Professional Documents
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Up Tax Reviewer 2014
Up Tax Reviewer 2014
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TABLE OF CONTENTS
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TABLE OF CONTENTS
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TABLE OF CONTENTS
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(3) Subject to constitutional and inherent In the final analysis, therefore, the decision on
limitations - These limitations are those the question is not a legislative but a judicial
provided in the fundamental law or implied function. But once it is settled that the purpose
therefrom, while the rest spring from the is public, the courts can make no other inquiry
nature of the taxing power itself although into the objective of the legislature in imposing
they may or may not be provided in the a tax (see Pascual vs. Sec. of Public Works, 110
Constitution. Phil. 331 [1961]), or the wisdom, advisability, or
expediency of the tax. [Blunt vs. U.S., 255 Fed.
SCOPE OF TAXATION 322.]
Subject to constitutional and inherent
restrictions, the power of taxation is regarded as Judicial action is limited only to a review where
supreme, unlimited and comprehensive. The it involves:
principal check on its abuse rests only on the (a) The determination of the validity of the
responsibility of the members of the legislature tax in relation to constitutional precepts
to their constituents. or provisions. Thus, a tax may be
declared invalid because it violates the
EXTENT OF THE LEGISLATIVE POWER TO constitutional requirement of uniformity
TAX and equity in taxation; or
Subject to constitutional and inherent (b) The determination in an appropriate
restrictions, the legislature has discretion to case of the application of a tax law.
determine the incidence of the power to tax. (see1 Cooley 165.) Thus, a court may
decide that a tax has been illegally
(1) The subjects or objects to be taxed— refer to collected where the taxpayer is entitled
the coverage and the kind or nature of the tax. to tax exemption or his liability has
They may be persons, whether natural or already been extinguished by reason of
juridical; property, whether real or personal, prescription.
tangible or intangible; businesses, transactions,
rights, or privileges. A state is free to select the (3) The amount or rate of the tax.- As a general
subject of taxation and it has been repeatedly rule, the legislature may levy a tax of any
held that that inequalities which result from a amount or rate it sees fit. If the taxes are
singling out of one particular class for taxation oppressive or unjust, the only remedy is the
or exemption infringe no constitutional ballot box and the election of new
limitation so long as such exemption is representatives. [see Cooley 178-181.]
reasonable and not arbitrary. [see Lutz vs.
Araneta, 98 Phil. 148; Sison, Jr. vs. Ancheta, 130 According to Chief Justice John Marshall, "the
SCRA 654, 1984] power to tax involves the power to destroy."
[McCulloch vs. Maryland, 17 U.S. [4 Wheat.] 316-
Thus, the power to tax carries with it the power 428, 4L. ed. 579.] To say, however, that the
to grant exemption therefrom. power to tax is the power to destroy is to
describe not the purposes for which the taxing
(2) The purpose or object of the tax so long as it is power may be used but the extent to which it
a public purpose—The legislative body’s may be employed in order to raise revenues.
determination, however, on the question of [see: Cooley 178.] Thus, even if a tax should
what is a public purpose is not conclusive. The destroy a business, such fact alone could not
courts can inquire into whether the purpose is invalidate the tax. [84 C.J.S. 46.]
really public or private.
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Incidentally, our Constitution mandates that (7) It is levied for public purpose. Revenues
"the rule of taxation shall be uniform and derived from taxes cannot be used for
equitable." In a case, our Supreme Court said: purely private purposes or for the exclusive
"The power of taxation is sometimes called also benefit of private persons. [Gaston v.
the power to destroy. Therefore, it should be Republic Planters Bank, 158 SCRA 626,
exercised with caution to minimize injury to the March 15, 1988]. The “public purpose or
proprietary rights of the taxpayer. It must be purposes” of the imposition is implied in the
exercised fairly, equally and uniformly, lest the levy of tax. (see Mendoza v. Municipality, 94
tax collector kills the 'hen that lays the golden Phil. 1047[1954]), A tax levied for a private
eggs.' And in order to maintain the general purpose constitutes a taking of property
public's trust and confidence in the government, without due process of law.
this power must be used justly and not
treacherously." (Roxas v. Court of Tax Appeals, It is also an important characteristic of most
23 SCRA276, App120, 1968; Philex Mining Corp. taxes that they are commonly required to be
vs. Comm. of Internal Revenue, 97 SCAD 777,294 paid at regular periods or intervals (see 1
SCRA 687, Aug. 28, 1998.) Cooley 64) every year.
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The language of the statute must clearly (2) Tariff and Customs Code- does not express
demand or press that it shall have a retroactive any general statute of limitation; it provides,
effect.[Lorenzo v.Posadas] however, that “when articles have been
entered and passed free of duty or final
Exception to the exception: adjustments of duties made, with
Collection of interest in tax cases is not penal in subsequent delivery, such entry and
nature; it is but a just compensation to the passage free of duty or settlements of
State. The constitutional prohibition against ex duties will, after the expiration of one (1) year,
post facto laws is not applicable to the from the date of the final payment of duties,
collection of interest on back taxes. [Central in the absence of fraud or protest or
Azucarera v.CTA] compliance audit pursuant to the provisions
of this Code, be final and conclusive upon
Non-retroactivity of rulings (sec. 246) all parties, unless the liquidation of the
General rule: Any revocation, modification or import entry was merely tentative.” [Sec.
reversal of rules and regulations promulgated in 1603]
accordance with Sections 244 and 245 of the (3) Local Government Code- prescribes
Tax Code and rulings or circulars promulgated prescriptive periods for the assessment (5
by the CIR, that is prejudicial to the taxpayer, years) and collection (5 years) of taxes. [see
shall NOT be given retroactive effect. Sections 194 and 270, Rep. Act No. 7160].
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Double taxation, standing alone and not being Ways of shifting the tax burden
forbidden by our fundamental law, is not a valid (1) Forward shifting - When the burden of the
defense against the legality of a tax measure tax is transferred from a factor of production
[Pepsi Cola v. Mun. of Tanauan, G.R. No. L-31156 through the factors of distribution until it
February 27, 1976]. But from it might emanate finally settles on the ultimate purchaser or
such defenses against taxation as consumer. Example: VAT, percentage tax
oppressiveness and inequality of the tax. (2) Backward shifting - When the burden of the
tax is transferred from the consumer or
Constitutionality of double taxation purchaser through the factors of
There is no constitutional prohibition against distribution to the factor of production.
double taxation in the Philippines. It is Example: Consumer or purchaser may shift
something not favored, but is permissible, tax imposed on him to retailer by
provided some other constitutional requirement purchasing only after the price is reduced,
is not thereby violated.[Villanueva v. City of Iloilo, and from the latter to the wholesaler, and
G.R. No. L-26521, December 28, 1968] finally to the manufacturer or producer.
(3) Onward shifting - When the tax is shifted two
If the tax law follows the constitutional rule on or more times either forward or backward.
uniformity, there can be no valid objection to
taxing the same income, business or property Meaning of impact and incidence of taxation
twice.[China Banking Corp. v. CA, G.R. No. Impact of taxation is the point on which a tax is
146749 (2003)] originally imposed. In so far as the law is
concerned, the taxpayer, the subject of tax, is
Double taxation in its narrow sense is the person who must pay the tax to the
undoubtedly unconstitutional but that in the government.
broader sense is not necessarily so. [De Leon,
citing 26 R.C.L 264-265].Where double taxation Incidence of taxation is that point on which the
(in its narrow sense) occurs, the taxpayer may tax burden finally rests or settles down. It takes
seek relief under the uniformity rule or the equal place when shifting has been effected from the
protection guarantee. [De Leon, citing 84 statutory taxpayer to another.
C.J.S.138].
Relationship between Impact, Shifting, and
Modes of eliminating double taxation Incidence of a Tax
(1) Allowing reciprocal exemption either by law The impact is the initial phenomenon, the
or by treaty; shifting is the intermediate process, and the
(2) Allowance of tax credit for foreign taxes paid incidence is the result. Impact is the imposition
(3) Allowance of deductions such as for foreign of the tax; shifting is the transfer of the tax;
taxes paid, and vanishing deductions in while incidence is the setting or coming to rest
estate tax of the tax. (e.g impact in a sales tax is on the
(4) Reduction of Philippine tax rate. seller who shifts the burden to the customer
who finally bears the incidence of the tax)
ESCAPE FROM TAXATION
Tax avoidance (Tax Minimization)
Shifting of tax burden The exploitation by the taxpayer of legally
Shifting - the transfer of the burden of a tax by permissible alternative tax rates or methods of
the original payer or the one on whom the tax assessing taxable property or income in order to
was assessed or imposed to someone else. avoid or reduce tax liability. It is politely called
What is transferred is not the payment of the tax “tax minimization” and is not punishable by law.
but the burden of the tax.
Example: A person refrains from engaging in
All indirect taxes may be shifted; direct taxes some activity or enjoying some privilege in order
cannot be shifted. to avoid the incidental taxation or to lower his
tax bracket for a taxable year.
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(3) When the exemption is granted under Tax regulations (issued by the CIR/DOF
special circumstances to special classes of Secretary) whose purpose is to enforce or
persons. implement existing law must (a) be published in
(4) If there is an express mention or if the a newspaper of general circulation (see Art. 2 of
taxpayer falls within the purview of the the Civil Code), AND (b) filed with UP Law
exemption by clear legislative intent, the Center ONAR (per Chapter 2, Book VII of the
rule on strict construction does not apply. Admin Code of 1987 (EO 292) before they can
[Comm. V. Arnoldus Carpentry Shop, Inc., become effective.
159 SCRA 19, 1988].
Such rules once established and found to be in
Tax rules and regulations consonance with the general purposes and
The Secretary of Finance, upon objects of the law have the force and effect of
recommendation of the CIR, shall promulgate law, and so they must be applied and enforced.
all needful rules and regulations for the [De Guzman v. Lontok, 68 Phil. 495, 1939]. They
effective enforcement of the provisions of the are, therefore, just as binding as if the
NIRC. [Sec. 244]. regulations had been written in the law itself.
[Rep. of the Philippines v. Pilipinas Shell
Requisites for validity and effectivity of Petroleum Corporation, G.R. No. 173918, April 8,
regulations 2008]
(a) Reasonable NOTE: Administrative rules and regulations
(b) Within the authority conferred must always be in harmony with the provisions
(c) Not contrary to law and the Constitution (Art. of the law. In case of conflict with the law or the
7, Civil Code) Constitution, the administrative rules and
(d) Must be published regulations are null and void. As a matter of
policy, however, courts will declare a regulation
There are two kinds of administrative issuances: or provision thereof invalid only when the
the legislative rules and the interpretative rules. conflict with the law is clear and unequivocal.
A legislative rule is in the nature of subordinate
legislation, designed to implement a primary Administrative interpretations and opinions
legislation by providing the details thereof. An The power to interpret the provisions of the Tax
interpretative rule, on the other hand, is designed Code and other tax laws is under the exclusive
to provide guidelines to the law, which the and original jurisdiction of the Commissioner of
administrative agency is in charge of enforcing. Internal Revenue subject to review by the
An administrative rule should be published if it Secretary of Finance [Sec. 4, par.1, NIRC].
substantially adds to or increases the burden of
those governed. When an administrative rule is Revenue regulations are the formal
merely interpretative in nature, its applicability interpretation of the provisions of the NIRC and
needs nothing further than its bare issuance for other laws by the Secretary of Finance upon the
it gives no real consequence more than what recommendation of the Commissioner of
the law itself has already prescribed. When, Internal Revenue.
upon the other hand, the administrative rule
goes beyond merely providing for the means The Commissioner has the sole authority to
that can facilitate or render least cumbersome issue rulings but he also has the power to
the implementation of the law but substantially delegate said authority to his subordinates. He
adds to or increases the burden of those cannot, however, delegate to any of his
governed, it behooves the agency to accord at subordinate officials the power to issue rulings
least to those directly affected a chance to be of first impression (i.e., question involved is new
heard, and thereafter to be duly informed, and important) or to reverse, revoke or modify
before that new issuance is given the force and any existing ruling of the BIR [Sec. 7[B], NIRC].
effect of law. [Commissioner v. Court of Appeals,
G.R.No. 119761, 1996].
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(c) The powers which cannot be delegated personal (as distinguished from territorial)
include the determination of the jurisdiction of his government over him remains.
subjects to be taxed, the purpose of the In this case, the basis of the power to tax is not
tax, the amount or rate of the tax, the dependent on the source of the income nor
manner, means, and agencies of upon the location of the property nor upon the
collection, and the prescribing of the residence of the taxpayer but upon his relation
necessary rules with respect thereto. as a citizen to the state. As such citizen, he is
entitled, wherever he may be, inside or outside
TERRITORIAL of his country, to the protection of his
Rule: A state may not tax property lying outside government.
its borders or lay an excise or privilege tax upon
the exercise or enjoyment of a right or privilege SITUS OF TAXATION
derived from the laws of another state and Situs of taxation literally means the place of
therein exercise and enjoyed. (51 Am.Jur. 87-88). taxation. The basic rule is that the state where
the subject to be taxed has a situs may rightfully
Reasons: levy and collect the tax; and the situs is
(1) Tax laws (and this is true of all laws) do not necessarily in the state which has jurisdiction or
operate beyond a country’s territorial limits. which exercises dominion over the subject in
(2) Property which is wholly and exclusively question. Within the territorial jurisdiction, the
within the jurisdiction of another state taxing authority may determine the situs.
receives none of the protection for which a
tax is supposed to be a compensation. Factors that Determine Situs:
(1) Nature of the tax;
Note: Where privity of relationship exists. - It (2) Subject matter of the tax (person, property,
does not mean, however, that a person outside act or activity);
of state is no longer subject to its taxing powers. (3) Possible protection and benefit that may
The fundamental basis of the right to tax is the accrue both to the government and the
capacity of the government to provide benefits taxpayer;
and protection to the object of the tax. A person (4) Citizenship of the taxpayer;
may be taxed where there is between him and (5) Residence of the taxpayer;
the taxing state, a privity of the relationship (6) Source of income.
justifying the levy. Thus, the citizen’s income
may be taxed even if he resides abroad as the
INCOME TAX
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Reasons for the exemption: (1) To levy a tax upon Uniformity- All taxable articles or properties
public property would render necessary new of the same class shall be taxed at the same
taxes on other public property for the payment rate. [City of Baguio v. de Leon, 25 SCRA
of the tax so laid and thus, the government 938]. (1) Uniformity of operation throughout
would be taxing itself to raise money to pay over tax unit - The rule requires the uniform
for itself. (2) This immunity also rests upon application and operation, without
fundamental principles of government, being discrimination, of the tax in every place
necessary in order that the functions of where the subject of it is found. This means,
government shall not be unduly impeded. (1 for example, that a tax for a national
Cooley 263). (3) The practical effect of an purpose must be uniform and equal
exemption running to the benefit of the throughout the country and a tax for a
government is merely to reduce the amount of province, city, municipality, or barangay
money that has to be handled by the must be uniform and equal throughout the
government in the course of its operations: For province, city, municipality or barangay. (2)
these reasons, provisions granting exemptions Equality in burden – Uniformity implies
to government agencies may be construed equality in burden, not equality in amount
liberally in favor of non-tax liability of such or equality in its strict and literal meaning.
agencies. [Maceda v. Macaraig, Jr., 197 SCRA 771, The reason is simple enough. If legislation
1991]. imposes a single tax upon all persons,
properties, or transactions, an inequality
Exception: When it chooses to tax itself. Nothing would obviously result considering that not
can prevent Congress from decreeing that even all persons, properties, and transactions are
instrumentalities or agencies of the government identical or similarly situated. Neither does
performing governmental functions may be uniformity demand that taxes shall be
subject to tax. [Mactan Cebu Airport v Marcos, proportional to the relative value or amount
G.R. No. 120082 September 11, 1996] There is no of the subject thereof. Taxes may be
constitutional prohibition against the progressive.
government taxing itself. [Coll. v. Bisaya Land Equity – 1) Uniformity in taxation is effected
Transportation, 105 Phil. 338, 1959]. through the apportionment of the tax
burden among the taxpayers which under
If the taxing authority is the local government the Constitution must be equitable.
unit: RA 7160 expressly prohibits LGUs from “Equitable” means fair, just, reasonable and
levying tax on the National Government, its proportionate to the taxpayer’s ability to
agencies and instrumentalities and other LGUs. pay. Taxation may be uniform but
[Local Government Code, Sec. 133 (o)] inequitable where the amount of the tax
imposed is excessive or unreasonable. (2)
CONSTITUTIONAL LIMITATIONS The constitutional requirement of equity in
taxation also implies an approach which
PROVISIONS DIRECTLY AFFECTING employees a reasonable classification of the
TAXATION entities or individuals who are to be affected
by a tax. Where the “tax differentiation is
Prohibition against imprisonment for non- not based on material or substantial
payment of poll tax differences,” the guarantee of equal
Art III, Sec 20, 1987 Constitution- No person protection of the laws and the uniformity
shall be imprisoned for debt or non-payment of rule will likewise be infringed.
a poll tax. Taxation does not require identity or equality
under all circumstances, or negate the
Uniformity and equality of taxation authority to classify the objects of taxation. –
Art VI, Sec 28(1), 1987 Constitution- The rule Classification to be valid, must, be
of taxation shall be uniform and equitable. reasonable and this requirement is not
Congress shall evolve a progressive system deemed satisfied unless:
of taxation.
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(a) it is based upon substantial distinctions In general, special assessments are not covered
which make real differences; by the exemption because by nature they are
(b) these are germane to the purpose of the not classified as taxes. [Apostolic Prefect v. City
legislation or ordinance; Treasurer of Baguio]
(c) the classification applies, not only to
present conditions, but, also, to future To be entitled to the exemption, the petitioner
conditions substantially identical to must prove that:
those of the present; and (1) it is a charitable institution
(d) the classification applies equally to all (2) its real properties are actually, directly and
those who belong to the same class. exclusively used for charitable purposes.
[Pepsi-Cola v. Butuan City, 24 SCRA 789]
The progressive system of taxation would Revenue or income from trade, business or
place stress on direct rather than indirect other activity, the conduct of which is not
taxes, on non-essentiality rather than related to the exercise or performance of
essentiality to the taxpayer of the object of religious, educational and charitable purposes
taxation, or on the taxpayer’s ability to pay. or functions shall be subject to internal revenue
Example is that individual income tax taxes when the same is not actually, directly or
system that imposes rates progressing exclusively used for the intended purposes. [BIR
upwards as the tax base (taxpayer’s taxable Ruling 046-2000]
income) increases. A progressive tax,
however, must not be confused with a Test of Use of the property, and not
progressive system of taxation. Exemption the ownership
Actual, direct and exclusive
While equal protection refers more to like Nature of Use use for religious, charitable or
treatment of persons in like circumstances, educational purposes.
uniformity and equity refer to the proper relative Real property taxes on facilities
treatment for tax purposes of persons in unlike which are
circumstances. (1) actual,
(2) incidental to, or
Grant by Congress of authority to the (3) reasonably necessary for
President to impose tariff rates the accomplishment of said
Delegation of Tariff powers to the President purposes such as in the
under the flexible tariff clause [Art VI, Sec 28(2)], case of hospitals, a school
1987 Constitution], which authorizes the for training nurses, a
Scope of
President to modify import duties. [Sec. 401, nurses’ home, property to
Exemption
Tariff and Customs Code] provide housing facilities for
interns, resident doctors
Prohibition against taxation of religious, and other members of the
charitable entities, and educational entities hospital staff, and
Art VI, Sec 28(3), 1987 Constitution: recreational facilities for
(a) Charitable institutions, churches and student nurses, interns and
personages or convents appurtenant residents, such as athletic
thereto, mosques, non-profit cemeteries, fields. [Abra Valley College v.
and all lands, buildings, and improvements, Aquino]
(b) actually, directly, and exclusively used for
religious, charitable, or educational Test: whether an enterprise is charitable or not:
purposes shall be exempt from taxation. whether it exists to carry out a purpose
(c) The tax exemption under this constitutional recognized in law as charitable or whether it is
provision covers property taxes only and not maintained for gain, profit, or private
other taxes [Lladoc v. Commissioner, 14 advantage.
SCRA 292, 1965].
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A charitable institution does not lose its Prohibition against taxation of non-stock,
character as such and its exemption from taxes non-profit educational institutions
simply because it derives income from paying
patients, whether out-patient, or confined in the Art. XIV, Sec. 4, 1987 Constitution
hospital, or receives subsidies from the xxx
government, so long as the money received is (3) All revenues and assets of non-stock, non-
devoted or used altogether to the charitable profit educational institutions used actually,
object which it is intended to achieve; and no directly, and exclusively for educational
money inures to the private benefit of the purposes shall be exempt from taxes and
persons managing or operating the institution. duties.
Proprietary educational institutions,
“Exclusive" - possessed and enjoyed to the including those cooperatively owned, may
exclusion of others; debarred from participation likewise be entitled to such exemptions
or enjoyment; "Exclusively" - "in a manner to subject to the limitations provided by law,
exclude; as enjoying a privilege exclusively.” including restrictions on dividends and
provisions for reinvestment.
