Taxation Memaid (Beda) PDF

San Beda College of Law
MEMORY AID IN TAXATION LAW
TAXATION LAW
I. GENERAL PRINCIPLES 6. levied for a public purpose.
REQUISITES OF A VALID TAX

POWER OF TAXATION 1. should be for a public purpose
TAXATION – power by which the 2. the rule of taxation shall be uniform
sovereign through its law-making body 3. that either the person or property
raises revenue to defray the necessary taxed be within the jurisdiction of
expenses of government from among the taxing authority
those who in some measure are 4. that the assessment and collection
privileged to enjoy its benefits and must of certain kinds of taxes guarantees
bear its burdens. against injustice to individuals,
especially by way of notice and
Two Fold Nature of the Power of opportunity for hearing be provided
Taxation 5. the tax must not impinge on the
1. It is an inherent attribute of inherent and Constitutional
sovereignty limitations on the power of taxation
2. It is legislative in character
THEORIES AND BASES OF TAXATION
Extent of Taxing Power 1. Lifeblood Theory
Subject to constitutional and Taxes are what we pay for civilized
inherent restrictions, the power of society. Without taxes, the government
taxation is regarded as comprehensive, would be paralyzed for lack of the
unlimited, plenary and supreme. motive power to activate and operate it.
Hence, despite the natural reluctance to
SCOPE OF LEGISLATIVE TAXING POWER surrender part of one's hard-earned
1. Amount or rate of tax income to the taxing authorities, every
2. Apportionment of the tax person who is able to must contribute
3. Kind of tax his share in the running of the
4. Method of collection government. (CIR v. Algue, Inc.)
5. Purpose/s of its levy, provided it is
for public purpose 2. Necessity Theory
6. Subject to be taxed, provided it is The power to tax is an attribute of
within its jurisdiction sovereignty emanating from necessity. It
7. Situs of taxation is a necessary burden to preserve the
State's sovereignty and a means to give
TAXES – enforced proportional the citizenry an army to resist an
contributions from the persons and aggression, a navy to defend its shores
property levied by the law-making body from invasion, a corps of civil servants to
of the State by virtue of its sovereignty serve, public improvements designed for
in support of government and for public the enjoyment of the citizenry and those
needs. which come within the State's territory,
and facilities and protection which a
CHARACTERISTICS OF TAXES government is supposed to provide.
1. forced charge; (Phil. Guaranty Co., Inc. v. CIR)
2. pecuniary burden payable in money;
3. levied by the legislature; 3. Benefits-Protection / Reciprocity
4. assessed with some reasonable rule Theory
of apportionment; (see theoretical Taxation is described as a symbiotic
justice) relationship whereby in exchange of the
5. imposed by the State within its benefits and protection that the citizens
jurisdiction; get from the Government, taxes are
paid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE

CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, Jr., Ryan Co, Edwin Torres  :MEMBERS: Marita Lourdes Azur, Edizer Enriquez, Christian Cabrera,
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Note: While taxes are intended for persons, property or other privileges to
general benefits, special benefits to be taxed.
taxpayers are not required. The The court’s power in taxation is
Government renders no special or limited only to the application and
commensurate benefit to any particular interpretation of the law.
person or property.
Note: The principle of judicial non-
IS POWER TO TAX THE POWER TO DESTROY?
THE interference extends to the
1. “Power to tax is the power to administrative realm.
destroy” (Marshall Dictum) – refers
to the unlimitedness and the degree ASPECTS OF TAXATION
or vigor with which the taxing power 1. Levy or imposition of the tax (tax
may be employed to raise revenue. legislation)
- the financial needs of the State may 2. Enforcement or tax administration
outrun any human calculation, so the (tax administration)
power to meet those needs by taxation
must not be limited even though taxes BASIC PRINCIPLES OF A SOUND TAX SYSTEM (KEY:
become burdensome or confiscatory. FAT)
1. Fiscal Adequacy – sufficiency to
2. “Power to tax is not the power to meet government expenditures and
destroy while the Supreme Court sits” other public needs.
(Holmes Dictum) – the power to tax 2. Administrative Feasibility/
knows no limit except those expressly Convenience – capability of being
stated in the Constitution. effectively enforced.
3. Theoretical Justice – based on the
Marshall and Holmes Dictum Reconciled taxpayer’s ability to pay; must be
Although the power to tax is almost progressive. (Ability to Pay Theory)
unlimited, it must not be exercised in an
arbitrary manner. If the abuse is so POLICE EMINENT
great so as to destroy the natural and TAXATION
POWER DOMAIN
fundamental rights of people, it is the 1. Purpose
duty of the judiciary to hold such an act To raise To promote To facilitate
unconstitutional. revenue public the State’s
purpose need of
PURPOSES AND OBJECTIVES OF TAXATION through property for
1. Revenue – basically, the purpose of regulations public use
taxation is to provide funds or 2. Amount of Exaction
No limit Limited to No exaction;
property with which the State the cost of but private
promotes the general welfare and regulation, property is
protection of its citizens. issuance of taken by the
2. Non-Revenue (Key: PR2EP) the license or State for
a. Promotion of general welfare surveillance public
purpose
b. Regulation
c. Reduction of social inequality
d. Encourage economic growth
e. Protectionism 3. Benefits Received
No special No direct A direct
POWER OF JUDICIAL REVIEW IN TAXATION or direct benefit is benefit results
benefit is received; a in the form of
As long as the legislature, in
received by healthy just
imposing a tax, does not violate the economic compensation
applicable constitutional limitations or taxpayer; standard of to the
restrictions, it is not within the province merely society is property
of the courts to inquire into the wisdom general attained owner
or policy of the exaction, the motives benefit of
protection
behind it, the amount to be raised or the

 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS: Jemina
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registration fees are regulatory

4. Non-impairment of Contracts exactions and not revenue measures.
Contracts Contracts Contracts may
may not be may be be impaired
impaired impaired
b. The tax imposed on videogram
establishments is not only regulatory but
5. Transfer of Property Rights
a revenue measure because the earnings
Taxes paid No transfer Transfer is
become part but only effected in
of such establishments have not been
of public restraint in favor of the subject to tax depriving the government
funds its exercise State of an additional source of income. (Tio
6. Scope v. Videogram Regulatory Board, 151
All persons, All persons, Only upon a SCRA 208)
property and property, particular
excises rights and property c. The “coconut levy funds” were
privileges all raised under the state’s taxing and
police powers.
SYSTEMS OF TAXATION The state’s concern to make it a
Global System Schedular System strong and secure source not only in the
livelihood of the significant segment of
A system A system employed the population, but also of export
employed where where the income tax
earnings, the sustained growth of which
the tax system treatment varies and
views is made to depend on
is one of the imperatives of the
indifferently the the kind or category economic growth.” Philippine Coconut
tax base and of taxable income of Producers Federation, Inc. Cocofed v.
generally treats in the taxpayer. Presidential Commission on Good
common all Government (178 SCRA 236, 252)
categories of
taxable income of CONSTRUCTION OF TAX LAWS
the individual. 1. Public purpose is always presumed.
A system which A system which 2. If the law is clear, apply the law in
taxes all itemizes the different
accordance to its plain and simple
categories of incomes and provides
income except for varied percentages tenor.
certain passive of taxes, to be 3. A statute will not be construed as
incomes and applied thereto. imposing a tax unless it does so
capital gains. It clearly, expressly and
prescribes a unambiguously.
unitary but 4. In case of doubt, it is construed most
progressive rate strongly against the Government,
for the taxable and liberally in favor of the
aggregate incomes
taxpayer.
and flat rates for
certain passive 5. Provisions of a taxing act are not to
incomes derived be extended by implication.
by individuals. 6. Tax laws operate prospectively
unless the purpose of the legislature
EXAMPLES OF TAXES LEVIED WITH A REGULATORY to give retrospective effect is
PURPOSE, OR COMBINED EXERCISE OF POLICE expressly declared or may be
POWER AND THE POWER OF TAXATION. implied from the language used.
7. Tax laws are special laws and
a. Motor vehicle registration fees prevail over a general law.
are now considered revenue or tax
measures.(Pal v. Edu, G.R No. L-41383, NATURE OFTAX LAWS
August 15,1988) 1. Not political in character
This case reversed the doctrine 2. Civil in nature, not subject to ex
previously held in Republic v. Philippine post facto law prohibitions
Rabbit Bus Lines, Inc., 32 SCRA 211, to 3. Not penal in character
the effect that motor vehicle

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TAXES ARE PERSONAL TO THE TAXPAYER b. Indirect Tax - The incidence of

1. A corporation’s tax delinquency or liability for the payment of
cannot be enforced against its the tax falls on one person but
stockholders. (Corporate Entity the burden thereof can be
Doctrine) shifted or passed on to another.
Exception: Stockholders may be 3. As to purpose:
held liable for unpaid taxes of a a. General Tax – levied for the
dissolved corporation: general or ordinary purposes of
a. if it appears that the corporate the Government
assets have passed into their b. Special Tax – levied for special
hands or purposes
b. when the stockholders have 4. As to manner of computation:
unpaid subscriptions to the a. Specific Tax – the computation
capital of the corporation of the tax or the rates of the tax
is already provided for by law.
2. Estate taxes are obligations that b. Ad Valorem Tax – tax upon the
must be paid by the executor or value of the article or thing
administrator out of the net assets subject to taxation; the
and cannot be assessed against the intervention of another party is
heirs. needed for the computation of
Exception: If prior to the payment the tax.
of the estate tax due, the properties 5. As to taxing authority:
of the deceased are distributed to a. National Tax – levied by the
the heirs, then the latter is National Government
subsidiary liable for the payment of b. Local Tax – levied by the local
such portion of the estate tax as his government
distributive share bears to the total 6. As to rate:
value of the net estate. (Sec. 9, a. Progressive Tax – rate or
Rev. Regs. No. 2-2003; see CIR vs. amount of tax increases as the
Pineda G.R. No. L-22734. amount of the income or earning
September 15, 1967)) to be taxed increases.
b. Regressive Tax – tax rate
CLASSIFICATION OF TAXES decreases as the amount of
1. As to subject matter: income to be taxed increases.
a. Personal Tax – taxes are of fixed c. Proportionate Tax – based on a
amount upon all persons of a fixed proportion of the value of
certain class within the the property assessed.
jurisdiction without regard to
property, occupation or business IMPOSITIONS NOT STRICTLY CONSIDERED AS TAXES
in which they may be engaged. 1. Toll – amount charged for the cost
b. Property Tax – assessed on and maintenance of the property
property of a certain class used.
c. Excise Tax – imposed on the 2. Penalty – punishment for the
exercise of a privilege commission of a crime.
d. Customs Duties – duties charged 3. Compromise Penalty – amount
upon the commodities on their collected in lieu of criminal
being imported into or exported prosecution in cases of tax
from a country. violations.
2. As to burden: 4. Special Assessment – levied only on
a. Direct Tax – both the incidence land based wholly on benefit
of or liability for the payment of accruing thereon as a result of
the tax as well as the impact or improvements or public works
burden of the tax falls on the undertaken by government within
same person. the vicinity.

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5. License or Fee – regulatory Amount is unlimited Amount is limited

imposition in the exercise of the to the cost of (1)
issuing the license,
police power.
and (2) inspection
6. Margin Fee – exaction designed to and surveillance
stabilize the currency.
7. Debt – a sum of money due upon Normally paid after Normally paid
contract or one which is evidenced the start of a before
by judgment. business commencement of
business
8. Subsidy – a legislative grant of
money in aid of a private enterprise Taxes, being the License fee may be
deemed to promote the public lifeblood of the with or without
welfare. State, cannot be consideration
9. Customs duties and fees – duties surrendered except
for lawful
charged upon commodities on their
consideration
being transported into or exported
from a country. Non-payment does Non-payment
10. Revenue – a broad term that not make the makes the business
includes taxes and income from business illegal but illegal
other sources as well. maybe a ground for
11. Impost – in its general sense, it criminal
prosecution
signifies any tax, tribute or duty. In
its limited sense, it means a duty on
TEST IN DETERMINING IF THE IMPOSITION IS A TAX OR A
imported goods and merchandise.
LICENSE FEE
If the purpose is primarily revenue
Tax Special
or if revenue is, at least, one of the real
Assessment
and substantial purposes, then the
Imposed on persons, Levied only on land exaction is a tax. If the purpose is
property and excises regulatory in nature, it is a license.
(PAL v. Edu)
Personal liability Cannot be made a
attaches on the personal liability of Tax Debt
person assessed in the person assessed
case of non-payment
An obligation Created by contract
imposed by law
Not based on any Based wholly on
special or direct benefit
benefit Due to the May be due to the
government in its government but in
Levied and paid Exceptional both as sovereign capacity its corporate
annually to time and locality capacity
Exemption granted Exemption does not Payable in money Payable in money,

is applicable (Art. apply. property or services
VI, Sec. 28(3) 1987 N.B. If property is
Constitution) exempt from Real Does not draw Draws interest if
Property Tax, it is interest except in stipulated or
also exempt from case of delinquency delayed
Special Assessment.
Not assignable Assignable
Tax License Fee
Not subject to Subject to
Based on the power Emanates from compensation or compensation or
of taxation police power set-off set-off
To generate Regulatory Non-payment is No imprisonment in

revenue punished by case of non-payment
imprisonment (Art. III, Sec. 20

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except in poll tax 1987 Constitution) Exception: When both obligations are
due and demandable as well as fully
Imposed only by Can be imposed by liquidated and all the requisites for a
public authority private individual valid compensation are present,
TEST IN DETERMINING IF THE IMPOSITION IS A TAX OR A compensation takes place by operation
LICENSE FEE of law. (Domingo v. Garlitos)
If the purpose is primarily revenue or
if revenue is, at least, one of the real DOCTRINE OF EQUITABLE RECOUPMENT NOT
and substantial purposes, then the FOLLOWED IN THE PHILIPPINES
exaction is a tax. If the purpose is A tax presently being assessed
regulatory in nature, it is a license. against a taxpayer which has prescribed
(PAL v. Edu) may not be recouped or set-off against
an overpaid tax the refund of which is
Tax Debt also barred by prescription. It is against
public policy since both parties are
An obligation Created by contract guilty of negligence.
imposed by law
Due to the May be due to the Tax Toll

government in its government but in
Enforced A sum of money for
sovereign capacity its corporate
proportional the use of
capacity
contributions from something, a
persons and property consideration which
Payable in money Payable in money, is paid for the use of
property or services a property which is
of a public nature;
Does not draw Draws interest if e.g. road, bridge
interest except in stipulated or
case of delinquency delayed A demand of A demand of
sovereignty proprietorship
Not assignable Assignable
No limit as to the Amount of toll
Not subject to Subject to amount of tax depends upon the
compensation or compensation or cost of construction
set-off set-off or maintenance of
the public
improvement used
Non-payment is No imprisonment in
punished by case of non-
Imposed only by the May be imposed by:
imprisonment payment (Art. III,
State (1) Government
except in poll tax Sec. 20 1987 (2) Private
Constitution) individuals or
entities
Imposed only by Can be imposed by
public authority private individual
Tax Penalty
COMPENSATION OR SET-OFF Enforced Sanction imposed as
General Rule: Taxes cannot be the proportional a punishment for
subject of compensation or set-off. contributions from violation of a law
Reasons: persons and or acts deemed
1. lifeblood theory property injurious; violation
2. taxes are not contractual of tax laws may give
obligation but arise out of duty rise to imposition of
to the government penalty
3. the government and the Intended to raise Designed to regulate
taxpayer are not mutually revenue conduct
creditors and debtors of each
other. (Francia v. IAC) May be imposed May be imposed by:
only by the (1) Government
government (2) Private

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individuals or will directly promote the welfare of

entities the community in equal measure.
Tax Tariff (2) NON-DELEGABILITY OF THE TAXING POWER

General Rule: The power of taxation is
All embracing term A kind of tax peculiarly and exclusively exercised by
to include various imposed on articles the legislature. (See Scope of
kinds of enforced which are traded Legislative Taxing Power, supra)
contributions upon internationally - refers to tax legislation
persons for the
Exceptions to Non-delegability:
attainment of
public purposes 1. Flexible Tariff Clause: Authority of
the President to fix tariff rates,
TAXPAYERS’ SUIT import and export quotas, tonnage
A case where the act complained of and wharfage dues, and other duties
directly involves the illegal disbursement or imposts. (Art. VI, Sec.28(2), 1987
of public funds derive from taxation Constitution)
(Justice Melo, dissenting in Kilosbayan, 2. Power of local government units to
Inc vs Guingona, Jr.) levy taxes, fees, and charges. (Art.
X, Sec. 5, 1987 Constitution)
TAXPAYERS AND PUBLIC OFFCIALS HAVE LOCUS 3. Delegation to administrative
STANDI agencies for implementation and
REQUISITES FOR TAXPAYERS’ SUIT collection.
a. The tax money is being - merely refers to tax administration
extracted and spent in violation of or implementation
specific constitutional protections
against abuses of legislative power. (3) SITUS OR TERRITORIALITY OF TAXATION
b. That public money is being The power to tax is limited only to
deflected to any improper purpose persons, property or businesses within
(Pascual vs Secretary of Public the jurisdiction or territory of the taxing
Works) power.
c. That the petitioner seeks to
restrain respondents from wasting FACTORS THAT DETERMINE THE SITUS:
public funds through the enforcement a. Kind or classification of the tax
of an invalid or unconstitutional law being levied
b. Situs of the thing or property
LIMITATIONS ON THE TAXING taxed
c. Citizenship of the taxpayer
POWER d. Residence of the taxpayer
e. Source of the income taxed
A. INHERENT LIMITATIONS (KEY: SPINE) f. Situs of the excise, privilege,
1. Territoriality or Situs of taxation business or occupation being taxed
2. Public purpose of taxes
3. International comity APPLICATION OF SITUS OF TAXATION
4. Non-delegability of the taxing power
Kind of Tax Situs
5. Tax Exemption of the government
Personal or Residence or
(1) TESTS IN DETERMINING PUBLIC PURPOSE Community tax domicile of the
A. Duty Test – whether the thing to be taxpayer
furthered by the appropriation of
public revenue is something, which Real property tax Location of property
is the duty of the State, as a (Lex rei sitae)
government, to provide.
Personal property -tangible: where it
B. Promotion of General Welfare Test tax is physically located
or permanently kept
– whether the proceeds of the tax (Lex rei sitae)
-intangible: subject

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to Sec. 104 of the (4) shares, obligations or bonds

NIRC and the issued by any foreign corporation
principle of mobilia if such shares, obligations or
sequuntur personam bonds have acquired a business
situs in the Philippines; and
Business tax Place of business
(5) shares or rights in any
partnership, business or industry
Excise or Privilege Where the act is established in the Philippines.
tax performed or where (Sec. 104, 1997 NIRC).
occupation is
pursued (4) EXEMPTION OF THE GOVERNMENT
As a matter of public policy,
Sales tax Where the sale is property of the State and of its
consummated municipal subdivisions devoted to
government uses and purposes is
Income Tax Consider
deemed to be exempt from taxation
(1) citizenship,
(2) residence, and although no express provision in the law
(3) source of income is made therefor.
(Sec. 42, 1997 NIRC)
General Rule: The Government is tax
Transfer tax Residence or exempt.
citizenship of the - However, it can also tax itself.
taxpayer or location
of property RULES:
1. Administrative Agencies
Franchise Tax State which granted
A. Governmental function - tax
the franchise
exempt unless when the law
expressly provides for tax. (Sec.
SITUS OF TAXATION OF INTANGIBLE PERSONAL
32 B7)
PROPERTY
B. Proprietary function – taxable
General Rule: Domicile of the owner
unless exempted by law. (Sec.
pursuant to the principle of the mobilia
27C)
sequuntur personam or movables follow
2. GOCCs
the person.
General Rule: Income is taxable at
Exceptions:
the rate imposed upon corporations
1. When the property has acquired a
or associations engaged in a similar
business situs in another jurisdiction;
business, industry, or activity.
2. When an express provision of the
Exception: GSIS, SSS, PHIC, PCSO
statute provide for another rule.
and PAGCOR. (Sec. 27(C), NIRC)
Illustration: For purposes of estate
3. Government Educational Institutions
and donor’s taxes, the following
A. Property or real estate tax –
intangible properties are deemed
property actually, directly and
with a situs in the Philippines:
exclusively used for educational
(1) franchise which must be
purposes – exempt but income
exercised in the Philippines;
of whatever kind and character
(2) shares, obligations or bonds
from any of their properties,
issued by any corporation
real or personal, regardless of
organized or constituted in the
the disposition, is taxable. (Sec.
Philippines in accordance with
30, last par., NIRC)
its laws;
B. Income received by them as
(3) shares, obligations or bonds by
such are exempt from taxes.
any foreign corporation eighty-
However, their income from any
five percent (85%) of the
of their activities conducted for
business of which is located in
profit regardless of the
the Philippines;
disposition, is taxable. (Sec. 30,
last par., NIRC)

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4. Income derived from any public These principles limit the authority
utility or from the exercise of any of the government to effectively impose
essential governmental function taxes on a sovereign state and its
accruing to the Government of the instrumentalities, as well as on its
Philippines or to any political property held and activities undertaken
subdivision thereof is not included in in that capacity. Even where one enters
gross income and exempt from the territory of another, there is an
taxation. (Sec. 32(B)(7)(b), NIRC) implied understanding that the former
5. Donations in favor of governmental does not thereby submit itself to the
institutions are considered as income authority and jurisdiction of the other.
on the part of the donee. However,
it is not considered as taxable B. CONSTITUTIONAL LIMITATIONS
income because it is an exclusion A. GENERAL OR INDIRECT
from the computation of gross CONSTITUTIONAL LIMITATIONS
income. (Sec.32 (B)(3), NIRC)
6. The amount of all bequests, 1. Due Process Clause (Art. III, Sec. 1,
legacies, devises or transfers to or 1987 Constitution)
for the use of the Government or Requisites:
any political subdivision for A.The interests of the public as
exclusively public purposes is distinguished from those of a
deductible from the gross estate. particular class require the
(Sec.86 (A)(3), NIRC) intervention of the State.
7. Gifts made to or for the use of the (Substantive limitation)
National Government or any entity B. The means employed must be
created by any of its agencies which reasonably necessary to the
is not conducted for profit, or to any accomplishment of the purpose
political subdivision of the said and not unduly oppressive.
Government are exempt from (Procedural limitation)
donor’s tax. (Sec. 101(A)(2), NIRC) The constitutionality of a legislative
8. Local government units are taxing act questioned on the ground of
expressly prohibited by the LGC denial of due process requires the
from levying tax upon National existence of an actual case or
Government, its agencies, and controversy.
instrumentalities, and local
government units. [Sec. 133 (o), 2. Equal Protection Clause (Art. III,
LGC] Sec. 1, 1987 Constitution
9. Unless otherwise provided in the Requisites of a Valid Classification:
Local Government Code (LGC), tax a. based upon substantial
exemptions granted to all persons, distinctions
whether natural or juridical, b. germane to the purposes of the
including GOCC, except local water law
districts, cooperatives duly C. not limited to existing conditions
registered under RA No. 6938, non- only
stock and non-profit institutions, are d. apply equally to all members of
withdrawn upon effectivity of the the class
LGC. (Sec. 193, LGC)
10. Real property owned by the 3. Freedom Of Speech And Of The
Republic of the Philippines or any of Press (Art. III, Sec. 4, 1987
its political subdivisions except when Constitution)
the beneficial use thereof has been There is curtailment of press
granted, for consideration or freedom and freedom of thought and
otherwise, to a taxable person shall expression if a tax is levied in order
be exempt from payment of real to suppress this basic right and
property tax. (Sec. 234, LGC) impose a prior restraint. (Tolentino
vs. Secretary of Finance, GR No.
(5) INTERNATIONAL COMITY 115455, August 25, 1994)

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due conferred and rate. There

4. Non-Infringement Of Religious process of liabilities should
Freedom And Worship (Art. III, Sec. law. imposed. therefore,
5, 1987 Constitution) Notice be no direct
must, double
A license tax or fee constitutes a
therefore taxation
curtailment of religious freedom if , be given
imposed as a condition for its in case of
exercise. (American Bible Society failure to
vs. City of Manila, GR No. L-9637, pay taxes
April 30, 1957)
B. SPECIFIC OR DIRECT
5. Non-Impairment Of Contracts (Art. CONSTITUTIONAL LIMITATIONS
III, Sec. 10, 1987 Constitution)
No law impairing the obligation 1. Non-Imprisonment For Debt Or Non-
of contract shall be passed. (Sec. Payment Of Poll Tax (Art. III, Sec.
10, Art. III, 1987 Constitution) 20, 1987 Constitution)
The rule, however, does not
apply to public utility franchises or 2. Rule Requiring That Appropriations,
right since they are subject to Revenue And Tariff Bills Shall
amendment, alteration or repeal by Originate Exclusively From The
the Congress when the public House Of Representatives (Art. VI,
interest so requires. (Cagayan Sec. 24, 1987 Constitution)
Electric & Light Co., Inc. v.
Commissioner, GR No. 60216, 3. Uniformity, Equitability And
September 25, 1985) Progressivity Of Taxation (Art. VI,
Sec. 28(1), 1987 Constitution)
RULES: Uniformity – all taxable articles or
A. When the exemption is kinds of property of the same class
bilaterally agreed upon between are taxed at the same rate.
the government and the taxpayer – Equitability – the burden falls to
it cannot be withdrawn without those who are more capable to pay.
violating the non-impairment Progressivity – rate increases as the
clause. tax base increases.
B. When it is unilaterally granted by
law, and the same is withdrawn by Q: Is a tax law adopting a regressive
virtue of another law – no violation. system of taxation valid?
C. When the exemption is granted A: Yes. The Constitution does not
under a franchise – it may be really prohibit the imposition of indirect
withdrawn at any time thus, not a taxes which, like the VAT, are
violation of the non-impairment of regressive. The Constitutional provision
contracts means simply that indirect taxes shall be
minimized. The mandate to Congress is
6. Presidential power to grant not to prescribe, but to evolve, a
reprieves, commutations and progressive tax system. (EVAT En Banc
pardons and remit fines and Resolution, Tolentino, et al vs Secretary
forfeitures after conviction (ART. of Finance, October 30, 1995)
VII, SEC. 19, 1987 CONSTITUTION)
Due Equal 4. Limitations On The Congressional
Uniformity
Process Protection Power To Delegate To The
Taxpayer Taxpayers Taxable President The Authority To Fix
may not shall be articles, or
Tariff Rates, Import And Export
be treated alike kinds of
deprived under like property of
Quotas, Etc. (Art. VI, Sec. 28(2),
of life, circumstances the same 1987 Constitution)
liberty or and conditions class, shall
property both in the be taxed at 5. Tax Exemption Of Properties
without privileges the same Actually, Directly And Exclusively

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Used For Religious, Charitable And 6. Voting Requirement In Connection

Educational Purposes. (Art. VI, With The Legislative Grant Of Tax
Sec. 28(3) 7, 1987 Constitution) Exemption (Art. VI, Sec. 28(4),
The constitutional provision 1987 Constitution)
(above cited) which grants tax 7. Non-Impairment Of The
exemption applies only to property Jurisdiction Of The Supreme Court
or realty taxes assessed on such In Tax Cases (Art. VIII, Sec. 2 And
properties used actually, directly 5(2)(B), 1987 Constitution)
exclusively for religious, charitable
and educational purposes. (Lladoc 8. Exemption From Taxes Of The
vs. Commissioner, GR No. L-19201, Revenues And Assets Of
June 16, 1965) Educational Institutions, Including
The present Constitution Grants, Endowments, Donations
required that for the exemption of And Contributions. (Art. XIV, Sec.
“lands, buildings and 4(3) And (4), 1987 Constitution)
improvements”, they should not only
be “exclusively” but also “actually” OTHER SPECIFIC TAX PROVISIONS IN
and “directly” used for religious and THE CONSTITUTION
charitable purposes. (Province of 1. Power of the President to veto any
Abra vs. Hernando, GR No. L-49336, particular item or items in an
August 31, 1981) appropriation, revenue, or tariff bill.
The test of exemption from (Art VI, Sec. 27(2), 1987
taxation is the use of the property Constitution)
for the purposes mentioned in the 2. Necessity of an appropriation before
Constitution. (Abra Valley College money may be paid out of the public
Inc. vs. Aquino, GR No. L-39086, treasury. (Art. VI, Sec. 29 (1), 1987
June 15, 1988) Constitution)
3. Non-appropriation of public money
EXCLUSIVE BUT NOT ABSOLUTE USE or property for the use, benefit, or
The term “ exclusively used” does support of any sect, church, or
not necessarily mean total or absolute system of religion. (Art. VI, Sec. 29
use for religious, charitable and (2), 1987 Constitution)
educational purposes. If the property is 4. Treatment of taxes levied for a
incidentally used for said purposes, the special purpose. (Art. VI, Sec. 29
tax exemption may still subsist. (Abra (3), 1987 Constitution)
Valley College Inc. vs. Aquino, Gr No. L- 5. Internal revenue allotments to local
39086, June 15, 1988) government units. (Art. X, Sec. 6,
Corollarily, if a property, although 1987 Constitution)
actually owned by a religious, charitable
and educational institution is used for a
non- exempt purpose, the exemption DOUBLE TAXATION
from tax shall not attach
DOUBLE TAXATION – taxing the same
ART. XIV, ART. VI, property twice when it should be taxed
SEC 4(3) SEC 28(3) but once.
Grantee Non- stock, Religious,
non profit educational, IS PHILIPPINES?
DOUBLE TAXATION PROHIBITED IN THE
educational charitable No. There is no constitutional
institution institutions
prohibition against double taxation. It is
Taxes Income tax Property tax
not favored but permissible. (Pepsi Cola
covered Custom
Duties Bottling Co. v. City of Butuan, 1968).
Property tax
(DECS Order KINDS OF DOUBLE TAXATION
No. 137-187) (1) Direct Duplicate Taxation /
Obnoxious – double taxation in the
objectionable or prohibited sense.

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This constitutes a violation of the output tax or tax on the finished

substantive due process. product.
• Foreign income taxes may be
Elements: credited against the Phil. Income
a. the same property or subject tax, subject to certain limitations,
matter is taxed twice when it should by citizens, including members of
be taxed only once. general professional partnerships or
b. both taxes are levied for the beneficiaries of estates or trusts
same purpose (pro rata), as well as domestic
c. imposed by the same taxing corporations.
authority
d. within the same jurisdiction
• A tax credit is granted for estate
taxes paid to a foreign country on
e. during the same taxing period
the estate of citizens and resident
f. covering the same kind or
aliens subject to certain limitations.
character of tax.
(Villanueva vs. City of Iloilo) • The donor’s tax imposed upon a
citizen or a resident shall be
(2) Indirect Duplicate Taxation – not credited with the amount of any
legally objectionable. The absence donor’s tax imposed by the authority
of one or more of the above- of a foreign country, subject to
mentioned elements makes the certain limitations.
double taxation indirect. Tax Exemptions
Principle of Reciprocity
(3) Domestic- this arises when the taxes Treaties with other states
are imposed by the local or national
government (within the same state) METHODS RESORTED TO BY A TAX TREATY IN
(4) International- refers to the ORDER TO ELIMINATE DOUBLE TAXATION
imposition of comparable taxes in
two or more states on the same FIRST METHOD: The tax treaty sets out
taxpayer in respect of the same the respective rights to tax by the state
subject matter and for identical of source or situs and by the state of
periods. residence with regard to certain classes
of income or capital. In some cases, an
REMEDIES OF DOUBLE TAXATION exclusive right to tax is conferred in one
1. Tax Sparing Rule – same dividend of the contracting states; however, for
earned by a NRFC within the Phil. is other items of income or capital, both
reduced by imposing a lower rate of states are given the right to tax although
15% (in lieu of the 35%), on the the amount of tax that may be imposed
condition that the country to which by the state of source is limited.
the NRFC is domiliced shall allow a SECOND METHOD: The state of source is
credit against the tax due from the given a full or limited right to tax
NRFC, taxes deemed to have been together with the state of residence. In
paid in the Phil. (Sec.28 B 5b) (CIR this case, the treaty makes it incumbent
vs Procter & Gamble) (GR No. upon the state of residence to allow
66838, Dec. 2, 1991) relief in order to avoid double taxation.
2. Tax deductions
Example: vanishing deduction under TWO METHODS OF RELIEF ARE USED UNDER THE SECOND
METHOD:
Section 86(A)(2), NIRC
3. Tax credits
Instances under the NIRC: 1. The exemption method- the income
or capital which is taxable in the
• For VAT purposes, the tax on inputs state of source or situs is exempted
or items that go into the in the state of residence, although in
manufacture of finished products some instances it may be taken into
(which are eventually sold) may be account in determining the rate of
credited against or deducted from tax applicable to the tax payer’s

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remaining income or capital.(This IMPACT OF TAXATION – point on which tax is

may be done using the tax deduction originally imposed.
method which allows foreign income
taxes to be deducted from gross INCIDENCE OF TAXATION – point on which the
income, in effect exempting the tax burden finally rests or settles down.
payment from being further taxed.) Illustration: Value added tax. The
2. The credit method- although the seller is required by law to pay tax, but
income or capital which is taxed in the burden is actually shifted or passed
the state of source is still taxable in on to the buyer.
the state of residence. The tax paid
in the former is credited against the KINDS OF SHIFTING
tax, levied in the latter. A. Forward shifting- when burden of
(Commissioner of Internal Revenue tax is transferred from a factor of
v. S.C Johnson and Son, Inc. et al., production through the factors of
G.R No. 127105, June 25, 1999) distribution until it finally settles on
the ultimate purchaser or consumer
Exemption B. Backward shifting- when burden is
Credit Method transferred from consumer through
Method
Focus is on the Focus is on the tax factors of distribution to the factors
income or capital of production
itself C. Onward shifting- when the tax is
shifted 2 or more times either
NOTE: Computational illustration forward or backward
between a tax deduction and a tax
credit: (2) CAPITALIZATION – a mere increase in the
value of the property is not income
Tax deduction method but merely an unrealized increase
Gross income in capital. No income until after
Less: allowable deductions the actual sale or other disposition
including of the property in excess of its
foreign taxes paid original cost.
Income subject to tax EXCEPT: if by reason of appraisal, the cost
Multiplied by rate basis of property increased and the
Income tax due resultant basis is used as the new tax
base for purposes of computing the
Tax credit method allowable depreciation expense, the net
Gross income difference between the original cost
Less: allowable deductions basis and new basis is taxable under the
excluding economic benefit principle. (BIR Ruling
foreign taxes paid No. 029, March 19, 1998)
Income subject to tax
Multiplied by rate (3) TRANSFORMATION – the manufacturer or
Income tax due producer upon whom the tax has
Less: foreign taxes paid been imposed, fearing the loss of
Net income tax due his market if he should add the tax
to the price, pays the tax and
endeavors to recoup himself by
FORMS OF ESCAPE improving his process of production,
FROM TAXATION thereby turning out his units at a
lower cost.
(1) SHIFTING – the process by which the
tax burden is transferred from the (4) TAX AVOIDANCE – the exploitation by
statutory taxpayer (impact of the taxpayer of legally permissible
taxation) to another (incident of alternative tax rates or methods of
taxation) without violating the law. assessing taxable property or

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income, in order to avoid or reduce concurrence of a majority of all the

tax liability. members of Congress (ART VI. SEC 28(4) OF
Example: “estate planning” THE 1987 CONSTITUTION)
(conveyance of property to a family
corporation for shares) (Delpher Trades KINDS OF TAX EXEMPTION
Corp. vs. IAC, 157 SCRA 349) 1. As to source
(5) TAX EVASION – use by the taxpayer of A. Constitutional – immunities from
illegal or fraudulent means to taxation that originate from the
defeat or lessen the payment of the constitution.
tax. B. Statutory – those which emanate
from legislation
FACTORS IN TAX EVASION Examples of Statutory Exemptions
1. the end to be achieved, i.e. payment Sec. 27, NIRC
of less than that known by the Sec. 105 Tariff and Customs
taxpayer to be legally due, or paying Code
no tax when it is shown that the tax Sec. 234 Local Government Code
is due; Special Laws, such as the
2. an accompanying state of mind Omnibus Investment Code of 1987
which is described as being evil, in (EO 226), Philippine Overseas
bad faith, willful, or deliberate and Shipping Act (RA 1407 as amended),
not coincidental; and Fertilizer Industry Act (RA 3050, as
3. a course of action which is unlawful. amended), Mineral Resources
Development Decree of 1974 (PD 463
INDICIA OF FRAUD IN TAX EVASION as amended), Cottage Industry Act
1. Failure to declare for taxation (RA 318, as amended) and
purposes true and actual income exemptions in “Housing for Low
derived from business for 2 Income Group” (PD 1205, as
consecutive years (Republic vs amended)
Gonzales, L-17962) C. Contractual- agreed to by the
2. Substantial under-declaration of taxing authority in contracts
income tax returns of the taxpayer lawfully entered into by them
for 4 consecutive years coupled with under enabling laws
intentional overstatement of d. Treaty
deductions (CIR vs Reyes, 104 PHIL e. Licensing Ordinance
1061) 2. As to form
(1) Express – expressly granted by
TAX TAX organic or statute law
AVOIDANCE EVASION (2) Implied – when particular
persons, property or excises are
Validity Legal and not Illegal and deemed exempt as they fall
subject to subject to outside the scope of the taxing
criminal penalty criminal provision itself.
penalty
3. As to extent
Effect Minimization of Almost (1) Total – absolute immunity
taxes always (2) Partial – one where a collection
results in of a part of the tax is dispensed
absence of with
tax payments 4. As to object
(1) Personal – granted directly in
(6) TAX EXEMPTION – a grant of immunity favor of certain persons
to particular persons or (2) Impersonal – granted directly in
corporations from the obligation to favor of a certain class of
pay taxes. property
LEGAL BASIS: No law granting any tax PRINCIPLES GOVERNING TAX EXEMPTION
exemption shall be passed without the

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A. Exemptions from taxation are International Airport Authority vs.

highly disfavored in law and are Marcos, 261 SCRA 667)
not presumed.
B. He who claims as exemption must RESTRICTIONS ON REVOCATION OF TAX EXEMPTIONS
be able to justify his claim by the A. Non impairment clause. Where the
clearest grant of organic or statute exemption was granted to private
law by words too plain to be parties based on material
mistaken. If ambiguous, there is no consideration of a mutual nature,
exemption. which then becomes contractual and
C. He who claims exemption should is covered by the non-impairment
prove by convincing proof that he clause of the Constitution.
is exempted. B. Adherence to form- if the tax
D. Taxation is the rule; tax exemption exemption is granted by the
is the exception. Constitution, its revocation may be
E. Tax exemption must be strictly effected through Constitutional
construed against the taxpayer and amendment only
liberally in favor of the taxing C. Where the tax exemption grant is in
authority. the form of a special law and not by
f. Tax exemptions are not presumed. a general law even if the terms of
G. Constitutional grants of tax the general act are broad enough to
exemption are self-executing. include the codes in the general law
H. Tax exemptions are personal. unless there is manifest intent to
repeal or alter the special law
THE FOLLOWING PARTAKE THE NATURE OF TAX (Province of Misamis Oriental vs
EXEMPTION Cagayan Electric Power and Light
1. Deductions for income tax purposes Co. Inc)
2. Claims for refund
3. Tax amnesty NATURE OF TAX AMNESTY
4. Condonation of unpaid tax liabilities 1. General or intentional overlooking by
NOTE: must be strictly construed the state of its authority to impose
against the taxpayer penalties on persons otherwise guilty
of evasion or violation of a revenue
WHEN EXEMPTIONS ARE CONSTRUED LIBERALLY IN or tax law.
FAVOR OF GRANTEE 2. Partakes of an absolute forgiveness of
1. When the law so provides for such waiver of the government of its right
liberal construction. to collect.
2. Exemptions from certain taxes, 3. To give tax evaders, who wish to
granted under special circumstances relent and are willing to reform a
to special classes of persons. chance to do so.
3. Exemptions in favor of the
government, its political subdivisions RULES ON TAX AMNESTY
or instrumentalities. 1. Tax amnesty
4. Exemptions to traditional a) like tax exemption, it is never
exemptees, such as those in favor of favored nor presumed
religious and charitable institutions. b) construed strictly against the
5. If exemptions refer to the public taxpayer (must show complete
property compliance with the law)
Q: May a tax exemption be revoked? 2.Government not estopped from

A: Yes. It is an act of liberality which questioning the tax liability even if
could be taken back by the government amnesty tax payments were already
unless there are restrictions. Since received.
taxation is the rule and exemption Reason: Erroneous application and
therefrom is the exception, the enforcement of the law by public
exemption may be withdrawn by the officers do not block subsequent
taxing authority. (Mactan Cebu correct application of the statute. The

