88. RR 14-2012 (Mina) a.
Derived from FCDUs:
November 7, 2012 | Individuals - Passive Income
SUBJECT: ​Proper Tax Treatment of Interest Income Earnings on Financial
Instruments and Other Related Transactions
SUMMARY​: (from PM Reyes)
Proper tax treatment on individual taxpayers of income derived from interests:
1. Interest from Philippine currency bank deposits and yield from deposit
substitute and from trust funds or similar arrangements
a. Final tax in case of citizens, resident aliens, and non-resident aliens
engaged in trade or business is 20%
b. Non-resident aliens not engaged in trade or business, the amount
received shall form part of their gross income subject to flat 25%
income tax
2. Interest income derived from government debts instruments and securities
a. They are considered deposit substitutes. The same tax treatment as
above is applied
3. Interest derived from long term deposits or investments
a. They are exempt from tax, provided the following requisites are
met:
i. Depositor is an individual citizen (resident or
nonresident), a resident alien or non-resident alien
engaged in trade or business in the PH
ii. The long-term deposit or investment certificates under
name of the individual
iii. The long term deposits or investments must be in the form
of savings, common or individual trust funds, deposit
substitutes, etc evidenced by certificates in the BSP
iv. The long-term deposits must be issued by banks only
v. The long-term deposits must have a maturity period of not
less than 5 years
vi. The long-term deposits must be in denominations of
10,000 and other BSP prescribed denomination
vii. The long-term deposits must not be pre-terminated
viii. Except those specifically exempted by law, any other
income such as gains from trading, forex gain shall not be
covered by income tax exemption
b. If the deposit or investment is pre-terminated, a final tax shall be
imposed on the entire income
i. 4 to less than 5 years - 5%
ii. 3 to less than 4 years - 12%
iii. If less than 3 years - 20%
4. Interest income derived from a depository bank under the expanded foreign
currency deposit system (EFCDS)
i. The interest income must be derived by residents. If the
interest income is derived by a resident individual
taxpayer, it shall be subject to a final tax of 15%
ii. Any income of non-residents, whether individuals or
corporations, shall be tax exempt
iii. Of the bank account is jointly in the name of a
non-resident and a resident, 50% shall be treated as
exempt and the other 50% shall be subject to the final tax
of 15%
b. Derived by FCDUs:
i. The interest income must be derived by residents. Interest
income from foreign currency loans granted by such
depository banks under the EFCDS other than OBUs shall
be subject to final tax of 10%
ii. Any income of non-residents, whether individuals or
corporations, shall be tax-exempt
5. Interest income derived from offshore banking units of OBUs
a. Income derived by OBUs from foreign currency transactions with
nonresidents, other OBUs, and local commercial banks are
tax-exempt
b. If the foreign currency transactions are with residents other than
OBUs and local commercial banks, the interest income shall be
subject to 10%
6. Interest income derived all other instruments
a. Any other debt instrument not within the coverage of deposit
substitutes shall be subjected to a creditable withholding tax of
20%
SECTION 1. Scope. –
Pursuant to the provisions of Sections 57, 244 and 245 of the National Internal
Revenue Code (NIRC) of 1997, as amended, and in light of the resolution contained in
the PEACe Bond Ruling, these Regulations are hereby promulgated to properly
implement the income taxation of interest income earnings on financial instruments
and similar transactions based on existing laws and regulations and to rationalize the
tax exemptions of interest income derived therefrom.
SECTION 2. Tax Treatment of Interest Income Derived from Government Debt
Instruments and Securities. –
“Deposit Substitutes”, as defined in Section 22(Y) of the NIRC of 1997, as
amended, means 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 re-lending or
 purchasing of receivables and other obligations, or financing their own needs
or the needs of their agent or dealer.
“Public”, is defined as borrowing from twenty (20) or more individual or corporate
lenders at any one time.
Consistent with the foregoing definitions, the tax treatment of interest income
derived from government debt instruments and securities is as follows:
1. Government Debt Instruments and Securities, including Bureau of Treasury
(BTr) issued instruments and securities such as Treasury bonds (T-bonds),
Treasury bills (T-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 or exchanged in the
secondary market;
2. Interest income derived therefrom is subject to Final Withholding Tax (FWT)
at the rate of twenty percent (20%) pursuant to Sections 24(B)(1), 25(A)(2),
27(D)(1) and 28(A)(7)(a) or twenty five percent (25%) pursuant to Section
25(B) or thirty percent (30%) pursuant to Section 28(B)(1) of the NIRC of
1997, as amended, payable upon original issuance of the deposit substitutes;
3. The original issuance of these debt instruments is subject to documentary
stamp tax (DST) pursuant to Section 179 of the NIRC of 1997, as amended;
4. The mere issuance of government debt instruments and securities is deemed
as falling within the coverage of ‘deposit substitutes’ irrespective of the
number of lenders at the time of origination, and therefore interest income
derived therefrom shall be subject to the applicable final withholding tax rate
imposed on deposit substitutes as prescribed under the NIRC of 1997, as
amended.
SECTION 3. Tax Treatment of Interest Income Derived from Long-Term
Deposits or Investment Certificates. –
“Long-term Deposit or Investment Certificate”, as defined in Section 22(FF) of the
NIRC of 1997, as amended, refers to certificate of time deposit or investment in the
form of savings, common or individual trust funds, deposit substitutes, investment
management accounts and other investments with a maturity period of not less than
five (5) years, the form of which shall be prescribed by the Bangko Sentral ng Pilipinas
(BSP) and issued by banks only (not by non-bank financial intermediaries and finance
companies) to individuals in denominations of Ten thousand pesos (P10,000) and other
denominations as may be prescribed by the BSP.
Consistent with the foregoing definition, the tax treatment of interest income derived
from Long-Term Deposits or Investment Certificates is as follows:
1. Interest income from long-term deposit or investment in the form of savings,
common or individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form prescribed by
the Bangko Sentral ng Pilipinas (BSP) shall be exempt from income tax under Section
24(B)(1) and 25(A)(2) of the NIRC of 1997, as amended, provided that the following
characteristics/conditions are present:
● the depositor or investor is an individual citizen (resident or nonresident), a
resident alien or a nonresident alien engaged in trade or business in the
Philippines;
● the long-term deposits or investment certificates should be under the name of
the individual and not under the name of the corporation or the bank or the
trust department/unit of the bank;
● the long-term deposits or investments must be in the form of savings, common
or individual trust funds, deposit substitutes, investment management accounts
and other investments evidenced by certificates in such form prescribed by the
Bangko Sentral ng Pilipinas (BSP);
● the long-term deposits or investments must be issued by banks only and not
by other financial institutions;
● the long-term deposits or investments must have a maturity period of not less
than five (5) years;
● the long-term deposits or investments must be in denominations of Ten
thousand pesos (P10,000) and other denominations as may be prescribed by
the BSP;
● the long-term deposits or investments should not be terminated by the investor
before the fifth (5th) year, otherwise they shall be subjected to the graduated
rates of 5%, 12% or 20% on interest income earnings; and
● except those specifically exempted by law or regulations, any other income
such as gains from trading, foreign exchange gain shall not be covered by
income tax exemption.
2. Absent any of the characteristics/conditions enumerated in Section 4(1) of these
Regulations, interest income from long-term deposit or investment shall be subject to a
Final Withholding Tax (FWT) at the rate of twenty percent (20%) pursuant to Sections
24(B)(1), 25(A)(2), 27(D)(1) and 28(A)(7)(a) of the NIRC of 1997, as amended.
3. Interest income from long-term deposit or investment that is pre- terminated by the
depositor or investor before the fifth (5th) year shall be subject to the following
graduated rates of Final Withholding Tax (FWT) on the entire income and shall be
deducted and withheld by the depository bank from the proceeds of the long-term
deposit or investment certificate based on the remaining maturity thereof as follows:
Four (4) years to less than five (5) years Three (3) years to less than four (4) years Less
than three (3) years
Example No. 1 –
— ​5%;
— 12%; and
— 20%.
An instrument with a maturity period of 10 years was held by Mr. X (a resident citizen)
for 2 years and was transferred to Mr. Y (a resident alien), who, in turn, held it for 8
years. The FWT due are as follows:
Mr. X 2 years 20% FWT Mr. Y 8 years Exempt
Example No. 2 –
An instrument with maturity period of 10 years was held by Mr. X (a nonresident
citizen) for 3 years and transferred it to Mr. Y (a resident alien). Mr. Y held it for 2
years before subsequently transferring it to Mr. Z (a resident citizen), who held it until
the day of maturity or for 5 years. The FWT due are as follows:
Mr. X Mr. Y Mr. Z
3 years 2 years 5 years
12%FWT 20%FWT Exempt
Example No. 3 –
An instrument with maturity period of 10 years held by Mr. X (a nonresident alien
engaged in trade or business in the Philippines) for 3 years and transferred it to Mr. Y
(a resident citizen). Mr. Y held it for 2 years before subsequently transferring it to Mr.
Z (a resident alien), who pre-terminated it after 4 years. The FWT due are as follows:
Mr. X Mr. Y Mr. Z
3 years 2 years 4 years
12% FWT 20% FWT 5% FWT
4. Interest income from long-term deposit or investment shall be subject to a Final
Withholding Tax (FWT) at the rate of twenty five percent (25%) if received by a
nonresident alien not engaged in trade or business in the Philippines pursuant to
Section 25(B) of the NIRC of 1997, as amended;
5. Interest income from long-term deposit or investment shall be subject to a Final
Withholding Tax (FWT) at the rate of thirty percent (30%) if received by a nonresident
foreign corporation pursuant to Section 28(B)(1) of the NIRC of 1997, as amended.
6. Interest income from long-term deposit or investment shall be subject to regular
income tax at the rate of thirty percent (30%) if received by a domestic corporation and
resident foreign corporation pursuant to Sections 27(A) and 28(A)(1) of the NIRC of
1997, as amended.
SECTION 4. Tax Treatment of Interest Income Derived from Currency Bank
Deposit and Yield or any other Monetary Benefit from Deposit Substitutes and
from Trust Funds and Similar Arrangements. –
Consistent with the provisions of Sections 24(B)(1), 25(A)(2), 25(B), 27(D)(1),
28(A)(7)(a), 28(B)(1) and 28(B)(5)(a) of the NIRC of 1997, as amended, the tax
treatment of interest income derived from currency bank deposit and yield or any other
monetary benefit from deposit substitutes and from trust funds and similar
arrangements derived from sources within the Philippines, is as follows:
1. Subject to a Final Withholding Tax (FWT) of twenty percent (20%) if the
interest income is received by:
● citizens;
● resident aliens;
● nonresident aliens engaged in trade or business in the Philippines;
● domestic corporations; and
● resident foreign corporation
2. Subject to a Final Withholding Tax (FWT) at the rate of twenty five percent
(25%) if the interest income is received by nonresident aliens not engaged in
trade or business in the Philippines;
3. Subject to Final Withholding Tax (FWT) at the rate of thirty percent (30%) if
received by a nonresident foreign corporation, unless the interest income is
from foreign loans contracted on or after August 1, 1986, in which case, it is
subject to a Final Withholding Tax (FWT) of twenty percent (20%).
SECTION 5. Tax Treatment of Interest Income Derived from a Depository Bank
under the Expanded Foreign Currency Deposit System. –
Consistent with the provisions of Sections 24(B)(1), 27(D)(1), 27(D)(3), 28(A)(7)(a),
and 28(A)(7)(b) of the NIRC of 1997, as amended, the tax treatment of interest income
derived from a depository bank under the Expanded Foreign Currency Deposit System,
is as follows:
1. Subject to a Final Withholding Tax (FWT) of seven and one-half percent
(7.5%) if the interest income is received by:
a. citizens;
b. Resident aliens;
c. domestic corporations; and
d. Resident foreign corporation
2. Any income of nonresidents, whether individuals or corporations, from
transactions with depository banks under the expanded system shall be exempt
from income tax;
3. If a bank account is jointly in the name of a non-resident citizen such as an
overseas contract worker, or a Filipino seaman, and his/her spouse or
dependent who is a resident in the Philippines, fifty percent (50%) of the
interest income from such bank deposit shall be treated as exempt while the
other fifty percent (50%) shall be subject to a Final Withholding Tax (FWT)
of seven and one-half percent (7.5%);
4. Income derived by a depository bank under the expanded foreign currency
deposit system from foreign currency transactions with nonresidents, offshore
banking units in the Philippines, local commercial banks including branches
of foreign banks that may be authorized by the Bangko Sentral ng Pilipinas
(BSP) to transact business with foreign currency deposit system units and
other depository banks under the expanded foreign currency deposit system
 shall be exempt from all taxes, except net income from such transactions as
may be specified by the Secretary of Finance, upon recommendation by the
Monetary Board to be subject to the regular income tax payable by banks;
5. Interest income from foreign currency loans granted by such depository banks
under said expanded system to residents other than offshore banking units in
the Philippines or other depository banks under the expanded system shall be
subject to a final tax at the rate of ten percent (10%).
SECTION 6. Tax Treatment of Interest Income Derived from Offshore Banking
Units. –
Consistent with the provision of Section 28(A)(4) of the NIRC of 1997, as amended,
the tax treatment of interest income derived from offshore banking units are as follows:
1. Income derived by offshore banking units authorized by the Bangko Sentral
ng Pilipinas (BSP), from foreign currency transactions with nonresidents,
other offshore banking units, local commercial banks, including branches of
foreign banks that may be authorized by the Bangko Sentral ng Pilipinas
(BSP) to transact business with offshore banking units shall be exempt from
all taxes except net income from such transactions as may be specified by the
Secretary of Finance, upon recommendation of the Monetary Board which
shall be subject to the regular income tax payable by banks;
2. Interest income derived from foreign currency loans granted to residents other
than offshore banking units or local commercial banks, including local
branches of foreign banks that may be authorized by the BSP to transact
business with offshore banking units, shall be subject only to a Final
Withholding Tax (FWT) at the rate of ten percent (10%);
3. Any income of nonresidents, whether individuals or corporations, from
transactions with said offshore banking units shall be exempt from income
tax.
(Y) Interest income derived from any other debt instruments not within the
coverage of ‘deposit substitutes’ and Revenue Regulations No. ___ - 2012, unless
otherwise provided by law or regulations --- Twenty Percent (20%).
SECTION 8. The “19-Lender Rule”. –
In order for an instrument to qualify as a “deposit substitute” pursuant to Section 22
(Y) of the NIRC of 1997, as amended, the borrowing must be made from twenty (20)
or more individual or corporate lenders at any one time. Corollarily, the mere flotation
of a debt instrument is not considered to be a “public” borrowing and is not deemed a
“deposit substitute” if there are only nineteen (19) or less individual or corporate
lenders at any one time.
However, any person holding any interest, whether legal or beneficial, on a debt
instrument or holding thereof either by assignment or participation, with or without
recourse, shall be considered as lender and thus, be counted in applying the 19-lender
rule.
SECTION 9. Documentary Stamp Tax. – ​The original issuance of debt instruments
shall be subject to Documentary Stamp Tax in accordance with Section 179 of the
NIRC of 1997, as amended. Thus, on every original issue of debt instruments, there
shall be collected a documentary stamp tax of one peso (P1.00) on each two hundred
pesos (P200), or fractional part thereof, of the issue price of any such debt instrument.
However, any assignment or re-assignment of said debt instruments shall be subject to
the same documentary stamp tax mentioned above pursuant to Section 198 of the
NIRC of 1997.

SECTION 7. Tax Treatment of Interest Income Derived from All Other

Instruments. –
Unless otherwise provided by law or regulations, interest income derived from any
other debt instruments not within the coverage of ‘deposit substitutes; and these
Regulations shall be subject to a Creditable Withholding Tax (CWT) at the rate of
twenty percent (20%). For this purpose, the income payor is required to withhold and
remit the said tax to the Bureau of Internal Revenue in accordance with Sections
2.57.3, 2.57.4 and 2.58 of Revenue Regulations No. 2-98, as amended.
For this purpose, Section 2.57.2 of Revenue Regulations No. 2-98, as amended, is
hereby further amended, to read as follows:
SECTION 2.57.2. Income Payment Subject to Creditable Withholding Tax and Rates
Prescribed Thereon. – Except as herein otherwise provided, there shall be withheld a
creditable income tax at the rates herein specified for each class of payee from the
following items of income payments to persons residing in the Philippines:
xxx xxx xxx

 
 89. SMI-ED v. CIR (Maye)
12 November 2014 | Leonen, J. | Individuals – Capital Gains Tax
PETITIONERS: ​SMI-ED Philippines Technology
RESPONDENTS: ​ Commissioner of Internal Revenue
SUMMARY: SMI-Ed is a PEZA-registered corporation which failed to commence
operations. After its registration, it constructed buildings and purchased equipment and
machineries. The total cost of its properties amounted to P3.1 billion. Since it failed to
commence operations, it sold some of its properties (buildings, machineries,
equipment) and was eventually dissolved in 2000. SMI-Ed paid a 5% final tax
amounting to around P45 million for the entire gross sales of its properties. Later on, it
filed an administrative claim for the refund of the P45million it paid with the BIR.
CTA denied. The CTA even said that SMI-Ed needed to pay the 6% CGT on the
properties it sold. SMI-ED argued that CTA acted beyond its jurisdiction when it
assessed for CGT. Also argued that under the NIRC, the 6% CGT on domestic
corporations applies only on the sale of lands and buildings, not to machineries and
equipment. The main issue is whether the sale of the properties by SMI-Ed are subject
to the 6% CGT?
Court ruled YES, but only to the sale of the buildings. The sale of the equipment and
machineries is subject to normal corporate income tax. The properties involved in this
case include petitioner’s buildings, equipment, and machineries, which are NOT
among the exclusions enumerated in Section 39(A)(1) of the NIRC. Thus, they are
capital assets. However, the SC said that there is a difference between individual and
corporate CGT on the sale of real properties. Look at Doctrine. Therefore, only the
presumed gain from the sale of petitioner’s buildings may be subjected to the 6%
capital gains tax. The income from the sale of petitioner’s machineries and equipment
is subject to the provisions on normal corporate income tax. HOWEVER, the petitioner
is still NOT liable for the income tax because it has not commenced its operations and
incurred a net loss of around P2.2Billion. In addition, since more than a decade have
lapsed, the BIR can no longer assess petitioner for deficiency CGT, if later found to be
liable in excess of the amount claimed for refund. The BIR is ordered to refund
SMI-Ed the amount of 5% final tax paid to the BIR, less the 6% CGT on the sale of its
land and building. Because of the lapse of the prescriptive period, any CGT accrued
from the sale of its land and building that is in excess of the 5% final tax paid may no
longer be recovered.
DOCTRINE:
Individuals are taxed on capital gains from the sale of all real properties located in the
Philippines and classified as capital assets.
Domestic corporations - ​the CGT is imposed only on the presumed gain realized from
the sale of lands and/or buildings. The income from the sale of petitioner’s machineries
and equipment is subject to the provisions on normal corporate income tax.
FACTS:
1. SMI-Ed Philippines is a Philippine Economic Zone Authority
(PEZA)-registered corporation authorized "to engage in the business of
manufacturing ultra-high-density microprocessor unit package.”
a. After its registration in 1998, SMI-Ed Philippines constructed
buildings and purchased machineries and equipment.
b. In 1999, the total cost of the properties amounted to around P3.1B
2. SMI-Ed Philippines failed to commence operations.
a. Its factory was temporarily closed.
b. It sold its buildings and some of its installed machineries and
equipment to another PEZA-registered enterprise (Ibiden PH).
c. SMI-Ed Philippines was dissolved on November 30, 2000.
3. In its quarterly income tax return for ​year 2000​, SMI-Ed Philippines subjected
the entire gross sales of its properties to 5% final tax on PEZA registered
corporations. It paid taxes amounting to around P45M.
4. In 2001, after requesting the cancellation of its PEZA registration and
amending its Articles of Incorporation to shorten its corporate term​, SMI-Ed
filed an administrative claim for the refund of P45M with the BIR​.
Alleged that the amount was erroneously paid.
a. Also indicated the refundable amount in its final income tax return
and alleged that it incurred a net loss of P2.2B
5. BIR did not act on the claim. SMI-Ed filed a petition for review to the CTA.
6. CTA Second Division:​ denied the refund claim.
a. First, it ruled that the administrative claim for refund was filed within
the two-year prescriptive period.
b. However, fiscal incentives given to PEZA-registered enterprises may
be availed only by enterprises that had commenced operations.
c. Since SMI-Ed had not commenced operations, it was not entitled to
the incentives provided for PEZA enterprises.
7. After finding that SMI-Ed Philippines sold properties that were considered as
capital assets under of the NIRC, it subjected the sale of SMI-Ed Philippines’
assets to ​6% capital gains tax (CGT). ​Liable for CGT of P53.6M. SMI-Ed
must pay the deficiency tax amounting to P8.9M.
8. CTA En Banc affirmed. Hence, this petition.
9. SMI-Ed argued the following:
a. CTA erred and acted beyond its jurisdiction when it assessed for
deficiency tax. Its jurisdiction regarding tax assessment is merely
appellate. Moreover, the power to assess had already prescribed since
the return for the erroneous payment was filed on 2000 – 3 years
from the last day prescribed.
b. CTA erroneously subjected its machineries to 6% CGT. NIRC
provides that 6% CGT on domestic corporations applies only on the
sale of lands and buildings, not to machineries and equipment.
i. Only P170M should be subjected to the CGT. Hence,
 SMI-Ed should be liable only for P10.2 tax. Since it paid
around P45M, it is entitled to refund of around P34.5M
10. On the other hand, CIR argued that CTA’s determination of SMI-Ed’s liability
for CGT was not an assessment. The determination as necessary to settle the
question regarding the tax consequence of the sale of the properties.
Issue:
1. Whether the sale of the properties (buildings, equipment, machineries) are
subject to the 6% capital gains tax (CGT) - YES, BUT only the sale of the
buildings. The sale of the equipment and machineries is subject to normal
corporate income tax.
2. Whether the CTA has jurisdiction to determine SMI-Ed’s liability? YES, but
its jurisdiction is only appellate.
3. Whether the prescriptive period for assessment have already lapsed? YES.
[!!!] RULING: WHEREFORE​, The BIR is ordered to refund SMI-Ed the amount of
5% final tax paid to the BIR, less the 6% CGT on the sale of its land and building.
Because of the lapse of the prescriptive period, any CGT accrued from the sale of its
land and building that is in excess of the 5% final tax paid may no longer be recovered.
RATIO:
Not entitled to 5% preferential tax rate
1. SMI-Ed is not entitled to benefits give to PEZA-registered enterprises,
including the 5% preferential tax rate, because it never began its operations.
2. The purpose of the Special Economic Zone Act (RA 7916) is to promote
development and encourage investments and business activities within the
zone. Giving fiscal incentives is one of the means devised to achieve this
purpose. ​To avail this fiscal incentive, the law did not say that mere PEZA
registration is sufficient.
3. Based on the provisions of RA 7916, the fiscal incentives and the 5%
preferential tax rate are available only to business operating within the
Ecozone. A business is considered in operation when it starts entering into
commercial transactions that are not merely incidental to but are related to the
purposes of the business.
4. Petitioner never started its operations since its registration. ​Therefore, it
cannot avail the incentives provided under the law.
Imposition of CGT
5. For petitioner’s properties to be subjected to capital gains tax, the properties
must form part of petitioner’s capital assets.
a. “Capital assets” under Sec. 39(A)(1) of the NIRC, refers to
taxpayer’s property that is NOT any of the following:
i. Stock in trade;
ii. Property that should be included in the taxpayer’s inventory
at the close of the taxable year;
iii. Property held for sale in the ordinary course of the
taxpayer’s business;
iv. Depreciable property used in the trade or business; and
v. Real property used in the trade or business
6. The properties involved in this case include petitioner’s buildings, equipment,
and machineries. They are not among the exclusions enumerated.
7. None of the properties were used in petitioner’s trade or ordinary course of
business because petitioner never commenced operations. They were not part
of the inventory. None of them were stocks in trade. ​Based on the definition
of capital assets under Section 39, they are capital assets.
8. Since they are capital assets, does it mean that they are subject to CGT ? NO!
Capital gains of individuals and corporations from the sale of real properties
are taxed differently.
9. Individuals are taxed on capital gains from ​sale of all real properties located
in the Philippines and classified as capital assets.
10. For ​corporations​, the NIRC treats the sale of land and buildings, and the sale
of machineries and equipment, differently.
a. Domestic corporations are imposed a ​6% capital gains tax only on
the presumed gain realized from the sale of lands and/or
buildings. The National Internal Revenue Code of 1997 ​does not
impose the 6% capital gains tax on the gains realized from the
sale of machineries and equipment.
11. To determine if petitioner is entitled to refund, the amount of CGT for
the sold land and/or building of petitioner and the amount of corporate
income tax for the sale of its machineries and equipment should be
deducted from the final tax it paid.
12. Petitioner indicated in its 2001 income tax return that it suffered a net loss of
P2.2 billion. This declaration was made under the pain or perjury. The BIR
did not make a deficiency assessment for this declaration neither did it dispute
this. There is no reason to doubt the truth the SMI-Ed suffered a net loss.
13. Since SMI-Ed had not started its operations, it was also not subject to the
minimum corporate income tax. SMI-Ed is not liable for any income tax.
CTA Jurisdiction
14. “Assessment” refers to determination of the taxes due from a taxpayer.
15. The power and duty to assess national taxes are lodged with the BIR. But, the
BIR is not mandated to make an assessment relative to every return filed with
it. Tax returns filed with the BIR enjoy the presumption that these are in
accordance with the law since these are filed under the penalty of perjury.
16. Generally, the BIR only assesses taxes when it appears, after a return had been
filed, that the taxes paid were incorrect, false, or fraudulent. Also assesses
taxes when no return is filed.
17. CTA has no power to make an assessment at the first instance; its jurisdiction
on matters such as tax collection, tax refund, is only appellate.
a. Law provides that CTA only ​reviews decisions and inactions of
 the CIR in disputed assessment and claims for tax refunds.
18. In this case, the CTA acquired jurisdiction due to BIR’s failure to act on
SMI-Ed’s claim for tax refund.
19. SMI-Ed argues that CTA has no jurisdiction to subject it to CGT. However,
the CTA was not making an assessment when it stated that the transactions of
SMI-Ed were subject to CGT. It was merely determining the proper category
of tax that petitioner should have paid.
a. The determination of the proper category of tax that petitioner should
have paid is an incidental matter necessary for the resolution of the
principal issue – whether it was entitled to a refund.
20. In addition, any liability in excess of the refundable amount, however, may
NOT be collected in a case involving solely the issue of the taxpayer’s
entitlement to a refund. ​The question of tax deficiency is distinct and
unrelated to the question of entitlement to refund.

