer performing
assessment functions.
 He must not go beyond the authority given.
 LA should cover a taxable period not exceeding
one taxable year. The practice of issuing Las
covering the audit of unverified prior years is
hereby prohibited. If the audit of a taxpayer shall
include more than one taxable period, the other
periods or years shall be specifically indicated in
the LA.
Effect of the issuance and receipt of Letter Notice to
the taxpayer’s right to amend its returns.
 Letter notices being served by the BIR upon
taxpayers who were found to have underdeclared
their sales or sales or purchasers thru the Third
Party Information Program can be considered a
notice of audit or investigation which would in
effect disqualify the taxpayers concerned from
amending any return which is the subject of such
audit or investigation.
Treatment of Letter of Notice (LN).
 may commence even without the prior issuance
of LA.
Number of times that a taxpayer’s books of accounts
may be subjected to audit.
 GR. For income tax purposes, such examination
and inspection shall be made only once in a
taxable year.
 XPN.
1. When the CIR determines that fraud,
irregularities, or mistakes were committed by
the taxpayer;
2. When the taxpayer himself requests a
reinvestigation of his books of accounts;
3. When there is a need to verify the taxpayer’s
compliance with the withholding tax laws and
regulations;
4. When the taxpayer’s capital gains tax
liabilities must verified; and
5. When the CIR opts to exercise his power to
obtain information from other persons
relative to the examination of the books of
account of that third party who is being
audited.
Period to conduct audit.
 An Internal Revenue Officer is allowed only o120
days from the date of receipt of an LA by the
taxpayer to conduct the audit and submit the
required report of investigation.
 If he is unable to submit his final report of
investigation within the 120-day period, he must
then submit a Progress Report to his Head Office,
and surrender the LA for revalidation.
Audit Report of the Revenue Officer.
 Shall state in his report WON the taxpayer agrees
with his findings that the taxpayer is liable for the
deficiency tax or taxes.
 If the taxpayer is not amenable, he shall be
informed in writing of the discrepancy in the
taxpayer’s payment of his internal revenue taxes,
for the purpose of Informal Conference, in order
to afford the taxpayer with an opportunity to
present his side of the case.
 If the taxpayer is amenable, and the latter pays
the tax, the conduct of audit ends.
 If the RO does not find any deficiency tax, the
conduct of audit ends.
Obligations of a taxpayer who is being audited.
1. Duly acknowledge his receipt of the LA upon its
presentation;
2. Resent within a reasonable period of time his
books of accounts and other related accounting
records as that may be required by the RO;
3. Submit necessary schedules as may be requested
by the RO within the prescribed period as stated
in the LA; and
4. If, believing that he cannot present his books of
accounts and/or other accounting records as
required, and he intends to request for more time
to present the said documents in order to avoid
the issuance of a jeopardy assessment, the
taxpayer may execute what is referred to as
Waiver of the Statute of Limitations.
II. ISSUANCE OF A NOTICE OF INFORMAL
CONFERENCE
Notice of informal conference.
 A written notice informing a taxpayer that the
findings of the audit conducted on his books of
accounts and accounting records indicate that
there is a discrepancy in his tax payments which
has to be paid.
 The taxpayer is given 15 days from the date of his
receipt of the NIC in order to afford the taxpayer
with an opportunity to present his case.
 If the taxpayer responds within 15 days, an
informal conference will be held.
 If the taxpayer fails to respond within 15 days, he
shall be considered in default, in which case, the
RDO or the Chief of the Special Investigation
Division of the RO, of the Chief Division in the NO,
as the case may be, shall endorse the case with
the lease possible delay to the Assessment
Division of the RO or to the CIR or his duly
authorized representative, as the case may be, for
appropriate review and issuance of a deficiency
tax assessment, if warranted.
III. INFORMAL CONFERENCE.
What takes place in the informal conference.
 Informal conference is the discussion on the
merits of the assessment between the taxpayer
and the Revenue Officer.
 The RO communicates to the taxpayer the
imposition of deficiency assessment if any.
 The taxpayer may attempt to convince the
examiner to conduct a re-investigation or a re-
examination of his tax case. The taxpayer may
advise the examiner if he will submit his position
paper regarding the issues raised in the informal
conference.
 If there is no sufficient basis for assessment, the
case shall be dismissed.
 If there is a basis for the assessment, a
Preliminary Assessment Notice (PAN) shall be
issued.
IV. ISSUANCE OF A PRELIMINARY ASSESSMENT
NOTICE (PAN)
What is a PAN.
 It is a communication issued by the Regional
Assessment Division, or by the Cir or his duly
authorized representative informing a taxpayer
who has been audited of the findings of the
Revenue Officer, following the review and
evaluation of these findings.
 The PAN shall be in writing, and shall show in
detail the facts and the law, rules and regulations
or jurisprudence on which the proposed
assessment is based, otherwise the assessment is
void.
How PAN is issued to a taxpayer.
