Professional Documents
Culture Documents
the total value of all property, whether real or - The term “in contemplation of death” means that the
personal, tangible or intangible belonging to the impelling or controlling motive is the thought of
decedent at the time of his death, situated within death, regardless of whether the transferor is near
or outside the Philippines, where such decedent the possibility of death or not, which induces the
was a resident or citizen of the Philippines. disposition of the property for the purpose of
In the case of a nonresident alien decedent, it avoiding the tax.
shall include only property situated in the - Example: donation was made concurrently with the
Philippines. execution of a will (Vidal de Rocs vs. Posadas, 58
Phil 108)
Property Included in the Gross Estate (INCLUSIONS): Circumstances taken into account in determining in
A. In case of resident citizens, nonresident citizens and whether the transfer was made in contemplation of
resident aliens: death:
1. Real Property within and without the Philippines; A.) Age and state of health of the decedent at the
2. Tangible personal property within and without the time of the gift;
Philippines; and B.) Length of time between the gift and the date of
3. Intangible personal property within and without the death; and
Philippines. C.) Concurrent making of a will or making a will
within a short time after the transfer.
B. In cases of nonresident aliens:
1. Real property within the Philippines; Note: Check the factual settings before and at time of
2. Tangible personal property within the Philippines death because proximity to death is not always
and; conclusive.
3. Intangible personal property within the Philippines,
unless there is reciprocity in which case, it is not Examples of motives precluding the category of a
taxable. transfer in contemplation of death:
Note: These are either: a.) To relieve the donor from the burden of
A) Properties actually owned at the time of death management;
B) Properties deemed by law to be owned by the b.) To save income or property taxes;
decedent c.) To settle family litigated and unlitigated
under Sec. 85 disputes;
d.) To provide independent income for dependents;
Inter Vivos Transfers Subject to Estate Tax e.) To see the children enjoy the property while the
donor is alive;
The gross estate extends to gratuitous transfers f.) To protect the family from hazards of business
made by the decedent during his lifetime which are operations;
treated by the law as substitutes for testamentary g.) To reward services rendered
dispositions. They are transfers inter vivos in form
but mortis causa in substance.
Note:
Rationale for taxability: The THREE (3) YEAR PRESUMPTION provides that
any transfer of a material part of his property in the
To reach such transfers which are really nature of a final disposition or distribution thereof made
substitutes for testamentary dispositions and thus by the decedent within three years prior to his death
prevent the evasion of the estate tax. without such adequate and full consideration shall,
unless shown to the contrary, be deemed to be have
These transfers are: been made in contemplation of death.
a.) transfers in contemplation of death (sec.85 b);
b.) transfers with retention or reservation of This provision, however, has been already deleted in
certain rights (sec.85 b); Sec. 100 (b) now sec. 85 (B) of the Tax Code by PD No.
c.) revocable transfers (sec.85 c) 1705.
d.) transfers of property arising under a general
power of appointment ( sec.85 d); and Under BIR Ruling No. 261 September 2, 1987, the law
e.) transfers for insufficient consideration (sec.85 does not specify the number of years prior to a
g) decedent’s death within which a transfer can be
considered in contemplation of death.
Note:
Transfers by virtue of a bona fide sale of Note: In relation to transfers with retention of rights
property for an adequate and full consideration in which are made in contemplation of death – if the right
money or money’s worth are excluded and not of retention by the Decedent is co-terminous with his
taxable. lifetime.
INCLUSIONS IN THE GROSS ESTATE (CR2IG DIP)
- Ex: X has a house and lot which he transferred to Y
a) with the condition that X will use it while X lives
1) Decedent’s interest at a specific property - Effect: Still part of estate of X as he has control over it
- To the extent of the interest therein of the decedent
at the time of his death. (Sec. 85 A) b) with the condition that X will use it only for 10 years
and then X dies before 10 years
- Ex: partnership interest, dividends - Effect: Not part of the estate of X as he is not the
actual owner
2) Transfer in contemplation of death
- A transfer with the thought of death. 3.) Transfer with retention or reservation of certain
rights
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REVIEW NOTES FOR TAXATION 2 3
- This contemplates the instances where the owner General power of appointment vs. special power of
transfers his property during his lifetime but still retains appointment:
economic benefits (the possession or enjoyment of the
property or the power to designate the person who may A.) A power is general, when it authorizes the
exercise such rights). donee of the power to appoint any person he
pleases including himself, thus having a full
- It includes: dominion over the property as if he owned it.
A. Transfer without retention of interest but intended to
take B.) It is special when, the donee can appoint only
effect at or after the decedents death. among a restricted or designated class of
- Example: donations mortis causa. persons other than himself.
In most of these transfers the property remains What regime of property relations shall govern the
substantially that of the transferor during his lifetime spouses?
notwithstanding the transfer since he still retains either
the “beneficial ownership” or “naked title” to the Under the Civil Code, the husband and wife
property. who got married before August 3, 1988 are governed
by the Conjugal Partnership of Gains, while those
who got married on or after August 3, 1988 are
EXCLUSIONS FROM THE GROSS ESTATE governed by the Absolute Community of Property,
unless a different regime was agreed upon in the
1. Merger of usufruct in the owner of the naked title marriage settlement.
- ex: X has a house and lot. X gave the title to Z.
X also allows Y to use the same and that in case Y dies, EXEMPTION FROM ESTATE TAX
the use goes to Z. What are the effects?
a) If X dies – include the house and lot in X’s estate A. The first P200, 000.00 value of the estate (sec. 84
b) If Y dies – exclude from the estate of Y as the will of X NIRC)
is being followed, there is a merger of usufruct in Z (the B. The merger of the usufruct in the owner of the naked
owner of the naked title). title.
C. The transmission from the first heir, legatee, or donee
2. Fideicommisary and transmissions from the first in favor of another beneficiary in accordance with the
heir, legatee, or donee in favor of another beneficiary, desire of the predecessor.
in accordance with the desire of the predecessor D. All bequest, devises, legacies or transfers to social
- ex: X has a house and lot. In the will of X, Y may have welfare, cultural and charitable institutions, no part
the title to the house and lot but in case Y dies, the of the net income of which inured to the benefit of
property will go to Z. What are the effects? any individual and provided that not more than 30%
a) If X dies – include as part of X’s estate as he actually of the said bequest, etc shall be used by such
owns it institution for administration purposes.
b) If Y dies – excluded from the estate of Y as he has no E. Intangible personal property of non-resident aliens
control over its disposition under the principle of reciprocity.
F. Retirement benefits of employees of private firms
- Ex: X has a house and lot which he wants to give to Y from private pension plans approved by the BIR.
but Y is a minor at the moment so that X institutes T to G. Amount received for war damages.
hold the property in trust for Y until Y reaches the age of H. Grants and donations to the Intramuros
majority. X died. The property passed to T. T died. Y administration.
reached the age of majority. Effect if T dies: Not part of ALLOWABLE DEDUCTIONS FROM THE GROSS
estate of T. ESTATE
- Granted by mere legislative grace
Note: Common reasons for 1 and 2 – the will of the first - Construed strictly against the taxpayer
decedent is followed, the second decedent has no control - Requisites:
over the disposition. a) Substantiate the claim for deduction
b) Identify the provision granting the deduction.
3. Transfers to social welfare, cultural, and charitable The provision must be clear and definite.
institutions
- Requisites: RESIDENT DECEDENT
a) Qualified organization
b) Not more than 30% will be used for administrative A. Ordinary Deductions (ELIT):
purposes
-Reason: to encourage such transfers 1) Funeral Expenses
- The amount deductible is equal to 5% of the gross
4. Proceeds of insurance not includible in the gross estate or the amount of the actual funeral expenses
estate of the decedent whichever is lower, but in no case to exceed P200,000;
a) Amount receivable by any beneficiary irrevocably
designated in the policy of insurance by the insured. - “Actual funeral expenses” are those which were
b) Proceeds of a group insurance policy taken out by a actually incurred in connection with the interment or
company for its employees. burial of the deceased and paid for from the estate of
c) Proceeds of insurance policies issued by the GSIS to said deceased.
government officials and employees.
d) Benefits accruing under the Social Security Act.
e) Proceeds of life insurance payable to the heirs of - Funeral expenses include:
deceased members of the military personnel of the a) Costs of coffin, tombstone, mausoleum, and
United States Army or Philippine Army under laws burial lot;
administered by the United States Veterans b) Funeral parlor fees;
Administration. c) Mourning clothing of the surviving spouse and
f) Accident insurance proceeds. the unmarried minor children;
d) Costs of obituary notices; and
5. Separate property of the surviving spouse. e) Expenses during the wake.
- Requisites:
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REVIEW NOTES FOR TAXATION 2 5
a) The expenses must be due to the interment, wake - ex: X obtained a 3M loan from Y and executed a Real
and burial; hence, expenses on the death Estate Mortgage over his house and lot worth 5M. X
anniversary are not included paid 1M. X died.
b) The expenses must have been shouldered by the Effect: in the estate of X, include the 5M in the gross
estate and not by other people estate of X and claim as deduction the unpaid 2M.
- The estate tax imposed by the tax code shall be credited the time of his death, of that part of the gross estate of
with the amount of any estate tax paid to a foreign the non-resident not situated in the Philippines, to
country. determine the ratable portion of the deduction for
- Concept: if a property located in the Philippines was expenses allowable.
already subjected to estate tax abroad and the same
property is also subjected to estate tax in the Philippines,
the foreign tax paid is allowed to reduce his Philippine Valuation of Property
estate tax The estate shall be appraised at its fair market value
(FMV) at the time of death of the decedent (Sec.88,
- Purpose: minimize the effect of international double NIRC). This is regardless of any subsequent contingency
taxation affecting the estate. (Lorenzo vs. Posadas, 64 Phil. 353)
Decedent’s Net Estate situated in a foreign country x * Note: If there are no improvements in the property,
Phil. Estate tax of the Entire net estate get a Certificate of No-improvement, (which you can get
only after obtaining a Certificate of Non-tax
B.) The tax credit limit for estate taxes paid to two or delinquency) and attach these to the estate tax return.
more countries is determined as follows:
2. Personal Properties
TAX CREDIT LIMIT = a) Shares of Stock
- book or par value at the time of death, and can be
Decedent’s net estate situated outside of the Phil X Phil. obtained by writing a letter of inquiry, asking for a
Estate tax of Entire net Estate formal certification from the corporation which issued
the shares of stock as to the value of such stock at the
Note: time of death of the decedent
1.) Under limitation A the allowable tax credit is the
lower amount between the tax credit limit and the b) Inventories
estate tax paid to the foreign country. - value as stated in the invoices (i.e.: price at purchase);
or the prevailing market rate (ask for the value from
2.) Under limitation B the allowable tax credit is the those engaged in the same business); or if value cannot
lower amount between the tax credit limit computed be definitely ascertained, state the approximate
under (A) and that computed under (B) reasonable value (but this will be subject to the
discretion of the BIR inspector)
In case of deductions for expenses, losses, 3. Right to Usufruct, use or habitation; or annuity
indebtedness and taxes, the amount of the allowable - probable life of the beneficiary shall be taken into
deduction is limited only to the proportion of such account, in accordance with the latest basic mortality
deductions with the value of such part of his gross estate table, to be approved by the Sec. of Finance, upon
which at the time of his death, is situated in the recommendation of the Insurance Commissioner
Philippines, bears to the value of his entire gross estate
wherever situated. (Sec. 86 (B))
Filing of Notice of Death
Formula:
Allowable deduction of non-resident estate = Where the gross value of the estate exceeds P 20,000
although exempt, the executor, administrator, or any of
Philippine Gross Estate x Deductions Claimed the legal heirs shall give, within 2 months after the
Entire Gross estate decedent’s death or within like period after the executor
or administrator qualifies as such, a written notice
As a prerequisite to the deduction, it must be thereof, to the Commissioner of Internal Revenue. (Sec.
included in the return required to be filed the value at 89, NIRC)
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REVIEW NOTES FOR TAXATION 2 8
* Note: Filing with the nearest Revenue District Office is - NOTE: The taxpayer must not be guilty of
sufficient compliance. a) negligence
b) intentional disregard of the rules and regulations, or
Filing of Return and Payment of Tax c) fraud
1.) By whom? - the taxpayer may also be required to pay a bond not
An estate tax return under oath is required by exceeding double the amount of tax and with such
law to be filed by the executor, administrator, or sureties, as the Commissioner deems necessary
any of the legal heirs:
a.) Where the gross value of the estate exceeds * Note: The filing of the estate tax return is not sufficient
P200,000 though exempt from the estate tax; to obtain a tax clearance, the
or administrator/executor/heir must submit additional
documents to determine the correctness of the values
b.) Regardless of the gross value of the estate, stated by him in the estate tax return.
where the said estate consists of registered - such as the title of the land, tax declaration of the land
or registrable real property, such as real and its improvements or Certificate of No-improvement,
property (land, bank accounts, others with vicinity map to fix the exact location and zonal value,
definite records), motor vehicle, shares of etc.
stock or other similar property for which a (Read: Revenue Memorandum Order 15-2003)
clearance from the Bureau of Internal
Revenue is required as a condition * Note: To avoid the imposition of penalties while there
precedent for the transfer of ownership is no extra/judicial settlement yet, any heir may file a
thereof in the name of the transferee. sworn declaration to the BIR stating the fact of death,
that the estate has not yet been settled and the list of the
2.) When to file? properties included in the estate, as basis for payment of
The return shall be filed within 6 months estate tax.
from the decedent’s death.
