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Taxation Law 2 Reviewer
Taxation Law 2 Reviewer
1.) Did not impose an estate tax; or 3. Intangible personal property within the Philippines,
2.) Allowed a similar exemption from estate tax with unless there is reciprocity in which case, it is not
respect taxable.
to intangible personal property owned by Filipino
citizens Note: These are either:
residing in that foreign country. A) Properties actually owned at the time of death
B) Properties deemed by law to be owned by the
Note: decedent
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1. Reciprocity applies only when: under Sec. 85
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a.) The property is an intangible; and
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b.) The decedent is a nonresident alien
RC Inter Vivos Transfers Subject to Estate Tax
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2. The following intangibles are deemed located in the The gross estate extends to gratuitous transfers
Philippines: (an exception to the principle of Res Mobilia made by the decedent during his lifetime which are
Sequuntur Personam and Situs of Taxation) treated by the law as substitutes for testamentary
dispositions. They are transfers inter vivos in form
a.) Franchises which must be exercised in the but mortis causa in substance.
Philippines;
b.) Shares, obligations or bonds issued by any Rationale for taxability:
corporation or
sociedad anonima organized or constituted in the To reach such transfers which are really
Philippines in accordance with its laws; substitutes for testamentary dispositions and thus
c.) Shares, obligations or bonds issued by any foreign prevent the evasion of the estate tax.
corporation 85% of the business of which is located in
the Philippines; These transfers are:
d.) Shares, obligations or bonds issued by any foreign a.) transfers in contemplation of death (sec.85 b);
corporation if such shares obligations or bonds have b.) transfers with retention or reservation of
acquired a business situs in the Philippines; and certain rights (sec.85 b);
e.) Shares or rights in any partnership, business, or c.) revocable transfers (sec.85 c)
industry d.) transfers of property arising under a general
established in the Philippines. power of appointment ( sec.85 d); and
e.) transfers for insufficient consideration (sec.85
GROSS ESTATE g)
the total value of all property, whether real or
personal, tangible or intangible belonging to the Note:
decedent at the time of his death, situated within Transfers by virtue of a bona fide sale of
or outside the Philippines, where such decedent property for an adequate and full consideration in
was a resident or citizen of the Philippines. money or money’s worth are excluded and not
In the case of a nonresident alien decedent, it taxable.
shall include only property situated in the INCLUSIONS IN THE GROSS ESTATE (CR2IG DIP)
Philippines.
1) Decedent’s interest at a specific property
- To the extent of the interest therein of the decedent
Property Included in the Gross Estate (INCLUSIONS):
at the time of his death. (Sec. 85 A)
A. In case of resident citizens, nonresident citizens and
resident aliens:
- Ex: partnership interest, dividends
1. Real Property within and without the Philippines;
2. Tangible personal property within and without the
2) Transfer in contemplation of death
Philippines; and
- A transfer with the thought of death.
3. Intangible personal property within and without the
Philippines. - The term “in contemplation of death” means that the
impelling or controlling motive is the thought of
B. In cases of nonresident aliens: death, regardless of whether the transferor is near
1. Real property within the Philippines; the possibility of death or not, which induces the
2. Tangible personal property within the Philippines disposition of the property for the purpose of
and; avoiding the tax.
The power to alter, amend or revoke shall be considered money’s worth. The excess of the fair market value
to exist on the date of the decedent’s death even though: at the time of death over the value of the
a.) the exercise of the power is subject to a consideration received by the decedent shall form
precedent giving of notice; or part of his gross estate.
b.) The alteration, amendment or revocation takes
effect only upon the expiration of a stated period - However, if the purported absolute sale inter vivos
after the exercise of the power. by the decedent is shown to be fictitious, then the
total value of the property transferred is subject to
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If the notice has not been given or the
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inclusion in the taxable estate.
power has not been exercised on or before the
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RC decedent’s death, such notice or the power shall - Ex: X owns a house and lot, he wants to help Y so he
BA be considered to have been given or exercised sells his house worth P5M for only P1M. At the time of
on the date of the decedent’s death. X’s death, his house and lot is worth P10M.
How much is included in the gross estatre of X? 10-1 =
4.) Transfer of property under a general power of 9M
appointment
- Ex: X bought a car worth P1.3M. X needed money so he
- A transfer where the donor of the power of sells his car to Y for only P1M. This is not a transfer for
appointment authorizes the donee of such power to insufficient consideration as this is a bona fide transfer at
designate any person he chooses to be given the right arm’s length; hence, a valid transfer.
over the appointed property.
6.) Proceeds of life insurance
- The transferee may choose freely any person who will - Proceeds of life insurance taken by the decedent on his
own the property after he dies own life shall be included in the gross estate if the
beneficiary:
- Rationale: the will of the transferee is followed; hence, A.) Is the estate of the decedent, his executor, or
part of transferee’s estate administrator (regardless whether the
designation is revocable or irrevocable); or
* Note: the decedent is the transferee in this provision B.) Third person other than the estate, executor,
administrator but the designation of the
General power of appointment vs. special power of beneficiary is revocable.
appointment: - Presumption: proceeds are revocable
- include in the estate only if it is revocable as the
A.) A power is general, when it authorizes the decedent retained control over the proceeds
donee of the power to appoint any person he
pleases including himself, thus having a full 7.) Prior Interest
dominion over the property as if he owned it. - Except as otherwise specifically provided therein,
subsections (B), (C), (E) of Section 85 referring to
B.) It is special when, the donee can appoint only transfer in contemplation of death, revocable transfer
among a restricted or designated class of and proceeds of life insurance respectively shall apply
persons other than himself. to the transfers, trusts, estates, interests, rights, powers
and relinquishment of powers as severally
Note: enumerated and described therein, whether made,
If the power of appointment is general, it makes created, arising, existing, exercised or relinquished
the appointed property a part of the donee’s before or after the effectivity of the CTRP.
property.
NOTE:
Under a general power of appointment, title to In most of these transfers the property remains
the property is legally transferred to the donee. substantially that of the transferor during his lifetime
Therefore the property shall form part of the gross notwithstanding the transfer since he still retains either
estate of the donee. the “beneficial ownership” or “naked title” to the
property.
- The amount deductible is equal to 5% of the gross - ex: expenses to be declared as administrator vs. an
estate or the amount of the actual funeral expenses oppositor is a personal expense
whichever is lower, but in no case to exceed P200,000;
- Requisites:
a) The expenses must be due to the interment, wake 4) Claims against the insolvent persons
and burial; hence, expenses on the death - Requisites for deductibility:
anniversary are not included a) The amount of said claims has been initially
b) The expenses must have been shouldered by the included as part of the gross estate; and
estate and not by other people b) The incapacity of the debtors to pay their
obligations is proven and not merely alleged.
2) Judicial expenses of the testamentary or intestate
proceedings 5) Unpaid mortgages indebtedness
- Requisite: “administration expenses” to those actually
incurred in the administration of the estate. - Requisites for deductibility:
a) The fair market value of the property mortgaged
- Examples: without deducting the mortgage indebtedness
a) fees of the executor or administrator; has been initially included as part of his gross
b) attorney’s fees; estate;
c) accountant’s fees; b) The mortgage indebtedness was contracted in
d) court fees; good faith and for an adequate and full
e) salaries of employees; and consideration in money or money’s worth.
f) All other expense related to the
administration of the estate. - ex: X obtained a 3M loan from Y and executed a Real
Estate Mortgage over his house and lot worth 5M. X
Note: paid 1M. X died.
This includes “all expenses necessary to settle or Effect: in the estate of X, include the 5M in the gross
preserve the estate” hence, extrajudicial expenses are estate of X and claim as deduction the unpaid 2M.
included.
Accommodated Loan
Expenses not essential to the proper settlement - Ex: X owns a house and lot worth 5M. Y obtained a 3M
of the estate but incurred for the individual benefit loan from Z with X’s house and lot as collateral. Y paid
of the heirs, legatees, or devisees are not allowed as 1M. Z died. X died.
deductions.
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REVIEW NOTES FOR TAXATION 2 7
3. In favor of the government of the Philippines, or b. Must be duly substantiated by receipts; and
any c. Must not exceed P500, 000
political subdivision thereof.
4. Exclusively for public purpose. *Opinion of JB: medical expense must be related to the
5. Included in the gross estate cause of death as it is the estate that is being settled.
Otherwise, if not related, it is a personal expense.
Query: If in a will the property was bequeathed to a city
and an NGO, are the tax effects the same? No. G. Amounts Received By Heirs Under RA 4917 From
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a) City - included in the gross estate and claimed as The Decedent’s Employer As A Consequence Of The
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deduction Death Of The Decedent–Employee, Provided That
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b) NGO – excluded from the gross estate and subject to
RC Such Amount Is Included In The Gross Estate Of The
the limitation that not more than 30% must be used for
BA Decedent.
administrative purposes - retirement benefits
- Requisite: include in gross estate
2.) Under limitation B the allowable tax credit is the * Note : The law does not state that the prevailing
lower amount between the tax credit limit computed market rate or the consideration as a basis for
under (A) and that computed under (B) determining the FMV
pay the executor or judicial administrator without said distributive share of the estate (Sec. 91 (c)). He may be
certification if the credit is included in the inventory of discharged from personal liability for deficiency in the
the estate of the deceased. (Sec. 95) estate tax only after written application to the
- else: debtor may be personally liable for the payment of commissioner and upon determination that no such
the lost tax, like a withholding agent who fails to deficiency appears. (Sec. 92)
withhold taxes
NOTE: Additional Readings
e. Corporations, sociedad anonima, 1. Revenue Regulation 2-2003
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partnerships, business or industry organized in the 2. Revenue Memorandum Order 15-2003
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Philippines shall not transfer in their books any shares
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obligations, bonds or rights by way of gift inter vivos or
RC
mortis causa, legacy or inheritance to the new owner
BA TAX TIPS: Avoidance of Estate Tax Liability
unless a certification from the Commissioner that the 1. Maximize your claims for deductions such as the use
taxes fixed and due thereon have been is shown; (Sec. of the transfers falling under the exclusions from gross
97) estate.
- obligation of corporate secretary
2. Donate properties to your relatives as the tax rates for
f. If a bank has knowledge of the death of a donor’s taxes are lower than for estate taxes.
person who maintained a bank deposit account alone or
jointly with another, it shall not allow any withdrawal 3. Estate Planning (Section 40 (c), NIRC)
from the said joint deposit account unless the - execute a Deed of Exchange; the properties of at most
Commissioner has certified that the estate taxes imposed 5 persons in exchange for shares of stock in order to
thereon have been paid. However, the administrator of obtain control of the corporation (more than 51%
the estate or any of the heirs of the decedent may, upon ownership)
authorization by the Commissioner of Internal Revenue - this exchange is not taxable for income tax purposes
withdraw an amount not exceeding P 20,00 without the - more tax savings if real properties are exchanged
said certification . (Sec. 97) - the properties in the deed will no longer be part of
the gross estate as it is now owned by the corporation
- For this purpose, all withdrawal slips shall contain a - the stock shares will be included in the gross estate
statement to the effect that all of the joint depositors are but the tax would be lower as the value at time of
still living at the time of withdrawal by any one of the death might still be the same original value at the time
joint depositors and such statement shall be under oath. of exchange; on the other hand, if there was no
Otherwise, the joint depositor will be liable for perjury exchange the estate tax for the land would be higher as
(Sec. 267). the value of the land at time of death will be higher
than at the time of the acquisition.