Prescription
21. General rule: BIR has 3 years from the last day prescribed by law for the
filing of the return to make an assessment. If return is filed beyond the last
day, the 3 year period shall run from the actual date of filing.
22. The BIR had 3 years from SMI-Ed’s filing of its income tax return in 2000 to
make an assessment. The elevation of the refund claim with the CTA was not
a bar against the BIR’s exercise of its assessment powers.
23. Since more than a decade have lapsed, the BIR can no longer assess petitioner
for deficiency CGT, if later found to be liable in excess of the amount claimed
for refund. The CTA should not be expected to perform BIR’s duties.

 
 90. SUPREME TRANSLINER. v. BPI FAMILY SAVINGS (tin)
23 Feb 2011 | Villarama, J. | Individuals - Capital Gains Tax
PETITIONER​: SUPREME TRANSLINER, INC., MOISES C. ALVAREZ and
PAULITA S. ALVAREZ
RESPONDENTS​: BPI FAMILY SAVINGS BANK, INC
SUMMARY​: Supreme Transliner obtained a loan in the amount of
P9,853,000.00 from BPI Family Savings Bank, with a 714-square meter lot as
collateral. For non-payment of the loan, the mortgage was extrajudicially
foreclosed. The property was sold to the BPI Family Savings as the highest
bidder in the public auction. Before the expiration of the one-year redemption
period, Supreme Transliner notified the bank of their intention to redeem the
property. Accordingly, a Statement of Account was prepared by the bank, which
included a payment for Capital Gains Tax amounting to P518, 545.57.
Supreme Transliner raises the single issue of whether the foreclosing mortgagee
(in this case, BPI Family) should pay capital gains tax upon execution of the
certificate of sale. And if paid by the mortgagee, whether the same should be
shouldered by the redemptioner (Supreme Transliner). The Court said NO.
There is no legal basis for the inclusion of this charge in the redemption price.
In foreclosure sale, there is no actual transfer of the mortgaged real property
until after the expiration of the one-year redemption period. The title thereto is
consolidated in the name of the mortgagee in case of non-redemption. In the
interim, the mortgagor is given the option whether or not to redeem the real
property. The issuance of the Certificate of Sale does not by itself transfer
ownership.
RR No. 4-99 provides that “in case the mortgagor exercises his right of
redemption within one year from the issuance of the certificate of sale, no capital
gains tax shall be imposed because no capital gains has been derived by the
mortgagor and no sale or transfer of real property was realized.”
In this case, considering that Supreme Transliner exercised their right of
redemption before the expiration of the statutory one-year period, BPI Family
savings is not liable to pay the capital gains tax due on the extrajudicial
foreclosure sale. Thus, the inclusion of the said charge in the total redemption
price was unwarranted and the corresponding amount paid by the Supreme
Transliner should be returned to them.
Take note that the subject foreclosure sale and redemption actually took place
before the effectivity of RR No. 4-99. Nevertheless, the Court said that the
provisions may be given retroactive effect in this case. The general rule is
non-retroactivity but in this case, the exception applies because it is more
consistent with the policy of aiding the exercise of the right of redemption.
DOCTRINE: ​RR No. 4-99 provides that “in case the mortgagor exercises his
right of redemption within one year from the issuance of the certificate of sale,
no capital gains tax shall be imposed because no capital gains has been derived
by the mortgagor and no sale or transfer of real property was realized.”
FACTS:
1. In 1995, Supreme Transliner obtained a loan in the amount of P9,853,000.00
from BPI Family Savings Bank, with a 714-square meter lot as collateral.
2. For non-payment of the loan, the mortgage was extrajudicially foreclosed. The
property was sold to the bank as the highest bidder in the public auction. A
Certificate of Sale was issued in favor of the bank and the same was
registered.
3. Before the expiration of the one-year redemption period, the mortgagors
Supreme Transliner notified the bank of their intention to redeem the property.
4. Accordingly, a Statement of Account was prepared by the bank indicating the
total amount due under the mortgage loan agreement:
[Maraming brineak-down na items, but the most relevant for the topic ay]
Capital Gains Tax ​518, 635.57
5. Supreme Transliner raises the single issue of whether the foreclosing
mortgagee should pay capital gains tax upon execution of the certificate of
sale. And if paid by the mortgagee, whether the same should be shouldered by
the redemptioner.
6. They specifically prayed for the return of all asset-acquired expenses
consisting of documentary stamps tax, capital gains tax, foreclosure fee,
registration and filing fee, and additional registration and filing fee totaling
P906,142.79, with 6% interest thereon.
ISSUES:
1. Should mortgagor Supreme Transliner pay the capital gains tax upon
execution of the certificate of sale? NO. There is no legal basis for the
inclusion of this charge in the redemption price.
RATIO:
1. In foreclosure sale, there is no actual transfer of the mortgaged real property
until after the expiration of the one-year redemption period. The title thereto is
consolidated in the name of the mortgagee in case of non-redemption. In the
interim, the mortgagor is given the option whether or not to redeem the real
property. The issuance of the Certificate of Sale does not by itself transfer
ownership.
2. Under RR No. 4-99:
Sec. 3 CAPITAL GAINS TAX
(1) In case the mortgagor exercises his right of redemption within
one year from the issuance of the certificate of sale, no capital gains
tax shall be imposed because no capital gains has been derived by the
mortgagor and no sale or transfer of real property was realized.
3. Although the subject foreclosure sale and redemption took place before the
effectivity of RR No. 4-99, its provisions may be given retroactive effect in
this case.
4. Section 246 of the NIRC of 1997 states:
SEC. 246. Non-Retroactivity of Rulings. — Any revocation,
modification, or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be
given retroactive application if the revocation, modi cation, or
reversal will be prejudicial to the taxpayers, except in the following
cases: xxx
5. In this case, the retroactive application of RR No. 4-99 is more consistent with
the policy of aiding the exercise of the right of redemption.
6. As the Court of Tax Appeals concluded in one case, RR No. 4-99 "has curbed
the inequity of imposing a capital gains tax even before the expiration of the
redemption period [since] there is yet no transfer of title and no profit or gain
is realized by the mortgagor at the time of foreclosure sale but only upon
expiration of the redemption period."
7. Considering that herein Supreme Transliner exercised their right of
redemption before the expiration of the statutory one-year period, BPI Family
savings is not liable to pay the capital gains tax due on the extrajudicial
foreclosure sale.
8. There was no actual transfer of title from the owners-mortgagors to the
foreclosing bank. Hence, the inclusion of the said charge in the total
redemption price was unwarranted and the corresponding amount paid by the
Supreme Transliner should be returned to them.
9. Note, however, that: Under Revenue Regulations (RR) No. 13-85 (December
12, 1985), every sale or exchange or other disposition of real property
classified as capital asset under Section 34 (a) 17 of the Tax Code shall be
subject to the final capital gains tax.
a. The term sale includes pacto de retro and other forms of conditional
sale.
b. Section 2.2 of Revenue Memorandum Order (RMO) No. 29-86 states
that these conditional sales "necessarily include mortgage foreclosure
sales (judicial and extrajudicial foreclosure sales)."
c. Further, for real property foreclosed by a bank on or after September
3, 1986, the capital gains tax and documentary stamp tax must be
paid before title to the property can be consolidated in favor of the
bank.
d. In this case, however, there was still a redemption period within
which no actual transfer could have yet effected. Hence, no
capital gains tax may be imposed until after the redemption
period has expired.
SEPARATE OPINIONS: None
CONCURRING: None
 91. Department of Public Works and Highways vs. Soriano (Patrick)
February 25, 2015| PERALTA, J.:| VI. Individuals- Capital Gain Tax
PETITIONER​: ​REPUBLIC OF THE PHILIPPINES, represented by the
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS
RESPONDENTS​: ​ARLENE R. SORIANO
SUMMARY​: The DPWH filed a Complaint for expropriation of the land of
Soriano located in Valenzuela City for the construction of the NLEX-Harbor
Link Project. The RTC ruled in their favor, however, in addition to the just
compensation, it also ruled that the plaintiffs are liable to pay consequential
damages and legal interest in the amount of 6% from the time of taking.
Moreover, the RTC ruled that pursuant to the expropriation, DPWH shall also be
liable to pay the transfer taxes (including capital gains tax and documentary
stamp tax).
ISSUE: WON DPWH is liable to pay both the capital gains taxes and
documentary stamp taxes? – NO to Capital gains tax, but YES to Documentary
Stamp taxes
HELD: NO and YES. DPWH are NOT LIABLE to pay CGT because it is a tax
on passive income and the seller should generally have the burden to pay said
tax. However, DPWH ARE LIABLE to pay the DST because in a Citizen’s
Charter published by the department, they declared that in expropriation cases,
the DPWH shall shoulder the payment of DST. It has been held that since capital
gains is a tax on passive income, it is the seller, not the buyer, who generally
would shoulder the tax. Accordingly, the BIR, in its BIR Ruling No. 476-2013,
constituted the DPWH as a withholding agent to withhold the six percent (6%)
final withholding tax in the expropriation of real property for infrastructure
projects. As far as the government is concerned, therefore, the capital gains tax
remains a liability of the seller since it is a tax on the seller's gain from the sale
of the real estate.
DOCTRINE: (3) Payment of Capital Gains Tax. - The total amount of tax
imposed and prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c)
and 28(B)(5)(c) shall be paid on the date the return prescribed therefor is
filed by the person liable thereto: Provided, That if the seller submits proof
of his intention to avail himself of the benefit of exemption of capital gains
under existing special laws, no such payments shall be required : Provided,
further, That in case of failure to qualify for exemption under such special
laws and implementing rules and regulations, the tax due on the gains
realized from the original transaction shall immediately become due and
payable, subject to the penalties prescribed under applicable provisions of
this Code: Provided, finally, That if the seller, having paid the tax, submits
such proof of intent within six (6) months from the registration of the
document transferring the real property, he shall be entitled to a refund of
such tax upon verification of his compliance with the requirements for such
exemption.
FACTS:
1. On October 20, 2010, Republic of the Philippines, represented by the
Department of Public Works and Highways (DPWH) filed a Complaint for
expropriation against respondent Arlene R. Soriano, the registered owner of a
parcel of land consisting of an area of 200 square meters, situated at Gen. T
De Leon, Valenzuela City. In its Complaint, DPWH averred the property
sought to be expropriated shall be used in implementing the construction of
the North Luzon Expressway (NLEX)- Harbor Link Project (Segment 9) from
NLEX to MacArthur Highway, Valenzuela City.
2. DPHW duly deposited the amount of P420,000.00 representing 100% of the
zonal value of the subject property. RTC ordered the issuance of a Writ of
Possession and a Writ of Expropriation for failure of Soriano, or any of her
representatives, to appear despite notice during the hearing called for the
purpose.
3. DPWH adduced evidence to show that the total amount deposited is just, fair,
and equitable. DPWH alleged that pursuant to a Certification issued by the
BIR the zonal value of the subject property is reasonable, fair, and just to
compensate the defendant for the taking of her property in the total area of
200 square meters.
4. RTC considered Soriano to have waived her right to adduce evidence and to
object to the evidence for her continued absence despite being given several
notices to do so. RTC rendered its Decision Declaring DPWH to have lawful
right to acquire possession of Soriano’s parcel of land; Ordering the DPWH
to the sum of Php420,000.00 for the land as fair, equitable, and just
compensation with legal interest at 12% per annum from the taking of the
possession of the property. DPWH is likewise ordered to pay the Soriano
consequential damages which shall include the value of the transfer tax
necessary for the transfer of the subject property.
5. DPWH filed a Motion for Reconsideration,. RTC reduced the interest rate to
6% per annum based on Article 2209 of the Civil Code. It relied on the case of
NPC v. Honorable Zain B. Angas which explains that the transaction involved
is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of
 which is without stipulation regarding interest, and the interest adjudged by
the trial court is in the nature of indemnity for damages.
6. In its appeal, DPWH posits that since it was able to deposit with the court the
amount representing the zonal value of the property before its taking, it cannot
be said to be in delay, and thus, there can be no interest due on the payment of
just compensation. Moreover, DPWH alleges that since the entire subject
property was expropriated and not merely a portion thereof, it did not suffer
an impairment or decrease in value, rendering the award of consequential
damages nugatory. Furthermore, DPWH claims that contrary to the RTC’s
instruction, transfer taxes, in the nature of Capital Gains Tax and
Documentary Stamp Tax, necessary for the transfer of the subject property
from the name of the Soriano to that of the DPWH are liabilities of SORIANO
and not DPWH.
ISSUES:
1. WON based on the NIRC of 1997 and the local government code, it is
respondent’s obligation to pay the transfer taxes (Capital Gains Tax and
Documentary Stamp Tax) —NO (to CGT) and YES (to DST)
2. WON plaintiff is liable for the legal interest of 6% per annum on the amount
of just compensation of the subject property despite no delay on the part of
petitioner —NO
Ruling: ​Petition PARTIALLY GRANTED.
RATIO:
1. NO and YES. The Court held that since capital gains is a tax on passive
income, it is the seller, not the buyer, who generally would shoulder the
tax. For documentary stamp tax however, pursuant to the Citizen’s
Charter published by DPWH, the entity is liable to pay for said taxes.
Capital Gains Tax
2. With respect to the capital gains tax, the Court finds merit in DPWH’s
posture that pursuant to Sections 24(D) and 56(A)(3) of the 1997 National
Internal Revenue Code (NIRC), capital gains tax due on the sale of real
property is a liability for the account of the seller, to wit:
3. Section 24. Income Tax Rates– (D) Capital Gains from Sale of Real Property.
– tax remains a liability of the seller since it is a tax on the seller's gain from the
4. (1) In General. – The provisions of Section 39(B) notwithstanding, a final tax
of six percent (6%) based on the gross selling price or current fair market
value as determined in accordance with Section 6(E) of this Code, whichever
is higher, is hereby 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: Provided, That the tax liability, if any, on gains from sales or other
disposition of real property to the government or any of its political
subdivisions or agencies or to government-owned or controlled corporations
shall be determined either under Section 24(A)or under this Subsection, at the
option of the taxpayer.
5. Section 56. Payment and Assessment of Income Tax for Individuals and
Corporations. –
6. (A) Payment of Tax –
7. (3) Payment of Capital Gains Tax. - The total amount of tax imposed and
prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and
28(B)(5)(c) shall be paid on the date the return prescribed therefor is filed
by the person liable thereto: Provided, That if the seller submits proof of
his intention to avail himself of the benefit of exemption of capital gains
under existing special laws, no such payments shall be required :
Provided, further, That in case of failure to qualify for exemption under
such special laws and implementing rules and regulations, the tax due on
the gains realized from the original transaction shall immediately become
due and payable, subject to the penalties prescribed under applicable
provisions of this Code: Provided, finally, That if the seller, having paid
the tax, submits such proof of intent within six (6) months from the
registration of the document transferring the real property, he shall be
entitled to a refund of such tax upon verification of his compliance with
the requirements for such exemption.
8. Thus, it has been held that since capital gains is a tax on passive income, it is
the seller, not the buyer, who generally would shoulder the tax. Accordingly,
the BIR, in its BIR Ruling No. 476-2013, dated December 18, 2013,
constituted the DPWH as a withholding agent to withhold the six percent (6%)
final withholding tax in the expropriation of real property for infrastructure
projects. As far as the government is concerned, therefore, the capital gains
sale of the real estate.
Documentary Stamp Tax
9. Court finds inconsistent DPWH’s denial of liability of documentary stamp
tax. DPWH cites Section 196 of the 1997 NIRC as its basis in saying that the
DST is the liability of the seller.
10. SECTION 196. Stamp Tax on Deeds of Sale and Conveyances of Real
Property. - On all conveyances, deeds, instruments, or writings, other than
grants, patents or original certificates of adjudication issued by the
Government, whereby any land, tenement or other realty sold shall be granted,
assigned, transferred or otherwise conveyed to the purchaser, or purchasers, or
to any other person or persons designated by such purchaser or purchasers,
there shall be collected a documentary stamp tax, at the rates herein below
prescribed, based on the consideration contracted to be paid for such realty or
on its fair market value determined in accordance with Section 6(E) of this
Code, whichever is higher: Provided, That when one of the contracting parties
is the Government, the tax herein imposed shall be based on the actual
consideration: (a) When the consideration, or value received or contracted to
be paid for such realty, after making proper allowance of any encumbrance,
does not exceed One thousand pesos (P1,000), Fifteen pesos (P15.00). (b) For
each additional One thousand pesos (P1,000), or fractional part thereof in
excess of One thousand pesos (P1,000) of such consideration or value, Fifteen
pesos (P15.00).
11. Yet, a perusal of Section 196 does not explicitly impute the obligation to pay
the documentary stamp tax on the seller. According to BIR, all the parties to a
transaction are primarily liable for the documentary stamp tax, as provided by
Section 2 of BIR Revenue Regulations No. 9-2000, which reads: SEC. 2.
Nature of the Documentary Stamp Tax and Persons Liable for the Tax. – (a)
In General. - The documentary stamp taxes under Title VII of the Code is a
tax on certain transactions.1âwphi1 It is imposed against "the person making,
signing, issuing, accepting, or transferring" the document or facility
evidencing the aforesaid transactions. Thus, 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,
however, that as between themselves, the said parties may agree on who shall
be liable or how they may share on the cost of the tax. (b) Exception. -
Whenever one of the parties to the taxable transaction is exempt from the tax
imposed under Title VII of the Code, the other party thereto who is not
exempt shall be the one directly liable for the tax.
12. As a general rule, therefore, any of the parties to a transaction shall be liable
for the full amount of the documentary stamp tax due, unless they agree
among themselves on who shall be liable for the same.
13. There is no agreement as to the party liable for the DST due on the sale of the
land to be expropriated. But while DPWH rejects any liability for the same,
this Court must take note of DPWH’s Citizen’s Charter, which functions as a
guide for the procedure to be taken by the DPWH in acquiring real property
through expropriation under RA 8974. The Citizen’s Charter explicitly
provides that the documentary stamp tax, transfer tax, and registration fee due
on the transfer of the title of land in the name of the Republic shall be
shouldered by the implementing agency of the DPWH, while the capital gains
tax shall be paid by the affected property owner. Thus, while there is no
specific agreement between petitioner and respondent, petitioner's issuance of
the Citizen's Charter serves as its notice to the public as to the procedure it
shall generally take in cases of expropriation under RA 8974.
Issue#2
14. NO. The Court finds that the imposition of interest is unwarranted because the
DPWH was able to deposit with the trial court the amount representing the
zonal value of the property BEFORE its taking. NPC v. Angasis was
overturned by recent ruling in Republic v. Court of Appeals, wherein the
Court held that the payment of just compensation for the expropriated
property amounts to an effective forbearance on the part of the State. In line
with the recent circular of the Monetary Board of the BSP BSP-MB No. 799,
the prevailing rate of interest for loans or forbearance of money is 6% per
annum, in the absence of an express contract as to such rate of interest.
15. The award of interest is imposed in the nature of damages for delay in
payment which makes the obligation on the part of the government one of
forbearance to ensure prompt payment of the value of the land and limit the
opportunity loss of the owner. When there is no delay in the payment of just
compensation, the Court has not hesitated in deleting the imposition of interest
justified only in cases where delay has been sufficiently established.
16. Similarly, the award of consequential damages should likewise be deleted in
view of the fact that the entire area of the subject property is being
expropriated, and not merely a portion thereof, wherein such remaining
portion suffers an impairment or decrease in value.
 92. RR. 8-98
SUMMARY​: REVENUE REGULATIONS NO. 8-98 issued September 2, 1998
amends pertinent portions of Revenue Regulations Nos. 11-96 and 2-98 relative
to the tax treatment of the sale, transfer or exchange of real property.
Specifically, the Capital Gains Tax (CGT) Return will be filed by the seller
within 30 days following each sale or disposition of real property. Payment of
the CGT will be made to an Authorized Agent Bank (AAB) located within the
Revenue District Office (RDO) having jurisdiction over the place where the
property being transferred is located.
Creditable withholding taxes, on the other hand, deducted and withheld by the
withholding agent/buyer on the sale, transfer or exchange or real property
classified as ordinary asset will be paid by the withholding agent/buyer upon
filing of the return with the AAB located within the RDO having jurisdiction
over the place where the property being transferred is located. Payment will have
to be done within 10 days following the end of the month in which the
transaction occurred, provided, however, that taxes withheld in December will
be filed on or before January 25 of the following year.
DOCTRINE​:
Rule on Capital Gains Disposition on Property:
The rate of 6% shall be imposed on capital gains presumed to have been realized
by the seller from the sale, exchange or other disposition of real properties in the
Philippines classified as capital assets including pacto de retro sales and other
forms of conditional sales based on the gross selling price or fair market value as
determined by the CIR.
The capital gains tax must be paid within 30 days following each sale or
disposition. In case of installment sale, the return shall be filed within 30 days
following the receipt of the first down payment and within 30 days following the
subsequent payment installments.
Rules on Disposition of real property made by an individual to the government
In case of disposition of real property made by an individual to the government
or to any of its political subdivisions or agencies or to GOCCs, the seller may
elect to:
1. Compute the tax on the gain derived from such sale under the normal
income tax rates
2. Under a capital gains tax of 6%
FACTS​:
1. Capital Gains - A final tax of six percent (6%) is imposed on capital gains
presumed to have been realized by the seller from the sale, exchange or other
disposition of real properties located in the Philippines which are classified as
capital assets. This tax rate also applies to ​pacto de retro sales and other forms
of conditional sales. The tax is computed based on the gross selling price or
fair market value of the property as determined by the BIR Commissioner in
accordance with Section 6(E) of the Tax Code.
2. In case of disposition of real property made by an individual to the
government or to any of its political subdivisions or agencies or to
government-owned or controlled corporations, the seller may elect to compute
the tax on the gain derived from such sale under the normal income tax rate,
or under a final capital gains tax of six percent (6%).
3. The capital gains tax of 6% must be paid within thirty (30) days following
each sale or disposition. The Capital Gains Tax Return shall be filed by the
seller and payment made to an Authorized Agent Bank (AAB) located within
the BIR Revenue District Office having jurisdiction over the place where the
property being transferred is located.
4. Ordinary Assets - ​The sale of real property considered as an ordinary asset is
subject to creditable withholding tax. The withholding tax is computed based
on the gross selling price, or total amount of consideration, or the fair market
value, whichever is higher, paid to the seller for the sale, transfer or exchange
of real property considered as ordinary asset. The buyer is constituted as the
withholding agent, and thus, is liable to deduct such tax from his payment to
the seller of the property, and remit these taxes to the BIR.
5. The following withholding tax rates will apply:
Where the seller/transferor is habitually engaged in the
real estate business as per proof of registration with the
HLURB or HUDCC, if the selling price is
P 500,000 or less 1.5%
More than P 500,000 but less than P2.0 Million 3.0%
 More than P 2.0 million 5.0%

Where the seller/transferor is not habitually engaged in 7.5%

the real estate business

Where the seller or transferor is exempt from creditable Exempt

witholding tax

6. Creditable withholding taxes deducted and withheld by the buyer on the sale,
transfer or exchange of real property classified as ordinary asset should be
paid upon the filing of the return with the Authorized Agent Bank (AAB)
located within the BIR Revenue District Office having jurisdiction over the
place where the property being transferred is located. Payment must be made
within ten (10) days following the end of the month in which the transaction
occurred. However, taxes withheld in December shall be filed on or before
January 25 of the following year.
7. In the case of Large Taxpayers, the creditable withholding tax shall be
remitted twenty five (25) days after the close of the month in which the
transaction occurred.
8. Presentation of the Capital Gains Tax Return or Creditable Withholding Tax
Return with a bank validation evidencing full payment of the capital gains tax
or the creditable withholding tax due, as the case may be, is required before
the BIR Revenue District Office where the property being transferred is
located will issue the corresponding Tax Clearance (TCL) or Certificate
Authorizing Registration (CAR).

