04 2019 Up LMT Boc Taxation Law

LAST MINUTE TIPS: TAX U.P.
LAW BOC
GENERAL PRINCIPLES
Q1: What are the powers and/or jurisdiction of the Commissioner of Internal Revenue under the NIRC?
A1: The Commissioner of Internal Revenue has the following powers:
a. The power to interpret the provisions of NIRC and other tax laws, subject to review by the Secretary of
Finance.
b. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under NIRC or other laws or portions thereof
administered by the Bureau of Internal Revenue, subject to the exclusive appellate jurisdiction of the Court
of Tax Appeals.
c. In relation to ascertaining the correctness of any return, or in making a return when none has been made,
or in determining the liability of any person for any internal revenue tax, or in collecting any such liability,
or in evaluating tax compliance, the Commissioner is authorized:
1. To examine any book, paper, record, or other data which may be relevant or material to such inquiry;
2. To obtain on a regular basis from any person other than the person whose internal revenue tax liability
is subject to audit or investigation
3. To summon the person liable for tax or required to file a return, or any officer or employee of such
person, or any person having possession, custody, or care of the books of accounts and other
accounting records containing entries relating to the business of the person liable for tax, or any other
person, to appear before the CIR or his duly authorized representative at a time and place specified in
the summons and to produce such books, papers, records, or other data, and to give testimony
4. To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry
5. To cause revenue officers and employees to make a canvass from time to time of any revenue district
or region and inquire after and concerning all persons therein who may be liable to pay any internal
revenue tax, and all persons owning or having the care, management or possession of any object with
respect to which a tax is imposed
d. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax
Administration and Enforcement.
e. Authority of the Commissioner to Delegate Power.
Q2: What are Tax exempt corporations under the NIRC?

A2:
1. Labor, agricultural or horticultural organization – non-profit
2. mutual savings bank or cooperative bank – non-stock, non-profit, operated for mutual purposes
3. Beneficiary society, order, or association – operating for the exclusive benefits of their members; includes:
fraternal organization operating under the lodge system; or mutual aid association or a nonstock corporation
organized by employees providing life, sickness, accident, or other benefits exclusively to the members
4. Cemetery company – owned and operated exclusively for the benefit of its members
5. Non-stock corporation or association organized and operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes or for the rehabilitation of veterans, provided that no part of its income or
asset belong to or inure to the benefit of any individual
6. Business league, chamber of commerce, or board of trade – Non-profit; no part of net income inures to
the benefit of an individual
7. Civic league or organization – Non-profit; operating exclusively for the promotion of social welfare
8. Non-stock and non-profit educational institutions
9. Government educational institutions
10. Organizations of a purely local character whose income consists solely of assessment, duties and fees
collected from their members to meet expenses; includes: farmers’ or other mutual typhoon or fire insurance
company, mutual ditch or irrigation company and mutual or cooperative telephone company
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LAST MINUTE TIPS: TAX U.P. LAW BOC
11. Farmers’, fruit growers’, and like association – whose primary function is to market the product of their
members [Sec. 30, NIRC]
Q3: What is the test of valid classification in taxation?

A3: Classification, to be valid, must be reasonable and this requirement is not deemed satisfied unless:
a. It is based upon substantial distinctions which make real differences;
b. These are germane to the purpose of the legislation or ordinance;
c. The classification applies not only to present conditions but also to future conditions substantially identical
to those of the present; and
d. The classification applies equally to all those who belong to the same class. [Pepsi-Cola v. Butuan City, G.R.
No. L-22814 (1968)]
Q4: Can taxes and claims for refund be the subject of set-off?
A4: General Rule: Taxes and claims for refund cannot be the subject of set-off for the reason that the government
and the taxpayer are not creditors of each other. [Republic v. Mamburao Lumber, G.R. No. L-17725 (1962)]
Exception:
If the claims against the government have been recognized and an amount has already been appropriated for that
purpose. Where both claims have already become (1) due (2) demandable, and (3) fully liquidated. [Domingo v.
Garlitos (1963)]
Q5: How does jurisprudence explain the phrase “the power to tax involves the power to destroy”?
A5: The power of taxation is sometimes called also the power to destroy. Therefore, it should be exercised with
caution to minimize injury to the proprietary rights of the taxpayer. It must be exercised fairly, equally and uniformly,
lest the tax collector kills the 'hen that lays the golden eggs.' And in order to maintain the general public's trust and
confidence in the government, this power must be used justly and not treacherously. [Roxas v. Court of Tax Appeals,
G.R. No. L-25043 (1968); Philex Mining Corp. vs. Comm. of Internal Revenue, G.R. No. 125704 (1998)]
Q6: What are the limitations of the power to tax?

A6: The following are the inherent limitations of taxation:
1. Public Purpose
2. Inherently Legislative
3. Territorial
4. International Comity
5. Exemption of Government Entities, Agencies, and Instrumentalities
The following are the constitutional limitations of taxation:

1. Prohibition against imprisonment for non-payment of poll tax;
2. Uniformity and equality of taxation;
3. Grant by Congress of authority to the President to impose tariff rates;
4. Prohibition against taxation of charitable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and
exclusively used for religious, charitable, or educational purposes. (Note: this pertains to RPT exemption of
properties used for the purpose, not the exemption of the entity itself)Prohibition against taxation of non-
stock, non-profit educational institutions;
5. Majority vote of Congress for grant of tax exemption;
6. Prohibition on use of tax levied for special purpose;
7. President’s veto power on appropriation, revenue, tariff bills;
8. Non-impairment of jurisdiction of the Supreme Court;
9. Grant of power to the local government units to create its own sources of revenue;
10. Flexible tariff clause
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Q7: Differentiate Tax Evasion from Tax Avoidance.

A7: Tax Evasion (Tax Dodging) - is the use by the taxpayer of illegal or fraudulent means to defeat or lessen the
payment of a tax. It is punishable by law. The elements of Tax Evasion are:
1. The end to be achieved. Example: the payment of less than that known by the taxpayer to be legally due,
or in paying no tax when such is due.
2. An accompanying state of mind described as being “evil,” “in bad faith,” “willful” or “deliberate and not
accidental.”
3. A course of action (or failure of action) which is unlawful.
Tax Avoidance (Tax Minimization) - the exploitation by the taxpayer of legally permissible alternative tax rates
or methods of assessing taxable property or income in order to avoid or reduce tax liability.
Q8: Define Tax Exclusions, Tax Deduction, and Tax Credit.

A8: Exclusions from gross income refer to flow of wealth to the taxpayer which are not treated as part of gross
income for purposes of computing the taxpayer’s taxable income, due to the following reasons: (1) it is exempted by
the Constitution or a statute; or (2) it does not come within the definition of gross income.
Deductions, are the amounts which the law allows to be subtracted from gross income in order to arrive at (net)
taxable income.
Tax Credit refers to the amount allowed by law to be deducted from the tax due on account of taxes paid or accrued.
Q9: What is double taxation?

A9: Means taxing twice the same taxpayer for the same tax period upon the same thing or activity, when it should
be taxed once, for the same purpose and with the same kind of character of tax.
In the strict sense (Direct Duplicate Taxation), it means:

1. the same property must be taxed twice when it should be taxed once;
2. both taxes must be imposed on the same property or subject matter;
3. for the same purpose;
4. by the same State, Government, or taxing authority;
5. Within the same territory, jurisdiction or taxing district;
6. during the same taxing period; and
7. of the same kind or character of tax.
In the broad sense (Indirect Duplicate Taxation) is where any of the elements for direct duplicate taxation is
absent.
Double taxation is not a valid defense against the legality of a tax measure [Pepsi Cola v. Mun. of Tanauan, G.R. No.
L-31156 (1976)]. But from it might emanate such defenses against taxation as oppressiveness and inequality of the
tax.
Q10: Differentiate Direct tax from Indirect Tax.

A10: Direct Taxes are taxes which are demanded from persons who also shoulder them; taxes for which the
taxpayer is directly or primarily liable, or which he cannot shift to another (e.g., income tax, estate tax, donor’s tax,
community tax)
Indirect Taxes are taxes which the person who absorbs or bears the burden of the tax is other than the one on
whom it is imposed and required by law to pay the tax. Practically all business taxes are indirect (e.g., VAT, percentage
tax, excise taxes on specified goods, customs duties).
Q11: Differentiate Tax Amnesty from Tax Exemption.
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A11: Tax amnesty is a general pardon or the intentional overlooking by the State of its authority to impose penalties
on persons otherwise guilty of violating a tax law. It partakes of an absolute waiver by the government of its right to
collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. [Asia International
Auctioneers, Inc. v. CIR, G.R. No. 179115, September 26, 2012]
Tax exemption is immunity from all civil liability only. It is an immunity or privilege, a freedom from a charge or
burden of which others are subjected. [Greenfield v. Meer, C.A. No. 156 (1946)]. It is generally prospective in
application [Dimaampao, 2005, p. 111].
Tax Amnesty Tax Exemption

Benefit Immunity from civil, Immunity from
criminal, administrative civil liability
liability arising from non- (relief from
payment of taxes paying taxes)
Coverage Retroactive in application Generally
as it applies to Past past prospective in
tax liability liabilities application
Revenue Loss Yes None
Q12: How do you interpret tax laws?

A12: General Rule: Tax laws are construed strictly against the government and liberally in favor of the taxpayer.
[Manila Railroad Co. v. Coll. of Customs, G.R. No. L-30264 (1929)]. No person or property is subject to taxation
unless within the terms or plain import of a taxing statute. [72 Am. Jur. 2d 44]
Exceptions:
a. The rule of strict construction as against the government is not applicable where the language of the statute
is plain and there is no doubt as to the legislative intent [see 51 Am. Jur. 368]. In such case, the words
employed are to be given their ordinary meaning. E.g. word “individual” was changed by the law to
“person”. This clearly indicates that the tax applies to both natural and juridical persons, unless otherwise
expressly provided.
b. The rule does not apply where the taxpayer claims exemption from the tax.
Q13: How do you interpret tax exemptions and exclusions?