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government is never estopped by adjustment of duties made, with

mistakes or errors of its agents. subsequent delivery, such entry and
Basis: Lifeblood Theory passage free of duty or settlement of
duties will, after the expiration of one
3.Defense of tax amnesty, like insanity, (1) year, from the date of the final
is a personal defense. payment of duties, in the absence of
Reason: Relates to the circumstances fraud or protest, be final and conclusive
of a particular accused and not the upon all parties, unless the liquidation
character of the acts charged in the of import entry was merely tentative.”
information. (Sec 1603,TCC)
Tax amnesty Tax exemption c.) Local Government Code

Local Taxes, fees, or charges shall
Immunity from all Immunity from civil be assessed within five (5) years from
criminal, civil and liability only the date they became due. In case of
administrative fraud or intent to evade the payment of
liabilities arising taxes, fees or charges the same may be
from non payment
of taxes
assessed within ten (10) years from
discovery of the fraud or intent to
Applies only to past Prospective evade payment. They shall also be
tax periods, hence application collected either by administrative or
retroactive judicial action within five (5) years
application from date of assessment (Sec. 194. LGC)
DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

As a rule, taxes are imprescriptible ADMINISTRATION
as they are the lifeblood of the
government. However, tax statutes may SOURCES OF TAX LAWS (Key: SPEC2TRA BLT)
provide for statute of limitations. 1. Statutes
The rules that have been adopted 2. Presidential Decrees
are as follows: 3. Executive Orders
a.) National Internal Revenue Code 4. Constitution
The statute of limitation for 5. Court Decisions
assessment of tax if a return is filed is 6. Tax Codes
within three (3) years from the last day 7. Revenue Regulations
prescribed by law for the filling of the 8. Administrative Issuances
return or if filed after the last day, 9. BIR Rulings
within three years from date of actual 10. Local Tax Ordinance
filling. If no return is filed or the return 11. Tax Treaties and Conventions
filed is false or fraudulent, the period to
assess is within ten years from discovery REQUISITES OF TAX REGULATIONS
of the omission, fraud or falsity. 1. Reasonable
The period to collect tax is within 2. Within the authority conferred
three years from date of assessment. In 3. Not contrary to law
the case, however, of omission to file or 4. Must be published
if the return filed is false or fraudulent,
the period to collect is within ten years NOTE: Administrative regulations must
from discovery without need of an always be in harmony with the
assessment. provisions of the law. In case of
discrepancy between the basic law and
b.) Tariff and customs code the implementing rule or regulation, the
It does not express any general former prevails.
statute of limitation; it provided,
however, that ‘’ when articles have NON-RETROACTIVITY OF BIR RULINGS
entered and passed free of duty or final

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General Rule: Rulings are not 3. Provincial, city and municipal

retroactive if they are prejudicial to the assessors and treasurers – local and
taxpayer. (Sec. 246, NIRC) real property taxes
Exceptions:
1. Where the taxpayer deliberately ORGANIZATION AND FUNCTION OF THE
misstates or omits material facts BUREAU OF INTERNAL REVENUE (BIR)
from his return or any document BIR shall be under the supervision
required of him by the BIR. and control of the Dept. of Finance (Sec.
2. Where the facts subsequently 2, NIRC)
gathered by the BIR is materially
different from the facts on which POWERS AND DUTIES OF THE BIR
the ruling is based. Assessment and collection of all
3. Where the taxpayer acted in bad national internal revenue taxes, fees,
faith. and charges
1. Enforcement of all forfeitures,
PRINCIPLE OF LEGISLATIVE APPROVAL OF AN penalties, and fines connected
ADMINISTRATIVE INTERPRETATION THROUGH therewith
REENACTMENT 2. Execution of judgments in all cases
Where a statute is susceptible of the decided in its favor by the Court of
meaning placed upon it by a ruling of Tax Appeals (CTA) and the ordinary
the government agency charged with its courts
enforcement and the legislature 3. Give effect to and administer the
thereafter reenacts the provision supervisory and police powers
without substantial change, such action conferred to it by the Code or other
is to some extent confirmatory that the laws
ruling carries out the legislative
purpose. ASSESSMENT – a finding by the taxing
authority that the taxpayer has not paid
RULE OF NO ESTOPPEL AGAINST THE GOVERNMENT the correct taxes. It is also a written
General Rule: The Government is not notice to a taxpayer to the effect that
estopped by the mistakes or errors of its the amount stated therein is due as a
agents; erroneous application and tax and containing a demand for the
enforcement of law by public officers do payment thereof.
not bar the subsequent correct General rule: Taxes are self-assessing
application of statutes. (E. Rodriguez, and thus, do not require the issuance of
Inc. vs. Collector, L-23041, July 31, an assessment notice in order to
1969) establish the tax liability of a taxpayer.
Exception: In the interest of justice and
fair play, as where injustice will result Exceptions:
to the taxpayer. (see CIR vs. CA, GR No. 1. Tax period of a taxpayer is
117982, Feb. 6, 1997; CIR vs. CA, GR No. terminated [Sec. 6(D), NIRC]
107135, Feb. 3, 1999)
2. Deficiency tax liability arising from a
AGENCIES INVOLVED IN TAX ADMINISTRATION tax audit conducted by the BIR [Sec.
1. Bureau of Internal Revenue 56(B), NIRC]
– internal revenue taxes 3. Tax lien [Sec. 219, NIRC]
Agents of the CIR 4. Dissolving corporation [Sec. 52(c),
a. Commissioner of Customs with NIRC]
respect to taxes on imported goods
b. head of the appropriate SIGNIFICANCE OF ASSESSMENT
government office with respect to a. In the proper pursuit of judicial and
energy tax extrajudicial remedies to enforce
c. banks duly accredited by the CIR taxpayer liabilities and certain
(Sec. 12, 1997 NIRC) matters that relate to it, such as the
2. Bureau of Customs – customs law imposition of surcharges and
enforcement interests,

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b. In the application of statute of 1. Assessments are prima facie

limitations, presumed correct and made in good
c. In the establishment of tax liens, faith.
and 2. It should be based on actual
d. In estimating the revenues that may facts.
be collected by government in the 3. It is discretionary on the part of
coming year. (Mamalateo, the Commissioner.
Victorino. Reviewer on Taxation,
2004)
KINDS 4. The authority of the

1. SELF- ASSESSMENT- one in which the tax Commissioner to assess taxes may be
is assessed by the taxpayer himself delegated, except the power to
make final assessments.
2. DEFICIENCY ASSESSMENT- made by the tax
5. It must be directed to the right
assessor himself whereby the correct party.
amount of the tax is determined
after an examination or investigation Authority of a Revenue Officer -
is conducted. The liability is pursuant to a Letter of Authority issued
determined and assessed for the by the Regional Director
following reason: a. To examine taxpayers within
a. amount ascertained exceeds that the jurisdiction of the district in
which is shown as the tax by the order to collect the correct
taxpayer in his return amount of tax;
b. no amount of tax is shown in the b. To recommend the assessment of
return any deficiency tax due in the
c. taxpayer did not file any return same manner that the said acts
at all could have been performed by the
3. ILLEGAL AND VOID ASSESSMENT- Revenue Regional Director.
assessment wherein tax assessor has General Rule: income tax returns are
no power to assess at all confidential.
4. ERRONEOUS ASSESSMENT- assessor has Exception: inquiry into income tax
power to assess but errs in the returns may be authorized-
exercise thereof
1. inspection is authorized upon
BURDEN OF PROOF IN PRE-ASSESSMENT PROCEEDINGS written order of the President of the
There is a presumption of Philippines;
correctness and good faith on the part of 2. inspection is authorized under
the CIR; thus, the burden lies on the Finance Regulations No. 33 of the
taxpayer. Otherwise, the finding of the Secretary of Finance;
CIR will be conclusive and he will assess 3. production of the tax return is
the taxpayer. The same is true even if material evidence in a criminal case
the CIR is wrong, if the taxpayer does wherein the government is
not controvert. (Cagayan Robina Sugar interested in the result; or
Milling Co. vs. Court of Appeals, GR. 4. production or inspection thereof is
No. 122451, October 12, 2000) authorized by the taxpayer himself.
Reasons: a. lifeblood theory
b. presumption of regularity in Networth Method- inventory method of
performance of public income tax verification.
functions
NOTE: Assessments by the BIR must have • Applies the accounting principle:
on its face the law and facts upon which assets – liabilities = networth
the presumption is made. Condition for its use:
1. taxpayer’s books do not clearly
PRINCIPLES GOVERNING TAX ASSESSMENTS reflect his income or the taxpayer

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has no books, or if he has books, he ii. any office or officer of the

refuses to produce them; national/local government, gov’t
2. there is evidence of possible source agencies and instrumentalities
or sources of income to account for (Bangko Sentral, gov’t owned and
increases in networth; controlled corporations) (e.g. LTO,
3. there is a fixed starting point or Register of Deeds)
opening networth; and 3. to Summon
4. there must be proper adjustments to i. the person liable for tax or
conform with the income tax laws. required to file a return or
ii. any officer or employee of such
person or
POWERS AND DUTIES OF THE COMMISSIONER iii. any person having in his
I. SECTION 4 (power to interpret tax law possession/custody/care
and decide tax cases) -- the books of accounts,
-- accounting records of entries
1. Interpret provisions of this Code and relating to the business of the
other tax laws subject to review of the person liable for tax or any other
Secretary of Finance person
(Quasi-legislative) -- to produce such books,
2. Decide: (Quasi-judicial) papers, records, and other data
a) disputed assessment and to give testimony
b) refunds of internal 4. to take the Testimony of the person
revenue taxes, fees and charges concerned, under oath as may be
c) penalties imposed in relevant to the inquiry
relation thereto 5. to cause revenue officers and
d) other matters arising employees to make a Canvass of any
from this Code or other laws or revenue district or region
portions thereof administered by
the BIR subject to the exclusive Nothing in Section 5 shall be
appellate jurisdiction of the CTA construed as granting the Commissioner
(Sec. 4) the authority to inquire into bank
deposits other than as provided for
II. SECTION 5 (power to obtain under sec. 6 (F) of the Code.
information, summon, examine and take
testimony of persons) III. SECTION 6 (power to make
assessments, prescribe additional
3. For the Commissioner to requirements for tax administration
ascertain: and enforcement)
(a) correctness of any return or in
making a return where none has 4. Examination of returns and
been made determination of tax due
(b) liability of any person for any A. After a return has been filed the
internal revenue tax or in Commissioner or his
correcting such liability representative may authorize
(c) tax compliance i.
the Examination of any taxpayer
The Commissioner is authorized: and
1. to Examine any relevant Book, paper, ii.
record or other data the Assessment of the correct
2. to Obtain any information (costs, amount of tax;
volume of production, receipts, sales, B. F
gross income, etc), on a regular basis ailure to file a return shall not
from: prevent the commissioner from
i. any person other than the person authorizing the examination of
under investigation or any taxpayer;

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* Any tax or deficiency tax so B. Commissioner may prescribe a

assessed shall be paid upon Minimum amount of gross
notice and demand from the receipts, sales and taxable base
Commissioner or his (taking into account the sales and
representative income of other persons engaged
* Any return, statement or in similar business):
declaration filed in any i. When a person has failed to
authorized office shall not be issue receipts as required by
withdrawn; but within three sec.113 (Invoice requirements
years from date of filing, the for VAT-registered persons)
same may be modified, and Sec. 237 (Issuance of
changed or amended; Receipts or Commercial
provided that no notice for Invoices) or
audit or investigation of such ii. When the books of accounts
return, has in the meantime, or records do not correctly
been actually served upon the reflect the declarations made
taxpayer. or required to be made in a
return,
5.Failure to submit required returns and
Such minimum amount shall
other documents
be considered correct.
If a person Terminate taxable period
i. fails to file a required return or Commissioner shall declare the tax
report at the time prescribed or period of a taxpayer Terminated and
ii. willfully or otherwise files a send notice to the taxpayer of such
false or fraudulent return, decision with a request for immediate
The Commissioner shall Make or payment of the tax when it has come to
Amend the return from the knowledge of the Commissioner:
i. his own knowledge or a) that a taxpayer is retiring from
ii. from such business subject to tax or
information as he can obtain b) is intending to leave the Phils.
through testimony or otherwise or
which shall be prima facie c) to remove his property
correct and sufficient for all therefrom or
legal purposes d) to hide or conceal his property
or
6.Inventory-taking, Surveillance,
e) is performing any act tending to
Presumptive Gross Sales
obstruct the proceedings for
A. Commissioner may, at any time
the collection of tax
during the taxable year
(a) order the inventory taking of
8. Prescribe Real Property Values
goods of any taxpayer or
The Commissioner is authorized to:
(b) may place the business a. Divide the Phils. into different
operations of any person zones or areas and
(natural/juridical) under b. Determine the fair market value
observation or Surveillance, of real properties located in each
if there is reason to zone or area
believe that such is not
declaring his correct income, For tax purposes, the value of
sales or receipts for tax the property shall be whichever is
purposes. higher of:
The findings may be used a) Fair market value as
as basis for assessing the determined by the
taxes and shall be deemed Commissioner; or
prima facie correct. b) Fair market value as shown in
the schedule of values of the
provincial and city assessors.

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higher, subject to
9. Authority to Inquire into Bank limitations/restrictions imposed
Deposit under the rules and regulations
Notwithstanding R.A. 1405 (Bank EXCEPT, (the following powers
Secrecy Law) the Commissioner is shall NOT be delegated)
authorized to inquire into the Bank a) power to Recommend the
deposits of: promulgation of rules and
(a) a decedent to determine his gross regulations by the Sec. of
estate Finance
(b) a taxpayer who has filed an b) power to Issue rulings of first
application to compromise impression or to Reverse, revoke
payment of tax liability by reason modify any existing rule of the
of financial incapacity BIR
c) power to Compromise or Abate
The taxpayer’s application for any tax liability
compromise shall not be considered
unless he waives in writing his
privilege under RA 1405 and other
general or special laws. Such waiver
shall authorize the Commissioner to
inquire into his bank deposits.
10. Authority to Register tax agents provided however that the
(a) The Commissioner shall accredit regional evaluation board may
and Register, individuals and compromise:
general professional partnerships 1. assessments issued by
and their rep. who prepare and regional offices involving
file tax returns and other papers deficiency taxes of P500,000
or who appear before the BIR or less and
(b) The Commissioner shall create 2. minor criminal violations as
national and regional may be determined by the
accreditation boards. rules and regulations
3. discovered by regional and
Those who are denied district officials
accreditation may appeal the same
to the Sec. Of Finance who shall Regional Evaluation Board is
rule on the appeal within 60 days composed of:
from receipt of such appeal. Failure i. Regional Director as Chairman
to do so within the prescribed ii. Asst. Regional Director
period shall be deemed as approval iii. Heads of the Legal, Assessment
for accreditation. and Collection Div.
iv. Revenue District Officer having
11. Authority to Prescribe Additional jurisdiction over the taxpayer
Requirements
The Commissioner may prescribe d) power to Assign or reassign
the manner of compliance with any internal revenue officers to
documentary or procedural establishments where
Requirement for the submission or articles subject to excise tax
preparation of financial statements are kept.
accompanying tax returns.
V. SECTIONS 8, 14, 15, 16, 17 (Other
IV. SECTION 7 (Authority to Delegate Powers)
Power ) 13. Duty to ensure the provision and
12. The Commissioner may delegate the
distribution of forms, receipts,
powers vested in him to
certificates, and appliances, and
- subordinate officials with rank
the acknowledgment of payment of
equivalent to Division Chief or
taxes (Sec. 8)

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1
II. NATIONAL TAXATION

14. Authority to administer oaths and to
take testimony (Sec. 14) A. INCOME TAXATION
15. Authority to make arrests and DEFINITIONS
seizures (Sec. 15) INCOME TAX – tax on all yearly profits
arising from property, possessions,
16. Authority to employ, assign or trade or business, or as a tax on a
reassign internal revenue officers person’s income, emoluments,
involved in excise tax functions to profits and the like (61 CJS 1559)
establishments where articles – tax on income,
subject to excise tax are produced whether gross or net. (27 Am. Jur.
or kept (Sec. 16) 308)
17. Authority to assign or reassign INCOME – all wealth, which flows into the
internal revenue officers and taxpayer other than as a mere
employees of the BIR to other or return of capital.
special duties connected with the
enforcement or administration of CAPITAL – resource of person, which can
the revenue laws (Sec. 17) be used in producing goods and
services.
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED TO Income Capital
INSTITUTE APPEAL PROCEEDINGS WITHOUT THE
PARTICIPATION OF THE SOLICITOR GENERAL? All wealth, which Fund or property
NO. The institution or flows into the which can be used
commencement before a proper court of taxpayer other than in producing goods
civil and criminal actions and as a mere return of or services
capital.
proceedings arising under the Tax
Reform Act which shall be conducted by Flow of Wealth Fund or property
legal officers of the BIR is not in dispute.
An appeal from such court, however, is Source of wealth Wealth
not a matter of right. It is still the
Solicitor General who has the primary
REQUISITES FOR INCOME TO BE TAXABLE
responsibility to appear for the
1. There must be a gain or profit.
government in appellate proceedings.
2. The gain must be realized or
(Commissioner vs. La Suerte Cigar and
received.
Cigarette Factory, GR No. 144942, July
3. The gain must not be excluded by
4, 2002)
law or treaty from taxation.
SOURCES OF REVENUE
TESTS ON TAXABILITY OF INCOME
The following taxes, fees and
charges are deemed to be national 1. Flow of Wealth Test – The
internal revenue taxes. (Sec. 21, NIRC) determining factor for the
1. Income tax imposition of income tax is
2. Estate and donor's taxes whether any gain was derived
3. Value-added tax from the transaction.
4. Other percentage taxes 1. Realization Test - unless the
5. Excise taxes income is deemed "realized,"
6. Documentary stamp taxes there is no taxable income.
7. Such other taxes as are or hereafter 2. Economic-Benefit Principle
may be imposed and collected by Test
the Bureau of Internal Revenue. -flow of wealth realized is
taxable only to the extent that
the taxpayer is economically
benefited.

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1
2. Non-resident Citizen
CRITERIA IN IMPOSING INCOME TAX A non-resident citizen means, a
1. Citizenship Principle – A citizen of Filipino citizen:
the Philippines is subject to Philippine a. who establishes to the
income tax (a.) on his worldwide satisfaction of the Commissioner
income, if he resides in the Philippines, the fact of his physical presence
or (b.) only on his income from sources abroad with a definite intention
within the Philippines, if he qualifies as to reside therein;
nonresident citizen. b. who leaves the Philippines
2. Residence Principle – resident alien during the taxable year to reside
is liable to pay income tax on his income abroad, either as an immigrant
from sources within the Philippines but or for employment on a
exempt from tax on his income from permanent basis;
sources outside the Philippines. c. who works and derives income
3. Source Principle – An alien is subject from abroad and whose
to Philippine income tax because he employment thereat requires
derives income from sources within the him to be physically present
Philippines. Thus, a nonresident alien is abroad most of the time during
liable to pay Philippine income tax on the taxable year;
his income from sources within the d. who is previously considered as a
Philippines such as dividend, interest, non-resident and who arrives in
rent, or royalty, despite the fact that he the Philippines at anytime during
has not set foot in the Philippines. the taxable year to reside
CLASSIFICATION OF TAXPAYERS thereat permanently shall be
considered non-resident for the
Individuals taxable year in which he arrives
a. citizens in the Philippines with respect to
(1) resident citizens (RC) his income derived from sources
abroad until the date of his
(2) non-resident citizens (NRC) arrival [Sec.22 (E), NIRC]
b. aliens
(1) resident aliens (RA) NOTE: An overseas contract worker
(2) non-resident aliens (NRA) (OCW) is taxable only on income
(a) engaged in trade or derived from sources within the
business within the Philippines. [Sec. 23 (B)(C)]
Phils. (NRAETB) A seaman is considered as an
(b) not engaged in trade or OCW provided the following
business within the requirements are met:
Philippines (NRANETB) 1. receives compensation for services
rendered abroad as a member of
Corporations the complement of a vessel; and
2. such vessel is engaged exclusively
a. Domestic (DC) in international trade.
b. Foreign
(1) resident foreign Based on the above provisions,
corporation (RFC) there are three (3) types of
(2) non-resident foreign nonresident citizens, namely: (1)
corporation (NRFC) immigrants; (2) employees of a foreign
Estates entity on a permanent basis; and
Trusts (3) overseas contract workers.
Partnerships Immigrants and employees of a foreign
entity on a permanent basis are
A. INDIVIDUALS treated as nonresident citizens from
the time they depart from the
WHO ARE TAXABLE? Philippines. However, overseas
1. Resident Citizen contract workers must be physically

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present abroad most of the time within the Philippines [Sec. 22(I),
during the calendar year to qualify as NIRC]
nonresident citizens. A Corporation Includes:
3. Resident alien - means an individual 1. Partnerships, no matter
whose residence is within the how created or organized;
Philippines and who is not a citizen 2. Joint-stock companies;
thereof. [Sec.22 (F, NIRC)] 3. Joint accounts (cuentas
4. Non-resident alien engaged in en participacion)
trade or business within the 4. Associations; or
Philippines. (NRAETB) 5. Insurance companies
A non-resident alien means an [Sec. 22(B), NIRC].
individual whose residence is not
within the Philippines and who is not Excludes:
a citizen thereof. [Sec.22 (G)] 1. General professional
The term trade or business partnerships;
includes the performance of the 2. Joint venture or
functions of a public office. [Sec. 22 consortium formed for the purpose
(S)] of undertaking construction projects
The term trade, business or or engaging in petroleum, coal,
profession shall not include geothermal and other energy
performance of services by the operations pursuant to an operating
taxpayer as an employee. [Sec. 22 or consortium agreement under a
(CC)] service contract with the
A non-resident alien individual Government.
who shall come to the Philippines
and stay therein for an aggregate CORPORATIONS EXEMPT FROM INCOME TAXATION
period of more than 180 days during (FOR INCOME REALIZED AS SUCH) UNDER NIRC
any calendar year shall be deemed a 1. Those enumerated under Sec. 30.
non-resident alien doing business in Exempt corporations are subject
the Philippines Section 22(G) to income tax on their income from
notwithstanding [Sec. 25(A)(1)] any of their properties, real or
5. Non-resident alien not engaged in personal, or from any other activities
trade or business within the conducted for profit, regardless of
Philippines. (NRANETB) the disposition made of such income.
2. With respect to GOCCs, the general
ONLY RESIDENT CITIZENS are taxable rule is that these corporations are
for income derived from sources within taxable as any other corporation
and without the Philippines. All other except:
individual income taxpayers are taxable a. GSIS
only for income derived from sources b. SSS
within the Philippines. c. PHIC
d. PCSO
 Tax Rates: Please refer to Annex A. e. PAGCOR [Sec. 27 (C)]
3. Regional or Area Headquarters
B. CORPORATIONS under Sec. 22 (DD) – not subject to
income tax
WHO ARE TAXABLE?
1. Domestic Corporation – created or Regional operating headquarters
organized in the Phils. or under its under Sec. 22(EE) shall pay a tax of
law [Sec. 22(C), NIRC] 10% of their taxable income.
2. Resident Foreign Corporation –
engaged in trade or business within ONLY DOMESTIC CORPORATIONS are
the Philippines [Sec. 22(H), NIRC] taxable for income derived from sources
3. Non-resident Foreign Corporation – within and without the Philippines. All
not engaged in trade or business other corporate income taxpayers are

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taxable only for income derived from is no longer taxable on the part
sources within the Philippines. of the recipient.
 Tax Rates: Please refer to Annex B. B. TERMINATION OF THE JUDICIAL SETTLEMENT

(WHERE THE HEIRS STILL DO NOT DIVIDE THE
C. ESTATES AND TRUSTS PROPERTY)
1. If the heirs contribute to the
ESTATE – refers to the mass of properties estate money, property, or
left by a deceased person. industry with intention to divide
the profits between/among
RULES ON TAXABILITY OF ESTATE themselves, an unregistered
When a person who owns property partnership is created and the
dies, the following taxes are payable estate becomes liable for the
under the provisions of the income tax payment of corporate income
law: tax. (Evangelista vs. Collector,
1. Income tax for GR No. L-9996, October 15,
individual under Sec. 24 and 25 (to 1957; Oña vs. Commissioner, GR
cover the period beginning January No. L-19342, May 25, 1972)
to the time of death); 2. If the heirs, without contributing
2. Estate income tax money, property or industry to
under Sec. 60 if the estate is under improve the estate, simply
administration or judicial divide the fruits thereof
settlement. between/among themselves, a
co-ownership is created, and
individual income tax is imposed
on the income received by each
ESTATES UNDER JUDICIAL SETTLEMENT of the heirs, payable in their
A. During the Pendency of the separate and individual
Settlement capacity. (Pascual vs.
General Rule: An estate under Commissioner, GR No. L-78133,
judicial settlement is subject to October 18, 1988; Obillos vs.
income tax in the same manner as Commissioner, GR No. L-68118,
individuals. Its status is the same as October 29, 1985)
the status of the decedent prior to
his death. ESTATES NOT UNDER JUDICIAL SETTLEMENT
Exceptions: Pending the extrajudicial
1. The entitlement to personal settlement, either of the following
exemption is limited only to situations may arise:
P20,000. 1. If the heirs contribute money,
2. No additional exemption is property, or industry to the estate
allowed. with the intention of dividing the
3. The distribution to the heirs profits between/among themselves,
during the taxable year of estate an unregistered partnership is
income is deductible from the created and the estate becomes
taxable income of the estate. liable for the payment of corporate
Such distributed income shall income tax; or
form part of the respective 2. If the heirs, without contributing
heirs’ taxable income. money, property or industry to the
Where no such estate, simply divide the fruits
distribution to the heirs is made thereof between/among themselves,
during the taxable year that the a co-ownership is created and
income is earned, and such income tax is imposed on the income
income is subjected to income received by each of the heirs,
tax payment by the estate, the payable in their separate and
subsequent distribution thereof individual capacity.

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TRUST – A right to the property, whether

real or personal, held by one person for REVOCABLE TRUSTS – the trustor, not the
the benefit of another. trust itself, is subject to the payment of
income tax on the trust income.
WHEN TRUSTS ARE TAXABLE ENTITIES
1. A trust, the income of which is to be EXEMPTION OF EMPLOYEES’ TRUST
accumulated Provided:
2. A trust in which the fiduciary may, at 1. the employee’s trust must be part of
his discretion, either distribute or a pension, stock bonus or profit
accumulate the income. sharing plan of the employer for the
benefit of some or all of his
RULES ON TAXABILITY OF THE INCOME OF A TRUST employees;
2. contributions are made to the trust
1. The income of the trust for the by such employer, or such
taxable year which is to be employees, or both;
distributed to the beneficiaries – 3. such contributions are made for the
filing and payment of tax lie on the purpose of distributing to such
beneficiaries. employees both the earnings and
2. The income of the trust which is principal of the fund accumulated by
to be accumulated or held for future the trust, and
distribution whether consisting of 4. that the trust instrument makes it
ordinary income or gain from the impossible for any part of the trust
sale of assets included in the corpus or income to be used for, or
"corpus" of the estate – filing of diverted to, purposes other than the
return and payment of tax become exclusive benefit of such employees.
the burden of the trustee or (Sec. 60B, NIRC)
fiduciary.
Exceptions: Tax exemption is likewise to be
a. In the case of a revocable trust, enjoyed by the income of the pension
the income of the trust will be trust; otherwise, taxation of those
returned by the grantor. earnings would result in a diminution of
b. In a trust where the income is accumulated income and reduce
held for the benefit of the whatever the trust beneficiaries would
grantor, the income of the trust receive out of the trust fund.
becomes income to the grantor. (Commissioner vs. Court of Appeals,
c. In the case of trust Court of Tax Appeals and GCL
administered in a foreign Retirement Plans, GR No. 95022, March
country, the income of the trust; 23, 1992)
undiminished by any amount
distributed to the beneficiaries D. PARTNERSHIPS
shall be taxed to the trustee.
KINDS OF PARTNERSHIP FOR TAX PURPOSES UNDER
IRREVOCABLE TRUSTS (irrevocable both as to THE NIRC
corpus and as to income) – 1. General Professional
Partnerships (GPP) - formed by
Trust itself, through the trustee or persons for:
fiduciary, is liable for the payment of a. the sole purpose of exercising a
income tax. Taxed exactly in the same common profession and
way as estates under judicial settlement
and its status as an individual is that of b. no part of the income of which is
the trustor. It is entitled to the derived from engaging in any
minimum personal exemption (P20,000) trade or business. [Sec. 22(B),
and distribution of trust income during NIRC].
the taxable year to the beneficiaries is 2. Taxable or Business
deductible from the trust’s taxable Partnership –
income.

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All other partnerships except tax return. Filing and payment of

general professional partnerships no quarterly return is within 60 days
matter, how created or organized. after the end of each quarter while
It includes unregistered joint the annual return is on or before
ventures and business partnerships. April 15 of the following year.
However, joint ventures are not
taxables as corporations when it is; LIABILITY OF A PARTNER
(a) undertaking construction projects Rules:
(b) engaged in petroleum, coal and 1. Share of a partner in general
other energy operation under a professional Partnership
service contract with the a. Each partner shall report as
government gross income (business income)
General co-partnerships (GCP) his distributed share actually or
are partnerships, which are by law constructively received in the
assimilated to be within the context net income of the partnership.
of, and so legally contemplated as, (Sec. 26, NIRC) [The same share
corporations. The partnership itself shall be subject to creditable
is subject to corporate taxation. The withholding tax of 10%.] They
individual partners are considered are liable in their separate and
stockholders and, therefore, profits individual capacity.
distributed to them by the
partnership are taxable as dividends. b. Share of a partner in the loss
The taxable income for a taxable of a general professional
year, after deducting the corporate partnership may be taken by the
income tax imposed therein, shall be individual partner in his return
deemed to have been actually or of income.
constructively received by the
partners in the same taxable year
and shall be taxed to them in their c. Each partner in a general
individual capacity whether actually professional partnership shall,
distributed or not. [Sec. 73(D), report as gross income his
NIRC] distributed share in the net
income of the GPP, based on his
LIABILITY OF A PARTNERSHIP agreed ratio, whether he, avails
1. General Professional of itemized or optional standard
Partnership .- They are not subject deduction.
to income tax, but are required to
file returns of their income for the d. Payments made to a partner of
purpose of furnishing information as a GPP for services rendered shall
to the share of each partner in the be considered as ordinary
net gain or profit, which each business income subject to Sec.
partner shall include in his individual 24A (Effective January 1, 1982)
return. The partnership shall act as
the withholding agent. 2. Share of a partner in Taxable
The net income (income for or Business partnership
distribution) shall be computed in a. Share of a partner in the net
the same manner as a corporation. income of a taxable or business
Date of filing of the return is April partnership (dividend) shall be
15 of each year. subject to a final tax as follows.
2. Taxable or Business
• Resident Citizen, Non-
Partnership - The income tax of this
resident Citizen and
type of Partnership is computed and
Resident Alien (2000 and
taxed like that of a corporation.
onward) – 10% (Sec. 24B2)
This kind of partnership, like a
regular corporation, is also required
to file a quarterly corporate income

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• Non-resident Alien engaged DEFINITION: Means all income derived from

in trade or business – 20% whatever source, including but not
(Sec. 25 A2) limited to the following (Sec. 32)
a. Compensation;
• Non-resident alien not
b. Gross income from
engaged in trade or business
profession, trade or business;
– 25% (Sec. 25B)
c. Gains form dealings in
b. Share of a partner in the loss
property;
of a taxable or business
d. Interests;
partnership maybe taken by the
e. Rents;
individual partner in his return
f. Royalties;
of income.
g. Dividends;
c. Payments made to a partner of
h. Annuities;
a business or taxable partnership
i. Prizes and winnings;
for services rendered shall be
j. Pensions;
considered as compensation
k. Partner’s share in the
income subject to sec. 24A.
net income of the general
professional partnership
KINDS OF INCOME TAXES
UNDER THE NIRC  See Annex D for detailed discussion
of items.
1. Net Income Tax
2. Optional Corporate Income tax KINDS OF DIVIDENDS
3. Minimum Corporate Income Tax 1. Cash
4. Improperly Accumulated Earnings and Property Dividends
Tax Individual Taxpayer
5. Preferential Rates or Special Rates a. F
of Income Tax rom Domestic Corporations
6. Gross Income Tax • RC, NRC, RA –
7. Final Income Tax 10% (Sec. 24A)
8. Fringe Benefits Tax • NRAETB – 20%
9. Capital Gains Tax (Sec. 25A2)
(1) NET INCOME TAX • NRANETB – 25%
on gross income (Sec. 25B)
DEFINITION: Means gross income less b. F
deductions and/or personal and rom Foreign Corporations
additional exemptions (Sec. 31, NIRC) • RC, NRC, RA,
NRAETB – 5-32% (Sec. 24,
NET INCOME TAX FORMULA 25A1)
Entire Income • NRANETB – 25%
Less: Exclusions and Income subject on gross income (Sec. 25B)
to Final Tax (e.g. Passive
Income) Corporate Taxpayer
Gross Income a. Foreign to Domestic Corp. – 32%
Less: Deductions (and/or additional (Sec. 32A)
exemptions, if applicable) b. Domestic to Domestic Corp. –
Net Taxable Income Exempt; intercorporate
Multiply by: Tax Rate (%) dividends (Sec. 27D)
Net Income Tax Due c. Domestic to Foreign Corp. -
Less: Tax Credit, if any • Resident Foreign
Tax Still due, if any Corp. – Exempt (Sec. 28 [A]
7d)
• Nonresident
GROSS INCOME
Foreign Corp. – 15% subject
to the condition stated in

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Sec. 28 [B] 5. Otherwise, it (a) they represent return of capital

shall be taxed at 32%. (See or are not income, gain or profit; or
Commissioner vs. Procter (b) they are subject to another kind
and Gamble, GR No. 66838, of internal revenue tax; or
December 2, 1991) (c) they are income, gain or profit
that are expressly exempt form income
2. Stock tax under the constitution, tax treaty,
Dividends Tax Code, or a general or special law.
General rule: Not subject to tax
because it does not constitute 1. Proceeds of life insurance paid by
income; it represents transfer of reason of the death of the insured to
surplus to capital account. (Sec. his estate or to any beneficiary
73B, 1997 NIRC) (individual, partnership, or
Exceptions: corporation, but not a transferee for
a. Sec. 73B, 1997 NIRC a valuable consideration), directly or
(1) there is redemption or in trust.
cancellation NOTE: if the proceeds are
(2) the transaction involves retained by the insurer, the interest
stock dividends, and thereon is taxable;
(3) the “time and manner” of
the transaction makes it 2. Return of insurance premium;
“essentially equivalent to a NOTE: if such amounts (when added
distribution of taxable to amounts already received before
dividends”. (see the taxable year under such
Commissioner vs. Court of contracts) exceed the aggregate
Appeals, Court of Tax premiums or considerations paid
Appeals & ANSCOR, GR No. (whether or not paid during the
108576, Jan. 30, 1999) taxable year), then the excess shall
b. the recipient is other than the be included in the gross income.
shareholder (Bachrach vs. However, in the case of a transfer for
Seifert, GR No. L-2659, October a valuable consideration, by
12, 1950) assignment or otherwise, of a life
c. change in the stockholder’s insurance, endowment or annuity
equity results by virtue of the contract, or any interest therein,
stock dividend issuance. only the actual value of such
consideration and the amount of the
3. Liquidating Dividends – When a premiums and other sums
corporation distributes all of its assets in subsequently paid by the transferee
complete liquidation or dissolution, the are exempt from taxation. No loss is
gain realized or loss sustained by the realized on surrender of a life
stockholder, whether individual or insurance policy for its surrender
corporation, is taxable income or value.
deductible loss, as the case may be.
(Sec. 73A) 3. Gift, bequest or devise
A liquidating dividend is not Gifts, bequests, and devises
a dividend income. The (which are subject to estate or gift
transaction is considered a sale taxes) are excluded, but not the
or exchange of property income from such property. If the
between the corporation and the amount received is on account of
stockholder. services rendered, whether
constituting a demandable debt or
EXCLUSIONS FROM GROSS INCOME not, or the use of the opportunity to
NOTE: Under the 1997 Tax Code, the term use of capital, the receipt is income
“exclusions” refers to items that are not (Pirovano vs. Commissioner, 14
included in the determination of gross SCRA 832)
income either because:

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4. Compensation for personal injuries and other similar benefits

or sickness, whether by suit or received by citizens and aliens
agreement who come to reside permanently
NOTE: The phrase “personal here from foreign sources
injuries” should be given a private or public;
restrictive meaning to refer only to e. benefits due to residents under
physical injuries. The theory for this the laws of the U.S.
is that recoupment on account of administered by the U.S.
such losses is not income, since it is Veterans Administration
not derived from capital, from labor f. SSS benefits; and
or from both combined. And the g. GSIS benefits.
fact that the payment of
compensation for such loss was 7. Miscellaneous items
voluntary does not change its a. Passive income derived in the
exempt status. It was in fact Philippines by:
compensation for a loss, which (1) Foreign governments;
impaired petitioner’s capital. (2) Financing institutions
owned, controlled or
5. Income exempt under Treaty; enjoying refinancing from
foreign governments
6. Retirement benefits, pension, (3) International or regional
gratuities, etc. financial institutions
a. those derived under R.A. 7641 established by foreign
(pertains to private firms governments
without retirement trust fund); b. Income derived from any
b. those received by officials and public utility or from the
employees of private employers exercise of any governmental
in accordance with a reasonable function;
private benefit plan; c. Prizes and awards made
Requisites: primarily in recognition of
(1) in the service of religious, charitable, scientific,
the same employer for at educational, artistic, literary, or
least 10 years; civic achievement
(2) at least 50 years Requisites:
old; (1) recipient
(3) must be availed was selected without any
of only once action on his part; and
(4) plan approved by (2) recipient
the BIR (R.R.2-98); is not required to render
c. separation pay because of substantial future services.
death, sickness, or other d. Prizes and awards granted to
physical disability or for any athletes in sports competitions
cause beyond the control of the and sanctioned by their national
official or employee (e.g. sports association ;
retrenchment, redundancy or e. 13th month pay and other
cessation of business); benefits up to P30,000.00;
“for any cause beyond the f. GSIS,SSS, Medicare and union
control of said official or dues of individuals;
employee” – connotes g. Gains derived from debt
involuntariness on the part of securities with a maturity of
the official or employee; more than 5 years;
separation must not be asked or h. Gains from redemption of shares
initiated by the official or in Mutual Fund.
employee.
d. social security benefits, EXCLUSIONS VS. DEDUCTIONS
retirement gratuities, pensions

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Exclusions Deductions exemptions; hence, if tax exemptions

[Sec. 32(B)] [Sec. 34] are to be strictly construed, then it
follows that deductions must also be
Refer to flow of Refer to the strictly construed.
wealth which are not amounts which the
treated as part of law allows to be TAXPAYERS WHO CANNOT AVAIL OF DEDUCTIONS
gross income subtracted from FROM GROSS INCOME
because: gross income in
(1) exempted by the order to arrive at
1. Citizens and resident
fundamental law; (2) net income aliens whose income is purely
exempted by statute; compensation income (except for
(3) do not come premium payments on health and/or
within the definition hospitalization insurance);
of income 2. Non-resident aliens not
engaged in trade or business in the
Pertain to the Pertain to the Philippines; and
computation of gross computation of the 3. Non-resident foreign
income net income
corporation
Something earned or Something spent or
received by the paid in earning of CLASSES OF DEDUCTIONS
taxpayer which do gross income Individuals
not form part of gross a. with gross compensation
income income from employer-employee
relationship only
(1) premium
DEDUCTIONS payments on health and/or
hospitalization insurance
DEFINITION: Items or amounts which the (2) personal
law allows to be deducted from gross additional exemptions
income in order to arrive at the taxable b. gross income from
income. business or practice of
profession
BASIC PRINCIPLES GOVERNING DEDUCTIONS (1) Optional
a. The taxpayer seeking a Standard Deduction (OSD)
deduction must point to some (2) Itemized
specific provisions of the statute deductions
authorizing the deduction; and (3) premium
b. He must be able to payments on health and/or
prove that he is entitled to the hospitalization insurance
deduction authorized or allowed. (4) personal
(Atlas Consolidated Mining & Dev. additional exemptions
Corp. vs. Commissioner, GR No. L- 2. Corporations
26911, January 21, 1981) • Itemized Deductions
c. Any amount paid or
payable which is otherwise
deductible from, or taken into KINDS OF DEDUCTIONS
account in computing gross income a. Optional standard deductions (OSD)
or for which depreciation or –10% of the gross income.
amortization may be allowed, shall The OSD may be availed of
be allowed as deduction only if it is only by individuals (except
shown that the tax required to be nonresident alien) who are not
deducted and withheld therefrom purely compensation income
has been paid to the BIR. [Sec. earners.
34(K), NIRC] b. Personal and additional exemptions
Available only to individuals
NOTE: Deductions for income tax (business income and compensation
purposes partake of the nature of tax income earners).

