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Taxation Law Bar Reviewer
Taxation Law Bar Reviewer
BAR REVIEWER
REVIEW COMMITTEE
Head: Yla Gloria Marie Paras;
Understudy: Ken Koga;
Members: Catherine Dela Rosa, Eric Lavadia, Le Iris Lucido,
Pearl Charisse Baustista; Mina Reyes
(4) Prohibition against taxation of religious, charitable (9) Non impairment of jurisdiction of the SC [Sec.
and educational entities/Exemption from real 5(2)(b), Art. VIII]
property taxes [Sec. 28 (3), Art. VI of the
Constitution] (10) Grant of power to the local government units to
Covers charitable institutions, churches, and create its own sources of revenue [Sec. 5, Art. X]
parsonages or convents appurtenant thereto,
mosques and non-profit cemeteries and all lands, (11) No appropriation or use of public money for
buildings and improvements ACTUALLY, DIRECTLY religious purposes [Sec. 29 (2), Art. VI]
and EXCLUSIVELY USED for charitable, religious and
educational purposes b. Provisions Indirectly Affecting Taxation
Pertains only to real estate tax (1) Due process [Sec. 1, Art. III]
Test of exemption: actual use of the property, not
ownership SUBSTANTIVE PROCEDURAL
Should not be harsh, No arbitrariness in
(5) Prohibition against taxation of non-stock, non- oppressive, or confiscatory assessment and collection
profit [educational] institutions [Sec. 4(3&4), Art. (reasonableness)
XIV] By authority of valid law Right to notice and hearing
Exempts from taxes all revenues and assets of non- Must be for a public purpose
stock, non-profit educational institutions used Imposed within territorial
ACTUALLY, DIRECTLY AND EXCLUSIVELY for jurisdiction
educational purposes
Exemption covers income, real estate, donor’s tax, It can also be invoked by the government. Province
and customs duties (distinguish from the previous of Abra v. Hernando, [G.R. No. L-49336 August 31,
which pertains only to real estate tax) 1981]
Income exempt provided it is used for
maintenance or improvement of institution (2) Equal protection [Sec. 1, Art. III]
(indispensable or essential). All persons subject to legislation shall be treated
The exemption is strictly personal. (non- alike, under like circumstances and conditions both
transferable) in privileges conferred and liabilities imposed.
Distinguish from tax treatment of Sison, Jr. v. Ancheta, [G.R. No. L-59431, 25 July
i. Proprietary educational institutions 1984]
(Preferential Tax of 10%);
ii. Government educational institutions (exempt,
ex. UP)
c. Mixed
4. As to purposes
a. General, fiscal or revenue - imposed for the
general purpose of supporting the government
Ex. Income tax, percentage tax
For example, if a taxpayer uses the proceeds received from INCOME TEST OF SOURCE OF INCOME
a property expropriated by the government to purchase Interests Residence of Debtor
another similar asset as replacement, then the excess of the Dividends a) From domestic corporation –
proceeds over the cost of the expropriated property will not income within
be considered taxable income. Any excess of the proceeds b) From foreign corporation:
over the replacement asset will be considered taxable gain. Income within if more than
50% of the gross income of
b. Concept of income from whatever source derived such foreign corp. for the 3-yr.
Income from whatever sources derived means inclusion period ending with the close
of all income not expressly exempted within the class of of the taxable year prior to
taxable income under the laws irrespective of the the declaration of dividends
voluntary or involuntary action of the taxpayer in (or for such part of such
producing the gains, and whether derived from legal or period as the corporation has
illegal sources. been in existence) was
derived from sources w/in the
TAXATION LAW REVIEWER Page 24 of 165
INCOME TEST OF SOURCE OF INCOME (d) Supply of any assistance that is ancillary &
Philippines subsidiary to, & is furnished as a means of enabling
the application or enjoyment of, any such
Extent: property/right in (a) above, such equipment in (b)
Phil GI x Dividend = Income above or knowledge/info in (c) above
within (e) Supply of services by a nonresident person/his
Total GI employees in connection with the use of
prop./rights belonging to, or the installation or
Income without, if less than operation of any brand, machinery or other
50% of the gross income of apparatus purchased from such nonresident
such foreign corp. for the 3-yr. person
period ending with the close (f) Technical advice, assistance or services rendered in
of the taxable year prior to connection with technical mgt./admin. of any
the declaration of dividends scientific, industrial or commercial undertaking,
was derived from sources venture or project
w/in the Philippines. (g) The use of or the right to use:
Therefore, nothing of such i. motion picture films
dividends forms part of ii. films or video tapes for use in connection with
income within TV
Services Place of performance of service iii. tapes for use in connection with radio
(Compensation for broadcasting
labor/personal
services) Most favored nation clause – Royalty income paid by a
Rentals Location of the property/interest domestic corporation to a non-resident foreign
in such property corporation which is a resident of a Contracting State
Royalties Place of use or location of with which the Philippines has an effective tax treaty is
intangibles (such as patents, generally subject to 15% final withholding tax, but the
trademarks, etc.) giving rise to rate may be reduced to 10% for certain royalty
royalties payments or under the most-favored-nation-clause of
Gain on sale of Real Location of property the tax treaty, such as the Philippines-US Tax Treaty.
property i. The purpose of the clause in a tax treaty is to grant
Gain on sale of Place of Sale to the other Contracting State a tax treatment that
personal property is no less favorable than that which is granted to
other than shares of the “most favored” among other countries.
stock in a domestic ii. It means each party to the treaty pledges that any
corporation tax concession given to any other treaty country
purchased in one will also be extended to the other party to the
country and sold in treaty; that is, it will not grant more favorable
another terms to other treaty countries without granting
Gain on sale of shares Philippines regardless of where the same concession to the treaty partner
of stock in a domestic sold involved.
corporation
(b) TAXABLE Income from Sources within the
NOTE: Philippines
ROYALTIES (from property or use of property located in General Rule:
Philippines), includes: Gross Income (within the Philippines)
(a) Use of/the right/privilege to use in the Philippines ( - ) Deductions (attributable to GI within)
any copyright, patent, design or model, plan, Taxable Income
secret formula or process, goodwill, trademark,
trade brand or other like property or right By “attributable” is meant that the expense can be
(b) Use of/the right to use in the Philippines any identified as the expense that generated the
industrial, commercial or scientific equipment income.
(c) Supply of scientific, technical, industrial or For instance, if ABC Corp. manufactures clothes
commercial knowledge or information and sells it in the Phils., and sells shoes in the US.
The cost of manufacturing the clothes are
TAXATION LAW REVIEWER Page 25 of 165
attributable to the income generated from selling v. Gains, profits & income from the sale of real
the clothes. Since the income from the sale of property located without the Philippines
clothes is income within, then the expense for
manufacturing them must be deducted from gross Tip: The foregoing enumeration is merely the
income within. However, the cost of selling the reverse of the enumeration of gross income from
shoes may not be deducted from income within sources within the Philippines. Hence, so long as
since it is not attributable to income within. you know which income are considered as
Rather, it is specifically attributable to income income within, all else are income without.
without.
(b) TAXABLE Income from Sources Without the
Deductions: Philippines
Expenses, losses & other deductions properly
allocated thereto and a ratable part of expenses, General Rule
interests, losses and other deductions effectively Gross Income (without the Philippines)
connected with the business conducted exclusively ( - ) Deductions (attributable to GI without
within the Philippines which cannot definitely be Taxable Income
allocated to some items or class of gross income
Deductions:
Such deductions shall be allowed only if fully Expenses, losses & other deductions properly
substantiated by all info necessary for its apportioned/ allocated thereto and a ratable part
calculation of expenses, interests, losses and other deductions
which cannot definitely be allocated to some items
Exceptions: or class of gross income
No deduction for interest paid/incurred abroad
shall be allowed unless: (3) Income partly within or partly without the
a. Indebtedness was actually incurred Philippines
b. Indebtedness must be that of the taxpayer
c. Interest must be legally due and stipulated in These are:
writing i. Income from services rendered partly within and
d. Interest must be paid or incurred during the partly without;
taxable year ii. Income from sale of personal property produced
e. Indebtedness must be in connection w/ the (in whole or in part) within and sold without the
conduct or operation of trade/business in the Philippines;
Philippines iii. Income from sale of personal property produced
(in whole or in part) without and sold within the
(2) Gross income and taxable income from sources Philippines.
without the Philippines
PERSONAL PROPERTY INCOME
(a) GROSS Income from sources without the Manufacturing Business
Philippines Produced here and sold without Income partly within,
partly without
i. Interests (other than those derived from sources Produced here and sold here Income within
within the Philippines) Produced abroad and sold here Income partly within,
ii. Dividends (other than those derived from sources partly without
within the Philippines) Trading Business
iii.Compensation for labor or personal services
Purchased without and sold Income within
performed without the Philippines
within
iv.Rentals or royalties from property located without
Purchased within and sold Income without
the Philippines or from any interest in such
without
property including rentals/royalties for the use
Purchased within and sold Income within
of or for the privilege of using w/o the
within
Philippines, patents, copyrights, secret processes
Taxpayer sells it abroad through Income partly within,
& formulas, goodwill, trademarks, trade brands,
a sales office partly without
franchises & other like properties
Amount of Capital Gain: Tax Rate General Rule: The address shown in the ITR
Not over Php100,000 5% is conclusively presumed as the principal
On any amount in excess of residence.
10%
Php100,000
Exception: If the taxpayer is not required to
Tax Base – net capital gains realized during file a return, certification from Barangay
the taxable year from the sale, barter, Chairman or Building Administrator shall
exchange or disposition of shares of stock suffice.
not listed and not traded in the stock
exchange. Requisites:
i. Sale or disposition of the old actual
principal residence
[3] Dealer in securities (Ordinary Income) ii. By a citizen or resident alien
iii. Proceeds of which is utilized in acquiring
The gain on this type of transaction shall be or constructing a new principal residence
considered as ordinary income subject to within 18 calendar months from date of
5%-32% for individuals and 30% for sale or disposition
corporations.
If advance payments are received for the (8) Prizes and Awards
faithful performance of certain Amount in cash or in kind received by chance or
obligations of the lessee, it is not subject through luck are generally taxable unless
to VAT. otherwise provided.
A security deposit that is applied to rental If the prizes are derived from sources within:
shall be subject to VAT at the time of its PCSO and
application P10,000 or More than
Taxpayer Lotto
less P10,000
Winnings
[3] Advance Payment/Long term lease RC, NRC, RA,
If the advance payment is a prepaid 5-32% 20% Exempt
NRA-ETB
rental without restriction as to use, the
NRA-NETB 25% 25% Exempt
entire amount is taxable in the year it is
Corporation 30% 30% Exempt
received.
If the prizes are derived from sources without – the
If the advance payment is a security
said amount is included in the gross income for
deposit which restricts the lessor as to its
taxpayers who are taxable within and without
use, such amount shall be taxable only at
the Philippines.
the time it is applied.
Prizes and awards made primarily in recognition of
If the advance payment is a loan deposit,
religious, charitable, scientific, educational,
or option money for the property or a
artistic, literary or civic achievement, but only if:
security deposit to insure the faithful
i. Recipient was selected without any action on
performance of certain obligations of the
his part
lessee, such amount shall not be taxable
ii. Recipient not required to render substantial
to the lessor unless the lessee violates
future services as a condition of receiving the
the terms of the contract.
prize/award
iii. Example: Nobel prize award
(7) Annuities, Proceeds from Life Insurance or Other
iv. Construed strictly, take note of 7 categories. It
Types of Insurance
does not include athletic achievement.
Annuity – installment payments for life, or for a
v. Contemplates a rational selection process;
guaranteed fixed period of time, whichever is
cannot just be randomly selected.
longer.
Prizes, awards in sports competition sanctioned by
Amounts Excluded from Gross Income:
national sports associations whether held in
i. Amount received by insured as return of
Philippines or abroad
premium received either during the term or at
vi. Contemplates a particular competition, not a
the maturity of the terms or upon surrender
cumulative achievement (Ex. Sportsman of the
of the contract
year award does not qualify for exemption)
g. Situs of Income Taxation (See page 9 under Inherent (2) Exclusions v. Deductions v. Tax Credit
Limitations, Territorial) (a) Deduction: included in the gross income but
(1) From sources within the Philippines later deducted
Interests derived from sources within the (b) Exclusion: not included in the computation of
Philippines gross income. Refers to income received or
Dividends from domestic and foreign corporations earned but is not taxable as income because
Compensation for services performed within the of exemption by virtue of a law or treaty.