The Commissioner shall have the authority If Gross Estate >2M, additional requirement:
to grant, in meritorious cases, a reasonable - must submit a certificate of an independent CPA
extension not exceeding 30 days for filing stating:
the return. 1. itemized assets of the decedent with
corresponding gross value at the time of his
3.) Where to file? death;
Except in cases where the Commissioner otherwise or if NRA, that part of his gross estate situated
permits, the return shall be filed with: in the Philippines
2. itemized deductions from the gross estate
* if the decedent is a resident 3. amount of tax due, whether paid or still due and
a) an authorized agent bank outstanding
b) Revenue District Officer
c) Revenue Collection Officer Liability for Payment of Estate Tax
d) duly authorized treasurer of the city or
municipality where the decedent was Primarily Liable : Executor or administrator - before
domiciled at the time of his death, or delivery to any beneficiary of his distributive shares.
After due payment, the executor or administrator
shall be discharged from personal liability.
5.) When to Pay NOTE: The heirs have a solidary obligation to settle the
Pay the estate tax at the time you will file your estate estate. Hence, the BIR can collect from or sue any of the
tax return. (Pay as you file system) heirs, but only up to the amount of that heir’s share in
the hereditary estate. This is without prejudice to such
6.) Extension for Payment: heir’s right of reimbursement from his co-heirs of their
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REVIEW NOTES FOR TAXATION 2 9
share in the payment of the estate tax. (CIR vs. Pineda, the estate or any of the heirs of the decedent may, upon
21 SCRA 105) authorization by the Commissioner of Internal Revenue
withdraw an amount not exceeding P 20,00 without the
said certification . (Sec. 97)
Measures to Insure Payment of Estate Tax
- For this purpose, all withdrawal slips shall contain a
a. No judge shall authorize the executor or statement to the effect that all of the joint depositors are
judicial administrator to deliver a distributive share to still living at the time of withdrawal by any one of the
any party interested in the estate unless a certification joint depositors and such statement shall be under oath.
from the Commissioner that the estate tax has been paid Otherwise, the joint depositor will be liable for perjury
as shown. (Sec.94) (Sec. 267).
- by the court requiring the executor/administrator to
submit an inventory of properties of the estate, these - joint accounts covered by this rule include “and” and
properties are to be distributed only after payment of “and/or” accounts, but do not include an account
estate taxes and receipt of clearance by the subject to a Survivorship Agreement with a survivor-
Commissioner or his duly authorized representative take-all feature (because there is an automatic transfer of
- NOTE: The approval of the probate court is not right to the survivor; hence, not included in gross estate
required before estate taxes may be collected. The of the joint depositor who died – tax avoidance scheme)
enforcement and collection of taxes are executive in
nature. (Marcos II vs. CA, 273 SCRA 47) g. The estate tax together with interest, penalties,
and costs that may accrue in addition thereto constitutes
b. Registers of Deeds shall not register in the a lien upon all property and rights to property belonging
Registry of Property any document transferring real to the taxpayer. The lien attaches when the taxpayer
property any document transferring real property or real neglects or refuses to pay after demand. (Sec. 219)
right therein or any chattel mortgage, by way of gift
inter vivos or mortis causa, legacy or inheritance, unless h. In judicial settlement of estates, the court is
certification from the commissioner that the tax has been required to furnish the commissioner of Internal
paid and the y shall immediately notify the Revenue a certified copy of the schedule of participation
Commissioner, Regional Director, Revenue District and the court order approving the same within 30 days
Officer, or Revenue collection Officer or treasurer of the after its promulgation. (Sec. 91(b));
city or municipality where their officer are located, of
the non-payment of the tax discovered by them. (Sec. 95) i. The estate tax shall be paid by the executor or
- before the properties are transferred in the name of the administrator before delivery to any beneficiary his
heirs, a Certificate Authorizing Registration (CAR) must distributive share of the estate (Sec. 91 (c)). He may be
be shown discharged from personal liability for deficiency in the
estate tax only after written application to the
c. Any lawyer notary public, or any Government commissioner and upon determination that no such
Officer who, by reason of his official duties, intervenes deficiency appears. (Sec. 92)
in the preparation or acknowledgement of documents
regarding partition or disposal of donation inter vivos or NOTE: Additional Readings
mortis causa, legacy or inheritance, shall have the duty 1. Revenue Regulation 2-2003
of furnishing the Commissioner, etc., with copies of such 2. Revenue Memorandum Order 15-2003
documents and any information whatsoever, which may
facilitate the collection of the aforementioned tax. (Sec.
95) TAX TIPS: Avoidance of Estate Tax Liability
- ex: deed of extrajudicial settlement, deed of donation 1. Maximize your claims for deductions such as the use
of the transfers falling under the exclusions from gross
d. Neither shall a debtor of a deceased pay his estate.
debts to the heirs, legatees, executor or administrator of
his creditor, unless a certification of the Commissioner 2. Donate properties to your relatives as the tax rates for
that the tax fixed has been paid is shown; but he may donor’s taxes are lower than for estate taxes.
pay the executor or judicial administrator without said
certification if the credit is included in the inventory of 3. Estate Planning (Section 40 (c), NIRC)
the estate of the deceased. (Sec. 95) - execute a Deed of Exchange; the properties of at most
- else: debtor may be personally liable for the payment of 5 persons in exchange for shares of stock in order to
the lost tax, like a withholding agent who fails to obtain control of the corporation (more than 51%
withhold taxes ownership)
- this exchange is not taxable for income tax purposes
e. Corporations, sociedad anonima, - more tax savings if real properties are exchanged
partnerships, business or industry organized in the - the properties in the deed will no longer be part of
Philippines shall not transfer in their books any shares the gross estate as it is now owned by the corporation
obligations, bonds or rights by way of gift inter vivos or - the stock shares will be included in the gross estate
mortis causa, legacy or inheritance to the new owner but the tax would be lower as the value at time of
unless a certification from the Commissioner that the death might still be the same original value at the time
taxes fixed and due thereon have been is shown; (Sec. of exchange; on the other hand, if there was no
97) exchange the estate tax for the land would be higher as
- obligation of corporate secretary the value of the land at time of death will be higher
than at the time of the acquisition.
f. If a bank has knowledge of the death of a
person who maintained a bank deposit account alone or 4. Set up a living trust
jointly with another, it shall not allow any withdrawal - Trust: obligation imposed by a person regarding his
from the said joint deposit account unless the property
Commissioner has certified that the estate taxes imposed - Create an irrevocable trust over your properties so
thereon have been paid. However, the administrator of that they will not form part of your gross estate when
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REVIEW NOTES FOR TAXATION 2 10
you die. This is because the Irrevocable Trust is a new 2.) DONATIVE INTENT or INTENT on the part of
taxpayer created. the donor to make a gift;
- Ex: grandfather (Grantor) during his lifetime would 3.) DELIVERY, whether actual or constructive, of
like to give certain properties to his grandchild. Until the gift; and
he reaches the age of maturity, the properties will be 4.) ACCEPTANCE of the gift by the donee.
held in trust by X (trustee) for the grandchild
(Beneficiary). Note:
A. The donee, unlike the donor need not be capacitated.
B. donor’s tax applies now to both natural and juridical
persons.
C. donative intent must be present in direct gift but with
respect to indirect gift, e.g. transfer of property for
less than an adequate and full consideration,
donative intent is superfluous. Thus, donative intent
is not always essential to constitute a gift.
DISTINCTION BETWEEN DONOR’S AND ESTATE D. In Abello vs. CIR (Feb. 25, 2005), donative intent is
TAX evidenced by a reduction of patrimony of one and an
increase in patrimony to the other.
DONOR’S TAX ESTATE TAX
Tax on the privilege to Tax on the privilege to Purposes Of Gift Tax
transmit property during transmit property upon 1.) The gift tax was enacted originally to supplement
the lifetime of the donor one’s death the estate and inheritance taxes by preventing their
Tax rates are lower (2 to Tax rates are higher (5 avoidance through the taxation of gifts inter vivos.
15) to20) 2.) The donor’s tax is also intended to prevent the
Exemption is only P Tax exemption is avoidance of income tax through the device of
100,000.00 P200,000.00 splitting income among numerous/different donees
Notice of donation is Notice of death is with the donor thereby escaping the effect of the
generally not required required progressive rates of income taxation.
- The tax is imposed without reference to the death of (A). In the case of resident citizens, non-resident
the donor unlike in the case of estate tax. citizens and resident aliens:
1. Real property within and without the Philippines.
Donation / Gift 2. Tangible personal property within and without
- an act of liberality whereby a person disposes the Philippines; and
gratuitously of a thing or right in favor of another who 3. Intangible personal property within and without
accepts it. the Philippines.
- For tax purposes, the term has a much wider meaning, (B.) In the case of non-resident aliens:
it includes: 1. Real property within the Philippines.
2. Tangible personal property within the
a. any transfer in trust or otherwise, whether the gift Philippines.
is direct or indirect, and whether the property is 3. Intangible personal property within the
real or personal, tangible or intangible. (Sec. 98) Philippines, unless there is reciprocity in which
case, it is not taxable.
b. any transfer of property by gift, except in forced
sales and in the sale of real property which is a Note:
capital asset, for less than and adequate and full The specific items includible in the “gross estate” are
consideration in money or money’s worth. (Sec. applicable to and are embraced by the term “gift”.
100)
c. Condonation or remission of debt, where the B. FACTORS AFFECTING LIABILITY FOR GIFT
creditor merely desires to benefit a debtor and TAXES
without any consideration therefore cancels the
debt. 1. Relationship of the donor and the donee
a) when the donee is considered a stranger to the
Requisites Of A Taxable Gift: donor, the donor’s tax shall be 30% of the net gifts.
1.) CAPACITY of the donor to make the donation; b) when the donee is a relative of the donor, the tax
shall be based on the 2-15% table under Sec. 99(A).
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REVIEW NOTES FOR TAXATION 2 11
a.) Dowries or gifts made on account of marriage before 2. Intangible personal properties considered situated in
its celebration or within one year thereafter by parents to the Philippines.
each of their legitimate, illegitimate or adopted children
to the extent of the first P10,000.00. Franchise which must be exercised in the
Philippines
Requisites: Shares of stocks issued by any corporation or
1. The donation must be given on account of sociedad anonima organized or constituted in
marriage. the Philippines in accordance with its laws.