A13: General Rule: In the construction of tax statutes, exemptions are not favored and are construed strictissimi
juris against the taxpayer. [Republic Flour Mills v. Comm. & CTA, G.R. No. L-25602 (1970)]
Exceptions:
a. When the law itself expressly provides for a liberal construction, that is, in case of doubt, it shall be resolved
in favor of exemption; and
b. When the exemption is in favor of the government itself or its agencies, or of religious, charitable, and
educational institutions because the general rule is that they are exempt from tax.
c. When the exemption is granted under special circumstances to special classes of persons.
d. If there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative
intent, the rule on strict construction does not apply. [Comm. v. Arnoldus Carpentry Shop, Inc., G.R. No.
71122 (1988)].
Q14: Explain the rules on non-retroactivity of tax laws.

A14: General rule: Tax laws are prospective in operation. The reason is that the nature and amount of the tax could
not be foreseen and understood by the taxpayer at the time the transaction which the law seeks to tax was completed.
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Exception: Tax laws may be applied retroactively provided it is expressly declared or clearly the legislative intent.
[Lorenzo v. Posadas, G.R. No. 43082 (1937)].
Exception to the exception: a tax law should not be given retroactive application when it would be so harsh and
oppressive for in such case, the constitutional limitation of due process would be violated [Republic v. Fernandez,
G.R. No. L-9141 (1956)].
Q15: What are the situs rules in all NIRC taxes?

A15: Factors that Determine Situs:
1. Nature of the tax;
2. Subject matter of the tax (person, property, act or activity);
3. Possible protection and benefit that may accrue both to the government and the taxpayer;
4. Citizenship of the taxpayer;
5. Residence of the taxpayer;
6. Source of income.
Situs of Individual Income Tax

Taxpayer Source of Income
Citizenship Residency Within PH. Outside PH.
Filipino Resident Taxable Taxable
Filipino Non-Resident Taxable Non-Taxable
Alien Resident Taxable Non-Taxable
Alien Non-Resident Taxable Non-Taxable
Situs of Corporate Income Tax
Taxpayer Source of Income
Within PH. Outside PH.
Domestic Corporation Taxable Taxable
Foreign Corporation Taxable Non-Taxable
Situs of Property Tax

Kind of Property Situs
Real property Where it is located (lex rei sitae)
Tangible Personal property Where property is physically located although the owner
resides in another jurisdiction.
Intangible personal property General Rule: Domicile of the owner. Mobilia sequuntur
(e.g., credits, bills personam (movables follow the person)
receivables, bank deposits, Exceptions:
bonds, promissory notes, When property has acquired a business
mortgage loans, judgments situs in another jurisdiction; or
and corporate stocks) When the law provides for the situs of the subject of tax
(e.g., Sec 104, NIRC)
Situs of Excise Tax

Kind of Excise Tax Situs
Income Tax Source of the income, nationality or
residence of taxpayer (Sec. 23, NIRC)
Donor’s Tax Location of property; nationality or
residence of taxpayer
Estate Tax Location of property; nationality or
residence of taxpayer
Situs of Business Tax
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Kind of Business Tax Situs

VAT Where transaction is made;
Sale of goods or services intended for
consumption in the Philippines;
Importation of goods for
consumption in the Philippines
Sale of Real Property Where the real property is located
Sale of Personal Property Where the personal property was sold
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Income Taxation
Q1: Differentiate income and capital.
A1: The essential difference between capital and income is that capital is a fund; income is a flow. Capital is wealth,
while income is the service of wealth. “Income” can be defined as “profits” or “gains”. [Madrigal v. Raffert, G.R.
No. 12287, August 7, 1918]
Q2: Are proceeds from life insurance policies subject to Income Tax?
A2: No. Section 32 (B) (1) of the NIRC excludes proceeds of life insurance policies paid to the heirs or beneficiaries
upon the death of the insured, whether in a single sum or otherwise, from gross income. Proceeds of life insurance,
payable upon the death of the insured, are considered as indemnity rather than income. [Mamalateo] However, if the
insurer holds such amounts under an agreement to pay interest thereon, the interest payments shall be included in
gross income. If the beneficiary is the employer of the insured, the proceeds are also subject to income tax.
Q3: What is the Tax Benefit Rule?

A3: This is a general principle in taxation which states that if a taxpayer deducted an item on his income tax return
and enjoyed a tax benefit (reduced his income tax) thereby, and in a subsequent year recovers all or part of that item,
he will recognize gross income in the year the deducted item is recovered. The rule has both an inclusionary and an
exclusionary component, i.e., the recovery is included in the taxpayer’s gross income to the extent that the taxpayer
obtained a tax benefit from the prior year’s deduction, and the recovery is excluded to the extent that the prior year’s
deduction did not provide a tax benefit.
3 deductions in Sec. 34 which makes reference to Tax Benefit Rule are the following:
• Taxes [Sec 34(C)(1)]
• Abandonment Losses [Sec 34 (D)(7)(b)]
• Bad Debts [Sec 34(E)(1)]
Q4: What is a fringe benefit?

A4: A fringe benefit means any good, service, or other benefit furnished or granted in cash or in kind by an employer
to a managerial or supervisory [Sec. 33, NIRC]
Q5: What is the tax base for computing fringe benefit tax?
A5: The tax base, upon which 35% shall be imposed, is the grossed-up monetary value of the fringe benefit granted
to the employee. [Sec. 33, NIRC]
Q6: What are the requisites for a benefit to be subject to fringe benefit tax of 35%?
A6: The fringe benefit:
(1) Must be granted to a managerial or supervisory employee;
(2) Must not have been granted for the convenience or advantage of the employer or necessary to the business
or required by its nature. [Sec. 33, NIRC]
Q7: When is fringe benefit not subject to fringe benefit tax?

A7: The following are not taxable:
(1) Fringe benefit which are authorized and exempted from tax under special laws;
(2) Contributions of the employer for the benefit of the employee to retirement, insurance [Note that this is
not automatically income to the employee but subject to separate rules, see Section 32 (B)(6)]
(3) Benefits given to rank and file employees, whether granted under a CBA or not;
(4) Benefits granted for the convenience of the employer;
(5) De minimis benefits.
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Q8: Differentiate capital asset from ordinary asset.

A8: The following are ordinary assets:
(1) Stock in trade or inventory
(2) Property primarily held for sale to customers in the ordinary course or of trade of or business
(3) Property used in business that are subject to depreciation
(4) Real property used in business
Meanwhile, capital assets Capital assets are properties held by a taxpayer, whether connected with his/her trade or
business, that are not ordinary assets.
Q9: When does an unregistered partnership arise and become subject to corporate income tax?
A9: An unregistered partnership would arise and be subject to income tax when: (a) there is an agreement by two or
more persons to contribute money, property or industry to a common fund; and (b) there is an intent to divide the
profits and losses among the contracting parties.
Q10: What is Tax Sparing Credit?

A10: Applies to inter-corporate dividends received by a non-resident foreign corporation from Philippine sources.
The rule requires that the country where the taxpayer is domiciled must allow as tax credit the 15% tax deemed paid
in the Philippines which is the spared portion of the tax out of the regular rate of 30% normally imposed on all
income derived from Philippine sources by a non-resident foreign corporation.
Q11: What is Improperly Accumulated Earnings Tax (IAET)?

A11: IAET is a special penalty tax imposed on corporation for improper or unreasonable accumulations of profits
or surplus, in addition to regular corporation income tax. The tax is 10% on the undistributed portion of the profits
or surplus of a corporation formed or availed for the purpose of avoiding the income tax with respect to its
shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead
of being divided or distributed.
Rationale: It is a tax in the nature of a penalty to the corporation for the improper accumulation of its earnings, and
a deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings
distributed to them. [Sec. 29, NIRC, as implemented by RR 2-2001]
Q12: What is the coverage of IAET?

A12: IAET applies to: domestic corporations classified as closely-held corporations.
IAET does not apply to:

1. Banks and other non-bank financial intermediaries;
2. Insurance companies;
3. Publicly-held corporations;
4. Taxable partnerships;
5. General professional partnerships;
6. Non- taxable joint ventures; and
7. Enterprises registered with PEZA (RA 7916), BCDA (RA 7227), and other special economic zones declared
by law which enjoy a special tax rate in lieu of other taxes.
Q13: What are closely held corporations?

A13: Closely-held corporations are those:
1. at least 50% in value of the outstanding capital stock; or
2. at least 50% of the total combined voting power of all classes of stock entitled to vote
3. is owned directly or indirectly by or for not more than 20 individuals. Domestic corporations not falling
under the aforesaid definition are, therefore, publicly- held corporations.
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Q14: What is Minimum Corporate Income Tax (MCIT)?

A14: Applies to domestic corporations and resident foreign corporations whenever such corporations (i) have zero
or negative taxable income, or whenever the (ii) MCIT is greater than the normal income tax due; and is imposed
beginning the fourth taxable year from the taxable year the corporation commenced its business operations. For
purposes of MCIT, the taxable year in which business operations commenced shall be the year when the corporation
registers with the BIR (not in which the corporation started commercial operations). Tax rate is 2% of Gross Income.
Q15: What is Net Operating Loss Carry Over (NOLCO)?