Philippines (c) Tax Credit: paid beforehand and is deducted
Rentals and royalties from properties located in from the tax liability of the taxpayer.
the Philippines or any interest in such property
including rentals or royalties for the use of or for (3) Under the Constitution
the privilege of using within the Philippines, Sec. 4(3) Art. XIV of the 1987 Constitution
patents, copyrights and other like properties. provides that all assets and revenues of a non-
Sale of Real property located in the Philippines stock, non-profit educational institution used
Sale of Personal property – Gains, profit, income directly, actually and exclusively for private
derived from the purchase within and its sale educational purposes shall be exempt from
without the Phil, or from the purchase without and taxation.
its sale within shall be treated as derived entirely
from sources within the country in which the
personal property is sold. Except: the gain from the
sale of shares of stock in a domestic corporation
TAXATION LAW REVIEWER Page 36 of 165
only if claim includes compensation for
(4) Under the Tax Code (GIRL CRM) personal injury. If no personal injury, damages
(a) Gifts, Bequests & devises for car wreckage will only be exempt to the
But, income from such property shall be extent of the amount of the actual damage
included in gross income return of capital)
Must be characterized by disinterested Must be physical injury, not injury to rights.
generosity and pure liberality
(f) Retirement Benefits, Pensions, Gratuities
Difficult to establish gift situations if there is an
Retirement benefits receive under R.A. 7641
Employer-Employee relationship (A
(Labor Code of the Philippines) and those
bonus/assistance in recognition of service
received in accordance with a Reasonable
rendered is not exempt)
Private Benefit Plan
If given under a) constraining force of any
(1) R.A. 7641
moral or legal duty or b) from the incentive of
Conditions: (i) at least 60 years old; (ii) 5
c) an anticipated benefit of an economic nature
years of service at time of retirement
or where it is a return for services rendered,
proceeds cannot qualify as a gift. Availed if there is no reasonable private
benefit plan (benefits under this option is
Most critical is the giver’s intention or motive.
less)
Can be a gift if given on account of filial
Limited exemption: ½ month salary for
relationship.
every year of service. In RPBP, all is
excludable.
(b) Income Exempt under Treaty
To the extent required by any treaty obligation
(2) Reasonable Private Benefit Plan (RPBP)
binding upon the Phil govt.
Conditions: (i) at least 50 yrs old; (ii) in the
service of same employer for at least 10
(c) Amount Received by Insured as Return of
years at time of retirement
Premium
Must be approved by BIR
Under life insurance, endowment, or annuity
contracts, received either during the term or at A pension, gratuity, stock bonus or profit-
the maturity of the terms or upon surrender of sharing plan maintained by an employer for
the contract the benefit of some or all of his
officials/employees, wherein contributions
(d) Life Insurance are made by such employer for the
officials/employees, or both, for the
Proceeds of life insurance policies paid to the
purpose of distributing to such officials &
heirs/beneficiaries upon the death of the
employees the earnings & principal of the
insured
fund thus accumulated; & provided in the
If such amounts are held by the insurer under
plan that no part of the income shall be
an agreement to pay interest, the interest
used for/be diverted to any purpose other
payments shall be included in the gross income
than for the exclusive benefit of the said
Insured must die to avail of total exemption. If
officials & employees
he survives, there/s only partial exemption
Service must be continuous
to the extent that the proceeds constitute
return of capital (total amount of premiums
You can “avail of the benefits only once” (once
previously paid).
you’ve availed of RPBP, you cannot avail of another
RPBP); but you can avail of exemption under
(e) Compensation for Injuries or Sickness
another ground such as SSS or GSIS benefits.
Received through Accident/Health Insurance or
Workmen’s Compensation Act, as
compensation for personal injuries/sickness + BIR Ruling No. 125-98
amount of damages received on account of The phrase “shall not have availed of the privilege under a
such injuries/sickness retirement benefit plan of the same or another ER” found in
Damages will be exempt only if they arise Sec. 32(B)(6)(a) of the Tax Code means that the retiring
together with personal injury; however, if official must not have previously received retirement
damages only amount to return of capital, it is benefits from the same or another employer who has a
exempt (Ex. Damages from car accident exempt qualified retirement benefit plan.
(5) Veterans benefits (6) GSIS, SSS, Medicare, Pag-ibig contributions &
union dues of individuals
(6) Benefits under SSS
(7) Gains from the sale of bonds, debentures or
(7) Benefits received from GSIS other certificates of indebtedness with a
maturity of more than 5 years
(g) Miscellaneous Items
(1) income derived by foreign government (from (8) Gains from redemption of shares in mutual
investments in Philippines in loans, stocks, fund
bonds or other domestic securities)
(6) Under a Tax Treaty
Refers only to passive income. If the foreign Income of any kind, to the extent required by
government engages in trade, income is any treaty obligation binding upon the
taxable. Government of the Philippines, is exempt from
income tax.
(2) income derived by govt/its political
subdivisions (from public utility or exercise Business profits of a foreign corporation
essential governmental function) organized under the laws of a treaty country
from sources within the Philippines are not
Key: Income should accrue to government; if subject to Philippine income tax, unless such
the income is retained by the public utility, it profits are attributable to a permanent
is not exempt look at charter of political establishment of the foreign corporation created
subdivision/GOCC to determine whether its or deemed created in the Philippines.
income accrues to the government or not.
(c) R.A. 7653 New Central Bank Act (as amended by (c) Sale of services – not allowed to deduct any
R.A. 8791) return of capital; thus the entire gross receipts
The BSP is exempt from all national, provincial, are treated as part of income.
municipal and city taxes for a period of five years.
It is exempt from DST under RA 9243. (3) Itemized Deductions (BELT DID CRP)
[4] Capital expense – expenditure that If the materials or supplies are used directly
improves or adds to the value of your or indirectly in the production of the
property or equipment. Not immediately product, the related cost shall for part of
deductible. It is deductible over time, such the cost of the product and will be
as in the form of depreciation. deductible as such when the products are
sold.
But amounts expended for books, furniture, NOTE: General Rule On Deduction
and professional instruments and The amount of interest expense paid or incurred
equipment of a permanent character are within a taxable year of indebtedness in
not allowable as deductions. connection with the taxpayer’s trade, business, or
exercise of profession shall be allowed as a
xi. Entertainment, amusement & recreation deduction from the taxpayer’s gross income.
expenses directly connected to the devt., mgt.
& operation & conduct of trade, business/
profession
Directly connected to the development,
management and operation of the trade,
business of profession of the taxpayer.
Subject to a limit of
For mines other than oil & gas wells, if [d] Abandonment Losses
loss incurred in any of the 1st 10 yrs. of In case of abandoned petroleum
operation, carry-over for the next 5 yrs. operations, accumulated expenditures
incurred prior to 1/1/79 allowed as
Requirements: deduction only from income derived from
[a] the taxpayer was not exempt from same contract area; notice of
income tax in the year of such net abandonment shall be filed with
operating loss; Commissioner
[b] the loss was not incurred in a taxable In case of abandoned producing well,
year during which the taxpayer was unamortized cost & undepreciated costs
exempt from income tax, and of equipment directly used, allowed as
[c] there has been no substantial change in deduction in the yr. of abandonment
the ownership of the business or
enterprise.
[3] Sum of years digits method: (g) Depletion of oil and gas wells and mines
The reduction of cost or value of natural
nth period Depreciation resources such as oil & gas wells, & mines as the
x cost - sv* = resources are converted into inventories.
sum of year Expense
*sv = salvage value
No further allowance is granted if the allowance
Example: cost = 15,000; SV = 5,000; est. life = 5 for depletion = the capital invested
years
Sum of years = 5 + 4 + 3 + 2 + 1 = 15 i. Intangible exploration & development drilling
cost:
deduct in the yr. incurred if incurred for
Year 1: non-producing wells & mines
5 deduct in full OR capitalize & amortize if
x 15,000 - 5,000 = 3,333.33 incurred for producing wells & mines in
15
same contract area
Year 2:
4 15,000 - ii. Election to deduct exploration & development
x = 2,666.67 expenditures for mining operations:
15 5,000
[1] deduct as cost
[2] deduct as adjusted basis provided, total
iii. Special Types of Depreciation
amt. deductible shall not exceed 25% of net
[1] Petroleum operations
income
Depreciation of all properties directly
actual exploration & development expenditures
related to production of petroleum shall
net of 25% of NI shall be carried forward to
be allowed under straight-line or
succeeding yrs. until fully deducted
declining-balance (DB) method
May shift from DB method to SL method
exploration expenditures = incurred for the
Useful life: 10 yrs. or shorter life as may
purpose of ascertaining the existence, location,
be permitted by Commissioner
extent, or quality of any deposit of ore/other
Useful life of prop. not used directly: 5 mineral & pd/incurred before the beginning of
yrs. under straight-line method the development stage of the mine/deposit
[2] Mining operations development expenditures = incurred during
depreciation on all properties in mining development stage of the mine or other natural
operations other than petroleum deposits
operations at the normal rate if expected
life is 10 yrs or less. NOTE: Depletion of Oil and Gas wells and mines
if expected life is > 10 yrs., depreciate deductible by a non-resident alien or foreign
over any no. of yrs. bet. 5 yrs. & the corporation only in respect of oil and gas wells or
expected life mines located in the Phils.
NOTE:
The same tax treatment shall also apply to Filipinos b. Exemptions granted under international agreements
employed and occupying the same positions as those
of the alien employees mentioned above. 14. Taxation of Domestic Corporations
a. Tax payable
Only the income earned as an employee of the said
entities is subject to the preferential 15% rate; (1) Regular Corporate Income Tax (RCIT)
income earned from other sources (i.e. rent) shall be The use of regular domestic tax rates:
taxable in the same manner as a Resident Alien or
NRA-ETB. YEAR APPLICABLE TAX RATE
Filipinos employed by ROHQs or RHQs in a 2009 onwards 30%
managerial or technical position shall have the option 2006-2008 35%
to be taxed at either 15% of their gross income OR Before 2006 32%
When to begin/apply MCIT? Beginning on the 4th The following dates are available for X Corp:
taxable year immediately following the year in
which such corporation commenced its business SEC Registration December 17, 2004
operation BIR Registration January 4, 2005
Start of operations January 1, 2006
NOTE: Commencement of Business Operation:
Upon Issuance of BIR Certificate of Registration The MCIT will be imposed on X Corp starting taxable
year 2009.
When will a corporation be liable for MCIT? If
2% of the corporation’s gross income is greater [1] Computation of RCIT
than 35% of its taxable income. 2008 2009 2010
Gross Sales P 3,000,000 P 4,000,000 P 5,000,000
Rationale: This is designed to prevent Cost of Goods 1,500,000 2,000,000 2,500,000
corporations from escaping being taxed by Sold
including frivolous expenses in their statement Gross Income P 1,500,000 P 2,000,000 P 2,500,000
of income (Ex. Over statement of depreciation Operating 1,450,000 1,900,000 2,100,000
expense) Expenses
Net Taxable P 50,000 P 100,000 P 400,000
(a) Carry Forward of Excess Minimum Tax Income
Excess of MCIT over the normal income tax shall be RCIT Rate 35% 30% 30%
carried forward & credited against normal income RCIT P 17,500 P 30,000 P 120,000
tax for the 3 succeeding years
[2] Computation of MCIT
NOTE: You can deduct MCIT Carry Forward only if 2009 2010
Regular Income Tax is greater than MCIT. Gross Income P 2,000,000 P 2,500,000
MCIT Rate 2% 2%
(b) Relief from MCIT
MCIT P 40,000 P 50,000
MCIT may be suspended by the Sec of Finance
NOTE: The MCIT is not applicable in 2008 since it has
when corporation’s losses are due to:
not yet reached the “fourth taxable year”
i. prolonged labor dispute
requirement.
ii. force majeure
iii. legitimate business reverses
[3] Determination of Tax Due and Payable
2008 2009 2010
(c) Gross Income (for purposes of applying MCIT)
RCIT or MCIT
Gross income shall mean gross sales (–) sales
(whichever is P 17,500 P 40,000 P 120,000
returns, discounts and allowances (–) cost of
HIGHER)
goods sold.