- joint accounts covered by this rule include “and” and
“and/or” accounts, but do not include an account 4. Set up a living trust
subject to a Survivorship Agreement with a survivor- - Trust: obligation imposed by a person regarding his
take-all feature (because there is an automatic transfer of property
right to the survivor; hence, not included in gross estate - Create an irrevocable trust over your properties so
of the joint depositor who died – tax avoidance scheme) that they will not form part of your gross estate when
you die. This is because the Irrevocable Trust is a new
g. The estate tax together with interest, penalties, taxpayer created.
and costs that may accrue in addition thereto constitutes - Ex: grandfather (Grantor) during his lifetime would
a lien upon all property and rights to property belonging like to give certain properties to his grandchild. Until
to the taxpayer. The lien attaches when the taxpayer he reaches the age of maturity, the properties will be
neglects or refuses to pay after demand. (Sec. 219) held in trust by X (trustee) for the grandchild
(Beneficiary).
h. In judicial settlement of estates, the court is
required to furnish the commissioner of Internal
Revenue a certified copy of the schedule of participation
and the court order approving the same within 30 days
after its promulgation. (Sec. 91(b));
DISTINCTION BETWEEN DONOR’S AND ESTATE 1.) CAPACITY of the donor to make the donation;
TAX 2.) DONATIVE INTENT or INTENT on the part of
the donor to make a gift;
DONOR’S TAX ESTATE TAX 3.) DELIVERY, whether actual or constructive, of
Tax on the privilege to Tax on the privilege to the gift; and
transmit property during transmit property upon 4.) ACCEPTANCE of the gift by the donee.
the lifetime of the donor one’s death
Note:
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Tax rates are lower (2 to Tax rates are higher (5
A. The donee, unlike the donor need not be capacitated.
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15) to20)
B. donor’s tax applies now to both natural and juridical
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Exemption is only P
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100,000.00
RC P200,000.00 persons.
Notice of donation is
BA Notice of death is required C. donative intent must be present in direct gift but with
generally not required respect to indirect gift, e.g. transfer of property for
Extension of payment is Extension of payment less than an adequate and full consideration,
not provided may be granted by the donative intent is superfluous. Thus, donative intent
Commissioner of Internal is not always essential to constitute a gift.
Revenue D. In Abello vs. CIR (Feb. 25, 2005), donative intent is
Payable within 30 days Payable within 6 months evidenced by a reduction of patrimony of one and an
from the date of gift from the date of death increase in patrimony to the other.
Imposed on the net gift Imposed on the net estate
Purposes Of Gift Tax
II. DONOR’S TAX / GIFT TAX 1.) The gift tax was enacted originally to
supplement the estate and inheritance taxes by
A. NATURE preventing their avoidance through the taxation of
- It is an excise (privilege) tax, imposed on the privilege gifts inter vivos.
of the donor to give or on the privilege of the done to 2.) The donor’s tax is also intended to prevent the
receive. It is not a tax on the property as such because its avoidance of income tax through the device of
imposition does not rest upon general ownership. splitting income among numerous/different donees
with the donor thereby escaping the effect of the
- The tax is imposed without reference to the death of progressive rates of income taxation.
the donor unlike in the case of estate tax.
Kinds Of Gift Taxes:
Donation / Gift 1. Donor’s tax or tax levied on the act of giving; it
- an act of liberality whereby a person disposes supplements the estate tax; and
gratuitously of a thing or right in favor of another who 2. Donee’s tax or tax levied on the act of receiving;
accepts it. it was formerly the counterpart of the inheritance
tax, which has been integrated into an estate tax.
- For tax purposes, the term has a much wider meaning,
it includes: *Both taxes have now been integrated into a donor’s tax.
1. Real property within the Philippines. 3. The child must be either the legitimate,
2. Tangible personal property within the recognized natural or legally adopted child of
Philippines. the donor, and;
3. Intangible personal property within the 4. It must be given before or one year after the
Philippines, unless there is reciprocity in which celebration of the marriage.
case, it is not taxable.
b.) Gifts made to or for the use of the National
Note: Government or any of its agencies which is not
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The specific items includible in the “gross estate” are conducted for profit, or to any political subdivision of
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applicable to and are embraced by the term “gift”.
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BA c.) Gifts in favor of educational, charitable, religious,
B. FACTORS AFFECTING LIABILITY FOR GIFT cultural or social welfare corporation, institutions,
TAXES foundations, trust or philanthropic organization,
research institution or organization, or accredited non-
1. Relationship of the donor and the donee government organization. Provided, that no more than
a) when the donee is considered a stranger to the 30% of said gifts shall be used by such donee for
donor, the donor’s tax shall be 30% of the net gifts. administration purposes.
b) when the donee is a relative of the donor, the tax
shall be based on the 2-15% table under Sec. 99(A). Note:
For purposes of exemption, a non-profit
Stranger educational and/or charitable corporation,
1.) one who is not a : institution, accredited non-government
(a) brother/sister (whole or half blood), spouse, organization, trust or philanthropic organization is
ancestor and lineal descendant defined as:
(b) relative by consanguinity in the collateral line school, trust or university and/ or charitable
within the fourth degree of relationship corporation, foundation trust or philanthropic
2.) donations made between individuals and business organization and/ or research institution or
organizations are considered donations to organization incorporated as a non-stock entity:
strangers paying no dividends.
3.) donations made between business organizations governed by trustees who receive no
are considered donations made to strangers compensation; and
(RR 2-2003) devoting all its income to the accomplishment
and promotion of the purposes enumerated in
Note: Donees who have no blood relation to the donor its articles of incorporation.
are considered strangers to the donor, such as those
made to one’s in-laws or to juridical persons.
a.) Dowries or gifts made on account of marriage before 2. Gifts made by a Non-Resident Alien
its celebration or within one year thereafter by parents to a.) Gifts made to or for the use of the National
each of their legitimate, illegitimate or adopted children Government or any entity created by of its
to the extent of the first P10,000.00. agencies which is not conducted for profit, or to
any political subdivision of the said government.
Requisites:
1. The donation must be given on account of b.) Gifts in favor of educational, charitable, religious,
marriage. cultural or social welfare corporation, institution,
2. The parent must give it to his child. foundations trust or philanthropic organization,
research organization or institution; Provided, that
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no more than 30% of said gifts shall be used by 1. Donor was a Filipino citizen or resident alien, at the
such donee for administration purposes. time of foreign donation
Note: doesn’t include accredited NGO 2. Donor’s taxes of any character and description are
Note: imposed and paid by the authority of a foreign
1. Intangible personal property in the gross gift of a country.
NON-RESIDENT ALIEN donor shall be taxable in the
Philippines, if the PRINCIPLE OF RECIPROCITY is not
cognizable. Limitations:
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A.) For donor’s tax paid to one foreign country;
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2. Intangible personal properties considered situated in
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the Philippines.
RC The amount of tax credit in respect to the tax
BA paid to any country shall not exceed the same
Franchise which must be exercised in the proportion of the tax against which credit is taken
Philippines which the net gifts situated within such country
Shares of stocks issued by any corporation or taxable under the National Internal Revenue Code
sociedad anonima organized or constituted in bears to his entire net gift, and
the Philippines in accordance with its laws.
Shares of stocks issued by any foreign B.) For donor’s tax paid to two or more foreign
corporation 85% of the business of which is countries:
situated in the Philippines.
Shares of stock issued by a foreign corporation, The total amount of the credit shall not exceed
if such shares, obligations, or bonds, have the same proportion of the tax against which such
acquired a business situs in the Philippines; and credit is taken, which the donor’s net gift situated
Shares or rights in any partnership, business or outside the Philippines taxable under the National
industry established in the Philippines. Internal Revenue Code bears to his entire net gift.
Formula:
General Rule: The amount by which the FMV of the Entire net gifts
property exceeded the value of the consideration shall
be deemed a gift
2. Donor’s Taxes paid to 2 or more Foreign Countries
Exception: real properties classified as capital assets (not
used in business) as there were already subjected to Tax Credit Limit =
Capital Gains Tax
Net gifts outside the Philippines X Phil. Donor’s
Tax
E. TAX TREATMENT OF POLITICAL
CONTRIBUTIONS Entire net gifts
- any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign Note:
purposes shall be governed by the Election Code; hence, Under limitation A the allowable tax credit limit
this is not subject to gift tax (report to COMELEC?) is the LOWER AMOUNT between the tax credit
limit and the gift tax paid to the foreign country.
F. TAX CREDIT FOR DONOR’S TAXES PAID TO A Under limitation B the allowable tax credit is the
FOREIGN COUNTRY LOWER AMOUNT between the tax credits;
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limit computed under A and that computed 2. Donee is any of the organizations mentioned
Under B. under Sec. 101(A3) and Sec. 101 (B2)
3. Donor must give notice to the RDO on every
Note: Void Donations Are Not Subject To Donor’s Tax donation worth at least P50,000.
Such as: 4. The notice must be given within 30 days from the
Between husband and wife, even if the relationship issuance by the donee of a Certificate of Donation.
has not been solemnized. 5. The certificate of Donation must be attached to the
Between persons guilty of adultery or concubinage. notice.
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Between those found guilty of the same criminal
2. Filing of Donor’s Tax Return
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offenses.
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Between those made to a public officer or his wife,
RC - within 30 days after the completion of the gift
descendants, ascendants by reason of his office.
BA - donation is completed FOR TAX PURPOSES at the
time the donee accepts the gift
Note: Effects Of General And Specific Renunciation - Contents:
- An heir’s general renunciation of inheritance in favor 1. Gifts made during the calendar year
of a co-heir is not subject to donor’s tax, but if it is 2. Deductions claimed and allowed
specifically renounced in favor of a co-heir to the 3. Previous net gifts made during the year
exclusion of others, it shall be subject to donor’s tax. 4. Name of the done
5. Relationship of the donor and the done
Note: Renunciation of a surviving spouse of his/her 6. Other information as may be required
share in the conjugal partnership or absolute
community after dissolution of marriage 3. Payment of Donor’s Tax
- whether made in favor of the heirs of the deceased - pay as you file the tax return
spouse or in favor of a third person, the same is subject - Note: if the donor’s tax was paid for the transfer, there
to donor’s tax is no more need to subject the transfer again to estate
tax. Applying the Back Tax Theory, there is no tax that
remained unpaid regarding this transfer.