 If after review and evaluation by the Assessment
Division or by the Commissioner or his duly
authorized representative, as the case may be, it
is determined that there exists sufficient basis to
assess the taxpayer for any deficiency tax or taxes,
the said office shall issue to the taxpayer, at least
by registered mail, a PAN for the proposed
assessment, showing in detail, the facts and the
law, regulations, or jurisprudence on which the
proposed assessment is based.
Mandatory nature of service of a PAN.
 Failure is tantamount to a denial of due process.
 The Tax Code requires that the taxpayer must first
be informed that he is liable for tax deficiency
thru the sending of a PAN.
Concept of Assessment.
 Assessment is a statement that the amount
therein stated is due from a taxpayer as a tax.
 3 kinds of assessment
1. Self-assessed or voluntary assessment
- This is an assessment where the taxpayer
assesses his own tax.
2. Jeopardy assessment
- This is an assessment made by an
authorized Revenue Officer without the
benefit of complete or partial audit in
the light of the Revenue Officer’s belief
that the assessment and collection of the
deficiency tax will be jeopardized by
delay caused by the taxpayer’s failure to
comply with audit and investigation
requirements to present his books of
accounts and/or pertinent records; or to
substantiate all or any of the reductions,
exemptions or credits claimed in his
return.
3. Deficiency assessment – this is an assessment
rendered by the tax authority where the
 correct amount of the tax is determined after
an examination or investigation is conducted.
Requisites for a valid assessment notice.
 A taxpayer must be informed in writing of the
legal and factual bases of the tax assessment
made against him.
Underlying reason for the new requisites.
 No person shall be deprived of his property
without due process of law.
When assessment is deemed made.
 Only when the demand letter or notice of
assessment is released, mailed or sent by an
internal revenue officer to the taxpayer. It is not
required that the notice be received by the
taxpayer within the prescribed period. But the
sending of the notice must be clearly proven
What are considered as constructive service.
1. If the notice to the taxpayer is served by
registered mail, and no response is received from
the taxpayer within the prescribed period from
the date of posting thereof in the mail;
2. If the notice is personally served on the taxpayer
or his duly authorized representative who,
however, refused to acknowledge receipt thereof.
 Constructive service shall be considered effected
by leaving the same in the premises of the
taxpayer and this fact of constructive service is
attested to, witnessed and signed by at least two
revenue officers other than the revenue officer
who constructively served the same.
It is incumbent upon the BIR to prove competent
evidence that Notice of Assessment was indeed
received by the taxpayer.
Persons authorized to make tax assessments.
 CIR
 But it may be delegated to subordinate officers.
Instances when a PAN is not required.
 Issuance of a FAN for the payment of the
taxpayer’s deficiency tax liability shall be
sufficient:
1. When the finding for any deficiency tax is the
result of mathematical error in the
computation of the tax appearing on the face
of the tax of the tax return filed by the
taxpayer; or
2. When the discrepancy has been determined
between the tax withheld and the amount
actually remitted by the withholding agent; or
3. When a taxpayer who opted to claim a refund
or tax credit of excess creditable withholding
tax for a taxable period was determined to
have carried over and automatically applied
the same amount claimed against the
estimated tax liabilities for the taxable
quarter/s of the succeeding taxable year; or
4. When the excise tax due on excisable articles
has not been paid; or
5. When an article locally purchased or imported
by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries
and spare parts, has been sold, traded or
transferred to non-exempt persons.
When a PAN was considered as a FAN appealable to
the CTA.
 It is the formal letter of demand and assessment
notice that must be administratively protested or
disputed within 30 days, and not the PAN. The
counting of the 30 days within which to institute
an appeal in the CTA commences from the date of
receipt of the decision of the CIR on the disputed
assessment, not from the date the assessment
was issued.
 Oceanic Wireless, Inc. vs. CIR. The Formal Letter
of Demand with Assessment Notices which was
not administratively protested by the petitioner
can be considered final decision of the CIR
appealable to the CTA because the words used,
specifically the words “final decision” and
“appeal”, taken together led petitioner to believe
that the Formal Letter of Demand with
Assessment Notices was in fact the final decision
of the CIR on the letter-protest it filed and the
available remedy was appeal the same to the CTA.
BIR cannot use as an excuse to the delay in the
issuance of the assessment notice failure of the
taxpayer to furnish the BIR of the required
documents.
 As to the delay of the taxpayer to furnish the BIR
of the required documents, this cannot be taken
against the taxpayer.
 Neither can the BIR use this as an excuse for
issuing the assessment beyond the 3-year
prescriptive period because with or without the
required documents, the CIR has the power to
make assessments based on the best evidence
obtainable.
V. REPLY TO A PAN
What is the reply to a PAN.
 A reply to the PAN is the response of the taxpayer
to the PAN to contest in writing the findings of the
revenue officers contained in a PAN which should
be filed within 15 days from the date of receipt of
the PAN.
 Failure to reply to a PAN makes the taxpayer in
default and authorizes the revenue officials to
issue the FAN. However, no additional tax liability
or deficiency tax arises from such failure to reply
to a PAN.