If real property is used for one or more (4) Subject to conditions prescribed by law, all
commercial purposes, it is not exclusively used grants, endowments, donations, or
for the exempted purposes but is subject to contributions used actually, directly, and
taxation. The words "dominant use" or exclusively for educational purposes shall be
"principal use" cannot be substituted for the exempt from tax.
words "used exclusively" without doing violence
to the Constitutions and the law. Solely is This provision covers only non-stock, non-profit
synonymous with exclusively. [Lung Center of educational institutions
the Philippines v. Quezon City (2004)]
The exemption covers income, property, and
Note: Lung Center did not necessarily overturn donor’s taxes, custom duties, and other taxes
the case of Abra Valley College v. Aquino (1988). imposed by either or both the national
Lung Center just provided a stricter government or political subdivisions on all
interpretation. In Abra Valley, the court held: The revenues, assets, property or donations, used
primary use of the school lot and building is the actually, directly and exclusively for educational
basic and controlling guide, norm and standard purposes. (In the case of religious and
to determine tax exemption, and not the mere charitable entities and non-profit cemeteries,
incidental use thereof. Under the 1935 the exemption is limited to property tax.)
Constitution, the trial court correctly held that
the school building as well as the lot where it is The exemption does not cover revenues derived
built, should be taxed, not because the second from, or assets used in, unrelated activities or
floor of the same is being used by the Director enterprise.
and his family for residential purposes Similar tax exemptions may be extended to
(incidental to its educational purpose), but proprietary (for profit) educational institutions
because the first floor thereof is being used for by law subject to such limitations as it may
commercial purposes. However, since only a provide, including restrictions on dividends and
portion is used for purposes of commerce, it is provisions for reinvestment. The restrictions are
only fair that half of the assessed tax be designed to insure that the tax-exemption
returned to the school involved. benefits are used for educational purposes.
Lands, buildings, and improvements actually,
directly and exclusively used for educational
purposes are exempt from property tax [Sec.
28[3], Art. VI, 1987 Constitution], whether the
educational institution is proprietary or non-
profit.
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Art. VI, sec. 28, par. 3 Art. XIV, sec. 4, par. 3 Note:
Charitable institutions, Non-stock, non-profit (1) Local government units may, through
churches and educational ordinances duly approved, grant tax
parsonages or convents institutions. exemptions, incentives or reliefs under such
appurtenant thereto, terms and conditions as they may deem
mosques, non-profit necessary. [Sec. 192, LGC]
cemeteries, and all (2) The President of the Philippines may, when
lands, buildings, and public interest so requires, condone or
improvements, actually, reduce the real property tax and interest for
directly, and exclusively any year in any province or city or a
used for religious, municipality within the Metropolitan Manila
charitable, or Area. [Sec. 277, LGC]
educational purposes.
Property taxes Income, property, and Prohibition on use of tax levied for special
donor’s taxes and purpose
custom duties. All money collected on any tax levied for a
special purpose shall be treated as a special
Majority vote of Congress for grant of tax fund and paid out for such purpose only.
exemption If the purpose for which a special fund was
Art. VI Sec.28, 1987 Constitution created has been fulfilled or abandoned, the
xxx balance, if any, shall be transferred to the
(4) No law granting any tax exemption shall be general funds of the Government [see Gaston v.
passed without the concurrence of a majority Republic Planters Bank, 158 SCRA 626].
of all the Members of the Congress.
President’s veto power on appropriation,
Basis: The inherent power of the state to impose revenue, tariff bills
taxes carries with it the power to grant tax Art VI, Sec 27(2), 1987 Constitution
exemptions. (2) The President shall have the power to veto
any particular item or items in an
Exemptions may be created by: appropriation, revenue, or tariff bill, but the
(1) the Constitution or veto shall not affect the item or items to
(2) statute subject to constitutional limitations which he does not object.
The provision guaranteeing equal protection of Art VIII, Sec 5(2,b), 1987 Constitution - The
the laws and that mandating the rule of Supreme Court shall have the following powers:
taxation shall be uniform and equitable likewise xxx (2) Review, revise, modify or affirm on
limit, although not expressly, the legislative appeal or certiorari, as the laws or the Rules of
power to grant tax exemption. Court may provide, final judgments and orders
Grants in the nature of tax exemptions: of lower courts in xxx (b) all cases involving the
(1) Tax amnesties legality of any tax, impost, assessment or toll or
(2) Tax condonations any penalty imposed in relation thereto.
(3) Tax refunds
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Even the legislative body cannot deprive the SC No appropriation or use of public money for
of its appellate jurisdiction over all cases religious purposes
coming from inferior courts where the Art VI, Sec 29, 1987 Constitution
constitutionality or validity of an ordinance or (1) No money shall be paid out of the Treasury
the legality of any tax, impost, assessment, or except in pursuance of an appropriation
toll is in question. [San Miguel Corp v. Avelino made by law.
(G.R. No. L-39699 March 14, 1979] (2) No public money or property shall be
appropriated, applied, paid, or employed,
Art VI, Sec 30, 1987 Constitution – No law shall directly or indirectly, for the use, benefit, or
be passed increasing the appellate jurisdiction support of any sect, church, denomination,
of the Supreme Court without its advice and sectarian institution, or system of religion, or
concurrence. of any priest, preacher, minister, other
religious teacher, or dignitary as such, except
Scope of Judicial Review in taxation: limited only when such priest, preacher, minister, or
to the interpretation and application of tax laws. dignitary is assigned to the armed forces, or
Its power does not include inquiry into the policy to any penal institution, or government
of legislation. Neither can it legitimately orphanage or leprosarium.
question or refuse to sanction the provisions of (3) All money collected on any tax levied for a
any law consistent with the Constitution. [Bisaya special purpose shall be treated as a special
Land Transportation Co v. Collector, May 29, fund and paid out for such purpose only. If
1959] the purpose for which a special fund was
created has been fulfilled or abandoned, the
Grant of power to the local government units balance, if any, shall be transferred to the
to create its own sources of revenue general funds of the Government.
LGUs have power to create its own sources of
revenue and to levy taxes, fees and charges, Provisions Indirectly Affecting Taxation
subject to such guidelines and limitations as the
Congress may provide which must be consistent Due process
with the basic policy of local autonomy. [Art X, Art III, Sec 1, 1987 Constitution – No person shall
Sec 5, 1987 Constitution] be deprived of life, liberty, or property without due
process of law, nor shall any person be denied
Flexible tariff clause the equal protection of the laws.
Delegation of Tariff powers to the President
under the flexible tariff clause [Art VI, Sec 28(2), (1) Substantive Due Process – An act is done
1987 Constitution] under the authority of a valid law or the
Constitution itself.
Flexible tariff clause: the authority given to the (2) Procedural Due Process – An act is done after
President, upon the recommendation of NEDA, compliance with fair and reasonable
to adjust the tariff rates under Sec. 401 of the methods or procedure prescribed by law.
Code in the interest of national economy,
general welfare and/or national security. Due Process in Taxation requirements:
(1) public purpose
Exemption from real property taxes (2) imposed within taxing authority’s territorial
Art VI, Sec 28(3), 1987 Constitution – Charitable jurisdiction
institutions, churches and personages or (3) assessment or collection is not arbitrary or
convents appurtenant thereto, mosques, non- oppressive
profit cemeteries, and all lands, buildings, and
improvements, actually, directly, and exclusively
used for religious, charitable, or educational
purposes shall be exempt from taxation.
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The due process clause may be invoked where a (4) the classification applies equally well to all
taxing statute is so arbitrary that it finds no those belonging to the same class.
support in the Constitution, as where it can be
shown to amount to the confiscation of Religious freedom
property. [Sison v. Ancheta, 130 SCRA 654,1984] Art III, Sec 5, 1987 Constitution – No law shall be
made respecting an establishment of religion,
Instances of violations of the due process clause: or prohibiting the free exercise thereof. (non-
(1) If the tax amounts to confiscation of property; establishment clause)
(2) If the subject of confiscation is outside the
jurisdiction of the taxing authority; The free exercise and enjoyment of religious
(3) If the tax is imposed for a purpose other than profession and worship, without discrimination
a public purpose; or preference, shall forever be allowed. (free
(4) If the law which is applied retroactively exercise clause)
imposes just and oppressive taxes.
(5) If the law violates the inherent limitations on No religious test shall be required for the
taxation. exercise of civil or political rights.
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A special assessment is not a personal liability A tax is not a debt in the ordinary sense of the
of the person assessed, i.e., his liability is limited word.
only to the land involved. It is based wholly on
benefits (not necessity). Penalty
Taxes Penalty
A charge imposed only on property owners Violation of tax laws Any sanction imposed
benefited is a special assessment rather than a may give rise to as a punishment for
tax notwithstanding that the statute calls it a imposition of penalty. violation of law or acts
tax. The rule is that an exemption from taxation deemed injurious
does not include exemption from special Generally intended to Designed to regulate
assessment. But the power to tax carries with it raise revenue conduct
the power to levy a special assessment. May be imposed only May be imposed by
by the government the government or
Note: The term "special levy" is the name used private individuals or
in the present Local Government Code (RA. No. entities
7160). A province, city, or municipality, or the Cannot be a subject of Can be a subject of
National Government, may impose a special set off or set off or
levy on lands especially benefited by public compensation compensation (see
works or improvements financed by it [see Sec. Art. 1279, Civil Code)
240, RA 7160].
Debt
KINDS OF TAXES
Taxes Debt
AS TO OBJECT
Based on laws Generally based on (1) Personal, Poll or Capitation Tax – tax of a
contract, express or fixed amount imposed on persons residing
implied. within a specified territory, whether citizens
Generally cannot be Assignable or not, without regard to their property or
assigned the occupation or business in which they
Generally paid in May be paid in kind. may be engaged (e.g. community (formerly
money residence) tax). Taxes of a specified amount
Cannot be a subject of Can be a subject of imposed upon each person performing a
set off or set off or certain act or engaging in a certain business
compensation compensation (see or profession are not, however, poll taxes.
Art. 1279, Civil Code) [71 Am.Jur.2d 357].
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AS TO GRADUATION
(1) Proportionate – The rate of tax is based on a National Internal Revenue
fixed percentage of the amount of the
property, receipts or other basis to be taxed.
Code of 1997 as amended
Example: real estate tax, value added tax,
and other percentage taxes.
(NIRC)
(2) Progressive – The rate of tax increases as the
tax base or bracket increases. Example: INCOME TAXATION
income tax, estate tax, donor’s tax.
(3) Digressive – A fixed rate is imposed on a Income Tax is defined as a tax on all yearly
certain amount and diminishes gradually on profits arising from property, professions,
sums below it. The tax rate in this case is trades, or offices, or as a tax on the person’s
arbitrary because the increase in tax rate is income, emoluments, profits and the like [Fisher
not proportionate to the increase of tax v. Trinidad, 43 Phil. 981].
base.
(4) Regressive – The rate of tax decreases as the It may be succinctly defined as a tax on income,
tax base or bracket increases. There is no whether gross or net, realized in one taxable
regressive tax in the Philippines. year.
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INCOME TAXATION
Taxpayer Within Without
DEFINITION Resident Citizen
Income Tax is defined as a tax on all yearly Non-resident Citizen and X
profits arising from property, professions, OCW
trades, or offices, or as a tax on the person’s Resident and Non-resident X
income, emoluments, profits and the like [Fisher Alien
v. Trinidad]. Domestic Corporation
Foreign Corporation X
NATURE
Income tax is generally classified as an excise INCOME
tax. It is not levied upon persons, property, funds DEFINITION
or profits but upon the right of a person to (a) income means all wealth which flows to the
receive income or profits. taxpayer other than a mere return of
capital. It includes gain derived from the
GENERAL PRINCIPLES sale or other disposition of capital assets.
A resident citizen of the Philippines is Income is a gain derived from labor or
taxable on all income derived from sources capital, or both labor and capital; and
within and without the Philippines; includes the gain derived from the sale or
A nonresident citizen is taxable only on exchange of capital assets.
income derived from sources within the (b) It is an amount of money coming to a person
Philippines; within a specified time, whether as payment
An individual citizen of the Philippines who for services, interest or profit from
is working and deriving income from abroad investment. Unless otherwise specified. It
as an overseas contract worker is taxable means cash or its equivalent. Income can
only on income derived from sources within also be thought of as a flow of the fruits of
the Philippines: one's labor. [Conwi v. CTA, G.R. No. 48532
Provided, That a seaman shall be treated as August 31, 1992]
an overseas contract worker if he is (c) Income may be received in the form of cash,
(a) citizen of the Philippines; and property, service, or a combination of the
(b) receives compensation for services three.
rendered abroad as a member of the NATURE
complement of a vessel engaged Income includes earnings, lawfully or unlawfully
exclusively in international trade acquired, without consensual recognition, express
An alien individual, whether a resident or or implied, of an obligation to repay and without
not of the Philippines, is taxable only on restriction as their disposition. [James v. US, 366
income derived from sources within the US 213]
Philippines;
A domestic corporation is taxable on all WHEN INCOME IS TAXABLE
income derived from sources within and Existence of taxable income
without the Philippines; and (a) There is INCOME, gain or profit
A foreign corporation, whether engaged or (b) RECEIVED or REALIZED during the taxable
not in trade or business in the Philippines, is year
taxable only on income derived from (c) NOT EXEMPT from income tax
sources within the Philippines. [Sec. 23] (i) "The fact is that property is a tree, income
is the fruit; labor is a tree, income the
fruit; capital is a tree, income the fruit."
A tax on income is not a tax on property.
"Income," as here used, can be defined
as "profits or gains." [Madrigal vs.
Rafferty (1918)]
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(ii) A mere increase in the value of property is The doctrine of constructive receipt is designed
not income, but merely unrealized to prevent the taxpayer using the cash basis
increase in capital. [1 Mertens, Sec. from deferring or postponing the actual receipt
5.06]The increase in the value of of taxable income. Without the rule, the
property is also known as appraisal taxpayer can conveniently select the year in
surplus or revaluation increment. which he will report the income. [Dimaampao]
WHEN IS THERE INCOME? For a taxpayer using the accrual method, the
When there is a FLOW of wealth other than determinative question is, when do the facts
mere return of capital during the taxable period. present themselves in such a manner that the
taxpayer must recognize income or expense?
Income v. Capital [Madrigal v. Rafferty] The accrual of income and expense is permitted
Income Capital when the all-events test has been met. This test
Denotes a flow of Fund or property requires: (1) fixing of a right to income or liability
wealth during a existing at one distinct to pay; and (2) the availability of the reasonable
definite period of point in time. accurate determination of such income or
time. liability [CIR v. Isabela Cultural Corporation].
Service of wealth Wealth itself
Subject to tax Return of capital is The “As If” Theory of Constructive Income is
not subject to tax designed to prevent a cash basis taxpayer to
Fruit Tree delay reporting of income. It also resumes the
existence of income on transactions supposedly
REALIZATION OF INCOME not subject to tax. [Valencia and Roxas]
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Income may be reported on the installment Selling Price - is the total amount or price of the
basis in the following cases: sale including the cash or property received and
all notes of the buyer or mortgages assumed by
Sales of personal property by a dealer – A dealer him.
who regularly sells or otherwise disposes of
personal property on the installment plan Contract Price is the amount which the
purchaser contracts to pay the seller in cash. It
Sales of real property (inventory) and casual includes the excess of the mortgages assumed
sales of personalty over the cost or other basis of the property sold
(1) casual sale or other casual disposition of
personal property (not of a kind which Change from accrual to installment basis
would be includible in the inventory of the A taxpayer entitled to the benefits of a dealer in
taxpayer if on hand at the close of the personal property may elect for any taxable year
taxable year) where the selling price > to report his taxable income on the installment
P1,000 and the initial payments do not basis. In computing his income for the year of
exceed 25% of the selling price, or change or any subsequent year, amounts
(2) sale or other disposition of real property actually received during any such year on
(inventory), if the initial payments do not account of sales or other dispositions of
exceed 25% of the selling price. Note: This property made in any prior year shall not be
sale is subject to creditable withholding tax excluded. [see Sec. 49(D), NIRC].
and normal tax which is 30% for corporate
taxpayer or 5% to 32% for individual
taxpayer.
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It is the difference between gross rule, incomes earned within the Philippines are
sales/revenue and the cost of goods taxable.
sold/services. The definition of gross (2) Derived entirely from sources without the
income is broad and comprehensive to Philippines [Sec. 42C, NIRC]. Examples:
include proceeds from sales of transport compensation for labor or service rendered by
documents. [Mamalateo] overseas contract workers; interest on bonds,
notes, deposits and the like earned abroad;
CONCEPT OF INCOME FROM WHATEVER dividends declared by nonresident foreign
SOURCE DERIVED corporation; rental and royalties from property
“Income derived from whatever source” means located outside the Philippines; and gains,
inclusion of all income not expressly exempted profits and income from sale of real property as
within the class of taxable income under the well as from personal property located outside
laws irrespective of the voluntary or involuntary the Philippines. As a rule, incomes earned with
action of the taxpayer in producing the gains, the Philippines are taxable.
and whether derived from legal or illegal (3) Derived from sources partly within or partly
sources (i.e. gambling, extortion, smuggling, without the Philippines. Examples: gains, profits
etc.) and income from transportation or other
services rendered partly within and partly
GROSS INCOME VIS-À-VIS NET INCOME VIS- outside, and dividend received by a resident
À-VIS TAXABLE INCOME citizen from a resident foreign corporation. (Sec.
(a) Gross income - means income, gain or profit 43(E), NIRC). In general, when an income is
subject to tax. earned partly from within and partly from
(b) Net income– means gross income less without, only income within is taxable in the
statutory deductions and/or exemptions Philippines, except if the taxpayer is a resident
[Sec. 31, NIRC] citizen or a domestic corporation. A Filipino
(c) Taxable income – means the pertinent items citizen or a domestic corporation whose income
of gross income specified in the Tax Code, is derived from within and without the
less the deductions and/or personal and Philippines is generally subject to tax.
additional exemptions, if any, authorized for
such types of income by the Tax Code or SOURCES OF INCOME SUBJECT TO TAX
other special laws [Sec. 31, NIRC]. It is
synonymous to the term “net income” Compensation Income
[Valencia and Roxas] Income arising from an employer-employee
(ER-EE) relationship. It means all remuneration
CLASSIFICATION OF INCOME AS TO for services performed by an EE for his ER,
SOURCE including the cash value of all remuneration
Source is ascribed to the place wherein the paid in any medium other than cash [Sec. 78(A)],
income is earned. It is governed by the situs of unless specifically excluded by the Tax Code.
taxation. This classification of income is
necessary to determine whether such income is It includes, but is not limited to, salaries and
subject to tax or not. Income may be: wages, honoraria and emoluments, allowances
(1) Derived entirely from sources within the (e.g., transportation, representation,
Philippines [Se. 42A, NIRC]. Examples: entertainment), commissions, fees (including
compensation for labor or service derived from directors’ fees, if the director is, at the same
Philippine sources; interest on bonds, notes, time, an employee of the payor-corporation),
deposits and the like earned in the Philippines; tips, taxable bonuses, fringe benefits except
dividends declared by domestic corporations; those subject to Fringe Benefit Tax (FBT) under
rentals and royalties from property located Section 33 of the Tax Code, and taxable
within the Philippines; and gains, profits and pensions and retirement pay (e.g. retirement
income from sale of real property as well as benefits earned without meeting the conditions
from personal property in the Philippines. As a for exemption thereof, such as retirement of less
than 50 years of age.)
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Forms of compensation and how they are The amount of “de minimis” benefits confirming
assessed to the ceiling prescribed shall not be considered
(a) Cash – If compensation is paid in cash, the in determining the P30,000 ceiling of “other
full amount received is the measure of the benefits” excluded from gross income under
income subject to tax. Section 32 (b)(7)(e) of the Tax Code, Provided,
(b) Medium other than money – If services are that the excess of the ‘de minimis’ benefits over
paid for in a medium other than money (e.g. their respective ceilings prescribed by these
shares of stock, bonds, and other forms of regulations shall be considered as part of “other
property), the fair market value (FMV) of the benefits” and the employee receiving it will be
thing taken in payment is the amount to be subject to tax only on the excess over the
included as compensation subject to tax. If P30,000 ceiling, Provided, further, that MWEs
the services are rendered at a stipulated receiving, ‘other benefits’ exceeding the
price, in the absence of evidence to the P30,000 limit shall be taxable on the excess
contrary, such price will be presumed to be benefits, as well as on his salaries, wages, and
the FMV of the remuneration received. allowances, just like an employee receiving
(c) Living quarters or meals - General Rule: The compensation income beyond the SMW. Any
value to the employee of the living quarters amount given by the employer as benefits to its
and meals given by the employer shall be employees, whether classified as “de minimis”
added to his compensation subject to benefits or fringe benefits, shall constitute as
withholding. deductible expense upon such employer. Where
Exception: If living quarters/meals are furnished compensation is paid in property other than
to an employee for the convenience of the money, the employer shall make necessary
employer the value needed NOT be arrangements to ensure that the amount of the
included as part of compensation income. tax required to be withheld is available for
(d) Facilities and privileges of a relatively small payment to the BIR.
value - Facilities and privileges (such an
entertainment, medical services, or so Classification of Gross Compensation Income
called “courtesy” discounts on purchases), Basic salary or wage
otherwise known as “de minimis benefits” (1) Salary – earnings received periodically for a
furnished or offered by an employer to his regular work other than manual labor.
employees generally, are NOT considered Example: monthly salary of an employee
as compensation subject to income tax and (2) Wages – earnings received usually according
therefore withholding tax if such facilities to specified intervals of work, as by the hour,
are offered or furnished by the employer day, or week. Example: a carpenter’s wage.
merely as means of promoting the health,
goodwill, contentment, or efficiency of his Backwages are subject to income tax and
employees. withholding tax on wages [BIR Ruling No. DA-
073-2008]
Convenience of the Employer Rule
Allowances in kind furnished to the employee Honoraria – payments given in recognition for
for and as necessary incident to the services performed for which the established
performance of his duties are not taxable practice discourages charging a fixed fee.