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a compensation income earner

NRAETB may be entitled to may claim as a deduction.)
personal exemptions (only) subject
to reciprocity, i.e., d. Special deductions
a. the country of which he is a a. private proprietary educational
subject or citizen has an income institutions and hospitals that
tax law; and are non-profit (Sec. 34 A, 2)
b. the income tax law of his b. insurance companies (Sec. 37)
country allows personal c. estates and trusts (Sec. 61)
exemption to citizens of the
Philippines not residing therein, PERSONAL EXEMPTIONS
but deriving income therefrom
and not to exceed the amount A. Amounts of Personal Exemptions
allowed in NIRC. [Sec. 35, NIRC]
1. P 20,000 – Single individual or
The personal exemption shall be married individual judicially
equal to that allowed by the income decreed legally separated
tax law of his country to a citizen of without qualified dependent
the Philippines not residing therein, children.
or the amount provided in the NIRC,
whichever is lower.
2. P 25,000 – Head of the family or
married individual judicially
Individuals not entitled to these decreed legally separated
exemptions: with qualified dependent
a. Non-resident Alien not children.
engaged in trade or business 3. P 32,000 – For each legally
b. Alien individual married individual.
employed by Regional or Area
Headquarters of Multinational Head of the Family
Companies 1. Unmarried or legally
c. Alien individual separated person with one or
employed by Offshore Banking both parents, or one or more
Units brothers or sisters, or one or
d. Alien individual more legitimate, recognized
employed by Petroleum Service natural or legally adopted
Contractor and Subcontractor children living with and
dependent upon the taxpayer for
c. Itemized deductions their chief support; and
a. ordinary and necessary “Chief support” means more
expenses than one-half of the
b. interests requirements for support.
c. taxes 2. Where such brother /
d. losses sister or children are not more
e. bad debts than 21 years of age, unmarried
f. depreciation of property; and not gainfully employed, or
g. depletion of oil and gas wells where such dependents
and mines; regardless of age, are incapable
h. charitable and other of self – support because of
contributions; mental or physical defect.
i. research and development;
j. pension trust contributions of Parents, brothers, sisters and senior
employees; and citizen with the tax payer, whether
k. premium payments on health relative or not, may qualify the
and/or hospitalization insurance. taxpayer, to the personal exemption of
(This is the only deduction which P25,000 as head of the family but not to
the additional exemption of P8,000.

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any personal or additional

B. Additional Exemption for exemptions.
Dependents [Sec. 35, NIRC]
P 8,000 – For each of the qualified C. Change of Status [Sec. 35, NIRC]
dependent children not 1. If the
exceeding four (4) in taxpayer should marry or should
number. have additional dependents
The additional exemption refers during the taxable year, he may
only to qualified dependent children claim the corresponding
such as legitimate, recognized natural, exemptions in full for such year.
illegitimate and legally adopted. 2. If the
The proper claimant of the taxpayer should die during the
additional exemption is the husband taxable year, his estate may
being the head of the family except claim the corresponding
under the following cases: exemptions as if he died at the
1. Husband close of such year.
is unemployed 3. If the
2. Husband spouse or any dependent should
is working abroad like an OFW or die or any dependent should
a seaman marry or become twenty-one
3. Husband years old during the year, or
explicitly waived his right of the should become gainfully
exemption in favor of his wife in employed, the taxpayer may
the withholding exemption claim the exemptions as if the
certificate. spouse or dependent died or as
if such dependent married,
A Senior Citizen is: became twenty one years old or
1. any became gainfully employed at
resident citizen of the the close of such year.
Philippines 4. For any
2. at least other event and for which there
sixty 60 years old, including are no specific rules applicable
those who have retired from from the above-mentioned, the
both government offices and status of the taxpayer at the end
private enterprises, and of the year shall determine his
3. has an exemptions. (strictly construed
income of not more than Sixty against the taxpayer)
thousand pesos (60,000) per Examples:
annum subject to the review of • became legally
the National Economic separated – can only claim P
Development Authority (NEDA) 20,000
every three years. • 25 years old child
became incapacitated –
Parents and dependents qualify cannot claim additional
the taxpayer, to the personal exemption
exemption of P25,000 as head of the
family but not to the additional ITEMIZED DEDUCTIONS
exemption of P8,000.
A. ORDINARY AND NECESSARY
NOTE: NRAETB may deduct personal EXPENSES
exemption (not additional
exemption), but only to the extent NECESSARY EXPENSE – appropriate and helpful
allowed by his country to Filipinos in the development of taxpayer's
not residing therein, and shall not business and are intended to minimize
exceed the aforementioned
amounts. NRANETB cannot claim

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losses or to increase profits. These are well as for his detention of money after
the day-to-day expenses. the due date for its repayment.
ORDINARY EXPENSE – normal or usual in
relation to the taxpayer’s business and REQUISITES FOR DEDUCTIBILITY (REV. REG. NO.
the surrounding circumstance. 13-2000)
1. There
REQUISITES OF BUSINESS EXPENSE TO BE must be an indebtedness;
DEDUCTIBLE 2. There
1. ordinary and necessary; should be an interest expense paid
2. paid or incurred w/in the or incurred upon such indebtedness;
taxable year; 3. The
3. paid or incurred in carrying on a indebtedness must be that of the
trade or business; taxpayer;
4. substantiated with official 4. The
receipts or other adequate records. indebtedness must be connected
5. if subject to withholding taxes with the taxpayer's trade, business
proof of payment to the Bureau of or exercise of profession;
Internal Revenue must be shown. 5. The
6. must be reasonable (when the interest expense must have been paid
expense is not lavish, extravagant or or incurred during the taxable year;
excessive under the circumstances) 6. The
7. must not be contrary to law, public interest must have been stipulated in
policy or morals. writing;
7. The
NOTE: While illegal income will form interest must be legally due;
part of income of the taxpayer, 8. The
expenses which constitute bribe, interest arrangement must not be
kickback and other similar payment, between related taxpayers;
being against law and public policy are 9. The
not deductible from gross income. interest must not be incurred to
(Subsec. A, 1, c) finance petroleum operations; and
10. In case
CAPITAL EXPENDITURE – An expenditure that of interest incurred to acquire
benefits not only the current period but property used in trade, business or
also future periods. It is not deductible exercise of profession, the same,
but depreciable, except, if the taxpayer was not treated as a capital
is a non-profit proprietary educational expenditure.
institution which may elect either to 11. The interest is not expressly
deduct the capital expense or disallowed by law to be deducted
depreciate it. from gross income of the taxpayer.
 See Annex E – Business Expenses RULES ON DEDUCTIBILITY OF INTEREST EXPENSE

General Rule - In general, the amount of
 See Annex F – Ceiling on interest expense paid or incurred within
“Entertainment, Amusement and a taxable year of indebtedness in
Recreational Expenses” connection with the taxpayer's trade
business or exercise of profession, shall
B. INTEREST be allowed as a deduction from the
taxpayer's gross income.
INTEREST – shall refer to the payment for
the use or forbearance or detention of Limitation - The amount of interest
money, regardless of the name it is expense paid incurred by a taxpayer in
called or denominated. It includes the connection with his trade, business or
amount paid for the borrower's use of, exercise of a profession from an existing
money during the term of the loan, as indebtedness shall be reduced by an
amount equal the following percentages

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of interest income earned which had Taxable Income P456,000

been subjected to final withholding
depending on the year when the interest
income earned, viz: Deductible Interest Expense
38% - beginning January 1, 2000 and 1. Interest on taxes, such as those paid
thereafter for deficiency or delinquency, since
taxes are considered indebtedness
Aim of Limitation: To discourage so- (provided that the tax is a
called “back-to-back” loans where a deductible tax, except in the case of
taxpayer secures a loan from a bank, income tax). However, fines,
turns around and invests the loan penalties, and surcharges on account
proceeds in money market placements. of taxes are not deductible. The
By imposing a limit as to the amount of interest on unpaid business tax shall
interest expense that can be deducted not be subjected to the limitation
from gross income, the previous practice on deduction.
of tax arbitrage was absolutely nullified. 2. Interest paid by a corporation on
scrip dividends
Tax Arbitrage – is a method of
borrowing without entering into a
3. Interest-on deposits paid by
authorized banks of the Bangko
debtor/creditor relationship, often to
Sentral ng Pilipinas to depositors,
resolve financing and exchange control
if it is shown that the tax on such
problems. In tax cases, back-to-back
interest was withheld.
loan is used to take advantage of the
lower of tax on interest income and a 4. Interest paid by a corporate taxpayer
higher rate of tax on interest expense who is liable on a mortgage upon real
deduction. property of which the said
corporation is the legal or equitable
Illustration: owner, even though it is not directly
On June 1, 2000 Company X has: liable for the indebtedness.
1. Obtained a loan from ABC Financing
Corporation in connection with the NON-DEDUCTIBLE INTEREST EXPENSE
operation of its business and its 1. An individual taxpayer reporting
interest expense on the loan income on the cash basis incurs an
amounted to P 120,000. indebtedness on which an interest is
2. Deposit account in DEF Bank and paid in advance through discount or
derived interest income thereof otherwise:
amounting to P200,000 on which the • allowed as a deduction in the
final tax of P40,000 has been year the indebtedness is paid
withheld.
• if the indebtedness is payable
Assume that Company X’s net
periodic amortization on, the
income before the deduction of
amount of interest which
interest expense is P500,000.
corresponds to the amount of
the principal amortized or paid
The deductible expense shall be
during the year shall be allowed
computed as follows:
as deduction in such taxable
year.
Year 2000
2. Interest paid on indebtedness
between related taxpayer
Net Income before
3. If the indebtedness is incurred to
interest expense P500,000
finance petroleum exploration
Less: Interest Expense P120,000
4. Interest on preferred stock, which
Less: 38% of interest
in reality is dividend
income from deposit
5. Interest on unpaid salaries and
(38% x P200,000) 76,000
bonuses
Deductible Interest
Expense 44,000

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6. Interest calculated for cost keeping if and to the extent that they are
on account of capital or surplus connected from income within the
invested in business which does not Philippines.
represent charges arising under
interest-bearing obligation. EXCEPTIONS to requirement that only
7. Interest paid when there is no such persons on whom the tax is
stipulation for the payment thereof. imposed by law can claim deduction
thereof:
OPTIONAL TREATMENT OF INTEREST EXPENSE 1. Taxes of
At the option of the taxpayer, shareholder upon his interest as such
interest incurred to acquire property and paid by the corporation without
used in trade or business may be reimbursement from him, can be
allowed as a deduction or treated as claimed by the corporation as
capital expenditure. [Sec 34 (B)(3), deduction.
NIRC] 2. A
corporation paying the tax for the
C. TAXES holder its bonds or other obligation
containing a tax-free covenant
Taxes mean TAXES PROPER, and clause cannot claim deduction for
therefore no deductions are allowed for: such taxes paid by it pursuant to
1. interest such covenant.
2. surcharges
3. penalties or fines TAX CREDIT
incident to delinquency (Sec. 80,
Rev. Reg. 2) DEFINITION: right of an income taxpayer to
deduct from income tax payable the
REQUISITES FOR DEDUCTIBILITY foreign income tax he has paid to his
1. must be in connection with foreign country subject to limitation.
taxpayer’s business;
2. tax must be imposed by law on, and WHO CAN CLAIM TAX CREDIT
payable by taxpayer (direct tax); 1. resident citizens of the Philippines
and 2. resident aliens under the principle of
3. paid or incurred during the taxable reciprocity
year. 3. domestic corporations which include
partnerships except general
TAXES NOT DEDUCTIBLE professional partnership
1. income tax; 4. beneficiaries of estates and trusts
2. estate and donor’s tax; 5. members of beneficiaries of local
3. special assessments; partnerships
4. excess electric consumption tax;
5. foreign income tax, war profits and WHO ARE NOT ENTITLED TO TAX CREDIT
excess profits tax, if the taxpayer 1. non-resident citizens
makes use of tax credit; and 2. resident aliens, if without
reciprocity
6. final taxes, being in the nature of 3. resident aliens whose income is
income tax.
derived solely from sources within
the Philippines
NOTE: Taxes allowed as deductions,
4. foreign corporations (resident and
when refunded or credited, shall be
non-resident)
included as part of gross income in the
year of receipt to the extent of the
FORMULA FOR COMPUTING LIMITATION
income tax benefit of said deduction.
1. Per country limitation
(Tax Benefit Rule) Taxable
income from
For NRAETB and RFC, taxes paid or foreign country X Phil. = Tax Credit
incurred are allowed as deductions only Taxable income income tax Limit

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from all sources 2. Connected with the trade, business

or profession
2. Over-all limitation 3. Evidenced by a close and completed
Taxable transaction
income from 4. Not compensated for by insurance or
outside sources X Phil. = Tax Credit other form of indemnity
Taxable income income tax Limit 5. Not claimed as a deduction for
from all sources
estate tax purposes
The allowable tax credit is the “lower 6. Notice of loss must be filed with the
amount” between the tax credit Bureau of Internal Revenue within
computed under No. 1 and No. 2. 45 days from the date of discovery
of the casualty or robbery, theft or
WHEN CREDIT FOR TAXES MAY BE TAKEN embezzlement.
The credit for taxes provided by
Section 30(C)(3) to (9) may ordinarily be NOTE: The taxpayer’s failure to record
taken either in the return for the year in in his books the alleged loss proves that
which the taxes accrued or on which the the loss had not been suffered, hence,
taxes were paid, dependent upon not deductible. (City Lumber vs.
whether the accounts of the taxpayer Domingo and Court of Tax Appeals, GR
are kept and his returns filed upon the No. L-18611, January 30, 1964)
accrual basis or upon cash receipts and CATEGORY AND TYPES OF LOSSES
disbursements basis. 1. ORDINARY LOSSES
a. Incurred in trade or business, or
LIMITATIONS ON CREDIT FOR FOREIGN TAXES practice of profession
1) The amount of credit in respect to • Net operating loss carry-over
the taxes paid or accrued to any (NOLCO)
country shall not exceed the same  Refers to the excess of
proportion of the tax against which allowable deductions over gross
such credit is taken, which the income of the business for any
taxpayer’s net income from sources taxable year, which had not
within such country taxable under been previously offset as
Title II (income Tax) bears to his deduction from gross income.
entire net income for the same  Can be carried over as a
taxable year; and deduction from gross income for
2) The total amount of the credit shall the next 3 consecutive years
not exceed the same proportion of immediately following the year
the tax against which such credit is of such loss.
taken, which the taxpayer’s net
 For mines, other that oil and
income from sources without the
gas well, net operating loss
Philippines taxable under Title II
incurred in any of the first ten
(Income Tax) bears to his entire net
years of operation may be
income for the same taxable year.
carried over for the next 5
years.
D. LOSSES
LOSSES – refer to such losses which do not  Requirements:

come under the category of bad debts, (1) The taxpayer was not
inventory losses, depreciation, etc., and exempt from income tax in
which arise in taxpayer's profession, the year of such net
trade or business. operating loss;
(2) The loss was not incurred in
REQUISITES FOR DEDUCTIBILITY a taxable year during the
1. Actually sustained during the taxable taxpayer was exempt from
year income tax; and

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(3) There has been no b. Losses resulting from securities

substantial change in the becoming worthless and which
ownership of the business or are capital assets.
enterprise. c. Losses from short sales of
There is no substantial property.
change in the ownership of d. Losses due to failure to exercise
the business when: privilege or option to buy or sell
(a) not less than 75% in property.
nominal value of the
outstanding issued shares 3. SPECIAL KINDS OF LOSSES
is held by or on behalf of
the same persons; or
a. Wagering losses - deductible only to
the extent of gain or winnings. [Sec.
(b) not less than 75% of the
34 (D)(6)]; deemed to apply only to
paid up capital is held by
individuals
or on behalf of the same
person. b. Losses on wash sales of stocks - not
deductible because these are
NOTE: The 3 year period shall considered to be artificial loss.
continue to run notwithstanding
that the corporation paid its taxes Wash sales – a sale or other
under MCIT, or that the individual disposition of stock or securities
availed the 10% OSD. where substantially identical
securities are acquired or purchased
within 61-day period, beginning 30
 See Annex S for
days before the sale and ending 30
illustration.
days after the sale. [Sec. 38]
b. Of property connected, with the General rule: Losses from wash sales
trade, business or profession, if are not deductible.
the loss arises from fires, Exception: When the sale is made by
storms, shipwreck or other a dealer in stock or securities and
casualties, or from robbery, with respect to a transaction made in
theft, or embezzlement. the ordinary course of the business of
(1) Total destruction such dealer, losses from such sale is
The replacement cost to deductible.
restore the property to its Elements of Wash Sales:
normal operating condition, (1) The sale or other disposition of
but in no case shall the stock resulted to a loss;
deductible loss be more than (2) There was an acquisition or
the net book value of the contract or option for acquisition
property as a whole, of stock or securities within 30
immediately before days before the sale or 30 days
casualty. after the sale; and
(2) Partial Destruction (3) The stock or securities sold were
The excess over the net substantially the same as those
book value immediately acquired within the 61-day
before the casualty should period.
be capitalized, subject to
depreciation over the
c. Abandonment losses
remaining useful life of the
in petroleum operation and producing
property.
well.
(1) In case a contract area where
2. CAPITAL LOSSES (LOSSES ARE DEDUCTIBLE
petroleum operations are
ONLY TO THE EXTENT OF CAPITAL GAINS)
undertaken is partially or wholly
a. Losses from sale or exchange of
abandoned, all accumulated
capital assets
exploration and development

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expenditures pertaining thereto

shall be allowed as a deduction. REQUISITES FOR DEDUCTIBILITY
(2) In case a producing well is 1. Existing indebtedness due to the
abandoned, the unamortized cost taxpayer which must be valid and
thereof, as well as the legally demandable;
undepreciated cost of equipment 2. Connected with the taxpayer's
directly used therein, shall be trade, business or practice of
allowed as deduction in the year profession;
the well, equipment or facility is 3. Must not be sustained in a
abandoned. transaction entered into between
related parties;
d. Losses due to voluntary removal of 4. Actually ascertained to be worthless
building incident to renewal or and uncollectible as of the end of
replacements - deductible expense the taxable year.; and
from gross income. 5. Actually charged off in the books of
accounts of the taxpayer as of the
e. Loss of useful value of capital end of the taxable year.
assets due to charges in business
conditions - deductible expense only EQUITABLE DOCTRINE OF TAX BENEFIT
to the extent of actual loss sustained A recovery of bad debts previously
(after adjustment for improvement, deducted from gross income constitutes
depreciation and salvage value) taxable income if in the year the
account was written off, the deduction
resulted in a tax benefit. (Tax Benefit
Rule)
f. Losses from sales or exchanges of

property between related Illustration:
Case A Case B Case C
taxpayers -losses of this nature is not
Net
deductible but gains are taxable. income
(loss)
g. Losses of farmers - if incurred in the before
write off
operation of farm business, it is for bad P10,000 (P 9,000) P 5,000
deductible. debts
Less:
h. Loss in shrinkage in value of stock – Accounts
written off
if the stock of the corporation becomes as bad
worthless, the cost or other basis may be debts 3,000 2,000 6,000
deducted by the owner in the taxable Final Net
year in which the stock of its Income
(Loss) P 7,000 (P11,000) (P1,000)
worthlessness is made. Any amount Bad debts
claimed as a loss on account of shrinkage recovery
in value of the stock through fluctuation in a subse-
in the market or otherwise cannot be quent year 3,000 2, 000 6, 000
TAXABLE
deducted from gross income. INCOME
upon the
E. BAD DEBTS bad debt
recovery P3,000 P -0- P5,000
BAD DEBTS – shall refer to those debts
resulting from the worthlessness or ASCERTAINMENT OF WORTHLESSNESS
uncollectibility, in whole or in part, of • Proof of Two Facts:
amounts due the taxpayer by others, 1. taxpayer did in fact
arising from money lent or from ascertain the debt to be
uncollectible amounts of income from worthless, in the year for which
goods sold or services rendered. deduction is sought,

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2. that in so doing, he with the regulations prescribed by the

acted in good faith. (Collector Department of Finance, under any of the
vs. Goodrich International following methods.
Rubber, GR No. L-22265, Dec. 22, 1. Straig
1967) ht-line method
• Depends upon the particular facts and 2. Declin
the circumstances of the case. ing-balance method
• Good faith does not require that the 3. Sum
taxpayer be an “incorrigible optimist” of the years-digit method
but on the other hand, he may not be 4. Any
unduly pessimistic. other method which may be
prescribed by the Department of
Finance upon recommendation of
F. DEPRECIATION
the Commissioner of Internal
Revenue.
DEPRECIATION – the gradual diminution in
the service or useful value of tangible
METHODS OF DEPRECIATION
property due from exhaustion, wear and
tear and normal obsolescence. Kind Formula
1)Straight-line cost- salvage value
The term also applies to estimated life
amortization of intangible assets, the 2)Declining cost – depreciation x Rate
use of which in trade or business i s of balance estimated life
limited duration. 3)Sum of the years nth period x cost- salvage
digits (SYD) SYD
REQUISITES FOR DEDUCTIBILITY

1. The allowance for depreciation Illustration: A machine is used in the
must be reasonable. manufacturing department of
2. It must be for property use or Corporation A, compute the depreciation
employment in trade or business or per annum with the following facts:
out of its not being used Cost = P15,000 Salvage
temporarily during the year. Value= P5,000
3. The allowance must be charged off
within the taxable, year.
4. Schedule on the allowance must be
attached to the return. 1. Straight Line Method with estimated
life = 5 years
PROPERTY HELD BY ONE PERSON FOR LIFE WITH 15,000 – 5,000 = P2,000
THE REMAINDER TO ANOTHER PERSON 5 years
The deduction shall be computed as
if the life tenant was the absolute owner 2. Declining balance with rate of 200%
of the property and, as such the expense Year 1: 15,000 – 0 x 200% = P6,000
shall accrue to him. 5
Year 2:15,000–6,000 x 200% =P3,600
PROPERTY HELD IN TRUST 5
Allowable deduction shall be
apportioned between the income 3. Sum of the years digits
beneficiaries, and the trustees in SYD for 5 years = 5+4+3+2+1 or 15
accordance with the pertinent provisions Year 1: 5/15 x (15,000 – 5,000)
of the instrument creating or in the = P3,333.33
absence of such provisions, on the basis Year 2: 4/15 x (15,000 – 5,000)
of the trust income allowable to each. = P2,666.67
METHODS OF DEPRECIATION AGREEMENT AS TO USEFUL LIFE ON WHICH

The term "reasonable allowance" DEPRECIATION RATE IS BASED
shall include (but not limited to) an The Bureau of Internal Revenue and
allowance computed in accordance, the taxpayer may agree in writing on the

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useful life of the property to be other natural deposits starting calendar

depreciated. The agreed rate may be year 1976 and fiscal year beginning July
modified if justified by facts or 1,1975
circumstances. The change shall not be
effective before the taxable year on
which notice in writing by certified mail TO WHOM ALLOWED
or registered mail is served by the party Only mining entities owning
initiating. economic interest in mineral deposits.
SPECIAL TYPES OF DEPRECIATION Economic interest means interest in
1. Petroleum Operations minerals in place investment therein or
• Depreciation secured by operating or contract
of all properties directly related agreement for which income is derived,
to production of petroleum shall and return of capital expected, from the
be allowed under straight-line extraction of mineral.
(SL) or declining balance (DB) Mere economic or pecuniary
method advantage to be derived by production
• May shift from by one who has no capital investment in
DB to SL method the mineral deposit does not amount to
• Useful life: 10 economic interest.
years or shorter life as allowed
by the Commissioner FEATURES
• Useful life of 1. Intangible Exploration and
property not directly related to development drilling cost in
production: 5 years under petroleum exploration shall be
straight line method treated either as:
2. Mining Operations a. revenue expenditures; or
• Depreciation on all properties in b. capital expenditures
mining operations other than 2. The total amount deductible for
petroleum operations at the exploration and development
normal rate if expected life is expenditures shall not exceed 50% of
less than 10 years. net income from mining operation.
• If expected life is more than 10 The excess shall be carried forward
years, depreciation shall be any to the succeeding year until fully
number of years between 5 deducted.
years and the expected life.
H. CHARITABLE AND OTHER
3. Depreciation deductible by non- CONTRIBUTIONS
resident aliens engaged in
trade/business or non-resident TAX TREATMENT
corporation
a. Only when such property is A. Deductible B. Deductible
located in the Philippines. In Full Subject To
Limitation
G. DEPLETION OF OIL AND GAS
WELLS AND MINES
DEPLETION - exhaustion of natural

resources as in mines, oil, and gas
wells. The natural resources are called
“wasting assets”. As the physical units
representing such resources are
extracted and sold, such assets move
towards exhaustion.
Known as cost of depletion
allowance for mines, oil gas wells and

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1) Recipient is: 1) Recipient is: (a) Scientific; (a) Scientific

(a) Government (a) Government (b) Educational;(b) Educational;
of the of the (c) Cultural; (c) Cultural;
Philippines; Philippines; (d) Character (d) Youth and sports
(b) Any of its (b) Any of its building/you development
agencies or agencies or th and sports
(e) Charitable
political political development(f) Social welfare
subdivisions; subdivisions (e) Charitable (g) Religious
or (f) Social (h) Rehabilitation
(c) Any fully- For a non-priority welfare of Veterans
owned activity in any of the (g) Health
government areas mentioned in (h) Research If the conditions
corporation A, and exclusively for in Table A is not
a public purpose. And satisfying complied with:
For priority the following
activity in: conditions: Subject to limitation:
1. Science; 1. The (a) Individual
2. Education donation - 10% taxable
3. Culture must be income from
4. Health utilized not trade
5. Economic later than the business or
Development 15th day of profession
6. Human the 3rd month before
Settlement following the contribution
7. Youth and close of its (b) Corporatio
Sports taxable year. n - 5%
Development 2. The taxable
administrativ income from
2) Recipient is a 2) Non-government e expense trade
foreign or organizations must not business or
international exceed 30% of profession
organization total before
with an expenses. contribution
agreement with 3. Upo
the Philippine n dissolution,
Government on assets must
deductibility, or be distributed
in accordance to another
with special law. non-profit
domestic
corporation
3) Recipient is an 3) Recipient is an or to the
accredited non- accredited state.
government domestic
organization, corporation or
organized/ operated association REQUISITES FOR DEDUCTIBILITY
for (purposes): organized/opera
ted for 1. The contribution or gift must be
(purposes): actually paid.
2. It must be given to the organizations
specified in the code.
3. The net income of the institution
must not inure to the benefit of any
private stockholder or individual.
VALUATION
Charitable contribution of property
other than money shall be based on the
acquisition cost of said property.

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I. RESEARCH AND DEVELOPMENT REQUISITES FOR DEDUCTIBILITY

(R&D) 1. The employer must have
established a pension or retirement
TAX TREATMENT plan to provide for the payment of
Either as: reasonable pensions to his
1. Revenue Expenditures employees;
Requisites: 2. The pension plan is
a. Paid or incurred during reasonable and actuarially sound;
the taxable year 3. It must be funded by the
b. Ordinary and necessary employer;
expenses in connection with 4. The amount contributed
trade business or profession must be no longer subject to the
c. Not chargeable to control and disposition of the
capital account employer;
2. Deferred Expenses 5. The payment has not yet
Requisites: been allowed as a deduction; and
a. Paid or incurred in 6. The deduction is
connection with trade, business, apportioned in equal parts over a
or profession period of 10 consecutive years
b. Not treated as expense beginning with the year in which the
c. Chargeable to capital transfer or payment is made.
account but not chargeable to
property subject to depreciation SUMMARY OF RULES ON RETIREMENT BENEFITS PLAN
or depletion. / PENSION TRUST
1. Exempt from Income
Amount deductible: Tax – employees’ trust under Sec.
Amount ratably distributed over 60(B)
a period of 60 months beginning with 2. Exclusion from Gross
the month taxpayer realized Income – amount received by the
benefits from such expenditures. employee from the fund upon
compliance of certain conditions
EXCLUSION FROM RESEARCH AND DEVELOPMENT under Sec. 32(B)(6)
EXPENDITURES 3. Deduction from Gross
1. Any expenditure for the acquisition Income –
or improvement of land or for the a. Amounts contributed by
improvement of property to be used
the employer during the taxable
in connection with research and
year into the pension plan to
development subject to depreciation
cover the pension liability
and depletion.
accruing during the year –
2. Any expenditure paid or incurred for
considered as ordinary and
the purpose of ascertaining the
necessary expenses under Sec.
existence, location, extent or
34(A)(1)
quality of any deposit of ore or other
mineral including oil or gas. b. 1/10 of the reasonable
amount paid by the employer to
J. PENSION TRUST CONTRIBUTIONS cover pension liability applicable
to the years prior to the taxable
year, or so paid to place the
PENSION TRUST CONTRIBUTIONS – a deduction
trust in a sound financial basis –
applicable only to the employer on
deductible under Sec. 34(J)
account of its contribution to a private
pension plan for the benefit of its
employee. This deduction is purely K. PREMIUM PAYMENTS
business in character. ON HEALTH AND/OR
HOSPITALIZATION INSURANCE

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DEFINITION: It is an amount of premium on Except that intangible drilling

health and/or hospitalization paid by an and development cost incurred in
individual taxpayer (head of family or petroleum operations are
married), for himself and members of his deductible;
family during the taxable year. 3. Amount expended in restoring
property or in making good the
REQUISITES FOR DEDUCTIBILITY exhaustion thereof for which an
1. Insurance must have actually been allowance has been made;
taken 4. Premiums paid on any life
2. The amount of premium deductible insurance policy covering the life of
does not exceed P2,400 per family any officer or employee, or of any
or P200 per month during the person financially interested in any
taxable ear. trade or business carried on by the
3. That said family has a gross income taxpayer, individual or corporate,
of not more than P250,000 for the when the taxpayer is directly or
taxable year. indirectly a beneficiary under such
4. In case of married individual, only policy. [Sec. 36]
the spouse claiming additional 5. Losses from sales or exchanges
exemption shall be entitled to this - of property between related
deduction. taxpayers. [S ec. 36]
WHO MAY AVAIL OF THE DEDUCTION TRANSACTIONS BETWEEN RELATED PARTIES

1. Individual taxpayers earning purely 1. Between members of the family;
compensation income during the “Family” includes only the
year. brothers, sisters (whether by the
2. Individual taxpayer earning business whole or half blood), spouse,
income or in practice of his ancestors, and lineal
profession whether availing of descendants of the taxpayer.
itemized or optional standard 2. Except in the case of distributions in
deductions during the year. liquidation:
3. Individual taxpayer earning both a. between an
compensation, and business or individual and a corporation
practice of profession during the more than 50% in value of the
year. outstanding stock of which is
owned, directly or indirectly, by
or for such individual;
NON-DEDUCTIBLE EXPENSES b. between two
corporations more than 50% in
REASONS FOR NON-DEDUCTIBILITY value of the outstanding stock of
1. Personal expenses each of which is owned, directly
2. Capital expenditures or indirectly, by or for the same
3. Items not normally subject to individual, if either one of such
income tax and therefore are not corporations, with respect to the
deductible. taxable year of the corporation
4. Items taken advantage of by the preceding the date of the sale of
taxpayer to avoid payment of exchange was a personal holding
income tax. company or a foreign personal
holding company; or
SPECIFIC ITEMS (SECTION 36) 3. Between the grantor and a fiduciary
1. Personal, living or family of any trust;
expenses; 4. Between the fiduciary of a trust and
2. Amount paid out for new the fiduciary of another trust if the
buildings or for permanent same person is a grantor with
improvements, or betterment made respect to each trust;
to increase the value of any property 5. Between a fiduciary of a trust and a
or estate, beneficiary of such trust.

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(3) MINIMUM CORPORATE

TAX CONSEQUENCES INCOME TAX (MCIT)
The following are not deductible:
SECTION 27 (E)
1. Interest expense [Sec. 34 (B)(2)]
2. Bad debts [Sec. 34 (E)(1)] WHO ARE COVERED?
3. Losses from sales or exchanges MCIT is imposed on domestic and
of property [Sec 36 (B)] resident foreign corporations
1. Whenever such corporation
(2) OPTIONAL CORPORATE has zero or negative taxable income;
INCOME TAX or
SECTION 27 (A) 2. Whenever the amount of
MCIT is greater than the normal
APPLIES TO: income tax due from such
1. Domestic corporations (DC) corporation determined under
2. Resident foreign corporations (RFC) Section 27[A].
RATE OF TAX AND DATE OF EFFECTIVITY LIMITATIONS

15% of the Gross Income effective
January 1, 2000 1. The MCIT shall apply only to
domestic and resident foreign
CONDITIONS OR REQUIREMENTS corporations subject to the normal
1. A tax effort ratio of 20% of Gross corporate income tax (income tax
National Product rates under Sec 27[A] of the CTRP).
2. A ratio of 40% income tax collection 2. In the case of a domestic
to total tax revenues corporation whose operations or
3. A VAT tax effort of 4% of GNP activities are partly covered by the
4. A 0.9% ratio of Consolidated Public regular income tax system and partly
Sector Financial Position (CPSFP) to covered under a special income tax
GNP system, the MCIT shall apply on
operations covered by the regular
OTHER FEATURES corporate income tax system.
1. Available only to firms whose 3. In computing for the MCIT due from
ratio of: a resident foreign corporation, only
the gross income from sources within
Cost of sales the Philippines shall be considered
<=55% for such purpose.
Gross sales or receipts from all
sources WHEN DOES A CORPORATION BECOME
LIABLE UNDER THE MCIT?
2. The election shall be irrevocable
for three (3) consecutive years MCIT is imposed beginning on
the fourth taxable year immediately
MEANING OF GROSS INCOME following the year in which such
General concept – corporation commenced its business.
Gross sales The taxable year in which the business
Less: operations commenced shall be the year
(1) Sales Return; when the corporation registers with the
(2) Discount and allowances BIR.
(3) Cost of goods sold -
means all business expenses CARRY FORWARD OF THE EXCESS
directly incurred to produce MINIMUM TAX
the merchandise to bring
them to their present • Any excess of MCIT over the normal
location and use. income tax can be carried forward
on an annual basis.

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• The excess can be credited against directly incurred to produce

the normal income tax due in the the merchandise to bring
next 3 immediately succeeding them to their present
taxable years. location and use.
• Any amount of the excess MCIT
which cannot be credited against the KINDS OF BUSINESS
normal income tax due in the next
3-year period shall be forfeited. A. Trading or Merchandising Concern
Gross Income = Cost of Sales =
gross sales/ 1. Invoice cost
RELIEF FROM MCIT receipts less sales of the goods sold;
returns, discounts 2. import
The Secretary of Finance is and allowances and duties;
authorized to suspend the imposition of cost of goods sold
3. freight in
the MCIT on any corporation which
transporting the
suffers losses because of:
goods to the place
a. prolonged labor dispute;
where the goods
b. force majeure; or
are actually sold;
c. legitimate business reverses.
4. insurance
“Substantial losses from a prolonged while the goods
labor dispute" means losses arising from a are in transit.
strike staged by the employees which B. Manufacturing Cost of Sales = All
lasted for more than six (6) months Gross Income cost of production of
within a taxable period and which has (Same) finished goods, such
caused the temporary shutdown of as
business operations. 1.raw materials
“Force majeure" means a cause due used;
to an irresistible force as by "Act of God" 2.direct labor;
like lightning, earthquake, storm, flood 3.manufacturing
and the like. This term shall also overhead;
include armed conflicts like war and 4.freight cost;
insurgency. 5.insurance
“Legitimate business reverses" shall premiums;
include substantial losses sustained due 6.other costs
to fire, robbery, theft, or incurred to bring
embezzlement, or for other economic the raw materials
reason as determined by the Secretary to the factory or
of Finance. warehouse.
TAX RATE: 2% of gross income or

taxable base pertinent to a
trading/merchandising concern or a
service entity
TAX BASE: Gross Income

MEANING OF GROSS INOME
General concept - gross income means:

Gross sales
Less:
(1) Sales Return;
(2) Discount and
allowances
(3) Cost of goods sold -
means all business expenses

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C. Services Cost of Services = All TAX RATE: 10% of the Improperly

Gross Income = direct costs and Accumulated Taxable Income (in
Gross receipts less expenses necessarily addition to other taxes).
sales returns, incurred to provide Rationale behind IAET
allowances, the services required If the earnings and profits were
discounts and costs by the customers and distributed, the shareholders would then
of services clients including: be liable to income tax thereon,
a. Salaries and whereas if the distribution were not
employee benefits made to them, they would incur no tax
of personnel, in respect to the undistributed earnings
consultants and and profits of the corporation. Thus, a
specialists directly tax is being imposed;
rendering the a. in the nature of a penalty to the
service; corporation for the improper
b. Cost of facilities accumulation of its earnings, and
directly utilized in b. as a form of deterrent to the
providing the avoidance of tax upon
service. shareholders who are supposed
It shall not to pay dividends tax on the
include interest earnings distributed to them by
expense except for the corporation.
banks and other
financial “IMPROPERLY ACCUMULATED TAXABLE
institutions. INCOME”
• Gross income excludes Taxable income for the year

passive income subject to final tax. Add:
• Other income and Income exempt from tax;
Extraordinary Income are included Income excluded from gross income;
since RR 9-98 provides that gross Income subject to final tax;
sales include sales contributory to Net operating loss carry-over (NOLCO)
income taxable under the regular Total
corporate tax. Less:
Income tax paid/payable for the taxable
 See Annex T for interplay of normal year
tax, optional corporate income tax Dividends actually or constructively
and MCIT. paid/issued from the applicable year’s
taxable income
Amount reserved for the reasonable
needs of the business as defined in the
(4) IMPROPERLY ACCUMULATED Regulations
EARNINGS (IAE) TAX Tax base of improperly accumulated
SECTION 29 earnings tax
(REVENUE REGULATIONS NO. 2 – 2001) EXCLUSIONS
DEFINITION: “Improperly accumulated • For corporations using the calendar

earnings (IAE)” are the profits of a basis the accumulated earnings tax
corporation that are permitted to shall not apply on IAE as of Dec. 31,
accumulate instead of being distributed 1997.
by a corporation to its shareholders for • For fiscal year basis, the tax shall
the purpose of avoiding the income tax not apply to the 12-month period of
with respect to its shareholders or the fiscal year 1997-1998.
shareholders of another corporation.
IAE as of the end of a calendar
or fiscal year period on or after Dec.

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31, 1998 shall be subject to the 10% 7227, as well as other enterprises
tax. duly registered under special
economic zones declared by law
WHO ARE COVERED? which enjoy payment of special tax
rate on their registered operations
General Rule: The IAE tax shall apply to or activities in lieu of other taxes,
every corporation formed or availed national or local.
for the purpose of avoiding the 8. Foreign corporations [RR No.
income tax with respect to its 02-2001]
shareholders or the shareholders of
any other corporation, by permitting EVIDENCE OF PURPOSE TO AVOID
earnings and profits to accumulate INCOME TAX
instead of being divided or
distributed. These are:
1. The fact that any corporation is a
1. Domestic corporations as mere holding company or investment
defined under the Tax Code; company shall be prima facie
2. Corporations which are classified evidence of a purpose to avoid the
as closely-held corporations. tax upon its shareholders or
• those corporations at members.
least fifty percent (50%) in
value of the outstanding Instances indicative of purpose to
capital stock or at least fifty avoid income tax upon
percent (50%) of the total shareholders:
combined voting power of all 1. Investment of
classes of stock entitled to substantial earnings and
vote is owned directly or profits of the corporation in
indirectly by or for not more unrelated business or in stock
than twenty (20) individuals. or securities of unrelated
• Domestic corporations not business;
falling under the aforesaid 2.Investment in bonds and
definition are, therefore, other long-term securities;
publicly-held corporations. 3.Accumulation of earnings in
excess of 100% of paid-up
Exception: The said tax shall not apply capital, not otherwise
to: intended for the reasonable
1. Publicly held corporations needs of the business as
(Sec. 29) defined in these Regulations.
2. Banks and other non-banks
Financial intermediaries (Sec. 29) 2. The fact that the earnings or profits
3. Insurance companies (Sec. 29) of a corporation are permitted to
4. Taxable partnerships (deemed accumulate beyond the reasonable
to have actually or constructively needs of the business shall be
received the taxable income under determinative of the purpose to
Sec. 73D) avoid the tax upon its shareholders
5. General professional or members unless the corporation,
by the clear preponderance of
partnerships (exempt; taxable
evidence, shall prove the contrary.
against the partners)
6. Non- taxable joint ventures
“Reasonable needs of the
and
business” includes the reasonably
7. Enterprises duly registered
anticipated needs of the business
with the Philippine Economic Zone
such as:
Authority (PEZA) under R.A. 7916,
a. Allowance for the
and enterprises registered pursuant
increase in the accumulation of
to the Bases Conversion and
earnings up to 100% of the paid-
Development Act of 1992 under R.A.