2. The parent must give it to his child. Shares of stocks issued by any foreign
3. The child must be either the legitimate, corporation 85% of the business of which is
recognized natural or legally adopted child of situated in the Philippines.
the donor, and; Shares of stock issued by a foreign corporation,
4. It must be given before or one year after the if such shares, obligations, or bonds, have
celebration of the marriage. acquired a business situs in the Philippines; and
Shares or rights in any partnership, business or
b.) Gifts made to or for the use of the National industry established in the Philippines.
Government or any of its agencies which is not
conducted for profit, or to any political subdivision of
the said government.
1. Donor was a Filipino citizen or resident alien, at the specifically renounced in favor of a co-heir to the
time of foreign donation exclusion of others, it shall be subject to donor’s tax.
2. Donor’s taxes of any character and description are
imposed and paid by the authority of a foreign Note: Renunciation of a surviving spouse of his/her
country. share in the conjugal partnership or absolute
community after dissolution of marriage
- whether made in favor of the heirs of the deceased
Limitations: spouse or in favor of a third person, the same is subject
A.) For donor’s tax paid to one foreign country; to donor’s tax
J. ADMINISTRATIVE PROVISIONS
Formula:
1. Filing of notice of donation
1. Donor’s Tax Paid to 1 Foreign Country
General Rule: Filing of notice of donation is not required
Tax Credit Limit = Exception: if the donor wishes to claim exemption from
tax and the donee is an organization under Sec.101(A3)
Net gift situated in a foreign country X Phil. Donor’s Tax and Sec. 101 (B2)
hardship on the heirs specifically for non-liquid = (300,000 + 400,000 + 700,000) * (2 to 15% table)
properties which requires time to be sold first to be = tax less tax paid for January and April
converted into cash for payment of the estate tax. 2. X wants to give Y 200,000, will there be tax savings to
X if he will donate one time the amount of 200,000 or
TAX TIPS : Avoidance of Gift Taxes should he split by donating 100,000 on December 2007
Execute a Deed of Extra-judicial Settlement with and 100,000 on January 2008?
simultaneous general renunciation of all inheritance
(by operation of law, the renounced inheritance will go - It depends if X and Y are relative or not.
to the co-heirs anyway).
a) relatives – yes, there will be savings as under the table
PROBLEMS ON DOWRY DEDUCTION in Section 99, the first 100,000 is exempt from Donor’s
1. A is the child of H and W tax. No donor’s tax will then be paid for both donations.
January – A got married, H and W gave him P2,000
March – H and W gave A P2,000 b) strangers – nom there will be no tax savings. A flat
April – H and W gave A another P2,000 rate if 30% is imposed on donations made between
Can the parents claim dowry deduction even if these strangers; hence, the same amount of P60,000 donor’s
were made on a staggered basis? tax will be paid whether made one time or split.
- Yes, provided these were made on account of marriage, 3. X died and left 1M each to his heirs A, B, C. The heirs
before the marriage or 1 year thereafter. agreed to settle extrajudicially.
2. January - A married B and was given dowry a) A renounced his inheritance in favor of B. Is there
February – B died liability for donor’s tax?
December – A married C and was given dowry
Can the parents of A still claim dowry deduction even if - Yes, this is a case of waiver. A is deemed to have
it was claimed already for the January dowry? accepted the property before he gave it to B as one
cannot give what one does not own. A specific
- There is no rule on the matter yet but it is submitted renunciation is taxable.
that as it was made on account of 2 different marriages,
the deduction for the December dowry may be made. b) A renounced his share without specifying a co-heir
who will receive the same. Is there liability for donor’s
3. A and C are the children of H and W tax?
January - A married B, given dowry
February – C married D, given dowry - No donor’s tax because as if A never inherited
Can H and W claim dowry deduction for both? anything from X and the transfer was made directly
-Yes, as the dowries were given to different children from X to B and C.
accordance with the preceding Sections or any authorized to inquire into the bank deposits of:
of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive 1) a decedent to determine his gross
application if the revocation, modification or estate; and
reversal will be prejudicial to the taxpayers, (2) any taxpayer who has filed an
except in the following cases: application for compromise of his tax liability
under Sec. 204 (A) (2) of this Code by reason of
(a) Where the taxpayer deliberately misstates or financial incapacity to pay his tax liability.
omits material facts from his return or any
document required of him by the Bureau of In case a taxpayer files an application to
Internal Revenue; compromise the payment of his tax liabilities on his
claim that his financial position demonstrates a clear
(b) Where the facts subsequently gathered by inability to pay the tax assessed, his application shall not
the Bureau of Internal Revenue are materially be considered unless and until he waives in writing his
different from the facts on which the ruling is privilege under Republic Act No. 1405 or under other
based; or general or special laws, and such waiver shall constitute
the authority of the Commissioner to inquire into the
(c) Where the taxpayer acted in bad faith. bank deposits of the taxpayer.
a. however before a tax official If the bank has knowledge of the death of a
could inquire into said books person, who maintained a bank deposit account either
of accounts a letter of alone or jointly with another, it shall not allow any
authority is required. withdrawal from the said deposit account, unless the
Commissioner has certified that the transfer taxes
b. What is “third-party imposed thereon have been paid. However the
verification rule”? administrator of the estate or any one of the heirs of the
decedent may, upon authorization by the
- In ascertaining the correctness of any Commissioner, withdraw an amount not exceeding
return, or in making a return when none has twenty thousand pesos (P20, 000.00) without the
been made, or in determining the liability of certification. For this purpose all withdrawal slips shall
any person for any internal revenue tax, or contain a statement to the effect that all of the joint
in collecting any such liability, or in depositors are still living at the time of withdrawal by
evaluating tax compliance, the any one of the joint depositors and such statement shall
Commissioner is authorized to obtain on a be under oath by the said depositors.
regular basis from any person other than the
person whose internal revenue tax liability d. Summons persons, take testimony
is subject to audit or investigation, or from
any office or officer of the national and local In ascertaining the correctness of any return, or
governments, government agencies and in making a return when none has been made, or in
instrumentalities, including the Bangko determining the liability of any person for any internal
Sentral ng Pilipinas and government-owned revenue tax, or in collecting any such liability, or in
or -controlled corporations, any information evaluating tax compliance, the Commissioner is
such as, but not limited to, costs and volume authorized:
of production, receipts or sales and gross
incomes of taxpayers, and the names, 1. To summon the person liable for tax or
addresses, and financial statements of required to file a return, or any officer or employee of
corporations, mutual fund companies, such person, or any person having possession, custody,
insurance companies, regional operating or care of the books of accounts and other accounting
headquarters of multinational companies, records containing entries relating to the business of the
joint accounts, associations, joint ventures of person liable for tax, or any other person, to appear
consortia and registered partnerships, and before the Commissioner or his duly authorized
their members; representative at a time and place specified in the
summons and to produce such books, papers, records,
or other data, and to give testimony (Sec.5 {c}, NIRC)
c. Inquiry into bank deposits (Sec 6 {f}),
NIRC)
2. To take such testimony of the person
concerned, under oath, as may be relevant or material to
General Rule: such inquiry (Sec.5 {d}, NIRC)
The Bureau of Internal Revenue has no - To summon the person liable for tax or
power to inquire into the bank deposits of a required to file a return, or any officer or employee of
person or taxpayer. such person, or any person having possession, custody,
or care of the books of accounts and other accounting
Exceptions: records containing entries relating to the business of the
person liable for tax, or any other person, to appear
Notwithstanding any contrary provision before the Commissioner or his duly authorized
of Republic Act No. 1405 and other general or representative at a time and place specified in the
special laws, the Commissioner is hereby
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 16
summons and to produce such books, papers, records, The Commissioner may, in each
or other data, and to give testimony. year, cause to be prepared and
published in any newspaper the lists
3. Power to assess and prescribe requirements containing the names and addresses of
for tax administration persons who have filed income tax
returns. (see Sec.71, NIRC)
a. Power to examine returns (Sec. 6
{a}, NIRC) Any internal revenue officer
- After a return has been filed as who is or shall become interested,
required under the provisions of this directly or indirectly, in the
Code, the Commissioner or his duly manufacture, sale or importation of any
authorized representative may article subject to excise tax under Title
authorize the examination of any VI of this Code or in the manufacture or
taxpayer and the assessment of the repair or sale, of any die for printing, or
correct amount of tax: Provided, however; making of stamps, or labels shall upon
That failure to file a return shall not conviction for each act or omission, be
prevent the Commissioner from punished by a fine of not less than Five
authorizing the examination of any thousand pesos (P5,000) but not more
taxpayer. than Ten thousand pesos (P10,000), or
Any return, statement of suffer imprisonment of not less than two
declaration filed in any office (2) years and one (1) day but not more
authorized to receive the same shall not than four (4) years, or both. (see Sec.270,
be withdrawn: Provided, That within NIRC)
three (3) years from the date of such
filing, the same may be modified,
changed, or amended: Provided, further,
That no notice for audit or
b. Power to make a returns (Sec.6 {b},
investigation of such return, statement
NIRC)
or declaration has in the meantime
been actually served upon the
taxpayer. What is “Best Evidence
Obtainable Rule”?
i. Amendment of Returns
- In case a person fails to file a required
When a report required by law return or other document at the time
as a basis for the assessment of any prescribed by law, or willfully or
national internal revenue tax shall not otherwise files a false or fraudulent
be forthcoming within the time fixed by return or other document, the
laws or rules and regulations or when Commissioner shall make or amend
there is reason to believe that any such the return from his own knowledge
report is false, incomplete or erroneous, and from such information as he can
the Commissioner shall assess the obtain through testimony or otherwise,
proper tax on the best evidence which shall be prima facie correct and
obtainable. sufficient for all legal purposes.
In case a person fails to file a
required return or other document at
the time prescribed by law, or willfully c. Power to conduct inventory taking,
or otherwise files a false or fraudulent surveillance and to issue
return or other document, the presumptive gross sales/receipts
Commissioner shall make or amend the (see Sec.6 {c}, NIRC)
return from his own knowledge and - The Commissioner may, at any time
from such information as he can obtain during the taxable year, order inventory-taking
through testimony or otherwise, which of goods of any taxpayer as a basis for
shall be prima facie correct and determining his internal revenue tax liabilities,
sufficient for all legal purposes. (Sec. 6 or may place the business operations of any
{b}, NIRC) person, natural or juridical, under observation
or surveillance if there is reason to believe that
such person is not declaring his correct income,
ii. Rule on confidentiality of tax sales or receipts for internal revenue tax
returns and exceptions thereto purposes. The findings may be used as the basis
(Sec.71 and 270, NIRC) for assessing the taxes for the other months or
quarters of the same or different taxable years
- After the assessment shall have and such assessment shall be deemed prima facie
been made, as provided in this Title, the correct.
returns, together with any corrections
thereof which may have been made by When it is found that a person has failed
the Commissioner, shall be filed in the to issue receipts and invoices in violation of the
Office of the Commissioner and shall requirements of Sections 113 and 237 of the Tax
constitute public records and be open to Code, or when there is reason to believe that the
inspection as such upon the order of the books of accounts or other records do not
President of the Philippines, under rules correctly reflect the declarations made or to be
and regulations to be prescribed by the made in a return required to be filed under the
Secretary of Finance, upon provisions of this Code, the Commissioner, after
recommendation of the Commissioner. taking into account the sales, receipts, income or
other taxable base of other persons engaged in (1) The fair market value as
similar businesses under similar situations or determined by the Commissioner, or
circumstances or after considering other (2) The fair market value as
relevant information may prescribe a minimum shown in the schedule of values
amount of such gross receipts, sales and taxable of the Provincial and City
base, and such amount so prescribed shall be Assessors.
