Taxation Reviewer SAN BEDA

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 3. Benefits Received
e. Protectionism No special No direct A direct
or direct benefit is benefit results
POWER OF JUDICIAL REVIEW IN TAXATION benefit is received; a in the form of
received by healthy just
As long as the legislature, in
the economic compensation
imposing a tax, does not violate taxpayer; standard of to the
applicable constitutional limitations or merely society is property
restrictions, it is not within the province general attained owner
of the courts to inquire into the wisdom benefit of
or policy of the exaction, the motives protection
behind it, the amount to be raised or the

 CHAIRPERSON: Charmaine Torres  ASST. CHAIRPERSON: Rhohail Castro  EDP: Rachelle Saya  SUBJECT HEADS: Jemina
Jhundee
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4. Non-impairment of Contracts registration fees are regulatory

Contracts Contracts Contracts may exactions and not revenue measures.
may not be may be be impaired
impaired impaired
b. The tax imposed on videogram
5. Transfer of Property Rights establishments is not only regulatory but
Taxes paid No transfer Transfer is
a revenue measure because the earnings
become part but only effected in
of public restraint in favor of the of such establishments have not been
funds its exercise State subject to tax depriving the government
6. Scope
of an additional source of income. (Tio
All persons, All persons, Only upon a v. Videogram Regulatory Board, 151
property and property, particular SCRA 208)
excises rights and property
privileges c. The “coconut levy funds” were
all raised under the state’s taxing and
SYSTEMS OF TAXATION police powers.
Global System Schedular System The state’s concern to make it a
strong and secure source not only in the
A system A system employed livelihood of the significant segment of
employed where where the income tax the population, but also of export
the tax system treatment varies and earnings, the sustained growth of which
views is made to depend on is one of the imperatives of the
indifferently the the kind or category of
economic growth.” Philippine Coconut
tax base and taxable income of the
generally treats in taxpayer.
Producers Federation, Inc. Cocofed v.
common all Presidential Commission on Good
categories of Government (178 SCRA 236, 252)
taxable income of
the individual. CONSTRUCTION OF TAX LAWS
A system which A system which 1. Public purpose is always presumed.
taxes all itemizes the different 2. If the law is clear, apply the law in
categories of incomes and provides accordance to its plain and simple
income except for varied percentages tenor.
certain passive of taxes, to be applied
3. A statute will not be construed as
incomes and thereto.
capital gains. It imposing a tax unless it does so
prescribes a clearly, expressly and
unitary but unambiguously.
progressive rate 4. In case of doubt, it is construed most
for the taxable strongly against the Government,
aggregate incomes and liberally in favor of the
and flat rates for taxpayer.
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 makes
10. Revenue – a broad term that not make the the business illegal
includes taxes and income from business illegal but
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
compensation or compensation or
Based on the power Emanates from set-off set-off
of taxation police power
Non-payment is No imprisonment in
To generate Regulatory punished by case of non-payment
revenue 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 is
B. Promotion of General Welfare Test tax 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
Α. Governmental function - tax
the franchise
exempt unless when the law
SITUS OF TAXATION OF INTANGIBLE PERSONAL expressly provides for tax. (Sec.
PROPERTY 32 B7)
Β. Proprietary function – taxable
General Rule: Domicile of the owner
pursuant to the principle of the mobilia unless exempted by law. (Sec.
sequuntur personam or movables follow 27C)
the person. 2. GOCCs
Exceptions: General Rule: Income is taxable at
1. When the property has acquired a the rate imposed upon corporations
business situs in another jurisdiction; or associations engaged in a similar
2. When an express provision of the business, industry, or activity.
statute provide for another rule. Exception: GSIS, SSS, PHIC, PCSO
Illustration: For purposes of estate and PAGCOR. (Sec. 27(C), NIRC)
and donor’s taxes, the following 3. Government Educational Institutions
intangible properties are deemed A. Property or real estate tax –
with a situs in the Philippines: property actually, directly and
(1) franchise which must be exclusively used for educational
exercised in the Philippines; purposes – exempt but income
(2) shares, obligations or bonds of whatever kind and character
issued by any corporation from any of their properties,
organized or constituted in the real or personal, regardless of
Philippines in accordance with the disposition, is taxable. (Sec.
its laws; 30, last par., NIRC)
(3) shares, obligations or bonds by B. Income received by them as
any foreign corporation eighty- such are exempt from taxes.
five percent (85%) of the However, their income from any
business of which is located in of their activities conducted for
the Philippines; profit regardless of the
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 bilaterally kinds of property of the same class
agreed upon between the are taxed at the same rate.
government and the taxpayer – it Equitability – the burden falls to
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. 4. Tax Exemptions
5. Principle of Reciprocity
(3) Domestic- this arises when the taxes 6. 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 state of source or situs is exempted
inputs 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 facts.
d. In estimating the revenues that may 3. It is discretionary on the part of the
be collected by government in the Commissioner.
coming year. (Mamalateo,
Victorino. Reviewer on Taxation,
2004)
4. The authority of the Commissioner

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

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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 7. 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 α) 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 β) 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
χ) 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
δ) 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 )
12. The Commissioner may delegate the 13. Duty to ensure the provision and
powers vested in him to distribution of forms, receipts,
- subordinate officials with rank certificates, and appliances, and
equivalent to Division Chief or

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the acknowledgment of payment of

taxes (Sec. 8)
II. NATIONAL TAXATION
14. Authority to administer oaths and to
take testimony (Sec. 14) A. INCOME TAXATION
DEFINITIONS
15. Authority to make arrests and INCOME TAX – tax on all yearly profits
seizures (Sec. 15) arising from property, possessions,
trade or business, or as a tax on a
16. Authority to employ, assign or person’s income, emoluments,
reassign internal revenue officers profits and the like (61 CJS 1559)
involved in excise tax functions to – tax on income,
establishments where articles whether gross or net. (27 Am. Jur.
subject to excise tax are produced 308)
or kept (Sec. 16)
INCOME – all wealth, which flows into the
17. Authority to assign or reassign taxpayer other than as a mere
internal revenue officers and return of capital.
employees of the BIR to other or
special duties connected with the CAPITAL – resource of person, which can
enforcement or administration of be used in producing goods and
the revenue laws (Sec. 17) services.
Income Capital
ARE LEGAL OFFICERS OF THE BIR AUTHORIZED TO
INSTITUTE APPEAL PROCEEDINGS WITHOUT THE All wealth, which Fund or property
PARTICIPATION OF THE SOLICITOR GENERAL? flows into the which can be used
NO. The institution or taxpayer other than in producing goods
commencement before a proper court of as a mere return of or services
civil and criminal actions and capital.
proceedings arising under the Tax
Flow of Wealth Fund or property
Reform Act which shall be conducted by
legal officers of the BIR is not in dispute. Source of wealth Wealth
An appeal from such court, however, is
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 1. Flow of Wealth Test – The
charges are deemed to be national determining factor for the
internal revenue taxes. (Sec. 21, NIRC) imposition of income tax is
1. Income tax whether any gain was derived
2. Estate and donor's taxes from the transaction.
3. Value-added tax 1. Realization Test - unless the
4. Other percentage taxes income is deemed "realized,"
5. Excise taxes there is no taxable income.
6. Documentary stamp taxes 2. Economic-Benefit Principle
7. Such other taxes as are or hereafter Test
may be imposed and collected by -flow of wealth realized is
the Bureau of Internal Revenue. taxable only to the extent that

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the taxpayer is economically WHO ARE TAXABLE?

benefited. 1. Resident Citizen
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 corporation Based on the above provisions,
(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

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Philippines. However, overseas 3. Non-resident Foreign Corporation –

contract workers must be physically not engaged in trade or business
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 how
whose residence is within the created or organized;
Philippines and who is not a citizen 2. Joint-stock companies;
thereof. [Sec.22 (F, NIRC)] 3. Joint accounts (cuentas en
4. Non-resident alien engaged in participacion)
trade or business within the 4. Associations; or
Philippines. (NRAETB) 5. Insurance companies [Sec. 22(B),
A non-resident alien means an 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 consortium
functions of a public office. [Sec. 22 formed for the purpose of
(S)] undertaking construction projects or
The term trade, business 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
within and without the Philippines. All

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other corporate income taxpayers are is no longer taxable on the part

taxable only for income derived from of the recipient.
sources within the Philippines.
B. TERMINATION OF THE JUDICIAL SETTLEMENT
 Tax Rates: Please refer to Annex B. (WHERE THE HEIRS STILL DO NOT DIVIDE THE
PROPERTY)
C. ESTATES AND TRUSTS 1. If the heirs contribute to the
estate money, property, or
ESTATE – refers to the mass of properties industry with intention to divide
left by a deceased person. the profits between/among
themselves, an unregistered
RULES ON TAXABILITY OF ESTATE partnership is created and the
When a person who owns property estate becomes liable for the
dies, the following taxes are payable payment of corporate income
under the provisions of the income tax tax. (Evangelista vs. Collector,
law: GR No. L-9996, October 15,
1. Income tax for individual under Sec. 1957; Oña vs. Commissioner, GR
24 and 25 (to cover the period No. L-19342, May 25, 1972)
beginning January to the time of 2. If the heirs, without contributing
death); money, property or industry to
2. Estate income tax under Sec. 60 if improve the estate, simply
the estate is under administration or divide the fruits thereof
judicial 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 to principal of the fund accumulated by
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 persons for:
Trust itself, through the trustee or a. the sole purpose of exercising a
fiduciary, is liable for the payment of common profession and
income tax. Taxed exactly in the same
way as estates under judicial settlement b. no part of the income of which is
and its status as an individual is that of derived from engaging in any
the trustor. It is entitled to the trade or business. [Sec. 22(B),
minimum personal exemption (P20,000) NIRC].
and distribution of trust income during 2. Taxable or Business Partnership –
the taxable year to the beneficiaries is All other partnerships except
deductible from the trust’s taxable general professional partnerships no
income. matter, how created or organized.

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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 Partnership .- of itemized or optional standard
They are not subject to income tax, deduction.
but are required to file returns of
their income for the purpose of d. Payments made to a partner of
furnishing information as to the a GPP for services rendered shall
share of each partner in the net gain be considered as ordinary
or profit, which each partner shall business income subject to Sec.
include in his individual return. The 24A (Effective January 1, 1982)
partnership shall act as the
withholding agent. 2. Share of a partner in Taxable or
The net income (income for 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 Partnership - • Resident Citizen, Non-
The income tax of this type of
resident Citizen and
Partnership is computed and taxed
Resident Alien (2000 and
like that of a corporation. This kind
onward) – 10% (Sec. 24B2)
of partnership, like a regular
corporation, is also required to file a • Non-resident Alien engaged
quarterly corporate income tax in trade or business – 20%
return. Filing and payment of (Sec. 25 A2)
quarterly return is within 60 days
after the end of each quarter while

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• Non-resident alien not b. Gross income from profession, trade

engaged in trade or business or business;
– 25% (Sec. 25B) c. Gains form dealings in property;
b. Share of a partner in the loss d. Interests;
of a taxable or business e. Rents;
partnership maybe taken by the f. Royalties;
individual partner in his return g. Dividends;
of income. h. Annuities;
c. Payments made to a partner of i. Prizes and winnings;
a business or taxable partnership j. Pensions;
for services rendered shall be k. Partner’s share in the net income of
considered as compensation the general professional partnership
income subject to sec. 24A.
 See Annex D for detailed discussion
of items.
KINDS OF INCOME TAXES
UNDER THE NIRC KINDS OF DIVIDENDS
1. Cash and Property Dividends
1. Net Income Tax Individual Taxpayer
2. Optional Corporate Income tax a. From Domestic Corporations
3. Minimum Corporate Income Tax • RC, NRC, RA – 10% (Sec.
4. Improperly Accumulated Earnings 24A)
Tax • NRAETB – 20% (Sec. 25A2)
5. Preferential Rates or Special Rates • NRANETB – 25% on gross
of Income Tax income (Sec. 25B)
6. Gross Income Tax b. From Foreign Corporations
7. Final Income Tax
• RC, NRC, RA, NRAETB – 5-
8. Fringe Benefits Tax
32% (Sec. 24, 25A1)
9. Capital Gains Tax
• NRANETB – 25% on gross
(1) NET INCOME TAX
income (Sec. 25B)
DEFINITION: Means gross income less Corporate Taxpayer
deductions and/or personal and a. Foreign to Domestic Corp. – 32%
additional exemptions (Sec. 31, NIRC) (Sec. 32A)
b. Domestic to Domestic Corp. –
NET INCOME TAX FORMULA Exempt; intercorporate
Entire Income dividends (Sec. 27D)
Less: Exclusions and Income subject c. Domestic to Foreign Corp. -
to Final Tax (e.g. Passive
• Resident Foreign Corp. –
Income)
Exempt (Sec. 28 [A] 7d)
Gross Income
• Nonresident Foreign Corp. –
Less: Deductions (and/or additional
15% subject to the condition
exemptions, if applicable)
stated in Sec. 28 [B] 5.
Net Taxable Income
Otherwise, it shall be taxed
Multiply by: Tax Rate (%)
at 32%. (See Commissioner
Net Income Tax Due vs. Procter and Gamble, GR
Less: Tax Credit, if any No. 66838, December 2,
Tax Still due, if any 1991)
GROSS INCOME 2. Stock Dividends

General rule: Not subject to tax
DEFINITION: Means all income derived from because it does not constitute
whatever source, including but not income; it represents transfer of
limited to the following (Sec. 32) surplus to capital account. (Sec.
a. Compensation; 73B, 1997 NIRC)

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Exceptions: (individual, partnership, or

a. Sec. 73B, 1997 NIRC corporation, but not a transferee for
(1) there is redemption or a valuable consideration), directly or
cancellation in trust.
(2) the transaction involves NOTE: if the proceeds are
stock dividends, and retained by the insurer, the interest
(3) the “time and manner” of thereon is taxable;
the transaction makes it
“essentially equivalent to a 2. Return of insurance premium;
distribution of taxable NOTE: if such amounts (when added
dividends”. (see to amounts already received before
Commissioner vs. Court of the taxable year under such
Appeals, Court of Tax contracts) exceed the aggregate
Appeals & ANSCOR, GR No. premiums or considerations paid
108576, Jan. 30, 1999) (whether or not paid during the
b. the recipient is other than the taxable year), then the excess shall
shareholder (Bachrach vs. be included in the gross income.
Seifert, GR No. L-2659, October However, in the case of a transfer for
12, 1950) a valuable consideration, by
c. change in the stockholder’s assignment or otherwise, of a life
equity results by virtue of the insurance, endowment or annuity
stock dividend issuance. contract, or any interest therein,
only the actual value of such
3. Liquidating Dividends – When a consideration and the amount of the
corporation distributes all of its premiums and other sums
assets in complete liquidation or subsequently paid by the transferee
dissolution, the gain realized or are exempt from taxation. No loss is
loss sustained by the realized on surrender of a life
stockholder, whether individual insurance policy for its surrender
or corporation, is taxable value.
income or 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:
(a) they represent return of capital 4. Compensation for personal injuries
or are not income, gain or profit; or or sickness, whether by suit or
(b) they are subject to another kind agreement
of internal revenue tax; or NOTE: The phrase “personal
(c) they are income, gain or profit injuries” should be given a
that are expressly exempt form income restrictive meaning to refer only to
tax under the constitution, tax treaty, physical injuries. The theory for this
Tax Code, or a general or special law. is that recoupment on account of
such losses is not income, since it is
1. Proceeds of life insurance paid by not derived from capital, from labor
reason of the death of the insured to or from both combined. And the
his estate or to any beneficiary fact that the payment of

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compensation for such loss was a. Passive income derived in the

voluntary does not change its Philippines by:
exempt status. It was in fact (1) Foreign governments;
compensation for a loss, which (2) Financing institutions
impaired petitioner’s capital. owned, controlled or
enjoying refinancing from
5. Income exempt under Treaty; foreign governments
(3) International or regional
6. Retirement benefits, pension, financial institutions
gratuities, etc. established by foreign
a. those derived under R.A. 7641 governments
(pertains to private firms b. Income derived from any
without retirement trust fund); public utility or from the
b. those received by officials and exercise of any governmental
employees of private employers function;
in accordance with a reasonable c. Prizes and awards made
private benefit plan; primarily in recognition of
Requisites: religious, charitable, scientific,
(1) in the service of the same educational, artistic, literary, or
employer for at least 10 civic achievement
years; Requisites:
(2) at least 50 years old; (1) recipient was selected
(3) must be availed of only once without any action on his
(4) plan approved by the BIR part; and
(R.R.2-98); (2) recipient is not required to
c. separation pay because of render substantial future
death, sickness, or other services.
physical disability or for any d. Prizes and awards granted to
cause beyond the control of the athletes in sports competitions
official or employee (e.g. and sanctioned by their national
retrenchment, redundancy or sports association ;
cessation of business); e. 13th month pay and other
“for any cause beyond the benefits up to P30,000.00;
control of said official or f. GSIS,SSS, Medicare and union
employee” – connotes dues of individuals;
involuntariness on the part of g. Gains derived from debt
the official or employee; securities with a maturity of
separation must not be asked or more than 5 years;
initiated by the official or h. Gains from redemption of shares
employee. in Mutual Fund.
d. social security benefits,
retirement gratuities, pensions EXCLUSIONS VS. DEDUCTIONS
and other similar benefits
received by citizens and aliens Exclusions Deductions
who come to reside permanently [Sec. 32(B)] [Sec. 34]
here from foreign sources
private or public; Refer to flow of Refer to the amounts
e. benefits due to residents under wealth which are not which the law allows
the laws of the U.S. treated as part of to be subtracted
gross income from gross income in
administered by the U.S.
because: order to arrive at net
Veterans Administration (1) exempted by the income
f. SSS benefits; and fundamental law; (2)
g. GSIS benefits. exempted by statute;
(3) do not come
7. Miscellaneous items within the definition
of income

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Exclusions Deductions 2. Non-resident aliens not engaged in

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

purposes partake of the nature of tax personal exemptions (only) subject
exemptions; hence, if tax exemptions to reciprocity, i.e.,
are to be strictly construed, then it a. the country of which he is a
follows that deductions must also be subject or citizen has an income
strictly construed. tax law; and
b. the income tax law of his
TAXPAYERS WHO CANNOT AVAIL OF DEDUCTIONS country allows personal
FROM GROSS INCOME exemption to citizens of the
1. Citizens and resident aliens whose Philippines not residing therein,
income is purely compensation but deriving income therefrom
income (except for premium and not to exceed the amount
payments on health and/or allowed in NIRC.
hospitalization insurance);

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The personal exemption shall be without qualified dependent

equal to that allowed by the income children.
tax law of his country to a citizen of 2. P 25,000 – Head of the family or
the Philippines not residing therein, married individual judicially
or the amount provided in the NIRC, decreed legally separated
whichever is lower. with qualified dependent
children.
Individuals not entitled to these 3. P 32,000 – For each legally
exemptions: married individual.
a. Non-resident Alien not engaged
in trade or business Head of the Family
b. Alien individual employed by 1. Unmarried or legally separated
Regional or Area Headquarters person with one or both parents,
of Multinational Companies or one or more brothers or
c. Alien individual employed by sisters, or one or more
Offshore Banking Units legitimate, recognized natural or
d. Alien individual employed by legally adopted children living
Petroleum Service Contractor with and dependent upon the
and Subcontractor taxpayer for their chief support;
and
c. Itemized deductions “Chief support” means more
a. ordinary and necessary than one-half of the
expenses requirements for support.
b. interests 2. Where such brother / sister or
c. taxes children are not more than 21
d. losses years of age, unmarried and not
e. bad debts gainfully employed, or where
f. depreciation of property; such dependents regardless of
g. depletion of oil and gas wells age, are incapable of self –
and mines; support because of mental or
h. charitable and other physical defect.
contributions;
i. research and development; Parents, brothers, sisters and senior
j. pension trust contributions of citizen with the tax payer, whether
employees; and relative or not, may qualify the
k. premium payments on health taxpayer, to the personal exemption of
and/or hospitalization insurance. P25,000 as head of the family but not to
(This is the only deduction which the additional exemption of P8,000.
a compensation income earner
may claim as a deduction.) B. Additional Exemption for
Dependents [Sec. 35, NIRC]
d. Special deductions P 8,000 – For each of the qualified
a. private proprietary educational dependent children not
institutions and hospitals that exceeding four (4) in
are non-profit (Sec. 34 A, 2) number.
b. insurance companies (Sec. 37) The additional exemption refers
c. estates and trusts (Sec. 61) only to qualified dependent children
such as legitimate, recognized natural,
PERSONAL EXEMPTIONS illegitimate and legally adopted.
The proper claimant of the
A. Amounts of Personal Exemptions additional exemption is the husband
[Sec. 35, NIRC] being the head of the family except
1. P 20,000 – Single individual or under the following cases:
married individual judicially 1. Husband is unemployed
decreed legally separated 2. Husband is working abroad like
an OFW or a seaman