Effect of failure to respond to the PAN.
 If the taxpayer disagrees with the findings stated
in the PAN, he shall then have 15 days from the
receipt of the PAN to file a written reply
contesting the proposed assessment.
 If the taxpayer fails to respond within 15 days
from date of receipt of the PAN, he shall be
considered in default, in which case, a formal
letter of demand and assessment notice shall be
caused to be issued by the said Office calling for
payment of the taxpayer’s deficiency tax liability,
inclusive of the applicable penalties.
VI. ISSUANCE OF FORMAL LETTER OF
DEMAND/FINAL ASSESSMENT NOTICE (FAN)
Formal Letter of Demand and FAN.
 The FAN is declaration of deficiency taxes issued
to a taxpayer who fails to respond to a PAN within
the prescribed period of time, or whose reply to
the PAN was found to be without merit.
 The FAN contains not only a computation of tax
liabilities, but also a demand for payment within a
prescribed period and shall state the facts, the
law, rules and regulations, or jurisprudence on
which the assessment is based otherwise, the
formal letter of demand and the notice of
assessment shall be void.
 To enable the taxpayer to determine his remedies
thereon, due process requires that it must be
served on and received by the taxpayer.
Who shall issue the FAN.
 Shall be issued by the CIR or his duly authorized
representative.
How a FAN sent to the taxpayer.
 The FAN shall be sent to the taxpayer only by
registered mail or by personal delivery.
 If sent by personal delivery, the taxpayer or his
duly authorized representative shall acknowledge
receipt thereof in the duplicate copy of the letter
of demand, showing the following:
1. His name;
2. Signature;
3. Designation and authority to act for and in
behalf of the taxpayer, if
acknowledged/received by a person other
than the taxpayer himself; and
4. Date of receipt thereof.
Formality of a control number in the assessment
notice NOT a requirement for its validity.
 Both the formal letter of demand and the notice
of assessment shall be void if the former failed to
state the fact, law, rules and regulations or
jurisprudence on which the assessment is based.
Instances when FAN becomes final, executor, and
demandable.
1. Taxpayer failed to file a valid protest against the
FAN within 30 days from receipt.
2. Taxpayer failed to appeal to CTA from the adverse
decision of the CIR or his representative on the
protest within 30 days from receipt thereof,
except if the protest is decided by the CIR’s
authorized representative and taxpayer later
elevates it to the CIR, in which case, it is the
latter’s decision that becomes final and executor
if not appealed by the taxpayer to the CTA.
3. Taxpayer failed to appeal to the SC from the
adverse decision of the CTA within 15 days.
 But the failure of the taxpayer to appeal the
inaction on the disputed assessment by the CIR or
 his representative within 30 days after the lapse
of 180 days from the submission of supporting
documents will not result in the finality of the
FAN.
 The taxpayer is given the option to either
1. Appeal the inaction within 30 days following
the 180-day period; or
2. Await the decision of the CIR even beyond the
180-day period, and appeal such decision, if
adverse, within 30 days from the receipt of
the decision of the CIR.
Presumption of correctness of the assessments
rendered by tax examiners.
 An assessment may be protested by filing a
request for consideration or reinvestigation within
30 days from receipt of the assessment by the
taxpayer.
Commissioner has authority to make subsequent
assessments or modify or revise the original
assessment.
 As long as the modification or revision is done
within the prescriptive period for making
assessments, and even while the appeal of the
taxpayer from the original assessment is still
pending in the CTA, so as to avoid multiplicity of
suits.
Issuance of an assessment distinguished from the
filing of a criminal complaint.
 The criminal complaint is instituted not to
demand payment, but to penalize the taxpayer
for violation of the Tax Code.
An affidavit, which was executed by revenue officers
stating the tax liabilities of a taxpayer and attached
to a criminal complaint for tax evasion, cannot be
deemed an assessment that can be questioned
before the CTA.
 To consider the affidavit attached to the
complaint as a proper assessment is to subvert
the nature of an assessment and to set a bad
precedent that will prejudice innocent taxpayers.
 An assessment must be sent to and received by a
taxpayer, and must demand payment of the taxes
described therein within a specific period.
TAXPAYER’S ADMINISTRATIVE REMEDY (PROTEST)
Protested/disputed assessment.
 Within 30 days from date of receipt thereof.
 It is an act by the taxpayer of questioning the
validity of the imposition of the delinquency
assessments and increments for internal revenue
taxes as shown in the notice of assessment and
letter of demand.
 If there are several issues involved in the formal
letter of demand and assessment notice, but the
taxpayer only disputes or protests against the
validity of some of the issues raised, the taxpayer
shall be required to pay the deficiency tax or taxes
attributable to the disputed issues, in which case,
a collection letter shall be issued to the taxpayer
calling for payment of the said deficiency tax,
inclusive of the applicable surcharge and/or
interest.
 No action shall be taken on the taxpayer’s
disputed issues until the taxpayer has paid the
deficiency tax or taxes attributable to the said
undisputed issues.