A15: The net operating loss of the business or enterprise which had not been previously offset as deduction from
gross income shall be carried over as a deduction from gross income for the next three (3) consecutive taxable years
immediately following the year of such loss, provided however, that any net loss incurred in a taxable year during
which the taxpayer was exempt from income tax shall not be allowed as a deduction. [Sec. 34(3)(D), NIRC]
Exception: Mines other than oil and gas wells, where a net operating loss without the benefit of incentives provided
for under EO No. 226 (Omnibus Investments Code) incurred in any of the first ten (10) years of operation may be
carried over as a deduction from taxable income for the next five (5) years immediately following the year of such
loss.
Q16: Who are entitled to NOLCO?

A16:
a. Individuals engaged in trade or business or in the exercise of his profession (including estates and trusts);
Note: An individual who avails of 40% OSD shall not simultaneously claim deduction of NOLCO.
However, the three-year reglementary period shall continue to run during such period notwithstanding the
fact that the aforesaid taxpayer availed of OSD during the said period.
b. Domestic and resident foreign corporations subject to the normal income tax (e.g., manufacturers and
traders) or preferential tax rates under the Code (e.g., private educational institutions, hospitals, and regional
operating headquarters) or under special laws (e.g., PEZA-registered companies)
Note: Domestic and resident foreign corporations taxed during the taxable year with Minimum Corporate
Income Tax cannot enjoy the benefit of NOLCO. However, the three-year period for the expiry of the
NOLCO is not interrupted by the fact that the corporation is subject to MCIT during such three-year
period.
Q17: What are Tax Free Exchanges?

A17:
Merger or Consolidation
No gain or loss shall be recognized if in pursuance of a plan of merger or consolidation
1. A corporation, which is a party to a merger or consolidation, exchanges property solely for stock in a
corporation, which is a party to the merger or consolidation; or
2. A shareholder exchanges stock in a corporation, which is a party to the merger or consolidation, solely for
the stock of another corporation also a party to the merger or consolidation; or
3. A security holder of a corporation, which is a party to the merger or consolidation, exchanges his securities
in such corporation, solely for stock or securities in such corporation, a party to the merger or consolidation.
[sec. 40(C)(2), NIRC]
Both corporations in the aforementioned cases must be parties to a merger or consolidation.
Substantially all the properties of another corporation means the acquisition of at least 80% of the assets, including
cash, of another corporation which has the element of permanence and not merely momentary holding [Banggawan
citing BIR Gen. Circ. V-253 (1957)]
Acquisition of Control
No gain or loss shall also be recognized if property is transferred to a corporation by a person in exchange for stock
or unit of participation in such a corporation of which as a result of such exchange said person, alone or together
PAGE 9
with others, not exceeding four (4) persons, gains control of said corporation: Provided, That stocks issued for
services shall not be considered as issued in return for property.
The control requirement is sufficiently met when after the transfer, the transferors, not more than five, collectively
become the owners of at least 51% of the equity of the transferee, or if already owning 51%, increase their equity
further in the transferee corporation. It is not required that each of the several transferors individually gains control
or individually increases his/her interest. CIR v. Co. CTA EB NO. 1522, Feb 28, 2018.
Q18: What are the requisites to avail of Capital Gains Tax Exemption for Sale of Principal Residence?
A18: Sale or Disposition of their OLD Principal Residence by Natural Persons exempts the payment of 6% capital
gains tax on said residence if:
1. Sale or disposition of the OLD principal residence by NATURAL PERSONS
Citizens or aliens provided that they are residents taxable under Sec. 24 of the Code (does not include an
estate or a trust);
2. The proceeds of which is fully utilized in (a) acquiring or (b) constructing a new principal residence within
eighteen (18) months from date of sale or disposition;
3. Notify the Commissioner within thirty (30) days from the date of sale or disposition through a prescribed
return of his intention to avail the tax exemption;
4. Can only be availed of only once every ten (10) years;
5. The historical cost or adjusted basis of his old principal residence shall be carried over to the cost basis of
his new principal residence
NOTE: If there is no full utilization, the portion of the gains presumed to have been realized shall be subject to
capital gains tax.
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Transfer Tax
Q1: Are proceeds from life insurance policies subject to Estate Tax?
A1: Proceeds of life insurance policies taken by the decedent upon his own life are subject to estate tax when:
(1) The decedent designated his estate or the executor or administrator of his estate as the beneficiary,
irrespective of whether or not the insured retained the power of revocation.
(2) The beneficiary is other than the decedent’s estate, executor, or administrator, when the designation is not
expressly made irrevocable or the designation is revocable. (Note that under Section 11 of the Insurance
Code, notwithstanding the revocable designation of the beneficiary, in the event the insured/owner of the
policy does not change the beneficiary during his lifetime, the designation shall be deemed irrevocable (not
subject to estate tax). [Mamalateo; See also Section 62 of RR 2-40; Sec. 85(E), NIRC]
Q2: What are the rules on applicability of estate tax laws?

A2:
1. Estate tax accrues at the time of the decedent’s death, but the obligation to pay the same is different and is
fixed by law. The tax is measured by the value of the property AT THE TIME OF DEATH.
2. Estate tax is measured (i.e., tax base) by the value at that time of such property as passes to him (i.e., death).
Subsequent appreciation or depreciation is immaterial;
3. Estate taxation is governed by the statute in force at the time of the death of the decedent. Tax laws cannot
be given retroactive effect unless they explicitly provide for it. [Sec. 5, RR-2-2003]
Q3: What is the composition of the gross estate?

A3: If the decedent is a citizen or resident alien, the gross estate shall be composed of all property, real or personal,
tangible or intangible, wherever situated.
If the decedent is a non-resident alien, the gross estate shall be composed of:
a. Real property situated in the Philippines
b. Tangible personal property situated in the Philippines
c. Intangible personal property with situs in the Philippines, unless excluded on the basis of reciprocity.
[Sec. 85, NIRC and RR No. 22-2018]
Q4: What items are included in the gross estate?

A4: The following items are included in the gross estate?
a. Decedent’s Interest
b. Transfers in Contemplation of Death (NOT included in gross estate in the case of a bona fide sale for an
adequate and full consideration in money or money’s worth)
c. Revocable Transfers
d. Properties passing under General Power of Appointment (NOT included in gross estate in the case of a
bona fide sale for an adequate and full consideration in money or money’s worth)
e. Life Insurance Proceeds
Only if: a) It is an insurance on the life of the decedent and b) The beneficiary must be either his estate,
executor, or administrator, or any third person. If the beneficiary is any third person, the designation must
be revocable.
f. Prior Interests
g. Transfers for Insufficient Consideration [Tabag and Garcia]
Q5: What are the deductions from the gross estate?

A5:
a. Ordinary Deductions
i. Losses, Indebtedness, Taxes (LIT)
1. Claims against the estate
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2. Claims against insolvent persons

3. Unpaid mortgage or indebtedness on property
ii. Vanishing Deduction/Property Previously Taxed
iii. Transfer for Public Use
b. Special Deductions (FSA)
i. Family home at 10,000,000 Pesos
ii. Standard Deduction of 5,000,000 Pesos
iii. Amount received by heir under RA 4917
c. Share of surviving spouse in the conjugal partnership of property
NOTE: Funeral, judicial, and medical expenses are no longer allowed as deductions. [Sec.23, TRAIN Law]
Q6: Are election campaign contributions subject to Donor’s Tax?

A6: No, they are not subject to Donor’s Tax, as long as there was filing of returns of contributions with the
COMELEC and the entire contribution was utilized to cover the expenditure for electoral campaign. [RR No. 7-
2001]
Q7: When will a transfer of property be deemed a gift?

A7: Where property, other than a real property that has been subjected to the final capital gains tax , is transferred
for less than an adequate and full consideration in money or money’s worth, then the amount by which the fair
market value of the property at the time of the execution of the Contract to Sell or Deed of Sale (not preceded by a
Contract to Sell) exceeded the value of the agreed or actual consideration shall, for the purpose of the tax imposed
by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar
year: Provided, however, That a sale, exchange, or other transfer of property made in the ordinary course of business
(a transaction which is a bona fide, at arm’s length, and free from any donative intent), will be considered as made
for an adequate and full consideration in money or money’s worth. [Sec. 100, NIRC]
Where the consideration is fictitious, the entire value of the property transferred shall be subject to donor’s tax.
[Tabag and Garcia]
Q8: What donations are exempt from donor’s tax?

A8: The following gifts or donations shall be exempt from donor’s tax:
(A) In the Case of Gifts Made by a Resident -
(1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which
is not conducted for profit, or to any political subdivision of the said Government; and
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, accredited nongovernment organization, trust or philanthropic organization or research
institution or organization: Provided, however, that not more than thirty percent (30%) of said gifts shall
be used by such donee for administration purposes.
(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the Philippines.
(1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which
is not conducted for profit, or to any political subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation,
institution, foundation, trust or philanthropic organization or research institution or organization: Provided,
however, that not more than thirty percent (30%) of said gifts shall be used by such donee for administration
purposes. [Sec. 101, NIRC]
Q9: What are the rules for filing and payment for estate tax and donor’s tax?
A9:
Estate Tax Donor’s Tax
- Within one (1) year from the death - Within 30 days from donation
- Extension to file: not more than 30 days - No extension to file
- Pay as you file - Pay as you file
PAGE 12
- With extension to pay: - No extension for payment

2 years (extrajudicial)
5 years (judicial)
[Tabag and Garcia]
PAGE 13
Value Added Tax

Q1: What is the destination principle?
A1: As a general rule, the VAT system uses the destination principle. The destination of the goods determines the
taxation or exemption from VAT. Goods and services are taxed only in the country where they are consumed (CIR
v. American Express). Exports are typically VAT zero-rated while imports are VAT-taxable.
Q2: What are the VAT Exempt transactions?