 
 93. RR 4-99 (John)
March 16, 1995| BIR | Main Topic- SPECIFIC TOPIC
FACTS:
SUMMARY​:
REVENUE REGULATIONS NO. 4-99 issued March 16, 1999 further amends
Revenue Memorandum Order No. 6-92 relative to the payment of Capital Gains
Tax and Documentary Stamp Tax on extrajudicial foreclosure sale of capital
assets initiated by banks, finance and insurance companies. Where the right of
redemption of the mortgagor exists, the certificate of title of the mortgagor will
not be cancelled yet even if the property had already been subjected to
foreclosure sale. Instead, only a brief memorandum will be annotated at the back
of the certificate of title, and the cancellation of the title and the subsequent
issuance of a new title in favor of the purchaser/highest bidder depends on
whether the mortgagor will redeem or not the mortgaged property within one
year from the issuance of the certificate of sale. Thus, no transfer of title to the
highest bidder can be effected yet until and after the lapse of the one-year period
from the issuance of the said certificate of sale. In case the mortgagor exercises
his right of redemption within one year from the issuance of the certificate of
sale, no Capital Gains Tax will be imposed because no capital gains has been
derived by the mortgagor and no sale or transfer of real property was realized. In
case of non-redemption, the Capital Gains Tax on the foreclosure sale shall
become due based on the bid price of the highest bidder, but only upon the
expiration of the one-year period of redemption, and will be paid within thirty
(30) days from the expiration of the said one-year redemption period. The
corresponding Documentary Stamp Tax will be levied, collected and paid by the
person making, signing, issuing, accepting or transferring the real property
wherever the document is made, signed, issued, accepted or transferred where
the property is situated in the Philippines
Doctrine:
The payment of Capital Gains Tax and Documentary Stamp Tax on extrajudicial
foreclosure sale of capital assets initiated by banks, finance and insurance
companies. Where the right of redemption of the mortgagor exists, the certificate
of title of the mortgagor will not be cancelled yet even if the property had
already been subjected to foreclosure sale. Instead, only a brief memorandum
will be annotated at the back of the certificate of title, and the cancellation of the
title and the subsequent issuance of a new title in favor of the purchaser/highest
bidder depends on whether the mortgagor will redeem or not the mortgaged
property within one year from the issuance of the certificate of sale.
1. Pursuant to Section 244 of the Tax Code of 1997, in relation to Sections
24(D)(1) and 27(D)(5) of the same Code, these Regulations are hereby
promulgated amending Revenue Memorandum Order No. 29-86, as last
amended by Revenue Memorandum Order No. 6-92 and other relevant
revenue regulations and issuances regarding the payment of capital gains tax
and documentary stamp tax on extrajudicial foreclosure sale of capital assets
initiated by banks, finance and insurance companies.
2. where the right of redemption of the mortgagor exists, the certificate of title of
the mortgagor shall not be cancelled yet even if the property had already been
subjected to foreclosure sale, BUT INSTEAD only a brief memorandum shall
be annotated at the back of the certificate of title, and the cancellation of the
title and the subsequent issuance of a new title in favor of the
purchaser/highest bidder depends on whether the mortgagor shall redeem or
not the mortgaged property within one year from the issuance of the certificate
of sale. Thus, no transfer of title to the highest bidder can be effected yet until
and after the lapse of the one-year period from the issuance of the said
certificate of sale.
3. Capital Gains Tax .​ —
a. In case the mortgagor exercises his right of redemption within one
year from the issuance of the certificate of sale, no capital gains tax
shall be imposed because no capital gains has been derived by the
mortgagor and no sale or transfer of real property was realized. A
certification to that effect or the deed of redemption shall be filed
with the Revenue District Office having jurisdiction over the place
where the property is located which certification or deed shall
likewise be filed with the Register of Deeds and a brief memorandum
thereof shall be made by the Register of Deeds on the Certificate of
Title of the mortgagor. cdasia
b. In case of non-redemption, the capital gains tax on the foreclosure
sale imposed under Secs. 24(D)(1) and 27(D)(5) of the Tax Code of
1997 shall become due based on the bid price of the highest bidder
but only upon the expiration of the one-year period of redemption
provided for under Sec. 6 of Act No. 3135, as amended by Act No.
4118, and shall be paid within thirty (30) days from the expiration of
the said one-year redemption period.
4. Documentary Stamp Tax .​ —

a. In case the mortgagor exercises his right of redemption, the

transaction shall only be subject to the P15.00 documentary stamp
tax imposed under Sec. 188 of the Tax Code of 1997 because no land
or realty was sold or transferred for a consideration.

b. In case of non-redemption, the corresponding documentary stamp tax

shall be levied, collected and paid by the person making, signing,
issuing, accepting, or transferring the real property wherever the
document is made, signed, issued, accepted or transferred where the
property is situated in the Philippines; Provided, That whenever one
party to the taxable document enjoys exemption from the tax, the
other party thereto who is not exempt shall be the one directly liable
for the tax. The tax return prescribed under the Code shall be filed
within ten (10) days after the close of the month following the lapse
of the one-year redemption period, and the tax due under Sec. 196 of
the Tax Code of 1997 shall be paid based on the bid price at the same
time the aforesaid return is filed.

5. Tax Clearance Certificate/Certificate Authorizing Registration .​

a. In case of non-redemption, a tax clearance certificate (TCC) or
Certificate Authorizing Registration (CAR) in favor of the
purchaser/highest bidder shall only be issued upon presentation of the
capital gains and documentary stamp taxes returns duly validated by
an authorized agent bank (AAB) evidencing full payment of the
capital gains and documentary stamp taxes due imposed under Secs.
3 and 4 of these Regulations on the sale of the property classified as
capital asset. The AAB must be located at the Revenue District
Office having jurisdiction over the place where the property is
located.

 
 94. BIR RR 13-99 (Gp)
July 26, 1999 | BIR | Individuals – Capital Gains Tax
SUMMARY​: ​SUMMARY​:
REVENUE REGULATIONS NO. 13-99 issued September 14, 1999 prescribes
the regulations for the exemption of a citizen or a resident alien individual from
the payment of the 6% Capital Gains Tax on the sale, exchange or disposition of
his principal residence. In order for a person to be exempted from the payment
of the tax, he should submit, together with the required documents, a Sworn
Declaration of his intent to avail of the tax exemption to the Revenue District
Office having jurisdiction over the location of his principal residence within (30)
days from the date of the sale, exchange or disposition of the principal residence.
The proceeds from the sale, exchange or disposition of the principal residence
must be fully utilized in acquiring or constructing the new principal residence
within eighteen (18) calendar months from the date of the sale, exchange or
disposition. In case the entire proceeds of the sale are not utilized for the
purchase or construction of a new principal residence, the Capital Gains Tax will
be computed based on the formula specified in the Regulations.
If the seller fails to utilize the proceeds of sale or disposition in full or in part
within the 18-month reglementary period, his right of exemption from the
Capital Gains Tax did not arise on the extent of the unutilized amount, in which
event, the tax due thereon will immediately become due and demandable on the
31st day after the date of the sale, exchange or disposition of the principal
residence.
If the individual taxpayer's principal residence is disposed in exchange for a
condominium unit, the disposition of the taxpayer's principal residence will not
be subjected to the Capital Gains Tax herein prescribed, provided that the said
condominium unit received in the exchange will be used by the
taxpayer-transferor as his new principal residence.
SUBJECT:
Exemption of Certain Individuals from the Capital Gains Tax on the Sale, Exchange or
Disposition of a Principal Residence under Certain Conditions
DEFINITION OF TERMS:
“Natural person” shall refer to a citizen or resident alien individual taxable under Sec.
24 of the Code. It does not include an estate or a trust, the provision of Sec. 60 of the
Code to the contrary notwithstanding
"Principal Residence” shall refer to the dwelling house, including the land on which it
is situated, where the husband and wife or an unmarried individual, whether or not
qualified as head of family, and members of his family reside. Actual occupancy of
such principal residence shall not be considered interrupted or abandoned by reason of
the individual’s temporary absence therefrom due to travel or studies or work abroad or
such other similar circumstances. Such principal residence must be characterized by
permanency in that it must be the dwelling house to which, whenever absent, the said
individual intends to return
“Fully Utilized” shall mean that the taxpayer has actually commenced with the
construction of his new principal residence or has actually entered into a contract for
the purchase of his new principal residence within eighteen (18) calendar months from
the date of sale, exchange or disposition thereof, with the intention of using the entire
proceeds of sale for the acquisition or construction of his new principal residence.
Provided, that any expense paid for by the seller in effecting the sale, i.e., documentary
stamp tax, transfer fees, broker’s commission, if any, shall be considered as part of the
amount utilized
CONDITIONS OF EXEMPTION:
The general provisions of the Code to the contrary notwithstanding, capital gains
presumed to have been realized from the sale, exchange or disposition by a natural
person of his principal residence shall not be imposed with income tax, including the
six percent (6%) capital gains tax, subject to the following conditions:
1. ​Sworn Declaration Requirement – he shall submit a Sworn Declaration of his
intent to avail of the tax exemption herein provided which shall be filed with the
aforementioned Revenue District Office (RDO) having jurisdiction over the
location of the principal residence within thirty (30) days from the date of its sale,
exchange or disposition, inclusive of the following:
a. Duly Accomplished Capital Gains Tax Return
b. Proof of payment of documentary stamp tax on conveyance of real
property
 c. A sworn statement from the Barangay Chairman that his principal
residence is located within the jurisdiction of that Barangay and has
been his residence as of the date of sale, exchange or disposition
thereof
d. A duplicate original copy of the Deed of Conveyance of his Principal
Residence
e. Photocopy of the Transfer Certificate of Title (TCT) or
Condominium Certificate of Title (CCT), in case of a condominium
unit (covering the principal residence sold, exchanged or disposed)
f. Latest Tax Declaration of the said principal residence
2. Post Reporting Requirement – the proceeds from the sale, exchange or disposition
of his principal residence must be fully utilized in acquiring or constructing his
new principal residence within eighteen (18) calendar months from date of its sale,
exchange or disposition. In order to show proof that positive action was
undertaken to utilize the proceeds for the acquisition or construction of his new
principal residence within the 18-month reglementary period, he shall submit to
the RDO concerned, within thirty (30) days from the lapse of the said period, the
following documents:
a. A sworn statement that the total proceeds from the sale of his old
principal residence has been actually utilized in the acquisition or
construction of his new principal residence or, if the construction of
his new principal residence is still in progress, a sworn statement that
such amount shall be fully utilized to procure the necessary materials
and pay for the cost of labor and other expenses for the construction
thereof
b. A certified statement from his architect or engineer, or both, showing
the cost of materials and labor for the construction of his new
principal residence
c. A certified copy of the Building Permit issued by the Office of the
Building Official of the City or Municipality where his new principal
residence shall be constructed, as well as photocopies of documents
submitted with his application for said permit
d. In case his new principal residence is acquired by purchase, a
duplicate original copy of the Deed of Absolute Sale covering the
purchase of his new principal residence
3. The tax exemption herein granted may be availed of only once every ten (10)
years
4. The historical cost or adjusted basis of his old principal residence sold,
exchanged or disposed shall be carried over to the cost basis of his new
principal residence
5. If there is no full utilization of the proceeds of sale, exchange or disposition of
his old principal residence for the acquisition or construction of his new
principal residence, he shall be liable for deficiency capital gains tax.
Accordingly, only a fractional part of the historical cost of the old principal
residence sold shall be carried over to the cost basis of the new principal
residence
Determination of Capital Gains Tax Due if the Proceeds of Sale, Exchange or
Disposition of his Principal Residence has not Been Fully Utilized:
In a case where the entire proceeds of sale are not utilized for the purchase or
construction of a new principal residence, the capital gains tax shall attach.
If the seller fails to utilize the proceeds of sale or disposition in full or in part within the
18-month reglementary period, his right of exemption from the capital gains tax did not
arise to the extent of the unutilized amount, in which event, the tax due thereon shall
immediately become due and demandable on the 31st day after the date of the sale,
exchange or disposition of principal residence. As such, he shall file his capital gains
tax return covering the sale, exchange or disposition of his principal residence and pay
the deficiency capital gains tax inclusive of the twenty five percent (25%) surcharge for
late payment of the tax plus twenty percent (20%) delinquency interest per annum
incident to such late payment computed on the basis of the basic tax assessed. The
interest shall be imposed from the thirty-first (31st) day after the date of the sale of
principal residence until the date of payment, provided, that the date of sale shall mean
the date of notarization of the document of sale, exchange, or disposition of principal
residence.
In order to avail of the tax exemption from capital gains tax with respect to such
exchanges, the aforesaid taxpayer is nevertheless required to acquire his new principal
residence within the eighteen (18) month reglementary period, otherwise, he shall be
liable to pay the capital gains tax on the disposition of his principal residence.
In all cases of exchange of principal residence for another real property, the liability of
documentary stamp tax provided under Sec. 196 of the 1997 Code shall accrue to both
parties involved in the exchange.
 95. RR 14-2000 ​(Jay-em)
November 20, 2000 | Capital Gains Tax
Subject​: ​Amends Sections 3(2), 3 and 6 of RR No. 13-99 (​the RR
assigned before this) relative to the sale, exchange or disposition by a
natural person of his "principal residence"
Summary: ​The ​residential address shown in the latest income tax
return filed by the vendor/transferor immediately preceding the
date of sale of said real property shall be treated, for purposes of
these Regulations, as a ​conclusive presumption about his true
residential address​, the certification of the Barangay Chairman, or
Building Administrator (in case of condominium unit), to the
contrary notwithstanding, in accordance with the ​doctrine of
admission against interest or the principle of estoppel.
The ​seller/transferor's compliance with the preliminary
conditions for exemption from the 6% capital gains tax under
Sec. 3(1) and (2) of the Regulations will be ​sufficient basis for the
RDO ​to approve and issue the Certificate Authorizing
Registration (CAR) or Tax Clearance Certificate (TCC) of the
principal residence sold, exchanged or disposed by the aforesaid
taxpayer. Said CAR or TCC shall state that the said sale, exchange
or disposition of the taxpayer's principal residence is exempt from
capital gains tax pursuant to Sec. 24 (D)(2) of the Tax Code, but
subject to compliance with the post-reporting requirements imposed
under Sec. 3(3) of the Regulations.
SECTION 2. Amendments. ​Section 2 (2) of Revenue Regulations No. 13-99
is hereby amended, to read as follows:
(2) Principal Residence. — (a) The term “Principal Residence” shall refer to
the dwelling house, including the land on which it is situated, where the
husband and wife or an unmarried individual, whether or not qualified as head
of family, and members of his family reside. Actual occupancy of such
principal residence shall not be considered interrupted or abandoned by reason
of the individual’s temporary absence therefrom due to travel or studies or
work abroad or such other similar circumstances. Such principal residence
must be characterized by permanency in that it must be the dwelling house in
which, whenever absent, the said individual intends to return.
(b) Where ownership of the land and the dwelling house thereon belongs to
different persons, e.g., where the land is leased to the dwelling house owner,
only the dwelling house shall be treated as Principal Residence of the dwelling
house owner. Thus, if the said land and the dwelling house thereon be jointly
sold or disposed by the said owners, only the-sale or disposition of the dwelling
house shall be entitled to the benefit of exemption from the capital gains tax
herein prescribed: Provided, however, that where both the owner of the land
and owner of the dwelling house actually reside in the said dwelling house,
then both the said land and dwelling house shall be treated as their Principal
Residence (e.g., owner of the land is the parent while owner of the house is his
child, or vice versa).
(c) Where the land and the dwelling house thereon be owned by several
co-owners, e.g., inherited by two or more heirs through hereditary succession,
and where the said property is actually used as Principal Residence by one or
more of the said co-owners, including the members of his/their family, the said
property shall be treated as the Principal Residence of the co-owner/s actually
occupying and using the same as his/their Principal Residence but to the extent
of his/their proportionate share in the value of the principal residence.
Conversely, the capital gains tax exemption benefit herein prescribed shall not
apply in respect of the other co-owners who do not actually use and occupy the
same as their Principal Residence.
(d) The residential address shown in the latest income tax return filed by the
vendor/transferor immediately preceding the date of sale of the said real
property shall be treated, for purposes of these Regulations, as a conclusive
presumption about his true residential address, the certification of the Barangay
Chairman, or Building Administrator (in case of a condominium unit), to the
contrary notwithstanding, in accordance with the doctrine of admission against
interest or the principle of estoppel (e.g., if the property was sold on May 1,
2000, the vendor’s annual income tax return for the year 1999, which he filed
on or before April 15, 2000, showing his residential address, shall be treated as
a conclusive presumption that his true residential address is that which is
shown in his aforesaid income tax return). If the vendor is exempt from filing
any tax return, in which case, he has no tax record immediately prior to the sale
of his property, then the aforementioned certification from the Barangay
Chairman or Building Administrator, as the case may be, shall suffice.”
2.2. Section 3 of Revenue Regulations No. 13-99 is hereby amended, to
read as follows:
SEC. 3. Conditions for Exemption. — The general provisions of the Code to
the contrary notwithstanding, capital gains presumed to have been realized
from the sale, exchange or disposition by a natural person of his Principal
Residence shall not be imposed with six percent (6%) capital gains tax, subject
to compliance with the following:
(1) Escrow Agreement. — The six percent (6%) capital gains tax otherwise due
on the presumed capital gains derived from the sale, exchange or disposition of
his Principal Residence shall be deposited in cash or manager’s check in
interest-bearing account with an Authorized Agent Bank (AAB) under an
Escrow Agreement (ANNEX A hereof) between the concerned Revenue
District Officer, the Seller/Transferor and the AAB to the effect that the
amount so deposited, including its interest yield, shall only be released to such
Seller/Transferor upon certification by the said RDO that the proceeds of sale
or disposition thereof has, in fact, been utilized in the acquisition or
construction of the Seller/Transferor’s new Principal Residence within eighteen
(18) calendar months from date of the said sale or disposition. The date of sale
or disposition of a property refers to the date of notarization of the document
evidencing the transfer of said property. In general, the term “Escrow” means
“A scroll, writing or deed, delivered by the grantor, promisor or obligor into
the hands of a third person, to be held by the latter until the happening of a
contingency or performance of a condition, and then by him delivered to the
grantee, promisee or obligee.”
(2) Capital Gains Tax Return. — The Seller/Transferor shall file, in duplicate,
his Capital Gains Tax Return (BIR FORM No. 1706) covering the sale or
disposition of his Principal Residence with the concerned Revenue District
Office within thirty (30) days from date of its sale or disposition:
Provided, however, that the Seller/Transferor shall not be required to pay any
capital gains tax during the 18-month period on the sale of his principal
residence duly established as such. Provided, further, that for purposes of the
capital gains tax otherwise due on the sale, exchange or disposition of the said
Principal Residence, the execution of the Escrow Agreement referred to in the
immediately preceding Section 3 (1) hereof shall be considered sufficient.
The following shall be submitted with the Capital Gains Tax Return
herein required to be filed:
(a) Proof of payment of the documentary stamp tax imposed under Sec. 196 of
the Tax Code of 1997 on the deed of sale or conveyance of the said “Principal
Residence”
(b) A sworn statement from the Barangay Chairman that the taxpayer’s
Principal Residence is located within the jurisdiction of that Barangay and that
the same has been his residence immediately prior to the date of its sale or
disposition: Provided, however, that if the taxpayer’s Principal Residence sold
or disposed is a condominium unit, in lieu of the said Barangay Chairman, the
certification shall be issued by the Building Administrator of the Condominium
building.
(c) A duplicate original copy of the Deed of Conveyance of his Principal
Residence;
(d) A certified xerox copy of the Transfer Certificate of Title (TCT) or
Condominium Certificate of Title (CCT), in case of a condominium unit,
covering the Principal Residence sold or disposed;
(e) A certified xerox copy of the latest Tax Declaration covering the said
Principal Residence (land and improvement); and
(f) If the building or improvement thereon has been constructed on or after the
year 1990, the Building Permit or Occupancy Permit issued by the concerned
city or municipality, showing the amount of the construction cost thereof.
(3) Post Reporting Requirement. — The proceeds from the sale, exchange or
disposition of his old Principal Residence must be fully utilized in acquiring or
constructing his new Principal Residence within eighteen (18) calendar months
from date of its sale, exchange or disposition. In order to show proof that
positive action was undertaken to utilize the proceeds for the acquisition or
construction of his new Principal Residence within the 18-month reglementary
period, he shall submit to the RDO concerned, within thirty (30) days from the
lapse of the said period, the following documents:
(a) A sworn statement that the total proceeds from the sale or disposition of his
old Principal Residence has been actually utilized in the acquisition or
construction of his new Principal Residence or, if the construction of his new
Principal Residence is still in progress, a sworn statement that such amount
shall be fully utilized to procure the necessary materials and pay for the cost of
labor and other expenses for the construction thereof;
(b) A certified statement from his architect or engineer, or both, showing the
cost of materials and labor for the construction of his new Principal Residence;
(c) A certified copy of the Building Permit issued by the Office of the Building
Official of the City or Municipality where his new Principal Residence shall be
constructed as well as xerox copies of documents (e.g., building specification
plan, construction plans, or construction cost estimates) submitted with his
application for the said Building Permit on which computation of the amount
of the building license fee has been based;
(d) In case his new Principal Residence is acquired by purchase, a duplicate
original copy of the Deed of Absolute Sale covering the purchase of his new
Principal Residence.
(4) Release from the Escrow Agreement. — Upon a showing, based on the
foregoing documents, that the proceeds of sale, exchange or disposition of his
old Principal Residence have already been fully utilized in the acquisition or
construction of his new Principal Residence, the concerned Revenue District
Officer shall, within fifteen (15) days from date of submission by the
Seller/Transferor of the foregoing documents, release the Escrow on the
aforesaid bank deposit in favor of the Seller/Transferor (ANNEX B hereof).
(5) Limitation on Tax Exemption Privilege. — The tax exemption herein
granted may be availed of only once every ten (10) years;
(6) Cost Basis of the New “Principal Residence”. — The historical cost or
adjusted cost basis of his old Principal Residence sold, exchanged or disposed
shall be carried over to the cost basis of his new Principal Residence; and
(7) Assessment for Deficiency Capital Gains Tax; Application of the Escrowed
Bank Deposit Against the Deficiency Tax. — If the Seller/Transferor fails to
submit documentary evidence within thirty (30) days after the lapse of the
aforesaid 18-month period, showing that he has utilized the proceeds of sale,
exchange or disposition of his old Principal Residence to acquire or construct
his new Principal Residence, it shall be presumed that he did not, in fact, utilize
the aforesaid proceeds of sale for the construction or acquisition of his new
Principal Residence, in which case, he shall be treated deficient in the payment
of his capital gains tax from the sale or disposition of his aforesaid Principal
Residence, and shall be accordingly be assessed for deficiency capital gains
tax, inclusive of the 20% interest per annum, pursuant to the provisions of
Section 228 of the Code, as implemented by Revenue Regulations No. 12-99 ,
in relation to Section 249 of the said Code.
Pursuant to the provisions of Revenue Regulations No. 12-99, the taxpayer
shall be issued with the required Post Reporting Notice informing him, in
writing, of the aforementioned facts, in order that he may present his side of the
case through informal conference, and the required Preliminary Assessment
Notice, before issuance of the Formal Assessment Notice. If, at this point in
time, the escrowed tax money is still in the custody of the Depository Bank, the
full amount thereof, including its interest earnings, shall be applied in
computing for the taxpayer’s deficiency capital gains tax. Upon the time that
the said deficiency tax assessment has become final and executory, the deposit
in escrow, inclusive of its interest earnings, shall be forfeited and applied
against the taxpayer’s deficiency capital gains tax liability. The depository
Bank shall forthwith be informed of this action, and shall, upon demand in
writing, by the Commissioner or his duly authorized representative (ANNEX C
hereof), turn over the money for application in payment of the taxpayer’s
deficiency tax liability. If the same is insufficient to cover the entire amount
assessed, the seller/transferor shall remain liable for the remaining balance of
the assessment. On the other hand, the excess of the deposit in escrow, if any,
shall forthwith be returned to the Seller/Transferor, by the Bank, upon written
authorization from the Commissioner or his duly authorized representative.
preliminary conditions for exemption under Sec. 3(1) and (2) of these
Regulations shall be sufficient basis for the RDO to approve and issue the CAR
or TCL of the principal residence sold, exchanged or disposed by the aforesaid
taxpayer. Said CAR or TCL shall state that the said sale; exchange or
disposition of the taxpayer’s principal residence is exempt from capital gains
tax pursuant to Sec. 24 (D)(2) of the Code but subject to compliance with the
post-reporting requirements imposed under Sec. 3(3) of these Regulations.
SECTION 3. Penalty Clause. — (1) Any Barangay Chairman, or Building
Administrator, as the case may be, who shall falsely certify that the property
sold or disposed is the vendor/transferor’s Principal Residence when, in truth
and in fact, it is not, shall be punished under the penalty of perjury, at the
discretion of the Court.
(2) Any other violation of the provisions of these Regulations shall, upon
conviction for each act or omission, be punishable under Section 275 of the
Code by a fine of not more than One Thousand Pesos (P1,000.00) or
imprisonment of not more than six (6) months, or both, at the discretion of the
Court.