G. NET GIFT
- the total amount of gifts less the allowable deductions 4. Extensions For Payment Of Donor’s Tax
and specific exemptions. - the NIRC does not provide for any extension for
- the total net gifts made during the SAME calendar year payment of gift tax, as it is presumed that if you can
is used as basis for computing the donor’s tax donate, you still have sufficient properties to pay for the
tax. Unlike in estate tax where extension is granted,
H. VALUATION because the payment of the tax may cause undue
- the gift tax is based on the fair market value of the gift hardship on the heirs specifically for non-liquid
at the time it was given properties which requires time to be sold first to be
converted into cash for payment of the estate tax.
I. LAW APPLICABLE
TAX TIPS : Avoidance of Gift Taxes
- the law in force at the time of the perfection / Execute a Deed of Extra-judicial Settlement with
completion of the donation shall govern the imposition simultaneous general renunciation of all inheritance
of donor’s tax. A donation is considered as completed (by operation of law, the renounced inheritance will go
FOR TAX PURPOSES at the time the donee accepts the to the co-heirs anyway).
gift.
PROBLEMS ON DOWRY DEDUCTION
J. ADMINISTRATIVE PROVISIONS 1. A is the child of H and W
January – A got married, H and W gave him P2,000
1. Filing of notice of donation March – H and W gave A P2,000
April – H and W gave A another P2,000
General Rule: Filing of notice of donation is not required Can the parents claim dowry deduction even if these
Exception: if the donor wishes to claim exemption from were made on a staggered basis?
tax and the donee is an organization under Sec.101(A3)
and Sec. 101 (B2) - Yes, provided these were made on account of marriage,
before the marriage or 1 year thereafter.
Requisites to be exempt from gift tax :
1. Donor is engaged in business 2. January - A married B and was given dowry
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REVIEW NOTES FOR TAXATION 2 17
- There is no rule on the matter yet but it is submitted a) relatives – yes, there will be savings as under the table
that as it was made on account of 2 different marriages, in Section 99, the first 100,000 is exempt from Donor’s
the deduction for the December dowry may be made. tax. No donor’s tax will then be paid for both donations.
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3. A and C are the children of H and W b) strangers – nom there will be no tax savings. A flat
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January - A married B, given dowry
RC rate if 30% is imposed on donations made between
February – C married D, given dowry
BA strangers; hence, the same amount of P60,000 donor’s
Can H and W claim dowry deduction for both? tax will be paid whether made one time or split.
-Yes, as the dowries were given to different children
3. X died and left 1M each to his heirs A, B, C. The heirs
4. H and W jointly donated to their child A 1M on agreed to settle extrajudicially.
account of his marriage to B. Show computation.
a) A renounced his inheritance in favor of B. Is there
For each of H and W the computation is: liability for donor’s tax?
500,000 – to A 250,000
- to B 250,000 - Yes, this is a case of waiver. A is deemed to have
accepted the property before he gave it to B as one
A B cannot give what one does not own. A specific
250,000 250,000 renunciation is taxable.
-10,000 _______
240,000 250,000 b) A renounced his share without specifying a co-heir
*2 to 15% * 30% who will receive the same. Is there liability for donor’s
3, 600 75,000 tax?
Note: Do not deduct the first 100,000 in case of donee- - No donor’s tax because as if A never inherited
relatives as this is incorporated already in the table anything from X and the transfer was made directly
under Section 99. from X to B and C.
including transactions incidental thereto, by any person a. Transitional Input Tax Credits (Sec. 111(A),
regardless of whether or not the person engaged therein is a NIRC, as amended by RA 9337)
non-stock, non-profit private organization (irrespective of the b. Presumptive Input Tax Credits (Sec. 111(B),
disposition of its net income and whether or not it sells NIRC, as amended by RA 9337)
exclusively to members or their guests), or government entity.
b. The sale is consummated, not merely perfected, in the B. Government agencies involved in tax
Philippines. The place where the title to the thing passes administration
determines the place of delivery or tax situs. - the BIR and Bureau of Customs are
tasked to implement revenues laws as
C. Specific Characteristics of VAT the case may be.
F. Tax Credits
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- The power to interpret the provisions reversal will be prejudicial to the taxpayers,
of this Code and other tax laws shall be except in the following cases:
under the exclusive and original
jurisdiction of the Commissioner, (a) Where the taxpayer deliberately misstates or
subject to review by the Secretary of omits material facts from his return or any
Finance. document required of him by the Bureau of
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008 The power to decide disputed
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O taxes, fees or other charges, penalties the Bureau of Internal Revenue are materially
RC imposed in relation thereto, or other different from the facts on which the ruling is
BA matters arising under this Code or other based; or
laws or portions thereof administered
by the Bureau of Internal Revenue is (c) Where the taxpayer acted in bad faith.
vested in the Commissioner, subject to
the exclusive appellate jurisdiction of 2. Examination of Books of Accounts
the Court of Tax Appeals. (Sec. 5, NIRC)
- the Bureau has the power to examine
a. BIR Issuances and rules books of accounts of every person
relevant thereto (taxpayer) engaged in a business
(a) The power to recommend the The compromise settlement of any tax liability
promulgation of rules and regulations shall be subject to the following minimum
by the Secretary of Finance; accounts:
(b) The power to issue rulings of first a. For cases of financial inability to pay, a
impression or to reverse, revoke or minimum compromise rate equivalent
modify any existing ruling of the to ten per cent (10%) of the basic tax
Bureau; assessed
shall be composed of the Commissioner and the or regulation administered by the Bureau of
Deputy Commissioners. Internal Revenue. Any person so arrested shall
be forthwith brought before a court, there to be
All criminal violations may be compromised dealt with according to law.
except those
j. Authority to Abate and
a. those already filed in court Compromise Tax Liabilities (see
b. those involving fraud (see
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Sec.6 {f}{2}, 204 in relation to Rev.
Sec. 204 {a}, NIRC)
008
M2 Regs.30-2002 as amended by RR
O No.8-2004)
RC The taxpayer’s offer to compromise
BA shall not be considered, unless and until SEC. 204. Authority of the Commissioner to
he waives in writing his privilege under Compromise, Abate and Refund or Credit Taxes.
RA 1405 or under other general or - The Commissioner may -
special laws, and such waiver shall
constitute the authority of the
(A) Compromise the Payment of any Internal
Commissioner to inquire into his bank
Revenue Tax, when:
deposits. (see Sec. 6 {f}, NIRC)
i. Enforcement of police power (see (1) The tax or any portion thereof
Sec.15, NIRC) appears to be unjustly or excessively
assessed; or
The Commissioner, the Deputy Commissioners, (2) The administration and collection
the Revenue Regional Directors, the Revenue costs involved do not justify the
District Officers and other internal revenue collection of the
officers shall have authority to make arrests and amount due.
seizures for the violation of any penal law, rule
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 25
All criminal violations may be its proper issuance and the period within
compromised except: (a) those already which to protest.
filed in court, or (b) those involving An assessment is deemed made only when the
fraud. collector of Internal Revenue releases or mails
or sends such notice to the tax payer.
D. The rule on estoppel in relation to tax An assessment is not necessary before
administration
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008 a. Against the government Before an assessment is issued, there is by
M2 practice, a pre-assessment notice sent to the
The error made by a tax official in the assessment of his
O tax payer.The tax Payer is then given a chance
tax liabilities does not have the effect of relieving the
RC to submit position papers and documents to
taxpayer from the obligation to pay the full amount of
BA prove that the assessment is unwarranted. If
his tax liability, for taxes are fixed by law and the the commissioner is unsatisfied, an assessment
government is never estopped to collect the legitimate signed by him/her is then sent to the tax
taxes because of the errors committed by its agents. payer informing the latter specifically and
However, like other principles, the principle of estoppel clearly that an assessment has been made
also admits exceptions in the interest of justice and fair against him/her. In contrast, the criminal
play. The Commissioner is precluded from adopting a charge need not go through all this.
position inconsistent with one previously taken where in
justice would result therefore or where there has been a ii. CIR v. Reyes, G.R. No. 159694, January 27,
misrepresentation. 2006
Any mistakes committed by the Tax payers shall be informed in writing of the
agents of the sovereign, namely government officials law and the facts on which the assessment and
and employees are their own and cannot bind the the assessment is made; otherwise the
government, which cannot be placed on estoppel on assessment shall be void. (2nd paragraph of
account of the mistakes of its agents. section 228 is clear and mandatory)
c. Kinds of Assessment
b. Against the taxpayer
d. Statute of Limitation on Assessment of Internal
E. Assessments and its governing principles Revenue Taxes (Sections 203, 222, NIRC)
a. Definition General rule (sec203)
The notice and demand for payment of a tax Internal revenue taxes shall be assessed within
liability should not be confused with assessment three years after the last day prescribed for the
relative to real property taxation which refers to filing of the return, and no proceeding in court
the listing and evaluation of taxable real without assessment for the collection of sluch
property. taxes shall begun after the expiration of such
period.
b. What constitutes an assessment
Exceptions (sec.222)
i. CIR v. Pascor Realty, 29 June 1999 In the case of a false of fraudulent return with
Neither the NIRC nor the revenue regulations intent to evade tax or of failure to file a return,
governing the protest of assessments provide a the tax collection may be filed without an
specific definition of form of an assessment assessment at any time within ten years after the
however the NIRC defines the specific function discovery of the falsity, fraud or omission:
and effects of an assessment:
If before the expiration of the time prescribed in
An assessment must be sent to and received the tax codes for the assessment of the tax, both
by a tax payer, and must demand payment of the commissioner and the taxpayer have agreed
the taxes described therein within a specific in writing to its assessment after such time, the
period. tax may be assessed within the period agreed
Issuance of an assessment is vital in upon.
determining the period of limitation regarding
e. Instances where the running of the prescriptive The rule that an assessment is deemed made for
period is suspended (section 223) the purpose of giving effect to such assessment
when the notice is released, mailed or sent to the
i. Republic v. Hizon, 13 December 1999 taxpayer to effectuate the assessment requires
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 27
that the notice must be sent to the taxpayer, and g. Instances when pre-assessment is not required
not merely to a disinterested party. Although (Section 228)
there is no specific requirement that the A preassessment notice shall not be required in
taxpayer should receive that notice within the the following cases:
said period, due process requires at the very When any tax deficiency is the result of
least that such notice actually be received. mathematical error in the computation of
the tax as appearing on the face of the
When an estate is under administration, notice return.
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must be sent to the administrator of the estate.