prima facie correct for purposes of determining
the internal revenue tax liabilities of such f. Power to accredit tax agents (see
person. Sec.6 {g}, NIRC)
- The Commissioner shall accredit and
register, based on their professional
d. Power to terminate tax period (see competence, integrity and moral
Sec. 6 {d}), NIRC) fitness, individuals and general
- When it shall come to the knowledge professional partnerships and their
of the Commissioner that a taxpayer is representatives who prepare and file
retiring from business subject to tax, or tax returns, statements, reports,
is intending to leave the Philippines or protests, and other papers with or who
to remove his property therefore or to appear before, the Bureau for
hide or conceal his property, or is taxpayers. Within one hundred twenty
performing any act tending to obstruct (120) days from January 1, 1998, the
the proceedings for the collection of Commissioner shall create national
the tax for the past or current quarter and regional accreditation boards, the
or year or to render the same totally or members of which shall serve for three
partly ineffective unless such (3) years, and shall designate from
proceedings are begun immediately, among the senior officials of the
the Commissioner shall declare the tax Bureau, one (1) chairman and two (2)
period of such taxpayer terminated at members for each board, subject to
any time and shall send the taxpayer a such rules and regulations as the
notice of such decision, together with a Secretary of Finance shall promulgate
request for the immediate payment of upon the recommendation of the
the tax for the period so declared Commissioner.
terminated and the tax for the
preceding year or quarter, or such Individuals and general professional
portion thereof as may be unpaid, and partnerships and their representatives
said taxes shall be due and payable who are denied accreditation by the
immediately and shall be subject to all Commissioner and/or the national and
the penalties hereafter prescribed, regional accreditation boards may
unless paid within the time fixed in the appeal such denial to the Secretary of
demand made by the Commissioner. Finance, who shall rule on the appeal
within sixty (60) days from receipt of
- the BIR has the power to terminate tax such appeal. Failure of the Secretary of
period under the following instances: Finance to rule on the Appeal within
the prescribed period shall be deemed
when the taxpayer conceals his as approval of the application for
properties with the intention to accreditation of the appellant.
evade taxes
when the taxpayer is leaving the g. Power to prescribe
Philippines with the intention to procedural/documentary requirements
evade taxes - the BIR has the power to prescribe the
when the taxpayer is obstructing manner of filing of a returns
proceedings for the collection of
taxes h. Power to delegate (see Sec.7, NIRC)
when the taxpayer is removing - The Commissioner may delegate the
properties with the intention of powers vested in him under the
evading taxes pertinent provisions of the Tax Code to
when the taxpayer is retiring form any or such subordinate officials with
business the rank equivalent to a division chief
or higher, subject to such limitations
e. Power to fix real property values and restrictions as may be imposed
(see Sec.6 {e}, NIRC) under rules and regulations to be
promulgated by the Secretary of
- The Commissioner is authorized to finance, upon recommendation of the
divide the Philippines into different Commissioner: Provided, however, That
zones or areas and shall, upon the following powers of the
consultation with competent appraisers Commissioner shall not be delegated:
both from the private and public sectors,
determine the fair market value of real (a) The power to recommend the
properties located in each zone or area. promulgation of rules and regulations
For purposes of computing any internal by the Secretary of Finance;
revenue tax, the value of the property
shall be whichever the higher is of: (b) The power to issue rulings of first
impression or to reverse, revoke or
modify any existing ruling of the
Bureau;
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 18
Where the basic tax involved exceeds One SEC. 204. Authority of the Commissioner to
million pesos (P 1,000,000.00) or where the Compromise, Abate and Refund or Credit Taxes.
settlement offered is less than the prescribed - The Commissioner may -
minimum rates, the compromise shall be subject
to the approval of the Evaluation Board which (A) Compromise the Payment of any Internal
shall be composed of the Commissioner and the Revenue Tax, when:
Deputy Commissioners.
(1) A reasonable doubt as to the
All criminal violations may be compromised validity of the claim against the
except those taxpayer exists; or
(2) The financial position of the
a. those already filed in court taxpayer demonstrates a clear inability
to pay the assessed tax.
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 19
The compromise settlement of any tax Neither the NIRC nor the revenue regulations
liability shall be subject to the governing the protest of assessments provide a
following minimum amounts: specific definition of form of an assessment
however the NIRC defines the specific function
For cases of financial incapacity, and effects of an assessment:
a minimum compromise rate
equivalent to ten percent (10%) An assessment must be sent to and received
of the basic assessed tax; and by a tax payer, and must demand payment of
For other cases, a minimum the taxes described therein within a specific
compromise rate equivalent to period.
forty percent (40%) of the basic Issuance of an assessment is vital in
assessed tax. determining the period of limitation regarding
its proper issuance and the period within
Where the basic tax involved exceeds One million pesos which to protest.
(P1,000.000) or where the settlement offered is less than An assessment is deemed made only when the
the prescribed minimum rates, the compromise shall be collector of Internal Revenue releases or mails
subject to the approval of the Evaluation Board which or sends such notice to the tax payer.
shall be composed of the Commissioner and the four (4) An assessment is not necessary before
Deputy Commissioners. acriminal charge can be filed.
Before an assessment is issued, there is by
(B) Abate or Cancel a Tax Liability, when: practice, a pre-assessment notice sent to the
tax payer.The tax Payer is then given a chance
(1) The tax or any portion thereof to submit position papers and documents to
appears to be unjustly or excessively prove that the assessment is unwarranted. If
assessed; or the commissioner is unsatisfied, an assessment
(2) The administration and collection signed by him/her is then sent to the tax
costs involved do not justify the payer informing the latter specifically and
collection of the clearly that an assessment has been made
amount due. against him/her. In contrast, the criminal
charge need not go through all this.
All criminal violations may be
compromised except: (a) those already ii. CIR v. Reyes, G.R. No. 159694, January 27,
filed in court, or (b) those involving 2006
fraud.
Tax payers shall be informed in writing of the
law and the facts on which the assessment and
D. The rule on estoppel in relation to tax
the assessment is made; otherwise the
administration
assessment shall be void. (2nd paragraph of
a. Against the government
section 228 is clear and mandatory)
The error made by a tax official in the assessment of his c. Kinds of Assessment
tax liabilities does not have the effect of relieving the
taxpayer from the obligation to pay the full amount of d. Statute of Limitation on Assessment of Internal
his tax liability, for taxes are fixed by law and the Revenue Taxes (Sections 203, 222, NIRC)
government is never estopped to collect the legitimate
taxes because of the errors committed by its agents. General rule (sec203)
However, like other principles, the principle of estoppel Internal revenue taxes shall be assessed within
also admits exceptions in the interest of justice and fair three years after the last day prescribed for the
play. The Commissioner is precluded from adopting a filing of the return, and no proceeding in court
position inconsistent with one previously taken where in without assessment for the collection of sluch
justice would result therefore or where there has been a taxes shall begun after the expiration of such
misrepresentation. period.
that arise out of the NIRC or related laws and 223. Although the commissioner acted on her
administered by the BIR. The wording of the request by eventually denying it on August 11,
provision is clear and simple. It gives the CTA 1994, this is of no moment and does not distract
the Jurisdiction to determine if the warrant of from the fact that the assessment had become
distraint and levy issued by the BIR is valid and demandable
to rule if the waiver of stature of limitations was
validly effected. ii. BPI v. CIR, G.R. No. 139736, 17 October 2005
A waiver of the statute of limitations under the The court had consistently ruled in a number of
NIRC, to a certain extent, is a derogation of the cases that a request for reconsideration by the
taxpayer’s right to security against prolonged tax payer without a valid waiver of the
and unscrupulous investigations and must prescriptive period for the assessment and
therefore be carefully and strictly construed. The collection of tax, as required by the tax code and
waiver of the statute of limitations is not a implementing rules, will not suspend the
waiver of the right to invoke the defense of running thereof. (Exception: section 224)
prescription as erroneously held by the CA. It is
an agreement between the taxpayer and the BIR Wherein the statute of limitations on assessment
that the period to issue an assessment and and collection of taxes is considered suspended,
collect the taxes due id extended to a date when the tax payer request for a reinvestigation
certain. which is granted by the commissioner.
The waiver does not mean that the taxpayer f. Procedure in the process of assessment (Section
relinquishes the right to invoke prescription 228)
unequivocally particularly where the language
of the document is equivocal. For the purpose of i. Estate of the Late Juliana Diez Vda. De
safeguarding taxpayers from any unreasonable Gabriel v. CIR, G.R. No. 155541, January 27, 2004
examination, investigation or assessment, out
tax law provides a statute of limitation in The rule that an assessment is deemed made for
collection of taxes. Thus the law on prescription, the purpose of giving effect to such assessment
being a remedial measure should be liberally when the notice is released, mailed or sent to the
construed in order to afford such protection/ taxpayer to effectuate the assessment requires
that the notice must be sent to the taxpayer, and
ii. CIR v. CA and Carnation, G. R. No. 115712, not merely to a disinterested party. Although
25 February 1999 there is no specific requirement that the
taxpayer should receive that notice within the
Finality of findings of facts as a matter of said period, due process requires at the very
principle, this court will not set aside the least that such notice actually be received.
conclusion reached by an agency such as the
CTA unless there has been an abuse or When an estate is under administration, notice
improvident exercise of authority. By the very must be sent to the administrator of the estate.
nature of its function, dedicated exclusively to
the study and consideration of tax problems and ii. CIR v. Reyes, G.R. No. 159694, January 27,
has necessarily developed an expertise of the 2006
subject.
The tax payers shall be informed in writing of
e. Instances where the running of the prescriptive the law and facts on which the assessment is
period is suspended (section 223) made otherwise the assessment itself is void.
i. Republic v. Hizon, 13 December 1999 iii. CIR v. BPI, G.R. No. 134062, 17, April 2007
Sec. 229 of the code mandates that a request for The inevitable conclusion is that BPI’s failure to
reconsideration must be made within thirty (30) protest the assessments within the 30-day period
days from the tax payer’s receipt of tax provided in the former section 270 meant that
deficiency assessment, otherwise the assessment they became final and unappealable. Thus, the
becomes final, unappealable and, therefore, CTA correctly dismissed BPI’s appeal for lack of
demandable. The notice of assessment for jurisdiction. BPI was, from then on barred from
respondent’s tax deficiency was issued by disputing the correctness of the assessments or
petitioner on July 18, 1986. On the other hand, invoking any defense that would reopen the
respondent made her request for question of its liability on the merits. Not only
reconsideration thereof only on November 3. that. There arose a presumption of correctness
1992, without stating when she received the when BPI failed to protest the assessments: Tax
notice of tax assessment. She explained that she assessments by tax examiners are presumed
was constrained to ask for a reconsideration in correct and made in good faith. The taxpayer
order to avoid the harrrasment of BIR collectors. has the duty to prove otherwise. In the absence
In all likelihood, she must have been referring to of proof of any irregularities in the performance
the distraint and levy of her properties by of duties, an assessment duly made by a BIR
petitioner’s agents which took place of January examiner and approved by his superior offices
12, 1989. Even assuming that she first learned of will not be disturbed. All presumptions are in
the deficiency assessment on this date her favor of the correctness of tax assessments.
request for reconsideration was nonetheless
filed late since she made it more than 30 days iv. PNOC v. Court of Appeals, G.R. No.,
thereafter. Hence, her request for 109976, April 26, 2005
reconsideration did not suspend the running for
the prescriptive period provided under section
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 21
The defense of prescription of the period for the assessment procedures provided in the code
assessment and collection of tax liabilities shall have been followed, there is no requirement for
be deemed waived when such defense was not the precise computation and assessment of the
properly pleaded and the facts alleged and tax before there can be a criminal prosecution
evidenced submitted by the parties were not under the code.
sufficient to support a finding by the supreme
court on the matter – prescription, being a ii. CIR v. CA, G.R. No. 119322, 4 June 1996
matter of defense, imposes the burden on the
taxpayer to prove that the full period of the Reading Ungab carefully, the pronouncement
limitation has expired, and this requires him to therein that deficiency assessment is not
positively establish the date when the period necessary prior to prosecution is pointedly and
started running and when the same was fully deliberately qualified by the Court with
accomplished. following statement quoted form Guzik v. U. S.:
“the crime is complete when the violator has
g. Instances when pre-assessment is not required knowingly and willfully filed a fraudulent
(Section 228) return with intent to evade and defeat a part or
A preassessment notice shall not be required in all of the tax.” In plain words, for criminal
the following cases: prosecution to proceed before assessment, there
When any tax deficiency is the result of must be a prima facie showing of willful attempt
mathematical error in the computation of to evade taxes. There was willful attempt to
the tax as appearing on the face of the evade tax in Ungab because of the taxpayer’s
return. failure to declare in his income tax return “his
When a discrepancy has been determined income derived from banana saplings.” In the
between the tax withheld and the amount mind of the trial court and the Court of Appeals,
actually remitted by the withholding Fortune’s situation is quite apart factually since
agent. the registered wholesale price of the goods.