 The prescriptive period for assessment or
collection of the tax or taxes attributable to the
disputed issues shall be suspended.
Remedy of the taxpayer when the CIR’s authorized
representative denied the protest.
 The taxpayer may elevate the protest to the CIR
within 30 days from receipt of the decision,
otherwise, the assessment shall become final,
unless appeal to the CTA is taken.
 The decision of the CIR’s authorized
representative may be directly appealed to the
CTA because the CIR has the authority to delegate
his assessment functions to subordinate officers
and the assessment shall have the same force and
effect as that issued by the CIR himself if not
elevated to the latter.
Form of protest.
1. Request for consideration – which is a plea for a
re-evaluation of an assessment on the basis of
existing records without need of additional
evidence which may involve a question of fact or
law or both. This does not toll the running of the
Stature of Limitations; or
2. Request for reinvestigation – which is a plea for
the reinvestigation of the assessment on the basis
of the newly-discovered or additional evidence
that a taxpayer intends to present in the
reinvestigation. It may also involve a question of
law or fact or both. It tolls the running of the
Statute of Limitations.
 When no protest is seasonably made by the
taxpayer, the assessment shall become final,
executor, demandable and unappealable, and
thus, the tax shall already be collectible.
Requisites of a valid administrative protest.
1. It must be made in writing and addressed to the
CIR;
2. It must contain all the information required by the
rules, viz:
a. Name of the taxpayer and address for the
immediate past 3 taxable years;
b. Nature of the request, specifying the newly
discovered evidence he intends to present;
c. Taxable periods covered by the assessment;
d. Amount and kind of tax involved and the
assessment notice or letter of demand;
e. Itemized statement of the findings to which
the taxpayer agrees, if any, as basis for the
computation of the tax due, which must be
paid immediately upon the filing of the
protest; and
f. Itemized schedule of the adjustments to
which the taxpayer does not agree.
3. It should state the facts, applicable law, rules and
regulations or jurisprudence on which his protest
based, otherwise the protest shall be considered
void and without force and effect.
- If there are several issues involved in the disputed
assessment and the taxpayer fails to state the
facts, the applicable law, rules and regulations, or
jurisprudence in support of his protest against
some of the several issues on which the
assessment is based, the same shall be considered
undisputed issue or issues, in which case, the
taxpayer shall be required to pay the
corresponding deficiency tax or taxes attributable
thereto.
4. It should be filed within 30 days from the receipt
of the FAN;
5. Within 60 days from the date of filing of the
protest, all relevant supporting documents must
be submitted, otherwise the assessment shall
become final, executory and demandable.
6. It must be accompanied by the waiver of the
Statute of Limitations in favor of the Government.
Effect of failure to file a valid protest on time.
 The assessment shall become final, executory and
demandable.
An assessment that has become final, executory and
enforceable can no longer be contested by means of
a disguised protest.
 Certiorari may not be used as a substitute for a
lost appeal or remedy.
Payment under protest.
 GR. Prior payment of assessed internal revenue
tax is not required when protesting or disputing
an assessment.
 XPN. If there are several issues involved in the
FAN but the taxpayer only disputes or protests
against the validity of some of the issues raised,
the taxpayer shall be required to pay the
deficiency tax or taxes attributable to the
undisputed issues. No action shall be taken on the
taxpayer’s disputed issues until the taxpayer has
paid the deficiency tax or taxes attributable to the
undisputed issues.
FINAL DECISION OF THE CIR ON DISPUTED
ASSESSMENT
What constitutes a final decision of the CIR on a
disputed assessment.
 In general, if the protest is denied, in whole or in
part, by the CIR or his duly authorized
representative, the taxpayer may appeal to the
CTA within 30 days from the date of receipt of the
said decision, otherwise, the assessment shall be
final, executory and demandable. If the taxpayer
elevates his protest to the CIR within 30 days from
the date of receipt of the final decision of the
CIR’s duly authorized representative, the latter’s
decision shall not be considered final, executory
and demandable, in which case, the protest shall
be decided by the CIR.
 If the CIR or his duly authorized representative
fails to act on the taxpayer’s protest within 180
days from date of submission, by the taxpayer, of
 the required documents in support of his protest,
the taxpayer may appeal to the CTA within 30
days from the lapse of the said 180-day period,
otherwise, the assessment shall become final,
executory and demandable.
 The decision of the CIR of his duly authorized
representative shall:
1. State the facts, the applicable law, rules and
regulations, or jurisprudence on which such
decision is based, otherwise, the decision shall
be void, in which case, the same shall not be
considered a decision on a disputed
assessment; and
2. That the same is his final decision.
Forms of denial of the CIR on the disputed
assessment by the taxpayer.
1. Direct denial of protest – the decision of the CIR
or his duly authorized representative on the
disputed assessment shall state the facts,
applicable law, rules and regulations or
jurisprudence on which such decision is based,
otherwise, the decision shall be void, and the
same shall not be considered a decision on a
disputed assessment. The CIR should state that
the same is his final decision.