008
M2 When a discrepancy has been determined
O between the tax withheld and the amount
RCii. CIR v. Reyes, G.R. No. 159694, January 27, actually remitted by the withholding
2006 BA agent.
When a taxpayer who opted to claim a
The tax payers shall be informed in writing of refund or tax credit of excess creditable
the law and facts on which the assessment is withholding tax for a taxable period was
made otherwise the assessment itself is void. determined to have carried over and
automatically applied the same amount
iii. CIR v. BPI, G.R. No. 134062, 17, April 2007 claimed against the estimated tax
liabilities for the taxable quarter or
The inevitable conclusion is that BPI’s failure to quarters of the succeeding taxable year.
protest the assessments within the 30-day period When the excise tax due on exciseable
provided in the former section 270 meant that articles has not been paid.
they became final and unappealable. Thus, the When the article locally purchased or
CTA correctly dismissed BPI’s appeal for lack of imported by an exempt person has been
jurisdiction. BPI was, from then on barred from sold, traded, or transferred to non-exempt
disputing the correctness of the assessments or persons.
invoking any defense that would reopen the
question of its liability on the merits. Not only h. Governing principles concerning assessment
that. There arose a presumption of correctness
when BPI failed to protest the assessments: Tax Injunction is not available to restrain the
assessments by tax examiners are presumed collection of internal revenue taxes.
correct and made in good faith. The taxpayer
has the duty to prove otherwise. In the absence Exception: the Court of Appeals may issue
of proof of any irregularities in the performance injunctions against administrative collection,
of duties, an assessment duly made by a BIR when collection could jeopardize the interest of
examiner and approved by his superior offices the Government or taxpayer.
will not be disturbed. All presumptions are in
favor of the correctness of tax assessments. i. When do we reckon the period when the
assessment was made?
iv. PNOC v. Court of Appeals, G.R. No.,
109976, April 26, 2005 Internal revenue taxes shall be assessed within
three years after the last day prescribed by law
The defense of prescription of the period for the for the filing of the return.
assessment and collection of tax liabilities shall
be deemed waived when such defense was not In case where a return is filed beyond the three
properly pleaded and the facts alleged and year period shall be counted form the day the
evidenced submitted by the parties were not return was filed.
sufficient to support a finding by the supreme
court on the matter – prescription, being a j. Is assessment necessary before a taxpayer could be
matter of defense, imposes the burden on the prosecuted for violation of the NIRC?
taxpayer to prove that the full period of the
limitation has expired, and this requires him to i. Ungab v. Cusi, May 30, 1980
positively establish the date when the period
started running and when the same was fully What is involved here is not collection of taxes
accomplished. where the assessment of the commissioner of
internal revenue may be reviewed by the court
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 28
of tax appeals, but a criminal prosecution for confusion would arise regarding the period
violations of the NIRC which is within the within which t make an assessment or to protest
recognizance of the CFI. While there can be no the same, or whether interest and penalty may
civil action to enforce collection before the accrue thereon.
assessment procedures provided in the code
have been followed, there is no requirement for k. Are the procedures outlined in Section 228 of the
the precise computation and assessment of the NIRC retroactive?
tax before there can be a criminal prosecution
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under the code. i. CIR v. Reyes, G.R. No. 159694, January 27,
008
2006
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RCii. CIR v. CA, G.R. No. 119322, 4 June 1996
BA The general rule is that statutes are prospective.
Reading Ungab carefully, the pronouncement However, statutes that are remedial, or that do
therein that deficiency assessment is not not create new or take away vested rights, do
necessary prior to prosecution is pointedly and not fall under the general rule against the
deliberately qualified by the Court with retroactive operation of statutes. Clearly, Section
following statement quoted form Guzik v. U. S.: 228 provides for the procedure in case an
“the crime is complete when the violator has assessment is protested. The provision does not
knowingly and willfully filed a fraudulent create new or take away vested rights. In both
return with intent to evade and defeat a part or instances, it can surely be applied retroactively.
all of the tax.” In plain words, for criminal Moreover, RA 8424 does not state, either
prosecution to proceed before assessment, there expressly or by necessary implication, that
must be a prima facie showing of willful attempt pending actions are excepted from the operation
to evade taxes. There was willful attempt to of section 228, or that applying it to pending
evade tax in Ungab because of the taxpayer’s proceedings would impair vested rights.
failure to declare in his income tax return “his
income derived from banana saplings.” In the INTERNAL REVENUE TAX REMEDIES
mind of the trial court and the Court of Appeals,
Fortune’s situation is quite apart factually since Tax Remedies: Its general concepts
the registered wholesale price of the goods.
Approved by the BIR, is presumed to be the Importance: They exist to enhance the
actual wholesale price, therefore, not fraudulent Government’s tax collection efforts, they, too, come in as
and unless and until the BIR has made a final safeguards against arbitrary action. While taxes are the
determination of what is supposed to be the lifeblood of the Government and should be collected
correct taxes, the taxpayer should not be placed without unnecessary hindrance, such collection must
in the crucible of criminal prosecution. Herein nevertheless be made in accordance with law as any
lies a whale of difference between Ungab and arbitrariness will negate the very reason or the
the case at bar. Government itself.
Request for reconsideration- a plea for Effect of a protest on the period to collect deficiency
the re-evaluation of an assessment on the basis taxes:
of existing records without need of additional
evidence. It may involve a question of fact or law The prescriptive period is arrested by the taxpayer's
or both. request for re-examination or reinvestigation even if he
has not previously waived it (CIR vs. Wyeth, G.R. No.
Request for reinvestigation- a plea for 76281,Sep 30, 1991)
reinvestigation of an assessment on the basis of
newly-discovered or additional evidence that a Failure of the BIR to act within the 180-day period.
taxpayer intends to present in the
reinvestigation. It may also involve question of If the Commissioner or his duly authorized
fact or law or both. representative fails to act on the taxpayer’s protest
within 180 days from the date of submission by the
Requirements of a valid protest taxpayer of the required documents in support of his
1. In writing; protest, the taxpayer may appeal to the CA within 30
2. Addressed to the CIR; days from the lapse of the 180-day period.
3. Must be accompanied by a waiver of the
Statute of Limitations in favor of the
government; Administrative actions taken during the 180-day
4. States the Facts, applicable law rules and period.
regulations and jurisprudence on which his 1. Grant of the Protest
protest is based; otherwise, his protest shall be 2. Denial of Protest:
considered void and without force and effect
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 30
therefore, in ACCRAIN's case was when its tax liability, i. Is the taxpayer entitled to claim interest on the
if any, fell due upon its filing of its final adjustment refunded tax?
return. (ACCRA vs CA, G.R. No. 96322, 1991 Dec 20)
General Rule: The Government cannot be required to
The two-year period for prescription should be counted from pay interest on taxes refunded to the taxpayer, unless:
the date of payment of the tax, which for actions for refund of
corporate income tax should be computed from the time of 1. The Commissioner acted with patent arbitrariness
actual filing of the adjustment return or annual income tax Arbitrariness presupposes inexcusable or obstinate
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return. This is so because at that point, it can already be disregard of legal provisions. (CIR vs. Victorias Milling
008
determined whether there has been an overpayment by Corp., Inc. L-19607, Nov. 29, 1966.)
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the taxpayer. Moreover, under Sec. 49 (a) by the NIRC
RC
(now Sec. 56(a), 1997 NIRC), payment is made at the
BA 2. In case of Income Tax withheld on the wages of
time the return is filed. (CIR V CA, CTA, BPI, GR No. employees
117254. January 21, 1999) Any excess of the taxes withheld over the tax due from
There is some likelihood that the above rule could apply the taxpayer shall be returned or credited within 3
also to individuals who are self employed (i.e., in months from the fifteenth (15th) day of April. Refund or
business and professional practice) as well as estates and credit after such time earn interest at the rate of 6% per
trusts, which are likewise required to file quarterly annum, starting after the lapse of the 3-month period to
returns. the date the refund or credit is made (Sec 79 (c) (2) 1997
NIRC
The prescriptive period of two years should commence to run
only from the time that the refund is ascertained, which can b. Other Remedies
only be determined after a final adjustment return is
accomplished.(CIR V PHILAMLIFE, 244 SCRA 446. May 1. Action to Contest Forfeiture of Chattel (Sec.
29, 1995) 231)
2. In case of Amended Returns In case of seizure of personal property under claim for
forfeiture, the owner desiring to contest the validity of
3. In case of taxpayers contemplating dissolution the forfeiture may bring an action:
a. Before sale or destruction of the
c. Who has the personality to file a claim for refund? property to recover the property from the person seizing
the property or in possession thereof upon filing of the
The duty of the withholding agent to withhold the proper bond to enjoin the sale.
corresponding tax arises at the time of such accrual. The b. After the sale and within 6 months to
withholding agent/corporation is then obliged to remit the tax recover the net proceeds realized at the sale (see. Sec.
to the Government since it already and properly belongs to the 231, 1997 NIRC)
Government. If a withholding agent who is personally
liable for income tax withheld at source fails to pay said Action partakes the nature of an ordinary civil action for
withholding tax, an assessment for said deficiency recovery of personal property or the net proceeds of its
withholding tax would, therefore, be legal and proper. sale which must be brought in the ordinary courts and
(FILIPINAS SYNTHETIC FIBER CORP. V CA, GR not the CTA
No.113347. June 14, 1996)
2. Redemption of Property Sold (Sec. 214)
Limitations:
2. Compromise 1. Minimum compromise rate:
CIR may compromise both civil and a. 10% of the basic tax assessed – in case of
criminal liability of the taxpayer. financial incapacity.
b. 40% of basic tax assessed – other cases.
REQUISITES: 2. Subject to approval of the Evaluation Board
1. The taxpayer have a tax liability a. When basic tax involved exceeds
2. There must be an offer by the P1,000,000.00 or
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taxpayer of an amount to be paid by b. Where settlement offered is less than the
008
the taxpayer prescribed minimum rates.
M2
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RC 3. There must be an acceptance by the
BA Commissioner or the taxpayer as Delegation of Power to Compromise
the case may be of the offer in the General Rule: The power to compromise or abate shall
settlement of the original claim not be delegated by the commissioner.
Exception: The Regional Evaluation Board may
Grounds for compromise compromise the assessment issued by the regional
1. A reasonable doubt as to the validity of offices involving basic taxes of P 500,000.00 or less.
the claim against the taxpayer exists; or Remedy in case of failure to comply:
2. The financial position of the taxpayer The CIR may either:
demonstrates a clear inability to pay the a. Enforce the compromise, or
assessed tax b. Regard it as rescinded and insists upon the original
demand.
action or proceeding, civil or criminal, The Register of Deeds is duty bound to transfer
as the case may require. the title of property forfeited to the government
with out necessity of an order from a competent
When forfeited property to be destroyed or sold: court.
a. To be destroyed – by order of the CIR 7. Suspension of Business Operations
when the sale for consumption or use of 8. Enforcement of Administrative Fines
the following would be injurious to the
public health or prejudicial to the D. ADMINISTRATIVE REMEDIES IN DETAIL
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enforcement of the law: (at least 20 days (SECS. 206-217, NIRC)
008
after seizure) A. DISTRAINT - Seizure by the government of
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RC 1. distilled spirits personal property, tangible or intangible, to enforce the
BA 2. liquors payment of faces, to be followed by its public sale, if the
3. cigars taxes are not voluntarily paid.