When a taxpayer who opted to claim a Approved by the BIR, is presumed to be the
refund or tax credit of excess creditable actual wholesale price, therefore, not fraudulent
withholding tax for a taxable period was and unless and until the BIR has made a final
determined to have carried over and determination of what is supposed to be the
automatically applied the same amount correct taxes, the taxpayer should not be placed
claimed against the estimated tax in the crucible of criminal prosecution. Herein
liabilities for the taxable quarter or lies a whale of difference between Ungab and
quarters of the succeeding taxable year. the case at bar.
When the excise tax due on exciseable
articles has not been paid. iii. CIR v. Pascor Realty, 29 June 1999
When the article locally purchased or
imported by an exempt person has been The issuance of an assessment is vital in
sold, traded, or transferred to non-exempt determining the period of limitation regarding
persons. its proper issuance and the period within which
to protest it. Section 203 of NIRC provides that
h. Governing principles concerning assessment internal revenue taxes must be assessed within
three years from the last day within which to file
Injunction is not available to restrain the the return. Section 222, on the other hand,
collection of internal revenue taxes. specifies a period of ten years in case a
fraudulent return with intent to evade was
Exception: the Court of Appeals may issue submitted or in case of failure to file a return.
injunctions against administrative collection, Also, Section 228 of the same law states that said
when collection could jeopardize the interest of assessment may be protested only within thirty
the Government or taxpayer. days from receipt thereof. Necessarily, the
taxpayer must be certain that a specific
i. When do we reckon the period when the document constitutes an assessment. Otherwise,
assessment was made? confusion would arise regarding the period
within which t make an assessment or to protest
Internal revenue taxes shall be assessed within the same, or whether interest and penalty may
three years after the last day prescribed by law accrue thereon.
for the filing of the return.
k. Are the procedures outlined in Section 228 of the
In case where a return is filed beyond the three NIRC retroactive?
year period shall be counted form the day the
return was filed. i. CIR v. Reyes, G.R. No. 159694, January 27,
2006
j. Is assessment necessary before a taxpayer could be
prosecuted for violation of the NIRC? The general rule is that statutes are prospective.
However, statutes that are remedial, or that do
i. Ungab v. Cusi, May 30, 1980 not create new or take away vested rights, do
not fall under the general rule against the
What is involved here is not collection of taxes retroactive operation of statutes. Clearly, Section
where the assessment of the commissioner of 228 provides for the procedure in case an
internal revenue may be reviewed by the court assessment is protested. The provision does not
of tax appeals, but a criminal prosecution for create new or take away vested rights. In both
violations of the NIRC which is within the instances, it can surely be applied retroactively.
recognizance of the CFI. While there can be no Moreover, RA 8424 does not state, either
civil action to enforce collection before the expressly or by necessary implication, that
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 22
pending actions are excepted from the operation Request for reinvestigation- a plea for
of section 228, or that applying it to pending reinvestigation of an assessment on the basis of
proceedings would impair vested rights. newly-discovered or additional evidence that a
taxpayer intends to present in the
INTERNAL REVENUE TAX REMEDIES reinvestigation. It may also involve question of
fact or law or both.
Tax Remedies: Its general concepts
Requirements of a valid protest
Importance: They exist to enhance the 1. In writing;
Government’s tax collection efforts, they, too, come in as 2. Addressed to the CIR;
safeguards against arbitrary action. While taxes are the 3. Must be accompanied by a waiver of the
lifeblood of the Government and should be collected Statute of Limitations in favor of the
without unnecessary hindrance, such collection must government;
nevertheless be made in accordance with law as any 4. States the Facts, applicable law rules and
arbitrariness will negate the very reason or the regulations and jurisprudence on which his
Government itself. protest is based; otherwise, his protest shall be
considered void and without force and effect
Classification: on the event the letter of protest submitted by
the taxpayer is accepted;
1. Remedies in favor of the taxpayer 5. Contains the following:
A. Administrative 1. Name of the taxpayer and address for the
(1) Before Payment immediate past three taxable years;
a. Filing of a petition or request for 2. Nature of request whether reinvestigation
reconsideration or reinvestigation or reconsideration specifying newly
(Administrative Protest); discovered evidence that he intends to
b. Entering into compromise present it is a request for reinvestigation;
(2) After Payment 3. Taxable periods covered by the
a. Filing of claim for tax refund; and assessment;
b. Filing of claim for tax credit 4. Amounts and kind/s of tax involved, and
B. Judicial Assessment Notice Number;
(1) Civil action 5. Date of receipt of assessment notice or letter of
a. Appeal to the Court of Tax Appeals demand;
b. Action to contest forfeiture of 6. Itemized statement of the findings to which the
chattel; and taxpayer agrees, if any, as a basis for computing
c. Action for Damages the tax due, which amount should be paid
(2) Criminal Action immediately upon the filing of the protest. For this
Filing of complaint against erring purpose, the protest shall not be deemed validly
Bureau of Internal Revenue officials and filed unless payment of the agreed portion of the
employees tax is paid first;
7. Itemized schedule of the adjustments with which
2. Remedies available to the government the taxpayer does not agree;
8. Statement of facts and/or law in support of the
Applicability of the Doctrine Exhaustion of protest; and
Administrative Remedies 9. Documentary evidence as it may deem necessary
- No civil or criminal action for the and relevant to support its protest to be submitted
recovery of taxes shall be filed in court within sixty (60) days from the filing of the
without the approval of the protest. If the taxpayer fails to comply with this
Commissioner. (Sec. 220, NIRC) requirement, the assessment shall become final.
(Revenue Regulation No. 12-85, dated Nov. 27, 1985.)
A. Direct Denial
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 23
The decision of the Commissioner or his duly rep shall a. Must be strictly construed against taxpayer
(a) state the facts, applicable law, rules and regulations
or jurisprudence on which his protest is based, Grounds for filing a claim for refund:
otherwise the protest shall be considered void and Erroneously or illegally assessed or collected internal
without force and effect, in which case the same shall revenue taxes;
not be considered a decision a disputed assessment and
(b) that the same is his final decision. (sec. 3.1.5, RR 12- Taxpayer pays under the mistake of fact, as for instance
99) in a case where he is not aware of the existing exemption
in his favor at the time payments were made.
A tax is illegally collected if payments are made under
B.Indirect Denial duress.
a. Commissioner did not rule on the taxpayer’s MR of
the assessment – it was only when respondent received 1. Penalties imposed without authority; and
summons on the civil action for the collection of 2. Any sum alleged to have been excessive or in
deficiency income tax that the period to appeal any manner wrongfully collected.
commenced to run. (CIR vs. Union Shipping The value of internal revenue stamps when they are
b. Referral by the Commissioner of request for returned in good condition by the purchaser may also be
reinvestigation to the Solicitor General (Republic vs.Lim redeemed.
Tian Teng Sons)
c. Reiterating the demand for immediate payment of the b. Period within which to file a claim for refund
deficiency tax due to taxpayer’s continued refusal to
execute waiver (CIR vs. Ayala Securities Corp.) 1. General Rule is two years from the date of
d. Preliminary collection letter may serve as assessment payment
notice (United Int’l Pictures vs. CIR)
The two-year prescriptive period provided in Section
Acts of BIR Commissioner Considered as Denial of 292 (now Section 230 of the Tax Code should be
Protest which serves as a Basis for Appeal to CTA: computed from the time of filing the Adjustment Return
or Annual Income Tax Return and final payment of
1. Filing by the BIR of a civil suit for collection income tax.(CIR vs. TMX SALES, G.R. No. 83736, 1992
of the deficiency tax (CIR v. Union Shipping Corp . 185 Jan 15,)
SCRA 547)
2. Indication to the taxpayer by the The rationale in computing the two-year prescriptive
Commissioner in clear and unequivocal language of his period with respect to the petitioner corporation's claim
final denial. (CIR v. Union Shipping Corp) for refund from the time it filed its final adjustment
3. BIR demand letter reiterating his previous return is the fact that it was only then that ACCRAIN
demand to pay, sent to taxpayer after his protest of the could ascertain whether it made profits or incurred
assessment (Surigao Electric Co. Inc. v. CTA, 57 SCRA losses in its business operations. The "date of payment",
523) therefore, in ACCRAIN's case was when its tax liability,
4. The actual issuance of a warrant of distraint if any, fell due upon its filing of its final adjustment
and levy in certain cases cannot be considered as final return. (ACCRA vs CA, G.R. No. 96322, 1991 Dec 20)
decision on a disputed settlement (CIR v. Union
Shipping Corp) The two-year period for prescription should be counted from
the date of payment of the tax, which for actions for refund of
b. Effect of protest filed out of time corporate income tax should be computed from the time of
actual filing of the adjustment return or annual income tax
The pendency of the taxpayer's appeal in the Court of return. This is so because at that point, it can already be
Tax Appeals and in the Supreme Court had the effect of determined whether there has been an overpayment by
temporarily staying the hands of the said Commissioner. the taxpayer. Moreover, under Sec. 49 (a) by the NIRC
If the taxpayer's stand that the pendency of the appeal (now Sec. 56(a), 1997 NIRC), payment is made at the
did not stop the running of the period because the Court time the return is filed. (CIR V CA, CTA, BPI, GR No.
of Tax Appeals did not have jurisdiction over the case of 117254. January 21, 1999)
taxes is upheld, taxpayers would be encouraged to delay There is some likelihood that the above rule could apply
the payment of taxes in the hope of ultimately avoiding also to individuals who are self employed (i.e., in
the same. Under the circumstances, the running of the business and professional practice) as well as estates and
prescriptive period was suspended. Deficiency trusts, which are likewise required to file quarterly
Percentage Taxes must be imposed.(PROTECTOR'S returns.
SERVICES, INC., petitioner, vs. CA, G.R. No. 118176,
2000 Apr 12) The prescriptive period of two years should commence to run
only from the time that the refund is ascertained, which can
Remedies from a denial of protest only be determined after a final adjustment return is
1. Motion for reconsideration accomplished.(CIR V PHILAMLIFE, 244 SCRA 446. May
2. Appeal to the Court of Tax Appeals(RA 1125, as 29, 1995)
amended by RA 9282)
2. In case of Amended Returns
2. Compromise
3. In case of taxpayers contemplating dissolution
B. After Payment
c. Who has the personality to file a claim for refund?