[Valencia and Roxas]. Example: honorarium of a guest lecturer
If meals, living quarters, and other facilities and Fixed or variable allowances i.e. Transportation,
privileges are furnished to an employee for the Representation, and other allowances such as
convenience of the employer, and incidental to Cost of Living Allowances (COLA)
the requirement of the employee’s work or
position, the value of that privilege need not be
included as compensation [Henderson v.
Collector]
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General Rule: Fixed or variable transportation, Tips and Gratuities – those paid directly to the
representation or other allowances that are employee (usually by a customer of the
received by a public officer or employee of a employer) which are not accounted for by the
private entity, in addition to the regular employee to the employer. (taxable income but
compensation fixed for his position or office is not subject to withholding tax) [RR NO. 2-98,
COMPENSATION subject to withholding tax. Sec. 2.78.1]
[Rev. Regs. 2-98]
Hazard or Emergency Pay – additional payment
Exception: Any amount paid specifically, either received due to the workers’ exposure to danger
as advances or reimbursements for travelling, or harm while working. It is normally added to
representation and other bona fide ordinary and the basic salary together with the overtime pay
necessary expenses incurred or reasonably and night differential to arrive at gross salary.
expected to be incurred by the employee in the
performance of his duties are not compensation Retirement Pay – a lump sum payment received
subject to withholding tax, provided the by an employee who has served a company for a
following conditions are satisfied: considerable period of time and has decided to
(a) It is for ordinary and necessary traveling and withdraw from work into privacy. [RR 6-82, Sec.
representation or entertainment expenses 2b]
paid or incurred by the employee in the
pursuit of the employer’s trade, business or In general, retirement pay is taxable except in
profession; and the following instances:
(b) The employee is required to account or (1) SSS or GSIS retirement pays.
liquidate for the foregoing expenses. (2) Retirement pay (R.A. 7641) due to old age
provided the following requirements are met:
The excess of actual expenses over
(a) The retirement program is approved by
advances made shall constitute taxable
the BIR Commissioner;
income if such amount is not returned to
(b) It must be a reasonable benefit plan. (Its
the employer. The employee is required to
implementation must be fair and
account/liquidate for the expenses in
equitable for the benefit of all
accordance with the specific requirements
employees)
of substantiation for each category of
(c) The retiree should have been employed
expenses pursuant to Section 34 of the Tax
for 10 years in the said company;
Code.
(d) The retiree should have been 50 years
Note: Reasonable amounts of old or above at the time of retirement;
reimbursements/advances for traveling and and
entertainment expenses which are pre- (e) It should have been availed of for the
computed on a daily basis and are paid to an first time.
employee while he is on an assignment or duty
are NOT subject to withholding tax on wages Separation pay – taxable if voluntarily availed of.
and substantiation requirements. It shall not be taxable if involuntary i.e. death,
sickness, disability, reorganization/merger of
Commission – usually a percentage of total company and company at the brink of
sales or on certain quota of sales volume bankruptcy or for any cause beyond the control
attained as part of incentive such as sales of the said official or employee.
commission.
Fees – received by an employee for the services “For any cause beyond the control.” –
rendered to the employer including a director’s (1) Connotes involuntariness on the part of the
fee of the company, fees paid to the public official or employee
officials such as clerks of court or sheriffs for (2) The separation from the service of the official
services rendered in the performance of their or employee must not be asked for or
official duty over and above their regular initiated by him.
salaries. (3) The separation was not of his own making.
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(4) Such fact shall be duly established by the Thirteenth month pay and other benefits - Not
employer by competent evidence which taxable if the total amount received is P30,000
should be attached to the monthly return or less. Any amount exceeding P30,000 is
for the period in which the amount paid due taxable. [Sec. 32 (7)e, NIRC]
to the involuntary separation was made.
(6) Amounts received by reason of involuntary Fringe Benefits and De Minimis
separation remain EXEMPT from income Fringe Benefits – any good, service, or other
tax even if the official or the employee, at benefit furnished or granted by an
the time of separation, had rendered less employer, in cash or in kind, in addition to
than ten (10) years of service and/or is basic salaries of an individual employee
below fifty (50) years of age. [Sec. 33, NIRC]
(7)Any payment made by an employer to an De Minimis – privileges of relatively small
employer to an employee on account of value as given by the employer to his
dismissal, constitutes compensation employees.
regardless of whether the employer is Fringe Benefits and De Minimis are not
legally bound by contract, statute, or considered compensation subject to income
otherwise, to make such payment. tax and withholding tax.
Pension – a stated allowance paid regularly to a Overtime Pay – premium payment received for
person on his retirement or to his dependents working beyond regular hours of work which is
on his death, in consideration of past services, included in the computation of gross salary of
meritorious work, age, loss, or injury. Pension is employee. It constitutes compensation.
taxable unless the law states otherwise, OR
unless the BIR approves the pension plan of a Profit Sharing – the proportionate share in the
private company. profits of the business received by the employee
in addition to his wages.
Vacation and sick leave- rules in determining
whether money received for vacation and sick Awards for special services – awards for past
leave is taxable or not: services or suggestions to employers resulting
(a) If paid or availed of as salary of an employee in the prevention of theft or robbery, etc. are
who is on vacation or on sick leave also compensations.
notwithstanding his absence from work, it
constitutes TAXABLE compensation income. Beneficial Payments – such as where employer
[RR 6-82, 2d] pays the income tax owed by an employee are
(b) Monetized value of unutilized VACATION additional compensation income.
leave credits of ten (10) days or less which
were paid to private employees during the Other forms of compensation – other forms
year, and the monetized value of vacation received due to services rendered are
and sick leave credits paid to government compensation paid in kind, e.g., insurance
officials and employees are NOT subject to premium paid by the employer for insurance
income tax and to the withholding tax. These coverage where the heirs of the employee are
are ‘de minimis’ benefits.’ [RR no. 5-2011, Sec the beneficiaries is the employee’s income.
2.78.1(A)(7)] Note: monetization of sick leave
credits of private employees even if not Note: Any amount which is required by law to be
exceeding 10 days is not exempt from deducted by the employer from the
income tax and withholding tax on wages. compensation of an employee including the
(c) Terminal leave or money value of withheld tax is considered as part of the
accumulated vacation and sick leave benefits employee’s compensation and is deemed to be
received by heir upon death of employee is paid to the employee as compensation at the
not taxable. time the deduction is made. (This also applies to
deductions not required by law.)
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(h) Employees achievement awards, e.g., for Non-taxable housing fringe benefit:
length of service or safety achievement, (1) Housing privilege of the Armed Forces of the
which must be in the form of a tangible Philippines (AFP) officials – i.e, those of the
personal property other than cash or gift Philippine Army, Philippine Navy, or
certificate, with an annual monetary value Philippine Air Force
not exceeding P10,000 received by the (2) A housing unit, which is situated inside of
employee under an established written plan adjacent to the premises of a business or
which does not discriminate in favor of factory maximum of 50 meters from
highly paid employees; perimeter of the business premises
(i) Gifts given during Christmas and major (3) Temporary housing for an employee who
anniversary celebrations not exceeding stays in housing unit for three months or
P5,000 per employee per annum; and less
(j) Daily meal allowance for overtime work and
night/graveyard shift not exceeding twenty- Motor Vehicle
five percent (25%) of the basic minimum Motor Vehicle Fringe Benefit Tax
wage on a per region basis; [Revenue Base
Regulation No. 5-2011] (1) Purchased in the name MV= acquisition
All other benefits given by employers which are of the employee cost
not included in the above enumeration shall NOT (2) Cash given to MV= cash received
be considered as "de minimis" benefits and employee to purchase by employee
hence, shall be subject to withholding tax on in his own name
compensation (rank and file employees) and (3) Purchase on MV= acquisition
FBT (managerial/supervisory employees). installment, in the cost exclusive of
Housing name of employee interest
Fringe Benefit Tax Base (4) Employee shoulders MV= amount
Housing Privilege part of the purchase shouldered by
(Monetary Value)
price, ownership in the employer
(1) LEASE of residential MV= 50% of lease
property for the payments name of employee
residential use of (5) Employer owns and MV= (AC/5) x 50%
employees where MV = monetary maintains a fleet of
value of the FB motor vehicles for use
(2)Assignment of MV= [5% (FMV or ZV, of the business and of
residential property whichever is higher) x employees
owned by employer 50%] (6) Employer leases and MV= 50% of rental
for use of employees maintains a fleet for payment
(3)Purchase of MV= 5% x acquisition the use of the business
residential property cost exclusive of and of employees
in installment basis interest x 50%
for the use of the Professional Income
employee Refers to fees received by a professional from
(4) Purchase of MV= FMV or ZV, the practice of his profession, provided that
residential property whichever is higher there is NO employer-employee relationship
and ownership is between him and his clients.
transferred in the
name of the
employee
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The following percentages of the gain or loss Note: For sale, barter, exchange or other forms
recognized upon the sale or exchange of a of disposition of shares of stock subject to the
capital asset shall be taken into account in 5%/10% capital gains tax on the net capital gain
computing net capital gain, net capital loss, and during the taxable year, the capital losses
net income: realized from this type of transaction during the
(a) If the taxpayer is an individual – taxable year are deductible only to the extent of
100% if the capital asset has been held for capital gains from the same type of transaction
not more than 12 months; and during the same period. If the transferor of the
50% of the capital asset has been held for shares is an individual, the rule on holding
more than 12 months period and capital loss carry-over will not apply,
(b) If the taxpayer is a corporation – notwithstanding the provisions of Section 39 of
100%, regardless of the holding period of the the Tax Code as amended. [RR 6-2008, c.4]
capital asset [Sec. 39(B), NIRC]
(1) Actual gain vis-à-vis Presumed gain
The tax rules for the gains or losses from sales Presumed Gain: In the sale of real property
or exchanges of capital assets over ordinary located in the Philippines, classified as capital
assets are as follows: asset, the tax base is the gross selling price or
(1) Net capital gain is added to ordinary gain but fair market value, whichever is higher. The law
net capital loss is not deductible from ordinary presumes that the seller makes a gain from
gain. such sale. Thus, whether or not the seller makes
(2) Net ordinary loss is deductible from ordinary a profit from the sale of real property, he has to
gain. pay 6% capital gains tax. In fact, her has to pay
(3) Capital losses are deductible only to the the tax, even if he incurs an actual loss from the
extent of the capital gain. sale thereof. (Note, however, that where an
(4) There is a net capital loss carry-over on the individual sells his real property classified as a
net capital asset’s loss in a taxable year which capital asset to the government, he has the
may be deducted as a short-term capital loss option whether to be taxed at the graduated
from the net capital gain of the subsequent income tax rates or at 6% capital gains tax.)
taxable year; provided that the following
conditions shall be observed: Actual Gain: The tax base in the sale of real
(5) The taxpayer is other than a corporation; property classified as an ordinary asset is the
(6) The amount of loss does not exceed the actual gain. If the seller incurs a loss from the
income before exemptions at the year when the sale, such loss may be deducted from his gross
loss was sustained; and income during the taxable year. The ordinary
(7) The holding period should not exceed 12 gain shall be added to the operating income
months. [Valencia] and the net taxable income shall be subject to
the graduated rates from 5% to 32% (if an
When a capital gain or capital loss is sustained individual) or to 30% corporate tax or to 2%
by a corporation, the following rules shall be MCIT (if a corporation).
observed:
(1) There is no holding period; hence, there is no Computation of the amount of gain or loss
net capital loss carry-over. Amount realized from sale or other
(2) Capital gains and losses are recognized to disposition of property
the extent of their full amount. Less: Basis or Adjusted Basis
(3) Capital losses are deductible only to the NET GAIN (LOSS)
extent of capital gains.
(4) Net capital losses are not deductible from Note: Amount realized from sale or other
ordinary gain or income but ordinary losses disposition of property = sum of money received
are deductible from net capital gains. + fair market value of the property (other than
money) received
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Note: When a taxpayer sells a real or personal (d) Property acquired by gift or donation – the
property, he should deduct its cost from its basis is the same as it would be in the
selling price to measure the gain or loss from hands of the donor or at the last preceding
the sales transaction [Sec. 40, NIRC]. owner by whom it was not acquired by gift,
or the fair market value at the time the gift
(2) Long term capital gain vis-à-vis Short was made, whichever is lower
term capital gain (e) Property acquired for less than an adequate
Long-term capital gain: Capital asset is held consideration in money’s worth – the
for more than twelve month before it is sold. amount paid by the transferee for the
Only 50% of the gain is recognized. property
Short-term capital Gain: Capital asset is
held for less than 12 months. 100% of the Cost or basis of the property exchanged in
gain is subject to tax. corporate reorganizations:
Sales or exchanges resulting in non-recognition
(3) Net Capital Gain vis-à-vis Net Capital of gains or losses:
Loss
Net Capital Gain is the excess of the gains Exchange Solely in Kind –
over the losses on sales or exchange of (1) If in pursuance of a plan of merger or
capital assets during the taxable year. consolidation, exchanges:
Net Capital Loss means the excess of the (a) Between the corporations which are
losses over the gains on sales or exchanges parties to the merger or consolidation
of capital assets during the taxable year. (property solely for stocks);
[Sec. 39A, NIRC] (b) Between a stockholder of a corporation
party to a merger or consolidation and
(4) Computation of the amount of Gain or the other corporation, which is a party
Loss to the merger or consolidation (stock in
a corporation solely for the stock of
For income tax purposes the following rules another corporation);
should be observed regarding the cost and (c) Between a security holder of a
expenses of the capital assets: (1) the costs and corporation party to a merger or
expenses of the acquisition are to be consolidation and the other corporation,
capitalized, and (2) the expenses of disposition which is a party to the merger or
are to be treated as reduction from the selling consolidation (securities solely for
price. [Valencia] securities)
(2) Transfer to a controlled corporation – a
Cost or basis of the property sold: person transfers his property to a corporation in
In computing the gain or loss from the sale or exchange for stocks in such a corporation,
other disposition of property, the BASIS shall be resulting in acquisition of corporate control by
as follows: said person, alone or together with others not
(a) Property acquired by purchase – its exceeding four (4).
acquisition cost, i.e., the purchase price plus
expenses of acquisition. Exchange Not Solely in Kind -Gain, but not the
(b) Property which should be included in the loss, shall be recognized if, in connection with
inventory – its latest inventory value [RR-2 an exchange described in the above exceptions:
sec 136] (a) An individual, a shareholder, a security
(c) Property acquired by devise, bequest or holder or a corporation receives not only
inheritance – its fair market price or value as stock or securities permitted to be received
of the date of acquisition (inheritance) without the recognition of gain or loss, but
also money and/or property.
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The gain, if any, but not the loss, shall be If the money or other property received
recognized but in an amount not in excess has the effect of a distribution of a
of the sum of the money and the fair market taxable dividend, there shall be taxed as
value of such other property received. dividend to the stockholder an amount
of the gain recognized not in excess of
As to the shareholder, if the money and/or his proportionate share of the
other property received has the effect of a undistributed earnings and profits of
distribution of a taxable dividend, there the corporation.
shall be taxed as dividend to the
shareholder an amount of the gain The remainder, if any, of the gain
recognized not in excess of his recognized shall be treated as a capital
proportionate share of the undistributed gain.
earnings and profits of the corporation.
SUBSTITUTED BASIS OF STOCK OR
The remainder, if any, of the gain SECURITIES RECEIVED BY TRANSFEROR
recognized shall be treated as a capital gain UPON THE EXCHANGE:
[Sec. 40 (C) (3) (a), NIRC]. Original basis (cost) of the property, stock or
securities exchanged/transferred
(b) The transferor corporation receives not only LESS: (a) money received, if any; and (b) FMV of
stock permitted to be received without the the other property received.
recognition of gain or loss but also money Balance
and/or other property, then – ADD: (a) the amount treated as dividend of the
(i) if the corporation receiving such money shareholder; and (b) the amount of any gain
and/or other property distributes it in that was recognized on the exchange.
pursuance of the plan of merger or Basis (Cost) of the stock received
consolidation, no gain to the
corporation shall be recognized from Notes:
the exchange, but (a) The property received as “boot” shall have
(ii) if the corporation receiving such other as basis its FMV
property and/or money does not (b) If as part of the consideration to the
distribute it in pursuance of the plan of transferor, the transferee of property
merger or consolidation, the gain, if any, assumes a liability of the transferor or
but not the loss to the corporation shall acquires from the latter property subject to
be recognized. a liability, such assumption or acquisition (in
the amount of liability), shall be treated as
The gain shall be recognized in an money received by the transferor on the
amount not in excess of the sum of such exchange
money and the fair market value of such (c) If the transferor receives several kinds of
other property so received, which is not stocks or securities, the Commissioner is
distributed [Sec. 40 (C) (3) (b), NIRC]. authorized to allocate the basis among the
several classes of stocks or securities
If an individual, stockholder, security received.
holder or corporation receives on the
exchange not only stock or securities SUBSTITUTED BASIS OF PROPERTY
but also money and/ or property (boot), TRANSFERRED:
the gain but not the loss shall be The basis of the property transferred in the
recognized, in an amount not exceeding hands of the transferee shall be the same as it
the sum of the money and fair market would be in the hands of the transferor
value of the property received. increased by the amount of the gain recognized
to the transferor on the transfer [Sec. 40 (C)(5),
NIRC].
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(b) Net loss carry-over rule (applicable only to Shares listed and traded through the stock
individuals) exchange other than sale by a dealer in
If an individual sustains in any taxable year a net securities.
capital loss, such loss (in an amount not in (1) ½ of 1% of the gross selling price of the stock
excess of the net income for the year) shall be or gross value in money of the shares of
treated in the succeeding taxable year as a loss stock sold, bartered, exchanged or
from the sale or exchange of a capital asset otherwise disposed which shall be assumed
held for not more than 12 months [Sec. 39(D), and paid by the seller or transferor through
NIRC]. the remittance of the stock transaction tax
by the seller or transferor’s broker.
(6) Dealings in real property situated in the (2) Note: In the nature of percentage tax and
Philippines not income tax; exempt from income tax per
Section 127 (d):
Persons Liable and Transactions Affected “Any gain derived from the sale, barter,
(a) Individual taxpayers, estates and trusts exchange or other disposition of share of
(1) Sale or exchange or other disposition of stock under this section shall be exempt
real property considered as capital assets. from taxes imposed in Sections 24(C),
(2) Includes "pacto de retro sale" and other 27(D)(2), 28(A)(8)(c), and 28(B)(5)(c) of this
conditional sale. Code and from the regular individual or
(b) Domestic Corporation corporate income tax.”
Sale or exchange or disposition of lands (3) Note: Percentage tax under Sec. 127 is NOT
and/or building which are not actually used DEDUCTIBLE for income tax purposes.
in business and are treated as capital asset.
Shares not listed and traded through the stock
Rate and Basis of Tax exchange
A final withholding tax of 6% is based on the Net capital gains derived during the taxable
gross selling price or fair market value or zonal year from sale, exchange, or transfer shall be
value whichever is higher. taxed as follows (on a per transaction basis):
Note: Gain or loss is immaterial, there being a Amount of Capital Tax Rate
conclusive presumption of gain. Gain
Not over P 100,000 - 5%
(7) Dealings in shares of stock of Philippine On any amount in - 10%
corporations excess of P 100,000
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(d) Notify the Commissioner within thirty (30) (2) Stock dividend – Stock dividend is generally
days from the date of sale or disposition exempt from income tax, EXCEPT:
through a prescribed return of his intention (a) If a corporation cancels or redeems stock
to avail the tax exemption; issued as a dividend at such time and in
(e) Can only be availed of onlyonce every ten such manner as to make the
(10) years; distribution and cancellation or
(f) The historical cost or adjusted basis of his old redemption, in whole or in part,
principal residence shall be carried over to essentially equivalent to the distribution
the cost basis of his new principal residence of a taxable dividend, the amount so
(g) If there is no full utilization, the portion of distributed in redemption or
the gains presumed to have been realized cancellation of the stock shall be
shall be subject to capital gains tax. considered as taxable income to the
(h) Portion of presumed gains subject to CGT: extent that it represents a distribution
(Unutilized/GSP) x (higher of GSP or FMV) of earnings or profits (Sec. 73(B), NIRC);
or
Passive Investment Income (b) Where there is an option that some
Under Sec 24(B), a final tax is imposed upon stockholders could take cash or
gross passive income of citizen and resident property dividends instead of stock
aliens. An income is considered passive if the dividends; some stockholders exercised
taxpayer merely waits for it to be realized. the option to take cash of property
dividends; and the exercise of option
(a) Interest Income resulted in a change of the
An earning derived from depositing or lending stockholders’ proportionate share in the
of money, goods or credits [Valencia and Roxas] outstanding share of the corporation.
e.g., interest income from government securities (3) Property dividend - Dividends are included in
such as Treasury Bills. the gross income of the stockholder, unless
they are exempt from tax or subject to tax at
Unless exempted by law, interest income preferential rate under the NIRC. Cash
received by the taxpayer, whether or not dividend and property dividend are subject to
usurious, is subject to income tax. income tax.
(4) Liquidating dividend – Represents
(b) Dividend Income distribution of all the property or assets of a
A form of earnings derived from the distribution corporation in complete liquidation or
made by a corporation out of its earnings or dissolution. It is strictly not dividend income,
profits and payable to its stockholders, whether but rather is treated in effect, as a sale of
in money or in property. shares of stock resulting in capital gain or
loss. The difference between the cost or
In general, dividends are included in the gross other basis of the stock and the amount
income of the stockholder, unless they are received in liquidation of the stock is a
exempt from tax or subject to final ax at capital gain or a capital loss. Where
preferential rate under the Tax Code. property is distributed in liquidation, the
amount received is the FMV of such
(1) Cash dividend – Dividends are included in the property. The income is subject to ordinary
gross income of the stockholder, unless they income tax rates and NOT to the FWT on
are exempt from tax or subject to tax at dividends.
preferential rate under the NIRC. Cash
dividend is the most common form of
dividend, valued at the amount of money
received by the stockholder. Cash dividend
and property dividend are subject to income
tax.