2. Indirect denial of protest
a. If the CIR or his duly authorized
representative fails to act on the taxpayer’s
protest within 180 days from date of
submission, by the taxpayer, of the required
documents in support of his protest, the
taxpayer may appeal to the CTA (in Division)
within 30 days from the lapse of the said 180-
day period, or await the final decision of the
CIR on the disputed assessments and appeal
such final decision to the CTA (in Division)
within 30 days after receipt of a copy of such
decision.
- These options are mutually exclusive and
resort to one bars the application of the
other.
- In both cases, the taxpayer may apply with
the CTA for the issuance of an injunctive writ
to enjoin the BIR from collecting the disputed
tax during the pendency of the proceedings.
b. Other forms of indirect denial of protest
which may be appealed to the CTA:
i. The words final decision and appeal taken
together in the Formal Letter of Demand
with FAN may be considered as indirect
denial of protest. The formal letter of
demand with Final Assessment Notice
which was not administratively protested
by the taxpayer can be considered a final
decision of the CIR appealable to the CTA
because the words used, specifically the
words “final decision and appeal” taken
together led petitioner to believe that the
formal letter of demand with FAN was in
fact the final decision of the BIR on the
letter protest filed and that the available
remedy was to appeal the same to the
CTA.
ii. Civil action for collection can also be
considered as denial of protest of
assessment.
iii. CIR did not rule on the taxpayer’s motion
for reconsideration of the assessment. It
was only when taxpayer received the
summons on the civil action for the
collection of deficiency income tax that
the period to appeal commenced to run.
Preliminary collection letter may serve as
assessment notice.
iv. Filing of a criminal action against the
taxpayer can be considered as denial of
the protest.
v. When there is a request for
reconsideration, issuance of warrant of
distraint and levy to enforce of deficiency
assessment is tantamount to outright
denial of the request for consideration
which is appealable to the CTA.
TAXPAYER’S JUDICIAL REMEDIES
Remedies of the taxpayer in case the CIR denied the
protest.
1. In case of denial of protest by the CIR
a. May appeal to the CTA (in Division) within 30
days from receipt of the decision on a
disputed or protested assessment.
b. The 30-day period starts when the taxpayer
receives the decision of the CIR denying the
protest which categorically states that his
action on the disputed assessment is final,
 otherwise, the assessment shall become final,
executory and demandable, thereby
precluding the taxpayer from interposing the
defenses of legality or validity of the
assessment and prescription of the
Government’s right to assess.
2. In case of inaction by the CIR within 180 days from
submission of documents in support of the
protest, the taxpayer can either:
a. File an appeal through a petition for review to
the CTA in Division within 30 days from the
lapse of the 180-day period; or
b. Await the final decision of the CIR on the
disputed assessments and appeal such final
decision tot eh CTA in Division within 30 days
after receipt of a copy of such decision.
- These options are mutually exclusive and resort
to one bars the application of the other.
- In both cases, the taxpayer may apply with the
CTA the issuance of an injunctive writ to enjoin
eh BIR from collecting the disputed tax during
the pendency of the proceedings.
3. If the taxpayer is not satisfied with the decision of
the CTA in Division, he may resort to the following
remedy:
a. File a MR before the same Division of the CTA
within 15 days from receipt of the decision of
the CTA.
b. Then, again if he is adversely affected by the
resolution of the CTA in Division on his MR, he
may file a petition for review with the CTA en
banc.
4. If he is not satisfied with the decision of the CTA
en banc, then the party adversely affected by a
decision or ruling of the CTA en banc may file with
the SC within 15 days from the receipt of the
adverse decision of the CTA en banc, a verified
petition for review on certiorari.
5. In the case where the BIR decides to utilize its
judicial tax remedies for collecting the taxes by
means of an ordinary suit filed with the regular
courts for the collection of a sum of money, the
taxpayer should oppose the same going up the
ladder of judicial processes from the MTC to the
RTC, to the CTA and finally to the SC.
6. The taxpayer may choose to pay the assessed tax
within 30 days from receipt of assessment and
then file a claim for refund or tax credit of these
taxes on grounds that they are erroneously paid
within 2 years from date of payment. If there is a
denial of claim, appeal to the CTA shall be made
within 30 days from denial but within 2 years
from the date of payment.
7. If the CIR fails to act on the claim for refund or tax
credit and the 2-year period is about to expire,
the taxpayer should consider the continuous
inaction of the CIR as a denial and elevate the
case to the CTA before the expiration of the 2-
year period.
8. In cases of grave abuse of discretion, lack of
jurisdiction or excess of jurisdiction, the taxpayer
may file a Petition for Certiorari, Prohibition and
Mandamus to the SC.
9. In case of the seizure of personal property under
claim of forfeiture, the taxpayer/owner desiring to
contest validity of the forfeiture may, at any time
before the sale or destruction of the forfeited
property, bring an action against the person
seizing the property or having possession thereof
to recover the same, and upon giving proper
bond, may enjoin the sale; or after the sale and
within 6 months, ha may bring an action to
recover the net proceeds realized at the sale.