1. Refund (Section 229, NIRC)
The Legal Principle of quasi-contracts or solutio The duty of the withholding agent to withhold the
indebiti (see Art. 2142 & 2154 of the Civil Code). The corresponding tax arises at the time of such accrual. The
Government is within the scope of the principle of withholding agent/corporation is then obliged to remit the tax
solutio indebiti. (CIR vs. Fireman’s Fund Insurance Co.) to the Government since it already and properly belongs to the
Government. If a withholding agent who is personally
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REVIEW NOTES FOR TAXATION 2 24
liable for income tax withheld at source fails to pay said REQUISITES:
withholding tax, an assessment for said deficiency 1. there is a pending case before the
withholding tax would, therefore, be legal and proper. CTA (ancillary remedy, not a main cause of
(FILIPINAS SYNTHETIC FIBER CORP. V CA, GR action)
No.113347. June 14, 1996) 2. identify that the collection of tax is
prejudicial to the interest of either the TP or
government.
d. Is setting-off of taxes against a pending claim for refund
allowed? B. Period within which the government could
e. Is automatic application of excess tax credits allowed? collect ( Secs. 203, 222, NIRC)
f. Effect of existing tax liability on a pending claim for Assessment of Tax Liability
refund
g. Period of validity of a tax refund/credit Three (3)years from the following,
1. Returns are not actionable documents for purposes of whichever comes later:
the rules on civil procedure and evidence 1. The last day prescribed by law for
h. Refund and Protest are mutually exclusive remedies filing the return
2. The day when the return was
actually filed
Ten (10) years after the discovery of the
i. Is the taxpayer entitled to claim interest on the falsity, fraud or omission in case of:
refunded tax? 1. False or fraudulent return with
intent to evade tax, or
General Rule: The Government cannot be required to 2. Failure to file a return
pay interest on taxes refunded to the taxpayer, unless: Within the period agreed upon, when
both the TP and the Commissioner have
1. The Commissioner acted with patent arbitrariness agreed in writing, before the expiration
Arbitrariness presupposes inexcusable or obstinate of the period in Sec. 203 for the
disregard of legal provisions. (CIR vs. Victorias Milling assessment of the tax.
Corp., Inc. L-19607, Nov. 29, 1966.)
CASES:
2. In case of Income Tax withheld on the wages of
employees REPUBLIC V. HIZON, DEC. 13, 1999
Any excess of the taxes withheld over the tax due from Revenue Adm. Order No. 10-95
the taxpayer shall be returned or credited within 3 specifically authorizes the Litigation and
months from the fifteenth (15th) day of April. Refund or Prosecution section of the Legal
credit after such time earn interest at the rate of 6% per Division of regional district offices to
annum, starting after the lapse of the 3-month period to institute the necessary civil and criminal
the date the refund or credit is made (Sec 79 (c) (2) 1997 actions for tax collection. As the
NIRC complaint filed in this case was signed
by the BIR’s Chief of Legal Division for
b. Other Remedies Region 4 and verified by the Regional
Director, there was, therefore,
1. Action to Contest Forfeiture of Chattel (Sec. compliance with the law.
231) Sec. 7 of NIRC, authorizes the BIR
Commissioner to delegate the powers
In case of seizure of personal property under claim for vested in him under the pertinent
forfeiture, the owner desiring to contest the validity of provision of the Code to any
the forfeiture may bring an action: subordinate official with the rank
a. Before sale or destruction of the equivalent to a division chief or higher.
property to recover the property from the person seizing
the property or in possession thereof upon filing of the CIR V. JAVIER, JULY 31, 1991
proper bond to enjoin the sale. There was no actual intentional fraud in
b. After the sale and within 6 months to filing the return. Private respondent’s
recover the net proceeds realized at the sale (see. Sec. notation on the tax return was at most
231, 1997 NIRC) an error or mistake of fact or law not
constituting fraud, an invitation for
Action partakes the nature of an ordinary civil action for investigation and private respondent
recovery of personal property or the net proceeds of its had literally” laid his cards on the table.
sale which must be brought in the ordinary courts and PNOC V. CA, APRIL 26, 2005
not the CTA
When available:
Cases that may be compromised a. No bidder for the real property exposed
for sale.
1. Delinquent accounts b. If highest bid is for an amount
2. Cases under administrative protest insufficient to pay the taxes, penalties
3. Cases disputed before the courts and costs.
4. Cases for collection already filed in courts With in two days thereafter, a return of the
5. Criminal violations except those already filed, proceeding is duly made.
and those involving fraud.
How enforced:
Cases that cannot be compromised a. In case of personal property – by seizure
and sale or destruction of the specific
1. Withholding tax cases forfeited property.
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REVIEW NOTES FOR TAXATION 2 26
b. In case of real property – by a judgment In case of intangible property, taxpayer is also diverted
of condemnation and sale in a legal of the power of control over the property.
action or proceeding, civil or criminal, b. Constructive – The owner is merely prohibited from
as the case may require. disposing of his personal property.
Serving a copy of the warrant NOTE: The requisites are the same as that of
upon taxpayer and upon president, distraint.
manager, treasurer or other responsible
officer of the issuing corporation, Procedure:
company or association. 1. International Revenue officer shall prepare a
b. Debts and credits duly authenticated certificate showing
1. Leaving a copy of the warrant with a. Name of taxpayer
the person owing the debts or b. Amount of tax and
having in his possession such c. Penalty due.
credits or his agent. - enforceable throughout the Philippines
2. Warrant shall be sufficient authority 2. Officer shall write upon the certificate a
for such person to pay CIR his description of the property upon which levy is
credits or debts. made.
3. Service of written notice to:
c. Bank Accounts – garnishment a. The taxpayer, and
1. Serve warrant upon taxpayer and b. RD where property is located.
president, manager, treasurer or 4. Advertisement of the time and place of sale.
responsible officer of the bank. 5. Sale at public auction to the highest bidder.
2. Bank shall turn over to CIR so much 6. Disposition of proceeds of sale.
of the bank accounts as may be NOTE: The excess shall be turned over to owner.
sufficient. Redemption of property sold or forfeited
a. Person entitled: Taxpayer or anyone for him
How constructive Distraint Effected b. Time to redeem: one year from date of sale or
1. Require taxpayer or person in possession to: forfeiture
- Sign a receipt covering property - Begins from registration of the deed of sale
distrained or declaration of forfeiture.
- Obligate him to preserve the same - Cannot be extended by the courts.
properties. c. Possession pending redemption: owner not
- Prohibit him from disposing the deprived of possession
property from disposing the property in d. Price: Amount of taxes, penalties and interest
any manner, with out the authority of thereon from date of delinquency to the date of
the CIR. sale together with interest on said purchase
2. Where Taxpayer or person in possession refuses price at 15% per annum from date of purchase
to sign: to date of redemption.
- Officer shall prepare list of the property
distrained. Difference between Distraint and Levy
- In the presence of two witnesses of Distraint Levy
sufficient age and discretion, leave a personal property real property
copy in the premises where property is forfeiture by government, forfeiture by government
located. not provided authorized where there is
no bidder or the highest
Grounds of Constructive Distraint bid is not sufficient to pay
1. Taxpayer is retiring from any business subject to the taxes, penalties and
tax. costs.
2. Taxpayer is intending to leave the Philippines; Taxpayer no given the Taxpayer can redeem
or right of redemption properties levied upon and
3. To remove his property there from. sold/forfeited to the
4. Taxpayer hides or conceals his property. government.
5. Taxpayer acts tending to obstruct collection
proceedings. 1. Both are summary remedies for collection of
taxes.
NOTE: 2. Both cannot be availed of where amount
1. Bank accounts may be distrained without involved is not more than P100.
violating the confidential nature of bank
accounts for no inquiry is made. BIR simply NOTE:
seizes so much of the deposit with out having to 1. It is the duty of the Register of Deeds concerned
know how much the deposits are or where the upon registration of the declaration of forfeiture,
money or any part of it came from. to transfer the title to the property with out of an
2. If at any time prior to the consummation of the order from a competent court
sale, all proper charges are paid to the officer 2. The remedy of distraint or levy may be repeated
conducting the same, the goods distrained shall if necessary until the full amount, including all
be restored to the owner. expenses, is collected.
3. When the amount of the bid for the property
under distraint is not equal to the amount of the C. GARNISHMENT
tax or is very much less than the actual market Bank Accounts – garnishment
value of articles, the CIR or his deputy may 1. Serve warrant upon taxpayer and president, manager,
purchase the distrained property on behalf of treasurer or responsible officer of the bank.
the national government. 2. Bank shall turn over to CIR so much of the bank
accounts as may be sufficient.
B. LEVY OF REAL PROPERTY - an act of
seizure of real property in order to enforce the payment E. JUDICIAL REMEDIES IN DETAIL (SEC 220, NIRC)
of taxes. The property may be sold at public sale, if after 1. Period within which the action may be filed
seizure the taxes are not voluntarily paid.
Civil and Criminal Actions:
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REVIEW NOTES FOR TAXATION 2 28
1. Brought in the name of the Government When should it commence: The five (5) year
of the Philippines. prescriptive period shall begin to run from the
2. Conducted by Legal Officer of BIR a. If known, day of the commission of the
3. Must be with the approval of the CIR, in violation.
case of action, for recovery of taxes, or b. If not known, from the time of discovery and
enforcement of a fine, penalty or the institution of judicial proceeding for its
forfeiture. investigation and punishment.
When is it interrupted:
A. CIVIL CASES (SECS 203,222,NIRC) a. When a proceeding is instituted against the
Three (3)years from the following, guilty person
whichever comes later: b. When the offender is absent from the
3. The last day prescribed by law for Philippines.
filing the return When should it run again: When the
4. The day when the return was proceeding is dismissed for reason not
actually filed constituting jeopardy.
Ten (10) years after the discovery of the
falsity, fraud or omission in case of: Where to file
3. False or fraudulent return with 1) Court of Tax Appeals- on criminal offenses arising
intent to evade tax, or from violations of the NIRC or TCC and other laws
4. Failure to file a return administered by the BIR and the BOC, where the
Within the period agreed upon, when principal amount of taxes and fees, exclusive of charges
both the TP and the Commissioner have and penalties claimed is P1,000,000.00 and above.
agreed in writing, before the expiration 2) RTC, Mun. TC, Metro TC- on criminal offenses arising
of the period in Sec. 203 for the from violations of the NIRC or TCC and
assessment of the tax. other laws administered by the BIR and the BOC, where
the principal amount of taxes and fess
Where to File exclusive of charges and penalties claimed is less than
1) Court of Tax Appeals- where the principal amount of P1,000,000.00 or where there is no specified amount
taxes and fees exclusive of charges and penalties claimed claimed (Sec 7[b], RA 9282)
is one million pesos and above
2) RTC, Mun. TC, Metro TC- where the principal CASES:
amount of taxes and fees, exclusive of charges and REPUBLIC V. HIZON, DEC. 13, 1999 (re: approval of
penalties claimed is less thanP1,000,000.00 (Sec 7[c], RA filing of civil and criminal actions)
9282) Revenue Adm. Order No. 10-95 specifically
The approval of the CIR is essential in authorizes the Litigation and Prosecution
civil cases (Sec. 220). However under section of the Legal Division of regional district
Sec. 7 of offices to institute the necessary civil and
NIRC, the Commissioner may delegate criminal actions for tax collection. As the
suchpower to a Regional Director. complaint filed in this case was signed by the
BIR’s Chief of Legal Division for Region 4 and
Actions instituted by the government to collect verified by the Regional Director, there was,
internal revenue taxes in regular courts (RTC or therefore, compliance with the law.
MTCs, depending on the amount involved). It Sec. 7 of NIRC, authorizes the BIR
includes filing by the government with the Commissioner to delegate the powers vested in
probate court claims against the deceased him under the pertinent provision of the Code to
taxpayer. any subordinate official with the rank
Resorted to when the tax liability becomes final equivalent to a division chief or higher.
and unappealable, or when the decision of the
Commissioner becomes final or executory. CIR V. LA SUERTE CIGAR, JULY 04, 1992 (re:
When: participation of the Office of the Solicitor General)
The institution or commencement before a
A tax is assessed and the assessment becomes proper court of civil and criminal actions and
final and unappealable because the taxpayer proceedings arising under the Tax Reform Act
fails to file an administrative protest with the which "shall be conducted by legal officers of
BIR within 30 days from the receipt of the the Bureau of Internal Revenue" is not in
assessment. dispute. An appeal from such court, however, is
When an administrative protest filed by the not a matter of right. Section 220 of the Tax
taxpayer against the assessment is denied, in Reform Act must not be understood as
whole and in part or Is not acted upon within overturning the long established procedure
180 days from submission of the documents, before this Court in requiring the Solicitor
and General to represent the interest of the Republic.
The taxpayer adversely affected by the decision This Court continues to maintain that it is the
or inaction fails to file an appeal with the CTA Solicitor General who has the primary
within 30 days from receipt of said decision or responsibility to appear for the government in
from the lapse of the180 day period. appellate proceedings.