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3. Husband explicitly waived his claim the exemptions as if the

right of the exemption in favor spouse or dependent died or as
of his wife in the withholding if such dependent married,
exemption certificate. became twenty one years old or
became gainfully employed at
A Senior Citizen is: the close of such year.
1. any 4. For any other event and for
resident citizen of the which there are no specific rules
Philippines applicable from the above-
2. at least mentioned, the status of the
sixty 60 years old, including taxpayer at the end of the year
those who have retired from shall determine his exemptions.
both government offices and (strictly construed against the
private enterprises, and taxpayer)
3. has an Examples:
income of not more than Sixty • became legally separated –
thousand pesos (60,000) per can only claim P 20,000
annum subject to the review of • 25 years old child became
the National Economic incapacitated – cannot claim
Development Authority (NEDA) additional exemption
every three years.
ITEMIZED DEDUCTIONS
Parents and dependents qualify
the taxpayer, to the personal A. ORDINARY AND NECESSARY
exemption of P25,000 as head of the EXPENSES
family but not to the additional
exemption of P8,000. NECESSARY EXPENSE – appropriate and helpful
in the development of taxpayer's
NOTE: NRAETB may deduct personal business and are intended to minimize
exemption (not additional losses or to increase profits. These are
exemption), but only to the extent the day-to-day expenses.
allowed by his country to Filipinos ORDINARY EXPENSE – normal or usual in
not residing therein, and shall not relation to the taxpayer’s business and
exceed the aforementioned the surrounding circumstance.
amounts. NRANETB cannot claim
any personal or additional REQUISITES OF BUSINESS EXPENSE TO BE
exemptions. DEDUCTIBLE
1. ordinary and necessary;
C. Change of Status [Sec. 35, NIRC] 2. paid or incurred w/in the taxable
1. If the taxpayer should marry or year;
should have additional 3. paid or incurred in carrying on a
dependents during the taxable trade or business;
year, he may claim the 4. substantiated with official receipts
corresponding exemptions in full or other adequate records.
for such year. 5. if subject to withholding taxes proof
2. If the taxpayer should die during of payment to the Bureau of Internal
the taxable year, his estate may Revenue must be shown.
claim the corresponding 6. must be reasonable (when the
exemptions as if he died at the expense is not lavish, extravagant or
close of such year. excessive under the circumstances)
3. If the spouse or any dependent 7. must not be contrary to law, public
should die or any dependent policy or morals.
should marry or become twenty-
one years old during the year, or NOTE: While illegal income will form
should become gainfully part of income of the taxpayer,
employed, the taxpayer may

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expenses which constitute bribe, business or exercise of profession,

kickback and other similar payment, the same, was not treated as a
being against law and public policy are capital expenditure.
not deductible from gross income. 11. The interest is not expressly
(Subsec. A, 1, c) disallowed by law to be deducted
from gross income of the taxpayer.
CAPITAL EXPENDITURE – An expenditure that
benefits not only the current period but RULES ON DEDUCTIBILITY OF INTEREST EXPENSE
also future periods. It is not deductible General Rule - In general, the amount of
but depreciable, except, if the taxpayer interest expense paid or incurred within
is a non-profit proprietary educational a taxable year of indebtedness in
institution which may elect either to connection with the taxpayer's trade
deduct the capital expense or business or exercise of profession, shall
depreciate it. be allowed as a deduction from the
taxpayer's gross income.
 See Annex E – Business Expenses
Limitation - The amount of interest
 See Annex F – Ceiling on expense paid incurred by a taxpayer in
“Entertainment, Amusement and connection with his trade, business or
Recreational Expenses” exercise of a profession from an existing
indebtedness shall be reduced by an
B. INTEREST amount equal the following percentages
of interest income earned which had
INTEREST – shall refer to the payment for been subjected to final withholding
the use or forbearance or detention of depending on the year when the interest
money, regardless of the name it is income earned, viz:
called or denominated. It includes the 38% - beginning January 1, 2000 and
amount paid for the borrower's use of, thereafter
money during the term of the loan, as
well as for his detention of money after Aim of Limitation: To discourage so-
the due date for its repayment. called “back-to-back” loans where a
taxpayer secures a loan from a bank,
REQUISITES FOR DEDUCTIBILITY (REV. REG. NO. turns around and invests the loan
13-2000) proceeds in money market placements.
1. There must be an indebtedness; By imposing a limit as to the amount of
2. There should be an interest interest expense that can be deducted
from gross income, the previous practice
expense paid or incurred upon
of tax arbitrage was absolutely nullified.
such indebtedness;
3. The indebtedness must be that of Tax Arbitrage – is a method of
the taxpayer; borrowing without entering into a
4. The indebtedness must be connected debtor/creditor relationship, often to
with the taxpayer's trade, business resolve financing and exchange control
or exercise of profession; problems. In tax cases, back-to-back
5. The interest expense must have been loan is used to take advantage of the
paid or incurred during the taxable lower of tax on interest income and a
year; higher rate of tax on interest expense
6. The interest must have been deduction.
stipulated in writing;
7. The interest must be legally due; Illustration:
8. The interest arrangement must not On June 1, 2000 Company X has:
be between related taxpayers; 1. Obtained a loan from ABC Financing
9. The interest must not be incurred to Corporation in connection with the
finance petroleum operations; and operation of its business and its
10. In case of interest incurred to interest expense on the loan
acquire property used in trade, amounted to P 120,000.

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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.
Assume that Company X’s net
• if the indebtedness is payable
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 6. Interest calculated for cost keeping
Taxable Income P456,000 on account of capital or surplus
invested in business which does not
represent charges arising under
Deductible Interest Expense interest-bearing obligation.
1. Interest on taxes, such as those paid 7. Interest paid when there is no
stipulation for the payment thereof.
for deficiency or delinquency, since
taxes are considered indebtedness
OPTIONAL TREATMENT OF INTEREST EXPENSE
(provided that the tax is a
At the option of the taxpayer,
deductible tax, except in the case of
interest incurred to acquire property
income tax). However, fines,
used in trade or business may be
penalties, and surcharges on account
allowed as a deduction or treated as
of taxes are not deductible. The
capital expenditure. [Sec 34 (B)(3),
interest on unpaid business tax shall
NIRC]
not be subjected to the limitation
on deduction.
C. TAXES
2. Interest paid by a corporation on
scrip dividends
Taxes mean TAXES PROPER, and
3. Interest-on deposits paid by therefore no deductions are allowed for:
authorized banks of the Bangko 1. interest
Sentral ng Pilipinas to depositors, 2. surcharges
if it is shown that the tax on such
3. penalties or fines incident to
interest was withheld.
delinquency (Sec. 80, Rev. Reg. 2)
4. Interest paid by a corporate taxpayer
who is liable on a mortgage upon real REQUISITES FOR DEDUCTIBILITY
property of which the said 1. must be in connection with
corporation is the legal or equitable taxpayer’s business;
owner, even though it is not directly 2. tax must be imposed by law on, and
liable for the indebtedness. payable by taxpayer (direct tax);
and
NON-DEDUCTIBLE INTEREST EXPENSE 3. paid or incurred during the taxable
1. An individual taxpayer reporting year.
income on the cash basis incurs an
indebtedness on which an interest is TAXES NOT DEDUCTIBLE

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1. income tax;
2. estate and donor’s tax; WHO ARE NOT ENTITLED TO TAX CREDIT
3. special assessments; 1. non-resident citizens
4. excess electric consumption tax; 2. resident aliens, if without
5. foreign income tax, war profits and reciprocity
excess profits tax, if the taxpayer 3. resident aliens whose income is
makes use of tax credit; and derived solely from sources within
6. final taxes, being in the nature of the Philippines
income tax. 4. foreign corporations (resident and
non-resident)
NOTE: Taxes allowed as deductions,
when refunded or credited, shall be FORMULA FOR COMPUTING LIMITATION
included as part of gross income in the 1. Per country limitation
year of receipt to the extent of the Taxable
income tax benefit of said deduction. income from
(Tax Benefit Rule) foreign country X Phil. = Tax Credit
Taxable income income tax Limit
For NRAETB and RFC, taxes paid or from all sources
incurred are allowed as deductions only
if and to the extent that they are 2. Over-all limitation
connected from income within the Taxable
income from
Philippines. outside sources X Phil. = Tax Credit
Taxable income income tax Limit
EXCEPTIONS to requirement that only from all sources
such persons on whom the tax is
imposed by law can claim deduction The allowable tax credit is the “lower
thereof: amount” between the tax credit
1. Taxes of shareholder upon his computed under No. 1 and No. 2.
interest as such and paid by the
corporation without reimbursement WHEN CREDIT FOR TAXES MAY BE TAKEN
from him, can be claimed by the The credit for taxes provided by
corporation as deduction. Section 30(C)(3) to (9) may ordinarily be
2. A corporation paying the tax for the taken either in the return for the year in
holder its bonds or other obligation which the taxes accrued or on which the
containing a tax-free covenant taxes were paid, dependent upon
clause cannot claim deduction for whether the accounts of the taxpayer
such taxes paid by it pursuant to are kept and his returns filed upon the
such covenant. accrual basis or upon cash receipts and
disbursements basis.
TAX CREDIT
LIMITATIONS ON CREDIT FOR FOREIGN TAXES
DEFINITION: right of an income taxpayer to 1) The amount of credit in respect to
deduct from income tax payable the the taxes paid or accrued to any
foreign income tax he has paid to his country shall not exceed the same
foreign country subject to limitation. proportion of the tax against which
such credit is taken, which the
WHO CAN CLAIM TAX CREDIT taxpayer’s net income from sources
1. resident citizens of the Philippines within such country taxable under
2. resident aliens under the principle of Title II (income Tax) bears to his
reciprocity entire net income for the same
3. domestic corporations which include taxable year; and
partnerships except general 2) The total amount of the credit shall
professional partnership not exceed the same proportion of
4. beneficiaries of estates and trusts the tax against which such credit is
5. members of beneficiaries of local taken, which the taxpayer’s net
partnerships income from sources without the

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Philippines taxable under Title II years of operation may be

(Income Tax) bears to his entire net carried over for the next 5
income for the same taxable year. years.
D. LOSSES
 Requirements:
LOSSES – refer to such losses which do not (1) The taxpayer was not
come under the category of bad debts, exempt from income tax in
inventory losses, depreciation, etc., and the year of such net
which arise in taxpayer's profession, operating loss;
trade or business. (2) The loss was not incurred in
a taxable year during the
REQUISITES FOR DEDUCTIBILITY taxpayer was exempt from
1. Actually sustained during the taxable income tax; and
year (3) There has been no
2. Connected with the trade, business substantial change in the
or profession ownership of the business or
3. Evidenced by a close and completed enterprise.
transaction There is no substantial
4. Not compensated for by insurance or change in the ownership of
other form of indemnity the business when:
5. Not claimed as a deduction for (a) not less than 75% in
estate tax purposes nominal value of the
6. Notice of loss must be filed with the outstanding issued shares
Bureau of Internal Revenue within is held by or on behalf of
45 days from the date of discovery the same persons; or
of the casualty or robbery, theft or (b) not less than 75% of the
embezzlement. paid up capital is held by
or on behalf of the same
NOTE: The taxpayer’s failure to record person.
in his books the alleged loss proves that
the loss had not been suffered, hence, NOTE: The 3 year period shall
not deductible. (City Lumber vs. continue to run notwithstanding
Domingo and Court of Tax Appeals, GR that the corporation paid its taxes
No. L-18611, January 30, 1964) under MCIT, or that the individual
availed the 10% OSD.
CATEGORY AND TYPES OF LOSSES
1. ORDINARY LOSSES
a. Incurred in trade or business, or  See Annex S for illustration.
practice of profession
• Net operating loss carry-over b. Of property connected, with the
(NOLCO) trade, business or profession, if
 Refers to the excess of the loss arises from fires,
allowable deductions over gross storms, shipwreck or other
income of the business for any casualties, or from robbery,
taxable year, which had not theft, or embezzlement.
been previously offset as (1) Total destruction
deduction from gross income. The replacement cost to
 Can be carried over as a restore the property to its
deduction from gross income for normal operating condition,
the next 3 consecutive years but in no case shall the
immediately following the year deductible loss be more than
of such loss. the net book value of the
property as a whole,
 For mines, other that oil and
immediately before
gas well, net operating loss
casualty.
incurred in any of the first ten

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(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
b. Losses resulting from securities expenditures pertaining thereto
becoming worthless and which shall be allowed as a deduction.
are capital assets. (2) In case a producing well is
c. Losses from short sales of abandoned, the unamortized cost
property. thereof, as well as the
d. Losses due to failure to exercise undepreciated cost of equipment
privilege or option to buy or sell directly used therein, shall be
property. allowed as deduction in the year
the well, equipment or facility is
3. SPECIAL KINDS OF LOSSES abandoned.
a. Wagering losses - deductible only to d. Losses due to voluntary removal of
the extent of gain or winnings. [Sec. building incident to renewal or
34 (D)(6)]; deemed to apply only to replacements - deductible expense
individuals from gross income.
b. Losses on wash sales of stocks - not
deductible because these are e. Loss of useful value of capital
considered to be artificial loss. assets due to charges in business
conditions - deductible expense only
Wash sales – a sale or other to the extent of actual loss sustained
disposition of stock or securities (after adjustment for improvement,
where substantially identical depreciation and salvage value)
securities are acquired or purchased
within 61-day period, beginning 30
days before the sale and ending 30
days after the sale. [Sec. 38]
General rule: Losses from wash sales f. Losses from sales or exchanges of
are not deductible. property between related
Exception: When the sale is made by taxpayers -losses of this nature is not
a dealer in stock or securities and deductible but gains are taxable.
with respect to a transaction made in
the ordinary course of the business of g. Losses of farmers - if incurred in the
such dealer, losses from such sale is operation of farm business, it is
deductible. deductible.
Elements of Wash Sales:
(1) The sale or other disposition of h. Loss in shrinkage in value of stock –
stock resulted to a loss; if the stock of the corporation becomes
(2) There was an acquisition or worthless, the cost or other basis may be
contract or option for acquisition deducted by the owner in the taxable
of stock or securities within 30 year in which the stock of its
days before the sale or 30 days worthlessness is made. Any amount
after the sale; and claimed as a loss on account of shrinkage

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in value of the stock through fluctuation in a subse-

quent year 3,000 2, 000 6, 000
in the market or otherwise cannot be
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

ASCERTAINMENT OF WORTHLESSNESS
resulting from the worthlessness or
uncollectibility, in whole or in part, of • Proof of Two Facts:
amounts due the taxpayer by others, 1. taxpayer did in fact ascertain the
arising from money lent or from debt to be worthless, in the year
uncollectible amounts of income from for which deduction is sought,
goods sold or services rendered. 2. that in so doing, he acted in good
faith. (Collector vs. Goodrich
REQUISITES FOR DEDUCTIBILITY International Rubber, GR No. L-
1. Existing indebtedness due to the 22265, Dec. 22, 1967)
taxpayer which must be valid and • Depends upon the particular facts and
legally demandable; the circumstances of the case.
2. Connected with the taxpayer's • Good faith does not require that the
trade, business or practice of taxpayer be an “incorrigible optimist”
profession; but on the other hand, he may not be
3. Must not be sustained in a unduly pessimistic.
transaction entered into between
related parties; F. DEPRECIATION
4. Actually ascertained to be worthless
and uncollectible as of the end of DEPRECIATION – the gradual diminution in
the taxable year.; and the service or useful value of tangible
5. Actually charged off in the books of property due from exhaustion, wear and
accounts of the taxpayer as of the tear and normal obsolescence.
end of the taxable year. The term also applies to
amortization of intangible assets, the
EQUITABLE DOCTRINE OF TAX BENEFIT use of which in trade or business i s of
A recovery of bad debts previously limited duration.
deducted from gross income constitutes
taxable income if in the year the REQUISITES FOR DEDUCTIBILITY
account was written off, the deduction 1. The allowance for depreciation
resulted in a tax benefit. (Tax Benefit must be reasonable.
Rule) 2. It must be for property use or
employment in trade or business or
out of its not being used
Illustration: temporarily during the year.
Case A Case B Case C 3. The allowance must be charged off
Net within the taxable, year.
income
(loss)
4. Schedule on the allowance must be
before attached to the return.
write off
for bad P10,000 (P 9,000) P 5,000 PROPERTY HELD BY ONE PERSON FOR LIFE WITH
debts
Less:
THE REMAINDER TO ANOTHER PERSON
Accounts The deduction shall be computed as
written off if the life tenant was the absolute owner
as bad of the property and, as such the expense
debts 3,000 2,000 6,000
shall accrue to him.
Final Net
Income
(Loss) P 7,000 (P11,000) (P1,000) PROPERTY HELD IN TRUST
Bad debts Allowable deduction shall be
recovery
apportioned between the income

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beneficiaries, and the trustees in = P2,666.67

accordance with the pertinent provisions
of the instrument creating or in the AGREEMENT AS TO USEFUL LIFE ON WHICH
absence of such provisions, on the basis DEPRECIATION RATE IS BASED
of the trust income allowable to each. The Bureau of Internal Revenue and
the taxpayer may agree in writing on the
METHODS OF DEPRECIATION useful life of the property to be
The term "reasonable allowance" depreciated. The agreed rate may be
shall include (but not limited to) an modified if justified by facts or
allowance computed in accordance, circumstances. The change shall not be
with the regulations prescribed by the effective before the taxable year on
Department of Finance, under any of the which notice in writing by certified mail
following methods. or registered mail is served by the party
1. Straight-line method initiating.
2. Declining-balance method SPECIAL TYPES OF DEPRECIATION
3. Sum of the years-digit method 1. Petroleum Operations
4. Any other method which may be • Depreciation of all properties
prescribed by the Department of directly related to production of
Finance upon recommendation of petroleum shall be allowed
the Commissioner of Internal under straight-line (SL) or
Revenue. declining balance (DB) method
• May shift from DB to SL method
METHODS OF DEPRECIATION • Useful life: 10 years or shorter
Kind Formula life as allowed by the
1)Straight-line cost- salvage value Commissioner
estimated life
2)Declining cost – depreciation x Rate • Useful life of property not
balance estimated life directly related to production: 5
3)Sum of the years nth period x cost- salvage years under straight line method
digits (SYD) SYD 2. Mining Operations
• Depreciation on all properties in
Illustration: A machine is used in the mining operations other than
manufacturing department of petroleum operations at the
Corporation A, compute the depreciation normal rate if expected life is
per annum with the following facts: less than 10 years.
Cost = P15,000 Salvage • If expected life is more than 10
Value= P5,000 years, depreciation shall be any
number of years between 5
years and the expected life.
1. Straight Line Method with estimated 3. Depreciation deductible by non-

life = 5 years resident aliens engaged in
15,000 – 5,000 = P2,000 trade/business or non-resident
5 years corporation
a. Only when such property is
2. Declining balance with rate of 200% located in the Philippines.
Year 1: 15,000 – 0 x 200% = P6,000
5 G. DEPLETION OF OIL AND GAS
Year 2:15,000–6,000 x 200% =P3,600 WELLS AND MINES
5
DEPLETION - exhaustion of natural
3. Sum of the years digits resources as in mines, oil, and gas
SYD for 5 years = 5+4+3+2+1 or 15 wells. The natural resources are called
Year 1: 5/15 x (15,000 – 5,000) “wasting assets”. As the physical units
= P3,333.33 representing such resources are
Year 2: 4/15 x (15,000 – 5,000)

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extracted and sold, such assets move

towards exhaustion. 1) Recipient is: 1) Recipient is:
Known as cost of depletion (a) Government (a) Government
allowance for mines, oil gas wells and of the of the
Philippines; Philippines;
other natural deposits starting calendar
(b) Any of its (b) Any of its
year 1976 and fiscal year beginning July agencies or agencies or
1,1975 political political
subdivisions; subdivisions
or
TO WHOM ALLOWED (c) Any fully- For a non-priority
Only mining entities owning owned activity in any of the
economic interest in mineral deposits. government areas mentioned in
Economic interest means interest in corporation A, and exclusively for
a public purpose.
minerals in place investment therein or
For priority
secured by operating or contract activity in:
agreement for which income is derived, 1. Science;
and return of capital expected, from the 2. Education
extraction of mineral. 3. Culture
Mere economic or pecuniary 4. Health
advantage to be derived by production 5. Economic
by one who has no capital investment in Development
the mineral deposit does not amount to 6. Human
Settlement
economic interest.
7. Youth and
Sports
FEATURES Development
1. Intangible Exploration and
development drilling cost in 2) Recipient is a 2) Non-government
petroleum exploration shall be foreign or organizations
treated either as: international
a. revenue expenditures; or organization
with an
b. capital expenditures agreement with
2. The total amount deductible for the Philippine
exploration and development Government on
expenditures shall not exceed 50% of deductibility, or
net income from mining operation. in accordance
with special law.
The excess shall be carried forward
to the succeeding year until fully
deducted. 3) Recipient is an 3) Recipient is an
accredited non- accredited
H. CHARITABLE AND OTHER government domestic
CONTRIBUTIONS organization, corporation or
organized/ operated association
TAX TREATMENT for (purposes): organized/opera
ted for
(purposes):
A. Deductible B. Deductible
In Full Subject To
Limitation

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I. RESEARCH AND DEVELOPMENT

(a) Scientific; (a) Scientific (R&D)
(b) Educational; (b) Educational;
(c) Cultural; (c) Cultural;
(d) Character (d) Youth and sports TAX TREATMENT
building/you development Either as:
th and sports (e) Charitable 1. Revenue Expenditures
development (f) Social welfare Requisites:
(e) Charitable (g) Religious a. Paid or incurred during
(f) Social (h) Rehabilitation of the taxable year
welfare Veterans b. Ordinary and necessary
(g) Health expenses in connection with
(h) Research If the conditions
trade business or profession
in Table A is not
And satisfying complied with: c. Not chargeable to
the following capital account
conditions: Subject to limitation: 2. Deferred Expenses
1. The donation (a) Individual - Requisites:
must be 10% taxable a. Paid or incurred in
utilized not income from connection with trade, business,
later than the trade or profession
th
15 day of business or b. Not treated as expense
the 3rd month profession
c. Chargeable to capital
following the before
contribution account but not chargeable to
close of its property subject to depreciation
taxable year. (b) Corporation -
5% taxable or depletion.
2. The
administrativ income from
e expense trade Amount deductible:
must not business or Amount ratably distributed over
exceed 30% of profession a period of 60 months beginning with
total before the month taxpayer realized
expenses. contribution benefits from such expenditures.
3. Upon
dissolution, EXCLUSION FROM RESEARCH AND DEVELOPMENT
assets must EXPENDITURES
be distributed
1. Any expenditure for the acquisition
to another
non-profit or improvement of land or for the
domestic improvement of property to be used
corporation in connection with research and
or to the development subject to depreciation
state. and depletion.
2. Any expenditure paid or incurred for
the purpose of ascertaining the
REQUISITES FOR DEDUCTIBILITY existence, location, extent or
1. The contribution or gift must be quality of any deposit of ore or other
actually paid. mineral including oil or gas.
2. It must be given to the organizations
specified in the code. J. PENSION TRUST CONTRIBUTIONS
3. The net income of the institution
must not inure to the benefit of any PENSION TRUST CONTRIBUTIONS – a deduction
private stockholder or individual. applicable only to the employer on
account of its contribution to a private
VALUATION pension plan for the benefit of its
Charitable contribution of property employee. This deduction is purely
other than money shall be based on the business in character.
acquisition cost of said property.