A2:
Of agricultural and marine products in their original state, even if it has undergone
A
simple processes of preparation or preservation
Sale or
Of fertilizers; seeds, seedlings and fingerlings; prawn, livestock and poultry feeds.
importation
B Exception: specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals,
and other animals generally considered pets.
Of personal and household effects belonging to the residents of the Philippines
C
returning from abroad
Of professional instruments and implements, tools of trade, occupation or
Importation
employment, wearing apparel, domestic animals and personal household effects,
D
belong to persons coming to settle in the Philippines for their own use and not for
sale, barter or exchange.
E Subject to percentage tax
By agricultural contract growers and milling for others of palay into rice, corn into
F
grits and sugarcane into raw sugar
Medical, dental, hospital and veterinary services
G
Services Exception: those rendered by professionals
Educational services rendered by private educational institutions duly accredited by
H
DepEd, CHED, and TESDA, and those by governmental educational institutions
I Rendered pursuant to an employer-employee relationship
J Rendered by a ROHQ established in the Philippines
Transactions which are exempt under international agreements to which the
K Philippines is a signatory or under special laws, except those under PD 529 (Petroleum
concessionaires)
L Sales By agricultural cooperatives duly registered with the CDA
Gross receipts from lending activities by credit or multi-purpose cooperatives duly
M Services
registered with the CDA whose lending is limited to members
By non-agricultural, non-electric, and non-credit cooperatives duly registered and in
N Sales good standing with the CDA. Provided, the share capital contribution of each member
does not exceed 15K
By persons who are not VAT-registered
O Export sales
Of real property not primarily held for sale to customers or held for lease in the
P Sales ordinary course of business or sales within the low-cost cap of below P1.5M for a
residential lot and P2.5M for a house and lot and other residential building
Q Lease Of a residential unit with a monthly rental not exceeding P15,000
Sale, importation, Books and any newspaper, magazine, review or bulletin which appears at regular
R printing, or intervals with fixed prices for subscription and sale and is not devoted principally to
publication publication of paid advertisements.
S Transport of passengers by international carriers
Sale, importation, Of passenger or cargo vessels and aircraft, including engine, equipment and spare
T
or lease parts thereof for domestic or international transport operations
PAGE 14
Fuel, goods, and supplies by persons engaged in international shipping or air transport
U Importation operations, provided, that the fuel, goods, and supplies are used for international shipping
or air transport operations
Of banks, non-bank financial intermediaries performing quasi-banking functions and
V Services
other non-bank financial intermediaries
W Sale or Lease Goods or services to senior citizens and persons with disability
X Transfer Of property pursuant to Section 40(C)(2) of the NIRC, as amended
Collection Association dues, membership fees, and other assessments and charges collected by
Y
homeowners associations and condominium corporations
Z Sale Of gold to the Bangko Sentral ng Pilipinas (BSP);
Sale Of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
AA
beginning January 1, 2019
other than the transactions mentioned in
Sale or lease Of goods or properties
the preceding paragraphs, the gross
BB
annual sales and/or receipts do not
Services Performance of services exceed the amount of P3M
Q3: What is the difference between VAT Exempt Transactions and Zero-Rated Transactions?
A3:
VAT Exempt Transactions Zero-Rated Transactions
Not subject to VAT Subject to 0% VAT
Does not result in an output tax Does not result in an output tax
Input tax on purchases of a VAT-registered Input tax on purchases of a VAT-registered person
person is not allowed to be refunded or credited; with zero-rated sales may be allowed as a tax refund
forms part of cost of goods or service or credit.
Registration is optional for VAT-exempt Persons engaged in zero-rated transactions are
persons. required to register.
Q4: What is the procedure in claiming input VAT for zero-rated or effectively zero-rated sales?
A4:
1. The VAT-registered taxpayer claiming a refund of excess or unutilized input tax credits shall file an application
for the refund of creditable input tax or the issuance of a tax credit certificate. This application must be filed
within two years after the close of the taxable quarter when such sales were made.
2. In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from
the date of submission of the official receipts or invoices and other documents in support of the application.
Should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing
the legal and factual basis for the denial.
3. In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim, appeal the decision with the CTA. A BIR official, agent, or
employee who fails to act within the 90-day period may be charged criminally. [Sec. 112, NIRC]
Q5: What are the requisites for a taxpayer engaged in sales which are zero-rated or effectively zero-rated to
apply for a refund or issuance of a tax credit certificate for input taxes paid attributable to such sales?
A5:
(1) The taxpayer is engaged in sales which are zero-rated or effectively zero-rated;
(2) The taxpayer is VAT-registered;
(3) The claim must be filed within two years after the close of the taxable quarter when such sales were made;
(4) The input taxes are due or paid;
(5) The input taxes are not transitional input taxes;
(6) The input taxes have not been applied against output taxes during and in the succeeding quarters;
(7) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
PAGE 15
(8) In certain types of zero-rated sales, the acceptable foreign currency exchange proceeds thereof had been
duly accounted for in accordance with BSP rules and regulations [Sections 106(A)(2)(a)(1) and (2); Section
106(B); Sections 108(B)(1) and (2)]; and
(9) Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input
taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume. [Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr.
2007; San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]
Q6: What is Transitional Input Tax?

A6: A person who becomes liable to VAT or any person who elects to be a VAT-registered person shall, subject to
the filing of an inventory according to the rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials, and
supplies equivalent to 2% of the value of such inventory or the actual VAT paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output tax. [Sec.111(A), NIRC]
Q7: What is a Transaction Deemed Sale?

A7: These are certain transactions which are not actually sales because of the absence of the actual exchange between
the buyer and the seller but are considered or included in the term “sale” for VAT purposes. These include:
(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for
sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were
consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such
retirement or cessation.
Q8: When is a sale of an asset not subject to VAT?

A8: In a case decided by the Supreme Court, the sale of a power plant by NPC was considered not subject to VAT
as it was made not in pursuit of commercial or economic activity but a governmental function mandated by law to
privatize NPC generation assets. [PSALM v CIR, G.R. No. 226556, July 3, 2019]
Summary of Rules on Prescriptive Periods for Claiming Refund or Credit of Input VAT
• It is only the administrative claim that must be filed within the 2-year prescriptive period [Aichi]
• The proper reckoning date for the 2-year prescriptive period is the close of the taxable quarter when the relevant
sales were made [Mirant, San Roque]
o The only other rule is the Atlas ruling, which is only applicable from June 8, 2007 to September 12, 2008,
where the 2-year period should be counted from the date of filing of the VAT return and payment of the
tax [San Roque]
120+30 Day Period (now 90+30 Day Period)

• The taxpayer can file an appeal in one of two ways (whichever comes first [Silicon]):
o File the judicial claim within 30 days from receipt of the CIR’s denial of the claim within the 120-day period;
or
o File the judicial claim within 30 days from the lapse of the 120-day (now 90) period to decide if no action
was made.
• The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.
• As a general rule, the 30-day period to appeal is both mandatory and jurisdictional [Aichi, San Roque]
o Exception: Premature filing was allowed between December 10, 2003 and October 5, 2010, when BIR
Ruling No. DA-489-03 was in force [San Roque]
PAGE 16
Tax Remedies
Q1: What are within the exclusive appellate jurisdiction of CTA?
A1: The CTA retains exclusive appellate jurisdiction to review by appeal, the following:
1. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under
the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where
the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved
by them in the exercise of their original or appellate jurisdiction;
4. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures or other penalties in
relation thereto, or other matters arising under the Customs Law or other laws administered by the Bureau
of Customs;
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases
involving the assessment and taxation of real property originally decided by the provincial or city board of
assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for review from
decisions of the Commissioner of Customs which are adverse to the Government under Section 2315 of
the Tariff and Customs Code;
7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or
article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs
Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to
impose or not to impose said duties. [RA No. 1125, as amended by RA No. 9282]
Q2: What are included in the jurisdiction of CTA involving criminal cases?
A2:
1. Exclusive original jurisdiction:
a. Violations of the NIRC, CMTA, or other laws administered by the BIR where the principal amount of
taxes and fees (exclude: charges and penalties) is P1 Million or more
Note: Trial courts have jurisdiction over cases amounting to less than P1 Million
2. Exclusive appellate jurisdiction in criminal offenses:
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases
originally decided by them, in their respected territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the
exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. [RA No. 1125,
as amended by RA No. 9282]
Q3: What are within the jurisdiction of CTA involving tax collection cases?
A3: Jurisdiction over tax collection cases as herein provided:
1. Exclusive original jurisdiction:
a. Final and executory assessments where the principal amount of taxes and fees (exclude: charges and
penalties) is Php1M or more
Note: Trial courts have jurisdiction over cases amounting to less than Php1M
2. Exclusive appellate jurisdiction in tax collection cases:
PAGE 17
a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection
cases originally decided by them, in their respective territorial jurisdiction.
b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the
Exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan
Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.
[RA No. 1125, as amended by RA No. 9282]
Q4: When can the CTA order the suspension of the collection of taxes?
A4: Generally, no court shall have the authority to grant an injunction to restrain the collection of any national
internal revenue tax, fee or charge imposed by the NIRC [Section 218], except the CTA, when the collection of the
amount of the taxpayer’s liability may jeopardize the interest of the Government or the taxpayer. The CTA may
order the suspension of collection of taxes if the taxpayer either (1) deposits the amount claimed; or (2) files a surety
bond for not more than double the amount. [Rule 10, Revised Rules of the CTA (RRCTA)]
Q5: Is a motion for reconsideration of the decision of the CTA En Banc mandatory?
A5: No. Rule 16, RRCTA allows the filing of an appeal with the Supreme Court upon receipt of a decision or
resolution from the CTA En Banc.
Q6: What is compromise?