Less: Excess of
Cost of goods sold shall mean all business - - 10,000
MCIT over RCIT
expenses directly incurred to product the
merchandise to bring them to their present Tax Due and
P 17,500 P 30,000 P 110,000
location and use. Payable
For taxpayers engaged in the sale of services,
gross income shall mean gross receipts (–) sales [4] Determination of Excess of MCIT over RCIT
returns, discounts and allowances (–) cost of 2009 MCIT P 40,000
services Less: 2009 RCIT 30,000
Cost of services shall mean all direct costs and Excess of MCIT over RCIT P 10,000
expenses necessarily incurred to provide the
services required by the customers and clients. b. Allowable deductions
(1) Itemized Deductions
NOTE: Pursuant to RR No. 12-07, MCIT shall apply Items under Sec. 34 of the NIRC as discussed under
at the time of the filing of the quarterly corporate Deductions from Gross Income.
income tax.
TAXATION LAW REVIEWER Page 55 of 165
(2) Optional Standard Deduction Interest income from foreign
An amount not exceeding forty percent (40%) of currency loans granted by
gross income. depository banks under the
Gross Income shall mean the gross sales less sales FCDU system to residents.
returns, discounts and allowances and cost of Intercorporate Dividends Exempt
goods sold.
A taxpayer who elected to avail of the OSD shall
signify in his/its return such intention, otherwise e. Tax on proprietary-educational institutions and
he/it shall be considered as having availed himself hospitals which are non-profit
of the itemized deductions. TAX RATE BASIS
Once the election to avail the OSD is signified in 10% On related trade, business or
the return, it shall be irrevocable for the taxable activity;
year for which the return is made. 30% (2009 onwards) IF total gross income from
35% (2006-2008) unrelated trade, business, or
c. Taxation of capital gains activity exceed 50% of total
TAX BASE TAX RATE income
Capital Gains from Sale of Shares of
Stock Not Traded in the Stock Exchange Proprietary educational institution – any private
Net Capital Gains: Final Tax school maintained & administered by private
Not over P100,000 5% individuals or groups with an issued permit to
On any amount in excess of 10% operate from DECS, or CHED or TESDA
P100,000
Sale of shares of stocks traded in the Taxable at 10% on TAXABLE INCOME, except on
local stock exchange (Stock Transaction certain passive income (which are subject to final tax)
Tax) ½ of 1%
Selling price Predominance Test: if gross income from unrelated
Capital gains on sale or exchange of trade/business/other activity > 50% of the total gross
lands and or buildings located in the Final Tax income from all sources, ENTIRE taxable income shall
Philippines 6% be subject to the REGULAR corporate tax rate of 30%
Selling Price or FMV whichever is (35% - 2006-2008)
HIGHER
Net Capital gains on sales or exchange Regular Corp. Distinguish from non-profit non-stock educational
or disposition of other capital assets Tax (30%) institutions which are exempt from tax on revenues
and assets Actually, Directly and Exclusively used for
d. Taxation of Other Passive Income educational purposes (Sec 30 (H), NIRC; RMC 76-
TAX BASE TAX RATE 2003).
Interest from Deposits and Yield or any
other Monetary Benefit from Deposit f. Tax on GOCCs, agencies and instrumentalities
Substitutes, Trust Funds and Similar TAX RATE BASIS
Arrangements and Royalties 30% (2009 Same tax rate upon their
Interest income earned from 20% onwards) taxable income in a similar
deposit NOT FCDU 7.5% 35% (2006-2008) business, industry, or
Interest income earned from activity
deposit FCDU
Income Derived under the Expanded (1) General Rule: all corporations, agencies, or
Foreign Currency Deposit System instrumentalities owned or controlled by the govt.
Income derived by a depository are taxable.
bank under the FCDU system
from foreign currency (2) Exceptions:
10%
transactions with local (a) GSIS
commercial banks (i.e. branches (b) SSS
of foreign banks authorized by (c) PHIC
the BSP to transact business (d) PCSO
with FCDU).
(2) Investment in bonds and other long-term Guidelines of the tax liability of GPP
securities; and a. Who is Liable?
o A GPP, as an entity, shall not be subject to the
(3) Accumulation of earnings in excess of 100% of income tax.
paid-up capital, not otherwise intended for the o The partners in a GPP shall be liable for
reasonable needs of the business. The controlling income tax only in their separate and
intention of the taxpayer is that which is individual capacities.
manifested at the time of accumulation. A
speculative and indefinite purpose will not suffice. Each partner shall report his distributive share,
The mere recognition of a future problem or the actually or constructively received in the net
discussion of possible and alternative solutions is income of the partnership as gross income.
not sufficient. Definiteness of plan/s coupled with
action/s taken towards its consummation is The share of the partner shall be subject to
essential. creditable withholding tax at 10%/15%.
SPECIAL RULES ON INTANGIBLE PROPERTIES NOTE: The capital of the surviving spouse of the decedent
Intangible personal properties with situs in the Philippines shall not be deemed part of his gross estate.
(Section 104)
a. Decedent’s Interest
Franchise, which must be exercised in the
Philippines. i. To the extent of the interest therein of the decedent at
Shares, obligations or bonds issued by any the time of his death.
corporation or sociedad anonima organized or
constituted in the Philippines in accordance with b. Transfer in Contemplation of Death
its laws,
Shares, obligations or bonds issued by any foreign Transfers impelled by the thought of an impending
corporation 85% of the business of which is death (i.e., the motivating factor or controlling motive
located in the Philippines, is the thought of death), without regard of the state of
Shares, obligations or bonds issued by any foreign health of the transferor.
corporation, if such shares, obligations or bonds Transfers made before the decedent’s death wherein
have acquired a business situs in the Philippines, decedent retained:
Shares, rights in any partnership business or a. the possession or enjoyment of, or the right to the
industry established in the Phil. income of the property;
b. the right either alone or in conjunction with any
RECIPROCITY CLAUSE person, to designate the person who shall possess
Intangible personal property of a decedent who is non- or enjoy the property or its income EXCEPT bona
resident alien, with a situs in the Philippines (Section 104) fide sales for an adequate and full consideration in
money or money’s worth
The intangibles shall not form part of the gross estate if:
1. The decedent at that time of his death was a citizen and c. Revocable Transfer
resident of a foreign country which at the time of his
death Transfers made by the decedent by trust or otherwise,
a. Did not impose a transfer tax or death tax of any where the enjoyment was subject at the date of his
character death to any change through the exercise of a power by
b. In respect of the intangible personal property of the decedent alone or in conjunction with any other
citizens of the Philippines not residing in that person, to alter, amend, revoke, or terminate, or where
foreign country; or any such power is relinquished in contemplation of the
decedent’s death.
2. The law of the foreign country of which the decedent
was a citizen and resident at the time of his death: The power to alter, amend or revoke shall be
a. Allow a similar exemptions from transfer taxes or death considered to exist at the date of the decedent’s death
taxes of every character even if:
b. In respect of the intangible personal property owned by – The exercise is subject to the
citizens of the Philippines not residing in that foreign requirement of giving prior notice
country. – The alteration, amendment or revocation
takes effect only on the expiration of a
9. Composition of the gross estate stated period after the exercise of the
power.
10. Items to be included in the gross estate
Does not include bona fide sales for an adequate and
ITEMS OF GROSS ESTATE: full consideration in money or money’s worth.
a. Decedent's Interest
b. Transfer in Contemplation of Death
TAXATION LAW REVIEWER Page 69 of 165
d. Property Passing Under General Power of (b) Judicial expenses of the testamentary or intestate
Appointment (GPA) proceedings
(c) Claims against the estate
GPA is the power to designate, without (d) Claims against insolvent persons included in the
restrictions, the persons who shall receive, succeed gross estate
to, possess or enjoy the property or its income (e) Unpaid mortgages or indebtedness upon property
received from the estate of a prior decedent. (f) Unpaid taxes
(g) Losses incurred during the settlement of the estate
The GPA is exercised by:
a. Will Transfers for Public Use-to the government of the
b. Deed executed in contemplation of death Republic of the Philippines or any political subdivision
c. Deed under which he has retained for his life thereof, exclusively for public purposes
or for any period which does not in fact end Vanishing deductions
before his death Family Home - Fair value but not to exceed P1,000,000
The possession or enjoyment of, or the right to the Standard Deduction -- P1,000,000
income from, the property or Medical Expenses – Not to exceed P500,000
The right, either alone or in conjunction with any Amount Received by Heirs under RA 4917
person to designate the persons who shall possess or Net Share of the surviving spouse in the Conjugal
enjoy the property or the income therefrom EXCEPT Property
bona fide sales for an adequate and full consideration
in money or money’s worth a. Ordinary Deductions
Proceeds from life insurance form part of the gross Actual funeral expenses or in amount equal to 5% of the
estate only when: gross estate, whichever is lower, but in no case to exceed
- The beneficiary is the estate, executor or P200,000.
administrator, whether the designation is
revocable or irrevocable. FUNERAL EXPENSES are costs which are actually
- The beneficiary is other than the estate, executor incurred in connection with the interment or burial of
or administrator and the designation is revocable. the deceased.
Requisites for DEDUCTIBILITY: FMV of the family home but not to exceed P1,000,000.
Losses should arise from fire, storm, shipwreck, or
other casualty, robbery, theft or embezzlement; Family Home is the dwelling house, including the land on
Losses should not be compensated by insurance or which it is situated, where the husband and wife, or a head
otherwise; of the family, and members of their family reside as certified
Losses should not be claimed as deduction in the by Barangay Captain of the locality.
income tax return of the taxable estate;
The losses should occur during the settlement of the The family home is deemed constituted on the house and
estate; AND that lot from the time it is actually occupied as a family residence
The losses should occur before the last day for the and is considered as such for as long as any of its
payment of the estate tax (last day to pay 6 months beneficiaries actually resides therein.
after the decedent’s death)
Actual occupancy of the house or house and lot as the
b. Transfer for Public Use family residence shall not be considered interrupted or
abandoned in such cases as the temporary absence from
Requisites for DEDUCTIBILITY: the constituted family home due to travel or studies or work
the disposition is in the last will and testament abroad, etc.
to take effect after death
in favor of the government of the Philippines or any The family home is generally characterized by permanency,
political subdivision thereof that is, the place to which, whenever absent for business or
exclusive for public purpose pleasure, one still intends to return.
the value of property given is included in the gross
Conditions for the allowance of FAMILY HOME as
estate
DEDUCTION from the gross estate-
The transfer also contemplates bequests, devices, or The family home must be the actual residential home of
transfers to social welfare, cultural and charitable the decedent and his family at the time of his death, as
institutions certified by the Barangay Captain of the locality where
the family home is situated;
c. Vanishing Deductions (Property Previously Taxed) The total value of the family home must be included as
part of the gross estate of the decedent; and
Nature and Purpose Allowable deduction must be in an amount equivalent
VANISHING DEDUCTIONS are deductions allowed for to the current fair market value of the family home as
properties which were already subjected to transfer taxes declared or included in the gross estate, or the extent
(e.g., estate and donor’s tax). The purpose is to minimize of the decedent’s interest (whether
the effect of double taxation within a short period of time conjugal/community or exclusive property), whichever
since the same property will be again subjected to tax in is lower, but not exceeding P1,000,000.
the form of estate tax.
NOTE:
Requisites for DEDUCTIBILITY: The family home must be part of the properties of the
Present decedent acquired the property by inheritance absolute community or of the conjugal partnership, or
or donation within 5 yrs prior to his death of the exclusive properties of either spouse, depending
The property must have formed part of the gross estate upon the classification of the property (family home),
of previous decedent or the taxable gift of the donor and the property relations prevailing on the properties
Estate tax on the prior estate or the donor’s tax must of the husband and wife. It may also be constituted by
have been paid an unmarried head of a family on his or her own
property.
It must be the same property received from previous
decedent or donor For purposes of availing of a family home deduction to
the extent allowable, a person may constitute only one
Estate of previous decedent or donor have not
family home.
previously availed of vanishing deduction
Property Previously Taxed Net estate, foreign x Phil. Estate Tax = max amt. of credit
Transfers for Public Use Net estate, world
Net Share of the surviving spouse in the Conjugal
Property GLOBAL LIMITATION
NOTE: Total net estate outside X Phil. Estate tax = max amt. of
To be allowed deductions for a non-resident alien, credit
executor/administrator/any heir must include in the return Net estate, world
to be filed, the value of the gross estate not situated in the
Philippines
The final allowable amount shall be the lower of the country
and global limitation amounts.