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REQUISITES FOR DEDUCTIBILITY

1. The employer must have established REQUISITES FOR DEDUCTIBILITY
a pension or retirement plan to 1. Insurance must have actually been
provide for the payment of taken
reasonable pensions to his 2. The amount of premium deductible
employees; does not exceed P2,400 per family
2. The pension plan is reasonable and or P200 per month during the
actuarially sound; taxable ear.
3. It must be funded by the employer; 3. That said family has a gross income
4. The amount contributed must be no of not more than P250,000 for the
longer subject to the control and taxable year.
disposition of the employer; 4. In case of married individual, only
5. The payment has not yet been the spouse claiming additional
allowed as a deduction; and exemption shall be entitled to this -
6. The deduction is apportioned in deduction.
equal parts over a period of 10
consecutive years beginning with the WHO MAY AVAIL OF THE DEDUCTION
year in which the transfer or 1. Individual taxpayers earning purely
payment is made. compensation income during the
year.
SUMMARY OF RULES ON RETIREMENT BENEFITS PLAN
/ PENSION TRUST
2. Individual taxpayer earning business
income or in practice of his
1. Exempt from Income Tax – profession whether availing of
employees’ trust under Sec. 60(B) itemized or optional standard
2. Exclusion from Gross Income – deductions during the year.
amount received by the employee 3. Individual taxpayer earning both
from the fund upon compliance of compensation, and business or
certain conditions under Sec. 32(B) practice of profession during the
(6) year.
3. Deduction from Gross Income –
a. Amounts contributed by the NON-DEDUCTIBLE EXPENSES
employer during the taxable
year into the pension plan to REASONS FOR NON-DEDUCTIBILITY
cover the pension liability 1. Personal expenses
accruing during the year – 2. Capital expenditures
considered as ordinary and 3. Items not normally subject to
necessary expenses under Sec. income tax and therefore are not
34(A)(1) deductible.
b. 1/10 of the reasonable amount 4. Items taken advantage of by the
paid by the employer to cover taxpayer to avoid payment of
pension liability applicable to income tax.
the years prior to the taxable
year, or so paid to place the SPECIFIC ITEMS (SECTION 36)
trust in a sound financial basis – 1. Personal, living or family expenses;
deductible under Sec. 34(J) 2. Amount paid out for new buildings or
for permanent improvements, or
K. PREMIUM PAYMENTS betterment made to increase the
ON HEALTH AND/OR value of any property or estate,
HOSPITALIZATION INSURANCE Except that intangible drilling
and development cost incurred in
DEFINITION: It is an amount of premium on petroleum operations are
health and/or hospitalization paid by an deductible;
individual taxpayer (head of family or 3. Amount expended in restoring
married), for himself and members of his property or in making good the
family during the taxable year.

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exhaustion thereof for which an 3. Losses from sales or exchanges of

allowance has been made; property [Sec 36 (B)]
4. Premiums paid on any life insurance
policy covering the life of any officer (2) OPTIONAL CORPORATE
or employee, or of any person INCOME TAX
financially interested in any trade or SECTION 27 (A)
business carried on by the taxpayer,
individual or corporate, when the APPLIES TO:
taxpayer is directly or indirectly a 1. Domestic corporations (DC)
beneficiary under such policy. [Sec. 2. Resident foreign corporations (RFC)
36]
5. Losses from sales or exchanges of RATE OF TAX AND DATE OF EFFECTIVITY
property between related 15% of the Gross Income effective
taxpayers. [S ec. 36] January 1, 2000
TRANSACTIONS BETWEEN RELATED PARTIES CONDITIONS OR REQUIREMENTS

1. Between members of the family; 1. A tax effort ratio of 20% of Gross
“Family” includes only the National Product
brothers, sisters (whether by the 2. A ratio of 40% income tax collection
whole or half blood), spouse, to total tax revenues
ancestors, and lineal 3. A VAT tax effort of 4% of GNP
descendants of the taxpayer. 4. A 0.9% ratio of Consolidated Public
2. Except in the case of distributions in Sector Financial Position (CPSFP) to
liquidation: GNP
a. between an individual and a
corporation more than 50% in OTHER FEATURES
value of the outstanding stock of 1. Available only to firms whose
which is owned, directly or ratio of:
indirectly, by or for such
individual; Cost of sales
b. between two corporations more <=55%
than 50% in value of the Gross sales or receipts from all
outstanding stock of each of sources
which is owned, directly or
indirectly, by or for the same 2. The election shall be irrevocable
individual, if either one of such for three (3) consecutive years
corporations, with respect to the
taxable year of the corporation MEANING OF GROSS INCOME
preceding the date of the sale of General concept –
exchange was a personal holding Gross sales
company or a foreign personal Less:
holding company; or (1) Sales Return;
3. Between the grantor and a fiduciary (2) Discount and allowances
of any trust; (3) Cost of goods sold - means
4. Between the fiduciary of a trust and all business expenses
the fiduciary of another trust if the directly incurred to produce
same person is a grantor with the merchandise to bring
respect to each trust; them to their present
5. Between a fiduciary of a trust and a location and use.
beneficiary of such trust.
(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?

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MCIT is imposed on domestic and normal income tax due in the next
resident foreign corporations 3-year period shall be forfeited.
1. Whenever such corporation has zero
or negative taxable income; or
2. Whenever the amount of RELIEF FROM MCIT
MCIT is greater than the normal
income tax due from such The Secretary of Finance is
corporation determined under authorized to suspend the imposition of
Section 27[A]. the MCIT on any corporation which
suffers losses because of:
LIMITATIONS a. prolonged labor dispute;
b. force majeure; or
1. The MCIT shall apply only to c. legitimate business reverses.
domestic and resident foreign
corporations subject to the normal “Substantial losses from a prolonged
corporate income tax (income tax labor dispute" means losses arising from a
rates under Sec 27[A] of the CTRP). strike staged by the employees which
2. In the case of a domestic lasted for more than six (6) months
corporation whose operations or within a taxable period and which has
activities are partly covered by the caused the temporary shutdown of
regular income tax system and partly business operations.
covered under a special income tax “Force majeure" means a cause due
system, the MCIT shall apply on to an irresistible force as by "Act of God"
operations covered by the regular like lightning, earthquake, storm, flood
corporate income tax system. and the like. This term shall also
3. In computing for the MCIT due from include armed conflicts like war and
a resident foreign corporation, only insurgency.
the gross income from sources within “Legitimate business reverses" shall
the Philippines shall be considered include substantial losses sustained due
for such purpose. to fire, robbery, theft, or
embezzlement, or for other economic
WHEN DOES A CORPORATION BECOME reason as determined by the Secretary
LIABLE UNDER THE MCIT? of Finance.
MCIT is imposed beginning on TAX RATE: 2% of gross income or

the fourth taxable year immediately taxable base pertinent to a
following the year in which such trading/merchandising concern or a
corporation commenced its business. service entity
The taxable year in which the business
operations commenced shall be the year TAX BASE: Gross Income
when the corporation registers with the MEANING OF GROSS INOME
BIR.
General concept - gross income means:
CARRY FORWARD OF THE EXCESS Gross sales
MINIMUM TAX Less:
(1) Sales Return;
• Any excess of MCIT over the normal (2) Discount and allowances
income tax can be carried forward (3) Cost of goods sold - means
on an annual basis. all business expenses
• 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

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A. Trading or Merchandising Concern

Gross Income = Cost of Sales = • Gross income excludes passive
gross sales/ 1. Invoice cost income subject to final tax.
receipts less sales of the goods sold; • Other income and Extraordinary
returns, discounts 2. import Income are included since RR 9-98
and allowances and duties; provides that gross sales include
cost of goods sold sales contributory to income taxable
3. freight in
under the regular corporate tax.
transporting the
goods to the place
 See Annex T for interplay of normal
where the goods
tax, optional corporate income tax
are actually sold;
and MCIT.
4. insurance
while the goods
are in transit.
B. Manufacturing Cost of Sales = All
(4) IMPROPERLY ACCUMULATED
Gross Income cost of production of EARNINGS (IAE) TAX
(Same) finished goods, such SECTION 29
as
1.raw materials (REVENUE REGULATIONS NO. 2 – 2001)
used;
2.direct labor; DEFINITION: “Improperly accumulated
3.manufacturing earnings (IAE)” are the profits of a
overhead; corporation that are permitted to
4.freight cost; accumulate instead of being distributed
5.insurance by a corporation to its shareholders for
premiums; the purpose of avoiding the income tax
6.other costs with respect to its shareholders or the
incurred to bring shareholders of another corporation.
the raw materials
to the factory or TAX RATE: 10% of the Improperly
warehouse. Accumulated Taxable Income (in
C. Services Cost of Services = All addition to other taxes).
Gross Income = direct costs and Rationale behind IAET
Gross receipts less expenses necessarily If the earnings and profits were
sales returns, incurred to provide distributed, the shareholders would then
allowances, the services required be liable to income tax thereon,
discounts and costs by the customers and whereas if the distribution were not
of services clients including: made to them, they would incur no tax
a. Salaries and in respect to the undistributed earnings
employee benefits and profits of the corporation. Thus, a
of personnel, tax is being imposed;
consultants and a. in the nature of a penalty to the
specialists directly corporation for the improper
rendering the accumulation of its earnings, and
service; b. as a form of deterrent to the
b. Cost of facilities avoidance of tax upon
directly utilized in shareholders who are supposed
providing the to pay dividends tax on the
service. earnings distributed to them by
It shall not the corporation.
include interest
expense except for “IMPROPERLY ACCUMULATED TAXABLE
banks and other INCOME”
financial
institutions. Taxable income for the year

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Add: vote is owned directly or

Income exempt from tax; indirectly by or for not more
Income excluded from gross income; than twenty (20) individuals.
Income subject to final tax; • Domestic corporations not
Net operating loss carry-over (NOLCO) falling under the aforesaid
Total definition are, therefore,
Less: publicly-held corporations.
Income tax paid/payable for the taxable
year Exception: The said tax shall not apply
Dividends actually or constructively to:
paid/issued from the applicable year’s 1. Publicly held corporations (Sec. 29)
taxable income 2. Banks and other non-banks Financial
Amount reserved for the reasonable intermediaries (Sec. 29)
needs of the business as defined in the
Regulations 3. Insurance companies (Sec. 29)
Tax base of improperly accumulated 4. Taxable partnerships (deemed to
earnings tax have actually or constructively
received the taxable income under
Sec. 73D)
EXCLUSIONS
5. General professional partnerships
(exempt; taxable against the
• For corporations using the calendar partners)
basis the accumulated earnings tax
6. Non- taxable joint ventures and
shall not apply on IAE as of Dec. 31,
7. Enterprises duly registered with the
1997.
Philippine Economic Zone Authority
• For fiscal year basis, the tax shall (PEZA) under R.A. 7916, and
not apply to the 12-month period of enterprises registered pursuant to
fiscal year 1997-1998. the Bases Conversion and
Development Act of 1992 under R.A.
IAE as of the end of a calendar 7227, as well as other enterprises
or fiscal year period on or after Dec. duly registered under special
31, 1998 shall be subject to the 10% economic zones declared by law
tax. which enjoy payment of special tax
rate on their registered operations
WHO ARE COVERED? or activities in lieu of other taxes,
national or local.
General Rule: The IAE tax shall apply to
every corporation formed or availed
8. Foreign corporations [RR No. 02-
for the purpose of avoiding the 2001]
income tax with respect to its
shareholders or the shareholders of EVIDENCE OF PURPOSE TO AVOID
any other corporation, by permitting INCOME TAX
earnings and profits to accumulate
instead of being divided or 1. The fact that any corporation is a
distributed. These are: mere holding company or investment
1. Domestic corporations as company shall be prima facie
defined under the Tax Code; evidence of a purpose to avoid the
2. Corporations which are classified tax upon its shareholders or
as closely-held corporations. members.
• those corporations at least
fifty percent (50%) in value Instances indicative of purpose to
of the outstanding capital avoid income tax upon
stock or at least fifty shareholders:
percent (50%) of the total 1. Investment of substantial
combined voting power of all earnings and profits of the
classes of stock entitled to corporation in unrelated

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business or in stock or earnings intended or reserved

securities of unrelated for investments within the
business; Philippines as can be proven by
2. Investment in bonds and other corporate records and/or
long-term securities; relevant documentary evidence.
3. Accumulation of earnings in
excess of 100% of paid-up The controlling intention of the
capital, not otherwise taxpayer is that which is manifested at
intended for the reasonable the time of accumulation, not
needs of the business as subsequently declared intentions, which
defined in these Regulations. are merely the product of afterthought.
A speculative and indefinite purpose will
2. The fact that the earnings or profits not suffice.
of a corporation are permitted to Definiteness of plan/s coupled with
accumulate beyond the reasonable action/s taken towards its
needs of the business shall be consummation is essential.
determinative of the purpose to
avoid the tax upon its shareholders PERIOD FOR PAYMENT OF DIVIDEND/
or members unless the corporation, PAYMENT OF IAET
by the clear preponderance of Dividends must be declared and paid
evidence, shall prove the contrary. or issued not later than one year
following the close of the taxable year,
“Reasonable needs of the otherwise, the IAET, if any, should be
business” includes the reasonably paid within fifteen (15) days thereafter.
anticipated needs of the business
such as:
a. Allowance for the increase in the (5) INCOME SUBJECT TO
accumulation of earnings up to PREFERENTIAL OR SPECIAL
100% of the paid-up capital of
RATES
the corporation as of Balance
Sheet date, inclusive of
Pertains to income derived by a
accumulations taken from other
particular individual or corporation
years;
belonging to a class of income taxpayer
b. Earnings reserved for definite
that is subject to either a preferential or
corporate expansion projects or
special rate.
programs as approved by the
Board of Directors or equivalent
body;  Tax Rates: Please refer to Annex C.
c. Reserved for building, plants or
equipment acquisition as (6) GROSS INCOME TAX (GIT)
approved by the Board of
Directors or equivalent body; GROSS INCOME TAX (GIT) FORMULA
d. Reserved for compliance with
any loan covenant or pre- Entire Income
existing obligation established Less: Exclusions and Income subject
under a legitimate business to Final Tax (e.g. Passive
agreement; Income)
e. Earnings required by law or Gross Income
applicable regulations to be Multiply by: Tax Rates (%)
retained by the corporation or in
respect of which there is legal Net Income Tax Due
prohibition against its
distribution; GIT APPLIES TO
f. In the case of subsidiaries of
foreign corporations in the 1. Non-resident alien not engaged in
Philippines, all undistributed trade or business (25%); and

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2. Non-resident foreign corporation. 3. Vehicle of any kind

(32%) 4. Household personnel, such as maid,
driver and others
 Tax Rates: Please refer to Annex A 5. Interest on loan at less than market
and B. rate to the extent of the difference
between the market rate and actual
(7) FINAL INCOME TAX rate granted.
6. Membership fees, dues and other
GENERAL PRINCIPLES expenses borne by the employer for
the employee in social and athletic
clubs and similar organizations
1. It is constituted as a full and final
7. Expenses for foreign travel
payment of the income tax due from
8. Holiday and vacation expenses
the payee on a particular type of
9. Educational assistance to the
income subject to final withholding
employee or his dependents; and
tax (FWT).
10. Life or health insurance and other
The finality of the withholding
non-lire insurance premiums or
tax is limited only to the payee’s
similar amounts on excess of what
income tax liability and does not
the law allows.
extend to other taxes that may be
imposed on said income.
PERSONS LIABLE
2. The income subjected to final
income tax is no longer subject to
The EMPLOYER (as a withholding
the net income tax; otherwise, there
agent), whether individual, professional
would be a violation of prohibited
partnership or a corporation, regardless
double taxation.
of whether the corporation is taxable or
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 regional HO
and additional exemptions are not
15 %
allowed.
3. Aliens employed by OBU 15%
4. Aliens employed by Petroleum
(8) FRINGE BENEFIT TAX (FBT) Service Contractors and
Subcontractors 15%
FRINGE BENEFIT TAX is a final income
tax on the employee which shall be “GMV” OF THE FRINGE BENEFIT
withheld and paid by the employer on a REPRESENTS
quarterly basis.
1. The whole amount of income
FRINGE BENEFIT means any good, realized by the employee which
service, or other benefit furnished or includes the net amount of money or
granted by an employer, in cash or in net monetary value of property
kind, in addition to basic salaries, to an which has been received; plus
individual employee (except rank and 2. The amount of fringe benefit tax
file employees) such as, but not limited thereon otherwise due from the
to the following: employee but paid by the employer
1. Housing for and in behalf of the employee.
2. Expense Account

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“GMV” of the fringe benefit than those excluded from gross

shall be determined by dividing the income under the Tax Code and
monetary value of the fringe benefit by other special laws, are taxable
the Grossed up divisor. The Grossed up under the individual normal tax
divisor is the difference between 100% rate.
and the applicable rates. DEDUCTIBILITY TO THE TAXABLE
INCOME OF THE EMPLOYER
GROSSED UP
YEAR RATE
DIVISOR General Rule: The amount of taxable
1998 66% 34% FWT fringe benefit and the fringe benefits tax
1999 67% 33% FWT shall constitute allowable deductions
2000 from gross income of the employer.
68% 32% FWT
onwards Exception:
If the basis for computation of the
FRINGE BENEFITS NOT SUBJECT TO FBT fringe benefits tax is the depreciation
value, the zonal value or the fair market
1. Fringe benefits not considered as value, only the actual fringe benefits tax
gross income – paid shall constitute a deductible
a. if it is required or necessary to expense for the employer. The value of
the business of employer the fringe benefit shall not be
b. if it is for the convenience or deductible and shall be presumed to
advantage of employer have been tacked on or actually claimed
2. Fringe Benefit that is not taxable as depreciation expense by the
under Sec. 32 (B) – Exclusions from employer. Provided, however, that if the
Gross Income aforesaid zonal value or fair market
3. Fringe benefits not taxable under value of the said property is greater
Sec. 33 Fringe Benefit Tax: than its cost subject to depreciation, the
a. Fringe Benefits which are excess amount shall be allowed as a
authorized and exempted under deduction from the employer's gross
special laws, such as the 13th income as fringe benefit expense. (Sec.
month Pay and Other Benefits 2.33[D], Rev. Reg. No. 3-98)
with the ceiling of P30,000.
b. Contributions of the employer EXAMPLE OF DE MINIMIS BENEFITS NOT
for the benefit of the employee SUBJECT TO FBT (RR NO. 8-2000 AND
to retirement, insurance and 10-2000)
hospitalization benefit plans;
c. Benefits given to the Rank and 1. Monetized unused vacation leave
File Employees, whether granted credits of PRIVATE employees not
under a collective bargaining exceeding (10) days during the year
agreement or not; and and the monetized value of leave
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;