(8) Partial Utilization of the Proceeds of Sales Exchange or Disposition. — If

there is no full utilization of the proceeds of sale, exchange or disposition of his
old Principal Residence for the acquisition or construction of his new Principal
Residence, he shall be liable for deficiency capital gains tax, inclusive of 20%
interest per annum, computed from the 31st day after the date of sale or
disposition of the said old Principal Residence.”

2.3. Section 6 of Revenue Regulations No. 13-99 is hereby amended, to

read as follows:

“SEC 6. Issuance of Certificate Authorizing Registration (CAR) or Tax

Clearance Certificate (TCL). — The seller/transferor’s compliance with the
 
 96. RR No. 06-2008 (Dolatre) b. disposition of shares through ​Initial Public Offering (IPO)
April 22, 2008 | Individuals- Capital Gains Tax c. disposition of shares ​not traded through the Local Stock Exchange.

SUMMARY: ​(lifted these from pm reyes) SEC. 2 DEFINITION OF TERMS ​(didn’t include all, see other definitions in the
Capital gains tax shall be imposed upon the net capital gains realized during the taxable law)
year from the sale, barter, exchange or other disposition of shares of stock in a a. Stock Classified As Capital Assets - all stocks and securities held by taxpayers
domestic corporation ​except shares, sold or disposed through the stock exchange. other than dealers in securities.​
Amount of Capital Gain Tax Rate b. Dealers in securities - any person who buys and sells securities for his/her own
account in the ordinary course of business
Not over P100k 5%
c. Shares of Stock - shall include shares of stock of a corporation; warrants and/or
Any amount in excess of 100k 10%
options to purchase shares of stock; as well as units of participation in a
The tax base shall only be the gain on the sale and such sale will always be subject to
partnership (except GPPs), joint stock companies, joint accounts, joint ventures
capital gains tax without any exemption.
taxable as corporations, associations, and recreation or amusement clubs (such as
golf, polo or similar clubs); and mutual fund certificates.
The capital gains tax must be paid within 30 days following each sale or disposition. In
d. Local Stock Exchange (LSE)- refers to any domestic organization, association, or
case of installment sale, the return shall be filed within 30 days following the receipt of
group of persons, whether incorporated or unincorporated, licensed or unlicensed,
the first down payment and within 30 days following the subsequent installment
which constitutes, maintains, or provides a market place or facilities for bringing
payments.
together purchasers and sellers of stocks, and includes the market place and the
market facilities maintained by such exchange. ​“Exchange” is an organized
A percentage tax of 1​ /2 of 1% ​is imposed on the gross selling price of shares of stock ​if
domestic marketplace or facility that brings together buyers and sellers and
they are listed and sold, exchanged or transferred through the facilities of the local
executes trades of securities and/or commodities, duly registered with the
stock exchange.
Securities and Exchange Commission.
e. Gross selling price - refers to the total amount of money or its equivalent which
As provided in Section 11 of RR 06-2008, no sale, exchange, transfer or similar
the purchaser pays the seller as consideration for the shares of stock.
transaction intended to convey ownership of, or title to any share of stock shall be
f. Gross value in money - means the "fair market value". In the case of shares traded
registered in the books of the corporation ​unless the receipts of payment of the tax
thru the stock exchange, "​fair market value​" shall consist of the actual selling
herein imposed is filed with and recorded by the stock transfer agent or secretary of
price at which the transaction was executed in the trading system and/or facilities
the corporation.
of the Local Stock Exchange.
g. Initial Public Offering (IPO) - refers to a public offering of shares of stock made
Tax Base of Disposition of Stock
for the first time in the Local Stock Exchange.
Listed & trades FMV is actual selling price h. Primary Offering - refers to the original sale made to the investing public by the
through LSE issuer corporation of its unissued Shares of Stock.
Listed but not closing price on the day when the shares are sold, transferred, or i. Secondary Offering - refers to an offer for sale to the investing public by the
traded through exchanged OR if no sale is made in the LSE on that day, the existing shareholders of their securities which is conducted during an IPO or a
LSE closing price on the day nearest to the date of sale, transfer or follow-on/follow-through offering.
exchange of the shares j. Follow-on/Follow-through Offering of Shares - refers to an offering of shares to
Not listed & not book value of the shares of stock as shown in the financial the investing public subsequent to an IPO.
traded through statements duly certified by an independent CPA nearest to the k. Shares Listed and Traded through the LSE - refers to all sales, trades or
LSE date of sale transactions of listed Shares of Stock executed through the trading system and/or
facilities of the Local Stock Exchange. This term includes block sale or other types
of sales, trades or transactions in the Local Stock Exchange and executed through
RR 06-2008 was promulgated in order to harmonize and consolidate the rules relative the trading system and/or facilities of the Local Stock Exchange in accordance
to the ​imposition of tax​ for: with the rules of the Local Stock Exchange as approved by the SEC.
a. the ​sale, barter, exchange or other disposition of shares of stock of ​domestic l. Closely-held Corporation - corporation at least 50% in value of the outstanding
corporations​ that are ​listed and traded through the Local Stock Exchange capital stock or at least fifty percent 50% of the total combined voting power of all

 
 classes of stock entitled to vote is owned directly or indirectly by or for not more
than twenty 20 individuals.
m. Acquired as used in Sec. 7(c.6) - means acquired by purchase or by an exchange
upon which the entire amount of gain or loss was recognized by law, and
comprehends cases where the taxpayer has entered into a contract or option within
the 61-day period to acquire by purchase or by such an exchange.
n. Acquisition Cost shall include the purchase price, tax assumed and the
commission paid.
SEC. 3. PERSONS LIABLE TO THE TAX​. — The following sellers or transferors
of stock are liable to the tax:
a. Individual taxpayer, whether citizen or alien​;
b. Corporate taxpayer, whether domestic or foreign; and
c. Other taxpayers not falling under (a) and (b) above, such as estate, trust, trust
funds and pension funds, among others.
SEC. 4. PERSONS NOT LIABLE TO THE TAX.
a. Dealers in securities
b. Investor in shares of stock in a mutual fund company, as defined in Section 22
(BB) of the Tax Code, as amended, and Sec. 2(s) of these Regulations, 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.
SEC. 5. 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 other disposition of
Shares of Stock Listed and Traded through the Local Stock ​Exchange other than the
sale by a dealer of securities,​ under the following rules:
(a) Tax Rate . — A stock transaction tax at the rate of ​1/2 of 1%​, based on the amount
determined in subsection (b) hereunder.
(b) 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 through the remittance of the stock transaction tax by the seller
or transferor’s broker.
(c) 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(s) with respect to the Shares of Stock corresponding to the
Secondary Offering.
SEC.6. SALE, BARTER OR EXCHANGE, OR ISSUANCE OF SHARES OF
STOCK ​THROUGH IPO​. — There shall be levied, assessed and collected on every
sale, barter, exchange or other disposition ​through IPO of shares of stock in closely
held corporations,​ under the following rules:
(a) Tax Rates. — A tax at the rates provided hereunder shall be imposed based on
subsection (b) hereof ​in accordance with the proportion of shares of stock sold​,
bartered, exchanged or otherwise disposed to the total outstanding shares of
stock after the listing in the LSE​:
Proportion of Disposed Shares to Outstanding Shares Tax Rate
Up to 25% 4%
Over 25%, but not over 33 1/3% 2%
Over 33 1/3% 1%
(b) Tax Base. — ​Gross selling price or gross value in money of the shares of stock
sold, bartered, exchanged or otherwise disposed of​.
(c) Determination Of The Persons Liable To Pay The Tax. — same as Sec. 5 (c)
SEC. 7. SALE, BARTER OR EXCHANGE OF SHARES OF STOCK ​NOT
TRADED THROUGH A LSE
(a) Tax Rate. — The provisions of Sec. 39(B) of the Tax Code, as amended,
notwithstanding, a final tax at the rates prescribed below is hereby imposed on the sale,
barter or exchange of shares of stock not traded through the LSE.
Amount of Capital Gain Tax Rate
Not over P100k 5%
Any amount in excess of 100k 10%
(b) Tax Base — upon the net capital gains realized during the taxable year from the
sale, barter, exchange or disposition of shares of stock, except shares sold or disposed
of through the Local Stock Exchange which is covered by the provisions of Secs. 5 and
6 above.
(c) Determination of Amount and Recognition of Gain or Loss.
Determination of Selling Price
a. Cash sale: total consideration per deed of sale.
b. Total consideration of the sale or disposition consists partly in money and
partly in kind: money + FMV of property received
c. Exchange: FMV of property received
d. If FMV of the shares of stock sold, bartered, or exchanged is greater than the
amount of money and/or FMV of the property received: the excess of the
FMV of the shares of stock sold, bartered or exchanged over the amount of
money and the fair market value of the property, if any, received as
consideration shall be deemed a gift subject to the donor’s tax under Sec. 100
of the Tax Code, as amended.
Definition of “fair market value” of the Shares of Stock:
 a. Listed shares which were sold, transferred, or exchanged ​outside of the
trading system and/or facilities of the LSE​: the closing price on the day
when the shares are sold, transferred, or exchanged.
i. When no sale is made in the LSE on the day when the listed shares are
sold, transferred, or exchanged: the closing price on the day nearest to
the date of sale, transfer or exchange of the shares
b. Shares of stock ​not listed and traded in the LSEs​: the book value of the
shares of stock as shown in the financial statements duly certified by an
independent certified public accountant nearest to the date of sale
c. Unit of participation in any ​association, recreation or amusement club
(such as golf, polo, or similar clubs): selling price or the bid price nearest to
the date of sale as published in any newspaper or publication of general
circulation, whichever is higher.
Determination of Gain or Loss from Sale or Disposition of Shares of Stock​.
Gain​: the excess of the amount realized therefrom over the basis or adjusted basis for
determining gain
Loss​: excess of the basis or adjusted basis for determining loss over the amount
realized.
Amount realized from the sale or other disposition of property: the sum of money
received + the FMVof the property (other than money) received, if any.
a. Basis for Determining Gain or Loss from Sale or Disposition of Shares of
Stock​. — Gain or loss from the sale, barter or exchange of property, for a
valuable consideration, shall be determined by ​deducting from the amount of
consideration contracted to be paid, the vendor/transferor’s basis for the
property sold or disposed plus expenses of sale/disposition, if any​.
i. Acquired by Purchase. — If the property is acquired by purchase,
the basis is the ​cost of such property​.
a. Determination of the Cost. — The cost basis for determining the
capital gains or losses for shares of stock acquired through
purchase shall be governed by the following rules:
1. If the shares of stock ​can be identified​: cost shall be
the ​actual purchase price plus all costs of acquisition​,
such as commissions, documentary stamp taxes,
transfer fees, etc.
2. If the shares of stock ​cannot be properly identified​:
cost to be assigned shall be computed on the basis of
the first- in first-out (FIFO) method.
3. If ​books of accounts are maintained by the seller
where every transaction of a particular stock is
recorded​: the moving average method shall be applied
rather than the FIFO method.
4. In general, ​stock dividend received shall be assigned
with a cost basis which shall be determined by
allocating the cost of the original shares of stock to
the total number shares held after receipt of stock
dividends ​(i.e., the original shares plus the shares of
stock received as stock dividends).
ii. Acquired by Devise, Bequest or Inheritance. — If the property was
acquired by devise, bequest or inheritance, the basis shall be the ​fair
market value of such property at the time of death of the decedent​.
The term ​“property acquired by bequest, devise or inheritance” as
used herein means acquisition through testamentary or intestate
succession and includes, among others:
a. Property interests that the taxpayer received as a result of a
transfer, or creation of a trust, in contemplation of or intended to
take effect in possession or enjoyment at or after death; and
b. Such property interests as the taxpayer has received as the result
of the exercise by a person of a general power of appointment by
will or by deed executed in contemplation of or intended to take
effect in possession or enjoyment at or after death, otherwise
known as a donation mortis causa or a donation in contemplation
of death.
iii. Acquired by Gift. — If the property was acquired by gift, the basis
shall be the ​same as it would be in the hands of the donor or the last
preceding owner by whom it was not acquired by gift​, ​except that if
such basis is greater than the fair market value of the property at the
time of the gift, then ​for the purpose of determining the loss, the basis
shall be such fair market value.
iv. Acquired for Inadequate Consideration. — If the property was
acquired for less than an adequate consideration in money or
money’s worth, the basis of such property is the ​amount paid by the
transferee for the property.
Limitation of Capital Losses. — For sale, barter, exchange or other forms of
disposition of shares of stock subject to the 5%/10% capital gains tax on the net capital
gain during the taxable year, ​the capital losses realized from this type of transaction
during the taxable year are deductible only to the extent of capital gains from the same
type of transaction during the same period​. If the ​transferor of the shares is an
individual​, the ​rule on holding period and capital loss carry-over will not apply​,
notwithstanding the provisions of Section 39 of the Tax Code as amended.
Shares of Stock Becoming Worthless​. — ​Losses from shares of stock, held as capital
asset, which have become worthless during the taxable year ​shall be ​treated as capital
loss as of the end of the year. However, ​this loss is not deductible against the capital
gains realized from the sale, barter, exchange or other forms of disposition of shares of
stock during the taxable year​, but ​must be claimed against other capital gains to the
extent provided for under Section 34 of the Tax Code, as amended. For the 5% and
10% net capital gains tax to apply, there must be an actual disposition of shares of
stock held as capital asset, and the capital gain and capital loss used as the basis in
determining net capital gain, must be derived and incurred respectively, from a
sale, barter, exchange or other disposition of shares of stock.
SEC. 8. TAXATION OF ​SURRENDER OF SHARES BY THE INVESTOR
UPON DISSOLUTION OF THE CORPORATION ​AND LIQUIDATION OF
ASSETS AND LIABILITIES OF SAID CORPORATION​. –
Upon surrender by the investor of the shares in exchange for cash and property
distributed by the issuing corporation upon its dissolution and liquidation of all assets
and liabilities, the ​investor shall recognize either capital gain or capital loss upon such
surrender of shares computed by comparing the cash and fair market value of property
received against the cost of the investment in shares​. The ​difference between the sum
of the cash and the fair market value of property received and the cost of the
investment in shares shall represent the ​capital gain or capital loss from the
investment, whichever is applicable. ​If the investor is an individual​, the ​rule on
holding period shall apply and the percentage of taxable capital gain or deductible
capital loss shall depend on the number of months or years the shares are held by the
investor​. Section 39 of the Tax Code, as amended, shall herein apply in all possible
situations.
The ​capital gain or loss derived therefrom shall be subject to the regular income
tax rates imposed under the Tax Code, as amended, on individual taxpayers or to
the corporate income tax rate, in case of corporations.
SEC. 9. TAXATION OF ​SHARES REDEEMED FOR CANCELLATION OR
RETIREMENT​. ​- When preferred shares are redeemed at a time when the issuing
corporation is still in its “going-concern” and is not contemplating in dissolving or
liquidating its assets and liabilities, ​capital gain or capital loss upon redemption
shall be recognized on the basis of the difference between the amount/value
received at the time of redemption and the cost of the preferred shares.
Similarly, the capital gain or loss derived shall be ​subject to the regular income tax
rates imposed under the Tax Code, as amended, on individual taxpayers or to the
corporate income tax rate, in case of corporations.
This section, however, ​does not cover situations where a corporation voluntarily
buys back its own shares, in which it becomes treasury shares​. In such cases, the
stock transaction tax under Sec. 127(A) of the Tax Code shall apply if the shares are
listed and executed through the trading system and/or facilities of the Local Stock
Exchange. ​Otherwise, if the shares are not listed and traded through the Local Stock
Exchange, it is subject to the 5% and 10% net capital gains tax.
SEC. 10. TIME OF PAYMENT OF TAX AND MANNER OF FILING
RETURNS.
(a) Tax on Sale of Shares of Stock Listed and Traded ​through the Local Stock
Exchange​. —
The ​stock broker 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 Revenue District
Officers (RDO) where the broker is registered within five (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 through 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 through the Local
Stock Exchange.
(b) Tax on Shares of Stock Sold or Exchanged ​through 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 thirty (30) days from
the date of listing of the shares of stock in the Local Stock Exchange. The return
shall be accompanied with a copy of the instrument of sale.
In the case of shares of stock sold or exchanged through Secondary Offering
at the time of listing at the Local Stock Exchange of shares of closely-held
corporations, the provisions of subsection (a) of this Section shall apply as to
the time and manner of the payment of the tax on the sale thereof.
(c) Tax on Shares of Stock ​Not Traded through the Local Stock Exchange.
Persons deriving capital gains from the sale or exchange of listed shares of
stock not traded through the Local Stock Exchange as prescribed by these
regulations shall file a return within thirty (30) days after each transaction and a
final consolidated return of all transactions during the taxable year on or before the
fifteenth (15th) day of the fourth (4th) month following the close of the taxable
year.
In the case of an individual taxpayer, the filing of the final consolidated
return of all transactions shall be during the calendar year​. However, for
corporate taxpayers, the filing of the final consolidated return of all transactions
shall be in accordance with the accounting period employed by such taxpayer
which may either be calendar or fiscal year basis.
SEC.11. 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 herein imposed is filed with and recorded by the stock transfer
agent or secretary of the corporation. ​It shall be the ​duty of the aforesaid persons to
inform the Bureau of Internal Revenue in case of non-payment of tax​. Any stock
transfer agent or secretary of the corporation or the stockbroker, who caused the
registration of transfer of ownership or title on any share of stock in violation of the
aforementioned requirements shall be punished in accordance with the provisions of
Title X, Chapters I and II of the Tax Code, as amended.
 97. RR 06-2013 (Ebron)
April 11, 2013 | Capital Gains Tax

Subject: Amending Certain Provision of Revenue Regulations No. 06-2008 Entitled

Consolidated Regulations Prescribing the Rules on the Taxation of Sale, Barter,
Exchange or Other Disposition of Shares of Stock Held as Capital Assets

These Regulations are hereby promulgated to amend certain provisions of Revenue

Regulations (RR) No. 06-2008 relative to the imposition of tax for the sale, barter,
exchange or other disposition of shares not traded through the Local Stock
Exchange.

SEC. 7. ​Sale, Barter or Exchange of Shares of Stock Not Traded Through a Local
In the above case, the net asset of “A” Corporation is Php15,000,000 while the adjusted
Stock Exchange Pursuant to Secs. 24 (C), 25 (A)(3), 25 (B), 27 (D) (2), 28 (A) (7) (C),
net asset is Php24,500,000 [(20,000,000 + 9,500,000)- 5,000,000]. As such, with the
28 (B) (5) (C) of The Tax Code, as Amended. —
adjusted value per shares of stock of Php2,450, the fair market value of the shares sold
was Php12,250,000 (5000 shares at Php2,450 per share).
xxx xxx xxx
SECTION 3. Repealing Clause. — All revenue issuances or parts thereof inconsistent
(c.2) Definition of "fair market value" of the Shares of Stock. — For purposes of this
with the provisions of these Regulations are hereby considered repealed, amended or
Section, "fair market value" of the shares of stock sold shall be:
modified accordingly.
(c.2.1) x x x
(c.2.2) In the case of shares of stock not listed and traded in the local stock exchanges,
SECTION 4. Effectivity. — These Regulations shall take effect immediately.
the value of the shares of stock at the time of sale shall be the fair market value. In
determining the value of the shares, the Adjusted Net Asset Method shall be used
whereby all assets and liabilities are adjusted to fair market values. The net of adjusted
asset minus the liability values is the indicated value of the equity. For purposes of this
section, the appraised value of real property at the time of sale shall be the higher of –
(1) The fair market value as determined by the Commissioner, or
(2) The fair market value as shown in the schedule of valued fixed by the Provincial
and City Assessors, or
(3) The fair market value as determined by Independent Appraiser.

Illustrations:
Assume that Mr. X sold on April 30, 2013, 5000 shares of stock of “A” Corporation.
“A” Corporation has 10,000 outstanding shares The total assets and liabilities of “A”
Corporation in its latest audited financial statements (AFS) are Php20,000,000 and
Php5,000,000, respectively. Assuming further that the book value of all its assets and
liabilities is also the market value with the exception of its real property. Supposing,
the market value of the real properties of “A” Corporation are as follows:

 
 98. RMC 37-2012 (Vi) ISSUE:
August 3, 2012| Department of Finance - BIR. | Capital Gains Tax 1. Whether a CAR is still needed before shares of stock not traded in the Stock
Exchange may be transferred – YES
SUBJECT: ​Clarifying Section 11 of Revenue Regulations No. 06-08 CLARIFICATION (RATIO):
TO: ​All Revenue Officials, Employees, and Others Concerned
SUMMARY​: RMC 37-2012 issued on August 6, 2012 clarifies Section 11 of 1. In order to transfer ownership of shares of stock not traded in the stock
Revenue Regulations (RR) No. 06-08 or the “Consolidated Regulations Prescribing exchange, it is necessary to secure a CAR pursuant to the process laid down in
the Rules on the Taxation of Sale, Barter, Exchange or Other Disposition of Shares RMO No. 15-03. The receipts of the payment of the tax should also be filed
of Stock held as Capital Assets.” with and recorded by the secretary of the corporation pursuant to Sec. 11 of
To transfer ownership of shares of stock not traded in the Stock Exchange, it is RR No. 06-08.
necessary to secure a Certificate Authorizing Registration (CAR) pursuant to the 2. RMO No. 15-03 prescribes the guidelines to get a CAR for stocks not traded
process laid down in Revenue Memorandum Order No. 15-03. The receipts of the in the stock market while Sec. 11, RR No. 06-08 only requires filing and
payment of the tax should also be filed with and recorded by the Secretary of the recording of the receipts of payment with the secretary of the corporation. To
Corporation pursuant to Section 11 of RR No. 06-08. reconcile these, to transfer ownership of shares of stock not traded in the
All other issuance inconsistent with the provisions of this Circular are repealed or Stock Exchange, do both. You have to follow the procedure to get a CAR and
modified accordingly. (taken from the digest of BIR) register with the Secretary of the Corporation.
DOCTRINE: In order to transfer shares of stock not traded in the Stock
Exchange, it is necessary to secure a CAR. The receipts of payment of tax
should be filed with and recorded by the Secretary of the Corporation.
SUMMARY:
1. Revenue Memorandum Order (RMO) No. 15-03 dated May 8, 2003
prescribes the policies, guidelines, and procedures including the documentary
requirements, in the issuance of Certificates Authorizing Registration (CARs)
for transactions subject to capital gains tax on the sale, barter, transfer or
assignment of shares of stock not traded in the Stock Exchange may be
transferred in the books of a corporation.
2. On the other hand, Section 11 of RR No. 06-08 only mentions the filing with
and recording by the stock transfer agent or secretary of the corporation of the
receipts of payment of the tax in effecting the transfer of shares in the books
of the corporation. The provision reads:
SEC.11. ​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
herein imposed is filed with and recorded by the stock transfer agent or secretary
of the corporation​. It shall be the duty of the aforesaid persons to inform the Bureau
of Internal Revenue in case of non-payment of tax. Any stock transfer agent or
secretary of the corporation or the stockbroker, who caused the registration of transfer
of ownership or title on any share of stock in violation of the aforementioned
requirements shall be punished in accordance with the provisions of Title X, Chapters I
and II of the Tax Code, as amended.