A6: Article 2028 of the Civil Code defines compromise as “an agreement whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already commenced.” As applied to taxation, the parties concerned
are the taxpayer and the CIR.
Q7: What may be compromised?

A7: The following cases may be the subject matter of compromise settlement:
1. Delinquent accounts;
2. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are
still pending in the Regional Offices, Revenue District Offices, Legal Service, Large Taxpayer Service (LTS),
Collection Service, Enforcement Service and other offices in the National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, other than those already filed in court or those involving criminal tax fraud.
Exceptions:
1. Withholding tax cases, unless the applicant-taxpayer invokes provisions of law that cast doubt on the
taxpayer’s obligation to withhold;
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal Revenue or his duly authorized
representative;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved schedule of installment payments;
5. Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in
the original assessment and the taxpayer is agreeable to such decision by signing the required agreement
form for the purpose. On the other hand, other protested cases shall be handled by the Regional Evaluation
Board (REB) or the National Evaluation Board (NEB) on a case to case basis;
6. Cases which become final and executory after final judgment of a court, where compromise is requested on
the ground of doubtful validity of the assessment; and
7. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. [RR
No. 30-02, as amended by RR No. 08-04, Sec. 2]
Q8: How is compromise different from abatement?

A8: Compromise is marked by mutual concessions, whereas in abatement or cancellation, no mutual concessions
between the taxpayer and the CIR are made. [People v. Sandiganbayan, GR No. 152532, 16 August 2005.]
PAGE 18
The CIR may compromise the payment of any Internal Revenue Tax when: (1) there is a reasonable doubt as to the
validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax. All criminal violations may be compromised except: (a) those already filed in court,
or (b) those involving fraud.
On the other hand, the CIR may abate or cancel a Tax Liability, when: (1) The tax or any portion thereof appears to
be unjustly or excessively assessed; or (2) The administration and collection costs involved do not justify the
collection of the amount due. The Supreme Court defined abatement as the “diminution or decrease in the amount
of tax imposed,” such that to abate is “to nullify or reduce in value or amount.
Q9: What are the compromise penalties?

A9: The following are the minimum amount that may be paid as compromise:
Doubtful validity: 40% of basic tax due
Financial incapacity: 10% of basic tax due
Q10: What constitutes a valid assessment?

A10: The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise,
the assessment shall be void [Section 228, NIRC].
Q11: Discuss the exceptions to the issuance of PAN.

A11: A pre-assessment notice shall not be required in the following cases:
1. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as
appearing on the face of the return; or
2. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the
withholding agent; or
3. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable
period was determined to have carried over and automatically applied the same amount claimed against the
estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
4. When the excise tax due on excisable articles has not been paid; or
5. When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
[Sec. 228, NIRC]
Q12: Discuss how the PAN is issued and differentiate from FAN/FLD and from FDDA.
A12: If after review and evaluation by the Commissioner or his duly authorized representative, as the case may be,
it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office
shall issue to the taxpayer a Preliminary Assessment Notice (PAN) for the proposed assessment. It shall show in
detail the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is based
[Section 3.1.1, Rev Reg 12-99, as amended by Rev Reg 18-13 and Rev Reg 7-18]. A taxpayer has a 15-day period
within which to submit to the BIR his reply to PAN as prescribed under the regulations.
Formal Letter of Demand and Final Assessment Notice (FLD/FAN) shall be issued by the Commissioner or
his duly authorized representative. The FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall
state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based; otherwise, the assessment
shall be void [Section 3.1.3, Rev Reg 12-99, as amended by Rev Reg 18-13 and Rev Reg 7-18]. The FAN may only be
issued after (i) the issuance of the PAN, the fifteen (15) days period for the taxpayer to respond to the PAN, and
(iii) due consideration of the taxpayer’s reply to the PAN, except if the case of assessment falls on the exception to
the issuance of PAN. This is the assessment contemplated under the NIRC for purposes of prescription.
The Final Decision on a Disputed Assessment (FDDA) is a decision issued by the CIR or his duly authorized
representative stating the (i) facts, the applicable law, rules and regulations, or jurisprudence on which such decision
is based and (ii) that the same is his final decision after an assessment is disputed by the taxpayer. [Section 3.1.5 Rev
Reg 12-99, as amended by Rev Reg 18-13 and Rev Reg 7-18]
PAGE 19
Q13: What are the modes of disputing an assessment/FAN?

A13: The taxpayer may protesting an assessment may file a written request for reconsideration or reinvestigation.in
two ways:
Request for reconsideration — refers to a plea of re-evaluation of an assessment on the basis of existing records without
need of additional evidence. It may involve both a question of fact or of law or both.
Request for reinvestigation — refers to a plea of re-evaluation of an assessment on the basis of newly discovered or
additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or
of law or both. Under this option, the taxpayer has 60 days within which to submit additional supporting documents.
The taxpayer shall state in his protest (i) the nature of protest whether reconsideration or reinvestigation, specifying
newly discovered or additional evidence he intends to present if it is a request for reinvestigation, (ii) date of the
assessment notice, and (iii) the applicable law, rules and regulations, or jurisprudence on which his protest is based,
otherwise, his protest shall be considered void and without force and effect. [Section 3.1.4 Rev Reg 12-99, as
amended by Rev Reg 18-13 and Rev Reg 7-18]
Q14: What are the requirements for a valid waiver of the statute of limitations?
A14:
1. The waiver must be in proper form prescribed by RMO No. 20-90. The phrase “but not after ___ [20___],”
which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year
period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or his duly authorized representative.
3. The waiver must be duly notarized.
4. The CIR or the revenue official authorized by him must sign the waiver indicating the BIR’s acceptance and
agreement to the waiver, and the date of such acceptance by the BIR should be indicated.
5. Both the date of execution by the taxpayer and the date of acceptance by the BIR should be prior to the
expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent
agreement is executed.
6. The waiver must be in three copies: the original copy to be attached to the docket of the case, the second
copy for the taxpayer, and the third copy for the Office accepting the Waiver.
[RMO No. 20-90; Revenue Delegation Authority Order No. 05-01]
NOTE: The waiver may be, but not necessarily, in the form prescribed above. The taxpayer's failure to follow the
aforesaid forms does not invalidate the executed waiver, for as long as the following are complied with:
1. The Waiver of the Statute of Limitations shall be executed before the expiration of the period to assess or to
collect taxes. The date of execution shall be specifically indicated in the waiver.
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. ln the case of a
corporation, the waiver must be signed by any of its responsible officials;
3. The expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of
prescription should be indicated [RMO No. 14-2016]
Q15: When can a defective waiver still be valid?

A15: The taxpayer is estopped from questioning the validity of “Waiver of Statute of Limitations” when both parties
(taxpayer and the BIR) are equally culpable or guilty or in pari delicto.
Q16: Discuss the prescriptive period in relation to the right to assess of the Government.
A16: General Rule: The right to assess must be done 3 years from: The day the return was actually filed, or from the
last day for filing the return (if the return was filed before the last day prescribed by law), whichever is later.
Exceptions:
1. False or fraudulent return with intent to evade taxes – within 10 years from discovery of the falsity or fraud
2. Failure or omission to file a return – within 10 years after discovery of failure or omission to file the return
3. Waiver of statute of limitations in writing, which must be made before the expiration of the 3 year period of
assessment of taxes – period agreed upon [Section 203 in relation to Section 222, NIRC]
PAGE 20
Q17: When can the running of Statute of Limitations be suspended?

A17: The running of the Statute of Limitations on the making of assessment and the beginning of distraint or levy
or a proceeding in court for collection, in respect of any deficiency, shall be suspended:
a. for the period during which the Commissioner is prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and for sixty (60) days thereafter;
b. when the taxpayer requests for a reinvestigation which is granted by the Commissioner;
c. when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is
being assessed or collected but if the taxpayer informs the Commissioner of any change in address, the
running of the Statute of Limitations will not be suspended;
d. when the warrant of distraint or levy is duly served upon the taxpayer, his authorized representative, or a
member of his household with sufficient discretion, and no property could be located; and
e. when the taxpayer is out of the Philippines. [Section 223, NIRC]
Q18: Cite instances when the ten-year prescriptive period to assess applies.
A18: The Tax Code specifies three instances when the running of the three-year prescriptive period does not apply.
They are: (1) filing a false return; (2) filing a fraudulent return with intent to evade tax; and (3) failure to file a return.
The period within which to assess tax is ten years from discovery of the fraud, falsification, or omission. Thereafter,
the CIR has another five years to collect. [Sec. 222(a), NIRC]
Q19: How are taxes assessed?