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7. Employees achievement awards e. g. 2. Corporations

for length of service or safety a. On sale of shares of stock of a
achievement, which must be in the domestic corporation not listed
form of a tangible personal property and traded thru a local stock
other than cash or gift certificate, exchange, held as capital asset
with an annual monetary value of On the Net Capital Gain –
not exceeding P10,000 received by Not over P100,000 – FT of
the employee under an established 5%
written plan which does not Amount in excess
of P100,000 – FT of 10%
discriminate in favor paid
b. On sale of land/building held as
employees;
capital asset
8. Gifts given during Christmas and On the gross selling price, or the
major anniversary celebrations not current fair market value at the
exceeding P3, 000 per employee per time of sale, whichever is higher
annum; – FT of 6%
9. Flowers, fruits, books or similar (Reyes, Virgilio. Income Tax Law and
items given to employees under Accounting – A New Approach, 2002)
special circumstances
10. Daily meal allowance for overtime CAPITAL GAINS AND LOSSES –
work not exceeding 25% of the basic IN GENERAL
minimum wage.
CONCEPT OF CAPITAL ASSETS
Time for filing of quarterly remittance
return of final income taxes withheld Under the tax code, there is no
The tax imposed under Sec. 33 shall definition for the term "capital assets".
be treated as a final income tax on the What it gives is the meaning of ordinary
employee that shall be withheld and assets:
paid by the employer, whether a large
taxpayer or non-large taxpayer, on or a. Ordinary assets (Sec. 39, NIRC)
before the 10th day of the month a. Stock in trade of the taxpayer or
following the calendar quarter in which other properties of a kind which
the fringe benefits were granted (RR 04- would properly be included in
2002). the inventory of the taxpayer;
 For Additional Rules on Fringe b. Property held by the taxpayer

Benefits, refer to Annex H. primarily for sale to customers in
the ordinary course of business;
(9) CAPITAL GAINS TAX
c. Property used in trade or
SUMMARY OF TAX RATES business and subject to
depreciation; and
1. Individuals
a. On sale of shares of stock of a d. Real property used in trade or
domestic corporation not listed business.
and traded thru a local stock
exchange, held as capital asset b. Capital Assets include all property
On the Net Capital Gain held by the taxpayer whether or not
Not over P100,000 – FT connected in trade or business but
of 5% not including those enumerated
Amount in excess of P100,000 – FT
above (#1) as ordinary assets.
of 10%
b. On sale of real property in the
Philippines held as capital asset
On the gross selling price, or the CAPITAL GAIN CAPITAL LOSS
current fair market value at the
time of sale, whichever is higher –
FT of 6%

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a.100% - if the
The gain derived The loss incurred capital assets has
from the sale or from the sale or been held for 12
exchange of capital exchange of capital mos. or less; and
assets. assets. b.50% - if the
capital asset has
been held for
more than 12
mos.
NET CAPITAL NET CAPITAL
GAIN LOSS
 Non- • Capital losses
The excess of the The excess of the deductibility of are allowed only
gains from sales/ losses from sales or Net Capital to extent of the
exchanges of capital exchanges of capital losses capital gains;
assets over the assets over the gains • Capital losses hence, the net
gains from such from such sales or are allowed only capital loss is
sales/ exchanges. exchanges. to extent of the not deductible.
capital gains; Exception: If any
hence, the net domestic bank or
capital loss is trust company, a
 TRANSACTION RESULTING IN TAXABLE GAINS BUT not deductible. substantial part of
NON-RECOGNITION OF LOSSES whose business is
the receipt of
a. Sale or exchange between deposits, sells any
related parties; bond, debenture,
b. Wash sales by non-dealers of note or certificate
securities and when not subject or other evidence
to the stock transfer tax; of indebtedness
c. Exchanges not solely in kind in issued by any
merger and consolidation; and corporation
d. Sales or exchanges that are not (including one
at arms length. issued by a
government or
political
REQUISITES FOR RECOGNITION OF subdivision)
CAPITAL GAIN/LOSS
 Net Capital Loss • Not allowed
1. The transaction must involve Carry –Over
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:

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The following are considered as sale

or exchange of capital assets: General Rule: Upon the sale or
1. Retirement of bonds exchange of property, the entire gain or
2. Short sales of property loss, as the case may be, shall be
3. Failure to exercise privilege or recognized. [Sec. 40 (C, 1)]
option to buy or sell property
4. Securities becoming worthless Exceptions:
5. Distribution in liquidation of 1. Transactions where gains and losses
corporations are not recognized –
6. Readjustment of interest in a a. Exchange solely in kind in
general professional partnership. legitimate mergers and
TAX FREE EXCHANGES consolidation
Sales or exchanges resulting in non- b. Transfer to a controlled
recognition of gains or losses: corporation [Sec. 40(C, 2)]
1. Exchange solely in kind in legitimate 1. Transactions where
mergers and consolidation; gain is recognized
includes: but not the loss –
a. Between the corporations which a. Transactions between related
are parties to the merger or taxpayers [Sec. 36]
consolidation (property for b. Illegal transactions [Sec. 96,
stocks); Rev. Reg. 2]
b. Between a stockholder of a c. Exchanges of property, not
corporation party to a merger or solely in kind, in pursuance of
consolidation and the other corporate mergers and
party corporation (stock for consolidations [Sec. 40, (C, 3)]
stock);
c. Between a security holder of a IMPORTANT DISTINCTION
corporation party to a merger or If it is an ordinary asset, the
consolidation and the other ordinary gains and losses are considered
party corporation (securities for in determining income or loss from
securities) trade, business or profession. (See Secs.
32A, 34D)
2. Transfer to a controlled corporation If it is a capital asset, determine
– exchange of property for stocks further whether or not it is a real
resulting in acquisition of corporate property located in the Philippines. If it
control by a person, alone or is, then it is subject to capital gains tax.
together with others not exceeding (See Secs. 24D, 27D5) (See also Sec s.
four. 24C, 27D2) If not, the capital gains and
“Control” means ownership of losses are considered in determining the
stocks in a corporation amounting to taxable income. (Sec. 39)
at least 51% of the total voting
power of all classes of stocks CAPITAL GAINS AND LOSSES –
entitled to vote. SHARES OF STOCK
SALE OR EXCHANGE OF ORDINARY ASSETS The taxation of shares of stock

whether or not listed and traded in the
General rules of income taxation stock exchange is subject to final tax.
apply to both gain and loss.
WHO ARE LIABLE TO THE TAX
1. Individual taxpayer, citizen or alien
 See Annex D (Gross Income – Gains 2. Corporate taxpayer, domestic or
from dealings in property) foreign
3. Other taxpayers such as estate,
SUMMARY OF TAX TREATMENT OF trust, trust funds and pension among
GAINS/LOSSES IN THE EXCHANGE OF others.
PROPERTIES

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RATES OF TAX 3. The entire amount of capital gain

and capital loss (not listed and
1. Shares of stock not traded through traded in a local stock exchange)
a local stock exchange – Net capital shall be considered without taking
gains derived during the taxable into account holding period
year from sale, exchange, or irrespective of who is the taxpayer
transfer shall be taxed as follows (on (all 100%)
a per transaction basis): 4. Non-deductibility of losses on wash
Not over P 100,000 - 5% sales.
Over P 100,000 - 10%
2. Shares of stock listed through a FILING AND PAYMENT OF TAX
local stock exchange – ½ of 1% of
the gross selling price of the stock. 1. Listed and Traded in the Stock
EXCEPTIONS TO THE TAX Exchange - The stockbroker shall
1. Gains derived by dealers in turn over the tax collected to the
securities. B.I.R. within five (5) banking days
2. All other gains which are specifically from the date of collection.
exempt from income tax under
existing investment incentives and 2. Not traded through the stock exchange
other special laws. - It shall be paid by the seller on a per
transaction basis upon filing of the
BASIS FOR COMPUTING GAIN OR LOSS (BIR RULING required return within 30 days
146-98) following each sale or other
disposition of shares of stock.
• The fair market value (FMV) of the
sale of shares not traded but listed
CAPITAL GAINS AND LOSSES
in the stock exchange is the highest
closing price on the day the shares (REAL PROPERTY)
were sold, transferred or exchanged.
• When no sale is made in the stock PERSONS LIABLE AND TRANSACTIONS AFFECTED
exchange, the FMV shall be the
highest selling price on the day 1. Individual taxpayers, estates and
nearest to the day of sale, transfer trusts
or exchange. Sale or exchange or other
disposition of real property
• For shares not listed in the
considered as capital assets.
exchange, the FMV shall be the book
The said sale shall include "pacto
value nearest the valuation date
de retro sale" and other conditional
sale.
The above rules shall be used in
2. Domestic Corporation
computing for the net capital gain/loss
Sale or exchange or disposition
for disposition of shares.
of lands and/or building which are
not actually used in business and are
IMPORTANT FEATURES
treated as capital asset.
1. Sale of shares of stock of a domestic  EXCEPTIONS TO THE TAX
corporation listed and traded in a
1. Gains derived by dealers in real
local stock exchange and that of
estate
initial public offering shall be subject
to Percentage tax (Business Tax)
RATE AND BASIS OF TAX
2. Capital losses sustained during the A final tax of 6% is based on the
year (not listed and traded in a local gross selling price or fair market value
stock exchange) shall be allowed as or zonal value whichever is higher.
a capital loss deductible on the same
taxable year only (no carry-over)

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Note: Gain or loss is immaterial, calendar year) in accordance with

there being a conclusive presumption of the method of accounting
gain. employed.
• If no method of accounting
 See Annex G – Guidelines in employed or method does not
Determining Whether a Real clearly reflect the income,
Property is a Capital or an Ordinary computation shall be made in
Asset. accordance w/ such method as
the opinion of the Commissioner
EXEMPTION OF CERTAIN INDIVIDUALS FROM THE CAPITAL clearly reflects the income.
GAINS TAX ON THE SALE OR DISPOSITION OF A • Taxable income is computed
PRINCIPAL RESIDENCE based on calendar year if:
1. accounting period is other
Conditions: than a fiscal year
a. Sale or disposition of the old 2. taxpayer has no accounting
principal residence; period
b. By natural persons - citizens or aliens 3. taxpayer does not keep
provided that they are residents books
taxable under Sec. 24 of the Code 4. taxpayer is an individual
(does not include an estate or a • Fiscal year: accounting period of
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 of gross
d. Notify the Commissioner within income included (Sec. 44)
thirty (30) days from the date of sale
• Amount of all items of gross
or disposition through a prescribed
income shall be included in the
return of his intention to avail the
gross income for the taxable
tax exemption;
year in which received by the
e. Can only be availed of only once taxpayer, unless, any such
every ten (10) years; amounts are to be properly
f. The historical cost or adjusted basis accounted for in a different
of his old principal residence sold, period under methods of
exchanged or disposed shall be accounting permitted
carried over to the cost basis of his • In case of death of taxpayer:
new principal residence include for the taxable year in
g. If there is no full utilization, the which falls the date of his death,
portion of the gains presumed to all amounts which accrued up to
have been realized shall be subject the date of his death; if not
to capital gains tax. otherwise properly includible in
respect of such period or a prior
GROSS INCOME FROM DIFFERENT SOURCES (SEC. period
42)
 Please refer to Annex I. C. Period for which deduction and
credits taken (Sec. 45)
ACCOUNTNG PERIODS AND METHODS OF ACCOUNTING • Deductions provided in this Title
shall be taken for the taxable
I. ACCOUNTING PERIODS year in which ‘paid or incurred,
A. General rule (Sec. 43) dependent upon the method of
Taxable income is computed accounting upon the basis of
upon the basis of taxpayer’s which the net income is
annual accounting period (fiscal or computed, unless, in order to

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reflect the income, deductions - separate final or adjustment

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

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3. wages due to workers as income there from in any

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

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the sale or other or allocation is necessary in

disposition is made. order to prevent evasion of
taxes or to clearly reflect
(3) Sales of real the income of any such
property considered as organization, trade or
capital asset by individuals business.
• 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 2 or 7. Individual whose pure
more organizations, trades compensation income derived
or businesses (incorporated from sources within the Phil.
and organized within the exceeds P60,000.
Philippines) owned or b. Taxable Estate and Trust
controlled directly c. General Professional Partnership
/indirectly by the same d. Corporation
interest 1. Not exempt from income tax;
• Commissioner is authorized 2. Exempt from income tax under
to distribute, apportion or Sec. 30 of NIRC but has not
allocate gross income or shown proof of exemption.
deductions between or
among such organization, INDIVIDUALS EXEMPT FROM FILING INCOME TAX
trade or business, if he RETURN
determines that such
distribution, apportionment

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

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but whose spouse falls under 1 to 4 required to file an information return

above. pursuant to rules and, regulations
6. Non-resident aliens engaged in trade prescribed by the Secretary of Finance
or business in the Philippines upon recommendation of the
deriving purely compensation Commissioner.
income, or compensation income
and other non-business, non- PLACE OF FILING
profession-related income.
1. Legal residence - authorized agent
NOTE: Non-filing of ITR, for employees bank; Revenue District Officer;
who are qualified for the substituted Collection agent or duly authorized
filing shall be OPTIONAL for the taxable treasurer
year 2001, the returns for which shall be 2. Principal place of business
filed on or before April 15, 2002. 3. With the Office of the Commissioner
Thereafter, substituted filing where
applicable shall be MANDATORY. [Sec 5
RR 3-2002)
Time For Filing (Pay as you file system)
REQUIREMENT OF BANKS FOR SUBMISSION OF AN ITR April 15 – for those earning sole
FOR LOAN O R CREDIT CARD APPLICATIONS compensation income or solely business,
practice of profession or combination of
Banks may require the submission of business and compensation.
BIR Form No. 1700 (for employees not
entitled to substituted filing of ITR). RETURN AND PAYMENT OF ESTIMATED INCOME TAX BY
However, for employees entitled to INDIVIDUAL (SELF-EMPLOYED OR PRACTICE OF
substituted filing of ITR, the submission PROFESSION)
of the Joint Certification will suffice.
1. First quarter - April 15 of current year
JOINT CERTIFICATION - It is a sworn statement 2. Second quarter -August 15 of current
made by the employer and employee, year
which serve the following purposes: 3. Third quarter – November 15 of current
1. It contains the employee's consent year
that BIR Form No. 1604CF may be 4. Final quarter - April 15 of the following
considered his substituted return, in year.
lieu of BIR Form No. 1700, which the
employee no longer filed. Note: When the tax due is in excess of P2,
2. It contains the employer's 000 - the taxpayer may elect to pay in two
certification that he has reported (2) equal installments:
the employee's income to the BIR 1st installment - April 15
and that he has remitted the taxes 2nd installment - on or before July 15
on the employee's income, as
indicated in BIR Form No. 1604-CF. EXTENSION OF TIME TO FILE RETURN
3. It serves as proof of financial
capacity in case the employee The Commissioner may on
decides to apply for a bank loan or a meritorious cases grant a reasonable
credit-card, or for any other extension of time for filing income tax
purpose, as if he had in fact filed a return and may subject the imposition of
BIR Form No. 1700. twenty (20) percent interest per annum
from the original due date.
INDIVIDUALS REQUIRED TO FILE AN INFORMATION
RETURN Return Of Husband And Wife
Individuals not required to file an

income tax return may nevertheless be

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• File one (1) return for the taxpayer a. items of gross income and
year if following requisites deductions allowed
complied; b. names of partners
a. Married individuals (citizens, c. TIN
resident or nonresident aliens) d. address and share of each
b. Do not derived income purely partner
from compensation.
Tax Return of a Corporation
• If impracticable to file one return:
Those required to file:
each spouse file a separate return of
1. Corporation subject to tax having
income but the return so filed shall
existed during the taxable year,
be consolidated by the Bureau for
whether with income or not.
the purposes of verification for the
2. Corporation in the process of
year.
liquidation or receivership.
3. Insurance company doing business in
UNMARRIED MINOR
the Philippines or deriving income
therein
• Income of unmarried minors derived 4. Foreign corporation having income
from property received by the living from within the Philippines
parent shall be included in the Filing of return (Pay as you file system)
return of the parent, except: Quarterly returns for the first three
a. when donor’s tax has been paid (3) quarters on a strictly sixty (60) day
on such property, or basis and the final or adjusted return on
b. when transfer of such property is the 15th day of the fourth (4th) month
exempt from donor’s tax following the close of either a-fiscal on
calendar year.
PERSONS UNDER DISABILITY
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
Kinds:
RETURN OF ESTATE, TRUST AND PARTNESHIP
1. Withholding Tax at Source:
a. Final Withholding Tax
Estate and Trust with gross income
b. Creditable Withholding Tax
of P20,000 or more and partnership
(Expanded withholding tax)
(whether professional or business) shall
2. Withholding Tax on Compensation
file their income tax return on or before
(Wages)
April 15.
3. Withholding Tax on Creditable
Value-Added Tax
TAX RETURNS OF GENERAL PROFESSIONAL
4. Withholding of Percentage Tax
PARTNERSHIPS (GPP)
• Each GPP shall file in duplicate, a
FINAL CREDITABLE
return of its income (except those
WITHHOLDING WITHHOLDING
income exempt)
TAX SYSTEM TAX SYSTEM
• Shall set forth:

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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.
COMPENSATION EXEMPTED
- arises at the time an income is paid
or payable, whichever comes first. The 1. Remunerations received as an
term “payable” refers to the date the incident of employment
obligation becomes due, demandable or 2. Remunerations paid for agriculture
legally enforceable. (Sec. 2.54.4 Rev. labor
Regs. 2.98) 3. Remunerations paid for domestic
services
Nature of Withholding Agent’s Liability 4. Remunerations for casual not in the
The withholding agent is directly course of an employer's trade or
and independently liable for the correct business.
amount of the tax that should be 5. Compensation for services of a
withheld from the dividend remittance. citizen, resident of the Philippines,
(Commissioner vs. Procter and Gamble, for a foreign government or an
GR No. 66838, December 2, 1991) international organization
6. Damages
CONSEQUENCES FOR FAILURE TO WITHHOLD: 7. Life insurance
1. liable for surcharges and 8. Amount received by the insured as
penalties; return of premium
2. liable upon conviction to a penalty 9. Compensation for injuries and
equal to the total amount of the sickness
tax not withheld, or not accounted 10. Income exempt under treaty
for and remitted. (Sec. 251, 1997 11. Thirteenth (13th) month pay and
NIRC) other benefits
3. any income payment which is 12. GSIS; SSS; Philhealth and other
otherwise deductible from the contributions,
payor’s gross income will not be
allowed as a deduction if it is Tax-Free Covenant BOND [Sec. 57(C)]
shown that the income tax
required to be withheld is not paid COVENANT BONDS – bonds, mortgages, deeds
to the BIR. (Sec. 2.58.5, Rev. Reg. of trust and other similar obligations of
2-98) 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
GROSS ESTATE
return shall be refunded to him,
subject to Section 204 (abatement,
A decedent’s gross estate includes
refund/credit taxes).
(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
exempted on

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1
the basis of a. allow a similar exemption from

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

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1
3. by deed under which he has retained

1. DECEDENT’S INTEREST for his life or for any period not
To the extent of the interest in ascertainable without reference to
property of the decedent at the time of his death or for any period which
his death. does not in fact end before his
death:
2. TRANSFER IN CONTEMPLATION OF a. the possession or enjoyment of,
DEATH or the right to the income from
1. A transfer motivated by the thought the property; or
of impending death although death b. the right, either alone or in
may not be imminent; or conjunction with any person, to
designate the persons who shall
2. A transfer by which the decedent possess or enjoy the property or
retained for his life or for any period the income therefrom.
which does not in fact end before his
death: Exception: bona fide sale for an
a. the possession or enjoyment of, adequate and full consideration in
or the right to the income from money or money’s worth.
the property, or
b. the right, either alone or in 5. PROCEEDS OF LIFE INSURANCE
conjunction with any person, to Proceeds of life insurance taken by
designate the person who shall the decedent on his own life shall be
possess or enjoy the property or included in the gross estate if the
the income 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
The general power of appointment relinquishment of powers made,
may be exercised by the decedent: created, arising, existing, exercised or
1. by will; or relinquished before or after the
2. by deed executed in contemplation effectivity of the NIRC.
of his death; or

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Property relations between Husband 8. Net share of the surviving spouse in

and Wife the conjugal or community property
The property relations between the
spouses shall be governed by contract 1. ORDINARY
(marriage settlement) executed before DEDUCTIONS
the marriage.
A. Funeral Expenses
In the absence of such contract, or if The amount deductible is the lowest
the contract is void: among the following:
On marriages contracted before August 1. actual funeral expenses
3, 1988, the system of conjugal 2. 5% of the gross estate
partnership of gains shall govern; 3. P200,000.
On marriages contracted on or after
August 3, 1988 (effectivity of the It includes the following:
Family Code of the Philippines), the 1. Mourning apparel of the surviving
system of absolute community of spouse and unmarried minor children
property shall govern. of the deceased, bought and used in
the occasion of the burial.
Exempt Transmissions (Sec. 87) 2. Expenses of the wake preceding the
1. The merger of usufruct in the owner burial including food and drinks.
of the naked title; 3. Publication charges for death
2. Fideicommisary substitution; notices.
3. The transmission from the first heir, 4. Telecommunication expenses in
legatee or donee in favor of another informing relatives of the deceased.
beneficiary, in accordance with the 5. Cost of burial plot. Tombstone
will of the predecessor; and monument or mausoleum but not
All bequests, devices, legacies or their upkeep. In case deceased
transfers to social welfare, cultural and owns a family estate or several
charitable institutions no part of the net burial lots, only the value
income of which inures to the benefit of corresponding to the plot where he
any individual; Provided, that not more is buried is deductible.
than 30% of the said bequests, legacies 6. Interment fees and charges.
or transfers shall be used by such 7. All other expenses incurred for the
institutions for administration purposes. performance of the ritual and
ceremonies incident to the
DEDUCTIONS ON GROSS ESTATE interment.
APPLICABLE TO Expenses incurred after the
RESIDENT ALIENS AND CITIZENS interment, such as for prayers, masses,
(REVENUE REGULATIONS 2- entertainment, or the like are not
2003) deductible.
Any portion of the funeral and burial
The following are deductible from expenses borne or defrayed by relatives
the gross estate of citizens and resident and friends of the deceased are not
aliens: deductible.
1. Expenses, losses, indebtedness,
taxes, etc. (ordinary deductions) Β.JUDICIAL EXPENSES OF THE TESTAMENTARY OR
2. Transfer for public use INTESTATE PROCEEDINGS
3. Vanishing deduction Expenses allowed as deduction under
4. Family home this category are those:
5. Standard deduction equivalent to 1. incurred in the inventory-taking
one million pesos (P1,000,000) of assets comprising the gross
6. Medical expenses estate,
7. Amounts received by heirs under RA 2. administration,
4917 (Retirement Benefits) 3. payment of debts of the estate,
as well as the distribution of the
estate among the heirs.