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Contest prizes and awards received are (b) It may amount to a gift. If a creditor wishes
generally taxable. Such payment constitutes merely to benefit the debtor, and without
gain derived from labor. any consideration therefore, cancels the
debt, the amount of the debt is a gift to the
The EXCEPTIONS are as follows: debtor and need not be included in the
(1) Prizes and awards made primarily in latter’s report of income.
recognition of religious, charitable, scientific, (c) It may amount to a capital transaction. If a
educational, artistic, literary or civic corporation to which a stockholder is
achievements are EXCLUSIONS from gross indebted forgives the debt, the transaction
income if: has the effect of a payment of dividend.
(a) The recipient was selected without any
action on his part to enter a contest or Tax Benefit Rule
proceedings; and This is a general principle in taxation which
(b) The recipient is not required to render states that is a taxpayer deducted an item on
substantial future services as a condition his income tax return and enjoyed a tax benefit
to receiving the prize or award. (reduced his income tax) thereby, and in a
(2) Prizes and awards granted to athletes in subsequent year recovers all or part of that
local and international sports competitions item, he will recognize gross income in the year
and tournaments held in the Philippines and the deducted item is recovered. The rule has
abroad and sanctioned by their national both an inclusionary and an exclusionary
associations shall be EXEMPT from income component, i.e., the recovery is included in the
tax. taxpayer’s gross income to the extent that the
taxpayer obtained a tax benefit from the prior
Pensions, retirement benefit, or separation pay year’s deduction, and the recovery is excluded to
(1) paid for past employment services rendered. the extent that the prior year’s deduction did
(2) a stated allowance paid regularly to a person not provide a tax benefit.
on his retirement or to his dependents on his
death, in consideration of past services, Recovery of accounts previously written-off – B d
meritorious work, age, loss or injury. It is debts claimed as a deduction in the preceding
generally taxable unless the law states year(s) but subsequently recovered shall be
otherwise. [VALENCIA, Income Taxation 5th included as part of the taxpayer’s gross income
ed. (200/’’9)] in the year of such recovery to the extent of the
income tax benefit of said deduction. There is an
Income from any source whatever income tax benefit when the deduction of the
Inclusion of all income not expressly exempted bad debt in the prior year resulted in lesser
within the class of taxable income under the income and hence tax savings for the company.
laws irrespective of the voluntary or involuntary [Sec. 4, RR 5-99]
action of the taxpayer in producing the gains,
and whether derived from legal or illegal
sources.
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Social Security Act benefits – Payments of (3) Under R.A. 7916 (PEZA Law), as amended,
benefits received under the Social Security PEZA-registered enterprises are given
Act of 1954 (RA 8282), as amended, e.g., income tax holidays of six or four years from
Maternity Benefits the date of commercial operations,
GSIS benefits – Benefits received from GSIS depending on whether their activities are
under the GSIS Act of 1937, as amended, considered pioneer or non-pioneer.
and the retirement gratuity received by (4) Under R.A. 9178 [Barangay Micro Business
government officials and employees are not Enterprises Act of 2002], BMBEs shall be
taxable. [Sec. 32B6., NIRC; Sec. B1, RR 2-98] exempt from income tax for income arising
Winnings, prizes and award, including those from the operation of the enterprise.
in sports competitions.—All prizes and
awards granted to athletes: DEDUCTIONS FROM GROSS INCOME
(1) in local and international sports Deductions are items or amounts which the law
competitions and tournaments whether allows to be deducted from the gross of income
held in the Philippines or abroad, AND of a taxpayer in order to arrive at taxable
(2) sanctioned by their national sports income.
associations shall not be included in gross
income and shall be tax exempt. [Sec. 32 In general, deductions or allowable deductions
B7d, NIRC] are business expenses and losses incurred
Prizes and awards made primarily in which the law allows to reduce gross business
recognition of charitable, literary, income to arrive at net income subject to tax.
educational, artistic, religious, scientific, or [Sec. 65, Rev. Reg. No. 2].
civic achievement are not taxable, provided:
(1) Recipient was selected without any action Deductions are in the nature of an exemption
on his part to enter the contest or from taxation; they are strictly construed against
proceeding; and the claimant, who must point to a specific
(2) Recipient is not required to render provision allowing them and who has the
substantial future services as a condition burden of proving that they falls within the
to receiving the prize or award purview of such provision. Thus, all deductions
must be substantiated, except when the law
(3) Under special laws dispenses with the records, documents or
receipts to support the deductions.
Personal Equity and Retirement Account
(1) Under R.A. 6657 (Comprehensive Agrarian If the exemption is not expressly stated in the
Reform Package Law), gain arising from the law, the taxpayer must at least be within the
transfer of agricultural property covered by purview of the exemption by clear legislative
the law shall be exempt from capital gains intent [Commissioner of Customs v. Philippine
tax. Acetylene Co., G.R. No. L-22443 May 29, 1971]
(2) Under R.A. 6938 [Cooperative Code of the
Philippines], as amended by R.A. 9520, However, if there is an express mention in the
cooperatives transacting business with both law or if the taxpayer falls within the purview of
members and non-members shall not be the exemption by clear legislative intent, the
subject to tax on their transactions with rule on strict construction will not apply.
members. In relation to this, the [Commissioner v. Anoldus Caprentry Shop, G.R.
transactions of members with the No. 71122 March 25, 1988]
cooperative shall not be subject to any taxes
and fees, including but not limited to final The purpose of deductions from gross income is
taxes on members' deposits. to provide the taxpayer a just and reasonable
tax amount as the basis of income tax. It is
because many taxpayers spend adequate
expenditures in order to obtain a legitimate
income.
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(e) Other expenses such as repairs or those invoices, receipts or vouchers, particularly lack
incurred by farmers and other persons in of proof of the items constituting the expense is
agribusiness fatal to the allowance of the deduction
[Gancayco v. Collector, G.R. No. L-13325, April
Requisites for deductibility of business 20, 1961].
expenses.—
(a) Ordinary AND necessary; Substantiation requirement – Sec. 34(A)(1)(b),
ORDINARY - normal and usual in relation NIRC: No deduction from gross income shall be
to the taxpayer's business and surrounding allowed unless the taxpayer shall substantiate
circumstances; need not be recurring with sufficient evidence, such as official receipts
NECESSARY - appropriate and helpful in or other adequate records: (1) the AMOUNT of
the development of taxpayer's business or the expense being deducted, and (2) the
are proper for the purpose of realizing a DIRECT CONNECTION or relation of the
profit or minimizing a loss expense being deducted to the development,
(b) Paid or incurred during the taxable year; management, operation and/or conduct of the
(c) Others: (not in the SC syllabus) trade, business or profession of the taxpayer.
(1) Paid or incurred in carrying on or
which are directly attributable to the When to ACCRUE expenses: “all–events test”
development, management, operation states that under the accrual method of
and/or conduct of the trade, business or accounting, expenses are deductible in the
exercise of profession; taxable year in which: (1) all events have
(2) Substantiated by adequate proof – occurred which determine the liability; and (2)
documented by official receipts or the amount of liability can be determined with
adequate records, which reflect the reasonable accuracy.
amount of expense deducted and the
connection or relation of the expense to Kinds of business expenses
the business/trade of the taxpayer); These are:
(3) Legitimately paid (not a BRIBE, (1) Salaries, wages and other forms of
kickback, or otherwise contrary to law, compensation for personal services actually
morals, public policy); rendered, including the grossed-up
(4) If subject to withholding tax, the tax monetary value of the fringe benefit
required to be withheld on the expense subjected to fringe benefit tax which tax
paid or payable is shown to have been should have been paid
properly withheld and remitted to the (2) Travelling expenses
BIR on time; (3) Cost of materials
(5) Amount must be reasonable. (4) Rentals and/or other payments for use or
possession of property
Note: The expenses allowable to a non-resident (5) Repairs and maintenance
alien or a foreign corporation consist of only (6) Expenses under lease agreements
such expenses as are incurred in carrying on any (7) Expenses for professionals
business or trade conducted within the (8) Entertainment expenses
Philippines exclusively. [Sec. 77 RR 2] (9) Political campaign expenses
(10) Training expenses
COHAN Rule: This relief will apply if the (11) Others
taxpayer has shown that it is usual and
necessary in the trade to entertain and to incur
similar kinds of expenditures, there being
evidence to show the amounts spent and the
persons entertained, though not itemized. In
such a situation, deduction of a portion of the
expenses incurred might be allowed even if
there are no receipts or vouchers. Absence of
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(b) Except in case of distributions in liquidation, Should the taxpayer elect to deduct the interest
between an individual and a corporation, payments against its gross income, the taxpayer
where the individual owns directly or cannot at the same time capitalize the interest
indirectly more than 50% of the payments. In other words, the taxpayer is not
outstanding stock of the corporation entitled to both the deduction from gross income
(c) Except in the case of distributions in and the adjusted (increased) basis for
liquidation, between two corporations determining gain or loss and the allowable
where: depreciation charge. [Paper Industries Corp. v.
(1) Either one is a personal holding company Commissioner, 250 SCRA 434]
of a foreign personal holding company
with respect to the taxable year Reduction of interest expense/interest arbitrage
preceding the date of the sale of The taxpayer's allowable deduction for interest
exchange; and expense shall be reduced by an amount equal to
(2) More than 50% of the outstanding stock 33% of the interest income subjected to final
of each is owned, directly or indirectly, tax; effective January 1, 2009. (RA 9337)
by or for the same individual; or
(d) Between parties to a trust- This limitation is apparently intended to counter
(1) Grantor and Fiduciary; or the tax arbitrage scheme where a taxpayer
(2) Fiduciary of a trust and fiduciary of obtains an interest-bearing loan and places the
another trust if the same person is a proceeds of such loan in investments that yield
grantor with respect to each trust; or interest income subject to preferential tax rate
(3) Fiduciary and Beneficiary of 20% final withholding tax. [Valencia and
Roxas]
Interest subject to special rules.
Interest paid in advance TAXES
(a) No deduction shall be allowed if within the Taxes Proper: Refers to national and local taxes;
taxable year an individual taxpayer reporting
income on cash basis incurs an indebtedness on Requisites for deductibility.—
which an interest is paid in advance through Such tax must be:
discount or otherwise. (a) Paid or incurred within the taxable year;
(b) But the deduction shall be allowed in the (b) Paid or incurred in connection with the
year the indebtedness is paid taxpayer‘s trade, profession or business;
(c) Imposed directly on the taxpayer.
Interest periodically amortized (d) Not specifically excluded by law from being
If the indebtedness is payable in periodic deducted from the taxpayer‘s gross income.
amortizations, the amount of interest which
corresponds to the amount of the principal Non-deductible taxes.—
amortized or paid during the year shall be General Rule: All taxes, national or local, paid or
allowed as deduction in such taxable year incurred during the taxable year in connection
with the taxpayer's profession, trade or
Interest expense incurred to acquire property for business, are deductible from gross income
use in trade/business/profession
At the option of the taxpayer, interest expense Exceptions:
on a capital expenditure may be allowed as: (1) Philippine income tax, except Fringe Benefit
(1) A deduction in full in the year when incurred; Taxes;
(2) A capital expenditure for which the taxpayer (2) Income tax imposed by authority of any
may claim only as a deduction the periodic foreign country, if taxpayer avails of the
amortization of such expenditure. Foreign Tax Credit (FTC)
(a) Exception to exception: When the taxpayer
does NOT signify his desire to avail of the
tax credit for taxes of foreign countries,
the amount may be allowed as a deduction
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Limitations on Tax Credit.— (b) Actually sustained and charged off within
(1) [Per Country Limit]The amount of tax credit the taxable year;
shall not exceed the same proportion of the (c) Incurred in trade, business or profession;
tax against which such credit is taken, which (d) Of property connected with the trade,
the taxpayer's taxable income from sources business, or profession, if the loss arises
within such country bears to his entire from fires, storms, shipwreck or other
taxable income for the same taxable year; casualties, or from robbery, theft, or
and embezzlement;
(2) [Worldwide Limit]The total amount of the (e) Sustained in a closed and completed
credit shall not exceed the same proportion transaction;
of the tax against which such credit is taken, (f) Not compensated for by insurance or other
which the taxpayer's taxable income from form of indemnity;
sources without the Philippines taxable (g) Not claimed as a deduction for estate tax
bears to his entire taxable income for the purposes;
same taxable year. (h) In case of casualty loss, filing of notice of loss
with the BIR within 45 days from the date of
Formula: the event that gave rise to the casualty; and
Limit #1 (i) The taxpayer must prove the elements of the
Taxable loss claimed, such as the actual nature and
Limit on occurrence of the event and amount of the
Income Per
amount of loss.
Foreign
Phil. tax credit
Country x =
Income Tax (Per
Worldwide In case a non-depreciable vehicle is sold at a
Country loss, the loss incurred from the sale of non-
Taxable
Limit) depreciable vehicle is not allowed as a
Income
deduction. [RR No. 2-2013]
Limit #2
Taxable No loss is recognized in the following.—
Limit on (1) Merger, consolidation, or control securities
Income For
amount of (where no gains are recognized either);
all Foreign
Phil. tax credit (2) Exchanges not solely in kind;
Countries x =
Income Tax (World (3) Related taxpayers (see above – (c) Interest
Worldwide
Wide expense incurred to acquire property for use
Taxable
Limit) in trade/business/profession)
Income
(4) Wash sales;
Note: Computation of FTC: Limit #2 applies (5) Illegal transactions
where taxes are paid to two or more foreign
countries. Allowable tax credit is the lower Other types of losses.—
between the tax credit computed under Limit #1 Capital losses
and that computed under Limit#2. (1) Incurred in the sale or exchange of capital
assets (allowable only to the extent of
FTC Limitations – lowest of the 3: capital gains, except for banks and trust
(1) Actual FTC companies under conditions in Sec. 39 of
(2) For taxes paid to one foreign country NIRC where loss from such sale is not
(3) For taxes paid to 2 or more foreign countries subject to the foregoing limitation);
(2) Resulting from securities becoming
LOSSES worthless and which are capital assets
Requisites for deductibility.— (considered loss from sale or exchange) on
(a) Loss must be that of the taxpayer (e.g., last day of the taxable year ;
losses of the parent corp. cannot be (3) Losses from short sales of property;
deducted by its subsidiary); (4) Losses due to failure to exercise privileges or
options to buy or sell property.
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Securities becoming worthless Exception: Mines other than oil and gas wells,
(a) Loss in shrinkage in value of stock through where a net operating loss without the benefit
fluctuation in the market is not deductible of incentives provided for under EO No. 226
from gross income. (To be deductible, the (Omnibus Investments Code) incurred in any of
loss must be actually suffered when the the first ten (10) years of operation may be carried
stock is disposed of.) over as a deduction from taxable income for the
(b) Exception: If the stock of the corporation next five (5) years immediately following the
becomes worthless, the cost or other basis year of such loss.
may be deducted by its owner in the taxable
year in which the stock became worthless, Requisites for NOLCO:
provided a satisfactory showing of its (a) The taxpayer was not exempt from income
worthlessness be made, as in the case of tax the year the loss was incurred;
bad debts. (b) There has been no substantial change in the
ownership of the business or enterprise
Losses on wash sales of stocks or securities wherein:
Wash Sale - a sale or other disposition of stock (1) AT LEAST 75% of nominal value of
or securities where substantially identical outstanding issued shares is held by or
securities (substantially the same as those on behalf of the same persons; or
disposed of) are acquired or purchased (or there (2) AT LEAST 75% of the paid up capital of
was an option to acquire, and the acquisition or the corporation is held by or on behalf
option should be by purchase or exchange upon of the same persons.
which gain or loss is recognized under the
income tax law) within a 61-day period, Taxpayers Entitled to NOLCO
beginning 30 days before the sale and ending (1) Individuals engaged in trade or business or in
30 days after the sale the exercise of his profession (including
estates and trusts); Note: An individual who
General rule: Not deductible from gross income avails of 40% OSD shall not simultaneously
Exception: If by a dealer in securities in the claim deduction of NOLCO. However, the
course of ordinary business, it is deductible. three-year reglementary period shall
continue to run during such period
Wagering losses notwithstanding the fact that the aforesaid
Losses from wagering (gambling) are taxpayer availed of OSD during the said
deductible only to the extent of gains from such period.
transactions. A wager is made when the (2) Domestic and resident foreign corporations
outcome depends upon CHANCE. subject to the normal income tax (e.g.,
manufacturers and traders) or preferential
NOLCO (Net Operating Loss Carry Over) tax rates under the Code (e.g., private
Net operating loss (NOL)is the excess of educational institutions, hospitals, and
allowable deductions over gross income for any regional operating headquarters) or under
taxable year immediately preceding the current special laws (e.g., PEZA-registered
taxable year. companies)
NOLCO: The NOL of the business or enterprise Note: Domestic and resident foreign corporations
which had not been previously offset as taxed during the taxable year with Minimum
deduction from gross income shall be carried Corporate
over as a deduction from gross incomefor the
next three (3) consecutive taxable years Income Tax cannot enjoy the benefit of NOLCO.
immediately following the year of such loss, However, the three-year period for the expiry of
provided however, that any net loss incurred in a he NOLCO is not interrupted by the fact that the
taxable year during which the taxpayer was corporation is subject to MCIT during such
exempt from income tax shall not be allowed as three-year period.
a deduction. [Sec. 34(3)(D), NIRC]
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(e) Science and culture, and purpose for which the dissolved
(f) Economic development organization was organized.
(2) in accordance with a National Priority
Plan determined by NEDA (otherwise, Contributions subject to the Statutory Limit.
subject to statutory limit) These contributions are not deductible in full
(b) Donations to Certain Foreign Institutions or as specified by the law or such deduction has
International Organizations which are fully not met the requirements to be deducted in
deductible in compliance with agreements, full.
treaties or commitments entered into by the
Government of the Philippines and the Those made to:
foreign institutions or international (a) Government or any of its agencies or political
organizations or in pursuance of special laws subdivisions exclusively for public purposes
(c) Donations to Accredited Non-government (contributions for non-priority activities)
Organizations subject to conditions set forth (b) Accredited domestic corporation or
in RR No. 13-98 – NGO means a non-stock associations organized exclusively for
non-profit domestic corporation or (1) religious
organization: (2) charitable
(i) Organized and operated exclusively for: (3) scientific
(a) scientific, (4) youth and sports development
(b) research, (5) cultural
(c) educational, (6) educational purposes or
(d) character-building and youth and (7) rehabilitation of veterans
sports development, (c) Social welfare institutions
(e) health, (d) Non-government organizations: No part of
(f) social welfare, the net income of which inures to the
(g) cultural or benefit of any private stockholder or
(h) charitable purposes, or individual
(i) a combination thereof,
(ii) No part of the net income of which inures Statutory Limit:
to the benefit of any private individual (a) 10% in the case of an individual (individual
(iii) Directly utilizes contributions for the donor), and
active conduct of the activities (b) 5% in the case of a corporation (corporate
constituting the purpose or function for donor), of the taxpayer's/donor’s income
which it is organized, not later than 15th derived from trade, business or profession
day of the month following the close of its computed before the deduction for
taxable year in which contributions are contributions and donations
received, unless an extended period is
granted by the Secretary of Finance, upon The amount deductible is the actual
recommendation of the CIR contribution or the statutory limit
(iv) Administrative expense, on an annual computed, whichever is lower
basis, must not exceed 30% of total
expenses for the taxable year CONTRIBUTION TO PENSION TRUST
(v) Upon dissolution, its assets would be Contribution to a pension trust may be claimed
distributed to another accredited NGO as deduction as follows:
organized for a similar purpose or (1) Amount contributed for the present/normal
purposes, OR to the State for public service cost – 100% deductible
purpose, OR would be distributed by a (2) Amount contributed for the past service cost
competent court of justice to another – 1/10 of the amount contributed is
accredited NGO to be used in such deductible in year the contribution is made,
manner as in the judgment of said court the remaining balance will be amortized
shall best accomplish the general equally over nine consecutive years
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General Rule: An employer establishing or (c) Taxpayer signifies in his return his intention to
maintaining a pension trust to provide for the elect this deduction; otherwise he is
payment of reasonable pensions to his considered as having availed of the itemized
employees shall be allowed as a deduction, a deductions.
reasonable amount transferred or paid into (d) Election is irrevocable for the year in which
such trust in excess of the contributions to such made; however, he can change to itemized
trust made during the taxable year. deductions in succeeding years.
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(i) The partners’ distributive share in the PERSONAL AND ADDITIONAL EXEMPTION
GPP is treated as his gross income (R.A. NO. 9504, MINIMUM WAGE EARNER
not his gross sales/receipts and the LAW)
40% OSD allowed to individuals is
specifically mandated to be Basic personal exemptions
deducted not from his gross income According to RA 9504 (effective July 6, 2008)
but from his gross sales/receipts; basic personal exemption is Fifty thousand
and, pesos (P50,000) for each individual taxpayer,
(ii)The OSD being in lieu of the itemized regardless of status, i.e., whether single, married
deductions allowed in computing or head of the family.
taxable income as defined under
Section 32 of the Tax Code, it will But note Sec 35(A) of NIRC - In the case of
answer for both the items of married individuals where only one of the spouses
deduction allowed to the GPP and is deriving gross income, only such spouse shall
its partners. be allowed the personal exemption.