A19:
(1) Self-Assessment - Taxpayers are required to file tax returns for various kinds of income earned which may
be subject to tax. Examples are income tax, capital gains tax, donor’s tax, and estate tax. When a taxpayer
files the tax return, he is actually making a self-assessment.
(2) Deficiency Assessment - Deficiency assessment is an assessment made by the BIR after the conduct of an
investigation or audit when it finds that the tax return filed by the taxpayer contains, for example, an under-
declaration of income, or when the taxpayer does not at all file a tax return.
Q20: What is interest in general as provided for under the NIRC, as amended?
A20: There shall be assessed and collected on any unpaid amount of tax, interest at the rate of double the legal
interest rate for loans or forbearance of any money in the absence of an express stipulation as set by the Bangko
Sentral ng Pilipinas from the date prescribed for payment until the amount is fully paid.: Provided, That in no case
shall the deficiency and the delinquency interest be imposed simultaneously. [Section 249(A), NIRC]
Q21: What are the different types of interest that may be imposed on a taxpayer?
A21: Deficiency Interest. — Interest imposed on any unpaid amount of tax at the rate of double the legal interest rate
for loans or forbearance of any money in the absence of an express stipulation as set by the BSP from the date
prescribed for payment until the amount is fully paid. (BSP rate is currently at 6%, hence interest is 12% starting
January 1, 2018) [Section 249(B), NIRC]
Delinquency Interest. — In case of failure to pay:

(1) The amount of the tax due on any return required to be filed, or
(2) The amount of the tax due for which no return is required, or
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and demand of
the Commissioner, there shall be assessed and collected on the unpaid amount, interest at the rate prescribed
in Subsection (A) hereof until the amount is fully paid, which interest shall form part of the tax. [Section
249(C), NIRC]
Note that under the TRAIN, deficiency and delinquency interest cannot be imposed simultaneously.
PAGE 21
Q22: What is an Informal Conference?

A22: The Revenue Officer who audited the taxpayer's records shall state in his report whether or not the taxpayer
agrees with his findings that the taxpayer is liable for deficiency taxes. If the taxpayer is not amenable, based on the
said Officer's submitted report of investigation, the taxpayer shall be informed, in writing, of the discrepancies in the
taxpayer's payment of his internal revenue taxes for the purpose of "lnformal Conference," in order to afford the
taxpayer with an opportunity to present his side of the case.
The Informal Conference shall in no case extend beyond thirty (30) days from receipt of the notice for informal
conference. If it is found that the taxpayer is still liable for deficiency tax or taxes after presenting his side, and the
taxpayer is not amenable, the, case shall be endorsed within seven (7) days from the conclusion of the Informal
Conference for the issuance of a deficiency tax assessment.
Q23: When is the best evidence obtainable rule available?

A23: The CIR shall assess the proper tax based on the best evidence obtainable in the following instances:
a. When the report or records requested from the taxpayer are not forthcoming i.e. the records are lost or the
taxpayer refuses to submit such records, or
b. The reports submitted are false, incomplete, or erroneous [NIRC, Sec. 6(B)]
Q24: What is a Letter of Authority?

A24: It is an official document that empowers a Revenue Officer to examine and scrutinize a taxpayer’s books of
accounts and other accounting records, in order to determine the taxpayer’s correct internal revenue tax liabilities.
Q25: What is the effect of the absence of a Letter of Authority?

A25: There must be a grant of authority before any revenue officer can conduct an examination or assessment.
Equally important is that the revenue officer so authorized must not go beyond the authority given. In the absence
of such an authority, the assessment or examination is a nullity. [CIR vs. Sony Philippines, Inc., G.R. No. 178697
(2010)]
Q26: What is a jeopardy assessment?

A26: A tax assessment which was assessed w/o the benefit of complete or partial audit by an authorized revenue
officer, who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay
because of the taxpayer’s failure to comply with the audit and investigation requirements to present his books of
accounts and/or pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed in
his return. (As defined in Sec. 3(1)(a), RR 30-2002 for the purposes of entering into a compromise)
Q27: What is the “Willful Blindness Doctrine”?

A27: “Willful blindness” is defined in Black’s Law Dictionary as “deliberate avoidance of knowledge of a crime,
especially by failing to make a reasonable inquiry about suspected wrongdoing, despite being aware that it is highly
probable.” A “willful act” is described as one done intentionally, knowingly and purposely, without justifiable excuse.
“Willful” in tax crimes means voluntary, intentional violation of a known legal duty, and bad faith or bad purpose
need not be shown. It is a state of mind that may be inferred from the circumstances of the case; thus, proof of
willfulness may be, and usually is, shown by circumstantial evidence alone. Therefore, to convict the accused for
willful failure to file ITR or submit accurate information, it must be shown that the accused was (1) aware of his/her
obligation to file annual ITR or submit accurate information, but that (2) he/she, or his/her supposed agent,
nevertheless voluntarily, knowingly and intentionally failed to file the required returns or submit accurate
information. Bad faith or intent to defraud need not be shown. [People v. Gloria Kintanar, CTA EB Crim. No. 006,
Dec. 3, 2010]
PAGE 22
Local Government Tax

Q1: Explain the taxing power of local governments.
A1: Each local government unit shall have the power to create its own sources of revenues and subject to such
guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such
taxes, fees, and charges shall accrue exclusively to the local governments. [Sec. 5, Art. X, 1987 Constitution]
Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and
charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local government units. [Sec. 129, LGC]
Q2: What are the limitations of the taxing power of local governments?
A2: Unless otherwise provided, the following cannot be levied by the local governments: [IDEC-GAPEP-GRR-
ECN]:
a. Income tax, except when levied on banks and other financial institutions;
b. Documentary stamp tax;
c. Estate tax, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided;
d. Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all other kinds of
customs fees, charges and dues except wharfage on wharves constructed and maintained by the LGU
concerned;
e. Taxes, fees or charges on Goods carried into or out of, or passing through, the territorial jurisdictions of
local government units in the guise of charges for wharfage, tolls for bridges or otherwise, or other taxes,
fees, or otherwise
f. Taxes, fees or charges on Agricultural and aquatic products when sold by marginal farmers or fishermen;
g. Taxes on business enterprises certified to by the Board of Investments as Pioneer or non-pioneer for a
period of 6 and 4 years, respectively from the date of registration;
h. Excise taxes on articles enumerated under the NIRC, as amended, and taxes, fees or charges on petroleum
products;
i. Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services except as
otherwise provided herein;
j. Taxes on the Gross receipts of transportation contractors and persons engaged in the transportation of
passengers or freight by hire and common carriers by air, land or water, except as provided in the Code;
k. Taxes on premiums paid by way or Reinsurance or retrocession;
l. Taxes, fees or charges for the Registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof, except tricycles;
m. Taxes, fees, or other charges on Philippine products actually Exported, except as otherwise provided;
n. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly registered
under the Cooperative Code of the Philippines; and
o. Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local
government units. [Sec. 133, LGC]
Q3: What is the procedure for effectivity of Local Government Taxes?

A3:
1. A public hearing must be conducted prior to the enactment of a tax ordinance. [Sec. 187, LGC]
2. Within ten (10) days after the approval of the ordinance, certified true copies of all tax ordinances or revenue
measures shall be published in full for three (3) consecutive days in a newspaper of local circulation.
3. In provinces, cities and municipalities where there are no newspapers of local circulation, it must be posted
in at least two (2) conspicuous and publicly accessible places. [Sec. 188, LGC]
4. Copies shall be furnished the respective local treasurers for public dissemination [Sec. 189, LGC]
PAGE 23
Q4: What is the procedure to protest assessment of Local Government Taxes?

A4:
1. Within 60 days from the receipt of the notice of assessment issued by the local treasurer or his duly
authorized representative, the taxpayer may file a written protest with the local treasurer contesting the
assessment; otherwise it shall become final and executory. The local treasurer shall decide within 60 days
from the time of filing.
2. If the protest is found to be wholly or partly meritorious, a notice cancelling wholly or partially the
assessment will be issued. If the protest was denied or when the 60-day period already lapsed, the taxpayer
shall have 30 days from the receipt of denial or the end of the 60-day period to appeal with the court of
competent jurisdiction; otherwise, the assessment becomes conclusive and unappealable. [Sec. 195, LGC]
3. The court of competent jurisdiction where an appeal can be made is the Regional Trial Courts then Court
of Tax Appeals via a Petition for Review to the CTA Division under Rule 42 (if from RTC acting original),
or Petition for Review under Rule 43 (if from RTC acting in its appellate jurisdiction).
Q5: What are the remedies of a taxpayer that pays an assessment?

A5: The taxpayer must still file the written protest within the 60-day period and then bring the case within 30 days
from either the decision or inaction of the local treasurer. In its court action, the taxpayer may, at the same time,
question the validity and correctness of the assessment and seek a refund of the taxes it paid. [ICTSI v. City of Manila
G.R. No. 185622 (2018)]
Q6: What is the procedure to question a newly enacted tax ordinance?

A6:
1. Appeal within 30 days from effectivity of the ordinance to the Secretary of Justice
2. Secretary must render a decision within 60 days from receipt of appeal
3. Within 30 days from the lapse of the 60 days without any action from the Secretary of Justice, or within 30
days from receipt of decision, the aggrieved taxpayer may go to court
Q7: What is a professional tax?

A7: Provinces may levy annual professional tax on each person engaged in the exercise of a profession requiring
government examination
• Imposed by: Province
• Rate: Such amount as the Sangguniang Panlalawigan may determine, in no case to exceed P300.00.
• Base: Such reasonable classification by the Sangguniang Panlalawigan
• Exemption: Professionals exclusively employed by the government
• Where paid: To be paid to the province where the profession is practiced, or where a principal office is
maintained.
Note: A person who pays for professional tax may practice his profession anywhere in the country without being
subjected to similar taxes. (Sec 139, LGC)
Q8: If professional tax has been paid already, is securing a business permit still required?
A8: No. A professional who has paid his/her professional tax shall be exempt from the payment of business permit
fee in the operation of his/her clinic or office. However, a professional shall still be required to secure a business
permit at no cost from the concerned LGU during the registration or renewal of the office or clinic. [Sec. 6, Local
Finance Circular No. 001-2019]
Meanwhile Section 7 of the same circular provides that if upon verification, a professional is actually engaged in
selling, trading, or distributing of any articles of commerce of whatever kind, or involved in the function of trade, or
undertake any business activity that does not constitute the practice of profession, pursuant to the applicable laws
governing the practice of profession, he/she shall be liable to pay the annual local business tax (LBT) to the city or
municipality concerned, pursuant to the applicable rates under the LGC or under a duly enacted ordinance
PAGE 24
Q9: What is a franchise tax?