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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
his lifetime and could have been accommodation loan where the loan
reduced to simple money judgments. proceeds went to another person,
the value of the unpaid loan must be
Claims against the estate or included as a receivable of the
indebtedness in respect of property may estate.
arise out of: • If there is a legal impediment to
1. Contract; recognize the same as receivable of
2. Tort; or the estate, said unpaid obligation/
3. Operation of Law. mortgage payable shall not be
allowed as a deduction from the
gross estate.
Requisites:
1. The liability represents a
• In all instances, the mortgaged
property, to the extent of the
personal obligation of the
decedent's interest therein, should
deceased existing at the time of
always form part of the gross
his death except unpaid
taxable estate.
obligations incurred incident to
his death such as unpaid funeral
F.TAXES
expenses (i.e., expenses
Taxes which have accrued as of the
incurred up to the time of
death of the decedent which were
interment) and unpaid medical
unpaid as of the time of death.
expenses which are classified
under a different category of
The following are not deductible:
deductions;
1. income tax on income received
2. The liability was contracted in
after death
good faith and for adequate and
2. property taxes not accrued
full consideration in money or
before death
money's worth;
3. estate tax
3. The claim must be a debt or
claim which is valid in law and
enforceable in court; Γ.LOSSES
4. The indebtedness must not have Requisites:
been condoned by the creditor 1. It should arise from fire, storm,
or the action to collect from the shipwreck, or other casualty,
decedent must not have robbery, theft or embezzlement;
prescribed. 2. Not compensated by insurance
or otherwise;
D.CLAIMS AGAINST INSOLVENT PERSONS 3. Not claimed as deduction in an
income tax return of the taxable
estate;
Requisites:
4. Occurring during the settlement
1. The amount thereof has been
of the estate; and
initially included as part of his gross
5. Occurring before the last day for
estate (for otherwise they would
the payment of the estate tax

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(last day to pay: six months after 6. No vanishing deduction on the

the decedent’s death). property was allowable to the estate
of the prior decedent.
2. TRANSFER FOR PUBLIC USE
4. FAMILY HOME
Requisites:
1. The disposition is in a last will and Conditions:
testament 1. The family home must be the actual
2. To take effect after death residential home of the decedent
3. In favor of the government of the and his family at the time of his
Phil., or any political subdivision death, as certified by the Barangay
thereof Captain of the locality where the
4. For exclusive public purposes. family home is situated;
2. The total value of the family home
Note: This should also include bequests, must be included as part of the gross
devices, or transfers to social welfare, estate of the decedent; and
cultural and charitable institutions. 3. Allowable deduction must be in an
amount equivalent to
3. VANISHING DEDUCTION 1. the current fair market value of
the family home as declared or
DEFINITION: The deduction allowed from included in the gross estate, or
the gross estate for properties that were 2. the extent of the decedent's
subject to donor’s or estate taxes. It is interest (whether
called vanishing deduction because the conjugal/community or exclusive
deduction allowed diminishes over a property), whichever is lower,
period of five years. The rate of but not exceeding P1,000,000
deduction depends on the period from 5. STANDARD DEDUCTION
the date of transfer to the death of the
decedent, as follows: A deduction in the amount of One
Million Pesos (P1,000,000) shall be
PERIOD DEDUCTION allowed as an additional deduction
• 1 year or less 100% without need of substantiation.
• 1 year – 2 years 80% The full amount of P1,000,000 shall
• 2 years – 3 years 60% be allowed as deduction for the benefit
• 3 years – 4 years 40% of the decedent.
• 4 years – 5 years 20%
6. MEDICAL EXPENSES
Requisites:
1. the present decedent died within 5 • Any amount of medical expenses
years from transfer of the property incurred within one year from death
from a prior decedent or donor. in excess of Five Hundred Thousand
2. The property must be located in the Pesos (P500,000) shall no longer be
Phils. allowed as a deduction under this
3. The property formed part of the subsection.
taxable estate of the prior decedent, • Neither can any unpaid amount
or of the taxable gift of the donor. thereof in excess of the P500,000
4. The estate tax or donor’s tax on the threshold nor any unpaid amount for
gift must have been finally medical expenses incurred prior to
determined and paid. the one-year period from date of
5. The property must be identified as death be allowed to be deducted
the one received from the prior from the gross estate as claim
decedent, or something acquired in against the estate.
exchange therefor.

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7. AMOUNT RECEIVED BY HEIRS estate of citizens and resident aliens

UNDER REPUBLIC ACT NO. subject to the following limitations
4917
1. One foreign country only
The tax credit is whichever is
Any amount received by the heirs
lower between:
from the decedent's employer as a
4. Estate tax paid to the foreign
consequence of the death of the
country
decedent-employee in accordance with
5. Tax Credit Limit =
Republic Act No. 4917 is allowed as a
NTE, foreign country X Phil. estate
deduction provided that the amount of
NTE, world Tax
the separation benefit is included as
part of the gross estate of the decedent.
(NTE - Net Taxable Estate)
8. NET SHARE OF THE 2. More than one foreign country
SURVIVING SPOUSE IN THE The credit shall be that which is
CONJUGAL PARTNERSHIP OR the lower amount between Limit A
COMMUNITY PROPERTY and Limit B.
After deducting the allowable Limit A. Whichever is lower

deductions (only the ordinary between:
deductions) appertaining to the conjugal • Estate tax paid to a foreign
or community properties included in the country
gross estate, the share of the surviving • Tax Credit Limit =
spouse must be removed to ensure that NTE, foreign country X Phil. estate
only the decedent's interest in the NTE, world Tax
estate is taxed.
Limit B. Whichever is lower
DEDUCTIONS ON GROSS between:
ESTATE APPLICABLE TO • Total of estate taxes paid to all
foreign countries
NON-RESIDENT ALIENS
• Tax Credit Limit =
NTE outside Phil. X Phil. estate
The following are deductible from the gross
estate of non-resident aliens: NTE, world Tax
1. Expenses, losses, indebtedness and

taxes (ELIT) (ordinary deductions)
SETTLEMENT OF THE
Formula: ESTATE TAX
Tax = Phil. Gross
Credit Estate X World A. FILING
Limit World Gross ELIT
Estate Notice Of Death To Be Filed
In all cases of transfers subject to
2. Transfer for public use tax, or where, though exempt from tax,
the gross value of the estate exceeds
3. Vanishing deduction on property in P20,000, the executor, administrator or
the Philippines. any of the legal heirs, within two
months after the decedent’s death, or
4. Conjugal share of the surviving within a like period after qualifying as
spouse such executor or administrator, shall
give a written notice thereof to the
ESTATE TAX CREDIT Commissioner. (Sec. 89)
A tax credit is granted for estate An Estate Tax Return Is Required To Be

taxes paid to a foreign country on the Filed

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1. when the estate is subject to estate - with the Revenue District

tax; or Office where such executor or
2. when the estate is not subject to administrator is registered
estate tax but the gross estate b. executor or administrator is not
exceeds P 200,000; or registered
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

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No shares or other forms of securities them the amount of the tax

shall be transferred in the books of any proportionate to the inheritance
corporation, partnership, business or received, or
industry organized in the Philippines, b. Pursuant to the lien created by
unless a similar certification by the Section 219 of the Tax Code
Commissioner is shown. (Sec. 97) upon all property and rights to
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
court or estate settlement of court’s DEFINITION: A tax on the privilege of
approval of the State’s claim for estate transmitting one’s property or property
taxes before the same can be enforced rights to another or others without
and collected by the BIR. On the adequate and full valuable
contrary, under Section 94, it is the consideration.
probate or settlement court which is
bidden not to authorize the delivery of Coverage Of The Tax (SEC. 104)
the distributive share to any interested
party without a certification from the RESIDENT & NON-
CIR showing the payment of the estate RESIDENT CITIZEN, NON-RESIDENT
tax. (Marcos II vs. Court of Appeals, GR RESIDENT ALIEN ALIEN DONOR
No. 120880, June 5, 1997) DONOR
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
Internal Revenue, GR No. 16661, b. Intangible personal
January 31, 1962) property 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

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Requisites STRANGER - a person who is not a brother,

sister, spouse, ancestor and lineal
1. Capacity of the donor descendant, or of a relative by
2. Donative Intent consanguinity in the collateral within the
3. Delivery, whether actual or 4th civil degree.
constructive, of the subject gift • A legally adopted child is entitled to
4. Acceptance by the donee all the rights and obligations
provided by law to legitimate
Law that governs the imposition of children, and therefore, donation to
Donor’s Tax him shall not be considered as
donation made to stranger.
The donor’s tax shall not apply • Donation made between business
unless and until there is a completed organizations and those made
gift. The transfer is perfected from the between an individual and a business
moment the donor knows of the organization shall be considered as
acceptance by the donee; it is donation made to a stranger.
completed by the deliver, either
actually or constructively, of the Valuation of gifts of property
donated property to the donee. Thus, The fair market value of the
the law in force at the time of the property given at the time of the gift
perfection/completion of the donation shall be the value of the gift.
shall govern the imposition of the
donor’s tax.
A gift that is incomplete because of Intangible personal properties with a

reserved powers, becomes complete situs in the Phil. (same as in estate tax
when either: subject to the reciprocity rule) (Sec.
1. the donor renounces the power; 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 Less: Deductions from gross xxx
conjugal partnership or absolute gifts
community after the dissolution Net gifts xxx
of the marriage in favor of the Multiply by: Tax Rate xxx
heirs of the deceased spouse or Donor’s tax on the net gifts xxx
any other person/s is subject to
donor's tax.
2. On donation of a subsequent
• Whereas general renunciation date during the year
by an heir, including the
surviving spouse, of his/her Gross gifts made on this date XX
share in the hereditary estate Less: Deductions from gross gifts XX
left by the decedent is not Net gifts XX
subject to donor's tax, unless Add: All prior net gifts within the XX
specifically and categorically year
done in favor of identified heir/s Aggregate net gifts XX
to the exclusion or disadvantage Multiply by: Tax Rate XX
of the other co-heirs in the Donor’s tax on aggregate net gifts XX
hereditary estate. (Sec. 11, Rev. Less: Donor’s tax on all prior net XX
Reg. 2-2003) gifts
Donor’s tax on the net gifts on this XX

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date enumerated in its Articles of

Incorporation.
Exemption of certain gifts
Tax credit for donor’s taxes paid to a
1. Gifts made by a resident foreign country
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

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SETTLEMENT OF THE DONOR’S TAX  See Annex W - Donor’s Tax

Time for Filing of Return and payment
of the Donor’s Tax C. TAX REMEDIES
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

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2. Substantive – remedies provided for case may be) of the offer in the
by law or regulation; an essential part or settlement of the original claim.
constituent or relating to what is
essential Officers authorized to compromise
3. Procedural – remedies involving law of
pleading, evidence, jurisdiction, etc. 1. The Commissioner of Internal
4. Administrative – remedies available at Revenue (CIR) with respect to
the administration (BIR) level criminal and civil cases arising from
5. Judicial – remedies that are violations of the Tax Code [Secs.
enforced through judicial action, 7(C) and 204, 1997 NIRC]. This
which may be civil or criminal power of the CIR is discretionary and
once exercised by him cannot be
tax remedies of the government to reviewed or interfered with by the
effect collection of taxes Courts. (Koppel, Philippines vs.
Commissioner, GR No. L-1977,
1. Compromise (Sec. 204) September 21, 1950)
2. Distraint (Actual and 2. By the Regional Evaluation Board
Constructive) (Secs. 205-208) composed of:
3. Levy (Sec. 207B) a. the Regional Director as
4. Tax Lien (Sec. 219) Chairman,
5. Civil Action (Sec. 221) b. Assistant Regional Director,
6. Criminal Action (Secs. 221, and the heads of the Legal,
222) Assessment and Collection
7. Forfeiture of Property (Sec. Divisions, and
224-225) c. the Revenue District Officer
8. Suspension of business having jurisdiction over the
operations in violation of VAT taxpayer, as members;
(Sec. 115) • on assessments issued by the
9. Enforcement of Administrative regional offices involving basic
Fine taxes of P500,000 or less, and
minor criminal violations.
The remedies of distraint and levy as
well as collection by civil and criminal Cases which may be compromised
actions may, in the discretion of the
Commissioner, be pursued singly or 1. Delinquent accounts
independently of each other, or all of 2. Cases under administrative protests
them simultaneously. 3. Civil tax cases being disputed before
the courts
4. Collection cases filed in courts
(1) COMPROMISE 5. Criminal violations, other than those
already filed in court or those
DEFINITION: A contract whereby the involving criminal tax fraud; and,
parties, by reciprocal concessions, avoid 6. Cases covered by pre-assessment
litigation or put an end to one already notices but taxpayer is not agreeable
commenced (Art. 2028, New Civil to the findings of the audit office as
Code). confirmed by the review office.
(Sec.2, Rev. Reg. 7-2001)
Requisites
1. The taxpayer must have a tax Exceptions
liability.
2. There must be an offer (by the 1. Withholding tax cases;
taxpayer of an amount to be paid by 2. Criminal tax fraud cases;
the taxpayer) 3. Criminal violations already filed in
3. There must be an acceptance (by court;
the Commissioner or taxpayer as the

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4. Delinquent accounts with duly authorized representative, in

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

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return of capital at the time of distrainable assets, other than his

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

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

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2. Those involving fraud [Sec. 204(B), a. If it is a judicial compromise, it

1997 NIRC]. can be enforced by mere
execution. A judicial compromise
Extent of the Commissioner’s is one where a decision based on
Discretion to Compromise Criminal the compromise agreement is
Violations rendered by the court on request
of the parties.
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
penalty and not the interest

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imposed under Sec. 249 of the (2) DISTRAINT

Code;
d. When the assessment is brought DEFINITION: It is the seizure by the
about or the result of taxpayer’s government of personal property,
non-compliance with the law due tangible or intangible, to enforce the
to a difficult interpretation of said payment of taxes. The property may be
law. offered in a public sale, if taxes are not
e. When the taxpayer fails to file the voluntarily paid. It is a summary remedy.
return and pay the correct tax on
time due to circumstances beyond Nature of the Warrant of Distraint or
his control, provided, however, Levy
the abatement shall only cover
the surcharge and the compromise The warrant is a summary procedure
penalty and not the interest “forcing” the taxpayer to pay. The
imposed under Sec. 249 of the receipt of a warrant may or may not
Code; partake the character of a final decision.
f. Late payment of the tax under If it is an indication of a final decision,
meritorious circumstances (ex. the taxpayer may appeal to the CTA
Failure to beat bank cut-off time, within 30 days from service of the
surcharge erroneously imposed, warrant.
etc.) (Sec. 2, Rev. Reg. 13-2001)
∗ Duties of the officer serving the
2. The administration and collection warrant of distraint:
costs involved do not justify the 1. Make an account of the personal
collection of the amount due [Sec. properties distrained;
204(B), 1997 NIRC]. 2. Sign the list of personal
a. Abatement of penalties on properties distrained to which
assessment confirmed by the shall be added, a statement of
lower court but appealed by the the sum demanded and note of
taxpayer to a higher court the time and place of sale;
b. Abatement of penalties on 3. Leave either with the owner or
withholding tax assessment under person from whose possession
meritorious circumstances such personal properties were
c. Abatement of penalties on taken, or at the dwelling or
delayed installment payment place of business of such person
under meritorious circumstances with someone of suitable age
d. Abatement of penalties on and 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

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ACTUAL CONSTRUCTIVE 2. Amount of delinquent tax is

DISTRAINT DISTRAINT P1,000,000 or less – Revenue District
Officer. (Sec. 207(A), 1997 NIRC)
Made only on the Made on the property
property of a of any taxpayer, AUTHORITY OF THE COMMISSIONER TO INQUIRE INTO
delinquent taxpayer whether delinquent BANK DEPOSIT ACCOUNTS
or not
Distraint includes garnishment of
There is taking of The taxpayer is
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 provision of RA 1405, the Commissioner
service of a warrant property or by the is authorized to inquire into the bank
of distraint or revenue officer
deposits of:
garnishment preparing and leaving
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 proceedings
taxes;
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

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officer of the corporation,

company or association which IV
issued the said stock and Sale of Property Distrained
securities.
3. Bank accounts shall be garnished by
serving a warrant of distraint –
(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
to the taxpayer to pay to the Taxpayer’s obligation to preserve
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

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(b) in the presence of two (2) witnesses Service of written notice to:
leave a copy thereof in the premises (a) the delinquent taxpayer; or
where the property distrained is located, (b) if he is absent from the Philippines,
after which the said property shall be to his agent or manager of the business
deemed to have been placed under in respect to which the liability arose; or
constructive distraint. c. to the occupant of the property.
d. the proper Register of Deeds shall
( 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. 1. 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
Refers to personal Refers to real

II
property property
Service of Notice
Forfeiture by the Forfeiture is
government is not authorized

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DISTRAINT LEVY AmJur 881). Generally, it attaches to

provided the property irrespective of ownership
or transfer thereof.
The taxpayer is not The right of
given the right of redemption is Extent and nature
redemption with granted in case of
respect to distrained real property levied
The tax, together with interests,
personal property. upon and sold, or
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 any mortgagee, purchaser, or judgment
the tax involved is not more than P100 creditor until notice of such lien shall be
filed by the Commissioner of Internal
Redemption of Property Sold Revenue in the Office of the Register of
Deeds of the province or city where the
Within 1 year from the date of sale, property of the taxpayer is situated or
the property may be redeemed by the located (Sec. 219, 1997 NIRC).
delinquent taxpayer or anyone from him,
upon payment of the taxes, penalties
and interest thereon from the date of When does it Attach?
delinquency to the date of sale,
together with interest on purchase price Not only from the service of the
at 15% per annum from the date of sale warrant of distraint but from the time
to the date of redemption. (Sec. 214, tax became due and payable.
NIRC).
Lien vs. Distraint
Forfeiture to the Government
LIEN DISTRAINT
If there is no bidder in the public
sale or if the amount of the highest bid Directed against Need not be
is insufficient to pay the taxes, penalties the property directed against the
and costs, the real property shall be subject to the tax property subject to
forfeited to the Government. tax
Regardless of the Property seized

Further Distraint and Levy
owner of the must be owned by
property the taxpayer
The remedy of distraint and levy
may be repeated if necessary until the
full amount of the tax delinquency due
including all expenses is collected from (5) 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
1. When a tax is assessed but the
property, either real or personal,
assessment becomes final and
established by law as a security in
unappealable because the taxpayer
default of the payment of taxes (51

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fails to file an administrative shall also order the payment of taxes

protest with the CIR within 30 days subject of the criminal case as finally
from receipt; or decided by the Commissioner (Sec. 205,
2. When a protest against assessment is NIRC).
filed and a decision of the CIR was
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

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1
The subsequent satisfaction of civil action or proceeding, civil or

liability by payment or prescription does criminal, as the case may require.
not extinguish the taxpayer’s criminal c. In case of distilled spirits, liquors,
liability. cigars, cigarettes manufactured,
products of tobacco and apparatus
NO SUBSIDIARY IMPRISONMENT used for their production – Upon
forfeiture, may be destroyed by
In case of insolvency on the part of order of the Commissioner where the
the taxpayer, subsidiary imprisonment sale may be injurious to public
cannot be imposed as regards the tax health or prejudicial to law
which he is sentenced to pay. enforcement.
However, it may be imposed in cases
of failure to pay the fine imposed. (Sec.
280, 1997 NIRC)
CRIMINAL ACTION MAY BE FILED