(c) Since one-layer of income tax is imposed
on the income of the GPP and the Additional exemptions for taxpayer with
individual partners where the law had dependents
placed the statutory incidence of the tax (a) An individual, whether single or married,
in the hands of the latter, the type of shall be allowed an additional exemption of
deduction chosen by the GPP must be P25,000 for each qualified dependent child
the same type of deduction that can be (QDC), provided that the total number of
availed of by the partners. Accordingly, dependents for which additional
if the GPP claims itemized deductions, exemptions may be claimed shall not
all items of deduction allowed under exceed 4 dependents (depends on the
Sec. 34 can be claimed both at the level number of qualified dependent children)
of the GPP and at the level of the (1) Married Individuals: Additional
partner in order to determine the exemptions for QDC are claimed by only
taxable income. On the other hand, one spouse.
should the GPP opt to claim the OSD,
the individual partners are deemed to Generally, the spouse who is the gross
have availed also of the OSD because compensation earner is the claimant of
the OSD is in lieu of the itemized the additional exemptions.
deductions that can be claimed in
computing taxable income. (2) Where the husband and wife are both
(d) If the partner also derives other gross compensation income earners: the
income from trade, business or practice husband is the proper claimant of the
of profession apart and distinct from his additional exemptions EXCEPT if there
share in the net income of the GPP, the is an express waiver by the husband in
deduction that he can claim from his favor of his wife, as embodied in the
other gross income would follow the application for registration (BIR Form
same deduction availed of from his No. 1902) or in the Certificate of Update
partnership income as explained in the of Exemption and of Employer’s and
foregoing rules. Provided, however, that Employee’s Information (BIR Form No.
if the GPP opts for the OSD, the 2305), whichever is applicable.
individual partner may still claim 40% (3) When the spouses have business and/or
of its gross income from trade, business professional income only: either may
or practice of profession but not to claim the additional exemptions at the
include his share from the net income of end of the year.
the GPP. [RR 2-2010]
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General rule that resident citizens are taxable (2) A resident alien or non-resident alien is
on income from all sources within and without taxable only on income from sources
the Philippines WITHIN the Philippines.
(i) A resident alien is an individual whose
General rule: A Filipino resident citizen is taxable residence is in the Philippines and who
on income from all sources (within and without is not a Filipino citizen.
the Philippines) (ii) A non-resident alien is an individual
whose residence and citizenship is not
(a) Non-resident citizens: A non-resident citizen in the Philippines.
is taxable only on income derived from sources (1) An alien actually present in the
within the Philippines. Philippine who is not a mere
A non-resident citizen is a Filipino citizen transient or sojourner is a resident of
who: the Philippines for purposes of the
(1) Establishes to the satisfaction of the CIR income tax.
the fact of his physical presence abroad (2) Whether he is a transient or not is
with a definite intention to reside determined by his intentions with
therein regard to the length and nature of
(2) Leaves the Philippines during the his stay. A mere floating intention
taxable year to reside abroad (as indefinite as to time, to return to
immigrant or for employment on a another country is not sufficient to
permanent basis) constitute him a transient.
(3) Works and derives income from abroad (3) If he lives in the Philippines and has
and whose employment requires him to no definite intention to stay, he is a
be present abroad most of the time resident.
during the taxable year (4) One who comes to the Philippines
(4) Has been previously considered as a for a definite purpose which, in its
non-resident and arrives in the nature, may be promptly
Philippines at any time during the accomplished is a transient.
taxable year to reside here permanently (5) But if his purpose is of such a nature
(only with respect to his income from that an extended stay may be
sources abroad until the date of his necessary for its accomplishment,
arrival in the country) and to that end the alien makes his
(b) Other considerations: home temporarily in the Philippines,
(1) A Filipino citizen working and deriving he becomes a resident, though it
abroad as an Overseas Contract Worker is may be his intention at all times to
taxable only on income from sources WITHIN return to his domicile abroad when
the Philippines. the purpose of which he came has
(i) OCW refers to Filipino citizens in foreign been consummated or abandoned.
countries, who are physically present in (Sec. 5, RR No.2)
a foreign country as a consequence of (c) In general, a non-resident alien individual
their employment in that country. Their who shall come to the Philippines and stay
salaries and wages are paid by an therein for an aggregate period of more than
employer abroad and is not borne by an 180 days during any calendar year shall be
entity or person in the Philippines. They deemed a non-resident alien doing business in
must be duly registered with the the Philippines. Intended Stay in the
Philippine Overseas Employment Philippines:
Administration (POEA) with valid Up to 180 days – NRANETB
Overseas Employment Certificate More than 180 days up to 2 years –
(OEC). NRAETB
(ii) An OCW’s income arising out of his Greater than 2 years – Resident alien
overseas employment is exempt from
income tax.
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If the recipient of the fringe benefits is a rank (2) Benefits received by employees
and file employee, and the said fringe benefit is pursuant to PD 851 (13th Month Pay
not tax-exempt, then the value of such fringe Decree)
benefit shall be considered as part of the (3) Benefits received by employees not
compensation income of such employee subject covered by PD 851 as amended by
to tax payable by the employee. [Domondon] Memorandum Order No. 28; and,
(4) Other benefits such as productivity
Exclusions incentives and Christmas bonus
(1) Fringe benefit subject to tax
(See Chapter on Gross Income for the Deductions
discussion of Taxable and Non-taxable fringe (1) Personal exemptions and additional
benefits) exemptions (See the Chapter on Deductions
for the full discussion of Personal and
Where the recipient of the fringe benefit is additional exemptions)
not a rank and file employee, and the said (a) Basic Personal Exemptions
benefit is not tax-exempt, then the same According to RA 9504 (effective July 6,
shall not be included in the compensation 2008) basic personal exemption is Fifty
income of such employee subject to tax. The thousand pesos (P50,000) for each
fringe benefit [tax] is instead levied upon the individual taxpayer, regardless whether
employer, who is required to pay. single, married or head of the family.
[Domondon] (b) Additional Exemptions (AE)- depends on
the number of qualified dependent
Convenience of the ER Rule children
If meals, living quarters, and other facilities Amount allowed as a deduction
and privileges are furnished to an employee P25,000 per dependent child, but
for the convenience of the employer, and not to exceed four children (RA 9504)
incidental to the requirement of the (2) Health and hospitalization insurance
employee’s work or position, the value of that (a) Premium Paid on Health or
privilege need not be included as Hospitalization Insurance [Sec.34 (M)]
compensation (Henderson v. Collector (1961)). (b) Amount of premium paid on health
and/or hospitalization by an individual
(2) De minimis benefits taxpayer (head of family or married), for
(a) Facilities or privileges of relatively small himself and members of his family
value furnished by an employer to his during the taxable year.
employees and are as a means of
promoting the health, goodwill, Requisites for Deductibility
contentment, or efficiency of his (1) Insurance must have actually been taken
employees. (2) The amount of premium deductible does not
(b) These are exempt from fringe benefit tax exceed P2,400 per family or P200 per
and compensation income tax. month whichever is lower during the
taxable year.
(3) Bonuses, 13th month pay and other benefits (3) That said family has a gross income of not
and payments specifically excluded from more than P250,000 for the calendar year.
taxable compensation income (4) In case of married individual, only the spouse
(a) Gross benefits received by employees of claiming additional exemption shall be
public and private entities provided that entitled to this deduction.
the total exclusion shall not exceed
P30,000 (amounts in excess are Note: The spouse claiming the additional
considered compensation income) exemptions for qualified dependent children
(b) Benefits include: shall be the same spouse to claim the
(1) Benefits received by government deductions for premium payments.
employees under RA 6686
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(1) INTEREST, ROYALTIES, PRIZES AND OTHER WINNINGS Citizens, NRAETB NRANETB
Residents
(a) Interest from any currency bank deposit 20% 20% 20%
(b) Yield or any other monetary benefit from deposit substitute 20% 20% 20%
(c) Yield or any other monetary benefit from trust funds and 20% 20% 20%
similar arrangements
(d) Royalties, in general (other than royalties described in letter 20% 20% 20%
“e”)
(e) Royalties on books as well as other literary works and 10% 10% 25%
musical compositions
(f) Prizes exceeding P10,000 20% 20% 25%
(g) Other winnings (other than Philippine Charity Sweepstakes 20% 20% 25%
and Lotto winnings)
(h) Interest incomes received from a depositary bank under 7 1/2% Exempt Exempt
expanded foreign currency deposit system Note: NRC
– Exempt
(RR 1-
2011)
(i) Interest income from long-term deposit or investment Exempt Exempt 25%
evidenced by certificates prescribed by BSP. If
preterminatedbefore fifth year, a final tax shall be imposed
based on remaining maturity:
(a) 4 years to less than 5 years 5% 5% 25%
(b) 3 years to less than 4 years 12% 12% 25%
(c) Less than 3 years
20% 20% 25%
(2) CASH AND/OR PROPERTY DIVIDENDS Citizens, NRAETB NRANETB
Residents
(a) Cash and/or property dividends actually or constructively
received from a domestic corp. or from a joint stock co.,
insurance or mutual fund companies and regional operating
headquarters of multinational companies (beginning
January 1, 2000) 10% 20% 25%
(b) Share of an individual in the distributable net income after
tax of a PARTNERSHIP (other than a general professional
partnership) (beginning January 1, 2000)
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(a) For interest from foreign currency loans But should the holder of the certificate pre-
granted by FCDUs to residents other than terminate the deposit or investment before
Offshore Banking Units (OBUs) or other the 5th year, a final tax shall be imposed on
depository banks under the expanded the entire income and shall be deducted and
system – tax rate is 10% if payors are withheld by the depository bank from the
RESIDENTS, whether individuals or proceeds of the long-term deposit or
corporations. investment certificate based on the
remaining maturity thereof:
(b) For interest from foreign currency loans (a) Four (4) years to less than five (5) years -
granted by OBUs to residents other than 5%;
OBUs or local commercial banks, including (b) Three (3) years to less than four (4) years
branches of foreign banks that may be - 12%; and
authorized by the BSP to transact business (c) Less than three (3) years - 20%.
with OBUs - tax rate is 10% if payors are
RESIDENTS, whether individuals or (2) Any income of nonresidents, whether
corporations. individuals or corporations, from transactions
with depository banks under the expanded
(c) Gross income from all sources within the system shall be exempt from income tax.
Philippines derived by non-resident
cinematographic film owners, lessors or TAXATION OF CAPITAL GAINS
distributors – tax rate is 25% if payee is: (a)
non-resident alien individual, or (b) non- Income from sale of shares of stock of a
resident foreign corporation. The term Philippine corporation
“cinematographic films” includes motion
picture films, films, tapes, discs and other Shares traded and listed in the stock exchange –
such similar or related products. exempt
(d) Informer’s reward given to persons who The transaction is exempt from income tax
voluntarily provide definite and sworn regardless of the nature of business of the
information that lead to or was seller or transferor. However, it is subject to
instrumental in the discovery of fraud or the one-half of one percent (1/2 of 1%) stock
violation of the provisions of the NIRC or transaction tax imposed under Sec. 127(A) of
special laws being administered by the BIR the Tax Code based on the gross selling price
and resulted in the actual recovery or or gross value in money of the shares of stock
collection of revenues, surcharges and fees sold or transferred.
and/or the conviction of the guilty party or
parties, and/or the imposition of any fine or Shares not listed and traded in the stock
penalty or the actual collection of a exchange – subject to final tax
compromise amount, in case of amicable On sale, barter, exchange or other disposition of
settlement, shall be subject to income tax, shares of stockof a domestic corporation not
collected as a final withholding tax, at the listed and traded through a local stock exchange,
rate of 10%, pursuant to Sec. 282 of the held as a capital asset:
NIRC (RR 16-2010).
On the net capital gain:
Passive income not subject to tax (1) Not over P100,000 = Final Tax of 5%
(1) Interest income from long-term deposit or (2) On any amount in excess of P100,000 =
investment in the form of savings, common or plus Final Tax of 10% on the excess
individual trust funds, deposit substitutes,
investment management accounts and other
investments evidenced by certificates in such
form prescribed by the BSP shall be exempt
from tax
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(2) At 30% corporate income tax, if the seller is a Summary Tables of Rates
corporation. (Tables include NRAETB and NRANETB)
(a) Rule: Capital gain/loss is recognized in
full. Section 24(C).Capital Gains Tax from Sale of
Shares of Stock of a domestic corporation NOT
Capital assets shall refer to all real properties TRADED in the Stock Exchange
held by a taxpayer, whether or not connected RES/CIT NRAETB NRANETB
with his trade or business, and which are not Tax base:
included among the real properties considered Net Capital
as ordinary assets under Section 39(A)(1) of the Gain
NIRC. Tax rate: 5% 5% 5%
Not over 10% 10% 10%
Ordinary assets shall refer to all real properties P100,000
specifically excluded from the definition of
capital assets under Section 39(A)(1) of the Amount in
NIRC, namely: excess of
P100,000
(1) Stock in trade of a taxpayer or other real
property of a kind which would properly be Section 24(D).Capital Gains Tax from Sale of
included in the inventory of the taxpayer if Real Property Classified as Capital Asset
on hand at the close of the taxable year; or RES/CIT NRAETB NRANETB
(2) Real property held by the taxpayer primarily Tax base:
for sale to customers in the ordinary course Gross selling
of his trade or business; or price or
(3) Real property used in trade or business (i.e., current fair
buildings and/or improvements) of a market
character which is subject to the allowance value,
for depreciation provided for under Sec. whichever is
34(F) of the Code; or higher
(4) Real property used in trade or business of Tax rate: 6% 6% 6%
the taxpayer.
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Resident Non-Resident
CITIZEN ALIEN CITIZEN NRAETB NRANETB
Category of Income
All Within the Within the Within the Within the
sources Philippines Philippines Philippines Philippines
(1) Compensation / Business /
Profession GIW – 25%
Based on Taxable (i.e, Net) Income
(2) Prizes of P10,000 or less Schedular Income Tax Rates (Sec. 24, NIRC)
(i.e, 5% to 32%) Not
Applicable
(3) Interest from any currency bank
deposit , etc., Royalties (other than
from books, literary works and
Gross Income Within the Philippines (GIW) – 20%
musical compositions), Winnings /
Final Withholding Tax
Prizes (except prizes P10,000 and
below)
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Illustration.—
A domestic corporation had the following data on computations of the normal tax (NT) and the
minimum corporate income tax (MCIT) for five years.
Yr 4 Yr 5 Yr 6 Yr 7 Yr 8
MCIT 80K 50K 30K 40K 35K
NT 20K 30K 40K 20K 70K
From Year 5
From Year 7
Arrow pointing downward means that the normal tax is higher so that there can be an excess MCIT
carry-forward against it.
*Cannot carry forward an amount higher than the NT, hence the excess of 60K from Year 4 was reduced
to 40K. The unused P20,000 cannot be used in Year 8 because Year 8 was beyond three years from Year
4.
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RELIEF FROM THE MCIT UNDER CERTAIN The election of the gross income tax option by
CONDITIONS (SEC. 27 (E ), NIRC) the corporation shall be irrevocable for three (3)
The Secretary of Finance, upon the consecutive taxable years during which the
recommendation of the Commissioner, may corporation is qualified under the scheme.
suspend the imposition of the MCIT upon
submission of proof by the applicant- For purposes of gross income tax, gross income
corporation that the corporation sustained should be the same as gross income for
substantial losses on account of the following purposes of MCIT in cases of trading,
(LMB): merchandising and manufacturing concern
(1) Prolonged labor dispute (losses from a strike business. However, for service enterprises, gross
staged by employees that lasts for more income means gross receipts less sales returns,
than 6 months and caused the temporary discounts, allowances and cost of services.
shutdown of operations), or
(2) Force majeure (acts of God and other Note: At present, the OGIT has not been
calamity; includes armed conflicts like war implemented in the Philippines.
or insurgency), or
(3) Legitimate business reverses (substantial CORPORATIONS EXEMPT FROM THE MCIT:
losses due to fire, robbery, theft or other ( BIPTENG)
economic reasons). (1) Banks and other non-bank financial
intermediaries;
Optional Gross Income Tax (OGIT).— (2) Insurance companies;
Section 27 (A) of the NIRC provides for an (3) Publicly-held corporations;
optional gross income tax of 15% based on (4) Taxable partnerships;
gross income. The President, upon the (5) General professional partnerships;
recommendation of the Secretary of Finance, (6) Non- taxable joint ventures; and
may, effective January 1, 2000, allow domestic (7) Enterprises that are registered:
corporations the option to be taxed at fifteen (a) with the Philippine Economic Zone
percent (15%) of gross income as defined Authority (PEZA) under R.A. 7916;
therein, after the following conditions have been (b) pursuant to the Bases Conversion and
satisfied: Development Act of 1992 under R.A.
7227; and
Tax effort ratio 20% of GNP (c) under special economic zones declared by
Ratio of Income Tax collection 40% law which enjoy payment of special tax
to total tax revenues rate on their registered operations or
VAT tax effort 4% of GNP activities in lieu of other taxes, national or
Ratio of Consolidated Public 0.90% local.
Sector Financial Position
(CPSFP) to GNP Note: Words in regular letters are found in Sec.
29(B)(2) of the NIRC. Words in italics are
Ratio of the Corporation’s Cost Does not additions made by the revenue regulation to
of Sales to Gross Sales exceed 55% consolidate Sec. 29 with other pertinent laws.
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ALLOWABLE DEDUCTIONS Capital gains from the sale of shares of stock not
traded in the stock exchange
Itemized deductions On sale, barter, exchange or other disposition of
(1) Bad debts shares of stock of a domestic corporation not
(2) Expenses listed and traded through a local stock exchange,
(3) Losses held as a capital asset:
(4) Taxes
(5) Depreciation
On the net capital gain:
(6) Interest
(7) Depletion of oil and gas wells and mines (a) First P100,000: Final Tax of 5%
(8) Charitable and other contributions (b) On any amount in excess of P100,000: plus
(9) Research and development 10% Final tax on the excess
(10 Pension trusts
Income derived from depository bank under the
Optional standard deduction expanded foreign currency deposit system
(a) Before RA 9504, effective July 6, 2009, OSD Under the expanded foreign currency deposit
only applied to individuals except non-resident system (EFCDS) - 7.5%
aliens.
(b) But by virtue of RA 9504, it now also applies to
Inter-corporate dividends
corporations, except non-resident foreign
corporation. Dividends received from another domestic
(c) Moreover, the rate was increased from 10% to corporation - exempt
40%.
Capital gains realized from the sale, exchange,
TAXATION OF PASSIVE INCOME or disposition of lands and/or buildings
On the sale, exchange or disposition of lands
PASSIVE INCOME SUBJECT TO TAX and/or buildings which are not actually used in
Note: (1) and (5) below are more appropriate for the business of a corporation and are treated as
the next section. The SC Syllabus, however, capital assets On the gross selling price, or
included both in this section the current fair market value at the time of the
sale, whichever is higher, a final tax of 6%
Passive income subject to tax: (a) Note: Tax treatment is the same as that of
(1) Interest from deposits and yield or any other individuals.
monetary benefit from deposit substitutes (b) The capital gains tax is applied on the gross
and from trust funds and similar selling price, or the current fair market value
arrangements and royalties at the time of the sale, whichever is higher.
(2) Capital gains from the sale of shares of stock Any gain or loss on the sale is immaterial
not traded in the stock exchange because there is a conclusive presumption
(3) Income derived from depository bank under by law that the sale resulted in a gain.
the expanded foreign currency deposit
system PASSIVE INCOME NOT SUBJECT TO TAX
(4) Inter-corporate dividends (a) Income derived by a depository bank under
(5) Capital gains realized from the sale, the expanded foreign currency deposit
exchange, or disposition of lands and/or system from foreign currency transactions
buildings with nonresidents, offshore banking units in
the Philippines, local commercial banks,
Interest from deposits and yield or any other including branches of foreign banks that
monetary benefit from deposit substitutes and may be authorized by the Bangko Sentral
from trust funds and similar arrangements and ng Pilipinas (BSP) to transact business with
royalties foreign currency depository system units
On any currency bank deposit, yield or any other and other depository banks under the
monetary benefit from deposit substitutes, trust expanded foreign currency deposit system
funds and similar arrangements - 20% shall be exempt from income exempt from
income tax
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FOR INSTRUMENTALITIES AND AGENCIES Definition of “doing business” under the Foreign
OF GOVERNMENT: Investment Act of 1991
General Rule: The government is exempt from The phrase "doing business" shall include
tax. soliciting orders, service contracts, opening
offices, whether called "liaison" offices or
Exception: When it chooses to tax itself. Nothing branches; appointing representatives or
can prevent Congress from decreeing that even distributors domiciled in the Philippines or who
instrumentalities or agencies of the government in any calendar year stay in the country for a
performing governmental functions may be period or periods totaling one hundred eighty
subject to tax. Where it is done precisely to [180] days or more; participating in the
fulfilfulfill a constitutional mandate and management, supervision or control of any
national policy, no one can doubt its wisdom. domestic business, firm, entity or corporation in
[Mactan Cebu Airport v Marcos, 1996] the Philippines; and any other act or acts that
imply a continuity of commercial dealings or
If the taxing authority is the local gov’t unit arrangements and contemplate to that extent
RA 7160 expressly prohibits LGUs from levying the performance of acts or works, or the exercise
tax on the Nat’l Gov’t, its agencies and of some of the functions normally incident to,
instrumentalities and other LGUs. and in progressive prosecution of commercial
gain or of the purpose and object of the
TAXATION OF RESIDENT business organization: Provided, however, That
the phrase "doing business" shall not be
FOREIGN CORPORATIONS deemed to include mere investment as a
shareholder by a foreign entity in domestic
GENERAL RULE
corporations duly registered to do business,
A resident foreign corporation is a corporation
and/or the exercise of rights as such investor;
organized under the laws of a foreign country,
nor having a nominee director or officer to
which is engaged in trade or business in the
represent its interests in such corporation; nor
Philippines.
appointing a representative or distributor
(a) A Philippine branch of a foreign corporation
domiciled in the Philippines which transacts
duly licensed by the SEC is considered a
business in its own name and for its own
resident foreign corporation. Thus, only the
account; [Sec. 3 (d)]
income of the Philippine branch from sources
within the Philippines is subject to Philippine
income tax.