A9: Franchise tax is a tax levied on the exercise by an entity of the rights or privileges granted to it by the government.
[City of Iriga v. CASURECO, G.R. No. 192945 (2012)]
• Imposed by: Province
• Rate: Not exceeding ½ of 1%.
• Base: Gross annual receipts for the preceding calendar year based on the incoming receipt, or realized,
within its territorial jurisdiction. [Sec 137, LGC]
Note: The case of San Pablo v. Reyes [G.R. No. 127708 (1999)] states that the explicit language of Section 137 of
LGC, which authorizes the province to impose franchise tax "notwithstanding any exemption granted by any law or
other special law", is all-encompassing and clear, even though the phrase “in lieu of all taxes” is contained in the
MERALCO franchise upon the withdrawal of tax exemptions in the LGC.
PAGE 25
Real Property Tax

Q1: What local government entities can levy Real Property Tax?
A1: The following may levy real property tax:
1. Province
2. City
3. A municipality within the Metro Manila area (outside metro manila are excluded)
Q2: What is the property covered by Real Property Tax?

A2:
1. Land
2. Building
3. Machinery which are actually, directly, and exclusively used to meet the needs of the business or activity
and are designed for, or necessary to its purpose
4. Other improvements not specifically exempted [Sec. 232, LGC]
Q3: What are properties exempt from Real Property Tax?

A3:
1. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
2. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, non-profit or
religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used for
religious, charitable or educational purposes;
3. All machineries and equipment that are actually, directly and exclusively used by local water districts and
GOCCs engaged in the supply and distribution of water and/or generation and transmission of electric
water;
4. All real property owned by duly registered cooperatives as provided for under R.A. No. 6938 [Cooperative
Code of the Philippines]; and
5. Machinery and equipment used for pollution control and environmental protection. [Sec. 234, LGC]
Q4: What is the Idle Lands Tax?

A4: A province, or city or municipality within Metro Manila may levy an annual tax on idle lands at the rate not
exceeding five percent [5%] of the assessed value of the property in addition to the basic tax
Lands covered
1. Agricultural Lands - more than one hectare in area suitable for cultivation, dairying, inland fishery, and other
agricultural uses, one-half of which remain uncultivated or unimproved
2. Other than Agricultural - more than one thousand square meters in area one half of which remain unutilized
or unimproved [Sec. 236 and 237, LGC]
3. Residential lots in subdivisions - regardless of land area; lot owner shall be liable if ownership of the lot has
been transferred; otherwise, developer shall be liable for the additional tax.
Exempt Idle Lands

Lands exempt by reason of
1. Force majeure,
2. Civil disturbance,
3. Natural calamity or
4. Any cause or circumstance which physically or legally prevents improving, utilizing or cultivating the same.
[Sec. 238, LGC]
PAGE 26
Q5: What is the Special Levy for Public Works?

A5: A tax ordinance shall describe with reasonable accuracy the nature, extent and location of the public works to
be undertaken, the estimated cost, the metes and bounds by monuments and lines and the number of annual
installments which should not be less than 5 nor more than 10 years.
The sanggunian may fix different rates for different parts or sections thereof, depending on whether such land is
more or less benefited by the proposed work. [Sec. 241, LGC]
Q6: What is the Special Levy for Special Education Fund (SEF)
A6: A province, or city or municipality within Metro Manila may levy and collect an annual tax of one percent (1%)
on the assessed value of real property which shall be in addition to the basic real property tax.
Q7: What is the procedure to protest a Real Property Tax Assessment?

A7:
a. No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts
the words "paid under protest."
b. The protest in writing must be filed within thirty (30) days from payment of the tax with the local treasurer.
c. The treasurer shall decide the protest within sixty (60) days from receipt.
d. In the event that the protest is denied or upon the lapse of the 60-day period, the taxpayer may avail of the
procedure in questioning an assessment:
(1) Appeal to the LBAA within 60 days;
(2) Then appeal to the CBAA within 30 days;
(3) Appeal to the CTA En Banc within 30 days. [Sec. 252, LGC]
Pursuant to Section 231 of the Local Government Code, no protest shall be entertained unless the taxpayer pays the
tax without prejudice to a subsequent adjustment depending upon the final outcome of the appeal.
NOTE: Payment under protest is NOT necessary when an issue challenges the very authority and power of the
municipal, city or provincial assessor or treasurer in taxing a property, it being a question of legality. Dispute may
already be raised directly to the trial court.
PAGE 27
TRAIN Law
Q1: What are the notable changes in the TRAIN Law?
A1:
Income tax
1. Tax exempt - P250,000.00
2. Income tax rates - the new individual income tax rates are: 20%, 25%, 30%, 32% and 35% (until 2022) by
2023 and onwards: 15%, 20%, 25%, 30% and 35%.
3. Rate of tax on income of purely self-employed individuals and/or professionals whose gross sales
or gross receipts and other non-operating income do not exceed the vat threshold of P3 million –
self-employed individuals and/or professionals shall have the option to avail of an eight percent (8%) tax
on gross sales or gross receipts and other non-operating income in excess of two hundred fifty thousand
pesos (P250,000) in lieu of the graduated income tax rates (20%-30%) of this section and the percentage
tax under section 116 of this code (3% of the gross sales or receipts).
4. Rate of tax for mixed income earners – taxpayers earning both compensation income and income from
business or practice of profession shall be subject to the following taxes:
(1) all income from compensation – graduated income tax rates (20%-35%)
(2) all income from business or practice of profession –
If total gross sales and/or gross receipts and other non-operating income do not exceed the vat threshold
of p3 million – the graduate income tax rates (20%-35%), or eight percent (8%) income tax based on
gross sales or gross receipts and other non-operating income in lieu of the graduated income tax rates
(20%-35%) and the percentage tax under section 116 of this code (3% of the gross sales or receipts.
5. Interest income from deposit under the foreign currency deposit system received by resident
individual – 15% final income tax (used to be 7.5%)
6. Sales of shares of stock not listed and traded – 15% final tax based on net capital gain (except for
Foreign Corporations, still at 5%/10%)
- If traded in the stock exchange – 6/10 of 1% of gross selling price (percentage tax)
7. Lotto and sweepstakes winnings of more than php 10,000 – 20% final withholding tax.
8. Exempt GOCCS -
a. GSIS
b. SSS
c. PHIC
d. Local water districts
- PCSO and PAGCOR are no longer tax-exempt
- Local water districts are granted income tax exemption by virtue of R.A. No. 10026
9. Interest income derived by a domestic corporation from a depositary bank under the expanded
foreign currency deposit system – 15% final income tax of such interest income. [Sec. 7, TRAIN Law]
10. 13th month pay and other benefits - gross benefits received by officials and employees of public and
private entities: provided, however, that the total exclusion under this subparagraph shall not exceed ninety
thousand pesos (P90,000) [Sec. 9, TRAIN Law]
- Previous total exclusion – P82,000
11. Fringe benefits - a final tax of thirty-five percent (35%) is hereby imposed on the grossed-up monetary
value of fringe benefit furnished or granted to the employee (except rank and file employees as defined
herein) by the employer, whether an individual or a corporation (unless the fringe benefit is required by the
nature of, or necessary to the trade, business or profession of the employer, or when the fringe benefit is
for the convenience or advantage of the employer). [Sec. 10, TRAIN Law]
12. Optional standard deduction - A general professional partnership and the partners comprising such
partnership may avail of the optional standard deduction only once, either by the general professional
partnership or the partners comprising the partnership. [Sec. 11, TRAIN Law]
PAGE 28
13. Substituted filing of income tax returns by employees receiving purely compensation income -
individual taxpayers receiving purely compensation income, regardless of amount, from only one employer
in the Philippines for the calendar year, the income tax of which has been withheld correctly by the said
employer (tax due equals tax withheld) shall not be required to file an annual income tax return. The
certificate of withholding filed by the respective employers, duly stamped ‘received’ by the BIR, shall be
tantamount to the substituted filing of income tax returns by said employees." [Sec. 14, TRAIN Law]
14. Installment of payment - when a tax due is in excess of two thousand pesos (P2,000), the taxpayer other
than a corporation, may elect to pay the tax in two (2) equal installments, in which case, the first installment
shall be paid at the time the return is filed and the second installment on or before October 15 following
the close of the calendar year, if any installment is not paid on or before the date fixed for its payment, the
whole amount of the tax unpaid becomes due and payable together with the delinquency penalties." [Sec.
16, TRAIN Law]
Estate tax
1. Estate tax rate – 6% based on the value of net estate
2. Allowable deductions from gross estate:
a. Standard deduction
i. Resident decedent – P5,000,000
ii. Non-resident decedent – P500,000
b. Family home – P10,000,000
3. Estate tax returns
a. Gross estate exceeding P5 million shall be supported with a statement duly certified to by a CPA
b. Time for filing – within 1 year from the decedent’s death
c. Payment by installment – within 2 years from the statutory date for its payment without civil
penalty and interest
d. Withdrawal from the decedent’s bank deposit account – subject to a final withholding tax of 6%
Donor’s tax
1. Exempt donation: P250,000
2. Donor’s tax rate: 6% of the total gifts in excess of p250,000
3. Sale, exchange, or other transfer of property of property made in the course of business (bona fide,
at arm’s length, and free from donative intent) – considered as made for an adequate and full
consideration in money or money’s worth; hence, no taxable donation
Value-added tax
1. Exempt transactions
a. Importation of professional instruments and implements, … personal and household effects
belonging to persons coming to settle in the philippines or filipinos or their families and
descendants who are now residents or citizens of other countries, x x x, for their own use and not
for barter or sale, accompanying such persons, or arriving within a reasonable time
b. Sale of residential lot – P1,500,000
c. Sale of residential house and lot – P2,500,000
d. Lease of a residential unit with a monthly rental not exceeding P15,000
e. Transport of passengers by international carriers
f. Sale or lease of goods and services to senior citizens and persons with disability (PWD)
g. Transfer of property pursuant to a plan of merger or consolidation
h. Association dues, membership fees, and other assessments and charges collected by homeowners
associations and condominium corporations
i. Sale of gold to the Bangko Sentral ng Pilipinas (BSP)
j. Sale of drugs and medicines prescribed for diabetes, high cholesterol, and hypertension
k. Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of P3,000,000
2. Refunds or tax credits of input tax
PAGE 29
a. The commissioner shall grant a refund for creditable input taxes within ninety (90) days from the
date of submission of the official receipts or invoices and other documents in support of the
application
b. The taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim, appeal the decision with the court of tax appeals: provided, however, that failure on the part
of any official, agent, or employee of the BIR to act on the application within the ninety (90)-day
period shall be punishable under section 269 of this code.
PAGE 30
U.P. LAW BOC
VAT REFUND OR VAT CREDIT CERTIFICATE