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up capital of the corporation as PREFERENTIAL OR SPECIAL

of Balance Sheet date, inclusive RATES
of accumulations taken from
other years; Pertains to income derived by a
b. Earnings reserved for particular individual or corporation
definite corporate expansion belonging to a class of income taxpayer
projects or programs as that is subject to either a preferential or
approved by the Board of special rate.
Directors or equivalent body;
c. Reserved for building,
 Tax Rates: Please refer to Annex C.
plants or equipment acquisition
as approved by the Board of
Directors or equivalent body; (6) GROSS INCOME TAX (GIT)
d. Reserved for compliance
with any loan covenant or pre- GROSS INCOME TAX (GIT) FORMULA
existing obligation established
under a legitimate business Entire Income
agreement; Less: Exclusions and Income subject
e. Earnings required by law to Final Tax (e.g. Passive
or applicable regulations to be Income)
retained by the corporation or in Gross Income
respect of which there is legal Multiply by: Tax Rates (%)
prohibition against its
distribution; Net Income Tax Due
f. In the case of
subsidiaries of foreign GIT APPLIES TO
corporations in the Philippines,
all undistributed earnings 1. Non-resident alien not
intended or reserved for engaged in trade or business (25%);
investments within the and
Philippines as can be proven by 2. Non-resident foreign
corporate records and/or corporation. (32%)
relevant documentary evidence.
 Tax Rates: Please refer to Annex A
The controlling intention of the and B.
taxpayer is that which is manifested at
the time of accumulation, not (7) FINAL INCOME TAX
subsequently declared intentions, which
are merely the product of afterthought. GENERAL PRINCIPLES
A speculative and indefinite purpose will
not suffice. 1. It is constituted as a full and final
Definiteness of plan/s coupled with payment of the income tax due from
action/s taken towards its the payee on a particular type of
consummation is essential. income subject to final withholding
tax (FWT).
PERIOD FOR PAYMENT OF DIVIDEND/ The finality of the withholding
PAYMENT OF IAET tax is limited only to the payee’s
Dividends must be declared and paid income tax liability and does not
or issued not later than one year extend to other taxes that may be
following the close of the taxable year, imposed on said income.
otherwise, the IAET, if any, should be 2. The income subjected to final
paid within fifteen (15) days thereafter.
income tax is no longer subject to
the net income tax; otherwise, there
would be a violation of prohibited
(5) INCOME SUBJECT TO double taxation.

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3. The liability for the payment of the not, or the government and its
tax rests primarily on the payor as instrumentalities
withholding agent.
4. The payee is not required to file an TAX RATE: 32% (from January 1, 2000
income tax return for the particular onwards) of the Grossed up Monetary
income subjected to FWT. It is the Value (GMV) of fringe benefits.
withholding agent who files the In the case of aliens, the tax rates to
return. be applied on fringe benefit shall be as
5. The rate of the final tax is follows:
multiplied to the gross income. 1. NRANEBT 25%
Thus, deductions and/or personal 2. Aliens employed by
and additional exemptions are not regional HO 15 %
allowed. 3. Aliens employed by OBU
15%
(8) FRINGE BENEFIT TAX (FBT) 4. Aliens employed by
Petroleum Service Contractors
FRINGE BENEFIT TAX is a final income and Subcontractors 15%
tax on the employee which shall be
withheld and paid by the employer on a “GMV” OF THE FRINGE BENEFIT
quarterly basis. REPRESENTS
FRINGE BENEFIT means any good, 1. The whole amount of income

service, or other benefit furnished or realized by the employee which
granted by an employer, in cash or in includes the net amount of money or
kind, in addition to basic salaries, to an net monetary value of property
individual employee (except rank and which has been received; plus
file employees) such as, but not limited 2. The amount of fringe benefit tax
to the following: thereon otherwise due from the
1. Housing employee but paid by the employer
2. Expense Account for and in behalf of the employee.
3. Vehicle of any kind
4. Household personnel, such as maid, “GMV” of the fringe benefit
driver and others shall be determined by dividing the
5. Interest on loan at less than market monetary value of the fringe benefit by
rate to the extent of the difference the Grossed up divisor. The Grossed up
between the market rate and actual divisor is the difference between 100%
rate granted. and the applicable rates.
6. Membership fees, dues and other
expenses borne by the employer for GROSSED UP
YEAR RATE
the employee in social and athletic DIVISOR
clubs and similar organizations 1998 66% 34% FWT
7. Expenses for foreign travel 1999 67% 33% FWT
8. Holiday and vacation expenses 2000
68% 32% FWT
onwards
9. Educational assistance to the
employee or his dependents; and
10. Life or health insurance and other FRINGE BENEFITS NOT SUBJECT TO FBT
non-lire insurance premiums or
similar amounts on excess of what 1. Fringe benefits not considered as
the law allows. gross income –
a. if it is required or necessary to
PERSONS LIABLE the business of employer
b. if it is for the convenience or
The EMPLOYER (as a withholding advantage of employer
agent), whether individual, professional 2. Fringe Benefit that is not taxable
partnership or a corporation, regardless under Sec. 32 (B) – Exclusions from
of whether the corporation is taxable or Gross Income

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3. Fringe benefits not taxable under than its cost subject to depreciation, the
Sec. 33 Fringe Benefit Tax: excess amount shall be allowed as a
a. Fringe Benefits which are deduction from the employer's gross
authorized and exempted under income as fringe benefit expense. (Sec.
special laws, such as the 13th 2.33[D], Rev. Reg. No. 3-98)
month Pay and Other Benefits
with the ceiling of P30,000. EXAMPLE OF DE MINIMIS BENEFITS NOT
b. Contributions of the employer SUBJECT TO FBT (RR NO. 8-2000 AND
for the benefit of the employee 10-2000)
to retirement, insurance and
hospitalization benefit plans; 1. Monetized unused vacation leave
c. Benefits given to the Rank and credits of PRIVATE employees not
File Employees, whether granted exceeding (10) days during the year
under a collective bargaining and the monetized value of leave
agreement or not; and credits paid to government officials
d. The De minimis benefits – and employees
benefits which are relatively 2. Medical cash allowance to
small in value offered by the dependents of employees not
employer as a means of exceeding P750.00 per employee per
promoting goodwill, semester or P125 per month;
contentment, efficiency of 3. Rice subsidy of P1,000.00 or one (1)
Employees sack of 50kg. rice per month
The term “Rank and File amounting to not more than
Employees” shall mean all P1,000:00,
employees who are holding 4. Uniform and clothing allowance not
neither managerial nor exceeding P3,000 per annum;
supervisory position as defined 5. Actual yearly medical benefits not
in the Labor Code exceeding P10,000 per annum;
In the case of rank and file 6. Laundry allowance not exceeding
employees, fringe benefits other P300 per month;
than those excluded from gross 7. Employees achievement awards e. g.
income under the Tax Code and for length of service or safety
other special laws, are taxable achievement, which must be in the
under the individual normal tax form of a tangible personal property
rate. other than cash or gift certificate,
DEDUCTIBILITY TO THE TAXABLE with an annual monetary value of
INCOME OF THE EMPLOYER not exceeding P10,000 received by
the employee under an established
General Rule: The amount of taxable written plan which does not
fringe benefit and the fringe benefits tax discriminate in favor paid
shall constitute allowable deductions employees;
from gross income of the employer. 8. Gifts given during Christmas and
Exception: major anniversary celebrations not
If the basis for computation of the exceeding P3, 000 per employee per
fringe benefits tax is the depreciation annum;
value, the zonal value or the fair market 9. Flowers, fruits, books or similar
value, only the actual fringe benefits tax items given to employees under
paid shall constitute a deductible special circumstances
expense for the employer. The value of 10. Daily meal allowance for overtime
the fringe benefit shall not be work not exceeding 25% of the basic
deductible and shall be presumed to minimum wage.
have been tacked on or actually claimed
as depreciation expense by the Time for filing of quarterly remittance
employer. Provided, however, that if the return of final income taxes withheld
aforesaid zonal value or fair market The tax imposed under Sec. 33 shall
value of the said property is greater be treated as a final income tax on the

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employee that shall be withheld and

paid by the employer, whether a large Under the tax code, there is no
taxpayer or non-large taxpayer, on or definition for the term "capital assets".
before the 10th day of the month What it gives is the meaning of ordinary
following the calendar quarter in which assets:
the fringe benefits were granted (RR 04-
2002). a. Ordinary assets (Sec. 39, NIRC)
a. Stock in trade of the
 For Additional Rules on Fringe taxpayer or other properties of a
Benefits, refer to Annex H. kind which would properly be
included in the inventory of the
taxpayer;
(9) CAPITAL GAINS TAX
b. Property held by the
SUMMARY OF TAX RATES taxpayer primarily for sale to
customers in the ordinary course
1. Individuals of business;
a. On sale of shares of
stock of a domestic corporation c. Property used in trade or
not listed and traded thru a local business and subject to
stock exchange, held as capital depreciation; and
asset
On the Net Capital Gain
Not over P100,000 – FT
d. Real property used in trade
of 5% or business.
Amount in excess of P100,000 – FT
of 10% b. Capital Assets include all
b. On sale of real property property held by the taxpayer
in the Philippines held as capital whether or not connected in trade
asset or business but not including those
On the gross selling price, or the enumerated above (#1) as ordinary
current fair market value at the assets.
time of sale, whichever is higher –
FT of 6%
2. Corporations
CAPITAL GAIN CAPITAL LOSS
a. On sale of shares of
stock of a domestic corporation The gain derived The loss incurred
not listed and traded thru a local from the sale or from the sale or
stock exchange, held as capital exchange of capital exchange of capital
asset assets. assets.
On the Net Capital Gain –
Not over P100,000 – FT of
5%
Amount in excess
of P100,000 – FT of 10%
b. On sale of land/building NET CAPITAL NET CAPITAL
held as capital asset GAIN LOSS
On the gross selling price, or the
current fair market value at the The excess of the The excess of the
time of sale, whichever is higher gains from sales/ losses from sales or
– FT of 6% exchanges of capital exchanges of capital
(Reyes, Virgilio. Income Tax Law and assets over the assets over the gains
gains from such from such sales or
Accounting – A New Approach, 2002)
sales/ exchanges. exchanges.
CAPITAL GAINS AND LOSSES –

IN GENERAL
 TRANSACTION RESULTING IN TAXABLE GAINS BUT
NON-RECOGNITION OF LOSSES
CONCEPT OF CAPITAL ASSETS

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a. Sale or exchange not deductible. substantial part of

between related parties; whose business is
the receipt of
b. Wash sales by non-
deposits, sells any
dealers of securities and when bond, debenture,
not subject to the stock transfer note or certificate
tax; or other evidence
c. Exchanges not solely in of indebtedness
kind in merger and issued by any
consolidation; and corporation
d. Sales or exchanges that (including one
are not at arms length. issued by a
government or
political
REQUISITES FOR RECOGNITION OF subdivision)
CAPITAL GAIN/LOSS
 Net Capital Loss • Not
1. The transaction must involve Carry –Over allowed
property classified as capital • Allowed
asset; and The net capital loss
(in an amount not in
2. The transaction must be a sale excess of the taxable
or exchange or one considered as income before
equivalent to a sale or exchange. personal exemption for
such year) shall be
treated in the
RULES ON THE RECOGNITION OF succeeding year (but
CAPITAL GAINS OR LOSSES not beyond 12 months)
as a deduction as
short-term capital loss
INDIVIDUAL CORPORATION (at 100%) from the net
 capital gains.
 Holding Capital gains and
Period losses are
The percentages recognized to the  See Annex U for illustration.
of gain or loss to be extent of 100%.
taken into account (There is no SALE OR EXCHANGE OF CAPITAL ASSETS
shall be the holding period)
following: The following are considered as sale
a.100% - if the or exchange of capital assets:
capital assets has 1. Retirement of bonds
been held for 12 2. Short sales of property
mos. or less; and
3. Failure to exercise privilege or
b.50% - if the
option to buy or sell property
capital asset has
4. Securities becoming worthless
been held for
more than 12 5. Distribution in liquidation of
mos. corporations
6. Readjustment of interest in a
general professional partnership.
 Non- • Capital losses TAX FREE EXCHANGES
deductibility of are allowed only Sales or exchanges resulting in non-
Net Capital to extent of the recognition of gains or losses:
losses capital gains; 1. Exchange solely in kind in legitimate
• Capital losses hence, the net mergers and consolidation;
are allowed only capital loss is
includes:
to extent of the not deductible.
capital gains; Exception: If any a. Between the corporations
hence, the net domestic bank or which are parties to the merger
capital loss is trust company, a

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or consolidation (property for a. T

stocks); ransactions between related
b. Between a stockholder of a taxpayers [Sec. 36]
corporation party to a merger or b. I
consolidation and the other llegal transactions [Sec. 96,
party corporation (stock for Rev. Reg. 2]
stock); c. E
c. Between a security holder of a xchanges of property, not
corporation party to a merger or solely in kind, in pursuance of
consolidation and the other corporate mergers and
party corporation (securities for consolidations [Sec. 40, (C, 3)]
securities)
IMPORTANT DISTINCTION
2. Transfer to a controlled corporation If it is an ordinary asset, the
– exchange of property for stocks ordinary gains and losses are considered
resulting in acquisition of corporate in determining income or loss from
control by a person, alone or trade, business or profession. (See Secs.
together with others not exceeding 32A, 34D)
four. If it is a capital asset, determine
“Control” means ownership of further whether or not it is a real
stocks in a corporation amounting to property located in the Philippines. If it
at least 51% of the total voting is, then it is subject to capital gains tax.
power of all classes of stocks (See Secs. 24D, 27D5) (See also Sec s.
entitled to vote. 24C, 27D2) If not, the capital gains and
losses are considered in determining the
SALE OR EXCHANGE OF ORDINARY ASSETS taxable income. (Sec. 39)
General rules of income taxation CAPITAL GAINS AND LOSSES –

apply to both gain and loss. SHARES OF STOCK
The taxation of shares of stock

 See Annex D (Gross Income – Gains
whether or not listed and traded in the
from dealings in property)
stock exchange is subject to final tax.
SUMMARY OF TAX TREATMENT OF
WHO ARE LIABLE TO THE TAX
GAINS/LOSSES IN THE EXCHANGE OF
1. Individual
PROPERTIES
taxpayer, citizen or alien
2. Corporate
General Rule: Upon the sale or
taxpayer, domestic or foreign
exchange of property, the entire gain or
3. Other
loss, as the case may be, shall be
taxpayers such as estate, trust, trust
recognized. [Sec. 40 (C, 1)]
funds and pension among others.
Exceptions:
RATES OF TAX
1. Transactions where gains and losses
are not recognized –
a. Exchange solely in kind in 1. Shares of stock not traded through
legitimate mergers and a local stock exchange – Net capital
consolidation gains derived during the taxable
b. Transfer to a controlled year from sale, exchange, or
corporation [Sec. 40(C, 2)] transfer shall be taxed as follows (on
1. Transactions where a per transaction basis):
gain is recognized Not over P 100,000 - 5%
but not the loss – Over P 100,000 - 10%
2. Shares of stock listed through a
local stock exchange – ½ of 1% of
the gross selling price of the stock.

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EXCEPTIONS TO THE TAX

1. Gains derived by dealers in 1. Listed and Traded in the Stock
securities. Exchange - The stockbroker shall
2. All other gains which are specifically turn over the tax collected to the
exempt from income tax under B.I.R. within five (5) banking days
existing investment incentives and from the date of collection.
other special laws.
2. Not traded through the stock exchange
BASIS FOR COMPUTING GAIN OR LOSS (BIR RULING - It shall be paid by the seller on a per
146-98) transaction basis upon filing of the
required return within 30 days
• The fair market value (FMV) of following each sale or other
the sale of shares not traded but disposition of shares of stock.
listed in the stock exchange is the
highest closing price on the day the
CAPITAL GAINS AND LOSSES
shares were sold, transferred or
exchanged. (REAL PROPERTY)
• When no sale is made in the
stock exchange, the FMV shall be the PERSONS LIABLE AND TRANSACTIONS AFFECTED
highest selling price on the day
nearest to the day of sale, transfer 1. Individual taxpayers, estates and
or exchange. trusts
Sale or exchange or other
• For shares not listed in the
disposition of real property
exchange, the FMV shall be the book
considered as capital assets.
value nearest the valuation date
The said sale shall include "pacto
de retro sale" and other conditional
The above rules shall be used in
sale.
computing for the net capital gain/loss
2. Domestic Corporation
for disposition of shares.
Sale or exchange or disposition
of lands and/or building which are
IMPORTANT FEATURES
not actually used in business and are
treated as capital asset.
1. Sale of shares of stock of
a domestic corporation listed and
 EXCEPTIONS TO THE TAX
traded in a local stock exchange and
1. Gains derived by dealers in real
that of initial public offering shall be
estate
subject to Percentage tax (Business
Tax)
RATE AND BASIS OF TAX
2. Capital losses sustained A final tax of 6% is based on the
during the year (not listed and gross selling price or fair market value
traded in a local stock exchange) or zonal value whichever is higher.
shall be allowed as a capital loss Note: Gain or loss is immaterial,
deductible on the same taxable year there being a conclusive presumption of
only (no carry-over) gain.
3. The entire amount of
capital gain and capital loss (not  See Annex G – Guidelines in
listed and traded in a local stock Determining Whether a Real
exchange) shall be considered Property is a Capital or an Ordinary
without taking into account holding Asset.
period irrespective of who is the
taxpayer (all 100%) EXEMPTION OF CERTAIN INDIVIDUALS FROM THE CAPITAL
4. Non-deductibility of GAINS TAX ON THE SALE OR DISPOSITION OF A
losses on wash sales. PRINCIPAL RESIDENCE
FILING AND PAYMENT OF TAX Conditions:

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a. Sale or disposition of the old 2. taxpayer has no

principal residence; accounting period
b. By natural persons - citizens or 3. taxpayer does not keep
aliens provided that they are books
residents taxable under Sec. 24 of 4. taxpayer is an individual
the Code (does not include an estate • Fiscal year: accounting period of
or a trust); 12 months ending on the last day
c. The proceeds of which is fully of any month other than
utilized in (a) acquiring or (b) December
constructing a new principal • Calendar year: accounting period
residence within eighteen (18) from January 1 to December 31
calendar months from date of sale or
disposition; B. Periods in which items
d. Notify the Commissioner within of gross income included (Sec.
thirty (30) days from the date of sale 44)
or disposition through a prescribed • Amount of all items of gross
return of his intention to avail the income shall be included in the
tax exemption; gross income for the taxable
e. Can only be availed of only once year in which received by the
every ten (10) years; taxpayer, unless, any such
f. The historical cost or adjusted amounts are to be properly
basis of his old principal residence accounted for in a different
sold, exchanged or disposed shall be period under methods of
carried over to the cost basis of his accounting permitted
new principal residence • In case of death of taxpayer:
g. If there is no full utilization, the include for the taxable year in
portion of the gains presumed to which falls the date of his death,
have been realized shall be subject all amounts which accrued up to
to capital gains tax. the date of his death; if not
otherwise properly includible in
GROSS INCOME FROM DIFFERENT SOURCES (SEC. respect of such period or a prior
42) period
 Please refer to Annex I.
C. Period for which
ACCOUNTNG PERIODS AND METHODS OF ACCOUNTING deduction and credits taken (Sec.
45)
I. ACCOUNTING PERIODS • Deductions provided in this Title
A. General rule (Sec. 43) shall be taken for the taxable
Taxable income is computed year in which ‘paid or incurred,
upon the basis of taxpayer’s dependent upon the method of
annual accounting period (fiscal or accounting upon the basis of
calendar year) in accordance with which the net income is
the method of accounting computed, unless, in order to
employed. reflect the income, deductions
• If no method of accounting should be taken as of a different
employed or method does not period.
clearly reflect the income, • In case of death of taxpayer:
computation shall be made in deductions allowed for the
accordance w/ such method as taxable period in which falls the
the opinion of the Commissioner date of his death, amounts
clearly reflects the income. accrued up to the date of his
• Taxable income is computed death if not otherwise properly
based on calendar year if: allowable in respect of such
1. accounting period is period or a prior period.
other than a fiscal year

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D. Change of accounting a. Where a

period (Sec.46) separate final or
• Kinds of changes: adjustment return is made
- from fiscal year to calendar on account of a change in
year accounting period
- from calendar year to fiscal b. In all other
year cases where a separate
- from one fiscal year to final or adjustment return
another is require or permitted by
• Effect of change: Net income, R&R prescribed by Sec. of
shall, with the approval of the Finance. upon
Commissioner, be computed on recommendation of
the basis of the new accounting Commissioner
period, subject to Sec. 47. • Both shall be made for a
fractional part of a year.
E. Final or adjustment • Then income is computed on the
returns for a period of less than basis of the short period for
12 months which separate final or
(1) Returns for short period adjustment return is made.
resulting from change of
accounting period II. METHODS OF ACCOUNTING
• taxpayer is other than an
individual A. Cash method
• with the approval of the Recognition of income
Commissioner and expense dependent on
• If change is from fiscal year to inflow or outflow of cash.
calendar year:
- separate final or 1. Accrual method
adjustment return be made Method under which
for the period between the income, gains and profits are
close of the last fiscal year included in gross income when
for which return was made earned whether received or not,
and the following December and expenses are allowed as
31 deductions when incurred:
• If change is from calendar year although not yet paid. It is the
to fiscal year: right to receive and not the
- separate final or actual receipt that determines
adjustment return be made the inclusion of the amount in
for the period between the gross income
close of the last calendar for • Examples
which return was made and :
the date designated as the 1. interest or rent
close of the fiscal year income earned but not
• If change is from one fiscal year yet received
to another: 2. rent expense
- separate final or accrued but not yet
adjustment return be made paid
for the period between the 3. wages due to
close of the former fiscal workers but remaining
year and the date unpaid
designated as the close of
the new fiscal year 2. Accounting for
(2) Income computed on basis of long-term contracts
short period • Long-term contracts:
• In what cases? building, installation or

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construction contracts when payment is completed,

covering a period in excess bears to the contract price.
of 1 yr
• Persons whose gross Example: Sale in 2000
income is derived in whole Contract price (CP)
or in part from such (installments
contracts shall report such receivable) P200, 000
income upon the basis of Cost 150,000
percentage of completion Gross profit (GP) 50,000
• The return is
accompanied by a return Installments payable in 2
certificate of architects or equal annual installments
engineers showing the GP/CP ratio
percentage of completion = 50,000/200,000 = 25%
during the taxable year of Collections in 2000=P100,000
the entire work performed Income for 2000
under the contract = P100,000 x 25% = P25,000
• Deductions from gross
income: all expenditures (2) Sales of realty and
made during the taxable casual sales of Personalty
year on account of the • In cases of:
contract: account being a. casual
taken of the material and sale or other casual
supplies on hand at the disposition of
beginning and end of the personal property
taxable period for use in (other than
connection with the work inventory on hand of
under the contract but not the taxpayer at the
yet so applied. close of the taxable
• Amended return may be year) for a price >
permitted /required by the P1,000, or
Commissioner: if upon b. sale or
completion of contract, other disposition of
taxable income has not been real property, if in
clearly reflected for any either case the
year(s). initial payments do
not exceed 25% of
3. Installment the selling price
basis • How may income be
(1) Sales of dealers in returned: same as in
personal property sales of dealer in
Under rules and personal property above
regulations prescribed by • Initial payments:
the Sec. of Finance, a person payments received in
who regularly sells or cash or property other
otherwise disposes of than evidences of
personal property on the indebtedness of the
installment plan may return purchaser during the
as income there from in any taxable period in which
taxable year that proportion the sale or other
of the installment payments disposition is made.
actually received in that
year, which the gross profit (3) Sales of real
realized or to be realized property considered as
capital asset by individuals

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• Individual who sells of

disposes of real FILING OF TAX RETURN AND PAYMENT OF TAX
property, considered as
capital asset and is TAX RETURN – This is a report made by the
otherwise qualified to taxpayer to the BIR of all gross income
report the gain under (2) received during the taxable year, the
above may pay the allowable deductions including
capital gains tax in exemptions, the net taxable income, the
installments under rules income tax rate, the income tax due,
and regulations to be the income tax withheld, if any, and the
promulgated by the Sec. income tax still to be paid or
of Finance. refundable.
(4) Change from accrual to

installment basis
PERSONS REQUIRED TO FILE INCOME TAX RETURN
• taxpayer must be
entitled to benefits a. Individual
under (1) hereof sales of 1. Resident citizen;
dealers in personal 2. Non-resident citizen on income
property from within the Phil.;
• in computing income for 3. Resident alien on income from
the year of change or within the Phil.;
any subsequent year: 4. NRAETB on income from within
amounts actually the Phil.
received during any such 5. An individual (citizens / aliens)
year on account of sales engaged in business or practice
or other dispositions of of a profession within the Phil.
property made in any regardless of the amount of
prior year shall not be gross income;
excluded. 6. Individual deriving compensation
income concurrently from two or
4. Allocation of more employers at any time
income and deductions during the taxable year;
• Applicable to: cases of 7. Individual whose pure
2 or more organizations, compensation income derived
trades or businesses from sources within the Phil.
(incorporated and organized exceeds P60,000.
within the Philippines) b. Taxable Estate and Trust
owned or controlled c. General Professional Partnership
directly /indirectly by the d. Corporation
same interest 1. Not exempt from income tax;
• Commissioner is 2. Exempt from income tax under
authorized to distribute, Sec. 30 of NIRC but has not
apportion or allocate gross shown proof of exemption.
income or deductions
between or among such INDIVIDUALS EXEMPT FROM FILING INCOME TAX
organization, trade or RETURN
business, if he determines
that such distribution, 1. Individual whose gross income does
apportionment or allocation not exceed total personal and
is necessary in order to additional exemptions;
prevent evasion of taxes or 2. Individual with respect to pure
to clearly reflect the income compensation income derived from
of any such organization, sources within the Philippines, the
trade or business.

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income tax on which has been 1. The employee receives purely

correctly withheld; compensation income (regardless of
3. Individual whose sole income has amount) during the taxable year.
been subjected to final withholding 2. The employee receives the income
income tax; only from one employer during the
4. Individual who is exempt from taxable year.
income tax. 3. The amount of tax due from the
employee at the end of the year
– is when the employer’s
SUBSTITUTED FILING
equals the amount of tax withheld
annual return may be considered as the by the employer.
“substitute” Income Tax Return (ITR) of 4. The employee's spouse also complies
employee inasmuch as the information with all three (3) conditions stated
provided in his income tax return would above.
exactly be the same information 5. The employer files the annual
contained in the employer’s annual information return (BIR Form No.
return. 1604-CF)
6. The employer issues BIR Form 2316
HOW IS “SUBSTITUTED FILING” DIFFERENT FROM (Oct 2002 ENCS) version to each
“NON-FILING”? employee
• Substituted Filing – an individual INDIVIDUALS NOT QUALIFIED FOR SUBSTITUTED FILING
taxpayer although required (STILL REQUIRED TO FILE)
under the law to file his income
tax return, will no longer have 1. Individuals deriving compensation
to personally file his own income from two or more employers
tax return. concurrently or successively during
– but instead the the taxable year.
employer’s annual information 2. Employees deriving compensation
return filed is the considered income, regardless of the amount,
“substitute” income tax return whether from a single or several
of the employee inasmuch as the employers during the calendar year,
information in the employer’s the income tax of which has not
return is exactly the same been withheld correctly (i.e. tax due
information contained in the is not equal to the tax withheld)
employee’s return. resulting to collectible or refundable
return.
• Non-filing – applicable to certain 3. Employees whose monthly gross
types of individual taxpayers compensation income does not
who are not required under the exceed P5,000 or the statutory
law to file an income tax return. minimum wage, whichever is higher,
Example: employee whose and opted for non-withholding of tax
pure compensation income does on said income.
not exceed P60,000 and has only 4. Individuals deriving other non-
one employer for the taxable business, non-profession-related
year and whose tax withheld is income in addition to compensation
equivalent to his tax due. income not otherwise subject to
final tax.
SUBSTITUTED FILING OF INCOME TAX RETURNS BY 5. Individuals receiving purely
EMPLOYEES RECEIVING PURELY COMPENSATION compensation income from a single
INCOME. [SECTION 4, RR 3-2002; RMC 01- employer although the income tax of
03] which has been correctly withheld,
but whose spouse falls under 1 to 4
Requisites: above.
6. Non-resident aliens engaged in trade
or business in the Philippines

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deriving purely compensation upon recommendation of the

income, or compensation income Commissioner.
and other non-business, non-
profession-related income. PLACE OF FILING
NOTE: Non-filing of ITR, for employees 1. Legal residence -

who are qualified for the substituted authorized agent bank; Revenue
filing shall be OPTIONAL for the taxable District Officer; Collection agent or
year 2001, the returns for which shall be duly authorized treasurer
filed on or before April 15, 2002. 2. Principal place of
Thereafter, substituted filing where business
applicable shall be MANDATORY. [Sec 5 3. With the Office
RR 3-2002) of the Commissioner
REQUIREMENT OF BANKS FOR SUBMISSION OF AN ITR

FOR LOAN O R CREDIT CARD APPLICATIONS Time For Filing (Pay as you file system)
Banks may require the submission of April 15 – for those earning sole
BIR Form No. 1700 (for employees not compensation income or solely business,
entitled to substituted filing of ITR). practice of profession or combination of
However, for employees entitled to business and compensation.
substituted filing of ITR, the submission
of the Joint Certification will suffice. RETURN AND PAYMENT OF ESTIMATED INCOME TAX BY
INDIVIDUAL (SELF-EMPLOYED OR PRACTICE OF
JOINT CERTIFICATION - It is a sworn statement PROFESSION)
made by the employer and employee,
which serve the following purposes: 1. First quarter - April 15 of current year
1. It contains the employee's consent 2. Second quarter -August 15 of current
that BIR Form No. 1604CF may be year
considered his substituted return, in 3. Third quarter – November 15 of current
lieu of BIR Form No. 1700, which the year
employee no longer filed. 4. Final quarter - April 15 of the following
2. It contains the employer's year.
certification that he has reported
the employee's income to the BIR Note: When the tax due is in excess of P2,
and that he has remitted the taxes 000 - the taxpayer may elect to pay in two
on the employee's income, as (2) equal installments:
indicated in BIR Form No. 1604-CF. 1st installment - April 15
3. It serves as proof of financial 2nd installment - on or before July 15
capacity in case the employee
decides to apply for a bank loan or a EXTENSION OF TIME TO FILE RETURN
credit-card, or for any other
purpose, as if he had in fact filed a The Commissioner may on
BIR Form No. 1700. meritorious cases grant a reasonable
extension of time for filing income tax
INDIVIDUALS REQUIRED TO FILE AN INFORMATION return and may subject the imposition of
RETURN twenty (20) percent interest per annum
from the original due date.
Individuals not required to file an
income tax return may nevertheless be Return Of Husband And Wife
required to file an information return
pursuant to rules and, regulations • File one (1) return for the
prescribed by the Secretary of Finance taxpayer year if following requisites
complied;

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a. Married individuals a. items of gross income

(citizens, resident or and deductions allowed
nonresident aliens) b. names of partners
b. Do not derived income c. TIN
purely from compensation. d. address and share of
• If impracticable to file one each partner
return: each spouse file a separate
return of income but the return so Tax Return of a Corporation
filed shall be consolidated by the Those required to file:
Bureau for the purposes of 1. Corporation subject to tax having
verification for the year. existed during the taxable year,
whether with income or not.
UNMARRIED MINOR 2. Corporation in the process of
liquidation or receivership.
• Income of unmarried minors 3. Insurance company doing business in
derived from property received by the Philippines or deriving income
the living therein
4. Foreign corporation having income
parent shall be included in the from within the Philippines
return of the parent, except:
a. when donor’s tax has Filing of return (Pay as you file system)
been paid on such property, or Quarterly returns for the first three
b. when transfer of such (3) quarters on a strictly sixty (60) day
property is exempt from donor’s basis and the final or adjusted return on
tax the 15th day of the fourth (4th) month
following the close of either a-fiscal on
PERSONS UNDER DISABILITY calendar year.
If a taxpayer is unable to make his  See Annex V for Illustration.

own return, it may be made by his
1. duly authorized agents; Who shall file?
2. representative; The return shall be filed by the
3. by guardian; president, vice-president, or other
4. other person charged with the care principal officer, and shall be sworn to by
of his person or property; such officer and by the treasurer or
• who will assume the responsibility of assistant treasurer.
making the return and incurring
penalties provided for erroneous, WITHHOLDING TAXES
false or fraudulent return.
Withholding Taxes
RETURN OF ESTATE, TRUST AND PARTNESHIP Kinds:
1. Withholding Tax at Source:
Estate and Trust with gross income Final Withholding Tax
of P20,000 or more and partnership b. Creditable Withholding
(whether professional or business) shall Tax (Expanded withholding tax)
file their income tax return on or before 2. Withholding Tax on Compensation
April 15. (Wages)
3. Withholding Tax on Creditable
TAX RETURNS OF GENERAL PROFESSIONAL Value-Added Tax
PARTNERSHIPS (GPP) 4. Withholding of Percentage Tax
• Each GPP shall file in duplicate,
a return of its income (except those FINAL CREDITABLE
income exempt) WITHHOLDING WITHHOLDING
• Shall set forth: TAX SYSTEM TAX SYSTEM

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Withholding Tax On Compensation

The amount of Taxes withheld on Every employer must withhold
income tax withheld certain income from compensation paid, an amount
by the withholding payments are computed in accordance with the
agent is constituted intended to equal or
regulations.
as a full and final at least approximate
payment of the the tax due from the
income due from the payee on the said Exception:
payee on the said income. Where such compensation
income. [Sec. 2.57 income of an individual:
(a), Rev. Reg. 2-98] 1. Does not exceed the statutory
minimum wages; or
The liability for The income 2. Five thousand (P5,000) monthly
payment of the tax recipient is still
(P60,000 a year)
rests primarily on required to file an
the payor or the income tax return • whichever is higher.
withholding agent. and/or pay the
The payee is not difference between ELEMENTS OF WITHHOLDING ON COMPENSATION
required to file an the tax withheld and 1. There must be an employer-
income tax return the tax due on the employee relationship
for the particular income. [Sec.
income. 2.57(B), Rev. Regs. 2. There must be payment of
2-98] compensation or wages for services
rendered
Time to Withhold Tax at Source 3. There must be a payroll
period.
- arises at the time an income is paid COMPENSATION EXEMPTED
or payable, whichever comes first. The
term “payable” refers to the date the 1. Remunerations received as an
obligation becomes due, demandable or incident of employment
legally enforceable. (Sec. 2.54.4 Rev. 2. Remunerations paid for
Regs. 2.98) agriculture labor
3. Remunerations paid for domestic
Nature of Withholding Agent’s Liability services
The withholding agent is directly 4. Remunerations for casual not in
and independently liable for the correct the course of an employer's trade or
amount of the tax that should be business.
withheld from the dividend remittance. 5. Compensation for services of a
(Commissioner vs. Procter and Gamble, citizen, resident of the Philippines,
GR No. 66838, December 2, 1991) for a foreign government or an
international organization
CONSEQUENCES FOR FAILURE TO WITHHOLD: 6. Damages
1. liable for 7. Life insurance
surcharges and penalties; 8. Amount received by the insured
2. liable upon as return of premium
conviction to a penalty equal to 9. Compensation for injuries and
the total amount of the tax not sickness
withheld, or not accounted for and 10. Income exempt under treaty
remitted. (Sec. 251, 1997 NIRC) 11. Thirteenth (13th) month pay and
3. any income other benefits
payment which is otherwise 12. GSIS; SSS; Philhealth and other
deductible from the payor’s gross contributions,
income will not be allowed as a
deduction if it is shown that the Tax-Free Covenant BOND [Sec. 57(C)]
income tax required to be
withheld is not paid to the BIR. COVENANT BONDS – bonds, mortgages, deeds
(Sec. 2.58.5, Rev. Reg. 2-98) of trust and other similar obligations of
domestic/resident foreign corporation,

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which contain a contract/provision by estate tax

which the obligor agrees; -- 2% to 15 % or
1. to pay any portion of the tax 30% - donor’s
imposed upon the obligee; tax
2. to reimburse the obligee for any
Lesser exemptions More exemptions
portion of the tax; or
3. to pay the interest without
deduction for any tax which the
obligor may be required/permitted (1) ESTATE TAXES
to pay or to retain therefrom.
DEFINITION: an excise tax on the right of
• Obligor shall deduct and withhold a transmitting property at the time of
tax = 30% of the interest and other death and on the privilege that a person
payments whether interest or other is given in controlling to a certain extent
payments are payable annually or at the disposition of his property to take
a shorter period; whether bonds, effect upon death.
securities, obligations had been/will
be issued/ marketed and the Estate Tax Formula
interest and other payments paid
within and without the Philippines if Gross Estate (Sec. 85)
the interest or other payment is Less: (1) Deductions (Sec. 86)
payable to a non-resident alien or a (2)Net share of the SS in the CPP
citizen or resident of the Philippines
Net Taxable Estate
Income of Recipient [Sec. 58 (d)]
Multiply by: Tax rate (Sec. 84)
Estate Tax due
• Income which any creditable tax is
Less: Tax Credit [if any] (Sec. 86[E] or
required to be withheld at source
110[B]
shall be included in the return of its
recipient. Estate Tax Due, if any
• The excess of the amount of tax
withheld over the tax due on his
return shall be refunded to him, GROSS ESTATE
subject to Section 204 (abatement,
refund/credit taxes). A decedent’s gross estate includes
(Sec. 85)
• If amount withheld at source is less
than the tax due on his return, the RESIDENT & NON-
difference is paid in accordance with RESIDENT
Section 56 (payment and assessment NON-RESIDENT
CITIZEN,
of income tax). ALIEN DECEDENT
RESIDENT ALIEN
• All taxes withheld shall be DECEDENT
considered as trust funds and
maintained in a separate account 1. Real property 1. Real property
and not commingled with any other wherever situated in the
funds of the withholding agent. situated Philippines.
2. Personal 2. Personal property

B. TRANSFER TAXES property a) Tangible
wherever property
situated situated in the
TRANSFER TAX INCOME TAX a) Tangible, Philippines
and b) Intangible
Tax on transfer of Tax on income b) Intangible personal
property. property with
a situs in the
Rates are lower Rates are higher Philippines
--5% to 20% - -- 5% to 32% unless

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1
exempted on 2. the laws of the foreign country of

the basis of which the decedent was a citizen
reciprocity. and resident at the time of his death
a. allow a similar
The law that governs the imposition of exemption from transfer taxes
estate tax or death taxes of every
character
The statute in force at the time of
death of the decedent shall govern
b. in respect of intangible
estate taxation. personal property owned by
citizens of the Philippines not
Intangible personal properties with a residing in that foreign country
situs in the Phil. (Sec. 104, 1997 (Reciprocity).
NIRC)
Valuation of the gross estate
1. Franchise which must be exercised
in the Philippines; The properties comprising the gross
estate shall be valued based on their fair
2. Shares, obligations or bonds issued market value as of the time of death.
by any corporation or sociedad
anonima organized or constituted in
PROPERTY VALUATION
the Philippines in accordance with
its laws; 1) Real Property - fair market value
3. Shares, obligations or bonds issued a) as determined by the
by any foreign corporation eighty- Commissioner or
five per centum (85%) of the b) as shown in the
business of which is located in the schedule of values
Philippines; fixed by the
4. Shares, obligations or bonds issued provincial and city
assessors
by any foreign corporation, if such
WHICHEVER IS HIGHER
shares, obligations or bonds have
acquired a business situs in the 2) Shares of Stock
Philippines; Unlisted
5. Shares or rights in any partnership, Common Shares -book value
business or industry established in Preferred -par value
the Philippines. Shares -arithmetic mean
between the highest and
Listed lowest quotation at a
Intangible personal property, with a date nearest the date of
death, if none is
situs in the Philippines, of a decedent
available on the date of
who is a non-resident alien shall not death itself.
form part of the gross estate if
(reciprocity clause) (Sec. 104) 3)Right to - shall be taken into
usufruct, use or account the probable
1. the decedent at the time of his habitation, as life of the beneficiary in
death was a citizen and resident of a well as that of accordance with the
foreign country which at the time of annuity latest basic standard
his death mortality table, to be
approved by the
a. did not impose a transfer Secretary of Finance,
tax or death tax of any character upon recommendation of
1. in respect of the Insurance
intangible personal property of Commissioner.
citizens of the Philippines not
residing in that foreign country; 4) Personal - whether tangible or
or property intangible, appraised at
FMV. “Sentimental
value” is practically

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1
disregarded. The general power of appointment

may be exercised by the decedent:
1. by will; or
Inclusions in the Gross Estate (Sec. 85) 2. by deed executed in contemplation
of his death; or
1. DECEDENT’S INTEREST 3. by deed under which he has retained
To the extent of the interest in for his life or for any period not
property of the decedent at the time of ascertainable without reference to
his death. his death or for any period which
does not in fact end before his
2. TRANSFER IN CONTEMPLATION OF death:
DEATH a. the possession or enjoyment of,
1. A transfer motivated by the thought or the right to the income from
of impending death although death the property; or
may not be imminent; or b. the right, either alone or in
conjunction with any person, to
2. A transfer by which the decedent designate the persons who shall
retained for his life or for any period possess or enjoy the property or
which does not in fact end before his the income therefrom.
death:
a. the possession or Exception: bona fide sale for an
enjoyment of, or the right to the adequate and full consideration in
income from the property, or money or money’s worth.
b. the right, either alone or
in conjunction with any person, 5. PROCEEDS OF LIFE INSURANCE
to designate the person who Proceeds of life insurance taken by
shall possess or enjoy the the decedent on his own life shall be
property or the income included in the gross estate if the
therefrom. beneficiary is:
a. the estate of the decedent, his
Exception: bona fide sale for an executor or administrator
adequate and full consideration in (regardless whether the designation
money or money’s worth. is revocable or irrevocable); or
b. a third person other than the estate,
3. REVOCABLE TRANSFER executor or administrator where the
A transfer whereby the terms of designation of the beneficiary is
enjoyment of the property may be revocable.
altered, amended, revoked or
terminated by the decedent alone or in 6. TRANSFERS FOR INSUFFICIENT
conjunction with any other person, or CONSIDERATION
where any such power is relinquished in The value to be included in the gross
contemplation of the decedent’s death. estate is the excess of the fair market
It is enough that the decedent had the value of the property at the time of the
power to alter, amend or revoke though decedent’s death over the consideration
he did not exercise such power. received. This is applicable in cases of
transfer in contemplation of death,
Exception: bona fide sale for an revocable transfer and transfer under
adequate and full consideration in general power of appointment made for
money or money’s worth. a consideration but is not a bona fide
sale for an adequate and full
4. TRANSFER UNDER GENERAL POWER consideration in money or money’s
OF APPOINTMENT worth.
A power of appointment is the right
to designate the person or persons who 7. PRIOR INTERESTS
will succeed to the property of the prior All transfers, trusts, estates,
decedent. interests, rights, powers and

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relinquishment of powers made, D

created, arising, existing, exercised or E
relinquished before or after the D
effectivity of the NIRC. U
C
Property relations between Husband
T
and Wife
I
The property relations between the
spouses shall be governed by contract O
(marriage settlement) executed before N
the marriage. S
O
In the absence of such contract, or if N
the contract is void: G
On marriages contracted before August R
3, 1988, the system of conjugal
O
partnership of gains shall govern;
S
On marriages contracted on or after
S
August 3, 1988 (effectivity of the
Family Code of the Philippines), the E
system of absolute community of S
property shall govern. T
A
Exempt Transmissions (Sec. 87) T
1. The merger of usufruct in the owner E
of the naked title; A
2. Fideicommisary substitution; P
3. The transmission from the first heir, P
legatee or donee in favor of another
L
beneficiary, in accordance with the
I
will of the predecessor; and
C
All bequests, devices, legacies or
transfers to social welfare, cultural and A
charitable institutions no part of the net B
income of which inures to the benefit of L
any individual; Provided, that not more E
than 30% of the said bequests, legacies T
or transfers shall be used by such O
institutions for administration purposes.