DURING THE PENDENCY OF AN d. Other articles subject to excise tax
ADMINISTRATIVE PROTEST IN THE BIR which have been manufactured or
removed in violation of the Code,
It is not a requirement for the dies for printing or making fake
filing thereof that there be a precise revenue stamps and labels – Upon
computation and assessment of the tax, forfeiture may be sold or destroyed
since what is involved in the criminal at the discretion of the
action is not the collection of tax but a Commissioner. Forfeited property
criminal prosecution for the violation shall not be destroyed until at least
of the NIRC. Provided, however, that 20 days from seizure.
there is a prima facie showing of a
willful attempt to evade taxes. (See EFFECT OF THE FORFEITURE OF
Ungab vs. Cusi, GR Nos. L-41919-24, May PROPERTY
30, 1980 in relation to Commissioner vs.
Court of Appeals, GR No. 119322, June The effect is to transfer the title to
4, 1996) the specific thing from the owner to the
government. All the proceeds in case of
(7) FORFEITURE a sale go to the coffers of the
government (U.S. vs. Surla, GR No.
DEFINITION: divestiture of property 6536, September 2, 1911). In seizure for
without compensation, in consequence the enforcement of a tax lien, the
of a default or offense. residue, after deducting the tax liability
and expenses will go to the taxpayer
ENFORCEMENT OF THE REMEDY OF (Bank of the Phil. Island vs. Trinidad,
FORFEITURE GR No. 16014, October 4, 1941).
a. In case of personal property – The INFORMER’S REWARD (Sec 282)

forfeiture of chattels and removable A. For violations of the NIRC, a reward
fixtures of any sort is enforced by of 10% of the revenues, surcharges,
seizure and sale or destruction of or fees recovered and/or fine or
the specific forfeited property. penalty imposed and collected or P 1
b. In case of real property – The M per case, whichever is lower shall
forfeiture of real property is be given to:
enforced by a judgment of 1. any person who voluntarily gives
condemnation and sale in a legal definite and sworn information
not yet in the possession of the

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BIR leading to the discovery of Note: Remedy of taxpayer is to file a

fraud upon the Internal Revenue return.
Laws and/or any violations thereof 3. Defense of prescription is
2. an informer where the offender waivable;
has offered to compromise the
violation of law comiited by him WHAT CONSTITUTES ASSESSMENT?
and his offer has been accepted
and collected by the CIR . This An assessment contains not only
excludes an Internal Revenue a computation of tax liabilities but also
Officer/employee or other public a demand for payment within a
official/employee, or his relative prescribed period.
within the sixth degree
* This shall not refer to a case already PRESCRIPTIVE PERIOD FOR THE
pending or examined by the CIR ASSESSMENT OF TAXES
B. For the discovery and seizure of General Rule:

smuggled goods Three (3) years after the date
- a reward of 10% of the FMV of the the return is due or filed, whichever is
smuggled and confiscated goods or later (Sec. 203, 1997 NIRC).
P 1 M per case, whichever is
lower, shall be given to persons Exceptions:
instrumental in the discovery and 1. Failure to file a return: ten (10)
seizure of such smuggled goods. years from the date of the
discovery of the omission to file
* This does not apply to all public the return (Sec.222[A]);
officials whether incumbent or retired, 2. False or fraudulent return with
who acquired the information in the intention to evade the tax: ten
course of performance of their duties (10) years from the date of the
during their incumbency. discovery of the falsity or fraud
(Sec.222 [A]);
Note: Nothing in Section 222(A)
PRESCRIPTIVE PERIODS FOR shall be construed to authorize the
examination and investigation or
THE ASSESSMENT AND inquiry into any tax return filed in
COLLECTION OF TAXES accordance with the provisions of
any tax amnesty law or decree.
RATIONALE OF PRESCRIPTIVE PERIODS • Fraud must be alleged and

proved as a fact. It must be the
Such periods are designated to product of a deliberate intent to
secure the taxpayers against evade taxes. It may be
unreasonable investigation after the established by the:
lapse of the period prescribed. They are a. Intentional and substantial
also beneficial to the government understatement of tax
because tax officers will be obliged to liability by the taxpayer;
act promptly. b. Intentional and substantial
overstatement of deductions
RULES ON PRESCRIPTION of exemptions; and/or
c. Recurrence of the above
1. When the tax law itself is silent circumstances
on prescription, the tax is • Falsity constitutes a deviation
imprescriptible;
from the truth due to mistake,
2. When no return is required, tax
carelessness or ignorance.
is imprescriptible;

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There is fraud in the following decided the extended period previously

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

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ON A BOND WHICH THE TAXPAYER PRESCRIPTIVE PERIOD FOR THE

EXECUTES IN ORDER TO SECURE THE VIOLATION OF ANY PROVISION OF THE
PAYMENT OF HIS TAX OBLIGATION? TAX CODE (SEC. 281, 1997 NIRC)
Ten (10) years under Art. 1. Should be filed within five (5) years
1144(1) of the Civil Code and not three from the (a) day of the commission
(3) years under the NIRC. In this case, of the violation of the law, and if
the Government proceeds by court the same be not known, from the (b)
action to forfeit a bond. The action is discovery thereof and the
for the enforcement of a contractual institution of the judicial
obligation. (Republic vs. Araneta, GR proceedings for its investigation and
No. L-14142, May 30, 1961) punishment.
GROUNDS FOR SUSPENSION OF THE 2. Illustrative case: (Lim vs. Court of

RUNNING OF THE STATUTE OF Appeals GR Nos. 48134-37, Ocober
LIMITATIONS 18 , 1990)
a. charge is failure or refusal to
a. When the CIR is prohibited from pay deficiency income tax –
making the assessment or committed only after the finality
beginning the distraint or levy or of the assessment coupled with
a proceeding in court, and for the taxpayer’s willful refusal to
sixty (60) days thereafter; pay the taxes within the allotted
b. When the taxpayer requests for period. (i.e. cannot be
a reconsideration which is committed upon filing the
granted by the CIR; return)
c. When the taxpayer cannot be b. charge is filing of false or
located in the address given by fraudulent return with intent
him in the return, unless he to evade the assessment – in
informs the CIR of any change in addition to the fact of discovery,
his address. there must be a judicial
d. When the warrant of distraint or proceeding for the investigation
levy is duly served, and no and punishment of the tax
property is located; and offense before the 5 year
e. When the taxpayer is out of the prescriptive period begins to
Philippines (Sec. 223, 1997 run.
NIRC).
A TAX RETURN IS CONSIDERED FILED II. TAX REMEDIES OF THE

FOR PURPOSES OF STARTING THE
RUNNING OF THE PERIOD OF TAXPAYER
LIMITATIONS IF
a. The return is valid – it has complied General Remedies

substantially with the requirements
of the law; and A. ADMINISTRATIVE
Before Payment
b. The return is appropriate – it is a a. Protest – filing a petition for
return for the particular tax required reconsideration or
by law. reinvestigation within 30
days from receipt of
Note: A defective tax return is the assessment Within 60 days
same as if no return was filed at all. from filing of protest, all
relevant supporting
documents should have been
submitted, otherwise, the
assessment shall become

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final – cannot be appealed sale or destruction thereof, to

(Sec. 228, 1997 NIRC). recover the same, and upon giving
proper bond, enjoin the sale; or
Note: Submission of documents after the sale and within 6
within the 60 day period is months, an action to recover the
optional to the taxpayer. net proceeds realized at the sale
(Sec. 231, 1997 NIRC); and
"That the relevant c. Action for damages against a
supporting documents revenue officer by reason of any
mentioned in the law refers act done in the performance of
to such documents which the official duty (Sec. 227, 1997
taxpayer feels would be NIRC).
necessary to support his Criminal Action
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

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1. Direct denial of protest denial. (Commissioner vs. Union

Admnistrative decision on a disputed Shipping Corporation, GR No. 66160,
assessment - The decision of the May 21, 1990)
Commissioner or his duly authorized 3. BIR demand letter reiterating his
representative shall (a) state the facts, previous demand to pay, sent to the
the applicable law, rules and regulation taxpayer after his protest of the
or jurisprudence on which such decision assessment. (Surigao Electric Co.,
is based otherwise, the decision shall be Inc. vs. CTA, GR No. L-25289, June
void, in which case the same shall not be 28, 1974; Commissioner vs. Ayala
considered a decision a disputed Securities Corporation, GR No. L-
assessment and (b) that the same is his 29485, March 31, 1976)
final decision (Sec. 3.1.5, Rev. Regs. No. 4. The actual issuance of a warrant of
12-99) distraint and levy in certain cases
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

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after the payment of the tax or losses in its business operations.

penalty. (ACCRA Investments vs. Court of
Note: No suit or proceeding shall be Appeals, GR No. 96322, December
begun after the expiration of the 20, 1991)
said two (2) years regardless of any 6. Date when quarterly income tax
supervening cause that may arise was paid vs. date when final
after payment. adjusted return was filed
3. Show proof of payment. - from the date when final adjusted
return was filed
COMMENCEMENT OF THE TWO (2) YEAR - The filing of the quarterly income
PERIOD (JURISPRUDENCE) tax return (Sec. 68) and payment of
quarterly income tax should only be
1. Tax sought to be refunded is considered mere installments of the
illegally or erroneously collected annual tax due. (Commissioner vs.
- 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

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1. There is a pending litigation date of issue, shall be invalid, unless

between the Government and the revalidated (Sec. 230, 1997 NIRC).
taxpayer; and
2. CIR in that litigated case agreed to
abide by the decision of the SC as to REGLEMENTARY PERIODS
the collection of taxes relative IN INCOME TAX IMPOSED
thereto (Panay Electric Co. vs. BY LAW UPON THE TAXPAYER
Collector, GR No. L-10574, May 28,
(PURSUANT TO REV. REG. NO. 12-99,
1958).
SEC. 228 OF THE 1997 NIRC, AND RA
NO. 1125 AS AMENDED BY RA NO.
INTEREST ON TAX REFUNDS
9282)
General Rule:
BIR makes a tax assessment
Government cannot be required
to pay interest on taxes refunded to the 
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

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Appeal to the Supreme Court within 15 payment appears clearly to

days from receipt of the CTA en banc have been erroneously paid.
decision under Rule 45 of the Rules of • In case of the CIR’s final
Court denial of the claim for
refund, the 30-day period to
Pre-Assessment Notice, When Not appeal with the CTA must be
Required (Sec. 228, NIRC) within the 2-year peremptory
period for instituting judicial
1. When the finding for any action.
deficiency tax is the result of
mathematical error in the  See Annex N – Assessment
computation of the tax as Process and Appeal
appearing on the face of the
return; or
2. When a discrepancy has been
determined between the tax
ADDITIONS TO THE TAX
withheld and the amount (SECS. 247-252 NIRC)
actually remitted by the
withholding agent; or DEFINITION: increments to the basic tax
3. When a taxpayer who opted to incident due to the taxpayer’s non-
claim a refund or tax credit of compliance with certain legal
excess creditable withholding requirements.
tax for a taxable period was 1. CIVIL PENALTY / SURCHARGE
determined to have carried over 1. 25% surcharge
and automatically applied the a. Failure to file any return and
same amount claimed against pay the tax due thereon as
the estimated tax liabilities for required under the
the taxable quarter or quarters provisions of this Code or
of the succeeding taxable year; rules and regulations on the
or date prescribed; or
4. When the excise tax due on b. Unless otherwise authorized
excisable articles has not been by the Commissioner, filing a
paid; return with an internal
5. When an article locally revenue officer other than
purchased or imported by an those with whom the return
exempt person, such as, but not is required to be filed; or
limited to, vehicles, capital c. Failure to pay the deficiency
equipment, machineries and tax within the time
spare parts, has been sold, prescribed for its payment in
traded or transferred to non- the notice of assessment; or
exempt persons. d. Failure to pay the full or
part of the amount of tax
Notes: shown on any return
• As a general rule, payment required to be filed under
under protest is not required the provisions of this Code
under the NIRC, except when or rules and regulations, or
partial payment of the full amount of tax due
uncontroverted taxes is for which no return is
required under RR 12-99. required to be filed, on or
The Commissioner may, even before the date prescribed
without a written claim for its payment. (Sec. 248)
therefor, refund or credit 2. 50% surcharge
any tax, where on the face a. in case of willful neglect to
of the return upon which file the return within the
payment was made, such period prescribed by the
Code, or

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• will not apply in case a

taxpayer, without notice
from the Commissioner,
III. LOCAL TAXATION
or his duly authorized
POWERS AND LIMITATIONS
representative,
voluntarily files the said
NATURE AND SOURCE OF LOCAL
return (only 25% shall be
TAXING POWER (SEE. SEC 5, ART. X,
imposed)
1987 CONSTITUTION AND SEC. 129,
• 50% surcharge shall be LGC)
imposed in case the
taxpayer files the return The Local Government Unit has the
only after prior notice in power:
writing from the a. to create its own sources of
Commissioner or his duly revenue and
authorized representa- b. to levy taxes, fees and charges.
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
• or a substantial government units.
overstatement (exceeding
30% of actual deductions) of Nature of the Taxing Power
deductions (Sec. 248) a. Not inherent;
b. Exercised only if delegated to
2. INTEREST them by law or Constitution;
- 20% per annum or such higher rate c. Not absolute; subject to
as may be prescribed by the rules limitations provided for by law.
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)

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Fundamental Principles governing than once every five (5) years, and in no
Local Taxation (Sec. 130, lgc) case shall such adjustment exceed ten
a. Shall be uniform in each local percent (10%) of the rates fixed under
sub-unit the LGC.
b. Shall be equitable and based as
much as possible on the Power to Grant Local Tax Exemptions
taxpayer’s ability to pay (Sec. 192, lgc)
c. Levied for public purposes Local government units may,
d. Shall not be unjust, excessive, through ordinances duly approved,
oppressive, or confiscatory grant tax exemptions, incentives or
e. Shall not be contrary to law, reliefs under such terms and conditions,
public policy, national as they may deem necessary.
economic policy, or in restraint
of trade Tax Exemptions Existing Before the
f. Collection of local taxes and Effectivity of the LGC has been
other impositions shall not be Abolished (Sec. 193, lgc)
let to any person Unless otherwise provided in this
g. The revenues collected under Code, tax exemptions or incentives
the Code shall inure solely to granted to, or presently enjoyed by all
the benefit of, and subject to persons, whether natural or juridical,
disposition by, the LGU levying including government-owned or
the tax or other imposition controlled corporations are hereby
unless otherwise specifically withdrawn upon the effectively of the
provided therein LGC
h. Each LGU shall, as far as except the following:
practicable, evolve a 8. local water districts,
progressive system of taxation. 9. cooperatives duly registered under
R.A. No. 6938, non-stock and non-
Local Taxing Authority (Sec. 132, lgc) profit hospitals and
Shall be exercised by the Sanggunian 10. educational institutions.
of the LGU concerned through an
appropriate ordinance. The power to grant tax exemptions,
tax incentives and tax reliefs shall not
Power to prescribe Penalties for Tax apply to regulatory fees which are
Violations and Limitations thereon levied under the police power of the
(Sec. 516, lgc) LGU.
1. The Sanggunian is authorized to Tax exemptions shall be conferred
prescribe fines or other penalties through the issuance of a non-
for violations of tax ordinances. transferable tax exemption certificate.
a. in no case shall fines be less
than P1,000 nor more than Guidelines for the Granting of Tax
P5,000 Exemptions, Tax Incentives and Tax
b. nor shall the imprisonment be Reliefs (Art. 282[b], Rules and
less than one (1) month nor Regulations Implementing the Lgc)
more than six (6) month.
2. Such fine or other penalty shall be 1. On the grant of tax exemptions or
imposed at the discretion of the tax reliefs:
court. a. the same may be granted in
3. The Sangguniang Barangay may cases of natural calamities, civil
prescribe a fine of not less than disturbance, general failure of
P100 nor more than P1,000. crops, or adverse economic
conditions such as substantial
Power to Adjust Local Tax Rate (Sec. decrease in prices of agricultural
191, lgc) or agri-based products.
Adjustment of the tax rates as b. The grant shall be through an
prescribed herein should not be oftener ordinance.

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c. Any exemption or relief granted

to a type or kind of business shall Residual Taxing Powers of the Local
apply to all business similarly government units (Sec. 186, lgc)
situated. To levy taxes, fees or charges on any
d. The same shall take effect only base or subject NOT:
during the next calendar year for 1. Specifically enumerated in LGC
a period not exceeding 12 2. Taxed under the provisions of
months as may be provided in the NIRC, as amended, and
the ordinance. 3. Other applicable laws
e. In the case of shared revenues,
the exemption or relief shall only Conditions:
extend to the LGU granting such 1. That the taxes, fees, or charges shall
exemption or relief. not be unjust, excessive, oppressive,
2. On the grant of tax incentives: confiscatory or contrary to declared
a. The same shall be granted only national policy
to new investments in the
locality and the ordinance shall 2. The ordinance levying such taxes,
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 definite conducted for the purpose.
period of not exceeding 1
calendar year.
c. The grant shall be by ordinance
passed prior to the 1st day of LIMITATIONS OF THE RESIDUAL POWER
January of any year. 1. Constitutional limitations on
d. Any grant to a type or kind of taxing power
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
4. Within 10 days after their approval, the same field. This doctrine principally
publication in full for 3 consecutive rests on the intention of the Congress.
days in a newspaper of general
circulation. In absence of such Excluded impositions (pursuant to the
newspaper in the province, city or doctrine of preemption):
municipality, then the ordinances a. Taxes which are levied under the
may be posted in at least 2 NIRC, unless otherwise provided
conspicuous and publicly accessible by LGC of 1991;
places (Sec. 189, LGC)

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b. Taxes, fees, etc. which are exchanges or similar transactions

imposed under the Tariffs and on goods or services except as
Customs Code; otherwise provided herein;
c. Taxes, fees, etc., the imposition 10. Taxes on the gross receipts of
of which contravenes existing transportation contractors and
governmental policies or which persons engaged in the
violates the fundamental transportation of passengers or
principles of taxation; freight by hire and common
d. Taxes, fees and other charges carriers by air, land or water,
imposed under special law. except as provided in the Code;
11. Taxes on premiums paid by way
COMMON LIMITATIONS ON LOCAL of Reinsurance or retrocession;
TAXING POWER (SEC. 133, LGC)
Local government units cannot levy:
12. Taxes, fees or charges for the
registration of motor vehicles
1. Income tax, except on banks and and for the issuance of all kinds
other financial institutions; of licenses or permits for the
2. Documentary stamp tax; driving thereof, except tricycle;
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

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TAXES AND OTHER IMPOSITIONS THAT h. On any business, not otherwise

THE LOCAL GOVERNMENT MAY LEVY specified in the preceding
paragraphs, which the
(A) PROVINCES sanggunian concerned may deem
(SECS. 134-141, LGC) proper to tax.
1. Tax on Transfer of Real Property
2. Tax on Business of Printing and 2. Municipal non-revenue fees and
Publication charges
3. Franchise Tax The municipality may impose
4. Tax on Sand, Gravel and other and collect such reasonable fees and
Quarry Resources extracted from charges on business and occupation
Public Land except professional taxes reserved for
5. Professional Tax provinces. (Sec. 147. LGC)
6. Amusement Tax
7. Annual Fixed Tax for every Rates of Tax within the Metropolitan
Delivery Truck or Van of Manila Area (sec. 144, lgc)
Manufacturers or Producers,
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
Payment of Business Taxes
(SEC. 143, LGC)
a. It shall be payable for every
separate or distinct
1. Municipal Taxes- taxes on the
establishment or place where
businesses of the following:
business subject to the tax is
a. On manufacturers, assemblers,
conducted and one line of
repackers, processors, brewers,
business does not become
distillers, rectifiers, and
exempt by being conducted with
compounders of liquors, distilled
some other business for which
spirits, and wines or
such tax has been paid.
manufacturers of any article of
b. The tax on a business must be
commerce of whatever kind or
paid by the person conducting
b. On wholesalers, distributors, or
the same.
dealers in any article of
c. In cases where a person
commerce of whatever kind or
conducts or operates 2 or more
c. On exporters, and on
of the businesses mentioned in
manufacturers, millers,
Section 143 of LGC
producers, wholesalers,
- which are subject to the
distributors, dealers or retailers
same rate of tax, the tax shall be
of essential commodities
computed on the combined total
d. On retailers
gross sales or receipts of the said 2
e. On contractors and other
or more related businesses.
independent
- which are subject to
f. On banks and other financial
different rates of tax, the gross
g. On peddlers engaged in the sale
sales or receipts of each business
of any merchandise or article of
shall be separately reported for the
commerce

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purpose of computing the tax due 1. On Commercial breeding of

from each business. fighting cocks, cockfights
and cockpits;
 See Annex K for the rates and 2. On places of Recreation
details. which charge admission fees;
and
(C)CITIES 3. On Billboards, signboards,
(SEC. 151, LGC) neon signs and outdoor
advertisements.
• The city may levy the taxes, fees,
and charges which the province or SITUS OF LOCAL TAXATION
municipality may impose.
A. Situs According to the Cases
• The tax rates that the city may levy With respect to excise tax, the
may exceed the maximum rates tax is upon the performance of an act,
allowed for the province or enjoyment of a privilege or the engaging
municipality by not more than 50% in an occupation. The power to levy such
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,
a. Taxes – On stores or retailers associated with the delivery of the
with fixed business things which are the subject matter of
establishments with the gross the contract that determines the situs of
sales or receipts for the the contract for purposes of taxation,
preceding calendar year of and not merely the place of the
P50,000 or less (for barangays in perfection of the contract. (Shell Co.,
the cities) and P30,000 or less Inc. v. Municipality of Sipocot,
(for barangays in municipalities) Camarines Sur 105 Phil 1263)
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
e. Other Fees and Charges – The outlet therein):
barangay may levy reasonable • Municipality or city where the
fees and charges: branch or outlet is located.