4. cigarettes, and other KINDS
manufactured products of a. Actual – There is taking of possession of personal
tobacco property out of the taxpayer into that of the government.
5. playing cards In case of intangible property, taxpayer is also diverted
6. All apparatus used in or about of the power of control over the property.
the illicit production of such b. Constructive – The owner is merely prohibited from
articles. disposing of his personal property.
b. To be sold or destroyed – depends upon
the discretion of CIR
1. All other articles subject to
exercise tax, (wine, automobile,
mineral products, manufactured
oils, miscellaneous products, Difference between Actual and Constructive
non-essential items a petroleum Distraint
products) manufactured or Actual Constructive
removed in violation of the Tax Made on the property only May be made on the
Code. of a delinquent taxpayer. property of any taxpayer
2. Dies for printing or making IR whether delinquent or not
stamps, labels and tags, in There is actual taking or Taxpayer is merely
imitation of or purport to be possession of the property. prohibited from disposing
lawful stamps, labels or tags. of his property.
Effected by having a list of Effected by requiring the
Where to be sold:
the distraint property or by taxpayer to sign a receipt
a. Public sale: provided, there is notice
service or warrant of of the property or by
given not less than 20 days.
distraint or garnishment. leaving a list of same
b. Private sale: provided, it is with the
An immediate step for Such immediate step is
approval of the Secretary of Finance.
collection of taxes where not necessary; tax due
amount due is definite. may not be definite or it is
Right of Redemption:
being questioned.
a. Personal entitled – taxpayer or anyone
for him
Requisites:
b. Time to redeem – within one (1) year
1. Taxpayer is delinquent in the payment of tax.
from forfeiture
2. Subsequent demand for its payment.
c. Amount to be paid – full amount of the
3. Taxpayer must fail to pay delinquent tax at time
taxes and penalties, plus interest and
required.
cost of the sale
4. Period with in to assess or collect has not yet
d. To whom paid – Commissioner or the
prescribed.
Revenue Collection Officer
e. Effect of failure to redeem – forfeiture
When remedy not available:
shall become absolute.
Where amount involved does not exceed P100.
In keeping with the provision on the abatement
NOTE:
of the collection of tax as the cost of same might even be
more than P100.
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 35
1.International Revenue officer shall prepare a 2. The remedy of distraint or levy may be repeated
duly authenticated certificate showing if necessary until the full amount, including all
a. Name of taxpayer expenses, is collected.
b. Amount of tax and
c. Penalty due. C. GARNISHMENT
- enforceable throughout the Philippines Bank Accounts – garnishment
2. Officer shall write upon the certificate a 1. Serve warrant upon taxpayer and president, manager,
description of the property upon which levy is treasurer or responsible officer of the bank.
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made. 2. Bank shall turn over to CIR so much of the bank
008
3. Service of written notice to: accounts as may be sufficient.
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RC a. The taxpayer, and
BA b. RD where property is located. E. JUDICIAL REMEDIES IN DETAIL (SEC 220, NIRC)
4. Advertisement of the time and place of sale. 1. Period within which the action may be filed
5. Sale at public auction to the highest bidder.
6. Disposition of proceeds of sale. Civil and Criminal Actions:
NOTE: The excess shall be turned over to owner. 1. Brought in the name of the Government
Redemption of property sold or forfeited of the Philippines.
a. Person entitled: Taxpayer or anyone for him 2. Conducted by Legal Officer of BIR
b. Time to redeem: one year from date of sale or 3. Must be with the approval of the CIR, in
forfeiture case of action, for recovery of taxes, or
- Begins from registration of the deed of sale enforcement of a fine, penalty or
or declaration of forfeiture. forfeiture.
- Cannot be extended by the courts.
c. Possession pending redemption: owner not A. CIVIL CASES (SECS 203,222,NIRC)
deprived of possession Three (3)years from the following,
d. Price: Amount of taxes, penalties and interest whichever comes later:
thereon from date of delinquency to the date of 3. The last day prescribed by law for
sale together with interest on said purchase filing the return
price at 15% per annum from date of purchase 4. The day when the return was
to date of redemption. actually filed
Ten (10) years after the discovery of the
Difference between Distraint and Levy falsity, fraud or omission in case of:
Distraint Levy 3. False or fraudulent return with
personal property real property intent to evade tax, or
forfeiture by government, forfeiture by government 4. Failure to file a return
not provided authorized where there is Within the period agreed upon, when
no bidder or the highest both the TP and the Commissioner have
bid is not sufficient to pay agreed in writing, before the expiration
the taxes, penalties and of the period in Sec. 203 for the
costs. assessment of the tax.
Taxpayer no given the Taxpayer can redeem
right of redemption properties levied upon and Where to File
sold/forfeited to the 1) Court of Tax Appeals- where the principal amount of
government. taxes and fees exclusive of charges and penalties claimed
is one million pesos and above
1. Both are summary remedies for collection of 2) RTC, Mun. TC, Metro TC- where the principal
taxes. amount of taxes and fees, exclusive of charges and
2. Both cannot be availed of where amount penalties claimed is less thanP1,000,000.00 (Sec 7[c], RA
involved is not more than P100. 9282)
The approval of the CIR is essential in
NOTE: civil cases (Sec. 220). However under
1. It is the duty of the Register of Deeds concerned Sec. 7 of
upon registration of the declaration of forfeiture, NIRC, the Commissioner may delegate
to transfer the title to the property with out of an suchpower to a Regional Director.
order from a competent court
Actions instituted by the government to collect 2) RTC, Mun. TC, Metro TC- on criminal offenses arising
internal revenue taxes in regular courts (RTC or from violations of the NIRC or TCC and
MTCs, depending on the amount involved). It other laws administered by the BIR and the BOC, where
includes filing by the government with the the principal amount of taxes and fess
probate court claims against the deceased exclusive of charges and penalties claimed is less than
taxpayer. P1,000,000.00 or where there is no specified amount
Resorted to when the tax liability becomes final claimed (Sec 7[b], RA 9282)
and unappealable, or when the decision of the
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Commissioner becomes final or executory. CASES:
008
When: REPUBLIC V. HIZON, DEC. 13, 1999 (re: approval of
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RC filing of civil and criminal actions)
A tax is assessed and the assessment becomes
BA Revenue Adm. Order No. 10-95 specifically
final and unappealable because the taxpayer authorizes the Litigation and Prosecution
fails to file an administrative protest with the section of the Legal Division of regional district
BIR within 30 days from the receipt of the offices to institute the necessary civil and
assessment. criminal actions for tax collection. As the
When an administrative protest filed by the complaint filed in this case was signed by the
taxpayer against the assessment is denied, in BIR’s Chief of Legal Division for Region 4 and
whole and in part or Is not acted upon within verified by the Regional Director, there was,
180 days from submission of the documents, therefore, compliance with the law.
and Sec. 7 of NIRC, authorizes the BIR
The taxpayer adversely affected by the decision Commissioner to delegate the powers vested in
or inaction fails to file an appeal with the CTA him under the pertinent provision of the Code to
within 30 days from receipt of said decision or any subordinate official with the rank
from the lapse of the180 day period. equivalent to a division chief or higher.
B. CRIMINAL CASES ( TITLE X, NIRC; SEC. CIR V. LA SUERTE CIGAR, JULY 04, 1992 (re:
281, NIRC) participation of the Office of the Solicitor General)
The institution or commencement before a
All violations of any provision of the tax code proper court of civil and criminal actions and
shall prescribe after five (5) years. proceedings arising under the Tax Reform Act
which "shall be conducted by legal officers of
NOTE: the Bureau of Internal Revenue" is not in
When should it commence: The five (5) year dispute. An appeal from such court, however, is
prescriptive period shall begin to run from the not a matter of right. Section 220 of the Tax
a. If known, day of the commission of the Reform Act must not be understood as
violation. overturning the long established procedure
b. If not known, from the time of discovery and before this Court in requiring the Solicitor
the institution of judicial proceeding for its General to represent the interest of the Republic.
investigation and punishment. This Court continues to maintain that it is the
When is it interrupted: Solicitor General who has the primary
a. When a proceeding is instituted against the responsibility to appear for the government in
guilty person appellate proceedings.
b. When the offender is absent from the
Philippines. PNOC V. CA, APRIL 26, 2005
When should it run again: When the
proceeding is dismissed for reason not LIM V. CA, OCT. 18, 1990 ( re: prescription of
constituting jeopardy. criminal actions, Sec, 281, NIRC)
Where to file should be filed 5 years from the (1) day of the
1) Court of Tax Appeals- on criminal offenses arising commission of the violation of the law, and if
from violations of the NIRC or TCC and other laws the same shall be not known, from the (2)
administered by the BIR and the BOC, where the discovery thereof and the institution of the
principal amount of taxes and fees, exclusive of charges judicial proceedings for its investigation and
and penalties claimed is P1,000,000.00 and above. punishment.
MARCOS II V. CA, JUNE 5, 1997 (re: enforcement of tax a. In case of willful neglect to file the
liability during pendency of probate proceedings) return within the period prescribed by
The BIR is authorized to collect estate tax the NIRC or rule.
deficiency through the summary remedy of the b. In case a false or fraudulent return is
levying upon and sale of properties of a willfully made.
decedent, without the cognition and authority of
the court sitting in probate over the supposed CASE: CIR V. JAVIER, JULY 31, 1991
will of the deceased, because the collection of There was no actual intentional fraud in
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008
M2 estate tax is executive in character. As such the filing the return. Private respondent’s
O estate tax is exempted from the application of notation on the tax return was at most
RC the statute of the non – claims, and this is an error or mistake of fact or law not
BA justified by the necessity of the government constituting fraud, an invitation for
finding, immortalized in the maxim that taxes investigation and private respondent
are the lifeblood of the government had literally” laid his cards on the table.
a. ORDINARY (SEC. 248A, NIRC) Any deficiency in the tax due shall be subject to
the interest of 20% per annum which shall be
Penalty: 25% of the amount due, in addition to the tax assessed and collected from the date prescribed
required to be paid for its payment until the full payment thereof.
a. Failure to file any return and to pay the When delinquency interest imposed?
tax due thereon as required by the NIRC
or rules. Delinquency interest is imposed in case of
b. Filing a return with an internal revenue failure to pay:
officer other than those with whom the 1. The amount of the tax due on any return
return is required to be fired. Not required to be filed; or
authorized officer. 2. The amount of tax due for which no return
c. Failure to pay the deficiency tax within is required; or
the time prescribed for its payment in 3. A deficiency tax or any surcharge or interest
the notice of assessment. thereon on the issue date appearing in the
d. Failure to pay the full or part of the notice and demand of the Commissioner.
amount of tax shown on any return, or
the full amount of tax due for which no Rate is 20% per annum until the amount is fully
return is required to be filed, on or paid which interest shall form part of the tax.
before the date prescribed for its
payment. Interest on Extended Payment.