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R (
E R
S E
I V
D E
E N
N U
T E
R
A E
L G
I U
E L
N A
S T
A I
N O
D N
C S
I 2
T -
I 2
Z 0
E 0
N 3
S )
The following are deductible from

the gross estate of citizens and resident
aliens:
1. Expenses, losses, indebtedness,
taxes, etc. (ordinary deductions)
2. Transfer for public use
3. Vanishing deduction
4. Family home
5. Standard deduction equivalent to
one million pesos (P1,000,000)
6. Medical expenses
7. Amounts received by heirs under RA
4917 (Retirement Benefits)
8. Net share of the surviving spouse in
the conjugal or community property
1. ORDINARY
DEDUCTIONS
A. Funeral Expenses
The amount deductible is the lowest
among the following:
1. actual funeral expenses
2. 5% of the gross estate
3. P200,000.

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It includes the following: his lifetime and could have been

1. Mourning apparel of the surviving reduced to simple money judgments.
spouse and unmarried minor children
of the deceased, bought and used in Claims against the estate or
the occasion of the burial. indebtedness in respect of property may
2. Expenses of the wake preceding the arise out of:
burial including food and drinks. 1. Contract;
3. Publication charges for death 2. Tort; or
notices. 3. Operation of Law.
4. Telecommunication expenses in
informing relatives of the deceased.
5. Cost of burial plot. Tombstone Requisites:
monument or mausoleum but not 1. The liability represents a
their upkeep. In case deceased personal obligation of the
owns a family estate or several deceased existing at the time of
burial lots, only the value his death except unpaid
corresponding to the plot where he obligations incurred incident to
is buried is deductible. his death such as unpaid funeral
6. Interment fees and charges. expenses (i.e., expenses
7. All other expenses incurred for the incurred up to the time of
performance of the ritual and interment) and unpaid medical
ceremonies incident to the expenses which are classified
interment. under a different category of
Expenses incurred after the deductions;
interment, such as for prayers, masses, 2. The liability was contracted in
entertainment, or the like are not good faith and for adequate and
deductible. full consideration in money or
Any portion of the funeral and burial money's worth;
expenses borne or defrayed by relatives 3. The claim must be a debt or
and friends of the deceased are not claim which is valid in law and
deductible. enforceable in court;
4. The indebtedness must not have
B. JUDICIAL EXPENSES OF THE TESTAMENTARY OR been condoned by the creditor
INTESTATE PROCEEDINGS or the action to collect from the
Expenses allowed as deduction under decedent must not have
this category are those: prescribed.
1. incurred in the inventory-taking
of assets comprising the gross D. CLAIMS AGAINST INSOLVENT PERSONS
estate,
2. administration, Requisites:
3. payment of debts of the estate, 1. The amount thereof has been
as well as the distribution of the initially included as part of his gross
estate among the heirs. estate (for otherwise they would
In short, these deductible items are constitute double deductions if they
expenses incurred during the settlement were to be deducted)
of the estate but not beyond the last day 2. The incapacity of the debtors to pay
prescribed by law, or the extension their obligation is proven.
thereof, for the filing of the estate tax
return. C. UNPAID MORTGAGE
• In case unpaid mortgage payable is
C. CLAIMS AGAINST THE ESTATE being claimed by the estate,
The word "claims" is generally verification must be made as to who
construed to mean debts or demands of was the beneficiary of the loan
a pecuniary nature which could have proceeds.
been enforced against the deceased in • If the loan is found to be merely an
accommodation loan where the loan

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proceeds went to another person,

the value of the unpaid loan must be Note: This should also include bequests,
included as a receivable of the devices, or transfers to social welfare,
estate. cultural and charitable institutions.
• If there is a legal impediment to
recognize the same as receivable of 3. VANISHING DEDUCTION
the estate, said unpaid obligation/
mortgage payable shall not be DEFINITION: The deduction allowed from
allowed as a deduction from the the gross estate for properties that were
gross estate. subject to donor’s or estate taxes. It is
• In all instances, the mortgaged called vanishing deduction because the
property, to the extent of the deduction allowed diminishes over a
decedent's interest therein, should period of five years. The rate of
always form part of the gross deduction depends on the period from
taxable estate. the date of transfer to the death of the
decedent, as follows:
F. TAXES
Taxes which have accrued as of the PERIOD DEDUCTION
death of the decedent which were • 1 year or less 100%
unpaid as of the time of death. • 1 year – 2 years 80%
• 2 years – 3 years 60%
The following are not deductible: • 3 years – 4 years 40%
1. income tax on income received • 4 years – 5 years 20%
after death
2. property taxes not accrued
Requisites:
before death
1. the present decedent died within 5
3. estate tax
years from transfer of the property
from a prior decedent or donor.
G. LOSSES
2. The property must be located in the
Requisites:
Phils.
1. It should arise from fire, storm, 3. The property formed part of the
shipwreck, or other casualty,
taxable estate of the prior decedent,
robbery, theft or embezzlement;
or of the taxable gift of the donor.
2. Not compensated by insurance 4. The estate tax or donor’s tax on the
or otherwise; gift must have been finally
3. Not claimed as deduction in an determined and paid.
income tax return of the taxable 5. The property must be identified as
estate;
the one received from the prior
4. Occurring during the settlement decedent, or something acquired in
of the estate; and exchange therefor.
5. Occurring before the last day for 6. No vanishing deduction on the
the payment of the estate tax property was allowable to the estate
(last day to pay: six months after of the prior decedent.
the decedent’s death).
4. FAMILY HOME
2. TRANSFER FOR PUBLIC USE
Conditions:
Requisites: 1. The family home must be the actual
1. The disposition is in a last will and residential home of the decedent
testament and his family at the time of his
2. To take effect after death death, as certified by the Barangay
3. In favor of the government of the Captain of the locality where the
Phil., or any political subdivision family home is situated;
thereof
4. For exclusive public purposes.

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2. The total value of the family home 8. NET SHARE OF THE

must be included as part of the gross SURVIVING SPOUSE IN THE
estate of the decedent; and CONJUGAL PARTNERSHIP OR
3. Allowable deduction must be in an COMMUNITY PROPERTY
amount equivalent to
1. the current fair market
value of the family home as After deducting the allowable
declared or included in the gross deductions (only the ordinary
estate, or deductions) appertaining to the conjugal
or community properties included in the
2. the extent of the decedent's gross estate, the share of the surviving
interest (whether spouse must be removed to ensure that
conjugal/community or exclusive only the decedent's interest in the
property), whichever is lower, estate is taxed.
but not exceeding P1,000,000
5. STANDARD DEDUCTION
A deduction in the amount of One

Million Pesos (P1,000,000) shall be
allowed as an additional deduction
without need of substantiation.
The full amount of P1,000,000 shall
be allowed as deduction for the benefit
of the decedent.
6. MEDICAL EXPENSES
• Any amount of medical expenses

incurred within one year from death
in excess of Five Hundred Thousand
Pesos (P500,000) shall no longer be
allowed as a deduction under this
subsection.
• Neither can any unpaid amount
thereof in excess of the P500,000
threshold nor any unpaid amount for
medical expenses incurred prior to
the one-year period from date of
death be allowed to be deducted
from the gross estate as claim
against the estate.
7. AMOUNT RECEIVED BY HEIRS

UNDER REPUBLIC ACT NO.
4917
Any amount received by the heirs

from the decedent's employer as a
consequence of the death of the
decedent-employee in accordance with
Republic Act No. 4917 is allowed as a
deduction provided that the amount of
the separation benefit is included as
part of the gross estate of the decedent.

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D N
E O
D N
U -
C R
T E
I S
O I
N D
S E
O N
N T
G
R A
O L
S I
S E
E N
S S
T
A The following are deductible from the gross
estate of non-resident aliens:
T
E
1. Expenses, losses, indebtedness and
taxes (ELIT) (ordinary deductions)
A
P Formula:
P Tax = Phil. Gross
L Credit Estate X World
I
Limit World Gross ELIT
Estate
C
A 2. Transfer for public use
B
L 3. Vanishing deduction on property in
E
the Philippines.
T 4. Conjugal share of the surviving
O spouse

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E S
S E
T T
A
T
T
L
E
T
E
A
M
X E
C N
R T
E
D O
I F
T
T
A tax credit is granted for estate
taxes paid to a foreign country on the
H
estate of citizens and resident aliens E
subject to the following limitations
E
1. One foreign country only S
The tax credit is whichever is
lower between:
T
4. Estate tax paid to the foreign A
country T
5. Tax Credit Limit = E
NTE, foreign country X Phil. estate
NTE, world Tax
T
(NTE - Net Taxable Estate) A
X
2. More than one foreign country
The credit shall be that which is A. FILING
the lower amount between Limit A
and Limit B. Notice Of Death To Be Filed
In all cases of transfers subject to
Limit A. Whichever is lower tax, or where, though exempt from tax,
between: the gross value of the estate exceeds
• Estate tax paid to a foreign country P20,000, the executor, administrator or
• Tax Credit Limit = any of the legal heirs, within two
NTE, foreign country X Phil. estate months after the decedent’s death, or
NTE, world Tax within a like period after qualifying as
such executor or administrator, shall
Limit B. Whichever is lower give a written notice thereof to the
between: Commissioner. (Sec. 89)
• Total of estate taxes paid to all
foreign countries An Estate Tax Return Is Required To Be
• Tax Credit Limit = Filed
NTE outside Phil. X Phil. estate 1. when the estate is subject to estate
NTE, world Tax tax; or
2. when the estate is not subject to
estate tax but the gross estate
exceeds P 200,000; or

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3. regardless of the amount of the - with the Revenue District

gross estate, where the gross estate Office having jurisdiction over
consists of registered or registrable the executor’ or administrator’s
property such as motor vehicle or residence
shares of stock or other similar c. no executor or administrator
property for which clearance from - with the Office of the
the BIR is required as a condition Commissioner (Sec. 9C, Rev. Reg.
precedent for the transfer of 2-2003)
ownership thereof in the name of
the transferee. B. PAYMENT
Time for Filing of the estate tax return Payment of the estate tax due
The estate tax return shall be filed The estate tax due shall paid at the
within six (6) months after the death of time when the estate tax return is filed.
the decedent. When the Commissioner finds that
the payment of the estate tax on the
Extension: The BIR may, in meritorious due date would impose undue hardships
cases, grant an extension of not upon the estate or any heir:
exceeding thirty (30) days for the filing a. the payment of the estate tax
of the estate tax return. may be extended for a period
not to exceed five (5) years if
When The Gross Estate Exceeds there is a judicial settlement of
P2,000,000, The Estate Tax Return the estate; or
Shall Be Accompanied By A Statement b. the payment of the estate tax
Which Is Certified By An Independent may be extended for a period
Certified Public Accountant Stating not to exceed two (2) years if
1. the itemized assets of the decedent there is an extra-judicial
with its corresponding gross value at settlement of the estate.
the time of his death, or in the case NOTE: In case the available cash is not
of a non-resident, not citizen of the sufficient to pay its total estate tax
Philippines, that part of his gross liability, the estate may be allowed to
estate situated in the Philippines; pay tax by installment. (Sec. 9F, Rev.
2. the itemized deductions from the Reg. 2-2003)
gross estate;
3. the amount of tax due, whether paid Liability for Payment
or still due and outstanding. The estate tax shall be paid by the
executor or administrator before delivery
Place Where to File the Estate Tax to any beneficiary of his distributive share
Return of the estate.
Such beneficiary to the extent of his
1. Resident Citizen distributive share of the estate shall be
- with the Accredited Agent Bank subsidiarily liable for the payment of
(AAB), Revenue District Officer, such portion of the estate tax as his
Collection Officer or duly authorized distributive share bears to the value of
Treasurer of the city or municipality the total net estate. (Sec. 9G, Rev. Reg.
where the decedent was domiciled at 2-2003)
the time of his death. No judge shall authorize the
distribution of the estate unless a
2. Non-resident (citizen or alien) certification from the Commissioner that
a. has registered executor or tax has been paid is shown. (Sec. 94)
administrator No shares or other forms of securities
- with the Revenue District shall be transferred in the books of any
Office where such executor or corporation, partnership, business or
administrator is registered industry organized in the Philippines,
b. executor or administrator is not unless a similar certification by the
registered Commissioner is shown. (Sec. 97)

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When a bank has knowledge of the property belonging to the

death of a person who maintained a taxpayer for unpaid income tax,
joint account, it shall not allow any is by subjecting said property of
withdrawal by the surviving depositor the estate which is in the hands
without the above certification. (Sec. of an heir or transferee to the
97) payment of the tax due the
Provided: that the administrator of estate. (Commissioner of
the estate or any one (1) of the heirs of Internal Revenue vs. Pineda, GR
the decedent may, upon authorization No. L –22734, September 15,
by the Commissioner, withdraw an 1967)
amount not exceeding twenty thousand
pesos (P20,000) without the said
certification.
There is nothing in the Tax Code and (2) DONOR’S TAXES

in the pertinent remedial law that
implies the necessity of the probate DEFINITION: A tax on the privilege of
court or estate settlement of court’s transmitting one’s property or property
approval of the State’s claim for estate rights to another or others without
taxes before the same can be enforced adequate and full valuable
and collected by the BIR. On the consideration.
contrary, under Section 94, it is the
probate or settlement court which is Coverage Of The Tax (SEC. 104)
bidden not to authorize the delivery of
the distributive share to any interested
RESIDENT & NON-
party without a certification from the
RESIDENT CITIZEN, NON-RESIDENT
CIR showing the payment of the estate
RESIDENT ALIEN ALIEN DONOR
tax. (Marcos II vs. Court of Appeals, GR
DONOR
No. 120880, June 5, 1997)
1. Real property 1. Real property
COLLECTION OF TAX FROM THE HEIRS wherever situated situated in the
An estate or inheritance tax, Philippines.
whether assessed before or after the
death of the deceased, can be collected 2. Personal property 2. Personal property
from the heirs even after the wherever situated a. Tangible property
distribution of the properties of the a. Tangible, and situated in the
decedent. (Palanca vs. Commissioner of Intangible Philippines
b. Intangible
Internal Revenue, GR No. 16661,
personal property
January 31, 1962) with a situs in the
Philippines unless
The Government has two ways of exempted on the
collecting taxes due from the estate. basis of
a. By going after all the heirs and reciprocity.
collecting from each one of
them the amount of the tax Requisites
proportionate to the inheritance
received, or 1. Capacity of the donor
b. Pursuant to the lien created by 2. Donative Intent
Section 219 of the Tax Code 3. Delivery, whether actual or
upon all property and rights to constructive, of the subject gift

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4. Acceptance by the donee • A legally adopted child is entitled to

all the rights and obligations
Law that governs the imposition of provided by law to legitimate
Donor’s Tax children, and therefore, donation to
him shall not be considered as
The donor’s tax shall not apply donation made to stranger.
unless and until there is a completed • Donation made between business
gift. The transfer is perfected from the organizations and those made
moment the donor knows of the between an individual and a business
acceptance by the donee; it is organization shall be considered as
completed by the deliver, either donation made to a stranger.
actually or constructively, of the
donated property to the donee. Thus, Valuation of gifts of property
the law in force at the time of the The fair market value of the
perfection/completion of the donation property given at the time of the gift
shall govern the imposition of the shall be the value of the gift.
donor’s tax.
A gift that is incomplete because of

reserved powers, becomes complete Intangible personal properties with a
when either: situs in the Phil. (same as in estate tax
1. the donor renounces the power; subject to the reciprocity rule) (Sec.
or 104)
2. his right to exercise the reserved
power ceases because of the Formula: (On a cumulative basis over a
happening of some event or period of one calendar year)
contingency or the fulfillment of
some condition, other than because 1. On the 1st donation of a year
of the donor's death.
• Renunciation by the surviving Gross gifts xxx
spouse of his/her share in the conjugal Less: Deductions from gross xxx
partnership or absolute community after gifts
the dissolution of the marriage in favor Net gifts xxx
of the heirs of the deceased spouse or Multiply by: Tax Rate xxx
any other person/s is subject to donor's Donor’s tax on the net gifts xxx
tax.
• Whereas general renunciation 2. On donation of a subsequent
by an heir, including the date during the year
surviving spouse, of his/her
share in the hereditary estate Gross gifts made on this date XX
left by the decedent is not Less: Deductions from gross gifts XX
subject to donor's tax, unless Net gifts XX
specifically and categorically Add: All prior net gifts within the XX
done in favor of identified heir/s year
to the exclusion or disadvantage Aggregate net gifts XX
of the other co-heirs in the Multiply by: Tax Rate XX
hereditary estate. (Sec. 11, Rev. Donor’s tax on aggregate net gifts XX
Reg. 2-2003) Less: Donor’s tax on all prior net XX
gifts
STRANGER - a person who is not a brother, Donor’s tax on the net gifts on this XX
sister, spouse, ancestor and lineal date
descendant, or of a relative by
consanguinity in the collateral within the
4th civil degree. Exemption of certain gifts
1. Gifts made by a resident

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a. Dowries or gifts made on

account of marriage and before 1. Donor was a Filipino citizen or
its celebration or within one resident alien
year thereafter by parents to 2. At time of foreign donation
each of their legitimate, 3. Donor’s taxes of any character and
illegitimate or adopted children description
to the extent of the first P10, 4. Are imposed and paid by the
000. authority of a foreign country.
b. Gifts made to or for the use of
the National Government or any Limitations on tax credit
entity created by any of its
agencies which is not conducted 1. The amount of the credit in respect
for profit, or to any political to the tax paid to any country shall
subdivision of the said not exceed the same proportion of
government. the tax against which such credit is
c. Gifts in favor of educational, taken, which the decedent’s net
charitable, religious, cultural or gifts situated within such country
social welfare corporation, taxable under the NIRC bears to his
institutions, foundations, trust entire net gift; and
or philanthropic organization, 2. The total amount of the credit shall
research institution or not exceed the same proportion of
organization, accredited non- the tax against which such credit is
government organization (NGO). taken, which the decedent’s net gift
Provided, that no more than 30% situated outside the Philippines
of said gifts shall be used by taxable under the NIRC bears to his
such donee for administration entire net gift.
purposes.
2. Gifts made by a non-resident not Formula of Tax Credit Limit
a citizen of the Phil.
a. same as (b) 1. For donor’s taxes paid to one
b. same as (c) except accredited foreign country
non-government organization
(NGO) NG situated Tax
in a foreign country X PDT = Credit
A non-profit educational and/or Entire net gift Limit
charitable corporation, institution,
accredited non-government (NG - Net Gifts; PDT - Phil. Donor's Tax)
organization, trust or philantrophic
organization, research institution or 2. For donor’s taxes paid to two or
organization is more foreign country
1. one incorporated as a non-stock NG outside the Phil. X PDT = Tax

entity Entire net gifts Credit
2. paying no dividends Limit
3. governed by trustees who receive no
compensation, and The allowable tax credit is the
4. devoting all its income whether lower amount between the tax credit
students’ fees or gifts, donations, limit under (a) and (b).
subsidies or other forms of
philantrophy to the accomplishment
and promotion of the purposes SETTLEMENT OF THE DONOR’S TAX
enumerated in its Articles of
Incorporation. Time for Filing of Return and payment
of the Donor’s Tax
Tax credit for donor’s taxes paid to a
foreign country

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The donor’s tax return is filed and UNDER THE NIRC

the donor’s tax due is paid within thirty
(30) days after the date the gift is made.
The return shall be under oath in I. TAX REMEDIES OF THE
duplicate setting forth: GOVERNMENT
1. Each gift made during the calendar
year which is to be included in
computing net gifts; Importance
2. The deductions claimed and
allowable; 1. They enhance and support the
3. Any previous net gifts made during government’s tax collection.
the same calendar year; 2. They are safeguards of taxpayer’s
4. The name of the donee; rights against arbitrary action.
5. Relationship of the donor to the
donee; and Tax collection cannot be restrained by
6. Such further information as may be court injunction (Sec. 218, 1997 NIRC)
required by rules and regulations
made pursuant to law. Justification: Lifeblood Theory
NOTE: The filing of a notice of donation Exception: Injunction may be issued by

is not required, unlike in estate tax the CTA in aid of its appellate
where notice of death is required. jurisdiction under RA 1125 (as amended
by RA 9282).
Place for Filing of Return and payment
of the Donor’s Tax Conditions for the Issuance of an
Injunction by the Court of Tax Appeals
1. Resident The CTA may enjoin collection of
taxes:
• With an authorized agent bank, the a. If in its opinion the same may
Revenue District Officer, Revenue jeopardize the interest of the
Collection Officer or duly government and/or the taxpayer.
authorized Treasurer of the city or b. In this instance, the court may
municipality where the donor was require the taxpayer either to deposit
domiciled at the time of the the amount claimed or file a surety bond
transfer, or if there be no legal for not more than double the amount
residence in the Philippines, with with the court.
the Office of the Commissioner.
2. Non-resident * Before enforcement of remedies,
• Filed with the Philippine Embassy assessment is necessary to trigger the
or Consulate in the country where process. If no return is filed, the
he is domiciled at the time of the Commissioner is empowered to obtain
transfer, or directly with the information, and to summon/examine,
Office of the Commissioner. and take testimony of persons to
determine the amount of tax due. (Sec.
Tax rate 5, 1997 NIRC)
If the donee is a stranger, the rate of TAX REMEDIES UNDER THE 1997 TAX CODE:
tax shall be 30% of the net gifts.
If the donee is not a stranger, 1. Summary – remedies at the
the rate shall be from 2% to 15% of the administrative level or regulation that
net gifts. are executed without ceremony or
delay; short or concise
 See Annex W - Donor’s Tax 2. Substantive – remedies provided for
by law or regulation; an essential part or
constituent or relating to what is
C. TAX REMEDIES essential

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3. Procedural – remedies involving law of 1. The Commissioner of Internal

pleading, evidence, jurisdiction, etc. Revenue (CIR) with respect to
4. Administrative – remedies available at criminal and civil cases arising from
the administration (BIR) level violations of the Tax Code [Secs.
5. Judicial – remedies that are 7(C) and 204, 1997 NIRC]. This
enforced through judicial action, power of the CIR is discretionary and
which may be civil or criminal once exercised by him cannot be
reviewed or interfered with by the
tax remedies of the government to Courts. (Koppel, Philippines vs.
effect collection of taxes Commissioner, GR No. L-1977,
September 21, 1950)
1. Compromise (Sec. 204) 2. By the Regional Evaluation Board
2. Distraint (Actual and composed of:
Constructive) (Secs. 205-208) a. the Regional Director as
3. Levy (Sec. 207B) Chairman,
4. Tax Lien (Sec. 219) b. Assistant Regional Director,
5. Civil Action (Sec. 221) the heads of the Legal,
6. Criminal Action (Secs. 221, and Assessment and Collection
222) Divisions, and
7. Forfeiture of Property (Sec. c. the Revenue District Officer
224-225) having jurisdiction over the
8. Suspension of business taxpayer, as members;
operations in violation of VAT • on assessments issued by the
(Sec. 115) regional offices involving basic
9. Enforcement of Administrative taxes of P500,000 or less, and
Fine minor criminal violations.
The remedies of distraint and levy as Cases which may be compromised

well as collection by civil and criminal
actions may, in the discretion of the 1. Delinquent accounts
Commissioner, be pursued singly or 2. Cases under administrative protests
independently of each other, or all of 3. Civil tax cases being disputed before
them simultaneously. the courts
4. Collection cases filed in courts
5. Criminal violations, other than those
(1) COMPROMISE already filed in court or those
involving criminal tax fraud; and,
DEFINITION: A contract whereby the 6. Cases covered by pre-assessment
parties, by reciprocal concessions, avoid notices but taxpayer is not agreeable
litigation or put an end to one already to the findings of the audit office as
commenced (Art. 2028, New Civil confirmed by the review office.
Code). (Sec.2, Rev. Reg. 7-2001)
Requisites Exceptions
1. The taxpayer must have a tax
liability. 1. Withholding tax cases;
2. There must be an offer (by the 2. Criminal tax fraud cases;
taxpayer of an amount to be paid by 3. Criminal violations already filed in
the taxpayer) court;
3. There must be an acceptance (by 4. Delinquent accounts with duly
the Commissioner or taxpayer as the approved schedule of installment
case may be) of the offer in the payments;
settlement of the original claim. 5. Cases where final reports of
reinvestigation or reconsideration
Officers authorized to compromise have been issued resulting to
reduction in the original assessment

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and the taxpayer is agreeable to f. The assessment were issued on

such decision. or after Jan. 1, 1998, where the
6. Cases which become final and demand notice allegedly failed
executory after final judgment of a to comply with the formalities
court, where compromise is prescribed under Sec. 228 of
requested on the ground of doubtful the 1997 NIRC; or
validity of the assessment (RR. 30– g. Assessments made based on the
2002); “Best Evidence Obtainable
7. Estate tax cases where compromise Rule” and there is reason to
is requested on the ground of believe that the same can be
financial incapacity of the taxpayer. disputed by sufficient and
(RR. 30–2002) competent evidence.
h. The assessment was issued
Commissioner may compromise the within the prescriptive period
payment of any internal revenue tax for assessment as extended by
when the taxpayer's execution of
Waiver of the Statute of
1. A reasonable doubt as to the Limitations the validity or
validity of the claim against the authenticity of which is being
taxpayer exists; or questioned or at issue and there
a. The delinquent account or is strong reason to believe and
disputed assessment is one evidence to prove that it is not
resulting from a jeopardy authentic. (RR. 30– 2002)
assessment. i. The assessment is based on an
b. The assessment seems to be issue where a court of
arbitrary in nature, appearing competent jurisdiction made an
to be based on presumptions, adverse decision against the
and there is reason to believe Bureau, but for which the
that its is lacking in legal Supreme Court has not decided
and/or factual basis; or upon with finality. (RR. 08-
c. The taxpayer failed to file an 2004).
administrative protest on
account of the alleged failure 2. The financial position of the
to receive notice of assessment taxpayer demonstrates a clear
or preliminary assessment and inability to pay the assessed tax
there is reason to believe that [Sec. 204(A), 1997 NIRC). In such
its is lacking in legal and/or case, the taxpayer should waive the
factual basis; or confidentiality privilege on bank
d. The taxpayer failed to file a deposits under RA No. 1405 [Sec.
request for 6(F)(2), NIRC].
reinvestigation/reconsideration Financial Incapacity. — The offer
within 30 days from receipt of to compromise based on financial
final assessment notice and incapacity may be accepted upon
there is reason to believe that showing that:
its is lacking in legal and/or a. The corporation ceased operation
factual basis; or or is already dissolved. Provided,
e. The taxpayer failed to elevate that tax liabilities corresponding
to the CTA an adverse decision to the Subscription Receivable or
of the Commissioner, or his Assets distributed/distributable to
authorized representative, in the stockholders representing
some cases, within 30 days from return of capital at the time of
receipt thereof and there is cessation of operation or
reason to believe that its is dissolution of business shall not be
lacking in legal and/or factual considered for compromise; or
basis; or

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b. The taxpayer, as reflected in its suspension of payments to

latest Balance Sheet supposed to creditors, or otherwise declared
be filed with the Bureau of bankrupt or insolvent. (Sec. 3, RR.
Internal Revenue, is suffering from 07-2001)
surplus or earnings deficit
resulting to impairment in the The Congressional Oversight
original capital by at least 50%, Committee, under Section 290 of the
provided that amounts payable or 1997 NIRC is empowered to require the
due to stockholders other than BIR:
business-related transactions 1. The submission of all
which are properly includible in pertinent information, including
the regular "accounts payable" are but not limited to industry
by fiction of law considered as audits, collection performance
part of capital and not liability, data, status reports on criminal
and provided further that the actions initiated against
taxpayer has no sufficient liquid persons; and
asset to satisfy the tax liability; or 2. The submission of taxpayer
returns.
Minimum Compromise Rates (MCR) of

c. The taxpayer is suffering from a any tax liability
networth deficit (total liabilities In case of financial incapacity:
exceed total assets) computed by MCR = 10% of the basic assessed tax
deducting total liabilities (net of Other cases:
deferred credits and amounts MCR = 40% of the basic assessed tax
payable to stockholders/owners [Sec. 204(A), 1997 NIRC]
reflected as liabilities, except
business-related transactions) Approval of the compromise by the
from total assets (net of prepaid Evaluation Board is required when
expenses, deferred charges, pre- a. the basic tax involved exceeds
operating expenses, as well as P1,000,000.00, or
appraisal increases in fixed b. the settlement offered is less than
assets), taken from the latest the MCR.
audited financial statements,
provided that in the case of an NOTE: The MCR may be less than the
individual taxpayer, he has no prescribed rates of 10% or 40%, as the
other leviable properties under case may be, provided it is approved by
the law other than his family the Evaluation Board (composed of the
home; (Sec. 3, RR. 30–2002). BIR Commissioner and the four BIR
Deputy Commissioners).
c. The taxpayer is a compensation
earner with no other source of Compromise of Criminal Violations
income and the family’s gross General Rule: All criminal violations
monthly compensation does not under the CTRP may be compromised.
exceed (P10,500/month if single;
P21,000/month if married), and Exceptions:
that it appears that the taxpayer 1. Those already filed in court
possesses no other leviable/ 2. Those involving fraud [Sec. 204(B),
distrainable assets, other than his 1997 NIRC].
family home; or
Extent of the Commissioner’s
d. The taxpayer has been granted by Discretion to Compromise Criminal
the SEC or by any competent Violations
tribunal a moratorium or

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1. Before the complaint is filed with b. Any other compromise is

the Prosecutor’s Office: The CIR extrajudicial and like any other
has full discretion to compromise contract can only be enforced by
except those involving fraud. court action.
2. Regard it as rescinded and insist
2. After the complaint is filed with upon original demand (Art. 2041,
the Prosecutor’s Office but before Civil Code).
the information is filed with the
court: The CIR can still compromise Compromise Penalty
provided the prosecutor must give
consent. It is an amount of money that the
taxpayer pays to compromise a tax
3. After information is filed with the violation. This is paid in lieu of criminal
court: The CIR is no longer prosecution. A taxpayer cannot be
permitted to compromise with or compelled to pay a compromise penalty.
without the consent of the If he does not want to pay, the CIR must
Prosecutor. (People vs. Magdaluyo, institute a criminal action.
GR No. L-16235, April 20, 1961)
This is more so, when the court COMPROMISE VS. ABATEMENT
has rendered a final judgment. As a
mere agent of the Government, the Compromise involves a reduction of
Commissioner is not authorized to the taxpayer’s liability, while
accept anything less than what is abatement means that the entire tax
adjudicated in favor of the liability of the taxpayer is cancelled.
Government. By virtue of such final ABATEMENT
judgment, the Government has
already acquired a vested right. The Commissioner may abate or cancel
a tax liability when
Nature of a Compromise in
Extrajudicial Settlement of the 1. The tax or any portion thereof
Taxpayer’s Criminal Liability for his appears to be unjustly or
Violation excessively assessed; [Sec. 204(B),
1997 NIRC].
It is consensual in character, hence, a. When the filing of the
may not be imposed on the taxpayer return/payment is made at the
without his consent. The BIR may only wrong venue;
suggest settlement of his tax liability b. When the taxpayer’s mistake in
through a compromise. The extra- payment of his tax is due to
judicial settlement and the amount of erroneous written official advice
the suggested compromise penalty of a revenue officer;
should conform with the schedule of c. When the taxpayer fails to file the
compromise penalties provided under return and pay the tax on time
the relevant BIR regulations or orders. due to substantial losses from
prolonged labor dispute, force
Remedy in case the taxpayer refuses majeure, legitimate business
or fails to abide the tax compromise reverses, provided, however, the
abatement shall only cover the
1. Enforce the compromise surcharge and the compromise
a. If it is a judicial compromise, it penalty and not the interest
can be enforced by mere imposed under Sec. 249 of the
execution. A judicial compromise Code;
is one where a decision based on d. When the assessment is brought
the compromise agreement is about or the result of taxpayer’s
rendered by the court on request non-compliance with the law due
of the parties. to a difficult interpretation of said
law.

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e. When the taxpayer fails to file the offered in a public sale, if taxes are not
return and pay the correct tax on voluntarily paid. It is a summary remedy.
time due to circumstances beyond
his control, provided, however, Nature of the Warrant of Distraint or
the abatement shall only cover Levy
the surcharge and the compromise
penalty and not the interest The warrant is a summary procedure
imposed under Sec. 249 of the “forcing” the taxpayer to pay. The
Code; receipt of a warrant may or may not
f. Late payment of the tax under partake the character of a final decision.
meritorious circumstances (ex. If it is an indication of a final decision,
Failure to beat bank cut-off time, the taxpayer may appeal to the CTA
surcharge erroneously imposed, within 30 days from service of the
etc.) (Sec. 2, Rev. Reg. 13-2001) warrant.
2. The administration and ∗ Duties of the officer serving the

collection costs involved do not warrant of distraint:
justify the collection of the amount 1. Make an account of the personal
due [Sec. 204(B), 1997 NIRC]. properties distrained;
a. Abatement of penalties on 2. Sign the list of personal
assessment confirmed by the properties distrained to which shall be
lower court but appealed by the added, a statement of the sum
taxpayer to a higher court demanded and note of the time and
b. Abatement of penalties on place of sale;
withholding tax assessment under 3. Leave either with the owner or
meritorious circumstances person from whose possession such
c. Abatement of penalties on personal properties were taken, or at
delayed installment payment the dwelling or place of business of such
under meritorious circumstances person with someone of suitable age and
d. Abatement of penalties on discretion (Sec. 208, CTRP)
assessment reduced after
reinvestigation but taxpayer is Two types of Distraint
still contesting reduced
assessment; and 1. Actual: there is taking of
e. Such other circumstances which possession of the personal
the Commissioner may deem property from the taxpayer by
analogous to the enumeration the government. Physical
above. (Sec. 3, Rev. Reg. 13-2001) transfer of possession is not
always required. This is true in
3. The Commissioner may also, even the case of intangible property
without a claim therefor, refund or such as stocks and credits.
credit any tax where on the face of 2. Constructive: the owner is
the return upon which payment was merely prohibited from disposing
made such payment appears clearly of his property.
to have been erroneously paid
(Sec. 229, 1997 NIRC)). Actual vs. Constructive Distraint
ACTUAL CONSTRUCTIVE
(2) DISTRAINT DISTRAINT DISTRAINT
Made only on the Made on the property

DEFINITION: It is the seizure by the property of a of any taxpayer,
government of personal property, delinquent taxpayer whether delinquent
tangible or intangible, to enforce the or not
payment of taxes. The property may be
There is taking of The taxpayer is

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ACTUAL CONSTRUCTIVE
DISTRAINT DISTRAINT Distraint includes garnishment of
possession merely prohibited money even in bank deposits because RA
from disposing of his 1405 (Bank Secrecy Law) covers only
property divulging of information of deposits. No
inquiry is made on garnishment for it
Effected by leaving a Effected by requiring only earmarks a portion of the deposits.
list of distrained the taxpayer to sign
Notwithstanding any contrary
property or by a receipt of the
service of a warrant property or by the provision of RA 1405, the Commissioner
of distraint or revenue officer is authorized to inquire into the bank
garnishment preparing and leaving deposits of:
a list of such 1. a decedent to determine his gross
property estate
2. a taxpayer who waives his right by
An immediate step Not necessarily so reason of financial incapacity to pay his
for collection of tax liability (Sec.5, NIRC)
taxes
Procedures for the Actual Distraint or

Garnishment
I
Both
Commencement of distraint
Are summary remedies for the collection of
taxes; proceedings
NOTE: Refer only to personal property; and
cannot be availed of where the amount of
the tax involved is not more than P100 Either by the CIR or his duly authorized
representative; or by the Revenue
District Officer
Requisites for the exercise of the
remedy of distraint
1. The taxpayer must be delinquent II

(except in constructive distraint) in Service of Warrant of Distraint
the payment of tax; (Sec. 208)
2. There must be a subsequent demand
for its payment (assessment);
3. The taxpayer must fail to pay the tax With respect to:
at the time required; and 1. Personal property –
4. The period within which to assess or (a) upon the owner of the goods,
collect the tax has not yet chattels, or other personal
prescribed. property; or
(b) upon the person from whose
Persons who shall seize and distraint possession such properties are
personal property (actual distraint) taken.
2. Stocks and other securities
1. Amount of delinquent tax is more (a) upon the taxpayer; and
than P1,000,000 – Commissioner or (b) upon the president, manager,
his duly authorized representatives. treasurer or other responsible
2. Amount of delinquent tax is officer of the corporation,
P1,000,000 or less – Revenue District company or association which
Officer. (Sec. 207(A), 1997 NIRC) issued the said stock and
securities.
AUTHORITY OF THE COMMISSIONER TO INQUIRE INTO 3. Bank accounts shall be garnished by
BANK DEPOSIT ACCOUNTS serving a warrant of distraint –

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(a) upon the taxpayer; and The taxpayer’s property may be placed
(b) upon the president, manager, under constructive distraint when he
treasurer, or other responsible
officer of the bank. 1. is retiring from any business subject
Note: Upon receipt of the warrant of to tax;
distraint, the bank shall turn over to the 2. is intending to –
Commissioner so much of the bank a. leave the Philippines,
accounts as may be sufficient to satisfy b. remove his property therefrom,
the claim of the government. c. hide or conceal his property,
4. Debts and credits – 3. is performing any act tending to
(a) persons owing or having in his obstruct the proceeding for
possession the debts; collecting the tax due or which may
(b) or under his control such credits; be due from him (Sec. 223, 1997
or NIRC).
(c) upon his agent.
Note: The warrant of distraint shall be Procedure for the Constructive

sufficient authority to the person owing Distraint of Personal Property
the debts or having in his possession or
under his control any credits belonging Taxpayer’s obligation to preserve
to the taxpayer to pay to the
Commissioner the amount of such debts
or credits.
CIR shall require the taxpayer or any
person having possession or control of
such property to
(a) sign a receipt covering the property
distrained and
Taxpayer must sign (b) obligate himself to
receipt 1. preserve the same intact and
unaltered and
2. not to dispose of the same in any
manner whatsoever without the
express authority of the
Commissioner of Internal
III Revenue.
Posting of Notice
(Sec. 209, NIRC)
Notice specifying the time and place

of sale and the articles distrained. The Remedy when taxpayer didn’t sign
posting shall be made in not less than receipt
two (2) public places in the city or muni-
cipality where the distraint is made.
One place for posting of such notice is at If the taxpayer or person in possession of
the Office of the Mayor of such city or the property refuses or fails to sign the
municipality. receipt referred to, the revenue officer
effecting the constructive distraint shall
(a) proceed to prepare a list of such
property and
(b) in the presence of two (2) witnesses
IV leave a copy thereof in the premises
Sale of Property Distrained where the property distrained is located,
after which the said property shall be
deemed to have been placed under
constructive distraint.