 
 99. BIR RULING [DA-029-08] (Gohoc)
January 23, 2008 | Capital Gains Tax

SUMMARY:​ Please read the digest, it’s really short.

FACTS:
1. RTC declared the marriage between Jaime Avila and Evelyn Avila as null and
void. Now he is requesting an exemption from the payment of donor’s tax on the
transfer of their house and lot to him.
2. The ex spouses executed a MOA for the dissolution of their property relations and
the RTC approved the following:
a. Jaime waives his ½ right to the Makati Condo
b. Evelyn waives her ½ right over the Paranaque house and lot, her right at Punta
Fuego and certain motor vehicles
c. Jaime will be solely responsible for the support of his children until they are
21 years old, and if they still need support after that, they will share in the
expenses jointly.
d. The party in whose waiver a right is waived will shoulder the expense to
effect the transfer.

ISSUE:​ W/N Jaime should pay any taxes? – NO.

3. The transfer is not subject to donor’s tax. There is no donation that takes place
when former spouses adjudicate properties among themselves which originally
belonged to the conjugal partnership or community property. It was a mere
segregation of properties.
4. ​The transfer is also not subject to capital gains tax as such transfer is
equivalent to a conveyance without money consideration, made in accordance
with a court decision.
5. The transfer is also not subject to documentary stamp tax since the monetary
consideration from which the tax shall be based is lacking.

RULING:
6. Present the MOA and this BIR Ruling to the BIR Revenue District Officer
concerned so that he may properly issue a Certificate Authorizing Registration
allowing the registration of the title of the property in the proper Registry of
Deeds.

 
 100. BIR Ruling 287-07 (Meryl) 4. Anna Marie F. Padilla wants to transfer the title covering the condo unit in her
May 8, 2007 | Asst. Comm. James H. Roldan | Appropriation of Respective Shares in name.
Community Property, Not Subject to Capital Gains Tax
ISSUE:
Whether the transfer of title is subject to capital gains tax – NO ​(not subject to
TO​: Atty. Roy Enrico C. Santos, Puyat Jacinto & Santos Law Offices
donor’s and doc stamp taxes also)
FROM​: James H. Roldan, Assistant Commissioner, CIR

RATIO:
SUMMARY​: Nicanor and Anna were married. Anna filed a petition for
1. The parties merely segregated and adjudicated for their own individual and
declaration of nullity of marriage. During the pendency of the proceedings, they
separate ownership the properties which, from the celebration of their marriage,
executed an Agreement on Distribution of Communal Property. They agreed that
rightfully belong to them equally.
Condo Unit 11D with parking slot located at San Juan would belong to Anna.
2. CAPITAL GAINS TAX.
Said unit is presently registered under the name of Nicanor. Court granted the
The transfer of the unit to Anna is not subject to capital gains tax, as said
petition for declaration of nullity of marriage, dissolving parties' ACP relations
transfer is equivalent to a conveyance but without any monetary
and approved the Agreement on Distribution of Communal Property. Anna
consideration.
wants to transfer the title covering the condo unit in her name. ​BIR said that the
3. DONOR’S TAX.
transfer of title is NOT subject to capital gains tax. ​The parties merely
Since the parties merely appropriated to themselves their respective shares in
segregated and adjudicated for their own individual and separate ownership the
the community property, such appropriation of the properties covered by the
properties which, from the celebration of their marriage, rightfully belong to
agreement on distribution thereof is not subject to donor's tax.
them equally.

BIR Ruling DA-435-00 states that no donation had taken place when former
DOCTRINE: The transfer of the unit to Anna is not subject to capital gains
spouses appropriate to themselves separately the properties which belong to
tax, as said transfer is equivalent to a conveyance but ​without any monetary
their community property as a consequence of the liquidation of the
consideration.
partnership.
4. DOC STAMP TAX.
FACTS: Neither is the said transfer subject to documentary stamp tax since the
1. Nicanor Pablo M. Vergara and Anna Marie F. Padilla were married without having monetary consideration in the conveyance of said condominium unit from
executed an ante-nuptial agreement; pursuant to applicable law, the parties' which tax shall be based ​is wanting.
property relations are governed by the absolute community of property.
2. Anna filed a petition for declaration of nullity of marriage before the RTC of QC;
that during the pendency of the proceedings, Sps. executed an Agreement on
Distribution of Communal Property.
o They agreed that the condominium unit with parking slot located at Platinum
Condominiums, Annapolis Street, Greenhills, San Juan, denominated Unit
11D would belong to Anna.
o Said unit is presently registered under the name of Nicanor.
3. Court issued a Decision granting the petition for declaration of nullity of marriage;
dissolving parties' absolute community property relations and approved the
Agreement on Distribution of Communal Property.

 
 101. M.E. Holding Corporation vs CA (Myling) 1. ME Holdings Corp filed its 1995 Corporate Annual Income Tax Return
3 March 2008 | Velasco, Jr., ​J ​| Senior Citizens Discount claiming the 20% sales discount it granted to qualified senior citizens. ME
filed the return under protest as it treated the discount as a deduction
following Sec 2 (i) of RR 2-94 issued on 23 Aug 1993. ME claimed
PETITIONER​: ME Holding Corporation
deductions amounting to P603,424.
RESPONDENTS​: The Hon. Court of Appeals, Court of Tax Appeals, and the
2. ME contends that the discount should instead be treated as a tax credit under
Commissioner of Internal Revenue
Sec 4 of RA 74321 and not as a deduction as provided in RR 2-94. ME
subsequently sent BIR a letter-claim stating its overpayment of income tax.
SUMMARY​: ME Holding Corp filed its 1995 Corporate Annual Income Tax
Due to the inaction of BIR, and to toll the running of the 2-year prescriptive
Return claiming the 20% sales discount it granted to qualified senior citizens. ME
period in filing a claim for refund, ME filed an appeal before the CTA
filed the return under protest as it treated the discount as a deduction following RR
reiterating its position that the sales discount should be treated as a tax credit,
2-94. ME contends, however, that the discount should be treated as a tax credit as
and that RR 2-94, particularly Sec 2 (i), was without effect for being
provided by RA 7432. The CTA agreed with ME that the law is unequivocal that
inconsistent with RA 7432.
the discount should be claimed as a tax credit, and that the law prevails over the
3. The CTA rendered a decision in favor of ME which however ordered a refund
administrative issuance. However, the CTA approved the refund for a lesser
for only P122, 195.74 as overpayment of income tax for 1995. The CTA
amount as it limited this to only those that were supported by cash slips.
agreed that the 20% sales discount granted to senior citizens should be treated
The SC affirmed the decision of the CTA and the CA in that the sales discount
as a tax credit pointing out that RA 7432 was unequivocal on this point, that
should indeed be claimed as a tax credit and not as a deduction. The SC likewise
RR 2-94 contravenes RA 7432, and that RA 7432 is a law that should prevail
affirmed that the cash slips were the best evidence under the circumstances thus
over an administrative issuance.
amounts not supported by these were not considered in the claim. SC took ME’s
4. However, ME could not claim the entire amount of P603,424 as a sales
side when it held that the sales discount granted should be based on the actual
discount as ME failed to properly support this full amount with the
discount and not on the acquisition cost of the medicine as it held in ​Bicolandia
corresponding cash slips. CTA reduced ME’s claim to only P362,574.57 after
Drug Corporation (formerly Elmas Drug Corporation) v. CIR.​ However, the SC
the CTA disallowed P241,348.89 as unsupported claims and lowered the
did not grant the claim as a refund as, again, RA 7432 provided for a tax credit and
refundable amount to P122,195.74.
not a refund. ME was entitled to a tax credit for the amount based on the actual
5. ME filed an MR based on two grounds:
discount supported by cash slips.
a. It attributed the failure to submit the cash slips to the inadvertence of
Epilogue. ​RA 9257, ​The Expanded Senior Citizen Act of 2003,​ was made effective
its independent auditor who failed to transmit said cash slips to ME’s
on 21 March 2004 and amended RA 7432. It provides that starting taxable year
counsel.
2004, the 20% sales discount granted by establishments to qualified senior citizens
b. ME also argued that the tax credit should be based on the actual
is to be treated as a tax deduction and no longer as a tax credit.
discount and not on the acquisition cost of the medicines.
6. The CTA denied the MR and did not allow ME to present additional cash slips
DOCTRINE: ​RA 7432, the applicable law, is unequivocal that the 20% sales
it earlier failed to submit. Also, the CTA applied the CA’s ruling in CIR vs
discount to senior citizens be claimed by an establishment owner as a tax credit.
Elmas Drug Corp where the term "cost of the discount" was interpreted to
RR 2-94 that considers the discount as a mere deduction clashes with RA 7432 is
mean only the direct acquisition cost, excluding administrative and other
deemed a nullity.
incremental costs.
7. The appeal with the CA was dismissed. CA held that the additional evidence
In ​Bicolandia Drug Corporation (formerly Elmas Drug Corporation) v. CIR,​ the
were not newly discovered evidence which can be presented to the appellate
Court interpreted the term "cost" found in Sec 4 (a) of RA 7432 as referring to ​the
tax court even after it rendered its decision. Too, CA agreed with the CTA’s
amount of the 20% discount extended by a private establishment to senior
definition of cost to mean only the direct acquisition cost adding that to
citizens in their purchase of medicines. The Court categorically said that it is the
interpret the word "cost" to include "all administrative and incremental costs
Government that should fully shoulder the cost of the sales discount granted to
to sales to senior citizens" would open the floodgates for drugstores to pad the
senior citizens.
costs of the sales with such broad, undefined, and varied administrative and

FACTS: 1
​An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits and Special
Privileges and for Other Purposes, 23 April 1992

 
 incremental costs such that the government would ultimately bear the 5. Third Issue. ME is correct in contending that it is entitled, as a matter of law,
escalated costs of the sales. Further, it cited ​CIR vs Tokyo Shipping and said to claim as tax credit the full amount of the sales discount granted to senior
that claims for refund, being in the nature of a claim for exemption, should be citizens. In ​Bicolandia Drug Corporation (formerly Elmas Drug
construed in strictissimi juris a​ gainst the taxpayer. CA likewise denied the Corporation) v. CIR​, the Court interpreted the term "cost" found in Sec 4 (a)
MR. of RA 7432 as referring to ​the amount of the 20% discount extended by a
private establishment to senior citizens in their purchase of medicines. The
​ISSUES: Court categorically said that it is the Government that should fully shoulder
1. May the 20% sales discount to senior citizens be claimed by an establishment the cost of the sales discount granted to senior citizens. Accordingly, ME is
owner as a tax credit and not as a deduction? YES entitled to a tax credit equivalent to the actual 20% sales discount it granted to
2. May other competent pieces of evidence, other than the cash slips, be used to qualified senior citizens.
prove the sales discount extended? Did the CA gravely abuse its discretion in 6. However, ME was originally praying for a tax refund for its tax overpayment.
denying ME to submit the disallowed cash slips? NO to both RA 7432 expressly provides that the sales discount be a tax credit, not a tax
3. Should the tax credit be based on the actual discount or the acquisition refund. Thus, the Court amended the claim to a tax credit rather than that of a
cost of the medicines? Actual Discount refund.
7. Epilogue. RA 9257, ​The Expanded Senior Citizen Act of 2003,​ was made
RATIO: effective on 21 March 2004 and amended RA 7432. It provides that starting
1. First Issue. RA 7432, the applicable law, is unequivocal that the 20% sales taxable year 2004, the 20% sales discount granted by establishments to
discount to senior citizens be claimed by an establishment owner as a tax qualified senior citizens is to be treated as a tax deduction and no longer as a
credit. RR 2-94 that considers the discount as a mere deduction clashes with tax credit.
RA 7432 is deemed a nullity.
2. Second Issue. M​ E contends that other pieces of evidence may be used, other SEPARATE OPINIONS: ​None
than the cash slips, to prove the sales discount extended such as the Special CONCURRING:
Record Book required by the BFAD and RR 2-94. These special record books
contain the same information in the cash slips and were presented by ME to
the CTA during ME’s formal offer of evidence and were authenticated and
verified by their store supervisor and independent auditor.
3. The Court however held that the determination of the exact amount of ME’s
claims is an evaluation of factual matters which, not falling under any of the
exception, does not warrant a review by the Court.
4. Further, the Rules of Court is of suppletory application in quasi-judicial
proceedings. Sec 34 of Rule 132 provides that no evidence shall be
considered unless formally offered with a statement of the purpose why its
being offered. Additionally, the rule is that the best evidence under the
circumstances must be adduced to prove the allegations in a complaint. Only
when the best evidence cannot be submitted may secondary evidence be
considered. The cash slips, the best evidence at that time, were not part of
ME’s offer of evidence. Though the special record books have the same
information as the cash slips, these cannot be considered and made to
corroborate evidence that have been disallowed. ME offered the disallowed
cash slips as evidence only after CTA rendered its decision. Thus, the
inadvertence of the independent auditor cannot be considered as excusable
negligence. Also, the belatedly submitted cash slips do not constitute
newly-found evidence that may be submitted as a basis for a new trial or an
MR. In the same vein, the Court does not find the CA decision being of a
capricious, whimsical, arbitrary or despotic exercise of jurisdiction.

 
102. Manila Memorial Park, Inc. vs. Secretaries of Department of Social Welfare
and Development and Department of Finance
(Kua ℅ Banta)
December 3, 2013 | Del Castillo, J. | Individuals- OCWs/Senior Citizens/Disabled/
Employees of Foreign Governments
PETITIONER​: MANILA MEMORIAL PARK, INC. AND LA
FUNERARIA PAZ-SUCAT, INC.
RESPONDENTS​: SECRETARY OF THE DEPARTMENT OF SOCIAL
WELFARE AND DEVELOPMENT and THE SECRETARY OF THE
DEPARTMENT OF FINANCE
SUMMARY​:
After RA 7432 was passed into law, it was amended by RA 9257, which
provides the following:
SECTION 4. PRIVILEGES FOR THE SENIOR CITIZENS. — The
senior citizens shall be entitled to the following:
(a) The grant of twenty percent (20%) discount from all establishments
relative to the utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers, and purchase of
medicines in all establishments for the exclusive use or enjoyment of
senior citizens, including funeral and burial services for the death of senior
citizens;
The establishment may claim the discounts granted under (a), (f), (g) and
(h) as tax deduction based on the net cost of the goods sold or services
rendered: Provided, That the cost of the discount shall be allowed as
deduction from gross income for the same taxable year that the discount is
granted. Provided, further, That the total amount of the claimed tax
deduction net of value added tax if applicable, shall be included in their
gross sales receipts for tax purposes and shall be subject to proper
documentation and to the provisions of the National Internal Revenue
Code, as amended.
Thereafter, DOF and DSWD issued their respective implementing rules,
which are now being questioned alongside the above-quoted provision.
Petitioners, domestic corporations engaged in the business of providing
funeral and burial services, are merely assailing the constitutionality of
SECTION 4 of RA 7432, as amended by RA 9257, which allows business
establishments to claim the 20% discount to senior citizens as tax
deduction.
1) Whether Section 4 of RA 9257 and its IRRs, insofar as they provide
that the 20% discount to senior citizens may be claimed as a tax
deduction by the private establishments, are invalid and
unconstitutional —NO
2) Whether the law is unfair because the non-senior citizen class shall
be the one shouldering the subsidy of the senior citizens —NOT
SUBJECT TO JUDICIAL REVIEW because this goes into the
wisdom, efficacy, and expediency of the subject law.
RATIO for ISSUE#1
In ruling for Sec. of the DSWD and DOF, the Court categorically ruled
that the tax deduction scheme was a valid exercise of police power.
The validity of the 20% senior citizen discount and tax deduction scheme
under RA 9257 has already been settled in CARLOS SUPERDRUG
CORPORATION and the Court finds no compelling reason to overturn,
modify, or abandon the ruling in the same. (Skip to this part of the RATIO
below; the Court had quite a long discussion re: the CARLOS
SUPERDRUG ruling.)
a) First, the law states that the cost of the discount shall be
deducted from the GROSS INCOME, the amount of income
derived from all sources before deducting allowable expenses,
which will result in net income. The computation should not be
on a per transaction basis.
b) Second, the Court believed that the State, in promoting the
health and welfare of a special group of citizens, validly
imposed upon private establishments the burden of partly
subsidizing a government program.
c) Third, the Court explained in the abovementioned case that the
law is a LEGITIMATE EXERCISE OF POLICE POWER
which, similar to the power of eminent domain, has general
welfare for its object.
d) A valid taking does not necessitate compensation.
 i) The subject regulation may be said to be similar to, but purchase of medicine anywhere in the country: Provided, That
with substantial distinctions from, price control or rate of private establishments may claim the cost as tax credit;
return on investment control laws which are traditionally b. Minimum of twenty percent (20%) discount on admission fees
regarded as police power measures. charged by theaters, cinema houses and concert halls, circuses,
ii) The 20% discount may be properly viewed as belonging carnivals and other similar places of culture, leisure, and amusement;
to the category of price regulatory measures which affect c. Exemption from the payment of individual income taxes: Provided,
the profitability of establishments subjected thereto That their annual taxable income does not exceed the property level
iii) Because all laws enjoy the PRESUMPTION OF as determined by the National Economic and Development Authority
CONSTITUTIONALITY, courts will uphold a law’s (NEDA) for that year;
validity if any set of facts may be conceived to sustain it. d. Exemption from training fees for socioeconomic programs
(1) Petitioners had the burden of proof to overturn this undertaken by the OSCA as part of its work;
presumption, a feat they failed to do in this case. e. Free medical and dental services in government establishment[s]
anywhere in the country, subject to guidelines to be issued by the
DOCTRINE: Department of Health, the Government Service Insurance System
Thus, even if the current law, through its tax deduction scheme (which and the Social Security System;
abandoned the tax credit scheme under the previous law), does not provide f. To the extent practicable and feasible, the continuance of the same
for a peso for peso reimbursement of the 20% discount given by private benefits and privileges given by the Government Service Insurance
establishments, no constitutional infirmity obtains because, being a valid System (GSIS), Social Security System (SSS) and PAG-IBIG, as the
exercise of police power, payment of just compensation is not warranted. case may be, as are enjoyed by those in actual service.
3. On August 23, 1993: REVENUE REGULATIONS (RR) NO. 02-94 was issued to
implement RA 7432. Section 2(i) and Section 4 of RR No. 02-94 provide:
SECTION 2. DEFINITIONS. — For purposes of these regulations:
FACTS:
(i) Tax Credit — refers to the amount representing the 20% discount granted to a
1. Petitioners MANILA MEMORIAL and LA FUNERARIA PAZ-SUCAT, both
qualified senior citizen by all establishments relative to their utilization of
domestic corporations engaged in the business of providing funeral and burial
transportation services, hotels and similar lodging establishments, restaurants,
services, filed the present case, praying:
drugstores, recreation centers, theaters, cinema houses, concert halls, circuses,
a. That SECTION 4 of RA 7432 as amended by RA 9257, and the IRRs
carnivals and other similar places of culture,leisure and amusement, which discount
issued by respondents DOF and DSWD be declared
shall be deducted by the said establishments from their gross income for income tax
UNCONSTITUTIONAL insofar as these allow business
purposes and from their gross sales for value-added tax or other percentage tax
establishments to claim the 20% discount to senior citizens as tax
purposes. x x x x
deduction;
b. That the DSWD and DOF be prohibited form enforcing the same;
SECTION 4. RECORDING/BOOKKEEPING REQUIREMENTS FOR PRIVATE
and
ESTABLISHMENTS. — Private establishments, i.e. transport services, hotels and
c. That the tax credit treatment of the 20% discount under the former
similar lodging establishments, restaurants, recreation centers, drugstores, theaters,
Section 4(a) of RA 7432 be reinstated.
cinema houses, concert halls, circuses, carnivals and other similar places of
2. On April 23, 1992: RA 7432 was passed into law, Section 4 of which grants
culture[,] leisure and amusement, giving 20% discounts to qualified senior citizens
senior citizens the following privileges:
are required to keep separate and accurate record[s] of sales made to senior citizens,
a. Grant of twenty percent (20%) discount from all establishments
which shall include the name, identification number, gross sales/receipts, discounts,
relative to utilization of transportation services, hotels and similar
dates of transactions and invoice number for every transaction. The amount of 20%
lodging establishment[s], restaurants and recreation centers and
discount shall be deducted from the gross income for income tax purposes and from

 
 gross sales of the business enterprise concerned for purposes of the VAT and other
RR NO. 4-2006 (DOF) SECTION 8. AVAILMENT BY
percentage taxes. ESTABLOSHMENTS OF SALES
DISCOUNTS AS DEDUCTION FROM
4. In CIR V. CENTRAL LUZON DRUG CORPORATION, the Court declared GROSS INCOME. — Establishments
Sections 2(i) and 4 of the above-mentioned RR as erroneous because these enumerated in subparagraph (6)
contravene RA 7432. In that case, the Court pointed out a few things: hereunder granting sales discounts to
a. That the RR denied the same credit which RA 7432 specifically allows private senior citizens on the sale of goods
establishments to claim; and/or services specified thereunder are
entitled to deduct the said discount from
b. That the definition of “tax credit” given was erroneous and Court: “When the
gross income subject to the following
law says that the cost of the discount may be claimed as a tax credit, it means conditions:
that the amount — when claimed — shall be treated as a reduction from any (1) Only that portion of the gross sales
tax liability, plain and simple. The option to avail of the tax credit benefit EXCLUSIVELY USED, CONSUMED
depends upon the existence of a tax liability, but to limit the benefit to a sales OR ENJOYED BY THE SENIOR
discount — which is not even identical to the discount privilege that is granted CITIZEN shall be eligible for the
by law — does not define it at all and serves no useful purpose. The definition deductible sales discount.
must, therefore, be stricken down.” (2) The gross selling price and the sales
discount MUST BE SEPARATELY
c. That the law cannot be amended by mere regulation.
INDICATED IN THE OFFICIAL
RECEIPT OR SALES INVOICE issued
5. Thereafter, on February 26, 2004: RA 9257 amended certain provisions of RA 7432: by the establishment for the sale of
goods or services to the senior citizen.
SECTION 4. PRIVILEGES FOR THE SENIOR CITIZENS. — The senior citizens (3) Only the actual amount of the
shall be entitled to the following: discount granted or a sales discount not
(a) The grant of twenty percent (20%) discount from all establishments relative to the exceeding 20% of the gross selling price
utilization of services in hotels and similar lodging establishments, restaurants and can be deducted from the gross income,
net of value added tax, if applicable, for
recreation centers, and purchase of medicines in all establishments for the exclusive
income tax purposes, and from gross
use or enjoyment of senior citizens, including funeral and burial services for the death sales or gross receipts of the business
of senior citizens; enterprise concerned, for VAT or other
percentage tax purposes.
The establishment may claim the discounts granted under (a), (f), (g) and (h) as tax (4) The discount can only be allowed as
deduction based on the net cost of the goods sold or services rendered: Provided, That deduction from gross income for the
the cost of the discount shall be allowed as deduction from gross income for the same same taxable year that the discount is
taxable year that the discount is granted. Provided, further, That the total amount of the granted.
(5) The business establishment giving
claimed tax deduction net of value added tax if applicable, shall be included in their
sales discounts to qualified senior
gross sales receipts for tax purposes and shall be subject to proper documentation and citizens is required to keep separate and
to the provisions of the National Internal Revenue Code, as amended. accurate record[s] of sales, which shall
include the name of the senior citizen,
6. To implement RA 9257, both the Secretaries of Finance (RR NO. 4-2006) TIN, OSCA ID, gross sales/receipts,
and DSWD (RULES AND REGULATIONS IMPLEMENTING RA 9257) issued their sales discount granted, [date] of
respective implementing rules, the pertinent provisions of each are as follows: [transaction] and invoice number for
every sale transaction to senior citizen.