12. Exclusions from GROSS estate
14. Exemption of certain acquisitions and transmissions
Acquisitions and transfers expressly declared as exempt:
[Sec. 84 and 87 of the NIRC]
Merger of the usufruct in the owner of the naked title
Transmission or delivery of the inheritance or legacy by a. First P200,000.00 value of the net estate
the fiduciary heirs or legatee to the fiduciary
Transmission from the first heirs, legatees or donees in b. Merger of usufruct in the owner of the naked title
KINDS OF DONATIONS:
Donation inter vivos: a donation made between living
persons; perfection is at the moment when the donor
Any person who, in the course of trade or business Every sale, barter or exchange of goods or properties shall
Sells, barters, or exchanges goods or properties (seller be subject to 12% VAT based on the gross selling price or
or transferor) gross value in money of the goods or properties sold.
Leases goods or properties (lessor)
Renders services (service provider) Goods: all tangible and intangible objects which are capable
Imports goods (importer), whether or not made in the of pecuniary estimation.
course of trade or business Includes:
Real properties held primarily for sale to customers or
Definition of “in the course of trade or business” (Rule of held for lease in the ordinary course of business
Regularity) the right or the privilege to use patent, copyright,
The regular conduct or pursuit of a commercial or an design or model, plan, secret formula or process,
economic activity, including transactions incidental goodwill, trademark, trade brand or other like property
thereto, by any person regardless of whether or not the or right
person engaged therein is a non-stock, nonprofit the right or the privilege to use in the Philippines of any
private organization or government entity industrial, commercial or scientific equipment
Non-resident persons who perform services in the the right or the privilege to use motion picture films,
Philippines are deemed to be making sales in the film tapes and disc
course of trade or business, even if the performance of radio, television, satellite transmission and cable
services is not regular television time
CIR v. Magsaysay Lines, [G.R. No. 146984, July 28, 2006] Gross Selling Price: the total amount of money or its
The term “course of business” or “doing business” connotes equivalent which the purchaser pays or is obligated to pay
regularity of activity. Any sale, barter, exchange of goods or to the seller in consideration of sale, barter or exchange of
services not in the course of trade or business in not subject the goods or properties, excluding the VAT. The excise tax,
to VAT. if any, of such goods or properties shall form part of the
gross selling price.
CS Garments v. CIR, [CTA case no. 6520, 4 January 2007] The consideration stated in the sales document, or
A transaction will be characterized as having been entered The fair market value (FMV) as determined by the
into by a person in the course of trade or business if it is (1) Commissioner (zonal value) or FMV as shown in the
regularly conducted; and (2) undertaken in pursuit of a schedule of values of the Provincial and City Assessors,
commercial or economic activity are considered as entered whichever is higher
into in the course of trade or business. “Incidental” means
something else as primary; something necessary, NOTE:
appertaining to, or depending upon another, which is If the VAT is not billed separately, the selling price
termed the principal. Hence, an isolated transaction is not stated in the sales document shall be deemed to be
necessarily disqualified from being made incidentally in the inclusive of VAT
course of trade or business. Therefore, the sale of motor If the gross selling price is based on the zonal value or
vehicle used by its officers is an incidental transaction market value of the property, the zonal or market value
because the said vehicle was purchased in the furtherance shall be deemed exclusive of VAT. Thus, the
of petitioner’s business. zonal/market value, net of the output VAT, should still
be higher than the consideration in the document of
Exceptions to the rule of regularity sale, exclusive of the VAT.
Any business where the gross sales or receipt do not
Sale of Real Properties
exceed P100,000 during any 12-month period shall be
considered principally for subsistence or livelihood and sale of real properties held primarily for sale to
not in the course of trade or business customers or held for lease in the ordinary course of
trade or business of the seller shall be subject to VAT
Services rendered in the Philippines by non-resident
foreign persons shall be considered as being rendered
in the course of trade or business. sale of real properties may either be on an installment
basis or deferred-payment basis.
NOTE: For retirement or cessation of business, the tax Importer: refers to any person who brings goods into
base shall be the acquisition cost or the current market the Philippines, whether or not made in the course of
price of the goods or properties, whichever is LOWER. his trade or business. Includes non-exempt persons or
entities who acquire tax-free imported goods from
9. CHANGES IN OR CESSATION OF STATUS OF A VAT exempt persons, entities or agencies
REGISTERED PERSON
Tax base = total value used by BOC in determining tariff
and customs duties, plus custom duties, excise tax, and
a. subject to 12% output VAT
if any, other charges (postage, commission, and similar
(1) change of business activity from VAT taxable status
charges, prior to the release of the goods from customs
to VAT-exempt status
custody
(2) approval of a request for cancellation of
registration due to reversion to exempt status
If the valuation used is based on volume or quantity of
(3) approval of a request for cancellation of
the imported goods, the landed cost shall be the basis
registration due to a desire to revert to exempt
for computing VAT. Landed cost = invoice amount,
status after the lapse of 3 consecutive years from
customs duties, freight, insurance and other charges
the time of registration by a person who
(excise tax shall form part of the tax base)
TAXATION LAW REVIEWER Page 82 of 165
a. Sale, transfer, or exchange of imported goods by tax-
exempt persons: In the case of goods imported by VAT- Gross Receipts: total amount of money or its equivalent
exempt persons, entities or agencies which are representing the contract price, compensation, service fee,
subsequently sold, transferred or exchange in the rental or royalty, including the amount charged for materials
Philippines to non-exempt persons or entities, the supplied with the services and deposits applied as payments
latter shall be considered the importers thereof and for services rendered and advance payments actually or
shall be liable for VAT due on such importation. The tax constructively received during the taxable period for the
due on such importation shall constitute a lien on the services performed or to be performed for another person,
goods, superior to all charges/liens, irrespective of the excluding VAT.
possessor of said goods.
Gross Receipts exclude amounts earmarked for payment to
11. VAT ON SALE OF SERVICES AND USE OR LEASE OF unrelated third (3rd) party, and amounts received as
PROPERTIES reimbursement for advance payment on behalf of another
which do not redound to the benefit of the payor.
Sale or exchange of service, as well as the use or lease of
properties shall be subject to 12% VAT Constructive receipt: occurs when the money consideration
a. Sale or Exchange of Service: the performance of all kind or its equivalent is placed at the control of the person who
of services in the Philippines for others for a fee, rendered the service without restrictions by the payor.
remuneration or consideration, whether in cash or in Deposit in banks which are made available to the seller
kind. of service without restrictions
Issuance by the debtor of a notice to offset any debt or
Sale or exchange of service shall also include: obligation and acceptance thereof by the seller as
i. Lease or the use of or the right or privilege to use payment for services rendered
any copyright, patent, design or model, plan, Transfer of amounts retained by the payor to the
secret formula or process, goodwill, trademark, account of the contractor
trade brand, or other like property or right
ii. The lease or the use of, or the right to use any Advance payments made by lessee for lease of property:
industrial, commercial or scientific equipment Advance payments may be in the form of:
iii. The supply of scientific, technical, industrial or i. A loan to the lessor from the lessee, or
commercial knowledge or information ii. An option money for the property, or
iv. The supply of any assistance that is ancillary and iii. A security deposit to insure the faithful performance of
subsidiary to and furnished as a means of enabling certain obligations of the lessee to the lessor, or
the application or enjoyment of any such property, iv. Pre-paid rental
or right as is mentioned in subparagraph (b) hereof
or any such knowledge or information as is If the advance payment is for the faithful performance
mentioned in subparagraph (c) hereof of certain obligations of the lessee, it is not subject to
v. The supply of services by a non-resident person or VAT
his employee in connection with the use of A security deposit that is applied to rental shall be
property or rights belonging to, or the installation subject to VAT at the time of its application
or operation of any brand, machinery, or other If the advance payment constitutes a pre-paid rental, then
apparatus purchased from such nonresident such payment is taxable to the lessor in the month when
person received, irrespective of the accounting method employed
vi. The supply of technical advise, assistance or by the lessor
services rendered in connection with technical
management or administration of any scientific, 12. ZERO-RATED SALES OF SERVICE
industrial or commercial undertaking, venture,
project or scheme The following services performed in the Philippines by a
vii. The lease of motion picture films, film tapes, and VAT-REGISTERED person shall be subject to 0% VAT rate:
discs
viii. The lease or use of, or the right to use, radio, a. processing, manufacturing, or repacking goods for
television, satellite transmission and cable other persons doing business outside the Philippines,
television time i. which goods are subsequently exported
ii. where the services are paid for in acceptable
b. Lessors of property – all forms of property for lease, foreign currency
whether real or personal, are liable to VAT
17. DETERMINATION OF THE INPUT/OUTPUT TAX; VAT Credits for Input Tax
PAYABLE; EXCESS INPUT TAX CREDIT The VAT due on or paid by a VAT-registered person on
importation of goods or local purchases of goods,
a. Computation of output tax properties, or services, including lease or use of
i. Goods or properties: Gross selling price x VAT rate properties, in the course of trade or business
Include the transitional and the presumptive input tax
Allowable deductions from gross selling price Includes input taxes which can be directly attributed to
(1) discounts determined and granted at the time transactions subject to the VAT plus a ratable portion of
of sale (expressly indicated in the invoice, any input taxes which cannot be directly attributed to
amount thereof should form part of gross either the taxable or exempt activity
sales duly recorded in the books, and the Evidenced by a VAT invoice or official receipt issued by
granting of the discount does not depend on a VAT-registered person
the happening of the future event)
(2) sales returns and allowances for which a Claim for Input Tax on Depreciable Goods
proper credit or refund was made during the
month or quarter to the buyer for sales i. Requisites:
previously recorded as taxable sales A VAT-registered person purchases or imports capital
goods (which are depreciable goods for income tax
ii. Sellers of service: Gross receipts x VAT rate
purposes)
If aggregate acquisition cost of all capital goods
b. Determination of input tax credit
(exclusive of VAT) in a calendar month exceeds P1
million, the input tax cannot be claimed outright but
Determination of Input Tax Credit during a taxable
should be subject to amortization over a period of 5
month or quarter
years or useful life of the capital goods, whichever is
lower.
All creditable input taxes during the month or quarter
If the aggregate acquisition cost of all capital goods in a
+ any amount of input taxes carried-over from
calendar month does not exceed P1 million, the input
preceding month/quarter
tax may be claimed outright as credit against output
- (claim for VAT refund or tax credit certificate)
tax.
- (other adjustments – purchase returns)
- (input tax attributable to exempt sales)
Aggregate acquisition cost refers to the total price
- (input tax on capital goods purchased during the
agreed upon for one or more assets acquired and not
month/quarter subject to amortization)
the payments actually made during the calendar
+/- (difference between standard input and actual
month.
input on government sales)
+ (creditable VAT withheld on payments to non-
ii. Manner of claiming input tax of more than P1 million
residents)
(1) estimated useful life of a capital good is 5 years or
= Input Tax Credit
more:
input tax spread evenly over a period of 60
NOTE: Adjustments to Input Tax
months
Addition to Creditable Input Tax
A VAT-registered person who is also engaged in transactions Required Supporting Documents for claiming Input VAT
not subject to VAT shall be allowed to recognize input tax TRANSACTIONS REQUIRED SUPPORT
credit on transactions subject to VAT as follows: On domestic purchases of VAT Invoice
goods or properties made in
i. all the input taxes that can be directly attributed to the course of trade or
transactions subject to VAT may be recognized for business
input tax credit On purchases of real
input taxes which are directly attributable to property Public Instrument (i.e., deed
VAT taxable sales of goods and services from Cash/Deferred Payment of absolute sale, deed of
the Government or any of its political Basis conditional sale,
subdivisions, instrumentalities or agencies, contract/agreement to sell,
including GOCCs shall not be credited against etc.) together with the VAT
output taxes arising from sales to non- Invoice for the entire selling
government entities price and Non-VAT ORs for
ii. if any input tax cannot be directly attributed to the initial and succeeding
either a VAT taxable or VAT-exempt transaction, payments
the input tax shall be pro-rated to the VAT taxable
and VAT-exempt transactions Installment Basis Public Instrument and VAT
only the ratable portion pertaining to OR for every payment
transactions subject to VAT may be On domestic purchase of VAT OR
recognized for input tax credit services
On importation of goods Import entry or other
NOTE: equivalent document
input tax attributable to VAT-exempt sales shall not be showing actual payment of
allowed as credit against the output tax but should be VAT on the imported goods
treated as part of cost of goods sold and BOC OR.
for persons engaged in both zero-rated sales and non- On transitional input tax Inventory of goods as shown
zero rated sales, the aggregate input taxes shall be in a detailed list to be
allocated ratably between the zero-rated sale and non- submitted to the BIR.
zero-rated sale On “deemed sale” Required invoices
transactions
d. Determination of the output tax and VAT payable and On payments made to non- Monthly Remittance Return
computation of VAT payable or excess tax credits residents of Value Added Tax Withheld
(BIR Form 1600) filed by the
resident payor in behalf of
21. FILING OF RETURN AND PAYMENT Services rendered in the Philippines, such as
providing assistance in establishing tender price of
a. Monthly VAT Declarations (BIR Form No. 2550M) a project and designing materials, by a non-
Refers to first 2 months of taxpayer’s quarters resident, shall be subject to the 12% withholding
Filing and Payment Deadline: 20 days from the end of VAT.
the month, except for Electronic Filing and Payment
System (EFPS) taxpayers NOTE:
Filing Deadline for EFPS: Deadline depends on the The party required to withhold is the payor, regardless
industry classification of the taxpayer but applicable of whether or not he is VAT-registered.
only for filing the monthly VAT return The VAT is passed on to the resident withholding agent.