1) any person who is qualified and elects to pay the tax
b. FRAUD PENALTY (SEC. 248B, NIRC) on installment but fails to pay the tax, or any
installment, or any part on or before the date prescribed;
Penalty: 50% of the amount due, in addition to the tax or
required to be paid
2) where the Commissioner has authorized an extension 5, Article X of the Constitution. The
of time within which to pay a tax or a deficiency tax or important legal effect of Section 5 is that
any part thereof, henceforth, in interpreting statutory
3) from the date of notice and demand until it is paid. provisions on municipal fiscal powers,
doubts will have to resolved in favor of
Compromise Penalty municipal corporations.”
1. It is a certain amount of money which the
taxpayer pays to compromise a tax violation. ii. Meralco vs. Province of Laguna, May 5,
-09
2. It is pain in lieu of a criminal prosecution. 1999
008
3. Since it is voluntary in character, the same may
M2
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be collected only if the taxpayer is willing to pay
RC “Prefatorily, it might be well to recall
them.
BA that local governments do not have the
inherent power to tax except to the
Failure to File Certain Information Returns (Sec. 250, extent that such power might be
NIRC) delegated to them either by the basic
A) Penalty: P 1,000 for each failure law or by statute. Presently, under
B) The aggregate amount for all such failure shall not Article X of the 1987 Constitution, a
exceed P 25,000 during a calendar year general delegation of that power has
C) Upon notice and demand by the Commissioner been given in favor of local government
D) Unless it is shown that such failure is due to units. The 1987 Constitution has a
reasonable cause and not to willful neglect. counterpart provision in the 1973
In the case of each failure to file: Constitution, which did come out with a
1) information return; similar delegation of revenue making
2) statement or list; powers to local governments. Under
3) keep any record; the regime of the 1935 Constitution no
4) supply any information similar delegation of tax powers was
E) required by this Code or by the Commissioner on the provided, and local government units
date prescribed thereof. instead derived their tax powers under
a limited statutory authority. Whereas,
then, the delegation of tax powers
LOCAL TAXATION granted at that time by statute to local
governments was confined and defined
A. Local Taxation: General Concepts (outside of which the power was
1. Nature of Local Taxing Power deemed withheld), the present
constitutional rule (starting with the
a. Constitutional Provision (Section 5, Article X) 1973 Constitution), however, would
broadly confer such tax powers subject
“Each local government unit shall have the only to specific exceptions that the law
power to create its own sources of revenues might prescribe. Under the now
and to levy taxes, fees and charges subject to prevailing Constitution, where there is
such guidelines and limitations as the neither a grant nor a prohibition by
Congress may provide, consistent with the statute, the tax power must be deemed
basic policy of local autonomy. Such taxes, to exist although Congress may provide
fees, and charges shall accrue exclusively to statutory limitations and guidelines.
the local governments.” The basic rationale for the current rule is
to safeguard the viability and self-
b. Delegated Power sufficiency of local government units by
i. City of San Pablo Laguna vs. Reyes, directly granting them general and
March 25, 1999 broad tax powers. Nevertheless, the
fundamental law did not intend the
“The power to tax is primarily vested in delegation to be absolute and
Congress. However, in our jurisdiction, unconditional; the constitutional
it may be exercised by local legislative objective obviously is to ensure that,
bodies, no longer merely by virtue of a while the local government units are
valid delegation as before, but pursuant being strengthened and made more
to direct authority conferred by Section autonomous, the legislature must still
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 40
see to it that (a) the taxpayer will not be decentralization of governance. For a
over-burdened or saddled with multiple long time, the country’s highly
and unreasonable impositions; (b) each centralized government structure has
local government unit will have its fair bred a culture of dependence among
share of available resources, (c) the local government leaders upon the
resources of the national government national leadership. It has also
will not be unduly disturbed; and (d) “dampened the spirit of initiative,
local taxation will be fair, uniform, and innovation and imaginative resilience in
-09
just.” matters of local development on the part
008
of local government leaders.” The only
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RC iii. Mactan Cebu International Airport way to shatter this culture of
BA Authority vs. Marcos, September 11, dependence is to give the LGUs a wider
1996 role in the delivery of basic services, and
confer them sufficient powers to
“The taxing powers of local government generate their own sources for the
units cannot extend to the levy of, inter purpose. To achieve this goal, section 3
alia, “taxes, fees and charges of any kind of Article X of the 1987 Constitution
on the National Government, its mandates Congress to enact a local
agencies and instrumentalities, and local government code that will, consistent
government units”; however, pursuant with the basic policy of local autonomy,
to Section 232, provinces, cities, and set the guidelines and limitations to this
municipalities in the Metropolitan grant of taxing powers.”
Manila Area may impose the real
property tax except on, inter alia, “real
property owned by the Republic of the - Extent of the Power of Congress in Local
Philippines or any of its political Taxation
subdivisions except when the beneficial - City Govt. of Quezon City vs. Bayantel,
use thereof has been granted, for March 6, 2006
consideration or otherwise, to a taxable
person,” as provided in item (a) of the “The power to tax is primarily vested in the
first paragraph of Section 234.” Congress; however, in our jurisdiction, it
may be exercised by local legislative bodies,
iv. NAPOCOR vs. City of Cabanatuan, no longer merely be virtue of a valid
April 9, 2003 delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of
“In recent years, the increasing social the Constitution. Under the latter, the
challenges of the times expanded the exercise of the power may be subject to such
scope of state activity, and taxation has guidelines and limitations as the Congress
become a tool to realize social justice may provide which, however, must be
and the equitable distribution of wealth, consistent with the basic policy of local
economic progress and the protection of autonomy.
local industries as well as public welfare
and similar objectives. Taxation assumes Clearly then, while a new slant on the
even greater significance with the subject of local taxation now prevails in the
ratification of the 1987 Constitution. sense that the former doctrine of local
Thenceforth, the power to tax is no government units delegated power to tax
longer vested exclusively on Congress; had been effectively modified with Article
local legislative bodies are now given X, Section 5 of the 1987 Constitution now in
direct authority to levy taxes, fees and place, .the basic doctrine on local taxation
other charges pursuant to Article X, remains essentially the same. For as the
section 5 of the 1987 Constitution. Court stressed in Mactan, "the power to tax
is [still] primarily vested in the Congress."
This paradigm shift results from the
realization that genuine development In net effect, the controversy presently
can be achieved only by strengthening before the Court involves, at bottom, a clash
local autonomy and promoting between the inherent taxing power of the
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 41
surveillance on the goods, because any other - Those enjoying privileges as granted by
form of imposition on goods passing the Board of Investments (Investments
through the territorial jurisdiction of the Priorities Plan);
municipality is clearly prohibited by Section - Both pioneer and non-pioneer
133(e). enterprises enjoy such kind of
d. Batangas Power Corp. vs. Batangas City, privileges under the Omnibus
April 28, 2004 (Section 133g) Investments Code.
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Sec. 133 (g) of the LGC, which proscribes - Taxes on agricultural or aquatic
008
local government units (LGUs) from levying
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RC taxes on BOI-certified pioneer enterprises
BA for a period of six years from the date of - Taxes, fees, or charges for the
registration, applies specifically to taxes registration of motor vehicles and for
imposed by the local government, like the the issuance of all kinds of licenses or
business tax imposed by Batangas City on permits for the driving thereof, except
BPC in the case at bar. Reliance of BPC on tricycles.
the provision of Executive Order No. 226,
[18] specifically Section 1, Article 39, Title - LTO vs. Butuan – Congress has no
III, is clearly misplaced as the six-year tax intention to delegate issuance of permits
holiday provided therein which commences to LGUs. The intention of the law is to
from the date of commercial operation refers centralize issuance of permits to drive
to income taxes imposed by the national motor vehicles including tricycles is to
government on BOI-registered pioneer monitor the operation of the same.
firms. Clearly, it is the provision of the Local Section 133(l) is only for franchise
Government Code that should apply to the where to grant the same is within the
tax claim of Batangas City against the BPC. discretion of LGUs. The permit to drive
The 6-year tax exemption of BPC should is issued by LTO.
thus commence from the date of BPC’s
registration with the BOI on July 16, 1993 4. Time of Payment (Section 167, LGC)
and end on July 15, 1999.
Unless otherwise provided in LGC, all local
3. Local Taxing Power cannot extend to: taxes, fees, and charges shall be paid within the
first twenty (20) days of January or of each
- Those already covered by the National subsequent quarter, as the case may be. The
Internal Revenue Code, i.e. Income tax, Sanggunian concerned may, for a justifiable
Transfer tax, VAT, percentage tax, reason or cause, extend the time for payment of
Excise Tax, Documentary Stamp Tax; such taxes, fees, or charges without surcharges
or penalties, but only for a period not exceeding
- Those already covered by the Tariff and six (6) months.
Customs Code;
- Duties upon products about 5. Surcharges, Interests and Penalties
to be exported and goods
passing through territorial B. Residual Power to Tax (Sec. 186)
jurisdiction cannot be taxed - The power of LGU to tax even of not
by LGUs. expressly granted by the LGC provided that
there is no express prohibition.
- Taxation of the National Government,
including its agencies and C. Specific Taxing Units
instrumentalities as we as local 1. Provinces may tax:
government units; i. Transfer of Real Property ownership
- Onerous or gratuitous
- Those subjects not within the ambit of - Preemption rule is not applicable
real taxation by reason of public policy, - ½ of 1%
i.e. Cooperatives registered under RA
6938 (CDA); ii. Printing and Publication
collection of delinquent taxes are in - General rule: All local taxes, fees, and
personam. Thus, notice by publication, charges shall accrue on the 1st day of January
though sufficient in proceedings in rem, does of each year.
not as a rule satisfy the requirement of
- Except:
proceedings in personam. As such, mere
publication of the notice of delinquency i. Unless otherwise provided in the LGC,
-09 would not suffice, considering that the
ii. New taxes, fees or charges, or changes in the
procedure in tax sales is in personam. It was,
008
M2 rates thereof, shall accrue on the 1 st day of the
O therefore, still incumbent upon the city quarter next following the effectivity of the
RC treasurer to send the notice of tax ordinance imposing such new levies or rates
BA delinquency directly to the taxpayer in order
to protect the interests of the latter. Time of payment – (Sec. 167, LGC)
In the present case, the notice of - General Rule: All local taxes, fees and
delinquency was sent by registered mail to charges shall be paid within the first 20 days
the permanent address of the registered of January or of each subsequent quarter, as
owner in Manila. In that notice, the city the case may be.