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d. the proper Register of Deeds shall

(3) LEVY also be notified of the levy (Sec.
207B, 1997 NIRC).
DEFINITION: It refers to the act of seizure
of real property in order to enforce the
payment of taxes. The property may be
offered in a public sale, if after seizure,
the taxes are not voluntarily paid. III
Advertisement of the Time and
REQUISITES FOR THE EXERCISE OF THE REMEDY OF Place of Sale
LEVY
The advertisement shall contain:

Same as in the remedy of distraint. the amount of tax and penalties due;
2. name of the taxpayer against whom
taxes are levied;
3. short description the property to be
When may Levy be Effected? sold.
Real property may be levied upon The advertisement shall be made
before, simultaneously, or after the within 20 days after the levy, and the
distraint of personal property belonging same shall be for a period of at least 30
to the delinquent [Sec. 207(B), 1997 NIRC]; days. It shall be effectuated by:
and the remedy by distraint and levy a. posting a notice at the main entrance
may be repeated if necessary until the of the municipal building or city hall
full amount, including all expenses, is and in a public and conspicuous
collected (Sec. 217, 1997 NIRC). place in the barrio or district in
which the real property lies; and
Procedure of Levy on Real Property b. by publication once a week for 3
weeks in a newspaper of general
I circulation in the municipality or city
Prepare Certificate of Levy where the property is located (Sec.
I 213, CTRP).
Preparation of a duly authen-ticated
certificate containing:
(a) description of the property levied;
(b) name of the taxpayer, and
(c) the amounts of tax and penalty due IV
from him. This certificate shall Sale
operate with the force of a legal
execution throughout the Philippines
(Sec. 207B, 1997 NIRC).
Distraint vs. Levy
DISTRAINT LEVY
II Refers to personal Refers to real

property property
Service of Notice
Forfeiture by the Forfeiture is
government is not authorized
Service of written notice to: provided
(a) the delinquent taxpayer; or
(b) if he is absent from the Philippines, The taxpayer is not The right of
to his agent or manager of the business given the right of redemption is
in respect to which the liability arose; or redemption with granted in case of
c. to the occupant of the property. respect to distrained real property levied

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DISTRAINT LEVY
personal property. upon and sold, or The tax, together with interests,
forfeited to the penalties, and costs that may accrue in
government. addition thereto is a lien upon all
property and rights to property
Both belonging to the taxpayer.
• Are summary remedies for the collection of
taxes; and
The lien shall not be valid against
• Cannot be availed of where the amount of
the tax involved is not more than P100
any mortgagee, purchaser, or judgment
creditor until notice of such lien shall be
Redemption of Property Sold filed by the Commissioner of Internal
Revenue in the Office of the Register of
Within 1 year from the date of sale, Deeds of the province or city where the
the property may be redeemed by the property of the taxpayer is situated or
delinquent taxpayer or anyone from him, located (Sec. 219, 1997 NIRC).
upon payment of the taxes, penalties
and interest thereon from the date of
delinquency to the date of sale, When does it Attach?
together with interest on purchase price
at 15% per annum from the date of sale Not only from the service of the
to the date of redemption. (Sec. 214, warrant of distraint but from the time
NIRC). tax became due and payable.
Forfeiture to the Government Lien vs. Distraint
If there is no bidder in the public LIEN DISTRAINT

sale or if the amount of the highest bid
is insufficient to pay the taxes, penalties Directed against Need not be
the property directed against the
and costs, the real property shall be
subject to the tax property subject to
forfeited to the Government. tax
Further Distraint and Levy Regardless of the Property seized

owner of the must be owned by
The remedy of distraint and levy property the taxpayer
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from CIVIL ACTIONS
the taxpayer. Otherwise, a clever
taxpayer who is able to conceal most of
DEFINITION: For tax remedy purposes,
the valuable part of his property would
these are actions instituted by the
escape payment of his tax liability by
government to collect internal revenue
sacrificing an insignificant portion of his
taxes. It includes filing by the
holdings.
government with the probate court
claims against the deceased taxpayer.
(4) TAX LIEN
When resorted to?
DEFINITION: It is a legal claim or charge on
property, either real or personal, 1. When a tax is assessed but the
established by law as a security in assessment becomes final and
default of the payment of taxes (51 unappealable because the taxpayer
AmJur 881). Generally, it attaches to fails to file an administrative
the property irrespective of ownership protest with the CIR within 30 days
or transfer thereof. from receipt; or
2. When a protest against assessment is
Extent and nature filed and a decision of the CIR was

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rendered but the said decision Where to file

becomes final, executory, and
demandable for failure of the 1. Court of Tax Appeals – on criminal
taxpayer to appeal the decision to offenses arising from violations of
the CTA within 30 days from the NIRC or TCC and other laws
receipt of the decision. administered by the BIR and the
BOC, where the principal amount of
NOTE: Judicial action may be resorted taxes and fees, exclusive of charges
to even before assessment although and penalties claimed is One million
impractical, as stated in Sec. 203, 1997 pesos and above.
NIRC, “… and no proceeding in court 2. Regional Trial Court, Municipal
without assessment for the collection of Trial Court, Metropolitan Trial
such taxes shall be begun after the Court – on criminal offenses arising
expiration of such (3year) period.” from violations of the NIRC or TCC
It should be noted that no civil and other laws administered by the
or criminal action for the recovery of BIR and the BOC, where the principal
taxes shall be filed in court without the amount of taxes and fees, exclusive
approval of the Commissioner. of charges and penalties claimed is
less than One million pesos or where
Where to file there is no specified amount
claimed. (Sec. 7, RA No. 9282)
1. Court of Tax Appeals – where the
principal amount of taxes and fees, IMPORTANT CONSIDERATIONS
exclusive of charges and penalties
claimed is One million pesos and 1. No criminal action shall be
above. begun without the approval of the
2. Regional Trial Court, Municipal Commissioner. (Sec. 220, 1997 NIRC)
Trial Court, Metropolitan Trial 2. It shall be brought in the
Court – where the principal amount name of the Government and shall
of taxes and fees, exclusive of be conducted by the legal officers of
charges and penalties claimed is less the BIR.
than One million pesos. (Sec. 7, RA
No. 9282) EFFECT OF ACQUITTAL OF THE
TAXPAYER IN A CRIMINAL ACTION
THE CIR IS ESSENTIAL IN CIVIL
APPROVAL OF THE
CASES.
However, under Sec. 7, 1997 NIRC, It does not necessarily result in the
the Commissioner may delegate such exoneration of said taxpayer from his
power to a Regional Director. civil liability to pay taxes.
Rationale: The duty to pay tax is
Defenses which are precluded by final imposed by statute prior to and
and executory assessments independent of any attempt on the part
of the taxpayer to evade payment. It is
1. Invalidity or illegality of the not a mere consequence of the felonious
assessment; and acts charged, nor is it a mere civil
2. Prescription of the government’s liability derived from a crime. (Republic
right to assess. vs. Patanao, GR No. L-14142, May 30,
1961)
(6) CRIMINAL ACTIONS
EFFECT OF SUBSEQUENT SATISFACTION
The judgment in the criminal case OF CIVIL LIABILITY
shall not only impose the penalty but
shall also order the payment of taxes The subsequent satisfaction of civil
subject of the criminal case as finally liability by payment or prescription does
decided by the Commissioner (Sec. 205, not extinguish the taxpayer’s criminal
NIRC). liability.

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1
NO SUBSIDIARY IMPRISONMENT forfeiture, may be destroyed by

order of the Commissioner where the
In case of insolvency on the part of sale may be injurious to public
the taxpayer, subsidiary imprisonment health or prejudicial to law
cannot be imposed as regards the tax enforcement.
which he is sentenced to pay.
However, it may be imposed in cases
of failure to pay the fine imposed. (Sec.
280, 1997 NIRC)
CRIMINAL ACTION MAY BE FILED d. Other articles subject to excise tax

DURING THE PENDENCY OF AN which have been manufactured or
ADMINISTRATIVE PROTEST IN THE BIR removed in violation of the Code,
dies for printing or making fake
It is not a requirement for the revenue stamps and labels – Upon
filing thereof that there be a precise forfeiture may be sold or destroyed
computation and assessment of the tax, at the discretion of the
since what is involved in the criminal Commissioner. Forfeited property
action is not the collection of tax but a shall not be destroyed until at least
criminal prosecution for the violation 20 days from seizure.
of the NIRC. Provided, however, that
there is a prima facie showing of a EFFECT OF THE FORFEITURE OF
willful attempt to evade taxes. (See PROPERTY
Ungab vs. Cusi, GR Nos. L-41919-24, May
30, 1980 in relation to Commissioner vs. The effect is to transfer the title to
Court of Appeals, GR No. 119322, June the specific thing from the owner to the
4, 1996) government. All the proceeds in case of
a sale go to the coffers of the
(7) FORFEITURE government (U.S. vs. Surla, GR No.
6536, September 2, 1911). In seizure for
DEFINITION: divestiture of property the enforcement of a tax lien, the
without compensation, in consequence residue, after deducting the tax liability
of a default or offense. and expenses will go to the taxpayer
(Bank of the Phil. Island vs. Trinidad,
ENFORCEMENT OF THE REMEDY OF GR No. 16014, October 4, 1941).
FORFEITURE
INFORMER’S REWARD (Sec 282)
a. In case of personal property – The A. For violations of the NIRC, a reward
forfeiture of chattels and removable of 10% of the revenues, surcharges,
fixtures of any sort is enforced by or fees recovered and/or fine or
seizure and sale or destruction of penalty imposed and collected or P 1
the specific forfeited property. M per case, whichever is lower shall
b. In case of real property – The be given to:
forfeiture of real property is 1. any person who voluntarily gives
enforced by a judgment of definite and sworn information
condemnation and sale in a legal not yet in the possession of the
action or proceeding, civil or BIR leading to the discovery of
criminal, as the case may require. fraud upon the Internal Revenue
c. In case of distilled spirits, liquors, Laws and/or any violations thereof
cigars, cigarettes manufactured, 2. an informer where the offender
products of tobacco and apparatus has offered to compromise the
used for their production – Upon violation of law comiited by him

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and his offer has been accepted An assessment contains not only
and collected by the CIR . This a computation of tax liabilities but also
excludes an Internal Revenue a demand for payment within a
Officer/employee or other public prescribed period.
official/employee, or his relative
within the sixth degree
PRESCRIPTIVE PERIOD FOR THE
* This shall not refer to a case already ASSESSMENT OF TAXES
pending or examined by the CIR
General Rule:
B. For the discovery and seizure of Three (3) years after the date
smuggled goods the return is due or filed, whichever is
- a reward of 10% of the FMV of the later (Sec. 203, 1997 NIRC).
smuggled and confiscated goods or
P 1 M per case, whichever is Exceptions:
lower, shall be given to persons 1. Failure to file a return: ten (10)
instrumental in the discovery and years from the date of the
seizure of such smuggled goods. discovery of the omission to file
the return (Sec.222[A]);
* This does not apply to all public 2. False or fraudulent return with
officials whether incumbent or retired, intention to evade the tax: ten
who acquired the information in the (10) years from the date of the
course of performance of their duties discovery of the falsity or fraud
during their incumbency. (Sec.222 [A]);
Note: Nothing in Section 222(A)
shall be construed to authorize the
PRESCRIPTIVE PERIODS FOR examination and investigation or
inquiry into any tax return filed in
THE ASSESSMENT AND accordance with the provisions of
COLLECTION OF TAXES any tax amnesty law or decree.
• Fraud must be alleged and

RATIONALE OF PRESCRIPTIVE PERIODS proved as a fact. It must be the
product of a deliberate intent to
Such periods are designated to evade taxes. It may be
secure the taxpayers against established by the:
unreasonable investigation after the a. Intentional and substantial
lapse of the period prescribed. They are understatement of tax
also beneficial to the government liability by the taxpayer;
because tax officers will be obliged to b. Intentional and substantial
act promptly. overstatement of deductions
of exemptions; and/or
RULES ON PRESCRIPTION c. Recurrence of the above
circumstances
1. When the tax law itself is silent • Falsity constitutes a deviation
on prescription, the tax is
from the truth due to mistake,
imprescriptible;
carelessness or ignorance.
2. When no return is required, tax
is imprescriptible;
There is fraud in the following decided
Note: Remedy of taxpayer is to file a
cases:
return.
1. Fraud must be the product of a
3. Defense of prescription is
deliberate intent to evade taxes
waivable;
(Jalandoni vs. Republic)
2. Simple statement that return filed
WHAT CONSTITUTES ASSESSMENT?
was not fraudulent does not disprove

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existence of fraud (Tayengco vs. required that the notice be received by

Collector) the taxpayer within the prescribed
3. Substantial under-declarations of period. But the sending of the notice
income for six consecutive five years must clearly be proven. (Basilan Estate,
demonstrate fraudulence of return Inc. vs. Commissioner, GR No. L-22492,
(Perez vs. CTA) September 5, 1967)
4. Presence of fictitious expenses, with
no evidence presented, proves AMENDMENT OF RETURN
existence of fraud (Tan Guan vs.
Commissioner) If the amended return is
substantially different from the original
However, the courts did not consider return, the prescriptive period shall be
the tax returns filed as false or counted from the filing of the amended
fraudulent with intent to evade payment return. But the said period shall run
of tax in the following cases: from the filing of the original return if
a. Mere understatement in the tax return the same is sufficiently complete to
will not necessarily imply fraud enable the Commissioner to make a
(Jalandoni vs. Republic) proper assessment. (Commissioner vs.
b. Sale of a real property for a price less Phoenix Assurance Co., GR No. L-19727,
than its fair market value is not May 20, 1965)
necessarily a false return (Commissioner When Substantive:
vs. Ayala Securities) a. substantial under declaration
c. Fraud is a question of fact and the (exceeding 30% of that
circumstances constituting fraud must declared) of taxable sales,
be alleged and proved in the trial court receipts or income,
(Commissioner vs. Ayala Securities) b. or a substantial overstatement
d. Fraud is never imputed and the courts (exceeding 30% of deductions)
never sustain findings of fraud upon (Sec. 248)
circumstances that only create suspicion
(Commissioner vs. Javier) PRESCRIPTIVE PERIOD FOR THE
COLLECTION OF TAXES
e. Mistakes of revenue officers on three
different occasions remove element of General Periods:
fraud (Aznar vs. CTA and Collector) Five (5) years – from assessment
or within period for collection agreed
3. Agreement in writing to the upon in writing before expiration of the
extension of the period to assess 5-year period (Sec. 222, 1997 NIRC).
between the CIR and the Ten (10) years – without
taxpayer before the expiration assessment in case of false or fraudulent
of the 3-year period. NB: The return with intent to evade or failure to
extended period agreed upon file return (Sec. 222, 1997 NIRC).
can further be extended by a
subsequent written agreement WHAT IS THE PRESCRIPTIVE PERIOD
made before the expiration of WHERE THE GOVERNMENT’S ACTION IS
the extended period previously ON A BOND WHICH THE TAXPAYER
agreed upon (Sec. 222[b]). EXECUTES IN ORDER TO SECURE THE
4. Written waiver of renunciation PAYMENT OF HIS TAX OBLIGATION?
of the original three (3) year
limitation, signed by the Ten (10) years under Art.
taxpayer (Sambrano vs. Court of 1144(1) of the Civil Code and not three
Tax Appeals, GR No. L-8652, (3) years under the NIRC. In this case,
March 30, 1957). the Government proceeds by court
action to forfeit a bond. The action is
Note: Notice of the assessment is for the enforcement of a contractual
released, mailed or sent to the taxpayer obligation. (Republic vs. Araneta, GR
also within the 3 year period. It is not No. L-14142, May 30, 1961)

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2. Illustrative case: (Lim vs. Court

GROUNDS FOR SUSPENSION OF THE of Appeals GR Nos. 48134-37,
RUNNING OF THE STATUTE OF Ocober 18 , 1990)
LIMITATIONS a. charge is failure or refusal to
pay deficiency income tax –
a. When the CIR is prohibited from committed only after the finality
making the assessment or of the assessment coupled with
beginning the distraint or levy or the taxpayer’s willful refusal to
a proceeding in court, and for pay the taxes within the allotted
sixty (60) days thereafter; period. (i.e. cannot be
b. When the taxpayer requests for committed upon filing the
a reconsideration which is return)
granted by the CIR; b. charge is filing of false or
c. When the taxpayer cannot be fraudulent return with intent
located in the address given by to evade the assessment – in
him in the return, unless he addition to the fact of discovery,
informs the CIR of any change in there must be a judicial
his address. proceeding for the investigation
d. When the warrant of distraint or and punishment of the tax
levy is duly served, and no offense before the 5 year
property is located; and prescriptive period begins to
e. When the taxpayer is out of the run.
Philippines (Sec. 223, 1997
NIRC).
II. TAX REMEDIES OF THE
A TAX RETURN IS CONSIDERED FILED
FOR PURPOSES OF STARTING THE TAXPAYER
RUNNING OF THE PERIOD OF
LIMITATIONS IF
General Remedies
a. The return is valid – it has complied
substantially with the requirements A. ADMINISTRATIVE
of the law; and Before Payment
a. Protest – filing a petition for
b. The return is appropriate – it is a reconsideration or
return for the particular tax required reinvestigation within 30
by law. days from receipt of
assessment Within 60 days
Note: A defective tax return is the from filing of protest, all
same as if no return was filed at all. relevant supporting
documents should have been
submitted, otherwise, the
PRESCRIPTIVE PERIOD FOR THE assessment shall become
VIOLATION OF ANY PROVISION OF THE final – cannot be appealed
TAX CODE (SEC. 281, 1997 NIRC) (Sec. 228, 1997 NIRC).
1. Should be filed within five (5) Note: Submission of documents

years from the (a) day of the within the 60 day period is
commission of the violation of the optional to the taxpayer.
law, and if the same be not known,
from the (b) discovery thereof and "That the relevant
the institution of the judicial supporting documents
proceedings for its investigation and mentioned in the law refers
punishment. to such documents which the
taxpayer feels would be
necessary to support his

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protest and not what the a. Filing of criminal complaint

Commissioner feels should against erring BIR officials and
be submitted, otherwise, employees.
taxpayer would always be at b. Injunction – when the CTA in its
the mercy of the BIR which opinion, the collection by the BIR
may require production of may jeopardize taxpayer.
such documents which
taxpayer could not produce." Note: With the enactment of the new
(Standard Chartered Bank CTA law (RA No. 9282) amending RA No.
vs. CIR, CTA Case No. 5696, 1125, CTA now has jurisdiction over
August 16, 2001) criminal cases. (See Chapter VI - Court
A protest is a vital of Tax Appeals.)
document which is a formal
declaration of resistance of Substantive Remedies
the taxpayer. It is a 1. Questioning the constitutionality or
repository of all arguments. validity of tax statutes or regulations
It can be used in court in 2. Non-retroactivity of rulings (Sec.246,
case administrative remedies NIRC)
have been exhausted. It is 3. Failure to inform the taxpayer in
also the formal act of the writing of the legal and factual bases
taxpayer questioning the of assessment makes it void (Sec.
official actuation of the CIR. 228, NIRC)
This is equivalent to a 4. Preservation of books of accounts and
pleading. once a year examination (Sec. 235,
b. Entering into a compromise NIRC)
(Sec. 204, 1997 NIRC).
After Payment ASSESSMENT AND PROTEST
Filing of claim for refund  Assessment
or tax credit within 2 years from General rule: Taxes are self assessing
date of payment regardless of and thus, do not require the issuance of
any supervening cause (Sec. 229, an assessment notice in order to
1997 NIRC). establish the tax liability of a taxpayer.
Exceptions:
B. JUDICIAL 1. Tax period of a taxpayer is
Civil Action terminated (Sec. 6(D), NIRC)
a. Appeal to the Court of Tax 2. Deficiency tax liability arising
Appeals – within 30 days from from a tax audit conducted by
receipt of decision on the protest the BIR (Sec. 56(B), NIRC)
or from the lapse of 180 days due 3. Tax lien (Sec. 219, NIRC)
to inaction of the Commissioner 4. Dissolving Corporation (Sec.
(Sec. 228, 1997 NIRC). 52(c), NIRC)
b. Action to contest forfeiture of
chattel, at any time before the  Protest
sale or destruction thereof, to 1. Direct denial of protest
recover the same, and upon giving Admnistrative decision on a disputed
proper bond, enjoin the sale; or assessment - The decision of the
after the sale and within 6 Commissioner or his duly authorized
months, an action to recover the representative shall (a) state the facts,
net proceeds realized at the sale the applicable law, rules and regulation
(Sec. 231, 1997 NIRC); and or jurisprudence on which such decision
c. Action for damages against a is based otherwise, the decision shall be
revenue officer by reason of any void, in which case the same shall not be
act done in the performance of considered a decision a disputed
official duty (Sec. 227, 1997 assessment and (b) that the same is his
NIRC). final decision (Sec. 3.1.5, Rev. Regs. No.
Criminal Action 12-99)

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cannot be considered a final decision

2. Indirect denial of protest on a disputed settlement.
a. Commissioner did not rule on the (Commissioner vs. Union Shipping
taxpayer’s motion for Corporation, GR No. 66160, May 21,
reconsideration of the 1990)
assessment – it was only when
respondent received the
summons on
the civil action for the collection FILING OF CLAIM FOR

of deficiency income tax that TAX REFUND OR TAX CREDIT
the period to appeal
commenced to run GROUNDS FOR FILING A CLAIM FOR TAX
(Commissioner vs. Union REFUND OR TAX CREDIT
Shipping Corp.)
b. Referral by the Commissioner of 1. Tax is collected erroneously or
request for reinvestigation to illegally.
the Solicitor General (Republic 2. Penalty is collected without
vs Lim Tian Teng Sons) authority.
c. Reiterating the demand for 3. Sum collected is excessive.
immediate payment of the
deficiency tax due to taxpayer’s TAX REFUND VS. TAX CREDIT
continued refusal to execute
waiver (Commissioner vs. Ayala TAX REFUND TAX CREDIT
Securities Corp.)
d. Preliminary collection letter may The taxpayer asks for The taxpayer asks
serve as assessment notice restitution of the that the money so
(United International Pictures money paid as tax paid be applied to his
existing tax liability
vs. Commissioner)
Two-year period to Two-year period
ACTS OF BIR COMMISSIONER file claim with the starts from the date
CONSIDERED AS DENIAL OF PROTEST CIR starts after the such credit was
WHICH SERVE AS A BASIS FOR APPEAL payment of the tax allowed (in case
TO THE COURT OF TAX APPEALS or penalty credit is wrongly
made).
1. filing by the BIR of a civil suit for
collection of the deficiency tax REQUISITES OF TAX REFUND OR TAX
(Commissioner vs. Union Shipping CREDIT
Corporation, GR No. 66160, May 21,
1990) 1. Claim must be in writing;
2. indication to the taxpayer by the 2. It must be filed with the
Commissioner “in clear and Commissioner within two (2) years
unequivocal language” of his final after the payment of the tax or
denial. (Commissioner vs. Union penalty.
Shipping Corporation, GR No. 66160, Note: No suit or proceeding shall be
May 21, 1990) begun after the expiration of the
3. BIR demand letter reiterating his said two (2) years regardless of any
previous demand to pay, sent to the supervening cause that may arise
taxpayer after his protest of the after payment.
assessment. (Surigao Electric Co., 3. Show proof of payment.
Inc. vs. CTA, GR No. L-25289, June
28, 1974; Commissioner vs. Ayala COMMENCEMENT OF THE TWO (2) YEAR
Securities Corporation, GR No. L- PERIOD (JURISPRUDENCE)
29485, March 31, 1976)
4. The actual issuance of a warrant of 1. Tax sought to be refunded is
distraint and levy in certain cases illegally or erroneously collected

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1
- from the date the tax was paid. TMX Sales, GR No. 83736, January
(Commissioner vs. Victorias Milling, 15, 1992)
GR No. L-24108, January 31, 1968) 7. Date when the final adjustment
2. Tax is paid only in installments or return was actually filed (ex. Apr.
only in part 2) vs. Last day when the
- from the date the last or final adjustment return could still be
installment or payment because for filed (ex. Apr. 15)
tax purposes, there is no payment - from the date the final adjustment
until the whole or entire tax liability return was actually filed.
is fully paid. (Collector vs. Prieto, (Commissioner vs. Court of Appeals,
GR No. L-11976, August 29, 1961) GR No 117254, January 21, 1999)
3. Taxpayer merely made a deposit 8. Tax was not erroneously or illegally
- counted from the conversion of paid but the taxpayer became
the deposit to payment (Union entitled to refund because of
Garment vs. Collector, CTA Case No. supervening circumstances
416, November 17, 1958) - from the date the taxpayer
- Merely making a deposit is not becomes entitled to refund and not
equivalent to payment until the from the date of payment.
amount is actually applied to the (Commissioner vs. Don Pedro
specific purpose for which it was Central Azucarera, GR No. L-28467,
deposited. Feb. 28, 1973)
4. Tax has been withheld from source PAYMENT UNDER PROTEST IS NOT
(through the withholding tax NECESSARY UNDER NIRC
system)
- counted from the date it falls due A suit or proceeding for tax refund
at the end of the taxable year may be maintained “whether or not such
- A taxpayer who contributes to the tax, penalty or sum has been paid under
withholding tax system does not protest or duress” (Sec. 229, NIRC).
really deposit an amount to the
government, but in truth, performs Note: Similarly, payment under protest
and extinguishes his tax obligation is not necessary in refund for local
for the year concerned. (Gibbs vs. taxes. (See Sec. 196, LGC).
Commissioner, GR No. L-17406,
November 29, 1965) However, payment under protest is
5. End of taxable year vs. date of the necessary in claim for refund for real
filing of the final adjusted return property taxes (Sec. 252, LGC) and for
- from the date when the final customs duties (Sec. 2308, TCC).
adjusted return was filed.
- the rationale in computing this SUSPENSION OF THE TWO-YEAR
period is the fact that it is only then PRESCRIPTIVE PERIOD
the corporation can ascertain
whether it made profits or incurred 1. There is a pending litigation
losses in its business operations. between the Government and the
(ACCRA Investments vs. Court of taxpayer; and
Appeals, GR No. 96322, December 2. CIR in that litigated case agreed to
20, 1991) abide by the decision of the SC as to
6. Date when quarterly income tax the collection of taxes relative
was paid vs. date when final thereto (Panay Electric Co. vs.
adjusted return was filed Collector, GR No. L-10574, May 28,
- from the date when final adjusted 1958).
return was filed
- The filing of the quarterly income INTEREST ON TAX REFUNDS
tax return (Sec. 68) and payment of
quarterly income tax should only be General Rule:
considered mere installments of the Government cannot be required
annual tax due. (Commissioner vs. to pay interest on taxes refunded to the

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taxpayer in the absence of a statutory If taxpayer is not satisfied with the

provision clearly or expressly directing assessment file a protest within 30 days
or authorizing such payment. from receipt thereof
(Commissioner vs. Sweeney, GR No. L-
12178, August 29, 1959)

Submit supporting documents within
60 days from date of the filing of the
protest
Exceptions:
1. When the CIR acted with patent 
arbitrariness. Arbitrariness If protest is denied, elevate the matter
presupposes inexcusable or obstinate to the Commissioner of Internal Revenue
disregard of legal provisions. (CIR) within 30 days from receipt of the
(Commissioner vs. Victorias Milling, decision of the CIR’s duly authorized
GR No. L-19667, Nov. 29, 1966) representative officer
2. Under Sec. 79(C)(2) with respect to 
income taxes withheld on the wages
Appeal to the Division of the Court of
of the employees.
Tax Appeals (CTA) within 30 days from
receipt of final decision of CIR or his
TAX CREDIT CERTIFICATE
duly authorized representative (the
taxpayer has the option to appeal
1. May be applied against any internal
straight to the CTA upon receipt of the
revenue tax except withholding
decision of the CIR’s duly authorized
taxes,
representative)
2. Original copy is surrendered to the
revenue office, 
3. No tax refund will be given resulting If the CIR or his duly authorized
from availment of incentives granted representative fails to act on the
by law where no actual payment was protest within 180 days from date of
made (Sec. 204C, 1997 NIRC). submission by taxpayer, the latter may
appeal within 30 days from lapse of the
FORFEITURE OF CASH REFUND/TAX 180-day period with the CTA Division
CREDIT 
The Party adversely affected by the CTA
1. Forfeiture of refund in favor of the Division’s decision may file one motion
government when a refund check or for reconsideration/new trial within 15
warrant remains unclaimed or days from receipt of decision. If the MR
uncashed within five (5) years from is denied file a petition for review with
date of mailing or delivery. the CTA en banc
2. Forfeiture of Tax Credit – a tax
credit certificate which remains 
unutilized after five (5) years from Appeal to the Supreme Court within 15
date of issue, shall be invalid, unless days from receipt of the CTA en banc
revalidated (Sec. 230, 1997 NIRC). decision under Rule 45 of the Rules of
Court
REGLEMENTARY PERIODS Pre-Assessment Notice, When Not

Required (Sec. 228, NIRC)
IN INCOME TAX IMPOSED
BY LAW UPON THE TAXPAYER 1. When the finding for any
(PURSUANT TO REV. REG. NO. 12-99, deficiency tax is the result of
SEC. 228 OF THE 1997 NIRC, AND RA mathematical error in the
NO. 1125 AS AMENDED BY RA NO. computation of the tax as
9282) appearing on the face of the
return; or
BIR makes a tax assessment 2. When a discrepancy has been
 determined between the tax

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withheld and the amount

actually remitted by the DEFINITION: increments to the basic tax
withholding agent; or incident due to the taxpayer’s non-
3. When a taxpayer who opted to compliance with certain legal
claim a refund or tax credit of requirements.
excess creditable withholding 1. CIVIL PENALTY / SURCHARGE
tax for a taxable period was 1. 25% surcharge
determined to have carried over a. Failure to file any return and
and automatically applied the pay the tax due thereon as
same amount claimed against required under the
the estimated tax liabilities for provisions of this Code or
the taxable quarter or quarters rules and regulations on the
of the succeeding taxable year; date prescribed; or
or b. Unless otherwise authorized
4. When the excise tax due on by the Commissioner, filing a
excisable articles has not been return with an internal
paid; revenue officer other than
5. When an article locally those with whom the return
purchased or imported by an is required to be filed; or
exempt person, such as, but not c. Failure to pay the deficiency
limited to, vehicles, capital tax within the time
equipment, machineries and prescribed for its payment in
spare parts, has been sold, the notice of assessment; or
traded or transferred to non- d. Failure to pay the full or
exempt persons. part of the amount of tax
shown on any return
Notes: required to be filed under
• As a general rule, payment the provisions of this Code
under protest is not required or rules and regulations, or
under the NIRC, except when the full amount of tax due
partial payment of for which no return is
uncontroverted taxes is required to be filed, on or
required under RR 12-99. before the date prescribed
The Commissioner may, even for its payment. (Sec. 248)
without a written claim 2. 50% surcharge
therefor, refund or credit a. in case of willful neglect to
any tax, where on the face file the return within the
of the return upon which period prescribed by the
payment was made, such Code, or
payment appears clearly to • will not apply in case a
have been erroneously paid. taxpayer, without notice
• In case of the CIR’s final from the Commissioner,
denial of the claim for or his duly authorized
refund, the 30-day period to representative,
appeal with the CTA must be voluntarily files the said
within the 2-year peremptory return (only 25% shall be
period for instituting judicial imposed)
action.
• 50% surcharge shall be
imposed in case the
 See Annex N – Assessment taxpayer files the return
Process and Appeal only after prior notice in
writing from the
Commissioner or his duly
ADDITIONS TO THE TAX authorized representa-
(SECS. 247-252 NIRC)

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1
tive (Sec. 4.2, Rev. Reg.

12-99)
b. in case a false or fraudulent

return is willfully made Congress cannot enact laws
Prima Facie evidence depriving LGU from exercising such
• substantial underdeclaration power to tax but it may set guidelines
(exceeding 30% of that and limitations for the exercise.
declared) of taxable sales, Such taxes, fees, and charges
receipts or income, shall accrue exclusively to the local
government units.
• or a substantial
overstatement (exceeding
Nature of the Taxing Power
30% of actual deductions) of
a. Not inherent;
deductions (Sec. 248)
b. Exercised only if delegated to
them by law or Constitution;
2. INTEREST
c. Not absolute; subject to
- 20% per annum or such higher rate
limitations provided for by law.
as may be prescribed by the rules
and regulations
Under the present constitutional
rule, “where there is neither a grant nor
a. Deficiency interest (Sec. 249B) a prohibition by statute, the tax power
b. Delinquency interest (Sec. 249C) must be deemed to exist although
c. Interest on Extended Payment Congress may provide statutory
(Sec. 249D) limitations and guidelines. The basic
rationale for the current rule is to
3. OTHER CIVIL PENALTIES OR safeguard the viability and self-
ADMINISTRATIVE FINES sufficiency of local government units by
directly granting them general and broad
a. Failure to file certain tax powers.” (Manila Electric Co. vs.
information returns (Sec. 250) Province of Laguna, G.R. No. 131359)
b. Failure of a withholding agent to
collect and remit tax (Sec. 251) Aspects of Local Taxing Power
c. Failure of a withholding agent of a. local taxation
refund excess withholding tax b. real property taxation
(Sec. 252)
Fundamental Principles governing
Local Taxation (Sec. 130, lgc)
a. Shall be uniform in each local
III. LOCAL TAXATION sub-unit
b. Shall be equitable and based as
POWERS AND LIMITATIONS much as possible on the
taxpayer’s ability to pay
NATURE AND SOURCE OF LOCAL c. Levied for public purposes
TAXING POWER (SEE. SEC 5, ART. X, d. Shall not be unjust, excessive,
1987 CONSTITUTION AND SEC. 129, oppressive, or confiscatory
LGC) e. Shall not be contrary to law,
public policy, national
The Local Government Unit has the economic policy, or in restraint
power: of trade
a. to create its own sources of f. Collection of local taxes and
revenue and other impositions shall not be
b. to levy taxes, fees and charges. let to any person

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1
g. The revenues collected under Unless otherwise provided in this

the Code shall inure solely to Code, tax exemptions or incentives
the benefit of, and subject to granted to, or presently enjoyed by all
disposition by, the LGU levying persons, whether natural or juridical,
the tax or other imposition including government-owned or
unless otherwise specifically controlled corporations are hereby
provided therein withdrawn upon the effectively of the
h. Each LGU shall, as far as LGC
practicable, evolve a except the following:
progressive system of taxation. 8. local water districts,
9. cooperatives duly registered under
Local Taxing Authority (Sec. 132, lgc) R.A. No. 6938, non-stock and non-
Shall be exercised by the Sanggunian profit hospitals and
of the LGU concerned through an 10. educational institutions.
appropriate ordinance.
The power to grant tax exemptions,
Power to prescribe Penalties for Tax tax incentives and tax reliefs shall not
Violations and Limitations thereon apply to regulatory fees which are
(Sec. 516, lgc) levied under the police power of the
1. The Sanggunian is authorized to LGU.
prescribe fines or other penalties Tax exemptions shall be conferred
for violations of tax ordinances. through the issuance of a non-
a. in no case shall fines be less transferable tax exemption certificate.
than P1,000 nor more than
P5,000 Guidelines for the Granting of Tax
b. nor shall the imprisonment be Exemptions, Tax Incentives and Tax
less than one (1) month nor Reliefs (Art. 282[b], Rules and
more than six (6) month. Regulations Implementing the Lgc)
2. Such fine or other penalty shall be
imposed at the discretion of the 1. On the grant of tax exemptions or
court. tax reliefs:
3. The Sangguniang Barangay may a. the same may be granted in
prescribe a fine of not less than cases of natural calamities, civil
P100 nor more than P1,000. disturbance, general failure of
crops, or adverse economic
Power to Adjust Local Tax Rate (Sec. conditions such as substantial
191, lgc) decrease in prices of agricultural
Adjustment of the tax rates as or agri-based products.
prescribed herein should not be oftener b. The grant shall be through an
than once every five (5) years, and in no ordinance.
case shall such adjustment exceed ten c. Any exemption or relief granted
percent (10%) of the rates fixed under to a type or kind of business shall
the LGC. apply to all business similarly
situated.
Power to Grant Local Tax Exemptions d. The same shall take effect only
(Sec. 192, lgc) during the next calendar year for
Local government units may, a period not exceeding 12
through ordinances duly approved, months as may be provided in
grant tax exemptions, incentives or the ordinance.
reliefs under such terms and conditions, e. In the case of shared revenues,
as they may deem necessary. the exemption or relief shall only
extend to the LGU granting such
Tax Exemptions Existing Before the exemption or relief.
Effectivity of the LGC has been 2. On the grant of tax incentives:
Abolished (Sec. 193, lgc) a. The same shall be
granted only to new investments

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in the locality and the ordinance 2. The ordinance levying such taxes,
shall prescribe the terms and fees or charges shall not be enacted
conditions therefore. without any prior public hearing
b. The grant shall be for a conducted for the purpose.
definite period of not exceeding
1 calendar year.
c. The grant shall be by
ordinance passed prior to the 1st LIMITATIONS OF THE RESIDUAL POWER
day of January of any year. 1. Constitutional limitations on
d. Any grant to a type or taxing power
kind of business shall apply to all 2. Common limitations prescribed
businesses similarly situated. in Sec. 133 of the LGC
3. Fundamental principles
LEVYING OF LOCAL TAXES (LOCAL TAX governing the exercise of the
ORDINANCE) taxing power of the LGUs
Requisites: prescribed under Sec. 130 of
1. The procedure applicable to local the LGC
government ordinances in general 4. The ordinance levying such
should be observed (Sec. 187, LGC) residual taxes shall not be
2. Procedural details (Secs. 54, 55, and enacted without any prior
59, LGC): public hearing conducted for
a. necessity of a quorum the purpose and
b. submission for approval by the 5. The principle of preemption.
local chief executive
c. he matter of veto and overriding Principle of Preemption or
the same Exclusionary doctrine
d. the publication and affectivity Where the National Government
3. Public hearings are required before elects to tax a particular area, it
any local tax ordinance is enacted impliedly withholds from the local
(Sec.187, LGC) government the delegated power to tax
the same field. This doctrine principally
4. Within 10 days after their approval, rests on the intention of the Congress.
publication in full for 3 consecutive
days in a newspaper of general Excluded impositions (pursuant to the
circulation. In absence of such doctrine of preemption):
newspaper in the province, city or a. Taxes which are levied under the
municipality, then the ordinances NIRC, unless otherwise provided
may be posted in at least 2 by LGC of 1991;
conspicuous and publicly accessible b. Taxes, fees, etc. which are
places (Sec. 189, LGC) imposed under the Tariffs and
Customs Code;
Residual Taxing Powers of the Local c. Taxes, fees, etc., the imposition
government units (Sec. 186, lgc) of which contravenes existing
To levy taxes, fees or charges on any governmental policies or which
base or subject NOT: violates the fundamental
1. Specifically enumerated in LGC principles of taxation;
2. Taxed under the provisions of d. Taxes, fees and other charges
the NIRC, as amended, and imposed under special law.
3. Other applicable laws
COMMON LIMITATIONS ON LOCAL
Conditions: TAXING POWER (SEC. 133, LGC)
1. That the taxes, fees, or charges shall Local government units cannot levy:
not be unjust, excessive, oppressive,
confiscatory or contrary to declared 1. Income tax, except on banks and
national policy other financial institutions;
2. Documentary stamp tax;