Payment Deadline for EFPS: 25 days from the end of The payor shall claim this as input tax upon filing of his
the month own VAT return, subject to the rule of allocation of
input tax.
c. International organizations (based in the Tax on gross receipts derived by other non-bank
Philippines and enjoying privileges, exemptions finance intermediaries, doing business in the
and immunities pursuant to an international Philippines, from interest, commissions, discounts
agreement) from lending activities, income from financial
leasing, and all other items treated as gross
d. News services (which messages deal exclusively income
with the collection of news for dissemination) Based on the remaining maturities of the
instruments from which the receipts are derived
D. TAX ON BANKS AND NON-BANK FINANCIAL
INTERMEDIARIES PERFORMING QUASI-BANKING MATURITY RATE
FUNCTIONS 5 years or less 5%
More than 5 years 1%
Surcharge, interest and other penalties: The interest on Assignment of Income Doctrine – Ex: A is entitled to his
unpaid amount of tax, civil penalties and criminal penalties salary of P10 Million but assigns it to B for unknown
imposed in Title XI of the Tax Code shall also apply to reasons. In this case, both A and B realized income. A
violations of the provisions of Title IV of the Tax Code. constructively received income (because he was able to
assign and thus has complete control/dominion over it) and
B actually received it. The income is taxable in the hands of
======================================
both A and B.
TOPIC UNDER THE SYLLABUS:
II. NATIONAL INTERNAL REVENUE CODE
c. Inventory method for income determination
G. Tax remedies under the NIRC i. Basis: Revenue Memorandum Circular No. 43-74
====================================== ii. The taxpayer’s net worth is determined both at the
beginning and end of the taxable year.
1. CONCEPT OF ASSESSMENT iii. The increase or decrease in the net worth is adjusted
by adding all non-deductible items and subtracting
What Constitutes an Assessment? therefrom non-taxable receipts.
– An assessment contains not only a computation of iv. The general theory is that the taxpayer’s money and
tax liabilities but also a demand for payment within other assets in excess of liabilities after accurate and
the prescriptive period. proper adjustment of non-deductible and non-taxable
– There is no form for an assessment. It can be items not accounted for in his tax return is deemed to
written anywhere as long as it is signed by the BIR. be unreported income.
Any notice sent to the taxpayer demanding the tax
liability is an assessment. Conditions of the Net Worth Method:
1. Inadequate records as prerequisite - The taxpayer’s
a. Requisites for valid assessment books of account do not clearly reflect his income or he
has no books, or if he has books, he refuses to produce
The law requires that the taxpayer shall be informed in them;
writing of the law and the facts on which the assessment is 2. Need for evidence of source of income - That there is
made; otherwise, the assessment shall be void. [Sec. 228] evidence of possible source/ sources of income to
account for the increases in the net worth or
expenditures;
b. Constructive methods of income determination 3. A definite starting point or opening net worth - That
there is a fixed starting point or opening net worth
Doctrine of Constructive Receipt – an income is (date beginning with a taxable year or prior to it when
constructively received when it is credited, or segregated in his financial condition can be established with
favor of a person. The person may withdraw the said definiteness);
account anytime without any substantial limitations or 4. Proper adjustments to conform with income tax laws -
conditions upon which payment or enjoyment is to be made That the circumstances are such that the method does
or exercised. not reflect his income with accuracy and certainty and
proper and just additions of personal expenses and
Examples: Cash and/or property dividends constructively non-deductible expenditures were made and correct,
received by an individual from a domestic corporation or fair and equitable credit were given by way of
from a joint stock company, insurance or mutual fund eliminating non-taxable items.
TAXATION LAW REVIEWER Page 108 of 165
d. Jeopardy assessment regular basis from:
(a) Any person other than the person under
A jeopardy assessment is a tax assessment made by an investigation or
authorized Revenue Officer without the benefit of complete (b) Any office or officer of the national/local
or partial trial in light of the Revenue Officer’s belief that government, government agencies and
assessment and collection of tax will be jeopardized by the instrumentalities (Bangko Sentral, GOCCs)
delay caused by the taxpayer’s failure to 1) comply with 3) To Summon
audit and investigation requirements and 2) substantiate (a) The person liable for tax or required to file a return
any or all claims, deductions or credits in his return. or
(b) Any officer or employee of such person or
e. Tax delinquency and tax deficiency (c) Any person having in his possession/custody/ care
Delinquency means: 1. The books of accounts
Failure to pay: 2. Accounting records of entries relating to the
1. tax due on any return required to be filed, or business of the person liable for tax or any
2. tax due for which no return is required, or other person
3. A deficiency tax, or any surcharge or interest 4) To Produce such books, papers, records and other data
thereon on the due date appearing in the and to give testimony
notice and demand of the Commissioner. 5) To take the Testimony of the person concerned, under
oath as may be relevant to the inquiry
Deficiency means: 6) To cause revenue officers and employees to make a
- The amount by which the tax imposed Canvass of any revenue district or region
exceeds the amount shown as tax by the Nothing in Section 5 shall be construed as granting
taxpayer on his return. The amount shown on the Commissioner the authority to inquire into
the return shall be increased by the amounts bank deposits other than as provided for under
previously assessed as a deficiency, and Sec. 6 (F) of the Code (authority to inquire into
decreased by the amount previously abated, bank deposits).
credited, return or repaid.
- If no amount is shown as tax by the taxpayer Power to make assessments, prescribe requirements for
on his return, or if no return is made, then the tax administration and enforcement (Sec. 6)
amount by which the tax exceeds the amount
previously assessed (or collected without 1) Examination of returns and determination of tax due -
assessment) as a deficiency, but such (a) After a return has been filed the Commissioner or
previously assessed or collected without his representative may authorize
assessment shall first be decreased by the i. Examination of any taxpayer; and
amounts previously abated, credited, return ii. Assessment of the correct amount of tax;
or repaid. (b) Failure to file a return shall not prevent the
Commissioner from authorizing the examination of
2. POWER OF COMMISSIONER TO MAKE ASSESSMENTS any taxpayer;
AND PRESCRIBE ADDITIONAL REQUIREMENTS FOR TAX
ADMINISTRATION AND ENFORCEMENT. Any tax or deficiency tax so assessed shall be paid upon
notice and demand from the Commissioner or his
a. Power to obtain information, summon, examine and representative.
take testimony of persons (Sec. 5) Any return, statement or declaration filed in any
For the Commissioner to ascertain: authorized office shall not be withdrawn; but within
(a) Correctness of any return or in making a return THREE YEARS from date of filing, the same may be
where none has been made modified, changed or amended; provided that no
(b) Liability of any person for any internal revenue tax notice for audit or investigation of such return, has in
or in correcting such liability the meantime, been actually served upon the taxpayer.
(c) Tax compliance 2) Failure to submit required returns and other
documents
The Commissioner is authorized: (a) If a person:
1) To Examine any relevant Book, paper, record or other i. Fails to file a required return or report at the
data time prescribed or
2) To Obtain any Information (costs, volume of ii. Willfully or otherwise files a false or
production, receipts, sales, gross income, etc), on a fraudulent return,
Within 1 year from the date of sale, the property may The Revenue District Officer or his duly authorized
be redeemed by the delinquent taxpayer or any one representative, other than the officer referred to in
from him, upon the payment of the taxes, penalties and Section 208 of this Code shall, according to rules and
interest thereon from the date of delinquency to the regulations prescribed by the Secretary of Finance, upon
date of sale together with interest on purchase price at recommendation of the Commissioner, forthwith cause
15% per annum from the date of sale to the date of a notification to be exhibited in not less than two (2)
redemption. [Sec. 214] public places in the municipality or city where the
The owner shall not be deprived of the possession of the distraint is made, specifying; the time and place of sale
said property and shall be entitled to the rents and other and the articles distrained. The time of sale shall not be
income thereof until the expiration of the time allowed less than twenty (20) days after notice. One place for the
for its redemption. posting of such notice shall be at the Office of the Mayor
of the city or municipality in which the property is
c. Final deed of purchaser distrained.
If the property is not redeemed, a final deed of sale shall
be issued to the purchaser. At the time and place fixed in such notice, the said
revenue officer shall sell the goods, chattels, or effects,
5. FORFEITURE TO THE GOVERNMENT FOR WANT OF or other personal property, including stocks and other
BIDDER securities so distrained, at public auction, to the highest
bidder for cash, or with the approval of the
Forfeiture is the divestiture of property without Commissioner, through duly licensed commodity or
compensation, in consequence of a default or offense. stock exchanges.
a. Remedy of enforcement of forfeitures In the case of stocks and other securities, the officer
- Action to contest forfeiture of chattel making the sale shall execute a bill of sale which he shall
In case of the seizure of personal property under claim of deliver to the buyer, and a copy thereof furnished the
forfeiture, the owner desiring to contest the validity of corporation, company or association which issued the
the forfeiture may, at any time before sale or stocks or other securities. Upon receipt of the copy of
destruction of the property, bring an action against the the bill of sale, the corporation, company or association
person seizing the property or having possession thereof shall make the corresponding entry in its books, transfer
to recover the same, and upon giving proper bond, may the stocks or other securities sold in the name of the
enjoin the sale; or after the sale and within six (6) buyer, and issue, if required to do so, the corresponding
months, he may bring an action to recover the net certificates of stock or other securities.
proceeds realized at the sale. [Sec. 231] Any residue over and above what is required to pay the
entire claim, including expenses, shall be returned to the
b. Resale of real estate taken for taxes owner of the property sold. The expenses chargeable
The Commissioner shall have charge of any real estate upon each seizure and sale shall embrace only the actual
obtained by the Government of the Philippines in expenses of seizure and preservation of the property
payment or satisfaction of taxes, penalties or costs pending; the sale, and no charge shall be imposed for
arising under this Code or in compromise or adjustment the services of the local internal revenue officer or his
of any claim therefore, and said Commissioner may, deputy. [Sec. 209]
upon the giving of not less than twenty (20) days notice,
sell and dispose of the same of public auction or with
prior approval of the Secretary of Finance, dispose of the
same at private sale. In either case, the proceeds of the
sale shall be deposited with the National Treasury, and
Unless otherwise provided by the LGC, tax exemptions or 1. not inherent Everett Steamship Corp. v. Municipality
incentives granted to, or presently enjoyed by all persons, of Medina [G.R. No. L-21191, 30 April 30, 1966]
whether natural or juridical, including GOCCs are hereby 2. exercised only if delegated to them by law or
withdrawn upon the effectivity of the LGC except the ff: Constitution Mactan Cebu International Airport v.
Marcos [G.R. No. 120082, September 11, 1996]
1. local water districts, 3. not absolute subject to limitations provided for by law
2. cooperatives duly registered under RA 6938, non-stock Manila Electric Company v. Province of Laguna [G.R.
and non-profit hospitals and No. 131359, May 5, 1995]
3. educational institutions.