treasurer of Baguio City directed him to settle
- Except:
the charges immediately and to protect his
interest in the property. Under the i. Unless otherwise provided by the LGC
circumstances, we hold that the notice sent
by registered mail adequately protected the ii. The Sanggunian concerned may, for a
rights of the taxpayer, who was the justifiable reason or cause, extend the time
registered owner of the condominium unit. for payment of such taxes, fees, or charges or
For purposes of the real property tax, penalties, but only for a period not exceeding
the registered owner of the property is 6 months.
deemed the taxpayer. Hence, only the
registered owner is entitled to a notice of tax Surcharges, Interests and Penalties – (Sec.
delinquency and other proceedings relative 168, LGC)
to the tax sale. Not being registered owners
of the property, petitioners cannot claim to - Sanggunian may impose:
have been deprived of such notice. In fact,
they were not entitled to it. i. Surcharge – not exceeding 25% of the amount
of taxes, fees or charges not paid on time and
b. JUDICIAL (Sec. 174, LGC)
ii. Interest – not exceeding 2% per month of the
1) Civil Action in the court unpaid taxes, fees or charges, including
surcharges, until such amount is fully paid,
2) Filed by Local Treasurer BUT in no case shall the total interest on the
unpaid amount or portion thereof exceed 36
3) Within 5 years from the date the months.
taxes, fees or charges became B. REMEDIES OF THE TAXPAYER
due
a. ADMINISTRATIVE
Protest of the assessment (Sec. 226 and - There is no appellate remedy from the
252, LGC) denial of the treasurer before the
regular court but an independent and
- Pay under protest and such shall be original action for refund.
annotated in the tax receipt
b. JUDICIAL
- Protest in writing must be filed within
-09 30 days from payment of the tax to the Questioning Tax Sale
008 provincial, city or municipal treasurer,
M2 who shall decide the protest within 60
O
days from receipt. REAL PROPERTY TAXATION
RC
BA - The tax or a portion thereof paid under Real Property Tax, defined
protest shall be held in trust by the A direct tax on ownership of lands and
treasurer concerned. buildings or other improvements thereon
Payable regardless of whether the
- Protest decided in favor of taxpayer – property is used or not,
the amount or portion of the tax although the value may vary in
protested shall be refunded to the accordance with such factor.
protestant or applied as tax credit
against his existing or future tax A. Governing Law
liability. Historical Background:
1. Commonwealth Act No. 470 – Old
- Protest denied or upon lapse of the Assessment Law
period to decide - appeal to the BAA. - since 1920
2. Real Property Tax Code (Presidential Decree
Claim for refund (Sec. 253, LGC)
No. 464, as amended)
- June 1, 1974
- When an assessment of basic real
3. Local Government Code (Republic Act No.
property tax, or any other tax levied is
7160)
found to be illegal or erroneous and the
- January 1, 1992
tax is accordingly reduced or adjusted,
- The changes however were only on the
- The taxpayer may file a written claim tax rate ceilings and assessment levels.
for refund or credit of taxes and
interests The Local Government Code covers the
administration, appraisal, assessment, levy and
- With the provincial or city treasurer collection of Real Property Tax, i.e. tax on land and
building and other structures and improvements
- Within 2 years from the date the on it, including machineries. (Subject to the definition
taxpayer is entitled to such reduction given by Art. 415 of the New Civil Code)
or adjustment.
B. Nature of Real Property Tax – National or Local?
- The provincial or city treasurer shall Hybrid of national and local tax
decide the claim for refund or credit Provisions of LGC are applied
within 60 days from receipt nationwide but rates imposed are
different per LGU ordinance
- In case the claim is denied, the
taxpayer may appeal to the BAA. The real property tax has been considered and
held to be national, despite the fact that in practice it is
Remedies from a denial of the protest local in its imposition and utilization.
and refund
Justice Vitug points out that: “The real property
- It should not only be the written claim
tax has been considered and held to be a national, not a
before the treasurer that must be filed
local tax in Meralco Securities Industrial Corp v. CBAA,
in 2 years but the taxpayer must also be
114 SCRA 260. The Court said that realty tax has always
able to file a case in court before the
been imposed by the national law-making body. The
expiration of the 2 year period.
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REVIEW NOTES FOR TAXATION 2 47
real estate tax is enforced throughout the Philippines activity and which by their very nature and
and not in a particular political subdivision, although purpose are designed for, or necessary to its
the bulk of the tax proceeds accrue to the various local manufacturing, mining, logging, commercial,
government units where the property is located. Under industrial or agricultural purposes. (Sec. 199
the Local Government Code, local government units are [o], LGC)
mandated to fix a uniform rate of basic real property tax
applicable to their respective localities, the proceeds of Machinery which are of general purpose use
which exclusively accrue to them. (See Secs. 233 and 271, including but not limited to office equipment,
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LGC)”, [Page 479, Tax Law and Jurisprudence, 2000 typewriters, telephone equipment, breakable or
008
Edition by Justice Vitug and Judge Acosta]. easily damaged containers (glass or cartons),
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RC microcomputers, facsimile machines, telex
machine, cash dispensers, furnitures and
CHARACTERISTIC OF REAL PROPERTY TAX:
BA
fixtures, freezers, refrigerators, display cases or
1. Direct tax on the ownership of real property
racks, fruit juice or beverage automatic
2. Ad Valorem tax. The value is based on the tax
dispensing machines which are not directly and
base
exclusively used to meet the needs of a
3. Proportion - the tax is calculated on the basis
particular industry, business or activity shall
of a certain percentage of the value
not be considered within the definition of
assessed
machinery. (Sec. 290 [o], IRR of RA 7160)
4. Indivisible single obligation
5. Local Tax
Improvements include valuable additions made
to a property or an amelioration in its condition,
C. Fundamental Principles Governing Appraisal and
amounting to more than a mere repair or
Assessment of Real Property (Section 198,
replacement of parts involving capital
LGC)
expenditures and labor, which is intended to
1. Real property shall be appraised at its
enhance its value, beauty or utility or to adopt it
current and fair market value.
for new or further purposes.
2. Real property shall be classified for
assessment purposes on the basis of its
Note: Although the term real property has not been
actual use.
expressly defined in the LGC, early decisions of the Supreme
3. Real property shall be assessed on the
Court in Mindanao Bus Co. v City Assessor of Cagayan de
basis of a uniform standard within each
Oro, 6 SCRA `97; Board of Assessment Appeals v
local government unit.
Meralco, 119 PHIL 328; Manila Electric Co. v Board of
4. The appraisal, assessment, and
Assessment Appeals,10 SCRA 68) seem to suggest that Art.
collection of real property tax shall not be let
415 of the Civil Code could also be controlling, to wit:.
to any private person; and
5. The appraisal and assessment of real
“Art. 415. The following are immovable
property shall be equitable.
property:
(1) Land, buildings, roads and constructions of
D. Properties Covered (Sec. 232, LGC)
all kinds adhered to the soil;
1. Land,
2. Buildings
3. Machinery and (2) Trees, plants, and growing fruits, while they
4. Other improvements not otherwise are attached to the land or form an integral part
exempted under said code (Sec 232, LGC) of an immovable;
(5) Machinery, receptacles, instruments or by the lessee, considered real property for
implements intended by the owner of the purposes of real property taxation under
tenement for an industry or works which may the LGC?
be carried on in a building or on a piece of land, SUGGESTED ANSWER FROM UP LAW
and which tend directly to meet the needs of the CENTER: Yes. The underground tanks
said industry or works; although installed by the lessee, Shell and
-09 Caltex, are considered as real property for
(6) Animal houses, pigeon-houses, beehives, fish
008 purposes of the imposition of real
M2ponds or breeding places of similar nature, in property taxes. It is only for purposes of
Ocase their owner has placed them or preserves executing a final judgment that these
RCthem with the intention to have them machinery and equipment, installed by
BApermanently attached to the land, and forming a the lessee on a leased land, would not be
permanent part of it; the animals in these places considered as real property. But in the
are included; imposition of real property tax, the
underground tanks are taxable as
(7) Fertilizer actually used on a piece of land; necessary fixtures of the gasoline station
without which the gasoline station would
(8) Mines, quarries, and slag dumps, while the not be operational. (Caltex v. CBAA, 114
matter thereof forms part of the bed, and waters SCRA 296).
either running or stagnant;
SPECIAL CLASSES OF REAL PROPERTY (Sec. 216,
(9) Docks and structures which, though floating, LGC)
are intended by their nature and object to 1. HOSPITALS
remain at a fixed place on a river, lake, or coast; 2. CULTURAL and SCIENTIFIC purposes
3. owned and used by LOCAL WATER
DISTRICTS
(10) Contracts for public works, and servitudes
4. GOCCs rendering essential public
and other real rights over immovable property.
services in the supply and distribution of
“
water and/or generation or transmission of
electric power.
In Caltex vs. CBAA, May 31, 1982:
E. Properties Exempt
Machinery and equipment, consisting of 1. Section 234, LGC
underground tanks, elevated tanks, water tanks, a. Real property owned by the Republic
gasoline pumps, computing pumps, water of the Philippines or any of its
pumps, car washer, car and truck hoists, air political subdivisions except when the beneficial
compressors and similar articles, installed by use thereof has been
Caltex (Philippines) Inc. in its gasoline stations, granted, for consideration or otherwise, to a
located on leased land, have been held to be real taxable person;
property subject to the tax. (real properties
which have characteristics of permanency, the - except: when beneficial use
lease is for a long period of time) thereof is granted to a taxable person
- cases of MIAA and MCAA:
GOCCs are not automatically exempt
2001 BAR QUESTION: Under Article 415 from real property tax, depending on its
of the Civil Code, in order for machinery charter giving it exemption
and equipment to be considered real - charter enacted after LGC so
property, they must be placed by the that the exemption is not revoked
owner of the land and, in addition, must
tend to directly meet the needs of the b. Charitable institutions, churches,
industry or works carried on by the parsonages, or convents
owner. Oil companies, such as Caltex and appurtenant thereto, mosques, non
Shell, install underground tanks in the profit or religious cemeteries, and
gasoline stations located in land leased by all lands, buildings, and
the oil companies from others. Are those improvements actually, directly
underground tanks, which were not
placed there by the owner of the land but
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REVIEW NOTES FOR TAXATION 2 49
and exclusively used for religious, documentary evidence in support of such claim (i.e.
charitable, or educational purposes. corporate charters, title of ownership,articles of incorporation,
- traditional exemptees contracts, affidavits, etc.)
d. All real property owned by duly Case: X owns a parcel of land, leased by
registered cooperatives as provided for church. May X claim exemption from Real
under RA 6938, and Property Taxation? Yes, exemption attaches on
property as long as exclusively used for
e. Machinery and equipment used for
religious purchases.
pollution control and environmental
protection.
Case: School - not subject to Real Property Tax
if directly used for educational purposes.