B. CRIMINAL CASES ( TITLE X, NIRC; SEC. PNOC V. CA, APRIL 26, 2005
281, NIRC)
LIM V. CA, OCT. 18, 1990 ( re: prescription of
All violations of any provision of the tax code criminal actions, Sec, 281, NIRC)
shall prescribe after five (5) years.
should be filed 5 years from the (1) day of the
NOTE: commission of the violation of the law, and if
the same shall be not known, from the (2)
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REVIEW NOTES FOR TAXATION 2 29
Penalty: 25% of the amount due, in addition to the tax Interest on Extended Payment.
required to be paid 1) any person who is qualified and elects to pay the tax
on installment but fails to pay the tax, or any
a. Failure to file any return and to pay the installment, or any part on or before the date prescribed;
tax due thereon as required by the NIRC or
or rules. 2) where the Commissioner has authorized an extension
b. Filing a return with an internal revenue of time within which to pay a tax or a deficiency tax or
officer other than those with whom the any part thereof,
return is required to be fired. Not 3) from the date of notice and demand until it is paid.
authorized officer.
c. Failure to pay the deficiency tax within Compromise Penalty
the time prescribed for its payment in 1. It is a certain amount of money which the
the notice of assessment. taxpayer pays to compromise a tax violation.
d. Failure to pay the full or part of the 2. It is pain in lieu of a criminal prosecution.
amount of tax shown on any return, or 3. Since it is voluntary in character, the same may
the full amount of tax due for which no be collected only if the taxpayer is willing to pay
return is required to be filed, on or them.
before the date prescribed for its
payment. Failure to File Certain Information Returns (Sec. 250,
NIRC)
b. FRAUD PENALTY (SEC. 248B, NIRC) A) Penalty: P 1,000 for each failure
B) The aggregate amount for all such failure shall not
Penalty: 50% of the amount due, in addition to the tax exceed P 25,000 during a calendar year
required to be paid C) Upon notice and demand by the Commissioner
D) Unless it is shown that such failure is due to
a. In case of willful neglect to file the reasonable cause and not to willful neglect.
return within the period prescribed by In the case of each failure to file:
the NIRC or rule. 1) information return;
b. In case a false or fraudulent return is 2) statement or list;
willfully made. 3) keep any record;
4) supply any information
CASE: CIR V. JAVIER, JULY 31, 1991 E) required by this Code or by the Commissioner on the
There was no actual intentional fraud in date prescribed thereof.
filing the return. Private respondent’s
notation on the tax return was at most
an error or mistake of fact or law not LOCAL TAXATION
constituting fraud, an invitation for
investigation and private respondent A. Local Taxation: General Concepts
had literally” laid his cards on the table. 1. Nature of Local Taxing Power
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REVIEW NOTES FOR TAXATION 2 30
generate their own sources for the quarry resources, regardless of origin,
purpose. To achieve this goal, section 3 whether extracted from public or private
of Article X of the 1987 Constitution land. Thus, a province may not ordinarily
mandates Congress to enact a local impose taxes on stones, sand, gravel, earth
government code that will, consistent and other quarry resources, as the same are
with the basic policy of local autonomy, already taxed under the National Internal
set the guidelines and limitations to this Revenue Code. The province can, however,
grant of taxing powers.” impose a tax on stones, sand, gravel, earth
and other quarry resources extracted from
public land because it is expressly
- Extent of the Power of Congress in Local empowered to do so under the Local
Taxation Government Code. As to stones, sand,
- City Govt. of Quezon City vs. Bayantel, gravel, earth and other quarry resources
March 6, 2006 extracted from private land, however, it
may not do so, because of the limitation
“The power to tax is primarily vested in the provided by Section 133 of the Code in
Congress; however, in our jurisdiction, it relation to Section 151 of the National
may be exercised by local legislative bodies, Internal Revenue Code.
no longer merely be virtue of a valid
delegation as before, but pursuant to direct b. First Philippine Industrial Corp. vs. CA,
authority conferred by Section 5, Article X of December 9, 1998 (Section 133j; Local Tax on
the Constitution. Under the latter, the Common Carriers)
exercise of the power may be subject to such
guidelines and limitations as the Congress There is no doubt that petitioner is a
may provide which, however, must be "common carrier" and, therefore, exempt
consistent with the basic policy of local from the business tax as provided for in
autonomy. Section 133 (j), of the Local Government
Code, to wit:
Clearly then, while a new slant on the
subject of local taxation now prevails in the "Section 133. Common Limitations on the
sense that the former doctrine of local Taxing Powers of Local Government Units.
government units delegated power to tax –
had been effectively modified with Article Unless otherwise provided herein, the
X, Section 5 of the 1987 Constitution now in exercise of the taxing powers of provinces,
place, .the basic doctrine on local taxation cities, municipalities, and barangays shall
remains essentially the same. For as the not extend to the levy of the following :
Court stressed in Mactan, "the power to tax
is [still] primarily vested in the Congress." xxx xxx xxx
In net effect, the controversy presently (j) Taxes on the gross receipts of
before the Court involves, at bottom, a clash transportation contractors and persons
between the inherent taxing power of the engaged in the transportation of passengers
legislature, which necessarily includes the or freight by hire and common carriers by
power to exempt, and the local air, land or water, except as provided in this
government’s delegated power to tax under Code."
the aegis of the 1987 Constitution.”
It is clear that the legislative intent in
2. Fundamental Principles in the exercise of Local excluding from the taxing power of the local
Taxing Power (Sec. 130, LGC) government unit the imposition of business
tax against common carriers is to prevent a
3. Exercise of Local Taxing Power duplication of the so-called "common
carrier's tax."
B. Common Limitations on the Exercise of Local
Taxing Power Petitioner is already paying three (3%)
percent common carrier's tax on its gross
1. The Principle of Preemption / Exclusionary sales/earnings under the National Internal
Rule (Sec. 133, LGC) Revenue Code.[19] To tax petitioner again
- If the national government elects to tax a on its gross receipts in its transportation of
particular subject within a Local petroleum business would defeat the
Government Unit, it is impliedly purpose of the Local Government Code.
withholding the power of LGU to tax the
same. c. Palma Development Corp. vs. Municipality
- Adopted in the Philippines despite non- of Malangas, October 16, 2003 (Sec. 133e)
prohibition of double taxation unless
expressly allowed by Congress. By express language of Sections 153 and 155
of RA No. 7160, local government units,
2. Cases: through their Sanggunian, may prescribe
a. Province of Bulacan vs. CA, November 27, the terms and conditions for the imposition
1998 of toll fees or charges for the use of any
A province may not levy excise taxes on public road, pier or wharf funded and
articles already taxed by the National constructed by them. A service fee imposed
Internal Revenue Code. It is clearly on vehicles using municipal roads leading to
apparent from Section 151 of the National the wharf is thus valid. However, Section
Internal Revenue Code levies a tax on all 133(e) of RA No. 7160 prohibits the
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REVIEW NOTES FOR TAXATION 2 32
imposition, in the guise of wharfage, of fees the issuance of all kinds of licenses or
-- as well as all other taxes or charges in any permits for the driving thereof, except
form whatsoever -- on goods or tricycles.
merchandise. It is therefore irrelevant if the
fees imposed are actually for police - LTO vs. Butuan – Congress has no
surveillance on the goods, because any other intention to delegate issuance of permits
form of imposition on goods passing to LGUs. The intention of the law is to
through the territorial jurisdiction of the centralize issuance of permits to drive
municipality is clearly prohibited by Section motor vehicles including tricycles is to
133(e). monitor the operation of the same.
d. Batangas Power Corp. vs. Batangas City, Section 133(l) is only for franchise
April 28, 2004 (Section 133g) where to grant the same is within the
discretion of LGUs. The permit to drive
Sec. 133 (g) of the LGC, which proscribes is issued by LTO.
local government units (LGUs) from levying
taxes on BOI-certified pioneer enterprises 4. Time of Payment (Section 167, LGC)
for a period of six years from the date of
registration, applies specifically to taxes Unless otherwise provided in LGC, all local
imposed by the local government, like the taxes, fees, and charges shall be paid within the
business tax imposed by Batangas City on first twenty (20) days of January or of each
BPC in the case at bar. Reliance of BPC on subsequent quarter, as the case may be. The
the provision of Executive Order No. 226, Sanggunian concerned may, for a justifiable
[18] specifically Section 1, Article 39, Title reason or cause, extend the time for payment of
III, is clearly misplaced as the six-year tax such taxes, fees, or charges without surcharges
holiday provided therein which commences or penalties, but only for a period not exceeding
from the date of commercial operation refers six (6) months.
to income taxes imposed by the national
government on BOI-registered pioneer 5. Surcharges, Interests and Penalties
firms. Clearly, it is the provision of the Local
Government Code that should apply to the C. Residual Power to Tax (Sec. 186)
tax claim of Batangas City against the BPC. - The power of LGU to tax even of not
The 6-year tax exemption of BPC should expressly granted by the LGC provided that
thus commence from the date of BPC’s there is no express prohibition.
registration with the BOI on July 16, 1993
and end on July 15, 1999. D. Specific Taxing Units
1. Provinces may tax:
3. Local Taxing Power cannot extend to: i. Transfer of Real Property ownership
- Onerous or gratuitous
- Those already covered by the National - Preemption rule is not applicable
Internal Revenue Code, i.e. Income tax, - ½ of 1%
Transfer tax, VAT, percentage tax,
Excise Tax, Documentary Stamp Tax; ii. Printing and Publication
ii. New taxes, fees or charges, or changes in the it, that was an act not of control but of
rates thereof, shall accrue on the 1 st day of the mere supervision.
quarter next following the effectivity of the
ordinance imposing such new levies or rates 2. Hagonoy Market Vednors Assn. vs.
Municipality of Hagonoy. Bulacan,
Time of payment – (Sec. 167, LGC) (February 6, 2002) - Sec. 187, LGC
requires that an appeal of a tax
- General Rule: All local taxes, fees and ordinance or revenue measure should
charges shall be paid within the first 20 days be made to the Secretary of Justice
of January or of each subsequent quarter, as within 30 days from effectivity of the
the case may be. ordinance and even during its
pendency, the effectivity of the assailed
- Except: ordinance shall not be suspended. In
the case at bar, Municipal Ordinance
i. Unless otherwise provided by the LGC
No. 28 took effect in October 1996.
ii. The Sanggunian concerned may, for a Petitioner filed its appeal only in
justifiable reason or cause, extend the time December 1997, more than a year after
for payment of such taxes, fees, or charges or the effectivity of the ordinance in 1996.
penalties, but only for a period not exceeding Clearly, the Secretary of Justice
6 months. correctly dismissed it for being time-
barred. At this point, it is apropos to
Surcharges, Interests and Penalties – (Sec. state that the timeframe fixed by law
168, LGC) for parties to avail of their legal
remedies before competent court is not
- Sanggunian may impose: a "mere technicality" that can be easily
brushed aside. The periods stated in
i. Surcharge – not exceeding 25% of the amount the section are mandatory. Ordinance
of taxes, fees or charges not paid on time and No. 28 is a revenue measure adopted
by the municipality of Hagonoy to fix
ii. Interest – not exceeding 2% per month of the and collect public market stall rentals.
unpaid taxes, fees or charges, including Being its lifeblood, collection of
surcharges, until such amount is fully paid, revenues by the government is of
BUT in no case shall the total interest on the paramount importance. The funds for
unpaid amount or portion thereof exceed 36 the operation of its agencies and
months. provision of basic services to its
inhabitants are largely derived from its
B. REMEDIES OF THE TAXPAYER revenues and collections. Thus, it is
essential that the validity of revenue
a. ADMINISTRATIVE
measures is not left uncertain for a
Appeal to the Secretary of Justice; Re: considerable length of time. Hence, the
newly enacted tax ordinance (Sec. 187, law provided a time limit for an
LGC) – Any question on the aggrieved party to assail the legality of
constitutionality or legality of tax revenue measures and tax ordinances.
ordinances or revenue measures;
3. Ty vs. Trampe, (December 1, 1995) –
Within 30 days from its effectivity.