3. Local Taxing Authority
Tax Exemptions not applicable to Regulatory Fees
The power to grant tax exemptions, tax incentives and tax a) Power to Create Sources of Revenue
reliefs shall not apply to regulatory fees which are levied
under the police power of the LGU. Each local government unit has the power to:
Guidelines for the Granting of Tax Exemptions, Tax 1. create its own sources of revenue and
Incentives and Tax Reliefs 2. levy taxes, fees, and charges subject to the provisions
herein, consistent with the basic policy of local
(Art. 282 [B], Rules and Regulations Implementing the LGC) autonomy. [Sec. 129]
1. On the grant of tax exemptions or tax reliefs: Such taxes, fees, and charges shall accrue exclusively to the
a. the same may be granted in cases of natural local government units. (NOTE: As distinguished from
calamities, civil disturbance, general failure of internal revenue taxes which do not accrue exclusively to the
crops, or adverse economic conditions such as national government but are shared to the local
substantial decrease in prices or agricultural or governments in the form of internal revenue allotments. See
agri-based products. Title XI, NIRC of 1997)
b. The grant shall be through an ordinance.
c. Any exemption or relief granted to a type or kind 4. Residual Taxing Powers of the LGU (Sec. 186 LGC)
of business shall apply to all business similarly
situated. LGUs have the power to levy taxes, fees or charges on any
d. The same shall take effect only during the next base or subject NOT:
calendar year for a period not exceeding 12
months as may be provided by the ordinance. a. specifically enumerated in LGC
e. In the case of shared revenue, the exemption or b. taxed under the provisions of the NIRC, as
relief shall only extend to the LGU granting such amended
exemption or relief. c. other applicable laws
A. PROVINCES
Franchise Tax. Notwithstanding any Not exceeding 50% of 1% Newly started business,
exemption granted by any law or of the gross annual the tax shall not exceed
other special law, the province may receipts for the preceding 1/20 of 1% of the capital
impose a tax on businesses enjoying calendar year, within its investment.
a franchise. territorial jurisdiction.
Tax on Sand, Gravel and Other Not more than 10% of fair The permit to extract resources
Quarry Resources. The province market value in the locality shall be issued exclusively by the
may levy and collect taxes on provincial governor, pursuant to
ordinary stones, sand, gravel, earth, the ordinance of the Sangguniang
and other quarry resources Panlalawigan. Proceeds
extracted from public lands or from distributed as follows: Province -
the beds of seas, lakes, rivers, 30%
streams, creeks, and other public Component City or Municipality
waters within its territorial where the quarry resources are
jurisdiction. extracted - 30%
Barangay where the quarry
resources are extracted - 40%.
Professional Tax. The province may At such amount and Professionals exclusively To be paid to the province where
levy an annual professional tax on reasonable classification as employed in the he/she practices his/her
each person engaged in the exercise the Sangguniang government shall be profession or where he/she
or practice of his profession Panlalawigan may exempt from the maintains principal office in case
requiring government examination. determine but shall in no payment of this tax. the practice is in several places
st
To be paid on or before the 31 day case exceed P300.00. Provided, After payment he/she
of January. Any person first shall be entitled to practice
beginning to practice a profession his/her profession in any part of
after the month of January must, the Phils. w/out being subjected
however, pay the full tax before to any other national or local tax,
engaging therein. license, or fee for the practice of
the profession.
Amusement Tax. The province may Not more than 30% of the The holding of operas, Sangguniang Panlalawigan may
levy an amusement tax to be gross receipts from concerts, dramas, prescribe the time, manner, terms
collected from the proprietors, admission fees. recitals, painting and art and conditions for the payment of
lessees, or operators of theaters, exhibitions, flower tax. In case of fraud or failure to
cinemas, concert halls, circuses, shows, musical pay, the Sangguniang Panlalawigan
boxing stadia, and other places of programs, literary and may impose surcharges, interest
amusement oratorical presentations, and penalties. The proceeds from
except pop, rock, or the amusement tax shall be shared
similar concerts shall be equally by the province and the
exempt. municipality where such
amusement places are located.
Annual Fixed Tax For Every Delivery Amount not exceeding
Truck or Van of Manufacturers or P500.00.
Producers, Wholesalers of, Dealers,
or Retailers in, Certain Products.
The province may levy an annual
fixed tax for every truck or any
vehicle used by manufacturers,
producers, wholesalers, dealers or
retailers in the delivery of distilled
spirits, soft drinks, cigars and
cigarettes, and other products as
may be determined by the
Sanggunian, to sales outlets, or
consumers, whether directly or
indirectly, within the province.
The city may levy the taxes, fees, and charges which Rates of Tax within the Metropolitan Manila Area shall
the province or municipality may impose. not exceed by 50% the maximum rates prescribed for a-
The tax rates that the city may levy may exceed the h. [Sec. 144]
maximum rates allowed for the province or
municipality by not more than 50% except the rates of The Sanggunian concerned may prescribe a schedule of
professional and amusement taxes. [Sec. 151] graduated tax rates but in no case shall exceed the
rates prescribed in the LGC.
C. MUNICIPALITIES The tax is payable for every separate or distinct
establishment or place where business is conducted.
SCOPE: Municipalities may levy taxes, fees and charges not [Sec. 146]
otherwise levied by provinces. [Sec. 142]
A tax that bears a direct relation to the volume of sales
I. Tax on Business or when there is a set ration on the volume of sales and
the amount of tax, such may not be imposed by the
The municipality may impose taxes on the following: local government since these amounts to percentage
tax on sales. Serafica v. Treasurer of Ormoc City, [G.R.
a. On manufacturers, assemblers, repackers, processors, No. L-24813, April 28, 1969]
brewers, distillers, rectifiers, and compounders of
liquors, distilled spirits, and wines or manufacturers of However, if the tax is based on past quarterly sales,
any article of commerce of whatever kind or nature. these could be valid. [MMIC v. Hinobangan]
b. On wholesalers, distributors, or dealers in any article of
commerce of whatever kind or nature. II. Fees and Charges
c. On exporters, and on manufacturers, millers,
producers, wholesalers, distributors, dealers or retailers Municipalities may impose:
of the following essential commodities (where the rate
prescribed is only ½ of the regular rate [Sec. 143 par. c, a. The municipality may impose and collect such
LGC] reasonable fees and charges on business and
1. Rice and corn; occupation except professional taxes reserved for
2. Wheat or cassava flour, meat, dairy products, provinces. [Sec 147]
locally manufactured, processed or preserved b. Reasonable fees for the sealing and licensing of weights
food, sugar, salt and other agricultural, marine, and measures. [Sec 148]
and fresh water products, whether in their original c. Fishery rentals, fees and charges, including the
state or not; authority to grant fishery privileges within municipal
3. Cooking oil and cooking gas; waters, as well as issue licenses for the operation of
4. Laundry soap, detergents, and medicine; fishing vessels of three tons or less. [Sec. 149]
5. Agricultural implements, equipment and post-
harvest facilities, fertilizers, pesticides and other III. Payment of Business Taxes:
farm inputs;
6. Poultry feeds and other animal feeds; a. It shall be payable for every separate or distinct
7. School supplies; and establishment or place where the business subject to
8. Cement. the tax is conducted and one line of business does not
d. On retailers become exempt by being conducted with some other
e. On contractors and other independent contractors business for which such tax has been paid.
f. On banks and other financial institutions, b. The tax on a business must be paid by the person
conducting the same.
g. On peddlers engaged in the sale of any merchandise or c. In cases where a person conducts or operates 2 or
article of commerce more of the businesses mentioned in Section 143 of
h. On any business, which the Sanggunian concerned may LGC, the tax shall be computed as follows:
deem proper to tax. For businesses subject to the 1. If these are subject to the same rate of tax, the tax
excise, value-added or percentage tax, the tax rate shall shall be computed on the combined total gross
not exceed 2% of gross sales of the preceding calendar sales or receipts of the said 2 or more related
year. businesses.
2. If these are subject to different rates of tax, the
gross sales or receipts of each business shall be
60% to the city or municipality where the factory is E. COMMON REVENUE-RAISING POWERS OF LGUS (Secs.
located; and 153-155) [ SPT ]
40% to the city or municipality where the plantation is a. Service Fees and Charges for services rendered
located. b. Pubic Utility Charges for the operation of public utilities
owned, operated and maintained by LGUs within their
1) Individuals Liable to Community Tax –[IER] Time for Payment - accrues on the 1st day of Jan. of
each year which shall be paid not later than the last day
a. Inhabitant of the Philippines of Feb. of each year
b. Eighteen years of age or over
c. Regularly employed on a wage or salary basis for at Penalties for Delinquency. - An interest of 24% per
least 30 consecutive working days during any annum from the due date until it is paid shall be added
calendar year, or who is engaged in business or on the amount due.
occupation, or who owns real property with an
aggregate assessed value of P1,000.00 or more, or A community tax certificate may also be issued to any
who is required by law to file an income tax return person or corporation not subject to the community tax
upon payment of P1.00. [Sec. 162]
Rate: P5.00 and an annual additional tax of P1.00 for every
P1,000.00 of income regardless of whether from business, 5) Presentation of Community Tax Certificate on
exercise of profession or from property which in no case Certain Occasions: (Sec. 163, LGC)
shall exceed P5,000.00.
A. Individual
In the case of husband and wife, the tax imposed shall be 1. When an individual subject to the comm. tax
based upon the total property owned by them and the total acknowledges any document before a notary
gross receipts or earnings derived by them. [Sec. 157] public;
2. Takes the oath of office upon election or
2) Juridical Personalities (Sec. 158) appointment to any position in the government
service;
Corporations, no matter how created or organized, whether 3. Receives any license, certificate or permit from any
domestic or resident foreign, engaged in or doing business public authority;
in the Philippines are also liable to pay an annual community 4. Pays any tax or fee;
tax. 5. Receives any money from any public fund;
6. Transacts other official business; or
Rate: P500.00 and an annual additional tax, which shall not 7. Receives any salary or wage from any person or
exceed P10,000.00 in accordance with the following corporation.
schedule:
The presentation of the CTC shall not be required in
a. For every P5,000.00 worth of real property in the connection with the registration of a voter.
Philippines owned by it during the preceding year
based on the valuation used for the payment of real B. Corporation
property tax - P2.00; and 1. receives any license, certificate or permit from any
b. For every P5,000.00 of gross receipts derived by it from public authority;
its business in the Philippines during the preceding year 2. pays any tax or fee;
- P2.00. 3. receives any money from any public fund; or
4. transacts other official business.
Deficiency
(iv) Exemption of personal property from distraint 2. Action for Declaratory Relief
or levy
Injunction – if irreparable damage would be caused to the
The following property shall be exempt from distraint taxpayer and no adequate remedy is available.
and the levy, attachment or execution thereof for
delinquency in the payment of any local tax, fee or charge, IV. Jurisdiction of Courts Over Local Taxation Cases
including the related surcharge and interest:
1. With the amendment brought by R.A. No. 9282, the
(a) Tools and the implements necessarily used by the Court of Tax Appeals now has appellate jurisdiction
delinquent taxpayer in his trade or employment; over local taxation cases decided by the RTC in the
(b) One (1) horse, cow, carabao, or other beast of exercise of its appellate or original jurisdiction.
burden, such as the delinquent taxpayer may select,
and necessarily used by him in his ordinary occupation; 2. Regular judicial courts are not prohibited from
(c) His necessary clothing, and that of all his family; enjoining the collection of local taxes, subject to Rule
(d) Household furniture and utensils necessary for 58 (Preliminary Injunction) of the Rules of Court.
housekeeping and used for that purpose by the
delinquent taxpayer, such as he may select, of a value NOTE: Unlike the NIRC, the Local Tax Code does not
not exceeding Ten thousand pesos (P10,000.00); contain any specific provision prohibiting courts from
(e) Provisions, including crops, actually provided for enjoining the collection of local taxes. Such statutory
individual or family use sufficient for four (4) months; lapse or intent may have allowed preliminary injunction
(f) The professional libraries of doctors, engineers, where local taxes are involved. But it cannot negate the
lawyers and judges; procedural rules and requirements under Rule 58 of the
(g) One fishing boat and net, not exceeding the total Rules of Court Valley Trading Co. v. CFI of Isabela
value of Ten thousand pesos (P10,000.00), by the lawful [1989]
use of which a fisherman earns his livelihood; and
(h) Any material or article forming part of a house or ======================================
improvement of any real property. [Sec. 185, LGC]
TOPIC UNDER THE SYLLABUS:
(v) Penalty on local treasurer for failure to issue III. LOCAL GOVERNMENT CODE OF 1991
and execute warrant of distraint or levy B. Real Property Taxation
======================================
The Local Treasurer who: 1. Fundamental Principles in Assessment of Real Property
1. Fails to issue or execute the warrant of distraint or Taxes (Sec. 198) [CUANE]
levy after the expiration of the time prescribed, or
2. Who is found guilty of abusing the exercise thereof 1. CURRENT and fair market value is the basis of appraisal
by competent authority 2. UNIFORMITY in classification in each local government
unit should be observed
shall be automatically dismissed from the service after 3. ACTUAL USE of the property should be the basis of
due notice and hearing without prejudice to criminal classification
prosecution under the Revised Penal Code and other 4. Appraisal, assessment, levy and collection should NOT
applicable laws. [Sec. 177, LGC] BE LET to any private person.