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3. Estate tax, inheritance, gifts, 13. Taxes, fees or other charges on

legacies and other acquisitions Philippine products actually
mortis causa except as exported, except as otherwise
otherwise provided provided in the Code;
4. Customs duties, registration fees 14. Taxes, fees or charges on
of vessels and wharfage on Countryside and barangay
wharves, tonnage dues and all business enterprises and
other kinds of customs fees, cooperatives duly registered
charges and dues except under R.A. 6810 and R.A. 6938,
wharfage on wharves (Cooperatives Code of the
constructed and maintained by Philippines) ; and
the local government unit 15. Taxes, fees or charges of any
concerned; kind on the National
5. Taxes, fees, charges and other Government, its agencies and
impositions upon goods carried instrumentalities, and local
into or out of, or passing government units.
through, the territorial
jurisdictions of local government CLASSIFICATION OF COMMON
units in the guise of charges for LIMITATIONS
wharfage, tolls for bridges or 1. Taxes which are levied under the
otherwise. NIRC unless otherwise provided by
6. Taxes, fees or charges on the LGC
agricultural and aquatic products • Numbers 1, 2, 3, 8, 9, 10
when sold by marginal farmers 2. Taxes, fees, etc. which are imposed
or fishermen; under the Tariffs and Customs Code
7. Taxes on business enterprises • Number 4
certified by the Board of 3. Taxes, fees and charges where the
Investments as pioneer or imposition of which contravenes
non-pioneer for a period of 6 existing governmental policies or
and 4 years, respectively, from which are violative of the
the date of registration; fundamental principles of taxation
8. Excise taxes on articles • Numbers 5, 6, 7, 11, 13, 14, 15
enumerated under the NIRC, as 4. Taxes, fees, and charges imposed
amended, and taxes, fees or under special laws.
charges on petroleum products;
• Number 12
9. Percentage or value-added tax
(VAT) on sales, barters or
TAXES AND OTHER IMPOSITIONS THAT
exchanges or similar transactions
THE LOCAL GOVERNMENT MAY LEVY
on goods or services except as
otherwise provided herein;
(A) PROVINCES
10. Taxes on the gross receipts of (SECS. 134-141, LGC)
transportation contractors and 1. Tax on Transfer of Real Property
persons engaged in the 2. Tax on Business of Printing and
transportation of passengers or Publication
freight by hire and common 3. Franchise Tax
carriers by air, land or water, 4. Tax on Sand, Gravel and other
except as provided in the Code; Quarry Resources extracted from
11. Taxes on premiums paid by way Public Land
of Reinsurance or retrocession; 5. Professional Tax
12. Taxes, fees or charges for the 6. Amusement Tax
registration of motor vehicles 7. Annual Fixed Tax for every
and for the issuance of all kinds Delivery Truck or Van of
of licenses or permits for the Manufacturers or Producers,
driving thereof, except tricycle;

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Wholesalers of, Dealers, or - Not to exceed by 50% the

Retailers in, certain products maximum rates prescribed in the
preceding Section.
 See Annex J for the rates and
details.
(B) MUNICIPALITIES
(SEC. 143, LGC) Payment of Business Taxes
a. It shall be payable for every
1. Municipal Taxes- taxes on the separate or distinct
businesses of the following: establishment or place where
a. On manufacturers, assemblers, business subject to the tax is
repackers, processors, brewers, conducted and one line of
distillers, rectifiers, and business does not become
compounders of liquors, distilled exempt by being conducted with
spirits, and wines or some other business for which
manufacturers of any article of such tax has been paid.
commerce of whatever kind or b. The tax on a business must be
b. On wholesalers, distributors, or paid by the person conducting
dealers in any article of the same.
commerce of whatever kind or c. In cases where a person
c. On exporters, and on conducts or operates 2 or more
manufacturers, millers, of the businesses mentioned in
producers, wholesalers, Section 143 of LGC
distributors, dealers or retailers - which are subject to the
of essential commodities same rate of tax, the tax shall be
d. On retailers computed on the combined total
e. On contractors and other gross sales or receipts of the said 2
independent or more related businesses.
f. On banks and other financial - which are subject to
g. On peddlers engaged in the sale different rates of tax, the gross
of any merchandise or article of sales or receipts of each business
commerce shall be separately reported for the
h. On any business, not otherwise purpose of computing the tax due
specified in the preceding from each business.
paragraphs, which the
sanggunian concerned may deem  See Annex K for the rates and
proper to tax. details.
2. Municipal non-revenue fees and (C) CITIES

charges (SEC. 151, LGC)
The municipality may impose
and collect such reasonable fees and • The city may levy the taxes, fees,
charges on business and occupation and charges which the province or
except professional taxes reserved for municipality may impose.
provinces. (Sec. 147. LGC) • The tax rates that the city may levy
may exceed the maximum rates
Rates of Tax within the Metropolitan allowed for the province or
Manila Area (sec. 144, lgc) municipality by not more than 50%

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except the rates of professional and tax is not dependent on the domicile of
amusement taxes. the taxpayer, but on the place in which
the act is performed or the occupation is
(D) BARANGAYS engaged in; not upon the location of the
(SEC. 152, LGC) office, but the place where the sale is
perfected. (Allied Thread Co., Inc. v.
Barangays may levy the following taxes, City Mayor of Manila, L-40296)
fees, and charges which shall accrue
exclusively to them: With respect to sale, it is the
place of the consummation of the sale,
associated with the delivery of the
a. Taxes – On stores or retailers things which are the subject matter of
with fixed business the contract that determines the situs of
establishments with the gross the contract for purposes of taxation,
sales or receipts for the and not merely the place of the
preceding calendar year of perfection of the contract. (Shell Co.,
P50,000 or less (for barangays in Inc. v. Municipality of Sipocot,
the cities) and P30,000 or less Camarines Sur 105 Phil 1263)
(for barangays in municipalities)
b. Rate = not exceeding 1% of such B. Situs According to Sec. 150, LGC
gross sales or receipts.
c. Service Fees or Charges – For Branch or sales office – a fixed place in
services rendered in connection the locality which conducts the
with the regulation or the use of operation of the business as an extension
barangay-owned properties or of the principal office
service facilities such as palay,
copra or tobacco dryers Principal office- the head or the main
d. Barangay Clearance – No city or office of the business; the city or the
municipality may issue any municipality specifically mentioned in
license or permit fee for any the Articles of Incorporation or official
business or activity unless a registration papers as being the official
clearance is first obtained from address of said principal office shall be
the barangay where such considered the situs thereof.
business or activity is located or
conducted. 1. Place of sale (with branch or sales
outlet therein):
e. Other Fees and Charges – The
barangay may levy reasonable • Municipality or city where the
fees and charges: branch or outlet is located.
1. On Commercial breeding of 2. Place of sale (no branch or sales
fighting cocks, cockfights outlet):
and cockpits; • Municipality or city of principal
2. On places of Recreation office (not in the place of sale)
which charge admission fees; 3. If manufacturer, assembler,
and contractor, producer, or exporter
3. On Billboards, signboards, (MACPE) with factory, project office,
neon signs and outdoor plant or plantation (FPPP)
advertisements. 4. 30% of recorded sales in the principal
office: city or municipality where
SITUS OF LOCAL TAXATION the principal office is located
5. 70% of recorded sales in the
A. Situs According to the Cases principal office: city or municipality
With respect to excise tax, the where the FPPP is located
tax is upon the performance of an act, • pro rata if FPPP are located in
enjoyment of a privilege or the engaging different municipalities or cities
in an occupation. The power to levy such in proportion to their respective
volumes of production.

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6. If plantation is located in some other e. who is engaged in business or

place than where the factory is occupation; or
located, the foregoing 70% shall be f. who owns real property with
subdivided as follows: an aggregate assessed value
• 60% to the city or municipality of P1,000 or more; or
where the factory is located g. who is required by law to file
• 40% to the city or municipality an income tax return
where the plantation is located.
Tax Rate = P5.00 and an annual
COMMON REVENUE-RAISING POWERS additional tax of P1.00 for every
OF LGUs (SEC. 153 TO 155) P1,000 of income regardless of
1. Service fees and charges for services whether from business, exercise of
rendered profession or from property which in
2. Public Utility Charges for the no case shall exceed P5,000.
operation of public utilities owned, In case of husband and wife,
operated and maintained by LGUs the additional tax herein imposed
within their jurisdiction. shall be based upon the total
3. Toll fees or charges for the use of property owned by them and the
any public road, pier or wharf, total gross receipts or earnings
waterway, bridge, ferry or derived by them.
telecommunication system funded
and constructed by the local B. Juridical Persons (Sec. 158)
government unit concerned Every corporation no matter how
Exceptions: created or organized, whether
a. Officers and enlisted men of the domestic or resident foreign,
AFP and PNP; engaged in or doing business in the
b. Post office personnel delivering Philippines shall pay an annual
mail; and community tax.
c. Physically handicapped and
disabled citizens who are Tax Rate = P500 and an annual
sixty-five (65) years or older. additional tax which in no case shall
(Sec. 152, LGC) exceed P10,000 in accordance with the
following schedule:
When public safety and welfare so 1. For every P5,000 worth of real
requires, the sanggunian concerned may property owned by it during the
discontinue the collection of the tolls, preceding year based on the
and thereafter the said facility shall be valuation used for the payment
free and open for public use. of the real property tax - P2.00;
and
COMMUNITY TAX 2. For every P5,000 of gross
Cities or municipalities may levy a receipts or earnings derived by
community tax. it from its business in the
Philippines during the preceding
A. Individuals Liable (Sec. 157) year - P2.00.
a. every inhabitant of the
Philippines; The dividends received by a
b. eighteen (18) years of age or corporation shall, for the purpose of the
over; additional tax, be considered as part of
c. under any of the following the gross receipts or earnings of said
instances: corporation.
d. who has been regularly
employed on a wage or salary THE FOLLOWING ARE EXEMPT FROM
basis for at least thirty (30) THE COMMUNITY TAX (SEC. 159)
consecutive working days 1. Diplomatic and consular
during any calendar year; or representatives; and

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2. Transient visitors when their stay in 1. receives any license, certificate

the Philippines does not exceed or permit from any public
three (3) months. authority;
2. pays any tax or fee;
PLACE OF PAYMENT: place of residence 3. receives money from public
of the individual, or in the place where funds; or
the principal office of the juridical 4. transacts other official business.
entity is located. The city of municipal treasurer
deputizes the barangay treasurer to
TIME OF PAYMENT: accrues on the 1st collect the community tax in their
day of January of each year which shall respective jurisdictions. (Sec. 164, LCG)
be paid not later than the last day of
February of each year. The proceeds of the community tax
actually and directly collected by the
PENALTIES FOR DELINQUENCY: an city or municipal treasurer shall accrue
interest of 24% per annum from the due entirely to the general fund of the city or
date until it is paid shall be added to the municipality concerned.
amount due.
Proceeds of the community tax
collected through the barangay
A community tax certificate may
treasurers shall be apportioned as
also be issued to any person or
follows:
corporation not subject to the
community tax upon payment of P1.00 • 50% accrues to the general fund
(Sec. 162, LGC). of the city or municipality
concerned; and
Presentation of Community Tax • 50% accrues to the barangay
Certificate on Certain Occasions – (Sec. where the tax is collected.
163)
A. Individual Collection Of Local Taxes
1. When an individual subject to
the community tax Tax Period and Manner of Payment –
acknowledges any document (Sec. 165, LGC)
before a notary public; Unless otherwise provided, the
2. takes the oath of office upon tax period shall be the calendar
election or appointment to year.
any position in the Such taxes, fees, and charges
government service; may be paid in quarterly
3. receives any license, installments.
certificate or permit from any
public authority; pays any tax Accrual of Tax – (Sec. 166, LGC)
or fee; Unless otherwise provided, shall
4. receives any money from any accrue on the first day of January of
public fund; each year.
5. transacts other official However, new taxes, fees or
business; or charges, or changes in the rates
6. receives any salary or wage thereof, shall accrue on the first
from any person or day of the quarter next following
corporation. the effectivity of the ordinance
The presentation of the community tax imposing such new levies or rates.
certificate shall not be required in
connection with the registration of a Time of Payment – (Sec. 167, LGC)
voter. Unless otherwise provided shall
be paid within the first twenty (20)
B. Corporation days of January or of each
subsequent quarter as the case may
be.

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May, for a justifiable reason or (1) Local Government’s Lien – Local

cause, be extended without taxes, fees, charges and other
surcharges or penalties, but only for revenues constitute a lien, superior
a period not exceeding six (6) to all liens, charges or
months. encumbrances in favor of any
person, enforceable by any
Surcharges and Penalties on Unpaid appropriate administrative or
Taxes, Fees or Charges – (Sec. 168, judicial action.
LGC)
Surcharge not exceeding 25% of (2) Civil Remedies
the amount of taxes, fees or charges
including surcharges, until such (a) by administrative action through
amount is fully paid. distraint of personal property
But in no case shall the total and by levy upon real property
interest on the unpaid amount or
portion thereof exceed thirty-six (b) by judicial action
(36) months.
Interests on Other Unpaid Revenues – Either of these remedies or all may

(Sec. 169, LGC) be pursued concurrently or
An interest thereon at the rate simultaneously at the discretion of the
not exceeding 2% per month from the LGU concerned.
date it is due until it is paid, but in no
case shall the total interest on the JURISDICTION OF COURTS OVER LOCAL
unpaid amount or portion thereof TAXATION CASES
exceed thirty-six (36) months.
a. With the amendment brought by
Collection of Local Revenues by the RA No. 9282, the Court of Tax
Treasurer – (Sec. 170 LGC) Appeals now has appellate
All local taxes, fees and charges jurisdiction over local taxation
shall be collected by the provincial, city, cases decided by the Regional
municipal or barangay treasurer, or their Trial Court in the exercise of its
duly authorized deputies. appellate or original jurisdiction.
The provincial, city or municipal b. Regular judicial courts are not
treasurer may designate the barangay prohibited from enjoining the
treasurer or his deputy to collect local collection of local taxes, subject
taxes, fees or charges. to Rule 58 (Preliminary
In case a bond is required for the Injunction) of the Rules of Court.
purpose, the provincial, city or
municipal government shall pay the Note: Unlike the NIRC, the Local Tax
premiums thereon in addition to the Code does not contain any specific
premiums of the bond that may be provision prohibiting courts from
required under the Code. enjoining the collection of local taxes.
Such statutory lapse or intent may have
allowed preliminary injunction where
LOCAL TAX REMEDIES local taxes are involved. But it cannot
negate the procedural rules and
UNDER THE LGC requirements under Rule 58 of the Rules
of Courts. (Valley Trading Co. vs. CFI of
Isabela, GR No. 49529, March 31, 1989)
1. TAX REMEDIES OF THE
LOCAL GOVERNMENT UNITS (LGUs)
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT AND
Civil Remedies Of The Local COLLECTION
Government Units (LGU) To Effect OF LOCAL TAXES
Collection Of Taxes PRESCRIPTIVE PERIODS OF ASSESSMENT

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1. Local taxes, fees, or charges – five b. Payment & subsequent refund or

(5) years from the date they became tax credit – within 2 years from
due. (Sec. 194, LGC). payment of tax to local treasurer
2. When there is fraud or intent to (Sec. 196 LGC). It is to be noted
evade the payment of taxes, fees that, unlike in internal revenue
or charges – ten (10) years from taxes, the supervening cause applies
discovery of the fraud or intent to in local taxation because the period
evade the payment (Sec. 194, LGC). for the filing of claims for refund or
credit of local taxes is counted not
PRESCRIPTIVE PERIOD OF COLLECTION necessarily from the date of
Local taxes, fees, or charges payment but from the date the
may be collected within five (5) years taxpayer is entitled to a refund or
from the date of assessment by credit.
administrative or judicial action. No
such action shall be instituted after the c. Right of redemption – 1 year from
expiration of such period (Sec. 194, the date of sale or from the date of
LGC). forfeiture (Sec. 179, LGC).
GROUNDS FOR THE SUSPENSION OF
THE RUNNING OF THE PRESCRIPTIVE
PERIODS B. JUDICIAL
a. The treasurer is legally 1. Court action
prevented from the assessment • within 30 days after receipt of
or collection of the tax; decision or lapse of 60 days of
b. The taxpayer requests for a Secretary of Justice’s inaction
reinvestigation and executes a (Sec. 187 LGC)
waiver in writing before the • within 30 days from receipt
expiration of the period within when protest of assessment is
which to assess or collect; and denied (Sec. 195 LGC)
c. The taxpayer is out of the • if no action is taken by the
country or otherwise cannot be treasurer in refund cases and the
located (Sec. 194, LGC). two year period is about to lapse
(Sec. 195 LGC)
2. TAX REMEDIES OF • if remedies available does not
THE TAXPAYER provide plain, speedy and
adequate remedy.
Remedies Of The Taxpayer In Local 2. Action for declaratory relief
Taxation 3. Injunction – if irreparable damage
would be caused to the taxpayer and
A. ADMINISTRATIVE no adequate remedy is available.
Before assessment
a. Appeal – any question on
constitutionality or legality of tax
ordinance within 30 days from
IV. REAL PROPERTY
effectivity thereof to Secretary of TAXATION
Justice (Sec. 187 LGC)
b. Declaratory relief whenever
applicable. Definitions:
REAL PROPERTY TAXATION – A direct
After assessment tax on ownership of lands and
a. Protest – within 60 days from receipt buildings or other improvements
of assessment (Sec. 195 LGC). thereon payable regardless of
Payment under protest is not whether the property is used or
necessary. not, although the value may vary
in accordance with such factor.

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Under the LGC, it covers 2. Real property shall be classified for

the administration, appraisal, assessment purposes on the basis of
assessment, levy and collection actual Use.
of Real Property Tax, i.e. tax on 3. Real property shall be assessed on
land and building and other the basis of Uniform classification
structures and improvements on within each LGU
it, including machineries. 4. The appraisal, assessment, levy and
collection of RP Tax shall not be let
REAL PROPERTY – subject to the to any Private person
definition given by Art. 415 of 5. The appraisal and assessment of real
the Civil Code. property shall be Equitable.
IMPROVEMENT – valuable addition made EXTENT OF THE POWER TO LEVY

to a property or amelioration in • Basic real property tax;
its condition amounting to more • 1% additional real estate tax to
than a mere replacement of finance the Special Education
parts involving capital Fund; (Sec. 236)
expenditures and labor.
• 5% additional ad valorem tax on
Idle lands; (Sec. 236, LGC) and
• Special levy or special
assessments (may be imposed
NATURE AND CLASSES
even by municipalities outside
Metro Manila) on lands comprised
CHARACTERISTICS OF REAL PROPERTY within its territorial jurisdiction
TAX specially benefited by public
1. Direct tax on the Ownership of works, projects or improvements
real property funded by the local government
2. Ad valorem tax. The value is unit concerned.
based on the tax base. Provided:
3. Proportionate – the tax is  Special levy shall not exceed
calculated on the basis of a 60% of the actual cost of
certain percentage of the value such projects and
assessed. improvements, including the
4. Indivisible single obligation costs of acquiring land and
5. Local tax such other real property in
connection therewith
TAXING AUTHORITIES (SEC. 233, LGC)
 not apply to lands exempt
from basic real property tax
Rate of Basic Real and the remainder of the
LGU
Property Tax land have been donated to
the local government unit
1. Province not exceeding 1% of
assessed value concerned for the
construction of said
2. City not exceeding 2% projects. (Sec. 240, LGC).
3. Municipality not exceeding 2%. FOR PURPOSES OF REAL PROPERTY

within Metro TAXATION IDLE LANDS SHALL INCLUDE:
Manila (SEC. 237, LGC)
1. Agricultural lands more than one
hectare in area one-half of which
FUNDAMENTAL PRINCIPLES GOVERNING remain uncultivated or unimproved by
REAL PROPERTY TAXATION (SEC. 198, the owner of the property or person
LGC) having legal interest therein.
1. Real property shall be appraised at Agricultural lands planted to
its current and Fair market value; permanent or perennial crops with

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at least 50 trees to a hectare shall 1. Real property owned by the

not be considered idle lands. government except when the
Lands actually used for grazing beneficial use thereof has been
purposes shall likewise not be granted to a taxable person;
considered idle lands; and 2. Charitable institutions,
2. Lands other than agricultural churches, personages or
located in a city or municipality convents appurtenant thereto,
more than one thousand square meters mosques, non-profit or religious
in area one-half of which remain cemeteries and all lands,
unutilized or unimproved by the buildings and improvements
owner of the property or person actually, directly and
having legal interest therein. exclusively used for religious,
charitable or educational
IDLE LANDS EXEMPT FROM TAX (SEC. purposes (Art. VI, Sec. 28,
238, LGC) Constitution);
By reason of:
3. Machineries and equipment that
1. force majeure are actually, directly and
1. civil disturbance exclusively used by local water
2. natural calamity utilities and GOCC’s engaged in
3. or any cause which physically or the supply and distribution of
legally prevents the owner of water and/or electric power;
the property or person having 4. Real property owned by duly
legal interest therein from registered cooperatives as
improving, utilizing or provided for in RA 6938; and
cultivating the same. 5. Machinery and equipment used
for pollution control and
CLASSIFICATION OF LANDS FOR PURPOSES OF environmental protection.
ASSESSMENT SEC. 218 (A)
ACTUAL USE OF PROPERTY AS BASIS
a. Commercial FOR ASSESSMENT (SEC. 217 LGC)
b. Agricultural
c. Residential Real property shall be classified,
d. Mineral valued and assessed on the basis of
e. Industrial actual use regardless of where located,
f. Timberland whoever owns it, and whoever uses it.
g. Special
Unpaid realty taxes attach to the
SPECIAL CLASSES OF REAL PROPERTY property and is chargeable against the
(SEC. 216, LGC) person who had actual or beneficial use
and possession of it regardless of
1. Hospitals whether or not he is the owner. To
2. Cultural and Scientific purposes impose the real property tax on the
3. owned and used by Local water subsequent owner which was neither the
districts owner nor the beneficial user of the
4. GOCCs rendering essential public property during the designated periods
services in the supply and would not only be contrary to law but
distribution of water and/or also unjust. (Estate of Lim vs. City of
generation or transmission of Manila, GR No. 90639, February 21,
electric power. 1990)
PROPERTIES EXEMPT FROM REAL PROCEDURE

PROPERTY TAX (SEC. 234, LGC)
Exemption is limited only to the STEP 1: DECLARATION OF REAL
following: PROPERTY

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DECLARATION BY OWNER OR ADMINISTRATOR (SEC. STEP 2: LISTING OF REAL

202-203) PROPERTY IN THE ASSESSMENT
• File a sworn declaration with the ROLLS (SECS. 205, 207)
assessor
- once every 3 years during
 All declarations shall be kept and
the period from January 1
filed under a uniform
to June 30.
classification system to be
• For newly acquired property – established by the provincial, city
WHEN: Must file with the assessor within or municipal assessor.
60 days from date of transfer
WHAT: Sworn statement containing the
STEP 3: APPRAISAL AND
fair market value and description of the
property. VALUATION OF REAL PROPERTY
• For improvement on property (SECS. 212-214, 224-225)
WHEN: Must file within 60 days upon
completion or occupation (whichever Determination of fair market value
comes earlier) (FMV)
WHAT: Sworn statement containing the For land
fair market value and description of the  Assessor of the province/city or
property. municipality may summon the
owners of the properties to be
DECLARATION BY PROVINCIAL / CITY / MUNICIPAL affected and may take depositions
ASSESSOR (SEC. 204) concerning the property, its
ownership, amount, nature and
WHEN: Only when the person under Sec. value (Sec. 213, LGC)
202 refuses or fails to make a  Assessor prepares a schedule of
declaration within the prescribed time. FMV for different classes of
properties.
No oath by the assessor is required.  Sanggunian enacts an ordinance
Notes: Proof of Exemption of Real
 The schedule of FMV is
published in a newspaper of
Property from Taxation - (Sec. 206)
general circulation in the
province, city or municipality
WHO: By any person or for whom real
concerned or in the absence
property is declared.
thereof, shall be posted in the
provincial capitol, city or
• Claim for exemption must be filed
municipal hall and in two other
with the assessor together with
conspicuous public places
sufficient documentary evidence to
therein (Sec. 212, LGC)
support claim
For machinery
WHEN: within 30 days from the date of
1. For Brand new machinery: FMV is the
declaration of property.
acquisition cost
IF PROPERTY IS DECLARED FOR THE FIRST TIME – 2. In all other cases: FMV
= Remaining eco. life X Replacement
(SEC.222) Estimated Eco.Life Cost
If Declared for the first time, real
property shall be assessed for back
taxes: STEP 4: DETERMINE ASSESSED
For not more than 10 years prior to VALUE (SEC. 218)
date of initial assessment
Taxes shall be computed on the basis Determine Assessed Value
of applicable schedule of values in force Procedure
during the corresponding period. 1. Take the schedule of FMV
2. Assessed Value = FMV x
Assessment level

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3. Tax = Assessed value x Tax rate waiver before expiration of

period to collect.
STEP 5: PAYMENT AND 3. the owner of property is out of
COLLECTION OF TAX the country or cannot be
located.
(a) Accrual of Tax: January of every
year and such will constitute as REAL PROPERTY TAX
a superior lien. (Sec. 246) REMEDIES UNDER THE LGC
(b) Time and Manner of Payment: 1. TAX REMEDIES OF THE LOCAL
(Sec. 250) GOVERNMENT TO EFFECT
1. basic real property tax in 4 equal COLLECTION OF TAXES
installments (March 31, June 30,
September 30, December 30) A. ADMINISTRATIVE
2. special levy – governed by 1. Real Property tax lien (Secs. 257,
ordinance LGC) – superior to all liens, charges
or encumbrances;
(c) Interest for Late Payment (Sec. 255)
2. Distraint (Sec. 254[B], LGC);
1. two percent (2%) for each month 3. Levy (Sec. 254[A], 258 LGC);
on unpaid amount until the 4. Purchase of property by local
delinquent amount is paid treasurer for want of bidder (Sec.
2. provided in no case shall the 263, LGC).
total interest exceed thirty-six B. JUDICIAL
(36) months. Civil Action ( Sec. 266, 270 LGC)
(d) For Advance and Prompt Payment PRESCRIPTIVE PERIODS FOR THE
1. Advance payment – discount not
exceeding 20% of annual tax (Sec. COLLECTION OF REAL
251, LCG) PROPERTY TAXES
2. Prompt payment – discount not
exceeding 10% of annual tax due 1. Basic real property tax and any
(Art 342 IRR) other tax levied under the title on
Real Property Taxation– five (5)
Collection of Tax (Sec. 247) years from the date they became
It shall be the responsibility of the due. (Sec. 270, LGC).
city or municipal treasurer concerned. 2. When there is fraud or intent to
The city or municipal treasurer may evade the payment of taxes – ten
deputize the barangay treasurer to (10) years from discovery of the
collect all taxes on real property located fraud or intent to evade the
in the barangay; provided, the barangay payment (Sec. 270, LGC).
treasurer is properly bonded.
GROUNDS FOR THE SUSPENSION OF
Period to Collect (Sec. 270) THE RUNNING OF THE PRESCRIPTIVE
1. within five (5) years from the PERIODS
date they become due
2. within ten (10) years from 1. The treasurer is legally prevented
discovery of fraud, in case there from the assessment or collection of
is fraud or intent to evade the tax;
2. The taxpayer requests for a
Suspension of Prescriptive Period (Sec. reinvestigation and executes a
270) waiver in writing before the
1. local treasurer is legally expiration of the period within
prevented to collect tax. which to assess or collect; and
2. the owner or property requests 3. The taxpayer is out of the country or
for reinvestigation and writes a otherwise cannot be located (Sec.
270, LGC).

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2. TAX REMEDIES OF THE LOCAL BOARD OF ASSESSMENT APPEALS

(LBAA should decide within 120 days
TAXPAYER from receipt of petition)
A. ADMINISTRATIVE within 30 days

Protest – payment under protest is
required within 30 days to provincial,
CENTRAL BOARD OF ASSESSMENT
city, or municipal treasurer. No protest APPEALS
shall be entertained unless the tax is
first paid. (Sec. 252 LGC) within 30 days
Claim for Tax Refund or Credit (Sec.
253)
a) the taxpayer may file a written COURT OF TAX APPEALS (EN BANC)
claim for refund or credit with
the provincial or city treasurer within 15 days
within two years from the date
the taxpayer is entitled to such
reduction or adjustment. SUPREME COURT
b) in case of denial of refund or B. JUDICIAL

credit, appeal to LBAA as in
protest case.
1. Court Action – appeal of CBAA’s
decision to Court of Tax Appeals en
Redemption of real property (Sec. 261 banc.
LGC) 2. Suit assailing validity of tax;
recovery of refund of taxes paid
Remedy against the Assessment/Appeal (Sec. 64 PD 464).
1st: within 60 days from notice of 3. Suit to declare invalidity of tax due
assessment of provincial, city or to irregularity in assessment and
municipal assessor to LBAA (Sec. 226 collection (Sec. 64 PD 464)
LGC) 4. Suit assailing the validity of tax sale
2nd: within 30 days from receipt of (Sec. 83 PD 464) (Sec. 267 LGC)
decision of LBAA to CBAA (Sec. 230
LGC) Condonation of Real Property Taxes
3rd: within 30 days from receipt of 1. By the Sanggunian
decision of CBAA to Court of Tax Real property taxes may be
Appeals en banc condoned wholly or partially in a
4th: within 15 days from receipt of given local government unit when:
decision of Court of Tax Appeals en a. There is general failure of crops;
banc to the Supreme Court b. There is substantial decrease in
the price of agricultural or agri-
APPEALS IN REAL PROPERTY based products; or
TAXATION c. There is calamity.
2. By the President of the Philippines
• when public interest so requires.
PROVINCIAL, CITY OR MUNICIPAL
ASSESSOR
within 60 days
V. TARIFF AND
Owner/Person with legal interest CUSTOMS CODE
must file:
1) Written Petition under Oath
2) With Supporting Documents

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DEFINITIONS and aircraft engaged in foreign

TARIFF: Customs duties, toll or tribute commerce;
payable upon merchandise to the 4. Enforcement of TCC and related
Government. laws;
5. Supervision and control over the
CUSTOM DUTIES: Tax assessed upon handling of foreign mails arriving in
merchandise from or exported to, a the Philippines;
foreign country. (Garcia v. Executive 6. Supervise and control all import and
Sec., GR No. 101273, July3, 1992)) export cargoes for the protection of
government revenue;
Note: Customs and tariffs are 7. Exclusive original jurisdiction over
synonymous with one another. They seizure and forfeiture cases under
both refer to the taxes imposed on the tariff and customs laws.
imported or exported wares, articles, or
merchandise. JURISDICTION OF COLLECTOR OF
CUSTOMS OVER IMPORTATION OF
Other Types of Fees Charged by the ARTICLES
Bureau of Customs 1. Cause all articles for importation to
be entered in the customhouse,
1. Arrastre charge 2. Cause all such articles to be
2. Wharfage due – counterpart of appraised and classified,
license, charged not for the use of 3. Assess and collect the duties, taxes
any wharf but for a special fund and other charges thereon, and
known as the Port Works Fund. 4. Hold possession of all imported
3. Berthing fee articles until the duties, taxes and
4. Harbor fee other charges are paid thereon.
5. Tonnage due (Sec. 1206, TCC)
Meaning and Scope of the Tariff and TERRITORIAL JURISDICTION OF THE

Customs Laws BOC
Include not only the provisions of the 1. All seas within the jurisdiction of the
Tariff and Customs Code (TCC) and Philippines
regulations pursuant thereto, but all 2. All coasts, ports, airports, harbors,
other laws and regulations that are bays, rivers and inland waters
subject to the Bureau of Customs (BOC) whether navigable or not from the
or otherwise within its jurisdiction. sea. (1st par, Sec. 603, TCC)
As to its scope, therefore, tariff and
customs laws extend not only to the CUSTOMS DUTIES
provisions of the TCC but to all other
laws as well, the enforcement of which
is entrusted to the BOC. WHEN TARIFF AND CUSTOMS APPLIED
Only after importation has begun but
before importation is terminated.
THE BUREAU OF CUSTOMS
Importation begins:
FUNCTIONS OF THE BUREAU OF 1) when the conveying vessel or
CUSTOMS aircraft
2) enters the jurisdiction of the
1. Assessment and collection of Phil.
revenues from imported articles and 3) with intention to unload therein
all other impositions under the tariff
and customs laws; Importation is deemed terminated:
2. Control smuggling and related
frauds; (a) upon payment of the duties, taxes
3. Supervision and control over the and other charges due upon the articles.
entrance and clearance of vessels

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(b) and legal permit for withdrawal t. Miscellaneous manufactured

shall have been granted. articles; and
u. Works of art, collector's pieces
• In case the articles are free of arid antiques (Sec. 104, Title 1,
duties, taxes and other charges, until TCC).
they have legally left the jurisdiction of
the customs (Sec. 1202, TCC) 2. Prohibited from being imported
(Prohibited importation)
INTENTION TO UNLOAD a. Absolutely prohibited such as:
Even if not yet unloaded, and there is weapons of war; gambling
unmanifested cargo, forfeiture may take devices; narcotics or prohibited
place because importation has already drugs; immoral, obscene or
begun. insidious articles; and those
prohibited under special laws
ARTICLES UNDER TCC (Sec.102, TCC).
May either be: b. Qualifiedly prohibited
1. Subject to duty – Where such conditions as to
a. Live animals and animal warrant a lawful importation do
products; not exist, the legal effects of the
b. Vegetable products; importation of qualifiedly
c. Animal or vegetable fats; oils prohibited articles are the same
and their cleavage products; as those of absolutely prohibited
prepared edible fats; animal or articles. (Auyong Hian vs. CTA,
vegetable waxes; GR No. L-28782, September 12,
d. Prepared foodstuffs; beverages, 1974)
spirits and vinegar; tobacco and
manufactured tobacco 3. Conditionally-free from tariff
substitutes; and customs duties (conditionally-
e. Mineral products; free importation)
f. Products of chemical or allied • Those provided in Sec.
industries; 105, TCC;
g. Plastics and articles thereof;
• Those granted to
rubber and articles thereof;
government agencies, GOCCs
h. Raw hides and skins; leather,
with agreements with foreign
etc.;
countries;
i. Wood and articles of wood, etc.;
• Those given to
j. Pulp of wood, etc.;
international institutions
k. Textiles and textile articles;
entitled to exemption by
l. Articles of stone; plaster,
agreement or special laws; and
cement, etc.;
m. Footwear, headgear, etc.; • Those that may be
n. Natural or cultured pearls granted by the President upon
precious/semi-precious stones; NEDA’s recommendation.
o. Base metals and articles of base
metals; 4. Free from TC duties (duty-free)
p. Machinery and mechanical Imported goods must be
appliances; electric equipment; entered in a customhouse at their
sound recorders, etc; port of entry otherwise they shall be
q. Vehicles, aircraft, vessels and considered as contraband and the
associated transport equipment; importer is liable for smuggling (See
r. Optical, photographic, medical, Sec. 101, TCC).
surgical instruments, etc.; All articles when imported from
s. Arms, ammunition, parts and any country into the Philippines shall
accessories; be subject to duty upon each
importation, even though previously
exported from the Philippines,

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except as otherwise specifically article that will enable the customs

provided for in the TCC or other authorities to determine the correct
laws. duties. An importer is required to file an
import entry. It must be accomplished
Liability for Customs Duties from disembarking of last cargo from
General Rule: All importations / vessel.
exportations of goods are subject to
customs duties (Sec. 105, TCC). Transaction value under RA NO. 8181
It is the invoice value of the
Exceptions: goods plus freight, insurance, costs,
(1) Exemptions under the TCC; expenses and other necessary expenses.
(2) Exemptions granted to This replaces the Home Consumption
government agencies, Value as basis of valuation of goods.
instrumentalities or GOCCs with
existing contracts, CLASSIFICATION OF CUSTOM DUTIES
commitments, agreements, or A. Regular Duties – those which are
obligations with foreign imposed and collected merely as a
countries; source of revenue.
(3) Exemptions of international 1. Ad valorem duty: This is a duty
organizations pursuant to based on the value of the
agreements or special laws; and imported article.
(4) Exemptions granted by the Pres. 2. Specific duty: This is a duty
of the Phil. upon based on the dutiable weight of
recommendation of NEDA (Sec. goods (either the gross weight,
105, TCC). legal weight, or net weight).
LIABILITY OF IMPORTER FOR CUSTOM DUTIES
3. Alternating duties: This is a
• A personal debt which can be duty which alternates ad
discharged only by payment in valorem and specific.
full thereof;
4. Compound Duty: This is a duty
• A lien upon the imported articles consisting of ad valorem and
while they are in custody or specific duties.
subject to the control of the
government. (Sec. 1204, TCC). B. Special duties – those which are
imposed and collected in addition to
Extent Of Importer’s Liability the ordinary customs duties usually
The liability of an importer is to protect local industries against
limited to the value of the imported foreign competition.
merchandise. In case of forfeiture of
the seized material, the maximum civil 1. Dumping duty
penalty is the forfeiture itself. 2. Countervailing duty
(Mendoza vs. David, GR No. L-9452, 3. Marking duty
March 27, 1961) 4. Discriminatory duty
Drawback NATURE OF SPECIAL CUSTOMS DUTIES
A device resorted to for enabling a Special customs duties are
commodity affected by taxes to be additional import duties imposed on
exported and sold in foreign markets specific kinds of imported articles under
upon the same terms as if it had not certain conditions.
been taxed at all. (Uy Chaco Sons vs.
Collector of Customs, GR No. 7618, PURPOSE OF SPECIAL CUSTOMS DUTIES
March 27, 1913) The special customs duties are
imposed for the protection of consumers
Import Entry and manufacturers, as well as Phil.
It is a declaration to the BOC products from undue competition posed
showing particulars of the imported by foreign-made products.