 
 (6) Only the following business
establishments which granted sales
discount to senior citizens on their sale
of goods and/or services may claim the
said discount granted as deduction from
gross income, namely:
xxxx
(i) Funeral parlors and similar
establishments — The beneficiary or
any person who shall shoulder the
funeral and burial expenses of the
deceased senior citizen shall claim the
discount, such as casket, embalmment,
cremation cost and other related services
for the senior citizen upon payment and
presentation of [his] death certificate.
RA 9257 IRR (DSWD) RULE VI. DISCOUNTS AS TAX
DEDUCTION OF
ESTABLISHMENTS.
ARTICLE 8. TAX DEDUCTION OF
ESTABLISHMENTS. — The
establishment may claim the discounts
granted under Rule V, Section 4
(Discounts for Establishments), Section
9 (Medical and Dental Services in
Private Facilities), and Sections 10 and
11 (Air, Sea and Land Transportation) as
tax deduction based on the net cost of
the goods sold or services rendered.
Provided, That the cost of the discount
shall be allowed as deduction from gross
income for the same taxable year that
the discount is granted;
Provided, further, That the total amount
of the claimed tax deduction net of value
added tax if applicable, shall be included
in their gross sales receipts for tax
purposes and shall be subject to proper
documentation and to the provisions of
the National Internal Revenue Code, as
amended;
Provided, finally, that the
implementation of the tax deduction
shall be subject to the Revenue
Regulations to be issued by the Bureau
of Internal Revenue (BIR) and approved
by the Department of Finance (DOF).
7. Petitioners contend:
a. That they are not questioning the 20% discount granted, but merely the
constitutionality of the tax deduction scheme prescribed under RA 9257 and
the two IRRs;
b. That the scheme contravenes Article 3, Section 9 of the Constitution (“private
property shall not be taken for public use without just compensation”)
c. That the tax deduction scheme does not meet the definition of just
compensation (citing CARLOS SUPERDRUG CORPORATION V. DSWD);
d. That the legislature relied on an erroneous contemporaneous construction that
prior payment of taxes is required for tax credit;
e. That the scheme likewise violates Article 15, Section 4 and Article 13, Section
11 of the Constitution, because it shifts the State’s constitutional mandate or
duty of improving the welfare of the elderly to the private sector;
i. Under the scheme: the private sector shoulders 65% of the discount
because only 35% of it is actually returned by the government
f. On the other hand, Respondents argue:
i. The absence of a justiciable controversy;
ii. The failure of petitioners to overturn the law’s presumption of
constitutionality; and
iii. That the tax deduction scheme is a legitimate exercise of police
power.
ISSUES:
1. WON the petition presents an actual case or controversy —YES
2. WON Section 4 of RA 9257 and its IRRs, insofar as they provide that the 20%
discount to senior citizens may be claimed as a tax deduction by the private
establishments, are invalid and unconstitutional —NO
3. WON the law is unfair because the non-senior citizen class shall be the one
shouldering the subsidy of the senior citizens —NOT SUBJECT TO
JUDICIAL REVIEW
RATIO:
 1. YES. There exists an actual controversy. The tax deductions scheme
challenged by petitioners has a direct adverse effect on them.
a. An actual case or controversy exists when there is a “conflict of legal
rights” or “an assertion of opposite legal claims susceptible of
judicial resolution.”
2. NO. The validity of the 20% senior citizen discount and tax deduction scheme
under RA 9257 has already been settled in CARLOS SUPERDRUG
CORPORATION and the Court finds no compelling reason to overturn,
modify, or abandon the ruling in the same.
DISCUSSION IN CARLOS SUPERDRUG
Flawed computation
a. How are there losses, according to petitioners in this case and in
CARLOS SUPERDRUG? Citing the case, here’s an illustration:
i. “Petitioner Carlos Super Drug cited the anti- hypertensive
maintenance drug Norvasc as an example. According to the
latter, it acquires Norvasc from the distributors at P37.57 per
tablet, and retails it at P39.60 (or at a margin of 5%). If it
grants a 20% discount to senior citizens or an amount
equivalent to P7.92, then it would have to sell Norvasc at
P31.68 which translates to a loss from capital of P5.89 per
tablet. Even if the government will allow a tax deduction,
only P2.53 per tablet will be refunded and not the full
amount of the discount which is P7.92. In short, only 32%
of the 20% discount will be reimbursed to the drugstores.”
b. However, the above computation is FLAWED.
i. The law states that the cost of the discount shall be deducted
from the GROSS INCOME, the amount of income derived
from all sources before deducting allowable expenses,
which will result in net income.
ii. The computation should NOT be on a transaction basis.
iii. In addition, the computation was erroneously based on the
assumption that their customers consisted wholly of senior
citizens.
iv. Lastly, the 32% tax rate is to be imposed on income, not on
the amount of the discount
Private establishments can validly partly subsidize a government program
a. In CARLOS SUPERDRUG, the Court believed that the State, in promoting
the health and welfare of a special group of citizens, validly imposed upon
private establishments the burden of partly subsidizing a government program.
i. Petitioners therein argued that compelling drugstore owners and
establishments to grant the discount will result in a loss of profit and
capital because (a) drugstores impose a mark-up of only 5% to 10%
on branded medicines; and (b) the law failed to provide a scheme
whereby drugstores will be justly compensated for the discount.
ii. The tax deduction scheme does not not fully reimburse petitioners for
the discount privilege accorded to senior citizens because the
discount is treated as a deduction, a tax-deductible expense that is
subtracted from the gross income and results in a lower taxable
income.
iii. Stated otherwise, it is an amount that is allowed by law to reduce the
income prior to the application of the tax rate to compute the amount
of tax which is due.
iv. Being a tax deduction, the discount does not reduce taxes owed on a
peso for peso basis but merely offers a fractional reduction in taxes
owed.
v. Thus, the permanent reduction in their total revenues is a forced
subsidy corresponding to the taking of private property for public use
or benefit. This constitutes compensable taking for which petitioners
would ordinarily become entitled to a just compensation.
b. In that case, JUST COMPENSATION was defined as the “full and fair
equivalent of the property taken from its owner by the expropriator.”
i. Themeasureisnotthetaker’sgainbuttheowner’sloss.
ii. A tax deduction does not offer full reimbursement of the senior
citizen discount; as such, it would not meet the definition of just
compensation.
Valid exercise of police power
a. Moreover, the Court explained in the same case that the law is a
LEGITIMATE EXERCISE OF POLICE POWER which, similar to the power
of eminent domain, has general welfare for its object.
i. Police power has been described as “the most essential, insistent and
the least limitable of powers, extending as it does to all the great
public needs.”
 ii. Property rights must bow to the supremacy of police power because
property rights, though sheltered by due process, must yield to
general welfare.
iii. Absence any evidence demonstrating the alleged confiscatory effect
of the provision in question, there is no basis for its nullification in
view of the PRESUMPTION OF VALIDITY which every law has in
its favor.
NO COMPELLING REASON TO OVERTURN OR REVERSE
a. The Court agrees with petitioners’ observation that there are statements in
CENTRAL LUZON DRUG CORPORATION describing the 20% discount as
an exercise of the power of eminent domain, viz: “The privilege enjoyed by
senior citizens does not come directly from the State, but rather from the
private establishments concerned. Accordingly, the tax credit benefit granted
to these establishments can be deemed as their just compensation for private
property taken by the State for public use.”
b. The above quote notwithstanding, the Court still ruled in CARLOS
SUPERDRUG that the 20% discount and tax deduction scheme is a valid
exercise of police power.
c. To clarify:
i. First, the quote in CENTRAL LUZON was considered as obiter
dicta, and thus, not binding precedent. In that case, the Court was not
even confronted with the issue as to whether the 20% discount is an
exercise of police power or eminent domain.
ii. Second, the referral of the Court in CENTRAL LUZON when it
decided the case of CARLOS SUPERDRUG, was only as regards
preliminary matters.
POLICE POWER v. EMINENT DOMAIN
a. Police power is the inherent power of the State to regulate or to restrain the
use of liberty and property for public welfare.
b. The only restriction: must be reasonable, and not oppressive.
c. Requisites:
i. Lawful subject or objective; and
ii. Lawful method of accomplishing the goal
d. In the state’s exercise of police power, there is no compensable taking, hence,
payment of just compensation is NOT required.
e. On the other hand, in the exercise of the power of eminent domain, property
interests are appropriated and applied to some public purpose which
necessitates the payment of just compensation therefor.
f. In this case, the 20% discount is a regulation affecting the ability of private
establishments to price their products and services relative to a special class of
individuals, senior citizens, for which the Constitution affords preferential
concern.
g. The subject regulation then, may be said to be similar to, but with substantial
distinctions from, price control or rate of return on investment control laws
which are traditionally regarded as police power measures.
i. The regulation differs therefrom in that (a) the discount does not
prevent the establishments from adjusting the level of prices of their
goods and services, and (b) the discount does not apply to all
customers of a given establishment but only to the class of senior
citizens.
ii. Nonetheless, the 20% discount may be properly viewed as belonging
to the category of price regulatory measures which affect the
profitability of establishments subjected thereto.
h. The impact of a regulation, such as the one under consideration, must, thus, be
determined on a case-to-case basis.
i. Whether that line between permissible regulation under police power
and “taking” under eminent domain has been crossed must, under the
specific circumstances of this case, be subject to proof and the one
assailing the constitutionality of the regulation carries the heavy
burden of proving that the measure is unreasonable, oppressive or
confiscatory.
THE 20% DISCOUNT IS NOT UNREASONABLE, OPPRESSIVE, OR
CONFISCATORY
a. Because all laws enjoy the PRESUMPTION OF CONSTITUTIONALITY,
courts will uphold a law’s validity if any set of facts may be conceived to
sustain it.
b. Congress may have legitimately concluded that:
i. Business establishments have the capacity to absorb a decrease in
profits without substantially affecting the reasonable rate of return on
their investments considering (a) not all customers of a business
establishment are senior citizens and (b) the level of its profit
margins on goods and services offered to the general public; and
ii. The establishments have the capacity to revise their pricing strategy
so that whatever reduction in profits or income/gross sales that they
may sustain because of sales to senior citizens, can be recouped
through higher mark-ups or from other products not subject of
discount.

3. NOT SUBJECT TO JUDICIAL REVIEW. This goes into the wisdom,
efficacy, and expediency of the subject law.
a. Petitioners hypothesize that since the establishments will be
increasing their prices in order to compensate for its impact on
overall profits, the general public is thus, made to effectively
shoulder the subsidy for senior citizens.
b. It must be presumed that Congress has foreseen this eventuality.
c. In a way, this law pursues its social equity objective in a
non-traditional manner unlike past and existing direct subsidy
programs of the government for the poor and marginalized sectors of
our society.
d. In the process, the individual, who enjoys the rights, benefits and
privileges of living in a democratic polity, must bear his share in
supporting measures intended for the common good. This is only
fair.
Dissent by Justice Carpio:
1. The discussion on eminent domain in CENTRAL LUZON is not obiter dicta;
Majority opinion’s answer:
a. The discussion on eminent domain was not necessary in order to
arrive at the conclusion as to WON the revenue regulation violated
the law.
2. Allowable taking, in police power, is limited to property that is destroyed or
placed outside the commerce of man for public welfare; Majority opinion’s
answer:
a. The Court recognizes that there is a whole class of police power
measures which justify the destruction of private property in order to
preserve public health, morals, safety or welfare.
b. However, it is equally true that there is another class of police power
measures which do not involve the destruction of private property but
merely regulate its use.
i. The senior citizen discount falls under this category.
3. The amount of mandatory discount is private property within the ambit of
Article III, Section 9 of the Constitution; and Majority opinion’s answer:
a. It must be emphasized that petitioners never presented any evidence
to establish that they were forced to suffer enormous losses or
operate at a loss due to the effects of the assailed law.
b. In this case, evidence is indispensable before a determination of a
constitutional violation can be made.
c. That there may be a burden placed on business establishments or the
consuming public as a result of the operation of the assailed law is
not, by itself, a ground to declare it unconstitutional for this goes into
the wisdom and expediency of the law.
4. The 20% discount granted to senior citizens belong to private establishments,
whether these establishments make a profit or suffer a loss. In fact, the 20%
discount applies to non-profit establishments like country, social, or golf clubs
which are open to the public and not only for exclusive membership. The
issue of profit or loss to the establishments is immaterial. Majority opinion’s
answer:
a. This argument contradicts the rest of the arguments of the Dissent.
b. It is an erroneous characterization of the 20% discount.
5. Price and rate of return on investment control laws was erroneously used to
justify the senior citizen discount law. Only profits from industries imbued
with public interest may be regulated because this is a condition of their
franchises. Thus, the permanent reduction of total revenues or gross sales of
business establishments without franchises is a taking of private property
under the power of eminent domain. Majority opinion’s answer:
a. The substantial distinctions between price and rate of return on
investment control laws vis-à-vis the senior citizen discount law
provide greater reason to uphold the validity of the senior citizen
discount law.
i. The ability to adjust prices allows the establishment subject
to the senior citizen discount to prevent or mitigate any
reduction of profits or income/gross sales arising from the
giving of the discount.
b. There is no intention to say that price and rate of return on
investment control laws are the justification for the senior citizen
discount law. Not at all. The justification for the senior citizen
discount law is the plenary powers of Congress.
c. When the Dissent states that the “profits of private establishments
which are non-franchisees cannot be regulated permanently, and
there is no such law regulating their profits permanently,” it is
assuming what it ought to prove.
d. The point then is this — most, if not all, regulatory measures
imposed by the State on business establishments impact, at some
level, the latter’s prices and/or profits or income/gross sales.
 103. RR 1-2009 (Pamie)
December 9, 2008 | Individuals - Persons with Disability
SUMMARY​: ​RR 1-2009 prescribes the rules and regulations to implement RA
No. 9442, An Act Amending RA No. 7277, Otherwise Known as the Magna
Carta for Persons with Disability, relative to the tax privileges of persons with
disability and tax incentives for establishments granting sales discount.
Section 3 provides for the establishments where a PWD may claim 20%
discount relative to sale of goods or services for their exclusive use or
enjoyment.
Section 4 provides for the availment by establishments of sales discounts as
deduction from their gross income.
Rules:
1. Deducted from gross income after deducting the cost of goods sold or
service;
2. Deduction from gross income for the same taxable year that the
discount is granted;
3. Only the sales exclusively used, consumed or enjoyed by the PWD
shall be eligible for the deductible sales discount;
4. The gross selling price and the sales discount must be separately
indicated in the sales invoice or official receipt issued by the
establishment;
5. Only the actual amount of the sales discount granted (not exceeding
20% of the gross selling price) can be deducted from the gross income;
6. The business establishment is required to keep separate and accurate
records of sales
SECTION 1. Scope. ​— These regulations are hereby promulgated to implement the
tax privileges of people with disability and tax incentives for establishments granting
20% discount under Section 32 and 33 of RA 9442.
SECTION 2. Definition of Terms​. ​— For purposes of these Regulations, the
following terms and phrases shall be defined as follows: ​

a. Act — shall refer to RA 7277, as amended.
b. Person with disability — shall refer to an individual suffering from restriction
or different abilities, as a result of mental, physical or sensory impairment to
perform an activity in a manner or within the range considered normal for
human being.
c. Disability — shall mean a physical or mental impairment that substantially
limits one or more psychological, physiological or anatomical function of an
individual or activities of such individuals; a record of such an impairment; or
being regarded as having such an impairment. ​

d. Benefactor — shall refer to any person, whether related or not to the person
with disability, who takes care of him/her as a dependent. ​

e. Dependent — shall refer to a person with disability, whether minor or of legal
age, and who is a Filipino citizen, who may or may not be related to his
benefactor and who is living with and dependent upon such benefactor for
his/her chief support.
f. Sales discount — shall refer to the actual discount, or that discount which in
no case shall exceed 20% of the gross selling price of goods sold or services
rendered to persons with disability by certain business establishments
enumerated under the Act and these Regulations.
g. Establishment — shall refer to any entity, public or private, duly licensed
and/or authorized by the national government agencies or by the local
government units to operate.
SECTION 3. Sales Discounts Which May Be Claimed by Persons with Disability​.
— Persons with disability shall be entitled to claim at least twenty percent (20%)
discount from the following establishments relative to the sale of goods or services for
their exclusive use or enjoyment, ​viz.:​
1. Hotels and similar lodging establishments and restaurants;
2. Sports and recreation centers;
3. Theaters, cinema houses, concert halls, circuses, carnivals and other similar
places of culture, leisure and amusement;
4. All drugstores regarding purchase of medicine;
5. Medical and dental privileges in government facilities, such as but not limited
to diagnostic and laboratory fees (​e.g.​, x-rays, computerized tomography
scans and blood tests) subject to guidelines to be issued by the DOH, in
coordination with the Philippine Health Insurance Corporation (Philhealth);
6. Medical and dental privileges in private facilities, such as but not limited to
diagnostic and laboratory fees (​e.g.​, x-rays, computerized tomography scans
and blood tests), including professional fees of attending doctors, subject to
guidelines to be issued by the DOH, in coordination with Philhealth; and
7. Domestic air and sea transportation based on the actual fare except
promotional fare. If the promotional fare discount is higher than the 20%
 discount privilege, the person with disability may choose the promotional fare SECTION 5. Prohibition on Availment of Double Discounts. ​— The foregoing
and should no longer be entitled to the 20% discount privilege; and privileges granted to person with disability shall not be claimed if the said person with
8. Land transportation privileges in bus fares such as ordinary, aircon fares and disability claims a higher discount as may be granted by the commercial establishment
on public railways such as LRT, MRT, PNR, and such other similar and/or under other existing laws or in combination with other discount program/s.
infrastructure that will be constructed, established and operated by public or Thus, a person with disability who is at the same a senior citizen can only claim one
private entity. Toll fees of skyways and expressways are likewise subject to at 20% discount on a particular sales transaction.
least 20% discount, however, this privilege can be availed only by a person
with disability owning the vehicle. SECTION 6. Basis of Computation of Value-Added Tax on Sale of Goods or
Services to Persons with Disability. ​— VAT on sale of goods or services with sales
SECTION 4. Availment by Establishments of Sales Discounts as Deduction from discounts granted by business establishments enumerated under Section 3 hereof shall
Gross Income. — ​ Establishments granting sales discounts to persons with disability on be computed in accordance with the following illustration:
their sale of goods and/or services specified under Section 3 above shall be entitled to
deduct the said sales discount from their gross income subject to the following Amount of sale (without the VAT): P100
conditions: Less: 20% sales discount: ​P20
1. The sales discounts shall be deducted from gross income after deducting the Vatable sale​
 P80
cost of goods sold or the cost of service; Plus: 12% VAT (based on P80) ​P9.60
2. The cost of the sales discount shall be allowed as deduction from gross Total amount to be paid by the person with disability: P89.60
income for the same taxable year that the discount is granted;
3. Only that portion of the gross sales exclusively used, consumed or enjoyed by SECTION 7. Non-Availment of the "Head of Family" Status by Benefactors of
the person with disability shall be eligible for the deductible sales discount; ​
 Persons with Disability​. ​— Although the Act provides that a benefactor of persons
4. The gross selling price and the sales discount must be separately indicated in with disability whose civil status is "single" shall be considered as "head of family" and
the sales invoice or official receipt issued by the establishment for the sale of therefore shall be entitled to the personal exemption of P25,000 under Section 35 (A)
goods or services to the person with disability; ​
 of the Tax Code, said single benefactor can no longer avail the "head of family" status
5. Only the actual amount of the sales discount granted or a sales discount not in view of the elimination of the terms "head of family" and "his/her dependents" for
exceeding 20% of the gross selling price or gross receipt can be deducted purposes of availing the personal exemption of P25,000 in view of the amendment
from the gross income, net of value added tax, if applicable, for income tax brought about by RA 9504 under Section 35(A) and (B) of the Tax Code of 1997.
purposes, and from gross sales or gross receipts of the business enterprise
concerned, for VAT or other percentage tax purposes; and shall be subject to SECTION 8. Proofs of Entitlement to the Privileges by Person with Disability. — ​
proper documentation under pertinent provisions of the Tax Code of 1997, as The privileges under the Act and in these Regulations available to persons with
amended; ​
 disability who are Filipino citizens may only be granted upon presentation of any of the
6. The business establishment giving sales discount to qualified person with following proof of his/her entitlement thereto:
disability is required to keep separate and accurate records of sales, which 1. An identification card issued by the city or municipal mayor or the barangay
shall include the name of the person with disability, ID Number, gross captain of the place where the person with disability resides; or ​

sales/receipts, sales discount granted, date of transactions and invoice number 2. The passport of the person with disability concerned; or ​

for every sale transaction to person with disability; and ​
 3. Transportation discount fare Identification Card (ID) issued by the National
7. All establishments mentioned in Section 3 above which granted sales discount Council for the Welfare of Disabled Persons (NCWDP). ​

to persons with disability on their sale of goods and/or services may claim the
said discount as deduction from gross income. ​
 SECTION 9. ​Penalties. ​—
1. For the first violation of any provision of the Act and these Regulations, a fine
of not less than Fifty thousand pesos (P50,000) but not exceeding One

 
 hundred thousand pesos (P100,000) or imprisonment of not less than six
months but not more than two years, or both at the discretion of the court; and
2. For any subsequent violation thereto, a fine of not less than One hundred
thousand pesos (P100,000) but not exceeding Two hundred thousand pesos
(P200,000) or imprisonment for not less than two years but not more than six
years, or both at the discretion of the court.
3. Any person who abuses the privileges granted herein shall be punished with
imprisonment of not less than six months or a fine of not less than Five
thousand pesos (P5,000), but not more than Fifty thousand pesos (P50,000), or
both, at the discretion of the court.
4. If the violator is a corporation, organization or any similar entity, the officials
thereof directly involved shall be liable therefor.
5. If the violator is an alien or a foreigner, he shall be deported immediately after
service of sentence without further deportation proceedings.
6. Upon filing of an appropriate complaint, and after due notice and hearing, the
proper authorities may also cause the cancellation or revocation of the
business permit, permit to operate, franchise and other similar privileges
granted to any business entity that fails to abide by the provisions of the Act
and these Regulations.