5. EQUITABLE appraisal and assessment
d) Procedure for judicial action
2. Nature of Real Property Tax
1. Court action
Real Property Tax is a direct tax on ownership of lands and
a. within 30 days after receipt of decision or lapse of buildings or other improvements thereon payable
60 days of Secretary of Justice’s inaction [Sec. 187, regardless of whether the property is used or not, although
LGC] the value may vary in accordance with such factor.
b. within 30 days from receipt when protest of
assessment is denied [Sec. 195, LGC] Real Property Taxation covers the administration, appraisal,
c. if no action is taken by the treasurer in refund assessment, levy and collection of Real Property Tax, i.e. tax
cases and the two year period is about to lapse on land and building and other structures and
[Sec. 195, LGC] improvements on it, including machineries. (Subject to the
d. if remedies available does not provide plain, definition given by Art. 415 of the Civil Code)
3. Imposition of Real Property Tax Classification of Land for Purposes of Assessment - Sec
218(a) [CARMITS]
a. Power to Levy Real Property Tax
1. Commercial 6. Timberland
Characteristic of Real Property Tax [LIPAD] 2. Agricultural 7. Special
3. Residential
1. Direct tax on the ownership of real property 4. Mineral
2. Ad Valorem tax. The value is based on the tax base 5. Industrial
3. Proportion - the tax is calculated on the basis of a
certain percentage of the value assessed Special Classes of Real Property (Sec. 216)
4. Indivisible single obligation 1. Hospitals
5. Local Tax 2. Cultural and scientific purposes
3. owned and used by local water districts
Properties Liable for Real Property Tax 4. GOCCs rendering essential public services in the
supply and distribution of water and/or generation or
According to the Local Government Code, Real Property transmission of electric power.
liable for Real Prop tax are:
b. Properties Exempt from Real Property Tax (Sec. 234)
1. Land 1. Owned by the REPUBLIC of the PHILS or its political
2. Buildings subdivisions. Except: when beneficial use has been
3. Machinery and granted to a taxable person
4. Other improvements not otherwise exempted under 2. Charitable institutions, churches, parsonages, convents
said code [Sec 232] appurtenant thereto, mosques, non-profit or religious
cemeteries, buildings and improvements actually
NOTE: Although the term real property has not been directly and exclusively used for religious, charitable or
expressly defined in the LGC, early decisions of the Supreme educational purposes.
Court in Mindanao Bus Co. v. City Assessor of Cagayan de 3. Machinery and Equipment actually, directly, and
Oro; Board of Assessment Appeals v. Meralco; Manila exclusively used by local Water districts and GOCCs
Electric Co. v. Board of Assessment Appeals, seem to engaged in the supply and distribution of water and/or
suggest that Art. 415 of the Civil Code could also be generation and transmission of electric power
controlling. 4. Real property owned by duly registered Cooperatives
under R.A. 6938
Machinery – embraces machines, equipment, mechanical 5. Machinery & equipment for pollution control and
contrivances, instruments, appliances or apparatus which Environment protection
may or may not be attached, permanently or temporarily, to
the real property. It includes the physical facilities for Exemptions previously granted, (not falling within the above
production, the installations and appurtenant service enumeration) are withdrawn.
facilities, those which are mobile, self-powered or self-
propelled, and those not permanently attached to the real Although powerless to grant RPT exemption, LGU in
property which are actually, directly, and exclusively used to MM can exempt the 5% ad valorem tax on idle lands.
meet the needs of the particular industry, business or LGUs (within and outside MM) may also grant
activity and which by their very nature and purpose are condonation which actually partake of exemption.
designed for, or necessary to its manufacturing, mining,
logging, commercial, industrial or agricultural purposes. Proof of Tax Exemption:
[Sec. 199 [o], LGC]
Every person by or for whom real property is declared who
Machinery which are of general purpose use including but shall claim the exemption shall file with the provincial, city
not limited to office equipment, typewriters, telephone or municipal assessor within 30 days from date of
equipment, breakable or easily damaged containers (glass declaration of real property sufficient documentary
or cartons), microcomputers, facsimile machines, telex evidence in support of such claim (i.e. corporate charters,
machine, cash dispensers, furniture and fixtures, freezers, title of ownership, articles of incorporation, contracts,
refrigerators, display cases or racks, fruit juice or beverage affidavits, etc.)
Unpaid realty taxes attach to the property and are Steps in the Assessment and Collection of RPT
chargeable against the person who had actual or beneficial
use and possession of it regardless of whether or not he is STEP 1 - DECLARATION OF REAL PROPERTY
the owner. To impose the RPT on the subsequent owner
which was neither the owner nor the beneficial user of the 1. Declared by Owner or Administrator (Secs. 202-203,
property during the designated periods would not only be LGC)
contrary to law but also unjust. Estate of Lim v. City of If newly acquired property – file with the assessor
Manila, [G.R. No. 90639, February 21, 1990] within 60 days from date of transfer a sworn
statement containing FMV and description of
Types of Real Property Tax property
If improvement on real property – file w/in 60 days
1. Basic real property tax upon completion or occupation (whichever is earlier)
2. Special levies: a sworn statement of FMV and description of
a. Special Education Fund (SEF) – 1% additional real property
estate tax to finance the SEF [Sec. 235, LGC] –
within MM area only 2. Declared by Provincial / City / Municipal Assessor (Sec.
b. Additional Ad Valorem on the Lands – not 204, LGC)
exceeding 5% of the assessed value of the property
[Sec. 236. LGC] This is done only when the person under Sec 202
c. For Public Works – on lands specially benefited by refuses or fails to make the Declaration within the
public works, projects or improvements funded by prescribed time. No oath by the assessor is required.
the LGU
May be imposed even by municipalities NOTE (1): If filing for exemption under Sec. 206 of LGC, the
outside MM provided: person claiming exemptions must file with assessor
Special levy shall not exceed 60% of the actual sufficient documentary evidence to support claim within 30
cost of such projects and improvements, days from the date of declaration of property.
including the costs of acquiring land and such
other real property in connection therewith If the required evidence is not submitted within 30 days, the
not apply to lands exempt from basic real property will be listed as taxable.
property tax and the remainder of the land
had been donated to the local government NOTE (2): If property is declared for the first time, Sec. 222
unit concerned for the construction of said of LGC states that the property shall be assessed for back
projects. [Sec. 240, LGC] taxes for not mare than 10 years prior to the date of initial
assessment. The taxes shall be computed on the basis of
What Are Considered as Idle Lands: (Sec. 237, LGC) applicable schedule of values in force during the
1. Agricultural lands – More than 1 hectare if more than ½ corresponding periods.
of which remain uncultivated or unimproved by the
owner of the property or person having legal interest
STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENT
therein.
ROLLS (Secs. 205, 207, LGC)
Not Idle Lands:
1. Listing of all Real Property whether taxable or exempt
Agricultural lands planted to permanent or
within the jurisdiction of LGU.
perennial crops with at least 50 trees to a hectare
2. All declarations shall be kept and filed under a uniform
Lands actually used for grazing purposes
classification system to be established by the provincial,
2. Non-Agricultural Lands – More than 1,000 sq. m. in area
city or municipal assessor.
if more than ½ of which remain uncultivated or
unimproved by the owner of the property or person
having legal interest therein.
Procedure
1. take the schedule of FMV
2. Assessed value = FMV X Assessment level
3. Tax = Assessed value X Tax rate
Issuance of warrant by the LGU treasurer (on or before or Civil Action (Secs. 266, 270, LGC) – filed by the local
simultaneously with the institution of civil action for collection treasurer within 5 or 10 years as provided in Sec. 270 of the
of delinquent tax) LGC.
7. Taxpayer’s Remedies
Advertise sale or auction (within 30 days after service of
warrant) by posting and publication A. Administrative
1. Protest
Report of sale (within 30 days after sale). Preparation of File written protest with local treasurer (within 30 days from
certificate of sale (containing the name of the purchaser, payment of tax)
description of the property, amount of delinquent tax and its
interest, expenses.
Treasurer decides (within 60 days from receipt of protest)
B. Judicial
A personal debt due from the importer which can be 1. To increase, reduce or remove existing protective rates
discharged only by payment in full of all duties and taxes of import duty (including any necessary change in
classification)
a lien upon imported articles which may be enforced while the existing rates may be increased or decreased
they are in custody or subject to the control of the to any level on one or several stages but in no case
government [Sec. 1204] shall be higher than a maximum of 100% as
valorem
Extend of Importer’s Liability 2. To establish import quota or to ban imports of any
commodity, as may be necessary
Limited to the value of the imported merchandise. In case 3. To impose an additional duty on all imports not
of forfeiture of the seized materials, the maximum civil exceeding 10% ad valorem whenever necessary
penalty is the forfeiture itself. Mendoza v. David, [1 SCRA
791] Limitation Imposed Regarding the Flexible Tariff Clause
Imported Goods Must be Entered in the Customhouse 1. Conduct by the Tariff Commission of an investigation in
a public hearing
Imported goods must be entered in the customhouse at a. The Commissioner shall also hear the views and
their port of entry otherwise they shall be considered recommendations of any government office,
as contraband and the importer shall be liable for agency or instrumentality concerned
smuggling [Sec. 1201] b. The NEDA thereafter shall submits its
Port of entry means a domestic port open to both recommendation to the President
foreign and coastwise trade including “airport of entry”. 2. The power of the President to increase or decrease the
[Sec. 3514] rates of import duty within the abovementioned limits
All articles when imported from any country into the fixed in the Code shall include the modification in the
Philippines shall be subject to duty upon each form of duty.
importation, even though previously exported from the 3. In such a case the corresponding ad valorem or specific
Phils. except as otherwise specifically provided for in equivalents of the duty with respect to the imports
the TCC or other laws. [Sec. 1201] from the principal competing country for the most
recent representative period shall be used as bases.
Preference on the Owner of Imported Articles for Customs [Sec. 401, TCC]
Purposes
All articles imported into the Philippines shall be held to be ======================================
the property of: TOPIC UNDER THE SYLLABUS:
the person to whom the property is consigned IV. TARIFF AND CUSTOMS CODE OF 1987
the holder of the bill of lading duly endorsed by the E. Requirements for Importation
consignee therein named ======================================
the consignee if consigned to order by the consignor 1. Beginning and Ending of Importation
the underwriters of the abandoned articles saved from
a wreck at sea, along the coast or in any area in the Application of the TCC
Phils.
TCC applies only after importation has begun but
====================================== before importation is terminated
TOPIC UNDER THE SYLLABUS:
IV. TARIFF AND CUSTOMS CODE OF 1987 Importation Begins: when the conveying vessel or
aircraft enters the jurisdiction of the Philippines with
D. Flexible Tariff the intention to unload therein
======================================
Import duties which are modified by the President upon NOTE: If there is intention to unload, even if cargo not
investigation by the Tariff Commission and recommendation
yet unloaded, and there is unmanifested cargo,
ARTICLE CONDITIONS
Animals and plants For scientific, experimental, propagation, botanical, breeding,
zoological and national defense purposes
Aquatic products caught or gathered by vessels of Philippine registry
Not have landed in foreign territory, or if landed, solely for
transshipment
Equipment used for the salvage of vessels or aircraft Bond= 1 ½ x of ascertained duties, taxes and charges
not available locally Must be exported within 6 months
Costs of repair made in foreign country of Phil vessels Phil must not have adequate facilities to make repair
or aircraft Vessel was compelled by weather or casualty to go to a foreign
port of repair
Excludes value of article used for repair
Articles brought into the Philippines for repair, to be re-exported upon completion of the repair, processing or
processing, or reconditioning reconditioning
Bond = 1 ½ x of ascertained duties, taxes and charges
Trophies, prizes (medals, badges, cups) Those
received as honorary distinction
Samples in such quantity and of such dimensions or models not adopted for practical use, and
constructions as to render them unsaleable or of no samples not for sale
appreciable commercial value, marked sample sale punishable by law
for purpose of introducing new product
imported by person duly registered and identified to be engaged in
that trade
Importations authorized by Sec of Finance
Personal and household effects of returning Phil formally declared and listed before departure and identified under
residents oath before the Collector of Customs when exported from the Phil
by such returning residents upon their departure therefrom or
during their stay abroad
personal and household effects including wearing apparel, articles
of personal adornment (except luxury items) toilet articles,
instruments related to one’s profession and analogous personal or
household effects, excluding vehicles, watercraft, aircraft and
animals, purchased in foreign countries by residents of the
Philippines which were necessary, appropriate and normally used
for their comfort and convenience during their stay abroad,
accompanying them on their return or arriving within a reasonable
time which, barring unforeseen and fortuitous events, in no case
shall exceed 60 days after the owner’s return, subject however to
the following provisions:
1. That the personal and household effects shall neither be in
commercial quantities nor intended for barter, sale or hire and
that the total dutiable value of which shall not exceed P10,000
2. That the returning resident has not previously availed of the
privilege under this section within 365 days prior to his arrival
3. That a 50% ad valorem duty across the board shall be levied and
collected on the personal and household effects in excess of
P10,000
Wearing apparel, articles of personal adornment, arriving within a reasonable time, before or after the owners,
toilet articles, portable tools and instruments, in use of and necessary and appropriate for the wear or use of such
theatrical costumes and similar personal effects persons according to their profession or position
accompanying travelers or tourists in their baggage for the immediate purposes of their journey and their present
comfort and convenient.