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2. Place of sale (no branch or sales and thereafter the said facility shall be
outlet): free and open for public use.
• Municipality or city of principal
office (not in the place of sale) COMMUNITY TAX
3. If manufacturer, assembler, Cities or municipalities may levy a
contractor, producer, or exporter community tax.
(MACPE) with factory, project office,
plant or plantation (FPPP) A.Individuals Liable (Sec. 157)
4. 30% of recorded sales in the principal a. every inhabitant of the
office: city or municipality where Philippines;
the principal office is located b. eighteen (18) years of age or
5. 70% of recorded sales in the over;
principal office: city or municipality c. under any of the following
where the FPPP is located instances:
• pro rata if FPPP are located in d. who has been regularly
different municipalities or cities employed on a wage or salary
in proportion to their respective basis for at least thirty (30)
volumes of production. consecutive working days
6. If plantation is located in some other during any calendar year; or
place than where the factory is e. who is engaged in business or
located, the foregoing 70% shall be occupation; or
subdivided as follows: f. who owns real property with
• 60% to the city or municipality an aggregate assessed value
where the factory is located of P1,000 or more; or
• 40% to the city or municipality g. who is required by law to file
where the plantation is located. an income tax return
COMMON REVENUE-RAISING POWERS Tax Rate = P5.00 and an annual

OF LGUs (SEC. 153 TO 155) additional tax of P1.00 for every
1. Service fees and charges for services P1,000 of income regardless of
rendered whether from business, exercise of
2. Public Utility Charges for the profession or from property which in
operation of public utilities owned, no case shall exceed P5,000.
operated and maintained by LGUs In case of husband and wife,
within their jurisdiction. the additional tax herein imposed
3. Toll fees or charges for the use of shall be based upon the total
any public road, pier or wharf, property owned by them and the
waterway, bridge, ferry or total gross receipts or earnings
telecommunication system funded derived by them.
and constructed by the local
government unit concerned B. Juridical Persons (Sec. 158)
Exceptions: Every corporation no matter how
a. Officers and enlisted men of the created or organized, whether
AFP and PNP; domestic or resident foreign,
b. Post office personnel delivering engaged in or doing business in the
mail; and Philippines shall pay an annual
c. Physically handicapped and community tax.
disabled citizens who are
sixty-five (65) years or older. Tax Rate = P500 and an annual
(Sec. 152, LGC) additional tax which in no case shall
exceed P10,000 in accordance with the
When public safety and welfare so following schedule:
requires, the sanggunian concerned may 1. For every P5,000 worth of real
discontinue the collection of the tolls, property owned by it during the
preceding year based on the

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valuation used for the payment 3. receives any license,

of the real property tax - P2.00; certificate or permit from any
and public authority; pays any tax
2. For every P5,000 of gross or fee;
receipts or earnings derived by 4. receives any money from any
it from its business in the public fund;
Philippines during the preceding 5. transacts other official
year - P2.00. business; or
6. receives any salary or wage
The dividends received by a from any person or
corporation shall, for the purpose of the corporation.
additional tax, be considered as part of The presentation of the community tax
the gross receipts or earnings of said certificate shall not be required in
corporation. connection with the registration of a
voter.
THE FOLLOWING ARE EXEMPT FROM
THE COMMUNITY TAX (SEC. 159) B. Corporation
1. Diplomatic and consular 1. receives any license, certificate
representatives; and or permit from any public
2. Transient visitors when their stay in authority;
the Philippines does not exceed 2. pays any tax or fee;
three (3) months. 3. receives money from public
funds; or
PLACE OF PAYMENT: place of residence 4. transacts other official business.
of the individual, or in the place where The city of municipal treasurer
the principal office of the juridical deputizes the barangay treasurer to
entity is located. collect the community tax in their
respective jurisdictions. (Sec. 164, LCG)
TIME OF PAYMENT: accrues on the 1st
day of January of each year which shall The proceeds of the community tax
be paid not later than the last day of actually and directly collected by the
February of each year. city or municipal treasurer shall accrue
entirely to the general fund of the city or
PENALTIES FOR DELINQUENCY: an municipality concerned.
interest of 24% per annum from the due
date until it is paid shall be added to the Proceeds of the community tax
amount due. collected through the barangay
treasurers shall be apportioned as
A community tax certificate may follows:
also be issued to any person or • 50% accrues to the general fund
corporation not subject to the of the city or municipality
community tax upon payment of P1.00 concerned; and
(Sec. 162, LGC). • 50% accrues to the barangay
where the tax is collected.
Presentation of Community Tax
Certificate on Certain Occasions – (Sec. Collection Of Local Taxes
163)
A. Individual Tax Period and Manner of Payment –
1. When an individual subject to (Sec. 165, LGC)
the community tax Unless otherwise provided, the
acknowledges any document tax period shall be the calendar
before a notary public; year.
2. takes the oath of office upon Such taxes, fees, and charges
election or appointment to may be paid in quarterly
any position in the installments.
government service;

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Accrual of Tax – (Sec. 166, LGC) municipal government shall pay the
Unless otherwise provided, shall premiums thereon in addition to the
accrue on the first day of January of premiums of the bond that may be
each year. required under the Code.
However, new taxes, fees or
charges, or changes in the rates
thereof, shall accrue on the first LOCAL TAX REMEDIES
day of the quarter next following
the effectivity of the ordinance
UNDER THE LGC
imposing such new levies or rates.
Time of Payment – (Sec. 167, LGC) 1. TAX REMEDIES OF THE

Unless otherwise provided shall LOCAL GOVERNMENT UNITS (LGUs)
be paid within the first twenty (20)
days of January or of each Civil Remedies Of The Local
subsequent quarter as the case may Government Units (LGU) To Effect
be. Collection Of Taxes
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

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Note: Unlike the NIRC, the Local Tax A.ADMINISTRATIVE

Code does not contain any specific Before assessment
provision prohibiting courts from a. Appeal – any question on
enjoining the collection of local taxes. constitutionality or legality of tax
Such statutory lapse or intent may have ordinance within 30 days from
allowed preliminary injunction where effectivity thereof to Secretary of
local taxes are involved. But it cannot Justice (Sec. 187 LGC)
negate the procedural rules and b. Declaratory relief whenever
requirements under Rule 58 of the Rules applicable.
of Courts. (Valley Trading Co. vs. CFI of
Isabela, GR No. 49529, March 31, 1989) After assessment
a. Protest – within 60 days from receipt
of assessment (Sec. 195 LGC).
PRESCRIPTIVE PERIODS FOR THE ASSESSMENT AND Payment under protest is not
COLLECTION necessary.
OF LOCAL TAXES
PRESCRIPTIVE PERIODS OF ASSESSMENT
1. Local taxes, fees, or charges – five
b. Payment & subsequent refund or
tax credit – within 2 years from
(5) years from the date they became
payment of tax to local treasurer
due. (Sec. 194, LGC).
(Sec. 196 LGC). It is to be noted
2. When there is fraud or intent to
that, unlike in internal revenue
evade the payment of taxes, fees
taxes, the supervening cause applies
or charges – ten (10) years from
in local taxation because the period
discovery of the fraud or intent to
for the filing of claims for refund or
evade the payment (Sec. 194, LGC).
credit of local taxes is counted not
necessarily from the date of
PRESCRIPTIVE PERIOD OF COLLECTION
payment but from the date the
Local taxes, fees, or charges
taxpayer is entitled to a refund or
may be collected within five (5) years
credit.
from the date of assessment by
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 B. JUDICIAL
PERIODS 1. Court action
α. The treasurer is legally • within 30 days after receipt of
prevented from the assessment decision or lapse of 60 days of
or collection of the tax; Secretary of Justice’s inaction
β. The taxpayer requests for a (Sec. 187 LGC)
reinvestigation and executes a • within 30 days from receipt
waiver in writing before the when protest of assessment is
expiration of the period within denied (Sec. 195 LGC)
which to assess or collect; and
χ. The taxpayer is out of the
• if no action is taken by the
treasurer in refund cases and the
country or otherwise cannot be
two year period is about to lapse
located (Sec. 194, LGC).
(Sec. 195 LGC)
• if remedies available does not
2. TAX REMEDIES OF
provide plain, speedy and
THE TAXPAYER adequate remedy.
2. Action for declaratory relief
Remedies Of The Taxpayer In Local
3. Injunction – if irreparable damage
Taxation
would be caused to the taxpayer and
no adequate remedy is available.

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1. Province not exceeding 1% of

assessed value
IV. REAL PROPERTY 2. City not exceeding 2%
TAXATION
3. Municipality not exceeding 2%.
within Metro
Manila
Definitions:
REAL PROPERTY TAXATION – A direct
tax on ownership of lands and
buildings or other improvements FUNDAMENTAL PRINCIPLES GOVERNING
thereon payable regardless of REAL PROPERTY TAXATION (SEC. 198,
whether the property is used or LGC)
not, although the value may vary 1. Real property shall be appraised at
in accordance with such factor. its current and Fair market value;
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

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the local government unit 1. Hospitals

concerned for the 2. Cultural and Scientific purposes
construction of said 3. owned and used by Local water
projects. (Sec. 240, LGC). districts
4. GOCCs rendering essential public
FOR PURPOSES OF REAL PROPERTY services in the supply and
TAXATION IDLE LANDS SHALL INCLUDE: distribution of water and/or
(SEC. 237, LGC) generation or transmission of
1. Agricultural lands more than one electric power.
hectare in area one-half of which
remain uncultivated or unimproved by PROPERTIES EXEMPT FROM REAL
the owner of the property or person PROPERTY TAX (SEC. 234, LGC)
having legal interest therein. Exemption is limited only to the
Agricultural lands planted to following:
permanent or perennial crops with 1. Real property owned by the
at least 50 trees to a hectare shall government except when the
not be considered idle lands. beneficial use thereof has been
Lands actually used for grazing granted to a taxable person;
purposes shall likewise not be
2. Charitable institutions,
considered idle lands; and
churches, personages or
2. Lands other than agricultural convents appurtenant thereto,
located in a city or municipality mosques, non-profit or religious
more than one thousand square meters cemeteries and all lands,
in area one-half of which remain buildings and improvements
unutilized or unimproved by the
actually, directly and
owner of the property or person exclusively used for religious,
having legal interest therein. charitable or educational
purposes (Art. VI, Sec. 28,
IDLE LANDS EXEMPT FROM TAX (SEC. Constitution);
238, LGC)
3. Machineries and equipment that
By reason of: are actually, directly and
1. force majeure exclusively used by local water
1. civil disturbance utilities and GOCC’s engaged in
2. natural calamity the supply and distribution of
3. or any cause which physically or water and/or electric power;
legally prevents the owner of 4. Real property owned by duly
the property or person having registered cooperatives as
legal interest therein from provided for in RA 6938; and
improving, utilizing or 5. Machinery and equipment used
cultivating the same. for pollution control and
environmental protection.
CLASSIFICATION OF LANDS FOR PURPOSES OF
ASSESSMENT SEC. 218 (A) ACTUAL USE OF PROPERTY AS BASIS
FOR ASSESSMENT (SEC. 217 LGC)
a. Commercial
b. Agricultural Real property shall be classified,
c. Residential valued and assessed on the basis of
d. Mineral actual use regardless of where located,
e. Industrial whoever owns it, and whoever uses it.
f. Timberland
g. Special Unpaid realty taxes attach to the
property and is chargeable against the
SPECIAL CLASSES OF REAL PROPERTY person who had actual or beneficial use
(SEC. 216, LGC) and possession of it regardless of
whether or not he is the owner. To

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impose the real property tax on the WHEN: within 30 days from the date of
subsequent owner which was neither the declaration of property.
owner nor the beneficial user of the
property during the designated periods IF PROPERTY IS DECLARED FOR THE FIRST TIME –
would not only be contrary to law but (SEC.222)
also unjust. (Estate of Lim vs. City of If Declared for the first time, real
Manila, GR No. 90639, February 21, property shall be assessed for back
1990) taxes:
For not more than 10 years prior to
PROCEDURE date of initial assessment
Taxes shall be computed on the basis
of applicable schedule of values in force
STEP 1: DECLARATION OF REAL
during the corresponding period.
PROPERTY
STEP 2: LISTING OF REAL
DECLARATION BY OWNER OR ADMINISTRATOR (SEC.
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
established by the provincial, city
• For newly acquired property –
or municipal assessor.
WHEN: Must file with the assessor within
60 days from date of transfer
WHAT: Sworn statement containing the STEP 3: APPRAISAL AND
fair market value and description of the VALUATION OF REAL PROPERTY
property. (SECS. 212-214, 224-225)
• For improvement on property
WHEN: Must file within 60 days upon Determination of fair market value
completion or occupation (whichever (FMV)
comes earlier) For land
WHAT: Sworn statement containing the  Assessor of the province/city or
fair market value and description of the municipality may summon the
property. owners of the properties to be
affected and may take depositions
DECLARATION BY PROVINCIAL / CITY / MUNICIPAL concerning the property, its
ASSESSOR (SEC. 204) ownership, amount, nature and
value (Sec. 213, LGC)
WHEN: Only when the person under Sec.  Assessor prepares a schedule of
202 refuses or fails to make a FMV for different classes of
declaration within the prescribed time. properties.
 Sanggunian enacts an ordinance
No oath by the assessor is required.
 The schedule of FMV is
Notes: Proof of Exemption of Real 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

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1. For Brand new machinery: FMV is the Period to Collect (Sec. 270)
acquisition cost 1. within five (5) years from the
2. In all other cases: FMV date they become due
= Remaining eco. life X Replacement 2. within ten (10) years from
Estimated Eco.Life Cost discovery of fraud, in case there
is fraud or intent to evade
STEP 4: DETERMINE ASSESSED
VALUE (SEC. 218) Suspension of Prescriptive Period (Sec.
270)
Determine Assessed Value 1. local treasurer is legally
Procedure prevented to collect tax.
1. Take the schedule of FMV 2. the owner or property requests
2. Assessed Value = FMV x for reinvestigation and writes a
waiver before expiration of
Assessment level
period to collect.
3. Tax = Assessed value x Tax rate
3. the owner of property is out of
the country or cannot be
STEP 5: PAYMENT AND located.
COLLECTION OF TAX
REAL PROPERTY TAX
(a) Accrual of Tax: January of every
year and such will constitute as
REMEDIES UNDER THE LGC
a superior lien. (Sec. 246)
1. TAX REMEDIES OF THE LOCAL
(b) Time and Manner of Payment: GOVERNMENT TO EFFECT
(Sec. 250) COLLECTION OF TAXES
1. basic real property tax in 4 equal
installments (March 31, June 30, A. ADMINISTRATIVE
September 30, December 30) 1. Real Property tax lien (Secs. 257,
2. special levy – governed by LGC) – superior to all liens, charges
ordinance or encumbrances;
2. Distraint (Sec. 254[B], LGC);
(c) Interest for Late Payment (Sec. 255) 3. Levy (Sec. 254[A], 258 LGC);
1. two percent (2%) for each month 4. Purchase of property by local
on unpaid amount until the treasurer for want of bidder (Sec.
delinquent amount is paid 263, LGC).
2. provided in no case shall the B. JUDICIAL
total interest exceed thirty-six Civil Action ( Sec. 266, 270 LGC)
(36) months.
PRESCRIPTIVE PERIODS FOR THE
(d) For Advance and Prompt Payment COLLECTION OF REAL
1. Advance payment – discount not PROPERTY TAXES
exceeding 20% of annual tax (Sec.
251, LCG)
2. Prompt payment – discount not
1. Basic real property tax and any
exceeding 10% of annual tax due other tax levied under the title on
(Art 342 IRR) Real Property Taxation– five (5)
years from the date they became
Collection of Tax (Sec. 247) due. (Sec. 270, LGC).
It shall be the responsibility of the 2. When there is fraud or intent to
city or municipal treasurer concerned. evade the payment of taxes – ten
The city or municipal treasurer may (10) years from discovery of the
deputize the barangay treasurer to fraud or intent to evade the
collect all taxes on real property located payment (Sec. 270, LGC).
in the barangay; provided, the barangay
treasurer is properly bonded.

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GROUNDS FOR THE SUSPENSION OF 4th: within 15 days from receipt of

THE RUNNING OF THE PRESCRIPTIVE decision of Court of Tax Appeals en
PERIODS banc to the Supreme Court
1. The treasurer is legally prevented APPEALS IN REAL PROPERTY

from the assessment or collection of TAXATION
the tax;
2. The taxpayer requests for a
reinvestigation and executes a PROVINCIAL, CITY OR MUNICIPAL
waiver in writing before the ASSESSOR
expiration of the period within
which to assess or collect; and within 60 days
3. The taxpayer is out of the country or Owner/Person with legal interest
otherwise cannot be located (Sec. must file:
270, LGC). 1) Written Petition under Oath
2) With Supporting Documents
2. TAX REMEDIES OF THE
TAXPAYER LOCAL BOARD OF ASSESSMENT APPEALS
(LBAA should decide within 120 days
A. ADMINISTRATIVE from receipt of petition)
Protest – payment under protest is within 30 days

required within 30 days to provincial,
city, or municipal treasurer. No protest
shall be entertained unless the tax is CENTRAL BOARD OF ASSESSMENT
first paid. (Sec. 252 LGC) APPEALS
Claim for Tax Refund or Credit (Sec. within 30 days

253)
a) the taxpayer may file a written
claim for refund or credit with COURT OF TAX APPEALS (EN BANC)
the provincial or city treasurer
within two years from the date
the taxpayer is entitled to such within 15 days
reduction or adjustment.
b) in case of denial of refund or SUPREME COURT

credit, appeal to LBAA as in
protest case. B. JUDICIAL
1. Court Action – appeal of CBAA’s
Redemption of real property (Sec. 261 decision to Court of Tax Appeals en
LGC) banc.
2. Suit assailing validity of tax;
Remedy against the Assessment/Appeal
recovery of refund of taxes paid
1st: within 60 days from notice of
(Sec. 64 PD 464).
assessment of provincial, city or
municipal assessor to LBAA (Sec. 226 3. Suit to declare invalidity of tax due
LGC) to irregularity in assessment and
2nd: within 30 days from receipt of collection (Sec. 64 PD 464)
decision of LBAA to CBAA (Sec. 230 4. Suit assailing the validity of tax sale
LGC) (Sec. 83 PD 464) (Sec. 267 LGC)
3rd: within 30 days from receipt of
decision of CBAA to Court of Tax Condonation of Real Property Taxes
Appeals en banc 1. By the Sanggunian

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Real property taxes may be laws as well, the enforcement of which

condoned wholly or partially in a is entrusted to the BOC.
given local government unit when:
a. There is general failure of crops; THE BUREAU OF CUSTOMS
b. There is substantial decrease in
the price of agricultural or agri- FUNCTIONS OF THE BUREAU OF
based products; or CUSTOMS
c. There is calamity.
2. By the President of the Philippines 1. Assessment and collection of
• when public interest so requires. revenues from imported articles and
all other impositions under the tariff
and customs laws;
V. TARIFF AND 2. Control smuggling and related
CUSTOMS CODE frauds;
3. Supervision and control over the
entrance and clearance of vessels
and aircraft engaged in foreign
DEFINITIONS
commerce;
TARIFF: Customs duties, toll or tribute
4. Enforcement of TCC and related
payable upon merchandise to the
laws;
Government.
5. Supervision and control over the
handling of foreign mails arriving in
CUSTOM DUTIES: Tax assessed upon
the Philippines;
merchandise from or exported to, a
6. Supervise and control all import and
foreign country. (Garcia v. Executive
export cargoes for the protection of
Sec., GR No. 101273, July3, 1992))
government revenue;
7. Exclusive original jurisdiction over
Note: Customs and tariffs are
seizure and forfeiture cases under
synonymous with one another. They
the tariff and customs laws.
both refer to the taxes imposed on
imported or exported wares, articles, or
JURISDICTION OF COLLECTOR OF
merchandise.
CUSTOMS OVER IMPORTATION OF
ARTICLES
Other Types of Fees Charged by the
1. Cause all articles for importation to
Bureau of Customs
be entered in the customhouse,
2. Cause all such articles to be
1. Arrastre charge
appraised and classified,
2. Wharfage due – counterpart of
3. Assess and collect the duties, taxes
license, charged not for the use of
and other charges thereon, and
any wharf but for a special fund
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)
TERRITORIAL JURISDICTION OF THE

Meaning and Scope of the Tariff and
BOC
Customs Laws
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

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l. Articles of stone; plaster,