SECTION 10. Separability Clause

SECTION 11. Repealing Clause
SECTION 12. Effectivity

 
 104. RR 7-2010 (Anne)
July 20, 2010 | Individuals - Senior Citizens
SUMMARY​: RR 7-2010 implements the tax privileges provisions of RA 9994,
otherwise known as the "Expanded Senior Citizens Act of 2010", and prescribes
the guidelines for the availment thereof.
All establishments, supplying any of the following goods and services to
Senior Citizen for their exclusive use and enjoyment or availment, shall give
a discount of ​20%​: medicines, professional fees of attending physicians,
professional fees of licensed professional health workers, medical and dental
services, diagnostic and laboratory, actual fare for land transportation travel in
Public Utility Vehicles, actual transportation fare for domestic air transport
services and sea shipping vessels, utilization of services in hotels and similar
lodging establishments, restaurants and recreation centers, admission fees
charged by theaters, funeral and burial services for the death of Senior Citizens.
The ​monthly utilization of water and electricity by the Senior Citizen
supplied by public utilities will be subject to a ​5% discount upon concurrence
of the requisites. For the ​consumption of water, electricity and telephone​,
there shall be granted by public utilities a discount of ​at least 50% on the
consumption by a Senior Citizens Center and qualified residential care/group
homes.
All establishments supplying any of the said goods and services may claim the
discounts granted as a ​tax deduction based on the cost of the goods sold or
services rendered to Senior Citizens​. The discounts granted to Senior Citizens
by the seller of qualified goods and services shall be treated as an ​ordinary and
necessary expenses deductible from the gross income of the seller ​falling
under the category of itemized deductions, and can only be claimed if the seller
does not opt for the Optional Standard Deduction during the taxable
quarter/year.
Sales of any goods and services under Sections 4 and 5 of these Regulations to
Senior Citizens shall be ​exempt from the value-added tax​. The exemption
herein granted will not cover other indirect taxes that may be passed on by the
seller to a Senior Citizen buyer.
Private establishments employing Senior Citizens shall be entitled to
additional deduction from their gross income equivalent to ​15% o
​ f the total
amount paid as salaries and wages to Senior Citizens.
Relevant Sections:
SEC. 2​. ​Definitions.
a. Senior Citizen or Elderly — refers to any Filipino citizen who is a resident of
the Philippines, and who is sixty (60) years old or above. It may apply to
senior citizens with “dual citizenship” status provided they prove their Filipino
citizenship and have at least six (6) months residency in the Philippines.
(xxx)
c. Benefactor — refers to any person whether related or not to the senior citizen
who provides care or who gives any form of assistance to him/her, and on
whom the senior citizen is dependent on for primary care and material support,
as certified by the City or Municipal Social Welfare and Development Officer
(C/MSWDO).
d. Dependent — a Senior Citizen, who may or may not be related to his/her
Benefactor and who is living with and dependent upon his/her Benefactor for
his/her chief support.
(xxx)
l. ​Sales discount — the actual discount, or that discount, which in no case shall
be lower than twenty (20%) per cent of the gross selling price of the goods
sold or services rendered to Senior Citizens by certain establishments
enumerated under the Act and in these Regulations, ​Provided, that, for
purchase of water and electricity from public utilities, the sales discount shall
be a minimum of five (5%) per cent.
m. Establishment — any entity, public or private, duly licensed and/or franchised
by the national government agencies or the local government units.
SEC. 3​. ​Income Tax of Senior Citizens. – Generally, qualified Senior Citizens
deriving returnable income during the taxable year, whether from compensation or
otherwise, are ​required to file their income tax returns and pay the tax as they file the
return​.
However, if the returnable income of a Senior Citizen is in the nature of compensation
income but he qualifies as a minimum wage earner under RA No. 9504, he shall be
exempt from income tax ​on the said compensation income subject to the rules provided
under Revenue Regulations No. 10-2008 applicable to minimum wage earners.
Likewise, if the aggregate amount of gross income earned by the Senior Citizen during
the taxable year does ​not exceed the amount of his personal exemptions (basic and
additional), he shall be exempt from income tax and shall not be required to file an
income tax return​. ​[BASIC AND ADDITIONAL PERSONAL EXEMPTIONS ARE
REPEALED IN TRAIN LAW]
The exemption of Senior Citizens from income tax granted in the Act will ​not extend to
all types of income earned during the taxable year. Hence, he can still be liable for
other taxes such as:
1. The ​20% final withholding tax on interest income from any currency bank
deposit, yield and other monetary benefit from deposit substitutes, trust fund
and similar arrangements; royalties (except on books, as well as other literary
works and musical compositions, which shall be imposed a final withholding
tax of 10%); prizes (except prizes amounting to P10,000 or less which shall be
subject to income tax at the rates prescribed under Sec. 24(A) of the Tax Code,
and other winnings (except Philippine Charity Sweepstakes and Lotto
winnings) (Sec. 24(B)(1), Tax Code);
2. The ​7.5% final withholding tax on interest income from a depository bank
under the expanded foreign currency deposit system (Sec. 24(B)(1), Tax
Code);
3. If the Senior Citizen will pre-terminate his 5-year long-term deposit or
investment in the form of savings, common or individual trust funds, deposit
substitutes, investment management accounts and other investments evidenced
by certificates in such form prescribed by the Bangko Sentral ng Pilipinas
before the fifth year, he shall be subject to the ​final withholding tax imposed
on the entire income depending on the holding period of the deposit or
investment. If held for a period of:
•​ ​Four years to less than five years — 5%
•​ ​Three years to less than four years — 12%; and
•​ ​Less than three years — 20%
4. The ​10% final withholding tax –
a. On cash and/or property dividends actually or constructively received
from a domestic corporation or from a joint stock company, insurance or
mutual fund company and a regional operating headquarters of a
multinational company; or
b. On the share of an individual in the distributable net income after tax of a
partnership (except a general professional partnership) of which he is a
partner; or
c. On the share of an individual in the net income after tax of an association,
a joint account, or a joint venture or consortium taxable as a corporation of
which he is a member or a co-venturer (Sec. 24(B)(2), Tax Code).
5. Capital gains tax from sales of shares of stock not traded in the stock
exchange (Sec. 24(C), Tax Code); and
6. The ​6% final withholding tax on presumed capital gains from sale of real
property, classified as capital asset, except capital gains presumed to have been
realized from the sale or disposition of principal residence (Sec. 24(D), Tax
Code).
SEC. 4. Grant of Discounts to Senior Citizens. — All establishments, supplying any
of the following goods and services, as specified in the Act to Senior Citizens, for their
exclusive use and enjoyment or availment, shall give a ​discount of twenty (20%) per
cent​. The granting of discount herein mentioned shall apply to the sale of the following
goods and services:
a. Medicines​, including influenza and pneumococcal vaccines, and such other
essential medical supplies, accessories and equipment to be determined by the
Department of Health (DOH).
(xxx)
b. On the ​professional fees of attending physician/s in all private hospitals,
medical facilities, outpatient clinics and home health care services, where the
discount shall be based on the compensation for services charged from the
Senior Citizen.
c. On ​professional fees of licensed professional health workers ​providing
home health care services as endorsed by private hospitals or employed
through home health care employment agencies, where the discount shall be
based on the fees charged from the Senior Citizen.
d. On ​medical and dental services, diagnostic and laboratory fees in all
private hospitals, medical facilities, outpatient clinics, and home health care
services, in accordance with the rules and regulations to be issued by the DOH,
 in coordination with the Philippine Health Insurance Corporation (PhilHealth).
(xxx)
e. In ​actual fare for land transportation travel in public utility buses (PUBs),
public utility jeepneys (PUJs), taxis, Asian utility vehicles (AUVs), shuttle
services and public railways, including Light Rail Transit (LRT), Mass Rail
Transit (MRT), and Philippine National Railways (PNR).
f. ​On actual transportation fare for domestic air transport services and sea
shipping vessels ​and the like, based on the actual fare and advanced booking.
g. On the ​utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers​.
(xxx)
g.4.​ ​Long term arrangement for residential purposes is not covered.
(xxx)
g.6. ​For this purpose, the term "restaurant" shall refer to any establishment
offering to the public, regular and special meals or menu, fast food,
cooked food and short orders. Such eating places may also serve
coffee, beverages and drinks. Food and goods sold by establishments
that are not restaurants are not covered, therefore not allowed to give
the 20% discount.
(xxx)
h. On ​admission fees charged by theaters​, cinema houses and concert halls,
circuses, carnivals, and other similar places of culture, leisure and amusement,
where the discount shall be on the admission fees charged by the said
establishments;
i. ​On ​funeral and burial services for the death of Senior Citizens​. The
beneficiary or any person who shall shoulder the funeral and burial expenses
of the deceased Senior Citizen shall claim the discount, such as casket,
embalmment, cremation cost and other related services for the Senior Citizen
upon payment and presentation of his death certificate;
SEC. 5. Special Discount granted to Senior Citizens and Senior Citizens Centers.
– The ​monthly utilization of water and electricity by the Senior Citizen supplied by
public utilities will be subject to a ​five percent (5%) discount upon concurrence of the
following:
1. the individual meters for the said utilities are ​registered in the name of the
Senior Citizen​ residing therein;
2. the monthly consumption does ​not exceed one hundred kilowatt hours
(100kwh) of electricity​ and thirty cubic meters (30 m​3​) of water; and
3. the privilege is ​granted per household regardless of the number of Senior
Citizens residing therein.
For the ​consumption of water, electricity and telephone​, there shall be granted by
public utilities a discount of at least fifty (50%) per cent on the consumption by a
Senior Citizens Center ​and residential care/group homes that are run by the
Government or by a non-stock, non-profit domestic corporation organized and operated
primarily for the purpose of promoting the well-being of abandoned, neglected,
unattached, or homeless Senior Citizens, subject to the guidelines formulated by the
Department of Social Welfare and Development (DSWD).
(xxx) in ​no case shall the discount granted to Senior Citizens be less than 20%, or in the
case of water and electricity supplied by public utility companies, be less than 5%​. The
minimum discount shall not be treated as an addition to the promotional discount,
provided that, if the promotional discount is less than the minimum discount prescribed
in the Act for Senior Citizens, the seller shall increase the discount to meet the said
minimum discount prescribed for Senior Citizens.
SEC. 6. Determination of the Amount of Discount. – ​The grant of the discount is
only for the purchase of goods and services enumerated in the Act for ​THE
EXCLUSIVE USE AND ENJOYMENT OR AVAILMENT OF THE SENIOR
CITIZEN​. (xxx)
(c) ​For Dine-in services, the privilege must be personally availed of by the senior
citizen as defined under these Rules, and no proxies or authorization in favor of another
person who is not a senior citizen will be honored.
(d) ​Consistent with the intent of the Act, the phrase “exclusive use and enjoyment” of
the senior citizen shall mean “for the senior citizen’s personal consumption” only. As
such, the ​20% senior citizen discount shall not apply to “children’s meals” which are
primarily prepared and intentionally marketed for children. Similarly, the 20% senior
citizen discount shall ​not apply to “pre-contracted” party packages or bulk orders​.
(xxx) if the group of diners is composed entirely of senior citizens, all of whom present
valid senior citizens IDs, each shall be entitled to a 20% discount and exemption from
Value Added Tax.
(f) ​The 20% discount shall apply to Take-Out/Take-Home/Drive-Thru orders
(excluding bulk orders) as long as it is the senior citizen himself/herself who is present
and personally ordering, and he/she can show a valid senior citizen ID card.
(xxx) Delivery fee charged separately are not entitled to the discount and is subject to
tax.
(h) ​For the above-mentioned transactions under paragraphs (f) and (g) of Section 3 of
Article 7, ​the Most Expensive Meal Combination (MEMC) shall apply to food
purchases by senior citizens. The MEMC is an ​amount corresponding to the
combination of the most expensive and biggest single-serving meal with beverage
served in a quick service restaurant, is deemed flexible and is adjusted accordingly by
food establishments to estimate a single food purchase for an individual senior citizen.
(xxx)
SEC. 7. Tax Treatment of the Discount Granted to Senior Citizens. – ​(xxx)
Selling Price (VAT-exempt) of 10 pcs. at P5.00/pc. ............. P50.00
Less: 20% Discount ..............................................................​ 10.00
Amount Payable by the Senior Citizen ................................ ​ P40.00
(xxx) This means that for the establishment to be allowed to claim the discount as a
deduction, the amount of sales that must be reported for tax purposes is the
undiscounted selling price and not the amount of sales net of the discount. The income
statement of the seller must reflect the discount, not as a reduction of sales to arrive at
net sales, but as a deduction from its gross income (sales less cost of sales).
(xxx)
The discounts granted by the seller of qualified goods and services, i.e. the promotional
discount, the 20% discount, the 5% discount on water and electric consumption by
Senior Citizens, or the 50% discount on electricity, water and telephone consumption
by the Senior Citizens Center, shall be treated as an ordinary and necessary expenses
deductible from the gross income of the seller falling under the category of itemized
deductions, and can only be claimed ​if the seller does not opt for the Optional Standard
Deduction during the taxable quarter/year.​ ​(xxx)
SEC. 8​. ​Availment of Income Tax Exemption of Senior Citizens. — A Senior
Citizen who is a minimum wage earner, or whose taxable income during the year does
not exceed his personal exemptions, will be exempt from income tax upon compliance
with the following requirements:
1. A Senior Citizen must first be qualified as such by the Commissioner of
Internal Revenue or his duly authorized representative (i.e., the Revenue
District Officer (RDO) having jurisdiction over the place where the Senior
Citizen resides), by submitting a certified true copy of his Senior Citizen
Identification Card (OSCA ID) issued by the OSCA of the city or municipality
where he resides;
2. He must file a Sworn Statement on or before January 31 of every year that his
annual taxable income for the previous year does not exceed the poverty level
as determined by the NEDA thru the NSCB; and
3. If qualified, his name shall be recorded by the RDO in the Master List of
Tax-Exempt Senior Citizens for that particular year, which the RDO is
mandatorily required to keep.
However, a Senior Citizen who is a compensation income earner deriving from
only one employer an annual taxable income exceeding the poverty level or the
amount determined by the NEDA thru the NSCB on a particular year, but whose
income had been subjected to the withholding tax on compensation, shall, although
not exempt from income tax, be entitled to the substituted filing of income tax
return under Revenue Regulations No. 2-98, as amended.
SEC. 9​. ​Liability for Other Internal Revenue Taxes. ​— A Senior Citizen shall also
be subject to the following internal revenue taxes, among others, imposed under the
Tax Code:
1. Value Added Tax (VAT) or other Percentages Taxes, as the case may be. If he
is self-employed or engaged in business or practice of profession, and his gross
annual sales and/or receipts exceeds P1,500,000 or such amount to which this
may be adjusted pursuant to Sec. 109(1)(V) of the Tax Code, he shall be
subject to VAT. Otherwise, he shall be subject to the 3% percentage tax;
2. Donor's Tax – All donations made by a Senior Citizen during any calendar
year, unless exempt under a specific provision of law, shall be subject to the
donor’s tax imposed under Title III of the Tax Code;
3. Estate Tax – In the event of death, the estate of the Senior Citizen may also be
subject to the estate tax following the rules enunciated under Title III of the
Tax Code and its implementing Regulations;
4. Excise Tax on certain goods; and
5. Documentary Stamp Tax.
SEC. 10. Exemption from VAT of the sale to Senior Citizens.-
Sales of any goods and services under Sections 4 and 5 of these Regulations to Senior
Citizens shall be ​exempt from the value-added tax​. (xxx) The exemption herein
granted will not cover other indirect taxes that may be passed on by the seller to a
Senior Citizen buyer, such as percentage tax, excise tax, etc. In such a case, the
discount must be on the total cost of the goods or services charged by the seller
exclusive of the tax.
If the offender is a corporation, organization or any similar entity, the official/s thereof
directly involved shall be liable therefore.
Upon filing an appropriate complaint, and after due notice and hearing, the proper
authorities may also cause the ​cancellation or revocation of the business permit​,
permit to operate, franchise and other similar privileges granted to any business entity
that fails to abide by the provisions of the Act and its IRR and these Regulations.

SEC​. ​11. Personal Exemptions of ​Benefactors of Senior Citizens​. — ​[Repealed in

TRAIN law]

SEC. 12. ​Additional Deduction from Gross Income of Private Establishments for
Compensation Paid to Senior Citizens. — Private establishments employing Senior
Citizens shall be entitled to ​additional deduction from their gross income equivalent
to fifteen percent (15%) of the total amount paid as salaries and wages to Senior
Citizens subject to the provision of Section 34 of the Tax Code and its implementing
rules and regulations provided the following conditions are met:
1. The employment shall have to ​continue for a period of at least six (6) months​;
2. The annual taxable income of the Senior Citizen does not exceed the poverty
level as may be determined by the NEDA thru the NSCB. For this purpose, the
Senior Citizen shall submit to his employer a sworn certification that his
annual taxable income does not exceed the poverty level.

SEC. 13​. ​Penalties and Other Sanctions. — Any person who violates any provision
of these Regulations shall suffer the penalties provided in the Tax Code. Furthermore,
any person who violates any provision of the Implementing Rules and Regulations of
the Act shall suffer the following penalties:

1. For the first violation, a fine of P50,000.00-P100,000.00 and imprisonment of

2-6 years; and
2. For any subsequent violation, a fine of P100,000-P200,000 and imprisonment
for 2-6 years.

Any person who abuses the privileges granted herein shall be punished with a fine of
P50,000.00-P100,000.00, and imprisonment of not less than six (6) months.

If the offender is an alien or a foreigner, he shall be deported immediately ​after

service of sentence without further deportation proceedings.

 
 105. REVENUE REGULATIONS NO. 1-2011 (RHALD)
February 24, 2011 | Tax Treatment for OCWs
SUBJECT: TAX TREATMENT OF INCOME EARNINGS AND MONEY
REMITTANCES OF AN OVERSEAS CONTRACT WORKER (OCW) OR
OVERSEAS FILIPINO WORKER (OFW)
SUMMARY:
REVENUE REGULATIONS NO. 1-2011 issued on February 24, 2011 defines the
tax treatment of income earnings and money remittances of an Overseas Contract
Worker (OCW) or Overseas Filipino Worker (OFW).
An OCW or OFW's income arising out of his overseas employment is exempt from
Income Tax. However, if an OCW or OFW has income earnings from business
activities or properties within the Philippines, such income earnings are subject to
Philippine Income Tax as follows:
a. For Regular Income [Section 24 (A)]:
i. Tax Rate of 5 -32% of taxable income
b. For Passive Income [Section 24(B)]:
i. 20% Final Tax on Interest Income from any currency bank deposit and
yield or any monetary benefit from deposit substitutes and from trust funds
and similar arrangements;
ii. 20% Final Tax on any royalties;
iii. 10% Final Tax on any royalty related on books, as well as literary works
and musical compositions;
iv. 20% Final Tax on prizes (except prizes amounting to P 10,000 or less
which shall be subject to regular Income Tax rate of 5 -32%) and other
winnings (except Philippine Charity Sweepstakes and Lotto Winnings);
v. Exemption from 7.5% Final Tax on interest income from a depository bank
under the expanded foreign currency deposit system upon presentation of
proof of non-residency such as Overseas Employment Certificate (OEC) or
Seaman's Book. However, if the account is jointly in the name of the
overseas contract worker or a Filipino seaman, and an individual (spouse or
dependent) who is living in the Philippines, 50% of the interest income
from such bank deposit will be treated as exempt while the other 50% shall
be subject to a Final Withholding Tax of 7.5%;
vi. 10% Final Tax on cash or property dividends
vii. 5%/10% Final Tax on net capital gains realized on sale, barter, exchange or
other disposition of shares of stock in a domestic corporation (except shares
sold or disposed of through the stock exchange);
viii. 6% Final Tax on capital gains from the sale, exchange or other disposition
of real property located in the Philippines classified as capital assets based
on gross selling price or current fair market value, whichever is higher; and
ix. 5%/12%/20% Final Tax on interest income from long-term deposits or
investment in the form of savings, common or individual trust funds,
deposit substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas, which was pre-terminated by the holder before the 5th year.
An OCW or OFW may be subjected to 12% Value-Added Tax (VAT) if in the
course of his trade or business, he sells, barters exchanges, leases goods or
properties, renders services in the Philippines or imports goods into the Philippines
pursuant to Sections 106 to 108 of the National Internal Revenue Code of 1997, as
amended. However, if his gross annual sales and/or receipts do not exceed the
amount of P 1,500,000 and he opted not to register as a VAT taxpayer, he shall be
liable to pay instead 3% Percentage Tax of his gross quarterly sales or receipts.
All migrant workers shall be exempt from the payment of travel tax and airport-fee
upon proper showing of valid proof entitlement (i.e. OEC) issued by the POEA.
The remittances of all OCWs or OFWs, upon showing of the OEC or valid
Overseas Workers Welfare Administration (OWWA) Membership Certificate by the
OCW or OFW beneficiary or recipient, shall be exempt from the payment of
Documentary Stamp Tax (DST).
In case of OCWs or OFWs whose remittances are sent through the banking system,
credited to beneficiaries or recipient's account in the Philippines and withdrawn
through an automatic teller machine (ATM), it shall be the responsibility of the
OCW or OFW to show the valid proof of entitlement when making arrangement for
his/her remittance transfers. A proof of entitlement that is no longer valid shall not
entitle an OCW or OFW to any DST exemption.
Section 1. Objective
These Revenue Regulations are issued to clarify who are considered as OCW or OFW
for taxation purposes and to define the tax treatment of their income earned within and
without the Philippines of such persons considered as an OCW or OFW.
Section 2. Definition of an OCW
OCW refer to Filipino citizens employed in foreign countries, commonly referred to as
OFWs, who are physically present in a foreign country as a consequence of their
employment thereat. Their salaries and wages are paid by an employer abroad and is
not borne by any entity or person in the Philippines. To be considered as an OCW or
OFW, they must be duly registered as such with the Philippine Overseas Employment
Administration (POEA) with a valid Overseas Employment Certificate (OEC).
Seafarers or seamen are Filipino citizens who receive compensation for services
rendered abroad as a member of the complement of a vessel engaged exclusively in
international trade. To be considered as an OCW or OFW they must be duly registered
as such with the Philippine Overseas Employment Administration (POEA) with a valid
Overseas Employment Certificate (OEC) with a valid Seafarers Identification Record
Book (SIRB) or Seaman's Book issued by the Maritime Industry Authority
(MARINA).

Section 3. Tax Treatment
A) Income Taxes:
Section 23 (C) of the National Internal Revenue Code of 1997, as amended states that
an individual citizen of the Philippines who is working and deriving income from
abroad as an overseas contract worker is taxable only on income from sources within
the Philippines: Provided, That a seaman who is a citizen of the Philippines and who
receives compensation for services rendered abroad as a member of the complement of
a vessel engaged exclusively in international trade shall be treated as an overseas
contract worker. Thus, an OCW or OFW's income arising out of his overseas
employment is exempt from income tax.
However, if an OCW or OFW has income earnings from business activities or
properties within the Philippines, such income earnings are subject to Philippine
income tax as follows:
a. For Regular Income [Section 24 (A)]:
i. Tax Rate of 5 -32% of taxable income
b. For Passive Income [Section 24(B)]:
i. 20% Final Tax on Interest Income from any currency bank deposit and yield
or any monetary benefit from deposit substitutes and from trust funds and
similar arrangements;
ii. 20% Final Tax on any royalties;
iii. 10% Final Tax on any royalty related on books, as well as literary works
and musical compositions;
iv. 20% Final Tax on prizes (except prizes amounting to P10,000 or less which
shall be subject to regular income tax rate of 5 -32%) and other winnings
(except Philippine Charity Sweepstakes and Lotto Winnings);
v. Exemption from 7.5% Final Tax on Interest Income from a depository bank
under the expanded foreign currency deposit system upon presentation of
proof of non-residency such as OEC or Seaman's Book. However, If the
account is jointly in the name of the overseas contract worker or a Filipino
seaman, and an individual (spouse or dependent) who is living in the
Philippines, fifty percent (50%) of the interest income from such bank
deposit will be treated as exempt while the other fifty percent (50%) shall
be subject to a final withholding tax of seven and one-half percent (7.5%);
vi. 10% Final Tax on cash or property dividends
vii. 5% / 10% Final Tax on net capital gains realized on sale, barter, exchange
or other disposition of shares of stock in a domestic corporation (except
shares sold or disposed of through the stock exchange);
viii. 6% Final Tax on capital gains from the sale, exchange or other disposition
of real property located in the Philippines classified as capital assets based
on gross selling price or current fair market value whichever is higher;
ix. 5% / 12% / 20% Final Tax on interest income from long term deposits or
investment in the form of savings, common or individual trust funds,
deposit substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas which was pre-terminated by the holder before the fifth (5th) year.
B) Business Taxes:
An OCW or OFW may be subjected to 12% Value Added Tax (VAT) if in the course
of his trade or business, he sells, barters exchanges, leases goods or properties, renders
services in the Philippines or imports goods into the Philippines pursuant to Sections
106 to 108 of the National Internal Revenue Code of 1997, as amended. However, if
gross annual sales and/or receipts do not exceed the amount of one million five
hundred thousand pesos (P1,500,000) and he opted not to register as a VAT taxpayer,
he shall be liable to pay instead 3% percentage tax of his gross quarterly sales or
receipts.
C) Other Taxes and Fees:
Section 35 of Republic Act No. 8042 otherwise known as the "Migrant Workers and
Overseas Filipinos Act of 1995," as amended by Sec 22 of Republic Act No. 10022,
provides that all migrant workers shall be exempt from the payment of travel tax and
airport-fee upon proper showing of proof entitlement (i.e. Overseas Employment
Certificate [OEC]) issued by the POEA.
The remittances of all OCWs or OFWs, upon showing of the OEC or valid Overseas
Workers Welfare Administration (OWWA) Membership Certificate by the OCWs or
OFW beneficiary or recipient, shall be exempt from the payment of documentary
stamp tax (DST) as imposed under Section 181 of the National Internal Revenue Code
of 1997, as amended. For this purpose, in addition to the original copy, a duplicate
copy or a certified true copy of the valid proof of entitlement referred to above shall be
secured by the OCW or OFW from the POEA or OWWA, which shall be held and
used by his/her beneficiary in the availment of the DST exemption.
In case of OCWs or OFWs whose remittances are sent through the banking system,
credited to beneficiaries or recipient's account in the Philippines and withdrawn
through an automatic teller machine (ATM), it shall be the responsibility of the OCW
or OFW to show the valid proof of entitlement when making arrangement that for
his/her remittance transfers.