Personal and household effects, vehicles of foreign Accompany them or arrive at a reasonable time
Dutiable Importation All additions to the price actually paid or payable shall be
Articles although previously exported from the made only on the basis of objective and quantifiable data.
Philippines, become dutiable from the entry of the
vessel or aircraft into the Philippine jurisdiction until No additions shall be made to the price actually paid or
the payment of duties, taxes, and other charges and payable in determining the customs value except as
the issuance of the permit for the withdrawal of said provided in this Section: Provided, That Method One shall
goods from the custom houses. not be used in determining the dutiable value of imported
goods if:
Methods of Valuation/ Basis of Dutiable Value (Sec. 201
TCC, as amended by RA 9135) a) There are restrictions as to the disposition or use of the
goods by the buyer other than restrictions which:
(A) Method One. – Transaction Value. - The dutiable value Are imposed or required by law or by Philippine
of an imported article subject to an ad valorem rate of duty
authorities;
shall be the transaction value, which shall be the price
Limit the geographical area in which the goods
actually paid or payable for the goods when sold for export
may be resold; or
to the Philippines, adjusted by adding:
Do not substantially affect the value of the goods.
1. The following to the extent that they are incurred by
b) The sale or price is subject to some condition or
the buyer but are not included in the price actually paid
consideration for which a value cannot be determined
or payable for the imported goods:
with respect to the goods being valued;
a. Commissions and brokerage fees (except
c) Part of the proceeds of any subsequent resale, disposal
buying commissions);
or use of the goods by the buyer will accrue directly or
b. Cost of containers;
indirectly to the seller, unless an appropriate
c. The cost of packing, whether for labor or
adjustment can be made in accordance with the
materials;
provisions hereof; or
d. The value, apportioned as appropriate, of the
d) The buyer and the seller are related to one another,
following goods and services: materials,
and such relationship influenced the price of the goods.
components, parts and similar items
Such persons shall be deemed related if:
incorporated in the imported goods; tools;
They are officers or directors of one another’s
dies; moulds and similar items used in the
businesses;
production of imported goods; materials
They are legally recognized partners in business;
consumed in the production of the imported
goods; and engineering, development, There exists an employer-employee relationship
artwork, design work and plans and sketches between them;
undertaken elsewhere than in the Philippines Any person directly or indirectly owns, controls or
and necessary for the production of imported holds five percent (5%) or more of the outstanding
goods, where such goods and services are voting stock or shares of both seller and buyer;
supplied directly or indirectly by the buyer One of them directly or indirectly controls the
free of charge or at a reduced cost for use in other;
connection with the production and sale for Both of them are directly or indirectly controlled
export of the imported goods; by a third person;
e. The amount of royalties and license fees Together they directly or indirectly control a third
related to the goods being valued that the person; or
buyer must pay, either directly or indirectly,
I. Administrative
1. Protest
- Any importer or interested party dissatisfied
with published value within 15 days from date
of publication, or within 5 days from the date
the importer is entitled to refund if payment is
ALL articles imported into the Philippines whether Properties Not Subject to Forfeiture in the Absence of
subject to duty or not shall be entered through a Prima Facie Evidence –
customs house at a port of entry.
The forfeiture of the vehicle, vessel or aircraft shall not
ENTRY in Customs law means - be effected if it is established that the owner thereof or
his agent in charge of the means of conveyance used as
1. The documents filed at the Customs house aforesaid has no knowledge of or participation in the
2. The submission and acceptance of the documents unlawful act:
Jurisdiction of RTC over seizure and forfeiture proceedings IF DECISION IS NOT IF DECISION IS NOT
FAVORABLE TO THE FAVORABLE TO THE
The RTC do not have jurisdiction over seizure and AGGRIEVED OWNER OR GOVERNMENT
forfeiture proceedings conducted by the BOC and to IMPORTER
interfere with these proceedings. The Collector of Appeal by aggrieved owner Automatic review by Comm.
Customs has exclusive jurisdiction over all questions or importer
touching on the seizure and forfeiture of dutiable
goods. Requirements for Customs Forfeiture
No petitions for certiorari, prohibition or mandamus
filed with the RTC will lie because these are in reality 1. The wrongful making by the owner, importer, exporter
attempt to review the Commissioner’s actuations. or consignee of any declaration or affidavit, or the
Neither replevin filed with the RTC will issue. wrongful making or delivery by the same persons of
Rationale: Doctrine of Primary Jurisdiction. Even if a any invoice, letter or paper - all touching on the
Customs seizure is illegal, exclusive jurisdiction (to the importation or exportation of merchandise; and
exclusion of regular courts) still belongs to the Bureau 2. That such declaration, affidavit, invoice, letter or paper
of Customs. Jao v. CA, [October 6, 1995] is false. Farolan, Jr. v. CTA, [217 SCRA 298]
Goods in Customs Custody Beyond Reach of Attachment Places Where Searches and Seizures May Be Conducted
Exceptions:
Reasons:
Abatement
Case law in most jurisdictions now allows both "citizen" and Determinants whether a matter is of transcendental
"taxpayer" standing in public actions. De Castro v. JBC, [G.R. importance:
No. 191002, March 17, 2010]
(1) the character of the funds or other assets involved in the
The distinction was first laid down in Beauchamp v. Silk: case;
The plaintiff in a taxpayer's suit is in a different (2) the presence of a clear case of disregard of a
category from the plaintiff in a citizen's suit. constitutional or statutory prohibition by the public
respondent agency or instrumentality of the government;
In the former, the plaintiff is affected by the and
expenditure of public funds, while in the latter, he is
but the mere instrument of the public concern. (3) the lack of any other party with a more direct and
specific interest in the questions being raised.
As held by the New York Supreme Court in People ex rel
Case v. Collins: (CREBA v. ERC and Meralco, G.R. No. 174697, 8 July 2010;
citing Senate of the Philippines vs. Ermita, G.R. No. 169777,
In matter of mere public right, the people are the real April 20, 2006, 488 SCRA 1, 39-40; and Francisco v.
parties…It is at least the right, if not the duty, of every Nagmamalasakit na mga Manggagawang Pilipino, Inc., G.R.
citizen to interfere and see that a public offence be No. 160261, November 10, 2003, 415 SCRA 44, 139, citing
properly pursued and punished, and that a public Kilosbayan v. Guingona, G.R. No. 113375, May 5, 1994, 232
grievance be remedied. SCRA 110, 155-157.)
With respect to taxpayer's suits, Terr v. Jordan held that:
RIPENESS
The right of a citizen and a taxpayer to maintain an
action in courts to restrain the unlawful use of public An aspect of the "case-or-controversy" requirement is the
funds to his injury cannot be denied. requisite of "ripeness."
3. REQUISITES
In the United States, courts are centrally concerned
with whether a case involves uncertain contingent
To constitute a taxpayer's suit, two requisites must be met,
future events that may not occur as anticipated, or
namely, that:
indeed may not occur at all.
(1) Public funds are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some Another approach is the evaluation of the twofold
irregularity is committed, and aspect of ripeness:
TAX RATE FOR RATE FOR NON- NON-RESIDENT ALIEN NON-RESIDENT ALIEN
TAX RATE FOR
TYPE OF INCOME RESIDENT RESIDENT CITIZEN ENGAGED IN TRADE / NOT ENGAGED IN
RESIDENT ALIEN
CITIZEN (INCL. OCW) BUSINESS TRADE / BUSINESS
Interest from any currency bank deposit & yield or 20% Final Tax 20% Final Tax 20% Final Tax 20% Final Tax 25% Final tax
any other monetary benefit from deposit
substitutes & from trust funds & similar
arrangements
Royalties (except on books & other literary works
& musical compositions)
Prizes > P10,000
Other winnings except PCSO & Lotto
Royalties on books & other literary works & Final Tax of 10% Final Tax of 10% Final Tax of 10% Final Tax of 10% 25% Final tax
musical compositions
Prizes < P10,000 Schedular rate Schedular rate Schedular rate Schedular rate 25% Final tax
Winnings from PCSO & Lotto exempt exempt Exempt Exempt 25% Final tax
Interest Income received by an individual (except a 7.5% Final Tax exempt 7.5% Final Tax Exempt Exempt
nonresident individual) from a depositary bank
under the expanded foreign currency deposit
system
Interest income from long term deposit or Exempt from tax Exempt from tax Exempt from tax Exempt from tax 25% Final tax
investment in the form of savings, common or
individual trust fund, deposit substitutes,
investment management accounts & other
investments evidenced by certification in such
form prescribed by the BSP
Pre-termination of such certificate before the 5th 5% Final tax on 5% Final tax on the 5% Final tax on the 5% Final tax on the N/A
year (i.e. 4 years to less than 5 years) the entire income entire income entire income entire income
3 years to less than 4 years 12% 12% 12% 12% N/A
less than 3 years 20% 20% 20% 20% N/A
Cash and/or Property Dividends from a domestic 10% Final Tax 10% Final Tax 10% Final Tax 20% Final Tax 25% Final tax
corp. or from a joint stock co., insurance or mutual
fund companies & regional operating headquarters
of multinational companies;
Share of an individual in the distributable net
income after tax of a partnership (except GPP);
Share of an individual in the net income after tax
Capital gains from sale, exchange or other 6% Final Tax on 6% Final Tax on the 6% Final Tax on the 6% Final Tax on the 6% Final Tax on the
disposition of real property located in Philippines, the gross selling gross selling price gross selling price or gross selling price or gross selling price or
classified as capital assets, including pacto de retro price or current or current fair current fair market current fair market current fair market
sales & other forms of conditional sales fair market value market value or value or zonal value value or zonal value value or zonal value
or zonal value zonal value whichever is higher whichever is higher whichever is higher
whichever is whichever is higher
higher
International Shipping
Gross Phil Billings = gross revenue whether for passenger, cargo or mail originating from the Philippines. up to final
destination, regardless of the place of sale/ payments of passage of freight documents
Offshore Banking Units Final Tax of 10% on gross income from
transactions with residents
Branch 15% on branch profits remittance
Profits remitted (connected with the conduct of its trade/business in the Philippines.) = based on the total profits
applied/earmarked for remittance without any deduction for the tax component thereof (except the PEZA-registered)
Regional/Area Headquarters of Multinational Cos. = do not earn/derive income from the Philippines. & w/c act as Exempt from tax
supervisory, communication & coordinating center for their affiliates, subsidiaries or branches in the Asia-Pacific
Region & other foreign markets
Regional Operating Headquarters of Multinational Companies = engaged in any of the following services:
a. General Administration & planning j. Technical support & maintenance 10% of taxable income
b. Business planning & coordination k. Data processing & communication
c. Sourcing & procurement of raw materials & components l. Business development
d. Corporate finance advisory services
e. Marketing control & sales promotion
f. Training & personnel mgt.
g. Logistic services
h. Research & development
i. Services & product development
** Multinational company = a foreign firm/entity engaged in international trade with affiliates/subsidiaries/branch offices in the Asia Pacific Region & other foreign markets.
Pays duties, taxes, etc. Files written protest with ruling of Collector (Sec.
2303, TCC)
Within 15 days from receipt of assessment
No protest considered unless amount due is paid
Assessment final
If unfavorable, appeal to CTA w/in
30 days from receipt of decision
Assessment final (Sec. 7, RA 1125)
PRESCRIPTIVE PERIOD OF ASSESSMENT AND COLLECTION PRESCRIPTIVE PERIOD OF ASSESSMENT AND COLLECTION
1. Power/Authority to assess tax: Commissioner LOCAL TAX
of Internal Revenue 1. Assessment:
a. 3 yrs – from filing of return or date a. 5 yrs – from the day they become due
prescribed by law, whichever is later date (Sec. 194)