2. Section 238, LGC A. Has a mansion near the school where
Idle Lands Exempt From Tax: the president of the school resides and
By reason of: where guests may be accommodated -
a. force majeure incidental, president has to live near school
b. civil disturbance
c. natural calamity B. Near the school is a hospital where
d. any cause which medical students are trained - incidental to
legally/physically prevents the owner of the operation of the school (Herrera vs. CBAA –
property or use as trainee students)
person having legal interest therein from
improving, C. Near the school is a men’s dorm, a
utilizing, or cultivating the same student center
– exempt, incidental to operation of the
What Are Considered as Idle Lands: (Sec. 237, school
LGC)
1. Agricultural lands – More than 1 hectare if D. Near the school is another school
more than ½ of which remain uncultivated or building with 2 floors used as classrooms
unimproved by the owner of the property or person while 2 floors are for commercial stores.
having legal interest therein. - incidental to operation of school (Bishop of
Neva Segovia Case – vegetable garden near
Not Idle Lands: convent is incidental to convent operation)
Agricultural lands planted to permanent or - that part not used for educational purpose
perennial crops with at least 50 trees to a hectare is subject to real property tax
Lands actually used for grazing purposes - As to the land, pro-rate according to use,
one-half taxed pursuant to Abra Valley
2. Non-Agricultural Lands – More than 1,000 College Case
sq. m. in area if more than ½ of which remain
uncultivated or unimproved by the owner of the
property or person having legal interest therein.
from taxes simply because it derives the hospital are used for the treatment
income from paying patients, whether of patients and the dispensation of
out-patient, or confined in the hospital, medical services to them, whether
or receives subsidies from the paying or non-paying, other portions
government, so long as the money thereof are being leased to private
received is devoted or used altogether to individuals for their clinics and a
the charitable object which it is intended canteen. Further, a portion of the land is
to achieve; and no money inures to the being leased to a private individual for
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private benefit of the persons managing her business enterprise under the
008
or operating the institution. However, business name "Elliptical Orchids and
M2
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RC those portions of its real property that Garden Center."
BA are leased to private entities are not
exempt from real property taxes as these Accordingly, the Court held
are not actually, directly and exclusively that the portions of the land leased to
used for charitable purposes. private entities as well as those parts of
the hospital leased to private
“Under the 1973 and 1987 individuals are not exempt from such
Constitutions and Rep. Act No. 7160 in taxes. On the other hand, the portions of
order to be entitled to the exemption, the land occupied by the hospital and
the petitioner is burdened to prove, by portions of the hospital used for its
clear and unequivocal proof, that (a) it is patients, whether paying or non-paying,
a charitable institution; and (b) its real are exempt from real property taxes.”
properties are ACTUALLY, DIRECTLY
and EXCLUSIVELY used for charitable Analysis:
purposes. "Exclusive" is defined as Is Lung Center liable for Real Property Tax?
possessed and enjoyed to the exclusion Yes.
of others; debarred from participation or a. exclusively used means
enjoyment; and "exclusively" is defined, solely used for charitable
"in a manner to exclude; as enjoying a purposes
privilege exclusively." If real property is b. exemption in its charter
used for one or more commercial revoked by new LGC
purposes, it is not exclusively used for c. incidental exemption no
the exempted purposes but is subject to longer recognized
taxation. The words "dominant use" or d. taxed on orchidarium,
"principal use" cannot be substituted for canteen, private clinics
the words "used exclusively" without
doing violence to the Constitutions and Query: are the older cases now not
the law. Solely is synonymous with applicable so that they are
exclusively. now taxable?
- not clear as to the extent
What is meant by actual, direct of Lung Center case as
and exclusive use of the property for to areas which used to
charitable purposes is the direct and be considered as real
immediate and actual application of the property tax exempted
property itself to the purposes for which as incidental
the charitable institution is organized. It - If city decides to tax
is not the use of the income from the SLU on its hospital,
real property that is determinative of parking lot, etc., use as
whether the property is used for tax- ground that they should
exempt purposes. be exempt due to
necessity, do not use the
The petitioner failed to word “incidental”
discharge its burden to prove that the
entirety of its real property is actually, 3. In LRTA vs. CBAA, October 12, 2000,
directly and exclusively used for though the creation of the LRTA was
charitable purposes. While portions of impelled by public service – to provide
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 52
Who is lible for the back taxes? 1) Ascertain the assessment level of the property
a. not the heirs because they were not the 2) Multiply the market value by the applicable
owners nor beneficial owners at the time assessment level of the property
b. not GSIS because at the time it was exempt 3) Find the tax rate which corresponds to the
c. beneficial users or those using the property for class (use) of the property and multiply the
commercial use must pay assessed value by the applicable tax rates.
however not made liable since not impleaded
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008
H. Procedure in Real Property Taxation
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In Lopez vs. City of Manila, February 19, 1999, the
BA
Court discussed the steps to be followed for the
The computation of real property tax is cited below:
mandatory conduct of General Revision of Real Property
assessments, pursuant to the provision of Sec. 219, of
R.A. No. 7160 which are as follows: Market Value
Pxxx
1. The preparation of Schedule of Fair Market
Values. Multiplied by Assessment Level
2. The enactment of Ordinances: (x %)
a) levying an annual "ad valorem" tax
on real property and an additional tax Assessed Value Pxxx
accruing to the SEF.
b) fixing the assessment levels to be Multiplied by Rate of Tax
applied to the market values of real (x %)
properties;
c) providing necessary appropriation to Real Property Tax
defray expenses incident to general revision Pxx
of real property assessments; and
d) adopting the Schedule of Fair Market
1. Declaration of Real Properties – whose duty?
Values prepared by the assessors.
DECLARATION OF REAL PROPERTY
The preparation of fair market values as a preliminary
step in the conduct of general revision was set forth in It shall be the responsibility of the owner,
Section 212 of R.A. 7160, to wit: (1) The city or municipal
administrator or their representatives to
assessor shall prepare a schedule of fair market values declare, under oath, the true value of real
for the different classes of real property situated in their
property, taxable or exempt, within 60
respective Local Government Units for the enactment of days after the acquisition. The sworn
an ordinance by the sanggunian concerned. (2) The
declaration shall be filed once every 3
schedule of fair market values shall be published in a years before June 30th of the year
newspaper of general circulation in the province, city or
commencing 1992. The failure or refusal
municipality concerned or the posting in the provincial to make that declaration within the
capitol or other places as required by law.
prescribed period would authorize the
provincial or city assessor to declare the
The Court also laid down the procedure in property in the name of the defaulting
computing the real property tax. With the introduction owner, if known, or against an unknown
of assessment levels, tax rates could be maintained, owner as the case may be, and to assess
although tax payments can be made either higher or the property for taxation. (Secs. 201-204
lower depending on their percentage (assessment level) LGC).
applied to the fair market value of property to derive its
assessed value which is subject to tax. Moreover, classes In the case of Testate Estate of Concordia Lim
and values of real properties can be given proper V. City of Manila, February 21, 1990, it was held that
consideration, like assigning lower assessment levels to the unpaid tax attaches to the property and is chargeable
residential properties and higher levels to properties against the person who had actual or beneficial use
used in business. The procedural steps in computing the and possession of it regardless of whether or not he
real property tax are as follows:
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 54
b. Provincial / City / Municipal Assessor Listing of all Real Property whether taxable or exempt
(Sec. 204) within the jurisdiction of LGU in the assessment roll.
WHEN only when the person under Sec 202 o Undivided real property – in the name of the estate or
refuses or fails to make the heirs or devisees
declaration within the prescribed time. No oath o Corporation, partnership and association – same as
by assessor is required individuals
• NOTE: IF FILING FOR EXEMPTION (Sec. o Owned by the Republic of the Philippines, its
206) instrumentalities, political subdivisions, beneficial use
WHAT person claiming exemptions must file is transferred to a taxable person – in the name of the
with assessor sufficient documentary possessor
evidence to support claim
WHEN within 30 days from the date of All declarations shall be kept and filed under a
DECLARATION of property uniform classification system to be established by the
• IF required evidence is not submittedwithin provincial, city or municipal assessor.
30 days, the property will be listed as taxable in the roll
• IF proven to be tax-exempt, property will be Steps in assessment of Real Property :
dropped from the roll 1. Listing of all properties subject to the tax; and
2. The valuation of such properties.
• NOTE: IF PROPERTY DECLARED FOR THE
FIRST TIME (Sec. 222) In Callanta vs. Ombudsman, January 30, 1998,
If declared for 1st time, real property shall be where the issue was whether officials and employees of
assessed for back taxes the Office of the City Assessor may reduce the new
a) for not more than ten (10) years prior assessed values of real properties upon requests of the
to the date of initial assessment affected property owners, the Court ruled that forestall
b) taxes shall be computed on the basis the practice of initially setting unreasonably high
of applicable schedule of values in force during the reassessment values only to eventually change them to
corresponding periods unreasonably lower values upon "requests" of property
*Assessor will compare the entry on file with the owners, the law gives no such authority to the city
Registry of Deeds and the assessment roll in his office. assessor or his subalterns.. . Thus, petitioners'
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 55
exempt from basic real property tax and the remainder Fair Market Value (FMV)
of the land have been donated to the local government - price at which a property may be sold
unit concerned for the construction of said projects. by a seller who is not compelled to sell and
(Sec. 240, LGC). bought by a buyer who is not compelled to buy
In City Assessor of Cebu City vs. Association of Advance and Prompt Payment
Benevola de Cebu, June 8, 2007, applying Secs. 215-216, of a) advance payment - discount not exceeding 20% of
LGC, in line with City Tax Ordinance LXX of Cebu City, annual tax (Sec 251, LGC)
the 10% special assessment should be imposed for the b) prompt payment - discount not exceeding 10% of
Chong Hua Hospital Medical Arts Center (CHHMAC) annual tax due(Art 342 IRR)
building which should be classified as “special”. Sec.
216, LGC states that: Collection of Tax (Sec.247, LGC)
The collection of the real property tax with
SEC. 216. Special Classes of Real interest thereon and related expenses and the
Property.––All lands, buildings, enforcement of the remedies provided by the LGC or
and other improvements thereon any applicable laws shall be the responsibility of the city
actually, directly and exclusively or municipal treasurer concerned.
used for hospitals, cultural or The city or municipal treasurer my deputize the
scientific purposes, and those barangay treasurer to collect all taxes on real property
owned and used by local water located in the barangay provided the barangay treasurer
districts, and government-owned is properly bonded.
or controlled corporations
rendering essential public Who Collects:
services in the supply and The provincial, city, municipal or barangay treasurer
distribution of water and/or
generation and transmission of Period Within Which To Collect (Sec 270):
electric power shall be classified Within five (5) yrs from the date they become due within
as special. ten (10) yrs. from discovery of fraud, in case there is
fraud or intent to evade
iii. Provide for appropriations
iv. Adopt Schedule of Fair Market Values Period of prescription shall be SUSPENDED when:
(Sec 270, LGC)
Fair Market Value and Assessed Value – What’s the 1. local treasurer is legally prevented to collect tax
difference?
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 57
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