10. The taxpayer may also file an action for damages
against the internal revenue officer by reason of
any act done in the performance of an official
duty.
11. The taxpayer may also file an injunction to the
CTA if the collection of the tax may jeopardize his
interest.
EFFECTS OF TAXPAYER’S FAILURE TO APPEAL
Effects of taxpayer’s failure to appeal the decision of
the CIR to the CTA.
1. The decision or the assessment shall become
final, executory and demandable;
2. The taxpayer is barred in an action for the
collection of the tax by the government from
reopening the question already decided;
3. The assessment is considered correct which may
be enforced by summary proceedings or judicial
actions;
4. In a proceeding for collection of tax by judicial
action, the taxpayer’s defenses are similar to
those of the defendant in a case for the
enforcement of a judgment by judicial action; and
5. The assessment which has become final and
executory cannot be superseded anymore by a
new assessment.
Distinction between an appeal and a protest.
 Appeal refers to the filing of a Petition for Review
with the CTA.
 Protest, reinvestigation and reconsideration
refer to the administrative remedies a taxpayer
may take before the CIR, while the term appeal
refers to the remedy available to the taxpayer
before the CTA.
When the 30-day period to appeal commences to
run.
1. The decision of the CIR must categorically sate
that his action on the disputed assessment is final,
otherwise period to appeal will not commence to
run; and
2. The 30-day period to appeal starts to run when
the taxpayer receives the decision of the CIR
denying the protest.
CIR does not acquire jurisdiction over an appeal filed
by a taxpayer beyond the 30-day period to appeal
from the receipt of the decision.
 The CTA should dismiss the same for being filed
out of time, hence, the CTA does not acquire
jurisdiction.
Exception to the rule on exhaustion of administrative
remedies.
 Estoppel on the part of the administrative agency
concerned, when it stated that CIR’s decision is
final.
Scope of claim of refunds.
1. Credit or refund erroneously or illegally received;
2. Credit or refund penalties imposed without
authority;
3. Credit or refund any sum of money alleged to
have been excessively or in any manner
wrongfully collected;
4. Refund the value of internal revenue stamps
when they are returned in good condition by the
purchaser; and
5. In the discretion of the CIR, redeem or change
unused stamps that have been rendered unfit for
use and refund their value upon proof of
destruction.
Nature and legal basis of a tax refund.
 The tax refund is in the nature of a tax exemption
which must be construed strictissimi juris against
the taxpayer.
 The return of what was erroneously paid is
founded on the principle of solutio indebiti, a
basic postulate that no one should unjustly enrich
himself at the expense of another.
When there is parity between tax refund and tax
exemption.
 There is a parity between the tax refund and tax
exemption only when the former is based either
on a tax exemption statute or a tax refund
statute.
Tax refund vis-à-vis Tax credit.
 Tax refund refers to the actual reimbursement of
the erroneously or illegally collected taxes.
 Tax credit refers to the issuance of a Tax Credit
Certificate which may be utilized in the payment
of the internal revenue taxes, excluding
withholding taxes, for which the taxpayer is
directly liable.
Requirements for the refund of taxes erroneously or
illegally paid by taxpayers.
1. The taxpayer must file a written claim for refund
or tax credit with the CIR within 2 years from the
date of payment of the tax or penalty;
2. If denied or not acted upon within said period, the
petition for refund be filed with the CTA within 30
days from receipt of denial and within 2-year
period from the date of payment of the tax or
penalty regardless of any supervening cause;
3. The claim or refund must be a categorical demand
for reimbursement;
4. There must be a proof of payment of the
erroneously or illegally collected taxes; and
5. No refund shall be given resulting from availment
of incentives granted pursuant to special laws for
which no actual payment was made.
 The options to claim for refund or tax credit are
mutually exclusive such that resort to one bars
the application of the other.
Conditions in order that a claim for refund of
creditable withholding tax may be granted.
1. A written claim must be filed with the CIR within 2
years from the date of payment of the tax;
2. It is shown on the return of the recipient that the
income payment received was declared as part of
the gross income; and
3. The fact of withholding is established by a copy of
a statement duly issued by the payor to the payee
showing the amount paid and the amount of the
tax withheld therefrom.
When the CIR may also grant a refund without a
written claim for it.
 When a taxpayer files a return which on its face
shows an overpayment of the tax and the option
to refund/claim a tax credit was chosen by the
taxpayer.
 This is so because a return filed showing an
overpayment shall be considered as a written
claim for credit or refund.
Theory of supervening cause.
 The theory of supervening cause expresses that
regardless of any event which is beyond the
control of the parties that may arise after
payment, recovery of erroneously or illegally
collected taxes cannot be allowed when it has
been made beyond the prescriptive period from
the occurrence of such event.
 Claims for refund must be elevated to the CTA
before the expiration of the 2-year period
because the prescriptive period will not be
suspended regardless of any supervening event.