WHEN TARIFF AND CUSTOMS APPLIED cement, etc.;
Only after importation has begun but m. Footwear, headgear, etc.;
before importation is terminated. n. Natural or cultured pearls
precious/semi-precious stones;
Importation begins: o. Base metals and articles of base
1) when the conveying vessel or metals;
aircraft p. Machinery and mechanical
2) enters the jurisdiction of the appliances; electric equipment;
Phil. sound recorders, etc;
3) with intention to unload therein q. Vehicles, aircraft, vessels and
associated transport equipment;
Importation is deemed terminated: r. Optical, photographic, medical,
surgical instruments, etc.;
(a) upon payment of the duties, taxes s. Arms, ammunition, parts and
and other charges due upon the articles. accessories;
t. Miscellaneous manufactured
(b) and legal permit for withdrawal articles; and
shall have been granted. u. Works of art, collector's pieces
arid antiques (Sec. 104, Title 1,
• In case the articles are free of TCC).
duties, taxes and other charges, until
they have legally left the jurisdiction of 2. Prohibited from being imported
the customs (Sec. 1202, TCC) (Prohibited importation)
a. Absolutely prohibited such as:
INTENTION TO UNLOAD weapons of war; gambling
Even if not yet unloaded, and there is devices; narcotics or prohibited
unmanifested cargo, forfeiture may take drugs; immoral, obscene or
place because importation has already insidious articles; and those
begun. prohibited under special laws
(Sec.102, TCC).
ARTICLES UNDER TCC b. Qualifiedly prohibited
May either be: Where such conditions as to
1. Subject to duty – warrant a lawful importation do
a. Live animals and animal not exist, the legal effects of the
products; importation of qualifiedly
b. Vegetable products; prohibited articles are the same
c. Animal or vegetable fats; oils as those of absolutely prohibited
and their cleavage products; articles. (Auyong Hian vs. CTA,
prepared edible fats; animal or GR No. L-28782, September 12,
vegetable waxes; 1974)
d. Prepared foodstuffs; beverages,
spirits and vinegar; tobacco and 3. Conditionally-free from tariff and
manufactured tobacco customs duties (conditionally-free
substitutes; importation)
e. Mineral products; • Those provided in Sec. 105, TCC;
f. Products of chemical or allied • Those granted to government
industries; agencies, GOCCs with
g. Plastics and articles thereof; agreements with foreign
rubber and articles thereof; countries;
h. Raw hides and skins; leather, • Those given to international
etc.; institutions entitled to
i. Wood and articles of wood, etc.; exemption by agreement or
j. Pulp of wood, etc.; special laws; and
k. Textiles and textile articles;

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1
• Those that may be granted by penalty is the forfeiture itself.

the President upon NEDA’s (Mendoza vs. David, GR No. L-9452,
recommendation. March 27, 1961)
4. Free from TC duties (duty-free) Drawback

Imported goods must be A device resorted to for enabling a
entered in a customhouse at their commodity affected by taxes to be
port of entry otherwise they shall be exported and sold in foreign markets
considered as contraband and the upon the same terms as if it had not
importer is liable for smuggling (See been taxed at all. (Uy Chaco Sons vs.
Sec. 101, TCC). Collector of Customs, GR No. 7618,
All articles when imported from March 27, 1913)
any country into the Philippines shall
be subject to duty upon each Import Entry
importation, even though previously It is a declaration to the BOC
exported from the Philippines, showing particulars of the imported
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

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2. Countervailing duty
3. Marking duty PURPOSE OF SPECIAL CUSTOMS DUTIES
4. Discriminatory duty The special customs duties are
imposed for the protection of consumers
NATURE OF SPECIAL CUSTOMS DUTIES and manufacturers, as well as Phil.
Special customs duties are products from undue competition posed
additional import duties imposed on by foreign-made products.
specific kinds of imported articles under
certain conditions.
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% ad
the actual price subvention. 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 1. to increase, reduce or remove

The President may fix tariff rates, existing protective rates of import
import and export quotas, etc. under duty (including any necessary change
TCC (See Sec. 28, Art. VI, Constitution in classification).
and Sec. 401, TCC)

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The existing rates may be this country now in force or

increased or decreased to any level, which may hereafter be
on one or several stages but in no enacted;
case shall the increased rate of b. the relations between the rates
import duty be higher than a of duty on raw materials and the
maximum of one hundred (100%) per finished or partly finished
cent ad valorem products;
2. to establish import quota or to ban c. the effects of ad valorem and
imports of any commodity, as may specific duties and of compound
be necessary; and specific and ad valorem duties;
3. to impose an additional duty on all d. all questions relative to the
imports not exceeding ten (10%) per arrangement of schedules and
cent ad valorem whenever classification of articles in the
necessary: several schedules of the tariff
law;
LIMITATIONS IMPOSED REGARDING THE e. the tariff relations between the
FLEXIBLE TARIFF CLAUSE Philippines and foreign
countries, commercial treaties,
α. Conduct by the Tariff Commission of preferential provisions,
an investigation in a public hearing. economic alliances, the effect of
The Commission shall also hear export bounties and preferential
the views and recommendations of transportation rates;
any government office, agency or f. the volume of importations,
instrumentality concerned. compared with domestic pro-
The Commission shall submit duction and consumption;
their findings and recommendations g. conditions, causes, and effects
to the NEDA within thirty (30) days relating to competition of
after the termination of the public foreign industries with those of
hearings. the Philippines, including
The NEDA thereafter submits its dumping and cost of production;
recommendation to the President. and
1. The power of the President to h. in general, to investigate the
increase or decrease the rates of operation of customs and tariff
import duty within the laws, including their relation to
abovementioned limits fixed in the the national revenues, their
Code shall include the modification effect upon the industries and
in the form of duty. labor of the country and to
In such a case the corresponding submit reports of its
ad valorem or specific equivalents of investigation as provided.
the duty with respect to the imports
from the principal competing foreign 2. Administrative Assistance to the
country for the most recent President and Congress (Sec. 506,
representative period shall be used TCC)
as bases (Sec. 401, TCC).
THE TARIFF COMMISSION (TC)

TAX REMEDIES UNDER THE
FUNCTIONS OF THE TARIFF TARIFF AND CUSTOMS CODE
COMMISSION (TCC)
1. Investigative Powers (Sec. 505,
TCC) TAX REMEDIES OF THE
a. the administration of and the GOVERNMENT
fiscal and industrial effects of
the tariff and customs laws of

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A. ADMINISTRATIVE is lost by the release of the

1. Tax Lien (Sec. 1204 TCC) goods
• attaches on the goods, • Civil Action (Sec. 1204,
regardless of ownership, while TCC)
still in the custody or control • Criminal Action
of the Government
• availed of when the TAX REMEDIES OF THE TAXPAYER
importation is neither
prohibited nor improperly A. ADMINISTRATIVE
made 1. Protest
2. Administrative Fines and a. Any importer or interested
Forfeitures party if dissatisfied with
• applied when the published value within 15
importation is unlawful, days from date of
• and it may be exercised even publication, or within 5 days
where the articles are not or from the date the importer
no longer in Custom’s is entitled to refund if
custody payment is rendered
- unless the importation is erroneous or illegal by
merely attempted in which events occurring after the
case it may be effected only payment.
while the goods are still b. Taxpayer – within 15 days
within the Customs from assessment. Payment
jurisdiction or in the hands under protest is necessary.
of a person who is aware (Sec. 2308, 2210 TCC)
thereof (Sec. 2531 & 2530, 2. Refund
TCC) a. A written claim for refund
• under Sec. 2530(a) of the may be submitted by the
TCC, in order to warrant importer in abatement cases
forfeiture, it is not necessary on missing packages,
that the vessel or aircraft deficiencies in the contents
must itself carry the of packages or shortages
contraband. The before arrival of the goods in
complementary if collateral the Philippines, articles lost
use of the Cessna plane for or destroyed after such
smuggling operation is arrival, dead or injured
sufficient for it to be animals, and for manifest
deemed to have been used clerical errors; and
in smuggling. (Llamado vs. b. Drawback cases where the
Commissioner of Customs, goods are re-exported (Sec.
GR No. L-28809, May 16, 1701-1708 TCC).
1983) 3. Settlement of any seizure by
3. Reduction of customs duties / payment of fine or redemption
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 (Sec. when there is an actual and
2205, 2210, 2211 TCC) intentional fraud (Sec. 2307
TCC).
B. JUDICIAL
1. this remedy is normally 4. Appeal
availed of when the tax lien
• Within 15 days to the
Commissioner after

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notification by Collector of taxpayer for duties, taxes, fees and

his decision (Sec. 2313 other charges is determined and the
TCC). taxpayer disputes said liability.
B. JUDICIAL When Customs protest NOT required

1. Appeal
• Within 30 days from receipt Where there is no dispute, but the
of decision of the claim for refund arises by reason of the
Commissioner or Secretary of happening of supervening events such as
Finance to the division of the when the raw material imported is
CTA (Sec. 2403 TCC, Sec. 7 utilized in the production of finished
RA 1125, as amended by Sec. products subsequently exported and a
9 RA 9282) duty drawback is claimed.
• Since Sec.11 of RA 1125 as
amended by RA 9282 Requirements for making a protest
empowers the Tax Court to
issue injunctions, it would 1. Must be in writing
appear that an importer may 2. Must point out the particular
appeal without first paying decision or ruling of the Collector of
the duties, such as in Customs to which exception is taken
seizure, but not in protest or objection made;
cases. 3. Must state the grounds relied upon
2. Action to question the legality for relief;
of seizure 4. Must be limited to the subject
matter of a single adjustment;
3. Abandonment (Sec. 1801 TCC) 5. Must be filed when the amount
a. expressly (Sec. 1801 TCC) claimed is paid or within 15 days
b. impliedly – after the payment;
c. failure to file an import 6. Protestant must furnish samples of
entry within 30 days goods under protest when required.
from the discharge of
goods or PROCEDURE IN CUSTOMS PROTEST
d. having filed an entry CASES
fails to claim within 15
days but it shall not be The Collector acting within his
so effective until so jurisdiction shall cause the imported
declared by the goods to be entered at the customhouse
collector. (Sec. 1801, as
amended by RA 7651)

The Collector shall assess, liquidate, and
collect the duties thereon, or detain the
TWO KINDS OF PROCEEDINGS IN said goods if the party liable does not
THE BUREAU OF CUSTOMS (BOC) 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. 
Hearing within 15 days from receipt of
When customs protest applicable the duly presented protest. Upon
termination of the hearing, the Collector
The customs protest is required to be shall decide on the same within 30 days
filed only in case the liability of the

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1
forfeiture. (Commissioner of Customs

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

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the satisfaction of the court (Sec. 3601, Provided, however, that a prima
TCC). Payment of the tax due after facie presumption shall exist against the
apprehension is not a valid defense vessel, vehicle or aircraft under any of
(Rodriguez vs. Court of Appeals, GR No. the following circumstances:
115218, September 18, 1995) 1. If the conveyance has been used
for smuggling at least twice
THINGS SUBJECT TO CONFISCATION IN before;
SMUGGLING CASES 2. If the owner is not in the
Anything that was used for business for which the
smuggling is subject to confiscation, like conveyance is generally used;
the vessel, plane, etc. (Llamado vs. and
Commissioner of Customs, GR No. L- 3. If the owner is financially not in
28809, May 16, 1983). a position to own such
conveyance.
Exception: Common carriers that are
not privately chartered cannot be DOCTRINE OF HOT PURSUIT
confiscated. Requisites:
1. Over Vessels
RIGHT OF CUSTOMS OFFICERS TO a. An act is done in Phil. Waters
EFFECT SEIZURE & ARREST (SEC. 2205) which constitutes a violation of
1. May seize any vessel, aircraft, cargo, the tariff and customs laws
article, animal or other movable b. a pursuit of such vessel began
property when the same is subject to within the jurisdictional waters
forfeiture or liable for any time as which
imposed under tariff and customs (ι) may continue beyond the
laws, rules & regulations maritime zone, and
2. May exercise such powers only in (ιι) the vessel may be seized on
conformity with the laws and the high seas.
provisions of the TCC
2. Over Imported Articles
COMMON CARRIERS; FORFEITURE a. There is a violation of the tariff
1. Common carriers are generally not and customs laws
subject to forfeiture although if the b. As a consequence they may be
owner has knowledge of its use in pursued in the Phil.
smuggling and was a consenting c. With jurisdiction over them at
party, it may also be forfeited. any place therein for the
2. If a motor vehicle is hired to carry enforcement of the law. (2nd
smuggled goods but it has no par. Sec. 603, TCC)
Certificate of Public Convenience
(CPC), it is not a common carrier. It
is thus subject to forfeiture, and REGIONAL TRIAL COURTS (RTC)
lack of personal knowledge of the VS.
owner or the carrier is not a defense BUREAU OF CUSTOMS (BOC)
to forfeiture.
• The RTCs do not have jurisdiction
PROPERTIES NOT SUBJECT TO over seizure and forfeiture
FORFEITURE IN THE ABSENCE OF PRIMA proceedings conducted by the BOC
FACIE EVIDENCE and to interfere with these
The forfeiture of the vehicle, vessel proceedings. The Collector of
or aircraft shall not be effected if it is Customs has exclusive jurisdiction
established that the owner thereof or his over all questions touching on the
agent in charge of the means of seizure and forfeiture of dutiable
conveyance used as aforesaid has no goods.
knowledge of or participation in the
• No petitions for certiorari,
unlawful act:
prohibition or mandamus filed with

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1
the RTC will lie because these are in favorable to the favorable to the
reality attempts to review the aggrieved owner or government
Commissioner's actuations. Neither importer
replevin filed with the RTC will
issue. Rationale: Doctrine of
 
Appeal by the Automatic Review
Primary Jurisdiction.
aggrieved owner or by the
• Even if a Customs seizure is illegal, importer Commissioner
exclusive jurisdiction (to the
exclusion of regular courts) still
belongs to the Bureau of Customs PERSONS HAVING POLICE AUTHORITY
(Jao v. Court of Appeals, GR No. TO ENFORCE THE TARIFF & CUSTOMS
104604, October 6, 1995). LAWS AND EFFECT SEARCHES,
SEIZURES AND ARRESTS (SEC. 2203,
GOODS IN CUSTOM’S CUSTODY BEYOND TCC)
REACH OF ATTACHMENT 1) officials of the BOC,
Goods in the custom’s custody district collectors,
pending payment of customs duties are police officers,
beyond the reach of attachment. As long agents, inspectors,
as the importation has not been and guests of the
terminated, the imported goods remain BOC;
under the jurisdiction of the Bureau of 2) officers of the Phil.
Customs. (Viduya vs. Berdiago, GR No. Navy and other
L-29218, October 29, 1976) members of the AFP
and national law
ADMINISTRATIVE AND JUDICIAL enforcement
PROCEDURES RELATIVE TO CUSTOMS agencies when
SEIZURES AND FORFEITURES authorized by the
Commissioner of
Determination of probable cause and Customs
issuance of warrant 3) officials of the BIR
 on all cases falling
Actual seizure of the articles within the regular
performances of
 their duties, when
Listing of description, appraisal and the payment of
classification of seized property 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
 courts, when acting
Issuance by the Collector of a under the direction
warrant of detention of the Collector.

Notification to owner or importer REQUIREMENTS FOR CUSTOMS
FORFEITURE
 1. The wrongful making by the owner,
Formal hearing importer, exporter or consignee of
 any declaration or affidavit, or the
District collector renders his wrongful making or delivery by the
decisions same persons of any invoice, letter
or paper - all touching on the
importation or exportation of
  merchandise.; and
If decision is not If decision is not

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2. That such declaration, affidavit, 1. the importation is absolutely

invoice, letter or paper is false. prohibited or
(Farolan, Jr. vs. Court of Tax 2. the surrender of the property to
Appeals, GR No. 42204, January 21, the person offering to redeem
1993) would be contrary to law, or
3. when there is fraud. (Sec. 2307,
PLACES WHERE SEARCHES & SEIZURES TCC)
MAY BE CONDUCTED
(a) enclosures
(b) dwelling house (there must be
search warrant issued by a judge)
(c) vessels or aircrafts and persons
or articles conveyed therein ACQUITTAL IN CRIMINAL CHARGE NOT
(d) vehicles, beasts and persons RES JUDICATA IN SEIZURE OR
(e) persons arriving from foreign FORFEITURE PROCEEDINGS
countries. Reasons:
1) Criminal proceedings are actions in
Note: Burden of proof in seizure or personam while seizure or forfeiture
forfeiture is on the claimant. (Sec. proceedings are actions in rem.
2535, TCC) 2) Customs compromise does not
extinguish criminal liability. (People
REQUIREMENTS FOR MANIFEST vs. Desiderio, GR No. L-208005,
A manifest in coastwise trade for November 26, 1965)
cargo and passengers transported from
one place or port in the Philippines to Note: At any time prior to the sale, the
another is required when one or both of delinquent importer may settle his
such places is a port of entry (Sec. 906, obligations with the Bureau of Customs,
TCC). Manifests are also required of in which case the aforesaid articles may
vessel from a foreign port (Sec. 1005, be delivered upon payment of the
TCC). corresponding duties and taxes and
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
made for it to be subject to forfeiture. 2) Entry of imported or exported article
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;

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5) Filing any false or fraudulent claim

for the payment of drawback or POWERS
refund of duties upon the 1. to administer oaths;
exportation of merchandise; or 2. to receive evidence;
6) Filing any affidavit, certificate or 3. to summon witnesses by
other document to secure to himself subpoena;
or others the payment of any 4. to require production or papers
drawback, allowance or refund of or documents by subpoena duces
duties on the exportation of mdse. tecum;
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
tax pending appeal; and
by RA 9282) 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.

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(  Decisions of the (  Decisions of the

Commissioner of Internal Secretary of Finance
Revenue – on customs cases elevated to
1. in cases involving disputed him automatically for review
assessments, refunds of from decisions of the
internal revenue taxes, fees Commissioner of Customs which
or other charges, penalties are adverse to the Government
in relation thereto, under Section 2315 of the Tariff
2. or other matters arising and Customs Code;
under the NIRC or other laws ( Decisions of the
administered by the BIR; Secretary of Trade and
(  Inaction by the Industry in the case of
Commissioner of Internal nonagricultural product,
Revenue commodity or article, and the
1. in cases involving disputed Secretary of Agriculture in the
assessments, refunds of case of agricultural product,
internal revenue taxes, fees commodity or article,
or other charges, penalties – involving dumping and
in relation thereto, countervailing duties under Secs.
2. or other matters arising 301and 302, respectively, of the
under the NIRC or other laws Tariff and Customs Code, and
administered by the BIR, safeguard measures under RA
where the NIRC provides a No, 8800, where either party
specific period for action, in may appeal the decision to
which case the inaction shall impose or not to impose said
be deemed a denial; duties.
(  Decisions, orders or
resolutions of the RTC II. JURISDICTION OVER CASES
– in local tax cases originally INVOLVING CRIMINAL CASES
decided or resolved by them in
the exercise of their original or (a) Exclusive original jurisdiction
appellate jurisdiction; over all criminal cases arising from
violations of the NIRC or Tariff and
( Decisions of the
Customs Code and other laws
Commissioner of Customs
administered by the BIR or the
1. in cases involving liability
Bureau of Customs
for customs duties, fees or
other money charges, • Provided however, where the
seizure, detention or principal amount of taxes and
release of property fees, exclusive of charges and
affected, fines, forfeitures penalties claimed is less than
or other penalties in one million pesos (P1, 000, 000.
relation thereto, 00) or where there is no
2. or other matters arising specified amount claimed - the
under the Customs Law or offenses or penalties shall be
other laws administered by tried by the regular courts and
the Bureau of Customs; the jurisdiction of the CTA shall
be appellate.
( Decisions of the
• Any provision of law or the Rules
Central Board of Assessment
of Court to the contrary
Appeals
notwithstanding, the criminal
– in the exercise of its appellate
action and the corresponding
jurisdiction over cases involving
civil action for the recovery of
the assessment and taxation of
civil liability for taxes and
real property originally decided
penalties shall at all times be
by the provincial or city board of
simultaneously instituted with,
assessment appeals;

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and jointly determined in the • Over petitions for review of the

same proceeding by the CTA, judgements, resolutions or
the filing of the criminal action orders of the RTC in the exercise
being deemed to necessarily of their appellate jurisdiction
carry with it the filing of the over tax collection cases
civil action, and no right to originally decided by the
reserve the filing of such civil Metropolitan Trial Courts,
action separately from the Municipal Trial Courts and
criminal action will be Municipal Circuit Trial Courts, in
recognized. their respective jurisdiction.
(b) Exclusive appellate jurisdiction  In criminal and collection cases, the

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

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(2) By filing a petition for review under Only A Final Decision Is Appealable To
a procedure analogous to that The Court Of Tax Appeals
provided for under Rule 43 of 1997
Rules on Civil Procedure • Preliminary collection letters, post
• decisions or rulings of the reporting notices and pre-assessment
Central Board of Assessments notices are not appealable, because
Appeals and the Regional Trial they are not the final decision of the
Courts in the exercise of its Commissioner.
appellate jurisdiction • An assessment can be appealed if
• this appeal shall be heard by the taxpayer does not seek a
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.

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Exception: The CTA is empowered to period, the said taxpayer can no longer
suspend the collection of internal file a refund before the CTA because his
revenue taxes and custom duties only right to appeal has prescribed.
when there was a –
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
render a decision within the 2-year

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1. Sale of Commodities or Goods (in Tax Rates:

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

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zero-rated (0%), it is treated as an 6. Revenue Regulations No. 6-97 adds a

exempt transaction. requirement in order for the lease of
residential units with a monthly
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.

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(3) Consignment of goods if actual sale is refunded or credited against other

not made within sixty (60) days following internal revenue taxes, subject to
the date such goods were consigned; and the provisions of Section 112.
(4) Retirement from or cessation of
business, with respect to inventories of
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

Jhundee
Guillermo
1
days from the receipt of the decision

denying the claim or after the expiration
of the one hundred twenty day-period,
appeal the decision or the unacted claim
with the Court of Tax Appeals.
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

Taxation Reviewer SAN BEDA

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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

4. Non-impairment of Contracts 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,

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

4. The authority of the Commissioner

TAXATION LAW COMMITTEE

MEMORY AID IN TAXATION LAW

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

TAXATION LAW COMMITTEE