WITH RESPECT TO THEIR INCOME
(b) Marubeni v. Commissioner: As general rule, FROM SOURCES WITHIN THE
the head office of a foreign corporation is PHILIPPINES
the same juridical entity as its branch in the Resident foreign corporations are subject to any
Philippines following the single entity or some of the following:
concept. Thus, the income from sources (1) Capital Gains Tax
within the Phils. of the foreign head office (2) Final Tax on Passive Income
shall thus be taxable to the Philippine (3) Normal Tax [OR] Minimum Corporate
branch. Income Tax (MCIT) [OR] Gross Income Tax
(GIT)
But, when the head office of a foreign (4) Branch Profit Remittance Tax
corporation independently and directly invested
in a domestic corporation without the funds MINIMUM CORPORATE INCOME TAX
passing through its Philippine branch, the The discussion with respect to this topic (income
taxpayer, with respect to the tax on dividend subject to normal tax, MCIT, or GIT) under the
income, would be the non-resident foreign subheading of domestic corporations is equally
corporation itself anditselfand the dividend applicable to resident foreign corporations, both
income shall be subject to the tax similarly as to concepts and computations, except that
imposed on non-resident foreign corporations.
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RFCs are taxed only on income from sources (3) Branch profits remittances
within the Philippines. (4) Regional or area headquarters and regional
(a) Normal Corporate Income Tax Rate30% of operating headquarters of multination
net taxable income from sources within the companies
Philippines [RA 9337]
(b) Minimum Corporate Income Tax (MCIT)2% (NOTE: Expressly excluded as indicated in the SC
of MCIT Gross Income from sources within Syllabus. The following discussion is for
the Philippines. The MCIT is imposed on information purposes)
RFCs underRFCsunder the same conditions
as domestic corporations. [Sec. 28(A)(2)] International carrier
(c) Gross Income Tax (GIT) The President, Tax Rate and Base – 2.5% on Gross Philippine
upon the recommendation of the Secretary Billings (GPB)
of Finance, may allow resident foreign
corporations the option to be taxed at What is GPB.—
fifteen percent (15%) of gross income within In the case of International Air Carriers, GPB
the Philippines, under the same conditions refers to the amount of:
as domestic corporations. [Sec. 28(A)(1)] (a) gross revenue derived from carriage of
persons, excess baggage, cargo and mail
TAX ON CERTAIN INCOME originating from the Philippines in a
continuous and uninterrupted flight,
Interest from deposits and yield or any other irrespective of the place of sale or issue and
monetary benefit from deposit substitutes, trust the place of payment of the ticket or
funds and similar arrangements and royalties passage document
On any currency bank deposit, yield or any other (b) gross revenue from tickets revalidated,
monetary benefit from deposit substitutes, trust exchanged and/or indorsed to another
funds and similar arrangements – Final tax of international airline if the passenger boards
20% a plane in a port or point in the Philippines
(c) for flights which originate from the
Income derived from a depository bank under the Philippines, but transshipment of passenger
expanded foreign currency deposit system takes place at any port outside the
Under the expanded foreign currency deposit Philippines on another airline, the gross
system (EFCDS) – Final tax of 7.5% revenue consisting of only the aliquot
portion of the cost of the ticket
Capital gain from sale of shares of stock not corresponding to the leg flown from the
traded in the stock exchange Philippines to the point of transhipment
On sale, barter, exchange or other disposition of transshipment[RR 15-2002]
shares of stock ofstockof a domestic corporation
not listed and traded through a local stock Air Canada vs. CIR (CTA Case No. 6572):
exchange, held as a capital asset: (a) A foreign airline company selling tickets in
the Philippines through their local agents
On the net capital gain: shall be considered as resident foreign
(a) First P100,000: Final Tax of 5% corporation engaged in trade or business in
(b) On any amount in excess of P100,000: plus the country.
10% Final tax on the excess (b) The absence of flight operations within the
Philippine territory cannot alter the fact that
Intercorporate dividends the income received was derived from
Dividends received from a domestic corporation activities within the Philippines.
liable to tax under the NIRC- exempt (c) The test of taxability is the source, and the
source is that activity which produced the
Exclude: income.
(1) International carrier
(2) Offshore banking units
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In the case of International Shipping, GPB Income not treated as branch profits unless
means: effectively connected with the conduct of trade
Gross revenue whether for passenger, cargo or or business in the Philippines:
mail originating from the Philippines up to final (1) Interests, dividends, rents, royalties
destination, regardless of the place of sale or remuneration for technical services
payments of the passage or freight documents. (2) salaries, wages premiums, annuities,
emoluments
Offshore banking units (3) other fixed or determinable annual, periodic
or casual gains, profits, income
Coverage of the Rule.— (4) capital gains received during each taxable
Only income derived by offshore banking units year from all sources within the Philippines
from foreign currency transactions with:
Notes:
(1) non-residents,
(a) imposed whether the head office of the
(2) other offshore banking units
foreign corporation is located in a tax treaty
(3) local commercial banks including branches
country, in a tax haven or other non-treaty
of foreign banks that may be authorized by
country.
the BangkoSentralngPilipinas (BSP) to
(b) imposed only on the profits remitted by a
transact business with offshore banking
Philippine branch to the head office of a
units
foreign corporation.
Tax Rate.—
Regional or area headquarters and Regional
Exempt from all taxes, except net income from
operating headquarters of multinational
such transactions as may be specified by the
companies
Secretary of Finance, upon recommendation by
Regional or area headquarters: not subject to
the Monetary Board to be subject to the regular
income tax
income tax payable by banks
Regional or area headquarters: a branch
Exception: Interest income derived from foreign established in the Philippines by multinational
currency loans granted to residents other than companies and which headquarters do not earn
offshore banking units or local commercial or derive income from the Philippines and which
banks, including local branches of foreign banks act as supervisory, communications and
that may be authorized by the BSP to transact coordinating center for their affiliates,
business with offshore banking units, shall be subsidiaries, or branches in the Asia-Pacific
subject only to a final tax at the rate of 10%. Region and other foreign markets.
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TAX ON CERTAIN INCOME (3) Rentals, charter and other fees payable to
non-resident owner or lessor of aircraft
Interest on foreign loans machineries and other equipment
(a) on foreign loans contracted on or after Final tax of 7.5% of gross rentals or fees
August 1, 1986 – 20%
(b) under the expanded foreign currency deposit
system (EFCDS) - exempt
Intercorporate dividends
(a) (Intercorporate Dividend) – 15%, as long as
the country in which the nonresident foreign
corporation is domiciled allows a tax credit
for taxes “deemed paid” in the Philippines
equivalent to at least15%
(b) 15% represents the difference between the
regular income tax of 30% on corporations
and the 15% tax on dividends (“tax sparing
credit”)
(c) If the country within which the NRFC is
domiciled does NOT allow a tax credit, a
final withholding tax at the rate of30% is
imposed on the dividends received from a
domestic corporation.
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Tax
Type of Corporation Tax Base
Rate
Domestic Corporations
Proprietary Educational Institutions and Hospitals
Taxable Income from all sources 10%
(Non-profit)
Depository Banks (Foreign Currency Deposit Units)
(1) With respect to income derived under the expanded Exempt (except that net income
foreign currency deposit system from certain from such transactions is subject -
foreign currency transactions to the regular income tax payable
(2) With respect to interest income from foreign by banks)
currency loans to residents other than offshore
units in the Philippines or other depository banks Amount of interest income 10%
under the expanded system
Resident Foreign Corporations
International Carriers Gross Philippine Billings 2.5%
Offshore Banking Units
(1) With respect to income derived by offshore Exempt (except that net income
banking units from certain foreign currency from such transactions is subject -
transactions to the regular income tax payable
(2) With respect to interest income derived from by banks)
foreign currency loans granted to residents other
than offshore banking units or local commercial Amount of interest income 10%
banks
Resident Depository Bank (Foreign Currency Deposit
Units) Exempt (except that net income
(1) With respect to income derived under the from such transactions is subject -
expanded foreign currency deposit system from to the regular income tax payable
certain foreign currency transactions by banks)
(2) With respect to interest income from foreign
currency loans to residents other than offshore
Amount of interest income 10%
units in the Philippines or other depository banks
under the expanded system
Regional or Area Headquarters Exempt -
Regional Operating Headquarters of Multinational Taxable Income from within the
10%
Companies Philippines
Non-resident Foreign Corporations [EXCLUDED]
Non-resident cinematographic film owners, lessors or Gross Income from the Philippines
25%
distributors
Non-resident Owner or Lessor of Vessels Chartered by Gross Rentals, Lease and Charter
4.5%
Philippine Nationals Fees from the Philippines
Non-resident Owner or Lessor of Aircraft, Machineries Gross Rentals, Charges and Fees
7.5%
and Other Equipment from the Philippines
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(1) Stock Not Owned by Individuals. - Stock Determination of Reasonable Needs of the
owned directly or indirectly by or for a Business:
corporation, partnership, estate or trust An accumulation of earnings or profits
shall be considered as being owned (including undistributed earnings or profits of
proportionately by its shareholders, partners prior years) is unreasonable if it is not necessary
or beneficiaries. for the purpose of the business, considering all
(2) Family and Partnership Ownership. - An the circumstances of the case.
individual shall be considered as owning
the stock owned, directly or indirectly, by or To determine the “reasonable needs” of the
for his family, or by or for his partner. business in order to justify an accumulation of
earnings, the Regulations adhere to the so-
For purposes of this paragraph, the ‘family of an called “Immediacy Test” under American
individual’ includes his brothers or sisters jurisprudence as adopted in this jurisdiction.
(whether by whole or half-blood), spouse, Accordingly, the term “reasonable needs of the
ancestors and lineal descendants. business” means the immediate needs of the
business, including reasonably anticipated
(3) Option to Acquire Stocks. - If any person has needs. In either case, the corporation should be
an option to acquire stock, such stock shall able to prove: (a) an immediate need for the
be considered as owned by such person. accumulation of the earnings and profits, or (b)
the direct correlation of anticipated needs to
For purposes of this paragraph, an option to such accumulation of profits. Otherwise, such
acquire such an option and each one of a accumulation would be deemed to be not for
series of option shall be considered as an the reasonable needs of the business, and the
option to acquire such stock. penalty tax would apply.
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(6) If the partnership sustains a net operating In the operation of the withholding tax system,
loss, the partners shall be entitled to deduct the payee is the taxpayer, the person on whom
their respective shares in the net operating the tax is imposed, while the payor, a separate
loss from their individual gross income. entity, acts no more than an agent of the
government for the collection of the tax in order
GPP is not a taxable entity to ensure its payment. The amount thereby
(1) The GPP is deemed to be no more than a used to settle the tax liability is deemed sourced
mere mechanism or a flow-through entity in from the proceeds constitutive of the tax base.
the generation of income by, and the In an ad valorem tax, the tax paid or withheld is
ultimate mechanism distribution of such not deducted from the tax base, except when
income to the individual partners. [Tan v. the law clearly spells out in defining the tax
Commissioner, Oct. 3, 1994] base.
(2) But the partnership itself is required to file
income tax returns for the purpose of The duty to withhold is different from the duty
furnishing information as to the share in the to pay income tax. The revenue officers
gains or profits which each partner shall generally disallow the expenses claimed as
include in his individual return. (RR 2- 1998) deduction from gross income, if no withholding
(3) The share of an individual partner in the net of tax as required by law or the regulations was
profit of a general professional partnership withheld and remitted to the BIR within the
is deemed to have been actually or prescribed dates.
constructively received by the partner in the
same taxable year in which such partnership In addition, the withholding tax that should
net income was earned, and shall be taxed have been withheld and remitted to the BIR as
to them in their individual capacities, well as the penalties for non-, late or erroneous
whether actually distributed or not, at the payment of the withholding tax such as
graduated income tax ranging from 5% to surcharges and deficiency interest are assessed
32%. by the BIR. [Mamalateo]
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All income payments which are required to be (h) In cases covered by substituted filing, to
subjected to withholding tax shall be subject to furnish each employee with the original
the corresponding withholding tax rate to be copy of Certificate of Compensation/Tax
withheld by the person having control over the Withheld (BIR Form No. 2316) and submit
payment and who, at the same time, claims the to the BIR the duplicate copy not later than
expenses. [RR 30-2003] February 28 following the close of the
calendar year.
Duties and Obligations of the Withholding Agent
(a) To Register - withholding agent is required Withholding agents shall require all individuals
to register within ten (10) days after and entities claiming exemption from
acquiring such status with the Revenue imposition of taxes on income and,
District office having jurisdiction where the consequently, from withholding taxes to provide
business is located a copy of a valid, current and subsisting tax
(b) To Deduct and Withhold - withholding agent exemption certificate or ruling, as per existing
is required to deduct tax from all money administrative issuances and any issuance that
payments subject to withholding tax may be issued from time to time, before
(c) To Remit the Tax Withheld - withholding payment of the related income. The withholding
agent is required to remit tax withheld at agent’s failure to withhold notwithstanding the
the time prescribed by law and regulations lack of tax exemption certificate or ruling shall
(d) To File Annual Return - withholding agent is cause the imposition of penalties under Section
required to file the corresponding Annual 251 and other pertinent Sections of the 1997 Tax
Information Return at the time prescribed Code. [RMC No. 8-2014]
by law and regulations
(e) To Issue Withholding Tax Certificates - KINDS
withholding agent shall furnish Withholding Withholding of final tax of certain incomes
Tax Certificates to recipient of income Subject to rules and regulations the Secretary of
payments subject to withholding [Available, Finance may promulgate, upon the
BIR Website] recommendation of the Commissioner,
(f) To submit an alphabetical list of employees requiring the filing of income tax return by
and list of payees on income payments certain income payees, the tax imposed or
subject to creditable and final withholding prescribed by specific section of the NIRC on
taxes which are required to be attached as specified items of income shall be withheld by
integral part of the Annual Information payor-corporation and/or person and paid in
Returns (BIR Form No. 1604-CF/1604-E) the same manner and subject to the same
and Monthly Remittance Returns (BIR Form conditions as provided in Section 58 of the
No. 1601-C, etc.). [RR No. 1-2014, as clarified NIRC.
by RMC No. 5-2014]
(g) For hospitals and clinics, to submit the Withholding of creditable tax at source
names and addresses of medical The Secretary of Finance may, upon the
practitioners in the following classifications, recommendation of the Commissioner, require
every 15th day after the end of each the withholding of a tax on the items of income
calendar quarter, to the Collection Division payable to natural or juridical persons, residing
of the Revenue Region for non-large in the Philippines, by payor-corporation/persons
taxpayers and at the Large Taxpayers as provided for by law, at the rate of not less
Document Processing and Quality than one percent (1%) but not more than thirty-
Assurance Division (LTDP&QAD) in the two percent(32%), which shall be credited
National Office or Large Taxpayers District against the income tax liability of the taxpayer
Office (LTDO) in the Region for large for the taxable year.
taxpayers, where such hospital or clinic is
registered, using the prescribed format. [RR
No. 14-2013]
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sales based on the gross selling price or (10) Fringe Benefits Granted to the Employee
fair market value as determined in (except Rank and File)
accordance with Sec. 6(E) of the NIRC,
whichever is higher Goods, services or other benefits furnished
(8) Income Payments to a Resident Foreign or granted in cash or in kind by an employer
Corporation to an individual employee (except rank and
(a) Offshore Banking Units file) such as but not limited to the following:
(b) Tax on branch Profit Remittances (a) Housing
(c) Interest on any currency bank deposits (b) Vehicle of any kind
and yield or any other monetary benefit (c) Interest on loans
from deposit substitute and from trust (d) Expenses for foreign travel
funds and similar arrangements and (e) Holiday and vacation expenses
royalties derived from sources within (f) Educational assistance to employees or
the Philippines his dependents
(d) Interest income on FCDU (g) Membership fees, dues and other
(e) Income derived by a depository bank expense in social and athletic clubs or
under the expanded foreign currency other similar organizations
deposits system from foreign currency - Health insurance
transactions with local commercial (h) Informers Reward
banks
(9) Income Derived from all Sources Within the CREDITABLE WITHHOLDING TAX
Philippines by a Non-Resident Foreign Taxes withheld on certain income payments are
Corporation intended to equal or at least approximate the
(a) Gross income from all sources within tax due of the payee on the income. The income
the Philippines such as interest, recipient is still required to file his income tax
dividends, rents, royalties, salaries, return as prescribed in Section 51 of the NIRC,
premiums (except re-insurance wither to report the income and/or pay the
premiums), annuities, emoluments or difference between the tax withheld and the tax
other fixed determinable annual, due on the income.
periodic or casual gains, profits and
income or capital gains Expanded Withholding Tax
(b) Gross income from all sources within (a) a kind of withholding tax which is prescribed
the Philippines derived by a non- on certain income payments and is
resident cinematographic film owner, creditable against the income tax due of the
lessor and distributor payee for the taxable quarter/year in which
(c) On the gross rentals, lease and charter the particular income was earned.
fees derived by a non-resident owner or (b) An income payment is subject to the
lessor of vessels from leases or charters expanded withholding tax if the following
to Filipino citizens or corporations as conditions concur:
approved by the Maritime Industry (i) An expense is paid or payable by the
Authority taxpayer, which is income to the
(d) On the gross rentals, charter and other recipient thereof subject to income tax;
fees derived by a non-resident lessor of (ii) The income is fixed or determinable at
aircraft, machineries and other the time of payment;
equipment (iii) The income is one of the income
(e) Interest on foreign loans contracted on payments listed in the regulations that
or after August 1, 1986 is subject to withholding tax;
(iv) The income recipient is a resident of the
Philippines liable to income tax; and
(v) The payor-withholding agent is also a
resident of the Philippines.
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TIMING OF WITHHOLDING
The obligation of the payor to deduct and
withhold the tax arises at the time an income
payment is paid or payable, or the income
payment is accrued or recorded as an expense
or asset, whichever is applicable, in the payor’s
books, whichever comes first. The term
“payable” refers to the date the obligation
becomes due, demandable or legally
enforceable.
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GROSS ESTATE AND NET CIR v Fisher (1961): For the reciprocity rule to
apply, there must be TOTAL reciprocity. [For
ESTATE instance,] the reciprocity rule will not apply if
California imposes only the inheritance tax
GROSS ESTATE while the Philippines imposes both estate and
Sec. 104, NIRC. DEFINITIONS. For purposes of inheritance taxes. Reciprocity has to be total.
this Title, the terms “gross estate” and “gifts”
include real and personal property, whether Collector v. Campos-Rueda (1971); Collector v
tangible or intangible, or mixed, wherever Lara (1958): Reciprocity in exemption does not
situated x x x require the “foreign country” to possess
international personality in the traditional sense
The gross estate of a decedent who is a citizen (i.e., compliance with the requisites of
or resident alien includes the following, statehood). Thus, Tangier, Morocco and
wherever these may be situated: California, a state in the American Union were
(1) Real Property held to be foreign countries within the meaning
(2) Personal Property of Section 104.
(a) Intangible
(b) Tangible Collector v Lara (1958): When the owner of
(3) Mixed personal property, during his lifetime, extended
his activities with respect to his interests so as to
For a non-resident decedent who is not a avail himself of the protection and benefits of the
Filipino citizen at the time of his death, his real laws of the Philippines, so as to bring his person
and personal property situated outside the or property within the reach of the Philippines,
Philippines shall not be included as part of his the reason for a single place of taxation no longer
gross estate. Thus, only the following are obtains. His property in the Philippines enjoys
included in the gross estate: the protection of the government so that the
(1) Real property in the Philippines right to collect the estate tax cannot be
(2) Tangible personal property in the questioned.
Philippines
(3) Intangible personal property in the INTANGIBLE PROPERTIES WHICH ARE
Philippines, unless excluded under the CONSIDERED SITUATED IN THE
reciprocity rule PHILIPPINES
(1) Franchise which must be exercised in the
RECIPROCITY RULE Philippines
There is reciprocity if the foreign country of (2) Shares, obligations or bonds issued by any
which the decedent was a citizen and resident corporation or sociedad anonima organized
at the time of his death: or constituted in the Philippines in
(a) Did not impose a transfer tax of any accordance with its laws
character, in respect of intangible personal (3) Shares, obligations or bonds issued by any
property of citizens of the Philippines not foreign corporation 85% of the business of
residing in that foreign country; OR which is located in the Philippines
(b) Allowed a similar exemption from transfer (4) Shares, obligations or bonds issued by any
tax in respect of intangible personal property foreign corporation if such shares,
owned by citizens of the Philippines not obligations or bonds have acquired a
residing in that country business situs in the Philippines
(5) Shares or rights in any partnership, business
Note: In sum, both states must exempt or industry established in the Philippines
nonresidents (citizens of the other state) from [Sec. 104, NIRC]
transfer taxes in respect of intangible personal
property.