Reckoning of the commencement of the 2-year
period.
 From the date the tax was paid;
 If the tax is paid on installment, the last or final
installment or payment because for tax purposes,
there is no payment until the whole or entire tax
liability is fully paid.
 In case taxpayer merely made a deposit, from the
conversion of the deposit to payment. Merely
making a deposit is not equivalent to payment
until the amount is actually applied to the specific
purpose for which it was deposited.
 In case tax has been withheld from source,
counted from the date it falls due at the end of
the taxable year. A taxpayer who contributes to
the withholding tax system does not really deposit
an amount to the government, but in truth,
performs and extinguishes his tax obligation for
the year concerned.
 End of the taxable year versus date of the filing of
the final adjustment return – from the date when
the final adjustment return was filed. The
rationale in computing this period is the fact that
it is only then that the corporation can ascertain
whether it made profits or incurred losses in its
business operations.
 Date when quarterly income tax was paid vs. date
when final adjustment was filed – from the date
when the final adjustment return was filed. The
quarterly payment is considered mere
installments of the annual tax due.
 Date when the final adjustment return was
actually filed vs. the last day for the filing of the
final adjustment return – from the date the final
adjustment return was actually filed.
 Tax was not erroneously or illegally paid but the
taxpayer became entitled to refund because of
supervening circumstances – from the date the
taxpayer becomes entitled to refund and not from
the date of payment.
 In case of dissolution of corporation – 30 days
after the approval by the SEC of the plan for
dissolution which should be considered as the
date of payment of the taxes withheld on the
earned income.
When can there be a waiver of the 2-year period of
prescription in an action for refund.
 GR. If the government failed to plead prescription
in a motion to dismiss or as a defense in its
answer to the petition for review.
 XPN. When the taxpayer amends his petition for
review alleging therein a new cause of action and
the government pleads prescription in its answer
to the amended petition for review.
When request for issuance of tax credit certificate
may not be subject to the 2-year limitation period.
 Upon basic consideration of equity and fairness.
When it is undisputed that petitioner is entitled to
refund, the State should not invoked technicalities
to keep money not belonging to it.
Underlying principle for the grant of tax refund of
erroneous payment.
 Substantial justice, equity and fair play.
Only preponderance of evidence needed for the
approbation of a claim for refund.
Right to contest tax before or after payment.
 The taxpayer’s willingness to pay the tax is no
waiver to raise defense against the tax’s legality.
Protest at the time of payment of taxes not a
requirement to preserve the taxpayers’ right to claim
a refund.
 Section 229 provides that a suit or proceeding
may be maintained for the recovery of national
internal revenue taxes or penalty alleged to have
erroneously assessed or collected whether such
tax or penalty has been paid under protest or
duress.
Interest on tax refunds.
 GR. The Government cannot require to pay
interest on taxes refunded to the taxpayer in the
absence of a statutory provision clearly or
expressly directing or authorizing such payment.
 XPN.
1. When the CIR acted with patent arbitrariness.
Arbitrariness presupposes inexcusable or
obstinate disregard of legal provisions.
2. Income tax withheld on the wages of ees. Any
excess withheld over the tax due from the
taxpayer shall be returned or credited within
3 months from the 15th day of April. Refunds
or credits made after such time shall earn
interest at the rate of 6% per annum, starting
after the lapse of the 3-month period to the
date the refund or credit is made.
Person entitled to claim for a tax refund;
Withholding agent has the right to file an application
for tax refund.
 The person who is statutorily liable to the tax or
the person on whom the tax is imposed by the
statute.
 In case the taxpayer does not file a claim for
refund, the withholding agent may file the claim.
He has the obligation to remit the same to the
principal taxpayer.
Withholding agent may be properly regarded as a
taxpayer within the meaning of Sections 204 (C) and
229, and may be impliedly authorized to file a claim
for refund and the suit to recover the claim.
 He is made personally liable for the tax to be
withheld.
 A taxpayer is any person subject to tax.
Rule not applicable to the refund of excise taxes.
 The proper party to question, or seek a refund of,
an indirect tax is the statutory taxpayer, the
person on whom the tax is imposed by law and
who paid the same even if he shifts the burden
thereof to another.
BIR should release the tax refund without any
unreasonable delay.
 Fair dealing is expected by our taxpayers from the
BIR and this duty demands that the BIR should
refund without any unreasonable delay what it
has erroneously collected.
BIR can waive the prescriptive period or the filing of
a written claim within said 2-year period.
 The period is prescriptive and not jurisdictional.
Laws governing the computation of the 2-year
prescriptive period.
 The court holds that the Administrative Code,
being the more recent law, governs the
computation of legal periods.
Taxpayer’s remedy in case a claim for refund is
denied by the CIR.
1. In case of denial, the taxpayer may appeal to the
CTA within 30 days from the receipt of the CIR’s
decision and within 2 years from the date of full
and final payment.