A proof of entitlement that is no longer valid shall not entitle an OCW or OFW to any
DST tax exemption.

Section 4. Effectivity Clause

This Revenue Regulations shall take effect immediately.

 
 106. Revenue Memorandum Circular No. 031-13 (Mika)
April 12, 2013 | VI. Individuals- OCWs/Senior Citizens/Disabled/ Employees of
Foreign Governments
SUMMARY​: This RMC prescribes the guidelines on the taxation of compensation
of Philippine nationals and alien individuals employed by foreign
governments/embassies/diplomatic missions and international organizations situated
in the Philippines.
It is noted that most international agreements which grant withholding tax immunity
to foreign governments/embassies/diplomatic missions and international
organizations also provide exemption to their officials and employees who are
foreign nationals and/or non-Philippine residents from paying income taxes on their
salaries and other emoluments.
It bears to emphasize that ​the exemption should only cover those individuals who
were expressly and unequivocally identified in said international agreements or
laws. Those not covered shall be subject to the general rule on taxability of
Philippine nationals and alien individuals.
Thus with respect to those not exempted by the provisions of applicable
international agreements or laws, although their compensation income is
exempt from withholding tax under the international agreements or the
Withholding Tax Regulations, they are not relieved of their duty to report their
compensation income to the Bureau and pay the taxes due thereon pursuant to
Section 24 of the National Internal Revenue Code of 1997, as amended ("Tax
Code").
The tax treatment of the following Philippine Nationals and alien individuals on
compensation income received by them from foreign governments/embassies and
missions and organization are specified in the circular:
1. Those employed by foreign embassies/diplomatic missions
2. Those employed by aid agencies of foreign governments (i.e. JICA,
AUSAID, etc.)
3. Those employed by the United Nations and its specialized agencies (i.e.
IMF, WHO, etc.)
4. Those employed by organizations covered by separate international
agreements or specific provisions of law (i.e. ABD, IRRI, etc.)
5. Employees of other aid agencies or international organizations
FACTS:
1. Sec. 1 Background:​ Foreign governments/embassies/diplomatic missions and
international organizations situated in the Philippines acting as employers
enjoy immunity from collecting taxes on salaries and emoluments of their
employees, whether they are foreigners or Philippine nationals. This immunity
from being constituted as withholding agents of the Philippine Government is
accorded to these entities ​on the basis of international comity as embodied in
several international agreements.
2. In recognition of this immunity, the Withholding Tax Regulations (Revenue
Regulations No. 2-98, as amended), ​clearly reiterate the exemption from the
withholding tax system of the remunerations being paid by foreign
governments and international organizations to their employees who are
residents or nationals of the Philippines.​ 2
3. To clarify, the exemption from withholding taxes on the compensation of
officials and employees applies to foreign governments/embassies/diplomatic
missions and international organizations. Since the withholding of tax is
merely a method of tax collection, the exemption from withholding taxes does
not equate to the exemption from paying the income tax itself.
4. As an exemption to the general rule, it is noted that most international
agreements which grant withholding tax immunity to foreign
governments/embassies/diplomatic missions and international organizations
also provide exemption to their officials and employees who are foreign
nationals and/or non-Philippine residents from paying income taxes on their
salaries and other emoluments.
5. It bears to emphasize that ​the exemption should only cover those
individuals who were expressly and unequivocally identified in said
international agreements or laws. Those not covered shall be subject to
the general rule on taxability of Philippine nationals and alien
individuals.
6. Thus with respect to those not exempted by the provisions of applicable
international agreements or laws, although their compensation income is
exempt from withholding tax under the international agreements or the
Withholding Tax Regulations, they are not relieved of their duty to report
their compensation income to the Bureau and pay the taxes due thereon
pursuant to Section 24 of the National Internal Revenue Code of 1997, as
amended ("Tax Code").
7. This Circular is being issued to evoke compliance by Philippine nationals and
individual aliens who are liable to Philippine income tax under the provisions
2
​Sec. 2.78.1. Withholding of Income Tax on Compensation Income. — Exemptions from withholding tax
on compensation. — The following ​income payments are exempted from the requirement of withholding tax
on compensation​:
xxx xxx xxx
(5) Compensation for services by a citizen or resident of the Philippines for a foreign government or an
international organization. — ​Remuneration paid for services performed as an employee of a foreign
government or an international organization is exempted​. The exemption includes not only remuneration paid
for services performed by ambassadors, ministers and other diplomatic officers and employees but also
remuneration paid for services performed as consular or other officer or employee of a foreign government or
as a non-diplomatic representative of such government."
 of the Tax Code and who were not given exemption under the terms of duly
recognized international agreements or other Philippine laws.
8. Sec. 2 Tax Treatment of Compensation Income. The tax treatment of
Philippine nationals and alien individuals on compensation income received
by them from foreign governments/embassies and missions and international
organizations shall be as follows: (this section is really long, but it talks about
the people/employees of the specified agencies, embassies and organizations
who are exempt from PH income tax based on the agreements with the PH
and other countries or organizations. I don't think sir will ask who are exempt
pero sobrang dami if I put it all here, if you want a copy of the RMC I can
send you one :D).
9. (Digest version of Sec. 2) The tax treatment of the following Philippine
Nationals and alien individuals on compensation income received by them
from foreign governments/embassies and missions and organization are
specified in the circular
1. Those employed by foreign embassies/diplomatic missions
2. Those employed by aid agencies of foreign governments (i.e. JICA,
AUSAID, etc.)
3. Those employed by the United Nations and its specialized agencies
(i.e. IMF, WHO, etc.)
4. Those employed by organizations covered by separate international
agreements or specific provisions of law (i.e. ABD, IRRI, etc.)
5. Employees of other aid agencies or international organizations
10. Sec. 3 Filing of Income Tax Returns and Declaration of Compensation
Income. Philippine nationals and alien individuals who were not granted tax
exemption or immunities under duly recognized international agreements or
local laws shall file their annual income tax returns on or before the 15th day
of April each year declaring therein the amount of their respective
compensation income for the preceding taxable year for services rendered or
performed for such foreign government embassy/diplomatic mission, agency
or international organization.
11. Sec. 4​: failure to file annual income tax is a violation of Sec. 254 and 255 of
the Tax Code of 1997.
12. Sec. 5 Confirmation of Tax Exemption: Philippine nationals claiming
exemption from income tax under the terms and provisions of international
agreements or under laws granting privileges to employees of international
organizations shall le an application for confirmation of tax exemption with
the International Tax Affairs Division (ITAD) of the Bureau of Internal
Revenue.

 
 107. RR 17-2011 (Isa)
October 27, 2011 | Individuals- Personal and additional exemptions/PERA
SUMMARY​:
Republic Act No. 9505, otherwise known as the “Personal Equity and
Retirement Account (PERA) Act of 2008”, establishes the legal and regulatory
framework of retirement plans for persons, comprised of voluntary personal
savings and investments while providing various tax incentives and privileges.
Under the law, individuals are allowed to set up their own PERA which shall
enjoy certain tax incentives.
The Bureau issued Revenue Regulations (RR) No. 17-2011 on October 27, 2011
to clarify the implementation of the tax provisions of the PERA Act of 2008. RR
17-2011 provides uniform guidelines in the administration of tax privileges and
incentives providing rules on qualification and accreditation of Administrators.
Section 7(A) of RR 17-2011, “provides that a qualified PERA contributor is
entitled to a tax credit equivalent to five percent (5%) of the aggregate qualified
PERA contributions made in one calendar year. Each qualified PERA
contributor shall be issued a Certificate of Entitlement to 5% tax credit or PERA
Tax Credit Certificate, as the case may be. The entitlement to the 5% tax credit
for an employee or one who is self-employed shall be allowed to be credited
only against the contributor’s income tax liability; while in the case of overseas
Filipinos, he/she shall be entitled to claim the 5% tax credit against any national
internal revenue tax liabilities (excluding the contributor’s withholding tax
liabilities as withholding agent).
Take note of the definition for administrator and contributor. Also take note of
the following sections: 3, 6, 7 , 8, 9, 10.
RELEVANT SECTIONS:
Section 2: Definition of Terms ​(did not include everything)
Administrator ​- entity prequalified by the concerned Regulatory Authority in
accordance with the PERA rules and accredited by the BIR in accordance with these
regulations. He shall be responsible for administering and overseeing the PERA of the
contributor.
Contributor ​– A natural person who :
● Establishes and contributes to a PERA
● Has a Tax Identification Number (TIN)
● Has the capacity to contract Even if the person is over 55 years of age, he may
still be a qualified contributor.
Early Withdrawal ​– A withdrawal of PERA assets in full or in part, in such a way as
to make the receipt of such PERA assets not a Qualified PERA Distribution. An ​Early
Withdrawal Penalty ​may be imposed.
Overseas Filipino
● An individual citizen of the Philippines working or deriving income from
abroad.
● An individual who retained or reacquired his Philippine Citizenship under RA
9225 and is working or deriving income from abroad.
● The Overseas Filipino’s legitimate spouse, whether or not the latter is of
Filipino ancestry, who does not qualify either under 1 or 2 above and whose
spouse does not avail of the benefits of the PERA act.
• The legitimate children of the overseas Filipino who do not qualify under 1 or 2,
and is joining his parent in representing the spouse OFW opening a PERA
account. Those under 1 and 4 must meet the qualifications of a contributor.
PERA Assets ​– the aggregate assets of the Contributor in his PERA at any one time,
including the cash funds and the Qualified or eligible PERA investment products into
which the funds of the PERA are invested and reinvested and all the income earned
therefrom.
PERA TCC ​– BIR-issued tax credit certificate, serving as entitlement by a qualified to
the 5% tax credit for PERA related transactions.
PERA ​- Contributor’s voluntary retirement account established from Qualified PERA
contributions and or employer contributions to be invested solely in qualified PERA
investment products.
Qualified Employer’s Contribution ​– contribution made by the employer from the
private sector to the PERA established by his or its employee, which together with the
contribution of the employee, if any, shall not exceed the employee’s qualified PERA
contribution.
Qualified PERA Contributions ​– contributions of the Contributor to his PERA, not
exceeding P100,000 per calendar year (if not an OFW) or P200,000 (If OFW or in
representation of one) subject to future adjustments which may be made using the
Consumer Price Index and other factors.
Qualified PERA Distribution ​– distribution of PERA Assets, after the contributor
or employer has made qualified PERA contributions or qualified employer’s
contributions for at least 5 years (no need to be consecutive years) and after the
contributor has reached the age of 55 or upon the death of the contributor, irrespective
of the age of the contributor and the number of yearly contributions made at time of
death.
Qualified PERA Investment Income ​– all income earned by the PERA assets.
Qualified/ Eligible PERA Investment Products ​– duly approved by the concerned
Regulatory Authority which can be the ff:
1. A unit investment trust fund
2. Share of stock of mutual fund
3. Annuity contract
4. Insurance pension product
5. Pre-need pension plan
6. Shares of stock or other securities listed and traded in the local stock
exchange
7. Exchange – trade bond
8. Government securities
9. Any other category of investment product or outlet which the concerned
regulatory authority may allow for PERA purposes.
Section 3: Accreditation of Administrator ​
Qualifications of an Administrator
• Possesses adequate systems and technological capabilities and the necessary
technical expertise and personnel to ensure the proper recording of PERA
transactions
• Duly registered with the BIR
• Had regularly filed tax returns
• No unpaid final and executory national internal revenue tax assessment
Documentary requirements – file an application for accreditation with the PERA
processing office, and also pay fee of P500. This shall be accompanied by the
following documents as required by the regulatory authority:
● Qualification Certificate issued by the concerned Regulatory Authority;
● Copy of the current Certificate of BIR Registration;
● Clearance from RDO that taxpayer is a regular filer and has no unfiled return
on record; and
● Clearance from final and executory tax liability from the BIR.
Section 4: Establishment of a PERA
Must comply with following requirements:
● The Contributor’s PERA must not exceed 5 at any one time.
● The maximum total of all contributor’s PERA should not exceed the amount
stated in Sec. 6.
● The Contributor shall designate and maintain only 1 administrator for all his
PERA.
● Each PERA shall be confined to one category of investment product.
● Submission of proof of income earnings for the year or to be earned for the
year when the PERA contribution was made.
• If an OFW, the following documents shall also be submitted:
1. For a non-resident citizen working or deriving income abroad:
- Overseas Employment Certificate issued by the POEA
- Any official document showing that he will earn or has earned income
in a foreign country in the year of the PERA contribution
2. For an individual who retained or reacquired his Philippine citizenship under
RA 9225:
- Identification Certificate issued by the Bureau of Immigration to
prove reacquisition of citizenship
- Official document showing that he will earn or has erned income in a
foreign country in the year of the PERA contribution
3. For the legitimate spouse, with the consent of that in 1 or 2:
- Marriage certificate
- Sworn certification that he is opening a PERA for and in behalf of his
spouse who has not availed of the benefits of the PERA Act
- Other supporting documents
4. For the child, with the consent of that in 1 or 2:
- Birth certificate
- Sworn certification that he is opening a PERA for and in behalf of his
parent or the spouse of that in 1 or 2, who has not availed of the benefits
of PERA c. Other supporting documents
Section 5: Annual and Quarterly Reporting of PERA transactions
The administrator shall ensure that the contributors are under their exclusive Married Overseas Filipino whose legitimate Php200,000.00 for the
administration through an online validation with the PERA contributor’s database to be children are not Overseas Filipinos and are Overseas Filipino
established by the BSP. not qualified Contributors

The administrator shall record all the PERA contributions and related transactions *Or its equivalent in any convertible foreign currency at the prevailing rate at the time
under his administration in a separate set of books of accounts, the income earned by of actual contribution.
the assets and the withdrawals made by the contributor, or termination of the PERA. ● If the contributor is an Overseas Filipino, he/she shall submit to the
Each shall be supported by documentary proof which shall be kept by the administrator Administrator a sworn certification of his continuing status as an Overseas
as part of the books of accounts. These are required to be retained subject to validation Filipino for the year. Any false or misleading statement in such sworn
or submission to the BIR upon request. certification shall subject the affiant to the penalties.
● Contributions to the PERA amounting to more than Php100,000.00 or
A quarterly report of the transactions shall be submitted by the administrator not later Php200,000.00, as the case may be, shall not be accepted by the Administrator
than the 15th day following the close of every quarter. An annual report shall also be under the PERA Account. However, they may be accepted by the
submitted to the PERA processing office on or before May 15 of every year. Administrator as other Savings/Investment Account after appropriate advice
Section 6: Maximum Annual PERA Contributions given to Contributor but shall not be entitled to any benefit under the PERA
Without limiting the scope and coverage of the term “Qualified PERA Contributions,” Act.
the aggregate maximum Qualified PERA Contributions in one calendar year, for
purposes of illustration, shall be as follows:
Section 7: PERA Contributions and Tax Credit
Contributor Maximum Qualified PERA A. Contibutor’s Qualified PERA Contribution
Contribution in Peso* A Qualified Contributor shall be entitled to a tax credit in the amount of 5% of the
Unmarried Filipino Citizen Php100,000.00 aggregate Qualified PERA Contributions made in one calendar year. An employee
qualified contributor shall be issued a Certificate of Entitlement to 5% tax credit while
Married Filipino Citizen and both spouses Php100,000.00 for each
a self-employed shall be issued a PERA TCC by the Bureau. The entitlement to 5% tax
qualify as a Contributor qualified contributor
credit for an employee or one who is self-employed shall be allowed to be credited
Married Filipino Citizen and only one Php100,000.00 only against the Contributor’s Income Tax liability. However, if the Contributor is an
spouse qualifies as a Contributor Overseas Filipino, he shall be entitled to claim the 5% tax credit against any national
Unmarried Overseas Filipino Php200,000.00 internal revenue tax liabilities (excluding the Contributor’s withholding tax liabilities
Married Overseas Filipino whose legitimate Php200,000.00 as withholding agent). Provided, that in no instance can there be any refund of the said
spouse is neither an Overseas Filipino nor a tax credit arising from the PERA contributions.
qualified Contributor
B. Qualified Employer’s Contribution to the Employee’s PERA
Married Overseas Filipino whose legitimate Php200,000.00, cumulative for The Qualified Employer’s Contribution to his/its employee’s PERA shall be in addition
spouse and children (not otherwise the spouse and children in to, and not in lieu of, the employer’s contribution to the Social Security System (SSS)
disqualified as contributors) of an Overseas representation of the Overseas and its obligation to pay retirement benefits to his/its employees under the Labor Code.
Filipino who did not directly open any Filipino The total of the employer’s and the employee’s contribution to his PERA and all the
PERA benefits, including tax incentives and privileges arising therefrom, shall all belong to
Married Overseas Filipino whose legitimate P200,000.00 for each qualified the employee and shall not, in anyway, inure to the benefit of the employer. The
employer shall not be entitled to any 5% credit from its contribution to an employee's
spouse is also an Overseas Filipino contributor
PERA. The employee also retains the prerogative to make investment decisions
pertaining to his PERA, including the contribution made in his favor by the employer.

 
The Qualified Employer’s Contribution to his/its employee’s PERA shall not form part
of the employee’s taxable gross income, hence, exempted from the withholding tax on
income, whether withholding tax on compensation or fringe benefits. The employer
can claim the actual amount of his/its Qualified Employer’s Contribution as a
deduction from his/its gross income, but only to the extent of the employer’s
contribution that would complete the maximum allowable PERA contribution of an
employee. The Qualified Employer’s Contribution allowable as deduction shall
likewise be exempt from withholding tax on compensation, the provisions of Section
34(K) of the Tax Code notwithstanding. For this purpose, the Administrator shall issue
to the employer a certificate of the actual amount of Qualified Employer’s
Contributions.
C. Employee’s Qualified PERA Contributions
In cases where an employee makes a Qualified PERA Contribution (apart from his
employer’s Qualified Employer’s Contribution), the Administrator shall submit a
Certification of the actual total amount of such Qualified PERA Contribution to the
BIR within 45 days from the close of the calendar year. The PERA Processing Office,
on the other hand, shall issue a confirmation of an employee's entitlement to 5% tax
credit of the Qualified PERA Contribution to be issued to his employer which shall
serve as authority for the employer to automatically adjust the withholding tax on the
employee’s compensation income. For these purpose, the employer must secure his
own employee’s PERA tax credit entitlement from the PERA Processing Office. For
the avoidance of doubt, the amount which the Administrator shall certify on shall,
together with the aggregate amount of the Qualified Employer’s Contribution, not
exceed such employee’s Qualified PERA Contribution.
Section 8: PERA Tax Credits Certificate (TCC)
The PERA-TCC may be issued only to a qualified Overseas Filipino and self-employed
contributor. An Application for the PERA-TCC shall be filed with the PERA
Processing Office not later than 90 days following the end of the calendar year. The tax
credit arising from the PERA Contributions shall not be refundable or transferable.
Section 9: Tax Treatment of the PERA Investment Income
Investment income of the Contributor consisting of all income earned from the
investments and reinvestments of his PERA Assets in the maximum amount allowed
herein shall be exempt from the following taxes as may be applicable:
a) The Final Withholding Tax on interest from any currency bank deposit, yield or
any other monetary benefit from deposit substitutes and from trust funds and
similar arrangements, including a depository bank under the expanded foreign
currency deposit system;
b)The Capital Gains Tax on the sale, exchange, retirement or maturity of bonds,
debentures or other certificates of indebtedness;
c) The 10% tax on cash and/or property dividends actually or constructively received
from a domestic corporation, including a mutual fund company;
d)The Capital Gains Tax on the sale, barter, exchange or other disposition of shares
of stock in a domestic corporation;
e) Regular Income Tax.
Provided, that each specific investment products must be approved by the concerned
Regulatory Authority in accordance with the provisions of PERA before its income or
distribution can be granted tax incentives and privileges herein provided. Provided,
further, that non-income taxes, if applicable, relating to the above investment income
of the PERA Account of a Contributor, shall remain imposable, including the
following:
a) Percentage Taxes on persons exempt from Value-Added Tax, domestic carriers
and keepers of garages, international carriers, franchise holders, overseas dispatch,
message or conversation originating from the Philippines, banks and non-bank
financial intermediaries performing quasi-banking functions, other non-bank
finance intermediaries, life insurance premiums, agents of foreign insurance
companies, amusement, and winnings;
b)Value-Added Tax;
c) Stock transaction tax on the sale, barter, or exchange of shares of stock listed and
traded through the local stock exchange or through initial public offering; and
d)Documentary Stamp Tax.
Section 10: PERA Distributions and Early Withdrawals
Qualified PERA distributions received by the contributor or by his heirs or
beneficiaries upon his death, shall be excluded from the gross income and shall not be
subject to income tax. When with the heirs/ beneficiaries, it shall also be excluded from
the gross income and shall not be subject to estate tax.
Early withdrawal
The following shall not be subject to the early withdrawal penalty:
1. Immediate transfer of proceeds of another qualified/
eligible PERA investment product or another administrator who has been disaccredited
within 2 working days from the withdrawal.
2. For payment of accident/ illness-related hospitalization in excess of 30 days, in
which case a duly notarized doctor’s certificate shall be attached to the notice of
termination/ withdrawal/ transfer.
3. For payment to a contributor who has been subsequently rendered permanently
totally disabled in which case a certification by a pertinent government agency shall be
attached.
 • Failed to maintain the qualifications or requirements for accreditation, or failed to
If not falling under the exceptions, the contributor shall pay the following penalties in comply.
case of an early withdrawal: • Any of directors or officers convicted by a competent body of an offense involving
1. 5% tax credit availed of for the entire period of the PERA fraud, embezzlement, counterfeiting, theft, estafa, misappropriation, forgery,
2. Withholding tax on compensation or final withholding tax on fringe benefits due on bribery, false oath, perjury, or violated securities, commodities, banking, real
the employer’s contribution estate or insurance laws.
3. Income tax due on all income from investment and or reinvestment • Enjoined or restrained by a competent body from engaging in securities,
4. Final withholding tax on interest form any currency bank deposit, yield or any other commodities, banking or real estate and insurance laws.
monetary benefit form deposit substitutes and from trust funds and similar • Subject to an order of a competent body refusing, revoking or suspending any
arrangements including a depositary bank license or permit under the PERA act or rules or law or order of the BIR.
5. 10% final tax on cash or property dividends received from a domestic corporation
including a mutual fund company Effectivity: January 1, 2012
6. Capital gains tax on sale, barter, exchange, or other disposition of shares of stock in
a domestic corporation
7. Stock transaction tax on sale, barter or exchange of shares of stock listed and traded
through the local stock exchange or initial public offering
8. Capital gains tax on sale, exchange, retirement or maturity of bonds, debentures or
other certificates of indebtedness
9. Regular income tax

The administrator shall submit a quarterly report of the termination or withdrawal to

the processing office, within 60 days following the end of the quarter of the date of
termination or withdrawal.
Tax on early withdrawal shall be reckoned form the date the benefit accrues to the
contributor. Unless it is proven that he was not able to claim such credit, it may be
presumed that he availed of it.

Section 13: Grounds for Disqualification, Suspension or Revocation of

Accreditation of Administrator
An administrator’s accreditation may be refused, revoked, suspended or limitations
placed by the BIR, if after due notice and hearing the BIR determines that the applicant
or licensee:
• Willfully violated any provision of the PERA act or its rules or any order or law
issued by the BIR, or has failed to supervise another person who commits such
violation with the intent to prevent such violation.
• Willfully made or caused to be made a materially false or misleading statement in
the application for prequalification or report filed with the BIR or willfully omitted
to state any material fact required to be stated or necessary to make the statement
not misleading.