VAT- registered cancelling
their registration
w/in 2 years after close (regardless of the source
of the taxable quarter of input tax)
when sales are made
Input Tax wrt Zero-rated and Application for w/in 2 years after
Effectively zero-rated Sales refund or TCC to close of the taxable
Direct Tax CIR + supporting quarter when sales
Credit docs are made
VAT-registered
Taxpayer Presumptive Input Tax w/in 90 days
Carry-over w/in 90 days from
If VAT-exempt Transitional Input Tax from
Tax Credit submission
changes his submission
status to VAT-
registered = GRANTED
PAGE 31
transitional
VAT-exempt Transactions DENIED INACTION
input tax
w/in 30 days w/in 30 days from
Non-VAT from receipt expiration of 90-days
Apply against of denial (deleted by TRAIN)
Taxpayer
OUTPUT VAT
ISSUANCE
Appeal to CTA
Related INPUT VAT shall
NO INPUT TAX be treated as a cost of
sale or operating expense
LAST MINUTE TIPS: TAX
DENIED GRANTED
Related INPUT VAT
shall be treated as
cost of purchases Tax Credit Tax Refund
Certificate
U.P. LAW BOC
LETTERS OF AUTHORITY à INFORMAL CONFERENCE à PAN à FAN/FLD

Letter of Authority of REPORT: RDO, Special INFORMAL RDO w/in 7 days after CIR Reviewsà
Revenue Officer who Liable for Investigation Division, CONFERENCE w/in IC endorses to sufficient basis à
Audits taxpayer’s Tax Chief, informs IN 30 days from taxpayer Assessment issue PAN
records Deficiency WRITING taxpayer of receipt Division/CIR for
discrepancy issuance of deficiency
tax assessment
Taxpayer RESPONDS 15 days from
CIR Reviewsà EXCEPTIONS to PAN:
(disagrees) W/IN 15 filing/submission
sufficient basis à Formal Letter of 1) Mathematical Error in the Computation of Tax
days from receipt of of the taxpayer's
issue PAN Demand/Final appearing on the face of the tax return filed
PAN response
Assessment Notice
2) Discrepancy between tax withheld and amount
(FLD/FAN) shall be actually remitted by the withholding agent
PAGE 32
issued demanding
Taxpayer FAILS to 3) A taxpayer who opted to claim a refund or tax credit
payment for deficiency tax
respond W/IN 15 days of excess creditable withholding tax for a taxable period
+ penalties
from receipt of PAN thus was determined to have carried over and automatically
considered in DEFAULT applied the same amount claimed against the estimated
tax liabilities for the taxable quarter or quarters of the
succeeding taxable year
Detailed Contents of FLD/FAN: 4) Excise tax due on excisable articles has not been paid
PAN: 1) Issued by CIR or duly authorized agent 5) Article locally purchased or imported by an exempt
1) Facts AND 2) Calls for payment of deficiency tax person, such as, but not limited to, vehicles, capital
2) Law, Rules and FLD/FAN equipment, machineries and spare parts, has been sold,
3) States the: facts, law, rules and regulations, traded or transferred to non-exempt persons
Regulations, or or jurisprudence on which the assessment is
Jurisprudence on w/c based

the proposed
assessment is based. 4) Except when no PAN is required, must be
issued after 15 days for the taxpayer to
OTHERWISE à respond and after due consideration thereof
Assessment/PAN is
VOID OTHERWISE à ASSESSMENT/FAN is
VOID
U.P. LAW BOC
WHAT TO ALLEGE in the

FAN/FLD àPROTESTàDISPUTED ASSESSMENT / SEVERAL ISSUES PROTEST:
1) Nature of Protest (Request for
For requests for Consideration or Request for
NO PROTESTS or
ASSESSMENT is FINAL reinvestigation, Reinvestigation) *NOTE specify
PROTEST filed beyond 30 newly discovered or additional
and EXECUTORY failure to submit
days from receipt evidence intended to be presented
supporting
FLD/FAN documents w/in 60 2) Date of assessment notice
days from date of 3) Applicable law, rules and
Administrative RECONSIDERATION
DISPUTED filing letter of regulations, or jurisprudence on w/c
Protest w/in 30 protest is based.
ASSESSMENT protest
days from receipt
NOTE failure to state, protest shall
REINVESTIGATION be considered VOID.
PAGE 33
RECONSIDERATION- PLEA for
re-evaluation of an assessment
based on existing records w/o need
the taxpayer shall of additional evidence
Several taxpayer only disputes the assessment attributable
Other issues become be required to
issues in or protests against the to the undisputed issue or REINVESTIGATION - PLEA for
undisputed pay the
FLD/FAN validity of some of issues shall become final, re-evaluation of an assessment
deficiency tax or
the issues raised executory and demandable based newly discovered or
taxes attributable additional evidence that taxpayer is
thereto and a intended to present in the
Several issues in the taxpayer fails to The issue shall be collection letter reinvestigation
state the facts, the the assessment attributable shall be issued to
DISPUTED considered thereto shall become final,
applicable law, rules the taxpayer NOTE: both may involve question
ASSESSMENT undisputed issue or executory and demandable of fact or of law or both.
and regulations, or issues calling for
jurisprudence in payment of the NOTE No request for

support of his protest said deficiency reconsideration or reinvestigation
against some of the tax, inclusive of shall be granted on final, executory
several issues on the applicable and demandable assessments
which the assessment surcharge and/or
is based interest
PAGE 34
PAGE 35

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LAST MINUTE TIPS: TAX U.P.

Q2: What are Tax exempt corporations under the NIRC?

Q3: What is the test of valid classification in taxation?

Q6: What are the limitations of the power to tax?

The following are the constitutional limitations of taxation:

Q7: Differentiate Tax Evasion from Tax Avoidance.

Q8: Define Tax Exclusions, Tax Deduction, and Tax Credit.

Q9: What is double taxation?

In the strict sense (Direct Duplicate Taxation), it means:

Q10: Differentiate Direct tax from Indirect Tax.

Q11: Differentiate Tax Amnesty from Tax Exemption.

Tax Amnesty Tax Exemption

Q12: How do you interpret tax laws?

Q13: How do you interpret tax exemptions and exclusions?

Q14: Explain the rules on non-retroactivity of tax laws.

Q15: What are the situs rules in all NIRC taxes?

Situs of Individual Income Tax

Situs of Property Tax

Situs of Excise Tax

Situs of Business Tax

Kind of Business Tax Situs

Q3: What is the Tax Benefit Rule?

Q4: What is a fringe benefit?

Q7: When is fringe benefit not subject to fringe benefit tax?

Q8: Differentiate capital asset from ordinary asset.

Q10: What is Tax Sparing Credit?

Q11: What is Improperly Accumulated Earnings Tax (IAET)?

Q12: What is the coverage of IAET?

IAET does not apply to:

Q13: What are closely held corporations?

Q14: What is Minimum Corporate Income Tax (MCIT)?

Q15: What is Net Operating Loss Carry Over (NOLCO)?

Q16: Who are entitled to NOLCO?

Q17: What are Tax Free Exchanges?

Both corporations in the aforementioned cases must be parties to a merger or consolidation.

Q2: What are the rules on applicability of estate tax laws?

Q3: What is the composition of the gross estate?

Q4: What items are included in the gross estate?

Q5: What are the deductions from the gross estate?

2. Claims against insolvent persons

Q6: Are election campaign contributions subject to Donor’s Tax?

Q7: When will a transfer of property be deemed a gift?

Q8: What donations are exempt from donor’s tax?

- With extension to pay: - No extension for payment

Value Added Tax

Q2: What are the VAT Exempt transactions?

Q6: What is Transitional Input Tax?

Q7: What is a Transaction Deemed Sale?

Q8: When is a sale of an asset not subject to VAT?

120+30 Day Period (now 90+30 Day Period)

Q6: What is compromise?

Q7: What may be compromised?

Q8: How is compromise different from abatement?

Q9: What are the compromise penalties?

Q10: What constitutes a valid assessment?

Q11: Discuss the exceptions to the issuance of PAN.

Q13: What are the modes of disputing an assessment/FAN?

Q15: When can a defective waiver still be valid?

Q17: When can the running of Statute of Limitations be suspended?

Q19: How are taxes assessed?

Delinquency Interest. — In case of failure to pay:

Q22: What is an Informal Conference?