2. In case of inaction by the CIR and the 2-year
period is about to lapse, the said inaction may be
taken as a denial of the claim for refund which is
appealable to the CTA and the taxpayer must file
a claim to the CTA before the 2-year period
lapses.
Sources of tax credit. A tax credit is being granted for
the following:
1. At the option of the taxpayer, excess quarterly
income taxes paid reflected in the final
adjustment return.
2. At the option of the taxpayer, overwithholding at
source of income taxes to the extent that the
amount of such overpayment was not deducted
or applied against income tax due.
3. Input taxes as follows:
a. Attributed to zero-rated sales made by VAT-
registered taxpayer, including export sales by
a VAT-registered exporter.
b. Attributed to effectively zero-rated sales
made by VAT-registered taxpayer;
4. Unused input taxes resulting from cancellation of
VAT registration due to retirement from or
cessation of business, or due to charges in or
cessation of status as VAT taxable taxpayer.
5. Excise taxes paid on:
a. Petroleum products sold to tax-exempt
entities and international carriers;
b. Goods locally produced or manufactured and
actually exported without returning to the
Philippines.
6. Taxes erroneously or illegally paid or penalties
imposed without authority.
 Any taxpayer who is erroneously or illegally
registered as a VAT person will not be covered by
3 and 4.
 In no case shall a tax refund or tax credit
certificate be given resulting from availment of
incentives granted pursuant to special laws for
which no actual tax payment was made.
Uses of Tax Credit Certificate
 May be used by the grantee or his assignee in the
payment of his direct internal revenue tax liability.
 TCC shall not be used in payment of the following:
1. Payment or remittance for any kind of
withholding tax;
2. Payment arising from the availment of tax
amnesty declared under a legislative
enactment;
3. Payment of deposits on withdrawal of
excisable articles;
4. Payment of taxes not administered or
collected by the BIR;
5. Payment of compromise penalty.
Assignment or transfer of TCC issued by the BIR not
allowed.
Period of Validity, Conversion and Revalidation.
 Any TCC which remains unutilized after 5 years
from date of issue shall, unless revalidated before
the end of the 5th year, be considered invalid and
shall not be allowed for use in payment of any of
the taxpayer’s internal revenue tax liability and
the unutilized amount thereof shall revert to the
General fund of the Government.
 Any request for conversion into cash refund of
unutilized tax credits may be allowed during the
validity of the TCC; Provided, however, that the
original copy of the TCC showing a creditable
balance is surrendered to the Assistant CIR,
Collection Service or other duly authorized
Revenue Officer for verification and cancellation.
 A TCC may be revalidated prior to the expiration
of its validity period.
 The revalidation of any TCC shall be initiated by
the filing of an application therefor with the
Collection Service or other duly authorized Office
of the BIR.
 The revalidation shall be accomplished through
the issuance of a new TCC, reflecting its unutilized
amount or creditable balance.
 No revalidation shall be issued unless the CIR’s
duly authorized representative has certified that
the applicant taxpayer has no outstanding tax
liability.
 If the holder has any outstanding tax liability, said
liability shall be applied first against the TCC
sought to be revalidated through the issuance of a
Tax Debit Memo.
 Outstanding tax liability refers to an assessment
that is already final and executory.
Persons allowed to transact with the BIR regarding
TCC issuance, utilization, and revalidation.
 Only the registered owner of the TCC and
persons/representatives duly authorized by said
owner.
Documents required to prove the authority to
transact with the BIR regarding TCC issuance,
utilization, and revalidation.
 If corporation – the authority of a duly authorized
representative should be contained in a Board
 Resolution of said corporation, evidenced by a
Secretary’s Certificate of the minutes or contents
of said Board Resolution.
 If individual – the authority of the duly designated
representative should be contained in a SPA
executed by the TCC’s registered owner.
 One claiming to have an authority to process TCC
needs only to show 2 valid government-issued ID,
and/or the above mentioned evidence of
authority.

Amount of TCC may not be offset against a potential

tax liability.
 Because both obligations are not yet fully
liquidated.
 While the amount of the TCC has been
determined, the amount of deficiency tax is yet to
be determined through the completion of the
audit.

Post-audit not necessary for the validity of a TCC.

 Nowhere in the governing laws does the post-
audit become necessary for the validity or
effectivity of the TCC, or that a TCC is issued
subject to a suspensive condition.
 What has been used up, debited, and cancelled
cannot anymore be declared to be void,
ineffective and cancelled anew.
 A payment through a TCC cannot be both
effective when made and dependent on a future
event for its effectivity.
 If the TCCs are considered to be subject to post-
audit as a suspensive condition, the very purpose
of the TCC would be defeated as there would be
no guarantee that the TCC would be honored by
the government as payment for taxes.

Action to contest forfeiture of personal property.

1. At any time before the sale or destruction of the
property, bring an action against the person
seizing the property or having possession thereof
in order to recover the same.
2. He may enjoin the sale upon giving proper bond.
3. Bring an action to recover the net proceeds
realized at the sale within 6 months from the date
of sale.