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For shares of stocks, the following rules apply: (b) Personal property (tangible or intangible)
(1) Unlisted common shares – valued based wherever situated
on their book value. In determining the (2) As to non-resident alien
book value of common shares, appraisal (a) Real property in the Philippines
surplus shall not be considered as well as (b) Tangible personal property in the
the value assigned to preferred shares, if Philippines
there are any. (c) Intangible personal property in the
(2) Unlisted preferred shares – valued at par Philippines, unless excluded on the basis
value of reciprocity under Section 104 NIRC (see
(3) Listed shares – FMV shall be based on the above)
arithmetic mean between the highest and
lowest quotation on the date of death. If ITEMS TO BE INCLUDED IN GROSS
none is available, then on the date ESTATE
nearest the date of death.
DECEDENT’S GROSS ESTATE
For right to usufruct, use or habitation, as well (1) Property owned by the decedent actually and
as that of annuity, the probable life of the physically present in his estate at the time of
beneficiary in accordance with the latest basic his death;
standard mortality table shall be taken into (2) Decedent’s interest;
account. (3) Properties not physically in the estate, such
as:
NET ESTATE is determined by deducting the (a) Transfers in contemplation of death [Sec.
following from the gross estate of the decedent: 85(B), NIRC];
In case of a citizen or a resident: (b) Transfers with retention or reservation of
(1) Expenses, losses, indebtedness, and taxes; certain rights [Sec. 85(B), NIRC];
(2) Properties previously taxed; (c) Revocable transfers [Sec. 85(C), NIRC];
(3) Transfers for public use; (d) Property passing under general power of
(4) The family home; appointment [Sec. 85(D), NIRC];
(5) Standard deduction; (e) Transfers for insufficient consideration
(6) Medical expenses; [Sec. 85(G), NIRC];
(7) Amount received by heirs under RA 4917; (f) Proceeds of life insurance [Sec. 85(E),
NIRC];
In case of a nonresident foreign individual: (g) Claims against insolvent persons; and
Expenses, losses, indebtedness, and taxes; (h) Capital of the surviving spouse [Sec.
Properties previously taxed; 85(H), NIRC].
Transfers for public use;
Property Owned by the Decedent Actually
The net share of the surviving spouse in the and Physically Present in His Estate at the
conjugal partnership property as diminished by Time of Death
the obligations properly chargeable to such Land, buildings, shares of stock, vehicles, bank
property shall be deducted from the net estate deposits, etc.
of the decedent [Sec. 86, NIRC].
Decedent’s Interest
COMPOSITION OF THE GROSS Decedent’s interest refers to the extent of equity
ESTATE or ownership participation of the decedent on
The following properties, rights and interests any property physically existing and present in
are included in the gross estate at the time of the gross estate, whether or not in his
the decedent’s death: possession, control or dominion; also refers to
(1) As to resident (citizen or alien) or citizen the value of any interest in property owned or
(resident or non-resident) possessed by the decedent at the time of his
(a) Real property wherever situated death (interest having value or capable of being
value or transferred. [cf. Sec. 85(A), NIRC]
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Examples: dividends declared before his death Exception: Bona fide sale for an adequate and
but received after death; partnership profits full consideration.
which have accrued before his death.
Illustration:
Properties Not Physically in the Estate X transfers his property to Y in naked ownership
These have already been transferred during the and to Z in usufruct throughout Z’s lifetime
lifetime of the decedent but are still subject to subject to the condition that if Z predeceases X,
payment of estate tax), such as the following: the property shall return to X. If X dies during
Z’s life, the value of the reversionary interest of
Transfers in Contemplation of Death X at death is includible in his gross estate (see
The transfers referred to are those where the Articles 756-757 of the Civil Code). The transfer
motivating factor or controlling motive is the is taxable as intended to take effect at or after
thought of death, regardless of whether the death because the possibility of reversion to X
transferor was near the possibility of death or makes Z’s interest conditional as long as X lives.
not. Note: There is no transfer in contemplation
of death when the transfer of property is a bona Revocable Transfers
fide sale for an adequate and full consideration Decedent’s transfer of any interest by trust or
in money or money’s worth [Sec. 85(B), NIRC]. otherwise, where the enjoyment thereof was
subject at the date of his death to any change
US v Wells (1931): The mere fact that death through the exercise of power by the decedent
ensues even shortly after the gift does not ALONE or by the decedent IN CONJUNCTION
determine absolutely that it is in contemplation WITH ANY OTHER person, to alter, amend,
of death. The question, necessarily, is as to the revoke, or terminate such transfer, OR where
state of mind of the donor. Furthermore, it is the such power which would bring the property in
contemplation of death, not necessarily the taxable estate is relinquished in
contemplation of imminent death, to which the contemplation of the decedent’s death [Sec.
statute refers. 85(C )(1), NIRC].
Transfers with retention or reservation of certain Exception: Bona fide sale for an adequate and
rights full consideration.
It involves cases where the owner transfers his
property his lifetime but still retains economic The power to alter, amend or revoke shall be
benefits during his life or for any period which considered to exist on the date of the
does not in fact end before his death. decedent’s death EVEN THOUGH:
The rights retained or reserved include: (a) The exercise of the power is subject to a
(1) The possession or enjoyment of the precedent giving of notice, or
property; The alteration, amendment or revocation takes
(2) The right to the income from the property; effect only on the expiration of a stated period
or after the exercise of the power, whether or not
(3) The right, either alone or in conjunction with on or before the date of the decedent’s death
any person, to designate the person who notice has been given or the power has been
shall possess or enjoy the property or the exercised.
income therefrom.
By reason of the restriction or encumbrance, the If notice has not been given or the power has
transferee is incapable of freely enjoying and not been exercised before the date of his death,
disposing of the property until the transferor’s such notice shall be considered to have been
death, and the transfer may be regarded as given, or the power exercised, on the date of his
having been intended to take effect in death.
possession or enjoyment at the transferor’s
death.
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Property Passing under General Power of Two Kinds of Appointment and their Effects:
Appointment General Special
Power of appointment refers to the right to
designate the person or persons who will As to nature. — DONEE DONEE must appoint
succeed to the property of the prior decedent has power to appoint successor to the
[Sec. 85(D), NIRC]. any person he chooses property only within a
who shall possess or limited group or class
enjoy the property of persons
When general. — The power of appointment is without restriction
general when the power of appointment As to tax implications. Not includible in the
authorizes the donee of the power to appoint — Makes appointed gross estate of the
any person he pleases. The power may be property, for all legal DONEE when he dies
exercised in favor of anybody including the intents, the property of
done-decedent. The donee of a general power the DONEE (includible
of appointment holds the appointed property in his estate)
with all the attributes of ownership, and, thus,
the appointed property shall form part of the As to effects. — DONEE DONEE holds the
gross estate of the donee of the power upon his holds the appointed appointed property in
death. property with all the trust, or under the
attributes of concept of trustee
When special. — Special power of appointment ownership, under the
exists when the done can appoint only from a concept of owner
restricted or designated class of persons other
than himself. Property transferred under a Transfers for Insufficient Consideration
special power of appointment should be When a sale of transfer (other than a bona fide
excluded from the gross estate of the donee of sales of property for an adequate and full
the power because the done-decedent only consideration in money or money’s worth) was
holds the property in trust. made for a price less than its fair market value
at the time of sale or transfer, the excess of the
Gross estate shall include any property passed fair market value of the transferred property at
or transferred under a general power of the time of death over the value of the
appointment exercised by the decedent: consideration received should be included in the
(1) By will, or gross estate [Sec. 85(G), NIRC].
(2) By deed executed in contemplation of, or .
intended to take effect in possession or Case A: If bona fide sale – no value shall be
enjoyment at, or after his death, or included in the gross estate
(3) By deed under which he has retained (for his Case B: If not a bona fide sale - the excess of the
life or any period not ascertainable without fair market value at the time of death over the
reference to his death or for any period which value of the consideration received by the
does not in fact end before his death): decedent shall form part of his gross estate.
(a) the possession or enjoyment of, or the Case C: If inter vivos transfer is proven
right to the income from, the property, or fictitious/simulated – total value of the property
(b) the right, either alone or in conjunction at the time of death included in the gross
with any person, to designate the persons estate.
who shall possess or enjoy the property or
the income therefrom [Sec. 85(D), NIRC].
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Expenses Not Deductible as Funeral CIR v. CTA, CTA and Pajonar (2000): Although
Expenses the Tax Code specifies “judicial expenses of the
(1) Expenses incurred AFTER INTERMENT, such testamentary and intestate proceedings”, there
as for prayers, masses, entertainment, or the is no reason why expenses incurred in the
like administration and settlement of an estate in
(2) Any portion of the funeral and burial extrajudicial proceedings should not be
expenses BORNE or DEFRAYED by allowed.
RELATIVES and FRIENDS of the deceased
(3) Medical expenses as of the last illness will Attorney’s fees in order to be deductible from
not form part of funeral expenses but should the gross estate must be essential to the
be claimed as medical expenses. collection of assets, payment of debts or the
distribution of the property to the persons
Illustrations entitled thereto. The services for which the fees
(1) If five percent (5%) of the gross estate is are charged must relate to the proper
P220,000 and the amount actually incurred settlement of the estate. Attorney’s fees paid by
is P215,000, the maximum amount that may the heirs to their respective lawyers arising from
be deducted is only P200,000; conflicting claims are not deductible as judicial
(2) If five percent (5%) of the gross estate is P expenses. These expenses should be separately
100,000 and the total amount incurred is borne by them.
P150,000 where P20,000 thereof is still
unpaid, the only amount that can be claimed Examples of Judicial Expenses
as deduction for funeral expenses is (1) Actual judicial or court expenses
P100,000. The entire P50,000 excess (2) Fees of executor or administrator
amount consisting of P30,000 paid amount (3) Attorney’s fees
and P20,000 unpaid amount can no longer (4) Expenses of administration such as:
be claimed as FUNERAL EXPENSES. Neither (a) Accountant’s fees
can the P20,000 unpaid portion be (b) Appraiser’s fees
deducted from the gross estate as CLAIMS (c) Clerk hire
AGAINST THE ESTATE. (d) Costs of preserving and distributing the
estate
Judicial Expenses of Testamentary and (e) Costs of storing or maintaining property
intestate Proceedings of the estate
[Sec. 86 (A)(1), NIRC] (f) Brokerage fees for selling property of the
Allowable deductions are administration estate
expenses essential in the settlement of the
estate or necessarily incurred, such as but not
limited to the following:
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Commissioner v. CA (2000): The notarial fee Unpaid obligation arising from purchase of
paid for the extrajudicial settlement is goods or services:
deductible since such settlement effected a (1) Documents evidencing the purchase of
distribution of the estate to the lawful heirs. goods or services.
Attorney’s fees to be deductible from the gross (2) Duly notarized certification from the
estate must be essential to the collection of creditor as to the unpaid balance of the
assets, payment of debts or the distribution of debt, including interest as of the time of
property to the persons entitled to it. death.
(3) Certified true copy of the latest audited
Claims Against the Estate balance sheet of the creditor with a detailed
Claims are debts or demands of a pecuniary schedule of its receivable showing the
nature which could have been enforced against unpaid balance of the decedent-debtor.
the deceased in his lifetime and could have (4) If settlement is made through a testate or
been reduced to simple money judgments [Sec. intestate proceeding, documents filed with
86 (A)(1), NIRC]. the Court evidencing the claim and the
corresponding Court Order approving the
It may arise out of contract, tort or operation of claims, if already issued.
law. [Sec. 6 (A)(3), RR 2-2003]
Requisites for Deductibility
Substantiation Requirements [Sec. 6 (A)(3), RR 2-2003]
Simple Loans (1) Must be a PERSONAL OBLIGATION of the
(1) Duly notarized debt instrument at the time deceased existing at the time of his death
the indebtedness was incurred, except for (except unpaid funeral expenses and unpaid
loans granted by financial institutions where medical expenses, which are classified into
notarization is not part of the business their own separate categories)
practice/policy of the financial institution- (2) Liability must have been contracted in GOOD
lender. FAITH and for adequate and full
(2) Duly notarized Certification from the consideration in money or money’s worth
creditor as to the unpaid balance of the (3) The claim must be a debt or claim which is
debt, including interest as of the time of VALID IN LAW and ENFORCEABLE IN
death. COURT
(3) Proof of financial capacity of the creditor to (4) Indebtedness NOT CONDONED by the
lend the amount at the time the loan was creditor or the action to collect from the
granted. In case the creditor is an individual decedent must NOT HAVE PRESCRIBED.
who is no longer required to file income tax
returns with the Bureau or a non-resident, a Dizon v. CTA (2008): The term "claims" required
duly notarized Declaration by the creditor of to be presented against a decedent's estate is
his capacity to lend at the time when the generally construed to mean debts or demands
loan was granted. For non-resident of a pecuniary nature which could have been
creditors, the declaration must be enforced against the deceased in his lifetime, or
authenticated or certified by the tax liability contracted by the deceased before his
authority of the country where he is a death. Therefore, the claims existing at the time
resident. of death are significant to, and should be made
(4) A Statement under oath executed by the the basis for the determination of allowable
administrator or executor of the estate deductions (and post-death developments, i.e.
reflecting the disposition of the proceeds of reduction or condonation through compromise
the loan, if the loan was contracted within agreements entered into by the Estate with its
three (3) years prior to the death of the creditors, should not be considered).
decedent.
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Claims Against Insolvent Persons (b) They were unpaid as of the time of death.
[Sec. 86 (A)(1), NIRC]
These are claims that are not collectible. To be This deduction DOES NOT include income tax
deductible from the gross estate: upon income received after death, or property
(a) The incapacity of the debtor to pay his taxes accrued after his death, or the estate tax
obligation should be proven, although a due from the transmission of his estate. [Sec. 6
judicial declaration of insolvency is not (A)(5)(b), RR 2-2003]
required;
(b) The full amount owed by the insolvent must Losses
first be included in the decedent’s gross These are deductible from the gross estate if
estate; and ALL of the following conditions are satisfied:
(c) If the insolvent could only pay a partial (a) The losses were INCURRED DURING the
amount, the full amount owed shall be SETTLEMENT of the estate
included in the gross estate, and the amount (b) The losses arose from acts of God, such as
uncollectible shall be allowed as a FIRES, STORMS, SHIPWRECK or OTHER
deduction. CASUALTIES, or from acts of man, such as
ROBBERY, THEFT or EMBEZZLEMENT
Unpaid Mortgages, Losses and Taxes (c) The losses are NOT COMPENSATED BY
[Sec. 86 (A)(1), NIRC; Sec. 6 (A)(5), RR 2-2003] INSURANCE or otherwise
(d) The losses are not claimed as a deduction for
Unpaid Mortgages income tax purposes in an income tax return
These are deductible from the gross estate, of the estate subject to income tax
provided: (e) The losses were incurred NOT LATER THAN
(a) That the gross estate must include the fair THE LAST DAY FOR PAYMENT OF THE
market of the property encumbered by such ESTATE TAX (6 months after the death of
mortgage or indebtedness; the decedent) [Sec. 6 (A)(5)(c), RR 2-2003]
(b) That the deduction shall be limited to the
extent that they were contracted bona fide The amount deductible is the amount of the
and for an adequate and full consideration in property lost.
money or money’s worth, if such unpaid
mortgages or indebtedness were founded Property Previously Taxed
upon a promise or an agreement. [Sec. 6- Deduction allowed on the property left behind by
A5(a), RR 2-2003] the decedent, which he had acquired previously,
by inheritance or donation [Sec. 86 (A)(2), NIRC].
In case unpaid mortgage payable is being
claimed by the estate, verification must be Rationale
made as to who was the beneficiary of the loan As a previous transfer tax had already been
proceeds. If loan is merely an accommodation imposed on the property, either the estate tax (if
loan where the loan proceeds went to another property inherited) or the donor’s tax (if property
person, the value of the unpaid loan must be donated), the law allows a deduction to be
included as a receivable of the estate. If there is claimed on the said property to minimize the
a legal impediment to its recognition as a effects of a double tax on the same property
receivable, such unpaid obligation/mortgage within a short period of time, i.e. five (5) years.
payable shall NOT be allowed as a deduction
from the gross estate. [Sec. 6 (A)(5), RR 2-2003] Example: Mr. A died in December 2003. In
In all instances, the mortgaged property, to the March 2003, Mr. B (Mr. A’s father) died and left
extent of the decedent’ Mr. A some properties as inheritance. May
vanishing deductions be claimed as deductions
Taxes in computing Mr. A’s net taxable estate?
These are deductible from the gross estate if:
(a) They have accrued as of the death of the YES, vanishing deductions shall be allowed if
decedent, and the following conditions are met:
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(d) Finally, the remaining balance shall be DEVISES or TRANSFERS to or for the use of
multiplied by the corresponding percentage: shall be deductible from gross estate, provided
such amount or value had been included in the
Vanishing computation of the gross estate [Sec. 86 (A)(3),
Deduction If received by inheritance or gift NIRC].
Rate
Amounts Received by Heirs Under RA 4917
Within one (1) year prior to the Any amount received by the heirs from the
100%
death of the present decedent decedent’s employer as a consequence of the
More than one year but not more death of the decedent-employee in accordance
80% than two years prior to the death with RA No. 4917 (this law provides that
of the decedent retirement benefits of private employees shall
More than two years but not not be subject to attachment, levy execution or
60% more than three years prior to any tax), PROVIDED that such amount is
the death of the decedent included in the gross estate of the decedent
[Sec. 86 (A)(7), NIRC]
More than three years but not .
40% more than four years prior to the SPECIAL DEDUCTIONS
death of the decedent
More than four years but not Family Home (maximum: P1,000,000)
20% more than five years prior to the It is the dwelling house, including the land on
death of the decedent which it is situated, where the husband and
wife, or a head of the family, and members of
(i) Since Mr. A received the inheritance in their family reside, as certified to by the
March 2003 (within 1 year from his death in Barangay Captain of the locality. It is deemed
December 2003], the balance of P650,000 constituted on the house and lot from the time
shall be multiplied by 100%. Thus, the it is actually occupied as the family residence
allowable vanishing deduction is P650,000 and considered as such for as long as any of its
beneficiaries actually resides therein. [Arts. 152
and 153, Family Code]
Formula
(1) VALUE TAKEN FOR PPT (always the lower Temporary absence from the constituted family
values) home due to travel or studies or work abroad,
LESS: MORTGAGE (OR LIEN) PAID IF ANY(1ST etc. does not interrupt actual occupancy. The
deduction) family home is generally characterized by
permanency, that is, the place to which,
(2) INITIAL BASIS (IB)
LESS: 2ND deduction = (IB/GE) x (ELIT + transfer
whenever absent for business or pleasure, one
for public use) still intends to return. [Sec. 6(D), RR 2-2003]
(3) FINAL BASIS It must be part of the ACP or CPG, or the
X RATES IN Sec 86A-2 exclusive properties of either spouse. It may also
VANISHING DEDUCTION in an Estate Tax Return, be constituted by an unmarried head of a family
this is deducted from the Exclusive Properties of on his or her own property. [Sec. 6(D), RR 2-
the decedent that form part of the gross estate. 2003 citing Art. 156, FC]
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EXEMPTION OF CERTAIN
Solution – Limitation B: ACQUISITIONS AND
TRANSMISSIONS
(1) Merger of usufruct in the owner of the naked
title
(2) Transmission or delivery of the inheritance or
legacy by the fiduciary heir (1st heir) to the
The result after applying the formula above is fideicomissary (2ndheir). Pending
compared to the tax actually paid in total to transmission of the property, the fiduciary is
foreign countries. entitled to all the rights of a usufructuary,
although the fideicomissary is entitled to all
The lower of the two amounts will be added to the rights of a naked owner.
get the total tax credit allowed under Limitation (3) Transmission from the first heir, legatee or
B. done in favour of another beneficiary, in
accordance with the desire of the
Amount predecessor.
Allowed (4) All bequests, devises, legacies or transfers to
(Lower) social welfare, cultural and charitable
institutions, no part of the net income of
450/1500 x 15,000 4,500 which inures to the benefit of any individual;
provided, however, that not more than 30%
Total foreign income taxes of said bequest, devises, legacies or transfers
6,400
paid shall be used by such institutions for
Tax credit allowed under Limitation A P 4,400 administration purposes.
The resulting amount will be compared to the The persons responsible for giving the notice
actual tax paid to the foreign country. The are the executor, administrator, or any of the
lower amount will be the final allowable tax legal heirs, as the case may be.
credit. [Source: Reyes, Income Tax Law and
Accounting] ESTATE TAX RETURN
The executor, administrator, or any of the legal
heirs, as the case may be, shall file an estate tax
return under oath in triplicate. If there is no
executor or administrator appointed, qualified,
and acting within the Philippines, any person in
actual or constructive possession of any
property of the decedent may file this return.
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WHEN FILED
General Rule: Filed within six (6) months from
the decedent's death. [Sec. 90(B), NIRC]
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which is to be included in computing net donee the obligation to pay the mortgage
gifts; liability, then the net gift is measured by
(2) The deductions claimed and allowable; deducting from the fair market value of the
(3) Any previous net gifts made during the same property the amount of the mortgage
calendar year; assumed. (Sec. 11, RR 2-2003)
(4) The name of the donee;
(5) Relationship of the donor to the donee; The taxable net gifts is illustrated through the
(6) Such further information as the following:
Commissioner may require.