Petitioners failed to appeal the
1. Drilon vs. Lim, (August 4, 1994) - assessment of their properties to the
Section 187 authorizes the Secretary of Board of Assessment Appeal within
Justice to review only the sixty (60) days from the date of receipt
constitutionality or legality of the tax of the written Notice of Assessment,
ordinance and, if warranted, to revoke and if it is true that petitioner, as
it on either or both of these grounds. alleged in their pleadings, was not
When he alters or modifies or sets aside afforded the opportunity to appeal to
a tax ordinance, he is not also the board of assessment appeal, then
permitted to substitute his own they could have availed of the
judgment for the judgment of the local provisions of Section 252, of the same
government that enacted the measure. R.A. 7160 by paying the real estate tax
Secretary Drilon did set aside the under protest. Because of petitioner’s
Manila Revenue Code, but he did not failure to avail of either Sections 226 or
replace it with his own version of what 252 of R.A. 7160, they failed to exhaust
the Code should be. He did not administrative remedies provided for
pronounce the ordinance unwise or by law before bringing the case to
unreasonable as a basis for its Court. Therefore the filing of this case
annulment. He did not say that in his before this Court is premature, the
judgment it was a bad law. What he same not falling under the exception
found only was that it was illegal. All because the issue involved is not a
he did in reviewing the said measure question of law but of fact.
was determine if the petitioners were
Appeal to the Board of Assessment
performing their functions is
Appeals (Secs. 226 and 252, LGC) –
accordance with law, that is, with the
prescribed procedure for the enactment - Sec. 226, LGC – Any owner or person
of tax ordinances and the grant of who is not satisfied with the action of
powers to the city government under the provincial, city or municipal
the Local Government Code. As we see assessor in the assessment of his
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 35
C. Fundamental Principles Governing Appraisal and (1) Land, buildings, roads and constructions of
Assessment of Real Property (Section 198, all kinds adhered to the soil;
LGC)
1. Real property shall be appraised at its (2) Trees, plants, and growing fruits, while they
current and fair market value. are attached to the land or form an integral part
2. Real property shall be classified for of an immovable;
assessment purposes on the basis of its
actual use. (3) Everything attached to an immovable in a
3. Real property shall be assessed on the fixed manner, in such a way that it cannot be
basis of a uniform standard within each separated therefrom without breaking the
local government unit. material or deterioration of the object;
4. The appraisal, assessment, and
collection of real property tax shall not be let
(4) Statues, reliefs, paintings or other objects for
to any private person; and
use or ornamentation, placed in buildings or on
5. The appraisal and assessment of real
lands by the owner of the immovable in such a
property shall be equitable.
manner that it reveals the intention to attach
them permanently to the tenements;
D. Properties Covered (Sec. 232, LGC)
1. Land,
2. Buildings (5) Machinery, receptacles, instruments or
3. Machinery and implements intended by the owner of the
4. Other improvements not otherwise tenement for an industry or works which may
exempted under said code (Sec 232, LGC) be carried on in a building or on a piece of land,
and which tend directly to meet the needs of the
Machinery – embraces machines, equipment, said industry or works;
mechanical contrivances, instruments,
appliances or apparatus which may or may not be (6) Animal houses, pigeon-houses, beehives, fish
attached, permanently or temporarily, to the real ponds or breeding places of similar nature, in
property. It includes the physical facilities for case their owner has placed them or preserves
production, the installations and appurtenant them with the intention to have them
service facilities, those which are mobile, permanently attached to the land, and forming a
selfpowered or self-propelled, and those not permanent part of it; the animals in these places
permanently attached to the real property which are are included;
actually, directly, and exclusively used to meet the
needs of the particular industry, business or (7) Fertilizer actually used on a piece of land;
activity and which by their very nature and
purpose are designed for, or necessary to its (8) Mines, quarries, and slag dumps, while the
manufacturing, mining, logging, commercial, matter thereof forms part of the bed, and waters
industrial or agricultural purposes. (Sec. 199 either running or stagnant;
[o], LGC)
(9) Docks and structures which, though floating,
Machinery which are of general purpose use are intended by their nature and object to
including but not limited to office equipment, remain at a fixed place on a river, lake, or coast;
typewriters, telephone equipment, breakable or
easily damaged containers (glass or cartons),
(10) Contracts for public works, and servitudes
microcomputers, facsimile machines, telex
and other real rights over immovable property.
machine, cash dispensers, furnitures and
“
fixtures, freezers, refrigerators, display cases or
racks, fruit juice or beverage automatic
dispensing machines which are not directly and In Caltex vs. CBAA, May 31, 1982:
exclusively used to meet the needs of a
particular industry, business or activity shall Machinery and equipment, consisting of
not be considered within the definition of underground tanks, elevated tanks, water tanks,
machinery. (Sec. 290 [o], IRR of RA 7160) gasoline pumps, computing pumps, water
pumps, car washer, car and truck hoists, air
Improvements include valuable additions made compressors and similar articles, installed by
to a property or an amelioration in its condition, Caltex (Philippines) Inc. in its gasoline stations,
amounting to more than a mere repair or located on leased land, have been held to be real
replacement of parts involving capital property subject to the tax. (real properties
expenditures and labor, which is intended to which have characteristics of permanency, the
enhance its value, beauty or utility or to adopt it lease is for a long period of time)
for new or further purposes.
2001 BAR QUESTION: Under Article 415
Note: Although the term real property has not been of the Civil Code, in order for machinery
expressly defined in the LGC, early decisions of the Supreme and equipment to be considered real
Court in Mindanao Bus Co. v City Assessor of Cagayan de property, they must be placed by the
Oro, 6 SCRA `97; Board of Assessment Appeals v owner of the land and, in addition, must
Meralco, 119 PHIL 328; Manila Electric Co. v Board of tend to directly meet the needs of the
Assessment Appeals,10 SCRA 68) seem to suggest that Art. industry or works carried on by the
415 of the Civil Code could also be controlling, to wit:. owner. Oil companies, such as Caltex and
Shell, install underground tanks in the
“Art. 415. The following are immovable gasoline stations located in land leased by
property: the oil companies from others. Are those
underground tanks, which were not
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 37
placed there by the owner of the land but e. Machinery and equipment used for
by the lessee, considered real property for pollution control and environmental
purposes of real property taxation under protection.
the LGC?
SUGGESTED ANSWER FROM UP LAW 2. Section 238, LGC
CENTER: Yes. The underground tanks Idle Lands Exempt From Tax:
although installed by the lessee, Shell and By reason of:
Caltex, are considered as real property for a. force majeure
purposes of the imposition of real b. civil disturbance
property taxes. It is only for purposes of c. natural calamity
executing a final judgment that these d. any cause which
machinery and equipment, installed by legally/physically prevents the owner of the
the lessee on a leased land, would not be property or
considered as real property. But in the person having legal interest therein from
imposition of real property tax, the improving,
underground tanks are taxable as utilizing, or cultivating the same
necessary fixtures of the gasoline station
without which the gasoline station would What Are Considered as Idle Lands: (Sec. 237,
not be operational. (Caltex v. CBAA, 114 LGC)
SCRA 296). 1. Agricultural lands – More than 1 hectare if
more than ½ of which remain uncultivated or
SPECIAL CLASSES OF REAL PROPERTY (Sec. 216, unimproved by the owner of the property or person
LGC) having legal interest therein.
1. HOSPITALS
2. CULTURAL and SCIENTIFIC purposes Not Idle Lands:
3. owned and used by LOCAL WATER Agricultural lands planted to permanent or
DISTRICTS perennial crops with at least 50 trees to a hectare
4. GOCCs rendering essential public Lands actually used for grazing purposes
services in the supply and distribution of
water and/or generation or transmission of 2. Non-Agricultural Lands – More than 1,000
electric power. sq. m. in area if more than ½ of which remain
uncultivated or unimproved by the owner of the
E. Properties Exempt property or person having legal interest therein.
1. Section 234, LGC
a. Real property owned by the Republic Proof of Tax Exemption:
of the Philippines or any of its Every person by or for whom real property is
political subdivisions except when the beneficial declared who shall claim the exemption shall file with
use thereof has been the provincial, city or municipal assessor within 30 days
granted, for consideration or otherwise, to a from date of declaration of real property sufficient
taxable person; documentary evidence in support of such claim (i.e.
- except: when beneficial use corporate charters, title of ownership,articles of incorporation,
thereof is granted to a taxable person contracts, affidavits, etc.)
- cases of MIAA and MCAA:
GOCCs are not automatically exempt 3. Constitutional Exemptions
from real property tax, depending on its - actually, directly, exclusively used for
charter giving it exemption religious, educational and charitable
- charter enacted after LGC so purposes are exempt from real property
that the exemption is not revoked tax
- Although powerless to grant RPT exemption, LGU in The preparation of fair market values as a preliminary
MM can exempt the 5% ad valorem step in the conduct of general revision was set forth in
tax on idle lands. Section 212 of R.A. 7160, to wit: (1) The city or municipal
assessor shall prepare a schedule of fair market values
- LGUs (within and outside MM) may also grant for the different classes of real property situated in their
condonation which actually partake of respective Local Government Units for the enactment of
exemption. an ordinance by the sanggunian concerned. (2) The
schedule of fair market values shall be published in a
G. Who are liable for the Real Property Taxes newspaper of general circulation in the province, city or
1. Ownership vs. Use municipality concerned or the posting in the provincial
capitol or other places as required by law.
Doctrine of Ownership
- owner is liable The Court also laid down the procedure in
computing the real property tax. With the introduction
Doctrine of Use of assessment levels, tax rates could be maintained,
- property is exempt due to Use although tax payments can be made either higher or
(REC-religious, educational, lower depending on their percentage (assessment level)
charitable) applied to the fair market value of property to derive its
assessed value which is subject to tax. Moreover, classes
Actual Use of Property as Basis for and values of real properties can be given proper
Assessment (Sec. 217, LGC) consideration, like assigning lower assessment levels to
Real property shall be classified, valued residential properties and higher levels to properties
and assessed on the basis of actual use used in business. The procedural steps in computing the
regardless of where located, whoever owns it, real property tax are as follows:
and whoever uses it.
1) Ascertain the assessment level of the property
Beneficial User May Be Liable if: 2) Multiply the market value by the applicable
* he leased property from the assessment level of the property
government 3) Find the tax rate which corresponds to the
* he leased property from an class (use) of the property and multiply the
exempt owner assessed value by the applicable tax rates.
* use is not exempt from real
property tax
DETERMINE ASSESSED VALUE (Sec. 218) In City Assessor of Cebu City vs. Association of
Benevola de Cebu, June 8, 2007, applying Secs. 215-216, of
Procedure LGC, in line with City Tax Ordinance LXX of Cebu City,
1. take the schedule of FMV (Fair Market Value) the 10% special assessment should be imposed for the
2. Assessed value = FMV x Assessment level Chong Hua Hospital Medical Arts Center (CHHMAC)
3. Real Property Tax = Assessed value x Allowable Real building which should be classified as “special”. Sec.
Property Tax rate 216, LGC states that:
4.Enactment of a Real Property Tax Ordinance SEC. 216. Special Classes of Real
Property.––All lands, buildings,
Barangays cannot impose realty taxes. and other improvements thereon
Municipalities cannot fix real estate tax rates. actually, directly and exclusively
used for hospitals, cultural or
Procedure: scientific purposes, and those
a.hearing and modification of prepared schedule owned and used by local water
BAR OPERATIONS COMMITTEE
REVIEW NOTES FOR TAXATION 2 43
Payment of Tax
How:
a. basic real prop tax in 4 equal installments (Mar 31,Jun
30,Sep 30, Dec 31)
b. special levy - governed by ordinance
Who Collects:
The provincial, city, municipal or barangay treasurer