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SPECIAL DUTIES COMPARED
DISCRIMINATORY
DUMPING DUTY COUNTERVAILING DUTY MARKING DUTY
DUTY
1. Nature Imposed upon foreign Imposed upon Imposed upon

Imposed upon goods enjoying subsidy those not goods coming
foreign products thus allowing them to properly marked from countries
with value lower sell at lower prices to as to place of that discriminate
than their fair the detriment of local origin of the against Philippine
market value to the products similarly goods. products.
detriment of local situated.
products.
2. Amount/Rate Equivalent to the 5% ad valorem Any amount not

Difference between bounty, subsidy, or of articles exceeding 100%
the actual price subvention. ad valorem of the
and the normal subject articles
value of the article.
3. Imposing Authority Secretary of Finance Commissioner of President of the

Special committee Customs Philippines
on Anti-Dumping
(composed of the
Secretary of Finance
as Chairman;
Members: the
Secretary of DTI,
and either the
Secretary of
Agriculture if article
in question is
agricultural product
or the Secretary of
labor if non-
agricultural product
FLEXIBLE TARIFF CLAUSE maximum of one hundred (100%) per

The President may fix tariff rates, cent ad valorem
import and export quotas, etc. under 2. to establish import quota or to ban
TCC (See Sec. 28, Art. VI, Constitution imports of any commodity, as may
and Sec. 401, TCC) be necessary; and
1. to increase, reduce or remove 3. to impose an additional duty on all
existing protective rates of import imports not exceeding ten (10%) per
duty (including any necessary change cent ad valorem whenever
in classification). necessary:
The existing rates may be
increased or decreased to any level, LIMITATIONS IMPOSED REGARDING THE
on one or several stages but in no FLEXIBLE TARIFF CLAUSE
case shall the increased rate of
import duty be higher than a

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a. Conduct by the Tariff Commission of foreign countries, commercial

an investigation in a public hearing. treaties, preferential provisions,
The Commission shall also hear economic alliances, the effect of
the views and recommendations of export bounties and preferential
any government office, agency or transportation rates;
instrumentality concerned. f. the volume of
The Commission shall submit importations, compared with
their findings and recommendations domestic production and
to the NEDA within thirty (30) days consumption;
after the termination of the public g. conditions, causes, and
hearings. effects relating to competition
The NEDA thereafter submits its of foreign industries with those
recommendation to the President. of the Philippines, including
1. The power of the President to dumping and cost of production;
increase or decrease the rates of and
import duty within the h. in general, to investigate
abovementioned limits fixed in the the operation of customs and
Code shall include the modification tariff laws, including their
in the form of duty. relation to the national rev-
In such a case the corresponding enues, their effect upon the
ad valorem or specific equivalents of industries and labor of the
the duty with respect to the imports country and to submit reports of
from the principal competing foreign its investigation as provided.
country for the most recent
representative period shall be used 2. Administrative Assistance to the
as bases (Sec. 401, TCC). President and Congress (Sec. 506,
TCC)
THE TARIFF COMMISSION (TC)

FUNCTIONS OF THE TARIFF
COMMISSION TAX REMEDIES UNDER THE
1. Investigative Powers (Sec. 505, TARIFF AND CUSTOMS CODE
TCC) (TCC)
a. the administration of
and the fiscal and industrial TAX REMEDIES OF THE
effects of the tariff and customs GOVERNMENT
laws of this country now in force
or which may hereafter be A. ADMINISTRATIVE
enacted; 1. Tax Lien (Sec. 1204
b. the relations between TCC)
the rates of duty on raw • attaches on the goods,
materials and the finished or regardless of ownership, while
partly finished products; still in the custody or control
c. the effects of ad of the Government
valorem and specific duties and • availed of when the
of compound specific and ad importation is neither
valorem duties; prohibited nor improperly
d. all questions relative to made
the arrangement of schedules 2. Administrative Fines
and classification of articles in and Forfeitures
the several schedules of the
• applied when the
tariff law;
importation is unlawful,
e. the tariff relations
between the Philippines and

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• and it may be exercised even from the date the importer

where the articles are not or is entitled to refund if
no longer in Custom’s payment is rendered
custody erroneous or illegal by
- unless the importation is events occurring after the
merely attempted in which payment.
case it may be effected only b. Taxpayer – within 15 days
while the goods are still from assessment. Payment
within the Customs under protest is necessary.
jurisdiction or in the hands (Sec. 2308, 2210 TCC)
of a person who is aware 2. Refund
thereof (Sec. 2531 & 2530, a. A written claim for refund
TCC) may be submitted by the
• under Sec. 2530(a) of the importer in abatement cases
TCC, in order to warrant on missing packages,
forfeiture, it is not necessary deficiencies in the contents
that the vessel or aircraft of packages or shortages
must itself carry the before arrival of the goods in
contraband. The the Philippines, articles lost
complementary if collateral or destroyed after such
use of the Cessna plane for arrival, dead or injured
smuggling operation is animals, and for manifest
sufficient for it to be clerical errors; and
deemed to have been used b. Drawback cases where the
in smuggling. (Llamado vs. goods are re-exported (Sec.
Commissioner of Customs, 1701-1708 TCC).
GR No. L-28809, May 16, 3. Settlement of any
1983) seizure by payment of fine or
3. Reduction of customs redemption
duties / compromise
• But this shall not be allowed
• subject to approval of Sec. in any case where
of Finance (Sec. 709, 2316 importation is absolutely
TCC) prohibited, or the release
would be contrary to law, or
4. Seizure, Search, Arrest when there is an actual and
(Sec. 2205, 2210, 2211 TCC) intentional fraud (Sec. 2307
TCC).
B. JUDICIAL
1. this remedy is normally 4. Appeal
availed of when the tax lien
is lost by the release of the
• Within 15 days to the
Commissioner after
goods
notification by Collector of
• Civil Action (Sec. 1204,
his decision (Sec. 2313
TCC)
TCC).
• Criminal Action
B. JUDICIAL
TAX REMEDIES OF THE TAXPAYER 1. Appeal
• Within 30 days from receipt
A. ADMINISTRATIVE
of decision of the
1. Protest
Commissioner or Secretary of
a. Any importer or interested
Finance to the division of the
party if dissatisfied with
CTA (Sec. 2403 TCC, Sec. 7
published value within 15
RA 1125, as amended by Sec.
days from date of
9 RA 9282)
publication, or within 5 days

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• Since Sec.11 of RA 1125 as products subsequently exported and a

amended by RA 9282 duty drawback is claimed.
empowers the Tax Court to
issue injunctions, it would Requirements for making a protest
appear that an importer may
appeal without first paying 1. Must be in writing
the duties, such as in 2. Must point out the particular
seizure, but not in protest decision or ruling of the Collector of
cases. Customs to which exception is taken
2. Action to question the or objection made;
legality of seizure 3. Must state the grounds relied upon
3. Abandonment (Sec. for relief;
1801 TCC) 4. Must be limited to the subject
a. expressly (Sec. 1801 matter of a single adjustment;
TCC) 5. Must be filed when the amount
b. impliedly – claimed is paid or within 15 days
c. failure to file an after the payment;
import entry within 30 6. Protestant must furnish samples of
days from the discharge goods under protest when required.
of goods or
PROCEDURE IN CUSTOMS PROTEST
d. having filed an
CASES
entry fails to claim
within 15 days but it
The Collector acting within his
shall not be so effective
jurisdiction shall cause the imported
until so declared by the
goods to be entered at the customhouse
collector. (Sec. 1801, as
amended by RA 7651) 
The Collector shall assess, liquidate, and
TWO KINDS OF PROCEEDINGS IN collect the duties thereon, or detain the
THE BUREAU OF CUSTOMS (BOC) said goods if the party liable does not
pay the same
A. CUSTOMS PROTEST CASES 
The party adversely affected (the
DEFINITION: These are cases which deal protestant) may file a written protest on
solely with liability for customs duties, his foregoing liability with the Collector
fees, and other charges. within 15 days after paying the
liquidated amount (the payment under
Note: Before filing a protest, there protest rule applies)
must first be a payment under protest.

When customs protest applicable Hearing within 15 days from receipt of
the duly presented protest. Upon
The customs protest is required to be termination of the hearing, the Collector
filed only in case the liability of the shall decide on the same within 30 days
taxpayer for duties, taxes, fees and
other charges is determined and the  
taxpayer disputes said liability. If decision is adverse to If decision is adverse to
the protestant the government
When Customs protest NOT required
 
Where there is no dispute, but the Appeal with the Automatic Review by
claim for refund arises by reason of the Commissioner within the Commissioner
happening of supervening events such as 15 days from notice 
when the raw material imported is
utilized in the production of finished

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Automatic review by c. Receive, conceal, buy, sell,

 the Secretary of
Appeal with the Court facilitate, transport, conceal or
Finance sell such article knowing its
of Tax Appeals Division
within 30 days from  illegal importation (Sec. 3601,
notice TCC)
If decision of d. Export contrary to law. (Sec.
 Commissioner or 3514, TCC)
Appeal with the
Secretary of Finance is
CTA en banc 2. The Philippines is divided into
adverse to the
 protestant, he may various ports of entry – entry other
Appeal by certiorari appeal to the CTA and than port of entry, will be
with the Supreme SC under the same SMUGGLING.
Court within 15 days procedure on the left.
from notice PORT OF ENTRY
A domestic port open to both
foreign and coastwise trade including
“airport of entry”. (Sec. 3514, TCC)
ALL articles imported into the
Reasons for the automatic review of Philippines whether subject to duty or
decisions adverse to the Government not shall be entered through a
customshouse at a port of entry.
1. To protect the interest of the ENTRY: in Customs law means-
Government 1. the
2. A favorable decision will not be documents filed at the
appealed by the taxpayer and Customs house
certainly a Collector will not 2. the
appeal his own decision. submission and acceptance
3. Lifeblood Theory of the documents
3. the
B. SEIZURE AND FORFEITURE CASES procedure of passing goods
through the customs house
DEFINITION: These refer to matters (Rodriguez vs. Court of
involving smuggling. It is administrative Appeals, GR No. 115218,
and civil in nature and is directed September 18, 1995)
against the res or imported articles and
entails a determination of the legality of CONTRABAND: Articles of prohibited
their importation. These are actions in importations or exportations. (Sec. 3514,
rem. TCC)
Thus, It is of no defense that the
owner of the vessel sought to be
forfeited had no actual knowledge that
his property was used illegally. The EVIDENCE FOR CONVICTION IN
absence or lack of actual knowledge of SMUGGLING CASES
such use is a defense personal to the Mere possession of the article in
owner himself, which cannot in any way question - unless defendant could
absolve the vessel from the liability of explain that his possession is lawful to
forfeiture. (Commissioner of Customs the satisfaction of the court (Sec. 3601,
vs. Manila Star Ferry, Inc., GR Nos. TCC). Payment of the tax due after
31776-78, October 21, 1993) apprehension is not a valid defense
(Rodriguez vs. Court of Appeals, GR No.
SMUGGLING 115218, September 18, 1995)
1. An act of any person who shall:
a. Fraudulently import any article THINGS SUBJECT TO CONFISCATION IN
contrary to law, or SMUGGLING CASES
b. Assist in so doing, or

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Anything that was used for conveyance is generally used;

smuggling is subject to confiscation, like and
the vessel, plane, etc. (Llamado vs. 3. If the owner is financially not in
Commissioner of Customs, GR No. L- a position to own such
28809, May 16, 1983). conveyance.
Exception: Common carriers that are DOCTRINE OF HOT PURSUIT

not privately chartered cannot be Requisites:
confiscated. 1. Over Vessels
a. An act is done in Phil. Waters
RIGHT OF CUSTOMS OFFICERS TO which constitutes a violation of
EFFECT SEIZURE & ARREST (SEC. 2205) the tariff and customs laws
1. May seize any vessel, aircraft, cargo, b. a pursuit of such vessel began
article, animal or other movable within the jurisdictional waters
property when the same is subject to which
forfeiture or liable for any time as (i) may continue beyond the
imposed under tariff and customs maritime zone, and
laws, rules & regulations (ii) the vessel may be seized
2. May exercise such powers only in on the high seas.
conformity with the laws and
provisions of the TCC 2. Over Imported Articles
a. There is a violation of the tariff
COMMON CARRIERS; FORFEITURE and customs laws
1. Common carriers are generally b. As a consequence they may be
not subject to forfeiture although if pursued in the Phil.
the owner has knowledge of its use c. With jurisdiction over them at
in smuggling and was a consenting any place therein for the
party, it may also be forfeited. enforcement of the law. (2nd
2. If a motor vehicle is hired to par. Sec. 603, TCC)
carry smuggled goods but it has no
Certificate of Public Convenience
(CPC), it is not a common carrier. It REGIONAL TRIAL COURTS (RTC)
is thus subject to forfeiture, and VS.
lack of personal knowledge of the BUREAU OF CUSTOMS (BOC)
owner or the carrier is not a defense
to forfeiture. • The RTCs do not have jurisdiction
over seizure and forfeiture
PROPERTIES NOT SUBJECT TO proceedings conducted by the BOC
FORFEITURE IN THE ABSENCE OF PRIMA and to interfere with these
FACIE EVIDENCE proceedings. The Collector of
The forfeiture of the vehicle, vessel Customs has exclusive jurisdiction
or aircraft shall not be effected if it is over all questions touching on the
established that the owner thereof or his seizure and forfeiture of dutiable
agent in charge of the means of goods.
conveyance used as aforesaid has no • No petitions for certiorari,
knowledge of or participation in the prohibition or mandamus filed with
unlawful act: the RTC will lie because these are in
Provided, however, that a prima reality attempts to review the
facie presumption shall exist against the Commissioner's actuations. Neither
vessel, vehicle or aircraft under any of replevin filed with the RTC will
the following circumstances: issue. Rationale: Doctrine of
1. If the conveyance has been used Primary Jurisdiction.
for smuggling at least twice
before; • Even if a Customs seizure is illegal,
2. If the owner is not in the exclusive jurisdiction (to the
business for which the exclusion of regular courts) still

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belongs to the Bureau of Customs

(Jao v. Court of Appeals, GR No. PERSONS HAVING POLICE AUTHORITY
104604, October 6, 1995). TO ENFORCE THE TARIFF & CUSTOMS
LAWS AND EFFECT SEARCHES,
GOODS IN CUSTOM’S CUSTODY BEYOND SEIZURES AND ARRESTS (SEC. 2203,
REACH OF ATTACHMENT TCC)
Goods in the custom’s custody 1) officials of the BOC,
pending payment of customs duties are district collectors,
beyond the reach of attachment. As long police officers,
as the importation has not been agents, inspectors,
terminated, the imported goods remain and guests of the
under the jurisdiction of the Bureau of BOC;
Customs. (Viduya vs. Berdiago, GR No. 2) officers of the Phil.
L-29218, October 29, 1976) Navy and other
members of the AFP
ADMINISTRATIVE AND JUDICIAL and national law
PROCEDURES RELATIVE TO CUSTOMS enforcement
SEIZURES AND FORFEITURES agencies when
authorized by the
Determination of probable cause and Commissioner of
issuance of warrant Customs
 3) officials of the BIR
on all cases falling
Actual seizure of the articles
within the regular
 performances of
Listing of description, appraisal and their duties, when
classification of seized property the payment of
 internal taxes are
involved;
Report of seizure to the Comm. of
4) officers generally
Customs and the Chairman, Comm.
empowered by law
on Audit
to effect arrests and
 execute processes of
Issuance by the Collector of a courts, when acting
warrant of detention under the direction
 of the Collector.
Notification to owner or importer
REQUIREMENTS FOR CUSTOMS
 FORFEITURE
Formal hearing 1. The wrongful making by the owner,
 importer, exporter or consignee of
District collector renders his any declaration or affidavit, or the
decisions wrongful making or delivery by the
same persons of any invoice, letter
or paper - all touching on the
  importation or exportation of
If decision is not If decision is not merchandise.; and
favorable to the favorable to the 2. That such declaration, affidavit,
aggrieved owner or government invoice, letter or paper is false.
importer (Farolan, Jr. vs. Court of Tax
  Appeals, GR No. 42204, January 21,
Appeal by the Automatic Review 1993)
aggrieved owner or by the
importer Commissioner PLACES WHERE SEARCHES & SEIZURES
MAY BE CONDUCTED
(a) enclosures

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(b) dwelling house (there must be

search warrant issued by a judge)
(c) vessels or aircrafts and persons ACQUITTAL IN CRIMINAL CHARGE NOT
or articles conveyed therein RES JUDICATA IN SEIZURE OR
(d) vehicles, beasts and persons FORFEITURE PROCEEDINGS
(e) persons arriving from foreign Reasons:
countries. 1) Criminal proceedings are actions in
personam while seizure or forfeiture
Note: Burden of proof in seizure or proceedings are actions in rem.
forfeiture is on the claimant. (Sec. 2) Customs compromise does not
2535, TCC) extinguish criminal liability. (People
vs. Desiderio, GR No. L-208005,
REQUIREMENTS FOR MANIFEST November 26, 1965)
A manifest in coastwise trade for
cargo and passengers transported from Note: At any time prior to the sale, the
one place or port in the Philippines to delinquent importer may settle his
another is required when one or both of obligations with the Bureau of Customs,
such places is a port of entry (Sec. 906, in which case the aforesaid articles may
TCC). Manifests are also required of be delivered upon payment of the
vessel from a foreign port (Sec. 1005, corresponding duties and taxes and
TCC). compliance with all other legal
requirements (Sec. 1508, TCC)
IS MANIFEST REQUIRED ONLY FOR
IMPORTED GOODS? ABATEMENT
NO. Articles subject to seizure The reduction or non-imposition of
do not have to be imported goods. customs duties on certain imported
Manifests are also required for articles materials as a result of:
found on vessels or aircraft engaged in 1) Damage incurred during voyage;
coastwise trade. (Rigor vs. Rosales, GR 2) Deficiency in contents packages
No. L-33756, October 23, 1982) 3) Loss or destruction of articles
after arrival
UNMANIFESTED CARGO IS SUBJECT TO 4) Death or injury of animals
FORFEITURE whether the act of
smuggling is established or not under the FRAUDULENT PRACTICES CONSIDERED
principle of res ipsa loquitur. It is AS CRIMINAL OFFENSES AGAINST
enough that the cargo was unmanifested CUSTOMS REVENUE LAWS
and that there was no showing that 1) Unlawful importation;
payment of duties thereon had been 2) Entry of imported or exported article
made for it to be subject to forfeiture. by means of any false or fraudulent
practices, invoice, declaration,
SETTLEMENT OF FORFEITURE CASES affidavit, or other documents;
General Rule: Settlement of cases by 3) Entry of goods at less than their true
payment of fine or redemption of weights or measures or upon a
forfeited property is allowed. classification as to quality or value;
4) Payment of less than the amount
Exceptions: due;
1. the importation is absolutely 5) Filing any false or fraudulent claim
prohibited or for the payment of drawback or
2. the surrender of the property to refund of duties upon the
the person offering to redeem exportation of merchandise; or
would be contrary to law, or 6) Filing any affidavit, certificate or
3. when there is fraud. (Sec. 2307, other document to secure to himself
TCC) or others the payment of any
drawback, allowance or refund of
duties on the exportation of mdse.

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greater than that legally due 5. to punish contempt;

thereon. (Sec. 3602, TCC) 6. to promulgate rules and
regulations for the conduct of its
business;
VI. COURT OF 7. to assess damage against
appellant if appeal to CTA is
TAX APPEALS found to be frivolous or dilatory;
(RA 1125 as amended 8. to suspend the collection of the
by RA 9282) tax pending appeal; and
9. to render decisions on cases
brought before it
 See ANNEX O for comparison of CTA 10. to issue order authorizing
as created by RA No. 1125 and the distraint of personal property
amendments made by RA No. 9282. and levy of real property
DISTRAINT OF PERSONAL PROPERTY

AND LEVY OF REAL PROPERTY
NATURE AND POWERS
Upon the issuance of any ruling,
order or decision by the CTA favorable to
ELEVATION OF RANK
the national government, the CTA shall
shall be of the same level as the
issue an order authorizing the BIR,
Court of Appeals, possessing all the
through the Commissioner:
inherent powers of a Court of Justice
1. to seize and distraint any goods,
COMPOSITION
chattels, or effects and the personal
• Consists of a Presiding Justice and property, including stocks and other
five (5) Associate Justices securities, debts, credits, bank
• May sit en banc or in two (2) accounts, and interests in and rights
Divisions, each Division consisting of to personal property and/or
three (3) Justices. The Presiding 2. levy the real property of such
Justice and the most Senior persons in sufficient quantity to
Associate Justice shall serve as satisfy the tax or charge together
chairmen of the two divisions with any increment thereto incident
to delinquency.
QUORUM
• Four (4) Justices shall constitute a This remedy shall not be exclusive
quorum for sessions EN BANC. and shall not preclude the Court from
• Two (2) Justices for sessions of a availing of other means under the Rules
DIVISION. of Court.
PROVIDED: in case the required quorum
cannot be had due to any vacancy, JURISDICTION
disqualification, inhibition, disability,
or any other lawful cause, the Presiding I. EXCLUSIVE APPELLATE JURISDICTION
Justice shall designate any Justice of TO REVIEW BY APPEAL
other Divisions of the Court to sit
temporarily therein. (a) Decisions of the
Commissioner of Internal
POWERS Revenue
1. to administer oaths; 1. in cases involving
2. to receive evidence; disputed assessments,
3. to summon witnesses by refunds of internal revenue
subpoena; taxes, fees or other charges,
4. to require production or papers penalties in relation thereto,
or documents by subpoena duces
tecum;

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2. or other matters arising under Section 2315 of the Tariff

under the NIRC or other laws and Customs Code;
administered by the BIR; (g) Decisions of the
(b) Inaction by the Secretary of Trade and
Commissioner of Internal Industry in the case of
Revenue nonagricultural product,
1. in cases involving commodity or article, and the
disputed assessments, Secretary of Agriculture in the
refunds of internal revenue case of agricultural product,
taxes, fees or other charges, commodity or article,
penalties in relation thereto, – involving dumping and
2. or other matters arising countervailing duties under Secs.
under the NIRC or other laws 301and 302, respectively, of the
administered by the BIR, Tariff and Customs Code, and
where the NIRC provides a safeguard measures under RA
specific period for action, in No, 8800, where either party
which case the inaction shall may appeal the decision to
be deemed a denial; impose or not to impose said
(c) Decisions, orders or duties.
resolutions of the RTC
– in local tax cases originally II. JURISDICTION OVER CASES
decided or resolved by them in INVOLVING CRIMINAL CASES
the exercise of their original or
appellate jurisdiction; (a) Exclusive original jurisdiction
(d) Decisions of the over all criminal cases arising from
Commissioner of Customs violations of the NIRC or Tariff and
1. in cases involving liability Customs Code and other laws
for customs duties, fees or administered by the BIR or the
other money charges, Bureau of Customs
seizure, detention or release • Provided however, where the
of property affected, fines, principal amount of taxes and
forfeitures or other fees, exclusive of charges and
penalties in relation penalties claimed is less than
thereto, one million pesos (P1, 000, 000.
2. or other matters arising 00) or where there is no
under the Customs Law or specified amount claimed - the
other laws administered by offenses or penalties shall be
the Bureau of Customs; tried by the regular courts and
(e) Decisions of the the jurisdiction of the CTA shall
Central Board of Assessment be appellate.
Appeals • Any provision of law or the Rules
– in the exercise of its appellate of Court to the contrary
jurisdiction over cases involving notwithstanding, the criminal
the assessment and taxation of action and the corresponding
real property originally decided civil action for the recovery of
by the provincial or city board of civil liability for taxes and
assessment appeals; penalties shall at all times be
(f) Decisions of the simultaneously instituted with,
Secretary of Finance and jointly determined in the
– on customs cases elevated to same proceeding by the CTA,
him automatically for review the filing of the criminal action
from decisions of the being deemed to necessarily
Commissioner of Customs which carry with it the filing of the
are adverse to the Government civil action, and no right to
reserve the filing of such civil

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action separately from the Municipal Circuit Trial Courts, in

criminal action will be their respective jurisdiction.
recognized.
 In criminal and collection cases, the
(b) Exclusive appellate jurisdiction Government may directly file the
in criminal offenses said cases with the CTA covering
• Over appeals from the amounts within its exclusive and
judgments, resolutions or orders original jurisdiction.
of the RTC in tax cases originally
decided by them, in their
 See ANNEX P – Comparative
respective territorial
Diagrams on CTA jurisdiction.
jurisdiction.
• Over petitions for review of the
judgments, resolutions, or
orders of the RTC in the exercise
of their appellate jurisdiction “Other Matters”
over tax cases originally decided Those controversies which can be
by the Metropolitan Trial Courts, considered within the scope of the
Municipal Trial Courts, and function of the BIR / BOC under ejusdem
Municipal Circuit Trial Courts in generis rule (e.g. action for the nullity of
their respective jurisdiction. distraint and levy; questioning the
propriety of the assessment; collection
III. JURISDICTION OVER TAX of compromise penalties).
COLLECTION CASES
(a) Exclusive original jurisdiction
in tax collection cases involving APPEAL
final and executory assessments
for taxes, fees, charges and When
penalties. Within 30 days after the receipt of
such decision or ruling or after the
• In collection cases where the
expiration of the period fixed by law for
principal amount of taxes and
action.
fees, exclusive of charges and
penalties, claimed is less than
Modes of Appeal
one million pesos (P 1, 000, 000.
(1) By filing a petition for review under
00) – shall be tried by the proper
a procedure analogous to that
Municipal Trial Court,
provided for under Rule 42 of 1997
Metropolitan Trial Court, and
Rules on Civil Procedure
Regional Trial Court.
• decision, ruling, or
(b) Exclusive appellate jurisdiction inaction of the Commissioner of
in tax collection cases Internal Revenue, Commissioner
• Over appeals from the of Customs, the Secretary of
judgments, resolutions or orders Finance, the Secretary of Trade
of RTC in tax collection cases and Industry or the Secretary of
originally decided by them, in Agriculture or the Regional Trial
their respective territorial Courts
jurisdiction. • this appeal shall be
• Over petitions for review of the heard by a Division of the CTA
judgements, resolutions or (2) By filing a petition for review under
orders of the RTC in the exercise a procedure analogous to that
of their appellate jurisdiction provided for under Rule 43 of 1997
over tax collection cases Rules on Civil Procedure
originally decided by the • decisions or rulings of
Metropolitan Trial Courts, the Central Board of
Municipal Trial Courts and Assessments Appeals and the

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Regional Trial Courts in the they are not the final decision of the
exercise of its appellate Commissioner.
jurisdiction • An assessment can be appealed if
• this appeal shall be taxpayer does not seek a
heard by the CTA en banc. reconsideration.
• At times there is an exchange of
Procedure communications between taxpayer
A. Any party adversely affected by a and Commissioner states that his
ruling, order or decision of a Division action is final, then, period for
of the CTA may file a motion for appeal begins to run.
reconsideration or new trial before • Commissioner must state that his
the same Division within 15 days decision is final, for period of appeal
from notice to run.
• Final decision cannot be implied
from issuance of warrant of distraint
and levy, unless it is issued after a
request for reconsideration.
B. Any party adversely affected by a GENERAL RULE: New issues cannot be
resolution of a Division of the CTA on raised for the first time on appeal.
a motion for reconsideration or new
trial may file a petition for review EXCEPTIONS:
with the CTA en banc. a. Defense of prescription
Reason: This is a statutory right.
C. Any party adversely affected by a (Visayan Land Transportation vs.
decision or ruling of the CTA en banc Collector)
may file with the Supreme Court a b. Errors of administrative officials
verified petition for review on Reason: State can never be in
certiorari pursuant to Rule 45 of the estoppel and lifeblood theory.
1997 Rules on Civil Procedure. (Commissioner vs. Procter and
Gamble Phils. Mfg. Corp, GR No.
Thirty (30) day Prescriptive Period for 66838, April 15, 1988)
Appeal
Starts to run from the date the NOTE: However, this was reversed in
taxpayer receives the appealable Supreme Court’s subsequent resolution
decision. If the taxpayer’s request for wherein it was held that “in the absence
reconsideration (i.e., the protest is of explicit statutory provisions to the
denied or the original assessment is contrary, the Government must follow
maintained, the appealable decision is the same rules of procedure which bind
the decision denying the request for private parties.” (Commissioner vs.
reconsideration. Procter and Gamble, GR No. 66838,
The said period is jurisdictional and December 2, 1991, Resolution)
non-extendible. Requests or motions for
reconsideration, however, operate to Tax collection Not Suspended during
suspend the running of the period to Appeal
appeal. A pro forma request for
reconsideration or one which is directed General Rule: No appeal taken to the
to the Secretary of Finance does not CTA shall suspend the payment, levy or
suspend the running of the 30-day distraint, and/or sale of any property of
reglementary period. the taxpayer.
Only A Final Decision Is Appealable To Exception: The CTA is empowered to

The Court Of Tax Appeals suspend the collection of internal
revenue taxes and custom duties only
• Preliminary collection letters, post when there was a –
reporting notices and pre-assessment
notices are not appealable, because

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c) showing that collection of the tax Weight of Decision of CTA

may jeopardize the interest of the
government and / or the taxpayer; • Decisions of Tax Court have
d) deposit of the amount claimed or persuasive effect and may serve as
file a surety bond for not more judicial guides. They have more
than double the amount of tax persuasive value than BIR Rulings.
with the Court when required; and • CTA’s findings of fact are entitled to
e) showing by taxpayer that appeal is the highest respect. (Raymundo vs.
not frivolous nor dilatory. de Joya, GR No. L-27733, December
3, 1980)
Can The CTA Enjoin Collection of
Taxes? • The Supreme Court will not set aside
conclusions reached by Tax Court
which by the very nature of its
• Sec. 11 of RA No. 1125 as amended
function, is dedicated exclusively to
by Sec. 9 of RA No. 9282 grants CTA
the consideration of tax problems
power to suspend collection of tax if
and has developed an expertise on
such collection works to serious
the subject, unless there has been
prejudice of either taxpayer or
an abuse or an improvident exercise
government.
of authority on its part.
• However, Sec. 218 of the Tax Code
(Commissioner vs. Court of Appeals
provides no court may grant
& Atlas Consolidated, GR No. 86785,
injunction to restrain collection of
November 21, 1991)
any tax, fee or charge imposed by
Tax Code.
• The provision in Tax Code refers to VII.VALUE–ADDED TAX
courts other than the CTA. (VAT)
(Blaquera vs. Rodriguez, GR No. L-
11295, March 29, 1958)
TITLE IV OF NIRC
• Appeal to the CTA does not
DEFINITION: The value-added tax is an
automatically suspend collection
indirect tax and the amount of tax may
unless CTA issues suspension order at
be shifted or passed on to the buyer,
any stage of proceedings.
transferee or lessee of the goods,
properties or services. This rule shall
Simultaneous filing of an application
likewise apply to existing contracts of
for refund or credit and institution of a
sale or lease of goods, properties or
case before the CTA allowed
services at the time of the effectivity of
Republic Act No. 7716.
The law fixes the same period of
two (2) years for filing a claim for refund
VAT replaced Sales Tax as imposed by
with the Commissioner and for filing a
previous Tax Laws.
case with the CTA. The two-year period
for both starts from the date after the
HISTORY:
payment of the tax or penalty, or from
a. Executive Order No. 273
the approval of the application for
b. Republic Act No. 7716
credit.
c. Republic Act No. 8241
d. Republic Act No. 8424 (took
Observation: If we are not going to
effect on 1 January 1998)
allow the taxpayer to file a refund
before the CTA and let him wait for the
TRANSACTIONS COVERED BY VAT:
CIR’s decision, and the latter failed to
1. Sale of Commodities or Goods (in
render a decision within the 2-year
the course of trade or business
period, the said taxpayer can no longer
only)
file a refund before the CTA because his
2. Sale of Services (in the course of
right to appeal has prescribed.
trade or business only)

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3. Exportation (in the course of 2. Zero-rated (0%) - the rate used in

trade or business only) exportation.
4. Importation (whether or not in
the course of trade or business)
MANNER OF COMPUTING THE VAT:
PERSONS LIABLE FOR VAT A. 10% rate of Tax
Any person who, in the course of
trade or business, sells barters, 1. In sale of commodities and goods,
exchanges, leases goods or properties, 10% is multiplied with the Gross
renders services, and any person who Selling Price.
imports goods shall be subject to the 2. In sale of services, 10% is multiplied
value-added tax (VAT) imposed in with the Gross Receipts.
Sections 106 to 108 of the National 3. In importation, 10% is multiplied
Internal Revenue Code. with the rates used by the Bureau of
Customs in imposing tariff and
“IN THE COURSE OF TRADE OR customs duties plus customs duties,
BUSINESS” excise taxes, if any, and other
The regular conduct or pursuit of a charges, such tax to be paid by the
commercial or an economic activity, importer prior to the release of such
including transactions incidental goods from customs custody:
thereto, by any person regardless of Provided, That where the customs
whether or not the person engaged duties are determined on the basis
therein is a non-stock, nonprofit private of the quantity or volume of the
organization (irrespective of the goods, the value-added tax shall be
disposition of its net income and based on the landed cost plus excise
whether or not it sells exclusively to taxes, If any. customs duties.
members or their guests), or government
entity. B. Zero-rated (0%) rate of tax
Therefore if the disposition of goods
1. Export Sales as provided in Section
or services is NOT in the course of trade
106(A)(2)(a)
or business then it is not subject to VAT;
2. Foreign Currency Denominated Sale
with the exception of importation of
as provided in Section 106 (A)(2)(b)
course.
3. Sale to persons or entities which is
The rule of regularity, to the VAT exempt under special laws or
contrary notwithstanding, services as international agreements to which
defined in this Code rendered in the the Philippines is a signatory as
Philippines by non-resident foreign provided in Section 106 (A)(2)(c)
persons shall be considered as being 4. Transactions subject to zero-rated
course of trade or business. (0%) as provided in Section 108(B)
Importation is subject to VAT
regardless of whether or not it is in the REGISTRATION UNDER THE VAT SYSTEM
course of trade or business (SECTION 236 OF THE NIRC)
The reason for the rule is to protect General Rule: Failure to register is
our local or domestic goods or articles subject to temporary closure of the
and to regulate the entry or introduction establishment for 5 days as provided in
of foreign articles to our local market. Section 115(b).
Regulation is one of the purposes of
Taxation. Exception: It does not apply to an
exporter who fails to register. The effect
Tax Rates: is, instead of treating the transaction as
1. 10% - the rate used in sale of zero-rated (0%), it is treated as an
commodities and goods, sale of exempt transaction.
services, and importation.

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What is the difference? In zero-rated rental of not more than P8,000.00,

(0%) transactions, tax credit is as provided in Section 109(x), to be
available. However, in exempt VAT exempt, that the annual gross
transactions, tax credit is not available. receipts must not exceed
P550,000.00.
EXEMPT TRANSACTIONS (SECTION 109): 7. Section 109(z) provides that the sale
1. In Section 109(a) and (c), food and or lease of goods or performances of
non-food products are VAT-exempt services other than those mentioned
as long as these products are in its in the preceding paragraphs are VAT
original state. The simple process of exempt if the Gross Annual Receipts
preparation or preservation for the do not exceed P550,000.00.
market such as freezing, drying, However, the limitation of
salting, broiling, roasting, smoking, P550,000.00 does apply for those
or stripping does not remove the transactions from Section 109(a) to
product from its category of being in (y), except (x) because Revenue
its original state. Regulations No. 6-97 imposes a
• However, even if the products were P550,000.00 limitation.
no longer in its original state, it can
still be VAT-exempt under Section • In cases of tax-free importation of
109(r), if sold by agricultural goods into the Philippines by
cooperatives duly registered by persons, entities or agencies exempt
Cooperative Development Authority. from tax where such goods are
2. Under Section 109(m), private subsequently sold, transferred or
educational institutions are exempt exchanged in the Philippines to non-
from VAT if duly accredited by the exempt persons or entities, the
DECS or by the CHED. In case of purchasers, transferees or recipients
government educational institution, shall be considered the importers
no accreditation is required. thereof, who shall be liable for any
internal revenue tax on such
3. Transactions in the field of Arts are importation. The tax due on such
VAT-exempt only, as provided in importation shall constitute a lien on
Section 109(n), if the seller is the the goods superior to all charges or
artist himself or the artist’s services liens on the goods, irrespective of
performed for the production of the possessor thereof.
such works.
TRANSACTIONS DEEMED SALE:
4. Section 109(p) makes Regional or
Area Headquarters exempt from The following transactions shall be
VAT. deemed sale therefore making them
covered by VAT:
5. Under Section 109(w) in order for
the sale or lease of real property to (1) Transfer, use or consumption not in
be exempted from VAT, the the course of business of goods or
transaction must NOT be conducted properties originally intended for sale or
in the ordinary course of trade or for use in the course of business;
business. It complements Section (2) Distribution or transfer to:
106(A)(1)(a) where it states that in (a) Shareholders or investors as
order for the sale or lease of real share in the profits of the VAT-registered
property to be covered by VAT, it persons; or
must be made in the ordinary course (b) Creditors in payment of debt;
of trade or business. (3) Consignment of goods if actual sale is
not made within sixty (60) days following
6. Revenue Regulations No. 6-97 adds a the date such goods were consigned; and
requirement in order for the lease of (4) Retirement from or cessation of
residential units with a monthly business, with respect to inventories of

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Guillermo
1
taxable goods existing as of such OPTIONS OF A TAXPAYER AS PROVIDED

retirement or cessation. IN SECTION 112:
1. to claim for tax credit; or
How to determine the VAT: The tax 2. to claim for refund
shall be computed by multiplying the
total amount indicated in the invoice by The claim, which must be in writing,
one-eleventh (1/11). for both cases, must be filed within 2
years after the close of the taxable
Example: the total amount indicated in quarter when the sales were made for:
the invoice is P110. P110/11 = P10. P10 a) the issuance of a tax credit
is the amount of VAT. certificate; b) refund of creditable input
tax due or paid attributable to such
TAX CREDIT AND REFUND sales.
Formula for Tax Credit: HOW TO DETERMINE CREDITABLE INPUT

Output TAX
Less: Input The sum of the excess input tax
VAT due. carried over from the preceding month
or quarter and the input tax creditable
• If Input is greater than Output, to a VAT-registered person during the
Tax Credit is available. taxable month or quarter shall be
reduced
"INPUT TAX" means the value-added tax

due from or paid by a VAT-registered reduced by the amount of claim for
person in the course of his trade or refund or tax credit for value-added tax
business on importation of goods or local and other adjustments, such as purchase
purchase of goods or services, including returns or allowances and input tax
lease or use of property, from a VAT- attributable to exempt sale.
registered person. It shall also include
the transitional input tax determined in The claim for tax credit referred to
accordance with Section 111 of the in the foregoing paragraph shall include
NIRC. not only those filed with the Bureau of
Internal Revenue but also those filed
"OUTPUT TAX" means the value-added with other government agencies, such as
tax due on the sale or lease of taxable the Board of Investments or the Bureau
goods or properties or services by any of Customs.
person registered or required to register
under Section 236 of the NIRC. The Commissioner within 120 days,
in proper cases, from the date of
• If at the end of any taxable quarter submission of complete documents in
the output tax exceeds the input support of the application shall grant a
tax, the excess shall be paid by the refund or issue the tax credit certificate
VAT-registered person. If the input for creditable input taxes.
tax exceeds the output tax, the
excess shall be carried over to the
Remedy in case of full, or partial
succeeding quarter or quarters. Any
denial, or failure on the part of the
input tax attributable to the
Commissioner to act upon the
purchase of capital goods or to zero-
application for tax credit or refund: the
rated sales by a VAT-registered
taxpayer affected may, within thirty (30)
person may at his option be
days from the receipt of the decision
refunded or credited against other
denying the claim or after the expiration
internal revenue taxes, subject to
of the one hundred twenty day-period,
the provisions of Section 112.
appeal the decision or the unacted claim
with the Court of Tax Appeals.

Jhundee
Guillermo
1
RETURN AND PAYMENT OF VAT
Every person liable to pay the value-

added tax shall file a quarterly return of
the amount of his gross sales or receipts
within 25 days following the close of
each taxable quarter prescribed for each
taxpayer: Provided, however, That VAT-
registered persons shall pay the value-
added tax on a monthly basis.
Any person, whose registration has

been cancelled in accordance with
Section 236, shall file a return and pay
the tax due thereon within 25 days from
the date of cancellation of registration:
Provided, That only one consolidated
return shall be filed by the taxpayer for
his principal place of business or head
office and all branches.

Jhundee
Guillermo

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San Beda College of Law

MEMORY AID IN TAXATION LAW

I. GENERAL PRINCIPLES 6. levied for a public purpose.

REQUISITES OF A VALID TAX

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

registration fees are regulatory

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXES ARE PERSONAL TO THE TAXPAYER b. Indirect Tax - The incidence of

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

5. License or Fee – regulatory Amount is unlimited Amount is limited

Exemption granted Exemption does not Payable in money Payable in money,

To generate Regulatory Non-payment is No imprisonment in

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Due to the May be due to the Tax Toll

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

individuals or will directly promote the welfare of

Tax Tariff (2) NON-DELEGABILITY OF THE TAXING POWER

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

to Sec. 104 of the (4) shares, obligations or bonds

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

due conferred and rate. There

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

Used For Religious, Charitable And 6. Voting Requirement In Connection

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

This constitutes a violation of the output tax or tax on the finished

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

remaining income or capital.(This IMPACT OF TAXATION – point on which tax is

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

income, in order to avoid or reduce concurrence of a majority of all the

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

A. Exemptions from taxation are International Airport Authority vs.

Q: May a tax exemption be revoked? 2.Government not estopped from

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

government is never estopped by adjustment of duties made, with

Tax amnesty Tax exemption c.) Local Government Code

DOCTRINE OF IMPRESCRIPTIBILTY TAX ENFORCEMENT AND

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

General Rule: Rulings are not 3. Provincial, city and municipal

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

b. In the application of statute of 1. Assessments are prima facie

KINDS 4. The authority of the

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

has no books, or if he has books, he ii. any office or officer of the