First donation in the calendar year:
When Filed [Sec. 103(B), NIRC] Gross gift xx
(a) Filed within thirty (30) days after the date the Less: exemptions xx
gift is made or completed. (deductions)
(b) The tax due thereon shall be paid at the Taxable net gifts xx
same time that the return is filed. Multiplied by: applicable xx
tax rate
Where Filed and Paid (Sec. 103(B), NIRC) Donor’s tax due xx
Unless the Commissioner otherwise permits, it
shall be filed and the tax paid to any of the Subsequent donation within the same calendar
following having jurisdiction over the place year:
where the donor was domiciled at the time of Gross gift xx
the transfer: Less: exemptions xx
(a) An authorized agent bank (deductions)
(b) The Revenue District Officer Net gifts made on such xx
(c) Revenue Collection Officer or date
(d) Duly authorized Treasurer of the city or Add: Prior net gifts xx
municipality, or during the same year
Total aggregate net gift xx
If there be no legal residence in the Multiplied by: applicable xx
Philippines, with the Office of the tax rate
Commissioner (presently RDO no. 39 – Donor’s tax on the total xx
South Quezon City). net gift
Less Donor’s tax on the xx
In the case of gifts made by a non-resident, the prior net gift
return may be filed with: Foreign donor’s tax xx
credit
(a) The Philippine Embassy or Consulate in
the country where he is domiciled at the Donor’s tax payable xx
time of the transfer, or
(b) Directly with the Office of the Illustration
Commissioner. (1) P100,000 donation to son by parents on
account of marriage:
(a) Husband
TAX BASIS (i) Net Taxable Gift:
The tax for each calendar year shall be P50,000 – 10,000 = P40,000
computed on the basis of the total net gifts (ii) Tax Due:
made during the calendar. (Sec. 99, NIRC) None, since P40,000 is below
P100,000
“NET GIFTS” (b) Wife – same as above
(a) The net economic benefit from the transfer
that accrues to the donee. (2) P100,000 donation to son and daughter-in-
(b) Accordingly, if a mortgaged property is law by parents on account of marriage:
transferred as a gift, but imposing upon the (a) Husband
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(5) VAT, by its very nature, is regressive. BUT the TAX CREDIT METHOD
Constitution does not really prohibit the The tax credit method refers to the manner by
imposition of indirect taxes (which is which the value added tax of a taxpayer is
essentially regressive). computed. The input taxes shifted by the sellers
(6) What it simply provides is that Congress to the buyer are credited against the buyer’s
shall “evolve a progressive system of output taxes when he sells the taxable goods,
taxation”. properties or services.
(7) In Tolentino v. Sec. of Finance (1995), the
Court said that direct taxes are to be Under this method, the tax is computed by
preferred, and as much as possible, indirect determining the difference between the output
taxes should be minimized… but not avoided tax on his sales and the input tax on the
entirely because it is difficult, if not purchases of goods, services, capital goods,
impossible, to avoid them. supplies, and materials.
Tolentino v. Secretary of Finance (1995):
(1) Regressivity is not a negative standard for
APPLICABILITY OF ECOZONES
(1) CIR v. Seagate Technology (2005): The
courts to enforce.
ECOZONES shall be managed and
operated by the PEZA as separate customs
What Congress is required by the
territory. (Sec. 8, RA 7916 “Special Economic
Constitution to do is to “evolve a progressive
Zone Act of 1995”) This means that in such
system of taxation.”
zone is created the legal fiction of foreign
territory. (Deoferio Jr. and Mamalateo, p.
This provision is placed in the Consti as moral
227)
incentives to legislation, not as judicially
(2) CIR v. Seagate Technology (2005):
enforceable rights.
Consequently, sales made by a person in
the customs territory to a PEZA-registered
(2) The regressive effects are corrected by the
entity are considered exports to a foreign
zero rating of certain transactions and
country and thus, zero-rated. Conversely,
through the exemptions
sales by a PEZA-registered entity to a
person in the customs territory are deemed
IMPACT OF TAX imports from a foreign country.
(1) The impact of taxation is on the statutory
taxpayer, the one from whom the TAX TREATMENT OF SALES TO & BY
government collects.
(2) The impact of VAT is on the seller or importer
PEZA-REGISTERED ENTERPRISE
upon whom the tax has been imposed. [Sec. WITHIN & WITHOUT THE ECOZONE
105, NIRC] [RMC 74-99]
(1) Any sale of goods, property or services made
by a VAT registered supplier from the
INCIDENCE OF TAX Customs Territory* to any registered
(1) The incidence of tax is on the one who bears
enterprise operating in the ecozone,
the burden of taxation.
REGARDLESS of the class or type of the
(2) The incidence of VAT is on the final
latter’s PEZA registration, is actually
consumer.
qualified and thus LEGALLY ENTITLED TO
THE 0% VAT.
Contex v CIR (2004): The Supreme Court
clarified the difference between the concepts of
“Customs Territory” shall mean the national
impact of tax (liability) and incidence of tax
(burden). The seller remains directly and legally territory of the Philippines outside of the
proclaimed boundaries of the ECOZONES
liable for payment of the VAT but the burden is
except those areas specifically declared by
borne by the consumer or final purchaser.
other laws and/or presidential proclamations
to have the status of special economic zones
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and/or free ports. [Sec. 2(g), Rule 1, Part I, RA venture, cooperative or association (Sec.
7916-IRR] 4.105-1, RR 16-2005).
(2) By a VAT-Exempt Supplier from the Customs The transfer must be made in the
Territory to a PEZA registered enterprise Philippines. If the title to the goods were
Sale of goods, property and services by VAT- transferred outside the Philippines, then the
Exempt supplier from the Customs Territory same is not subject to VAT.
to a PEZA registered enterprise shall be
treated EXEMPT FROM VAT, regardless of Exception: When the annual sales do not
whether or not the PEZA registered buyer is exceed P1,919,500*, the taxpayer shall be
subject to taxes under the NIRC or enjoying liable instead to pay a percentage tax
the 5% special tax regime. equivalent to 3% of his gross monthly
(3) By a PEZA Registered Enterprise sales/receipts.
(a) Sale of Goods by a PEZA registered
enterprise to a buyer from the Customs To be subject to 3% percentage tax, the
Territory (ie domestic sales) – this case following requisites must be satisfied:
shall be treated as a technical (1) The gross annual sales and/or receipts
IMPORTATION made by the buyer. Such do not exceed P1,919,500.00; AND
buyer shall be treated as an IMPORTER (2) The taxpayer is not a VAT-registered
thereof and shall be imposed with the person.
corresponding VAT. Note: The threshold amount has been
(b) Sale of Services by a PEZA registered increased from P1,500,000 to
enterprise to a buyer from the Customs P1,919,500 [RR 16-2011].
Territory – this is NOT embraced by the
5% special tax regime, hence, such seller In addition, marginal income earners are not
shall be SUBJECT TO 12% VAT. subject to business taxes because they are
(c) Sale of Goods by a PEZA registered not considered as engaged in trade or
enterprise to Another PEZA registered business. A marginal income earner is an
enterprise (ie Intra-ECOZONE Sales of individual deriving gross sales or receipts of
Goods) – this shall be EXEMPT from VAT. not exceeding P100,000 during any 12-
(d) Sale of Services by ECOZONE enterprise, month period [Rev. Reg. 11-2000]
to Another ECOZONE enterprise (Intra-
ECOZONE enterprise Sale of Service) RULE OF REGULARITY
(i) if PEZA registered seller is subject to Also, the sale, barter, exchange, lease, or
5% special tax regime - EXEMPT from rendering of service must be in the course of
VAT trade or business. The term “in the course of
(ii) if PEZA registered seller is subject to trade or business” embraces the regular
taxes under NIRC (ie not subject to conduct or pursuit of a commercial or economic
5% special tax regime) – subject to activity. It also includes transactions that are
0% VAT pursuant to “cross border incidental to the regular conduct or pursuit of
doctrine” the activity.
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ZERO-RATED SALES OF GOODS (6) Those considered export sales under the
Omnibus Investment Code of 1987, and other
OR PROPERTIES, AND special laws (ex. Bases Conversion &
EFFECTIVELY ZERO-RATED Development Act of 1992)
SALES OF GOODS OR
UNDER OMNIBUS INVESTMENT CODE:
PROPERTIES (1) Phil. port FOB value of export products
A zero-rated sale by a VAT-registered person is exported directly by a registered export
a taxable transaction for VAT purposes, but producer; OR
shall not result in any output tax. However, (2) Net selling price of export products sold by a
input tax on purchases of goods, properties or registered export producer to another export
services related to such zero-rated sale shall be producer, or to an export trader that
available as tax credit or refund. (RR 16-2005) subsequently exports the same (only when
actually exported by the latter).
Contex v CIR (2004): Under zero-rating, all VAT
is removed from the zero-rated goods, activity, CONSTRUCTIVE EXPORTS (without actual
or firm. exportation):
(1) sales to bonded manufacturing warehouses
EXPORT SALES of export-oriented manufacturers;
[Sec. 106(A)(2)(a), NIRC] (2) sales to export processing zones;
(1) The sale and actual shipment of goods from (3) sales to registered export traders operating
the Philippines to a Foreign country AND paid bonded trading warehouses supplying raw
for in acceptable foreign currency or its materials in the manufacture of export
equivalent in goods or services, AND products;
accounted for in accordance with the rules (4) sales to diplomatic missions and other
and regulations of the BSP agencies and/or instrumentalities granted
tax immunities, of locally manufactured,
(2) Sale of raw materials or packaging materials assembled or repacked products, whether
to a Nonresident buyer for delivery to a paid for in foreign currency or not.
resident local export-oriented enterprise to be
used in manufacturing, processing, packing
or repacking in the Philippines of the said
buyer's goods AND paid for in acceptable
foreign currency AND accounted for in
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Export sales of registered export traders shall the BSP shall also be considered export
include commission income, and that sales. [RR 16-2005]
exportation of goods on consignment shall not
be deemed export sales until the export EFFECTIVELY ZERO-RATED SALES
products consigned are in fact sold by the An effectively zero-rated sale of goods and
consignee, and properties shall refer to the local sale of goods
and properties by a VAT-registered person to a
Sales by a VAT-registered supplier to a person or entity who was granted indirect tax
manufacturer/producer whose products are exemption under special laws or international
100% exported are considered export sales. A agreement. Transactions are considered as
certification to this effect must be issued by the “constructive export” although not involving
Board of Investment which shall be good for 1 actual export and are entitled to the benefit of
year unless subsequently re-issued. [RR 16- zero-rating. These transactions include:
2005] (1) Sale to export-oriented enterprises
(2) Sale of goods, supplies, equipment and fuel
(7) The sale of goods, supplies, equipment and to persons engaged in international
fuel to persons engaged in International shipping or international air transport
shipping or international air transport operations
operations. [added by RA 9337] (3) Foreign currency denominated sale
(a) Limited to goods, supplies, equipment (4) Sales to tax-exempt persons or entities
and fuel pertaining to or attributable to Other cases of zero-rated sales, except for
the transport of goods and passengers export sales and foreign currency denominated
from a port in the Phil. directly to a foreign sale, shall require prior application with the
port without docking or stopping at any appropriate BIR office for effective zero-rating.
other port in the Phil. Without an approved application, the
(b) If any portion of such fuel, goods, or transaction shall be considered exempt.
supplies is used for purposes other than
that mentioned, such portion of fuel, Examples:
goods, and supplies shall be subject to (1) Sales to enterprises duly registered &
VAT. [RR 16-2005] accredited with the
(a) Subic Bay Metropolitan Authority,
FOREIGN CURRENCY (b) Philippine Economic Zone Authority
DENOMINATED SALE (FCDS) (PEZA),
(1) Sale to a nonresident of goods, except those (2) International agreements to which the Phil.
mentioned in Sections 149 and 150 is signatory, such as
(automobiles and non-essential goods like (a) Asian Development Bank (ADB),
jewelry, perfume, and yachts), assembled or (b) International Rice Research Institute
manufactured in the Philippines for delivery (IRRI)
to a resident in thePhilippines paid for in
acceptable foreign currency AND accounted Note: RR 4-2007 removed the distinction
for in accordance with the rules and between automatic and effectively zero-rated
regulations of the BSP. [Sec. 106(A)(2)(b), transactions found in prior Revenue Regulations
NIRC] (including RR 16-2005) with respect to prior
(2) Sales of locally manufactured or assembled application. The paragraph requiring prior
goods for household and personal use to application has now been deleted.
Filipinos abroad and other non-residents of
the Philippines as well as returning Overseas
Filipinos under the Internal Export Program
of the government paid for in convertible
foreign currency AND accounted for in
accordance with the rules and regulations of
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Basis: Market value of the goods deemed sold as RETIREMENT FROM OR CESSATION
of the time of the occurrence of the OF BUSINESS, WITH RESPECT TO
transactionsor as the Commissioner shall INVENTORIES OF TAXABLE GOODS
prescribe. In the case of retirement/cessation of EXISTING AS OF SUCH RETIREMENT
business, the tax base shall be the acquisition
cost or the current market price of the goods or
OR CESSATION
With respect to ALL goods on hand, whether
properties, whichever is lower. In the case of a
capital goods, stock-in-trade, supplies or
sale where the gross selling price is
materials, as of the date of such retirement or
unreasonably lower than the fair market value,
cessation, whether or not the business is
the actual market value shall be the tax base.
continued by the new owner or successor.
The gross selling price is unreasonably lower
than the actual market value if it is lower by
Examples are change of ownership of the
more than 30% of the actual market value of the
business (e.g. when a sole proprietorship
same goods of the same quantity and quality
incorporates, or the proprietor sells his entire
sold in the immediate locality on or nearest the
business) and dissolution of a partnership and
date of sale. [RR 16-2005]
creation of a new partnership which takes over
the business. [RR 16-2005]
TRANSFER, USE OR CONSUMPTION
NOT IN THE COURSE OF BUSINESS CHANGE OR CESSATION OF
OF GOODS OR PROPERTIES
ORIGINALLY INTENDED FOR SALE STATUS AS VAT-REGISTERED
OR FOR USE IN THE COURSE OF PERSON
BUSINESS (e.g. when a VAT-registered [Sec.106(C), NIRC]
Rate: 12%
person withdraws goods from his business for
Basis: the acquisition cost or the current market
his personal use. [RR 16-2005]
price of the goods or properties, whichever is
LOWER.
DISTRIBUTION OR TRANSFER TO
SHAREHOLDERS, INVESTORS OR
CREDITORS
(1) Shareholders or investors as share in the
profits of the VAT-registered persons; or
(2) Creditors in payment of debt;
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VAT shall apply to goods disposed of or existing Change in the trade or corporate name of the
as of a certain date if under the circumstances to business
be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon Merger or consolidation of corporations. The
recommendation of the Commissioner, the unused input tax of the dissolved corporation,
status of a person as a VAT-registered person as of the date of merger or consolidation, shall
changes or is terminated. be absorbed by the surviving or new
corporation.
UNDER RR 16-2005 SEC. 4.106 (B):
Subject to VAT - applicable to goods/properties VAT ON IMPORTATION OF
originally intended for sale or use in business
and capital goods which are existing as of the GOODS
occurrence of the following: Rate: 12%
Basis: total value used by the Bureau of
Change of business activity from VAT taxable Customs in determining tariff and customs
status to VAT-exempt status duties, plus customs duties, excise taxes, if any,
Example: A VAT-registered person engaged in a and other charges (such as postage,
taxable activity like wholesaler or retailer who commission).
decides to discontinue such activity and
engages instead in life insurance business or in Where the customs duties are determined on
any other business not subject to VAT. the basis of the quantity or volume of the goods,
the value-added tax shall be based on the
Approval of request for cancellation of a landed cost plus excise taxes, if any.
registration due to reversion to exempt status
Approval of request for cancellation of Landed Cost = invoice amount + customs duties
registration due to desire to revert to exempt + freight + insurance + other charges + excise
status after lapse of 3 consecutive years from tax (if any)
the time of registration by a person who
voluntarily registered despite being exempt Who Pays: IMPORTER prior to the release of
under Sec. 109 (2) such goods from customs custody [Sec. 107 (A),
NIRC]
Approval of request for cancellation of
registration of one who commenced business Importer = any person who brings goods into
with the expectation of gross sales/receipts the Philippines, whether or not made in the
exceeding P1,919,500 [per RR 16-2011] but who course of his trade or business, including non-
failed to exceed this amount during the first 12 exempt persons or entities who acquire tax-free
months of operation imported goods from exempt persons, entities
or agencies [RR 16-2005]
Not Subject to VAT – goods or properties
existing as of the occurrence of the following: TRANSFER OF GOODS BY TAX
EXEMPT PERSONS
Change of control of a corporation by the [Sec. 107 (B), NIRC]
acquisition of the controlling interest of such (1) If importer is tax-exempt, the subsequent
corporation by another stockholder (individual purchasers, transferees or recipients of such
or corporate) or group of stockholders. imported goods shall be considered as
importers who shall be liable for the tax on
Note: Exchange of goods or properties including importation.
the real estate properties used in business or (2) The tax due on such importation shall
held for sale or for lease by the transferor, for constitute a lien on the goods superior to all
shares of stocks, whether resulting in corporate charges or liens on the goods, irrespective of
control or not, is SUBJECT TO VAT [RR 10-11] the possessor thereof [as amended by RA
9337].
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(20) The supply of any assistance that is CIR v. Burmeister (2007): The services
ancillary and subsidiary to and is furnished referring to ‘processing, manufacturing,
as a means of enabling the application or repacking’ and ‘services other than those in
enjoyment of any such property, or right as (1)’ both require (i) payment in foreign
is mentioned in #18 or any such knowledge currency; (ii) inward remittance; (iii)
or information as is mentioned in #19 accounted for by the BSP; AND (iv) that the
(21) The supply of services by a nonresident service recipient is doing business outside the
person or his employee in connection with Philippines. If this is not the case, taxpayers
the use of property or rights belonging to, or can circumvent just by stipulating payment
the installation or operation of any brand, in foreign currency.
machinery or other apparatus purchased
from such nonresident person (3) Services rendered to persons or entities
(22)The supply of technical advice, assistance or whose exemption under special laws or
services rendered in connection with international agreements to which the
technical management or administration of Philippines is a signatory effectively subjects
any scientific, industrial or commercial the supply of such services to zero percent
undertaking, venture, project or scheme (0%) rate [as amended by RA 9337]
(23)The lease of motion picture films, films, (4) Services rendered to persons engaged in
tapes and discs international shipping or international air
(24) The lease or the use of or the right to use transport operations, including leases of
radio, television, satellite transmission and property for use thereof [as amended by RA
cable television time 9337];
Provided, however, that the services referred
ZERO-RATED SALE OF to herein shall not pertain to those made to
common carriers by air and sea relative to
SERVICES their transport of passengers, goods or
[Sec. 108 (B), NIRC] cargoes from one place in the Phil. to
A zero-rated sale by a VAT-registered person is another place in the Phil. (the same being
a taxable transaction for VAT purposes, but subject to 12% VAT under Sec. 108)
shall not result in any output tax.
(5) Services performed by subcontractors and/or
Input tax on purchases of goods, properties or contractors in processing, converting, or
services related to such zero-rated sale shall be manufacturing goods for an enterprise
available as tax credit or refund. (RR 16-2005) whose export sales exceed seventy percent
(70%) of total annual production.
(1) Processing, manufacturing or repacking (6) Transport of passengers and cargo by air or
goods for other persons doing business
sea vessels from the Philippines to a foreign
outside the Philippines which goods are
country [as added by RA 9337] and;
subsequently exported, where the services
(7) Sale of power or fuel generated through
are paid for in acceptable foreign currency
renewable sources of energy such as, but not
AND accounted for in accordance with the
limited to, biomass, solar, wind, hydropower,
rules and regulations of the BSP
geothermal, ocean energy, and other
(2) Services other than those mentioned in the
emerging energy sources using technologies
preceding paragraph rendered to a person such as fuel cells and hydrogen fuels. [as
engaged in business conducted outside the
added by RA 9337]
Philippines OR a nonresident person not
engaged in business who is outside the
Zero-rating shall apply strictly to the sale of
Philippines when the services are performed,
power or fuel generated through renewable
the consideration for which is paid for in
sources of energy, and shall not extend to the
acceptable foreign currency AND accounted
sale of services related to the maintenance or
for in accordance with the rules and
operation of plants generating said power.
regulations of the BSP
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RR 4-2007 removed the distinction between (3) Import of personal and household effects of
automatic and effectively zero-rated Phil resident returning from abroad and
transactions found in prior Revenue Regulations nonresident citizens coming to resettle in the
[inc. RR 16-2005] with respect to prior Philippines
application from the BIR. (4) Import of professional instruments and
implements, wearing apparel, domestic
VAT EXEMPT TRANSACTIONS animals, and personal household effects
belonging to persons coming to settle in the
Philippines, for their own use and not for
IN GENERAL sale, barter or exchange
(1) Sale of goods or properties and/or services (5) Services subject to percentage tax
and the use or lease of properties that is NOT (6) Services by agricultural contract growers and
subject to VAT (output tax) and the seller is milling for others of palay into rice, corn into
not allowed any tax credit of VAT (input tax) grits and sugar cane into raw sugar
on purchases. (7) Medical, dental, hospital and veterinary
(2) The person making the exempt sale of services except those rendered by
goods, properties or services shall not bill professionals:
any output tax to his customers. [RR 16- Laboratory services are exempted. If the
2005] hospital or clinic operates a pharmacy or
(3) But, the VAT-registered person may elect drug store, the sale of drugs and medicine is
that the exemption not apply to its sale of subject to VAT. [RR 16-2005]
goods or properties or services; provided that (8) Educational services rendered by private
the election made shall be irrevocable for a educational institutions, duly accredited by
period of three (3) years from the quarter the DEPED, CHED, TESDA, and those rendered
election was made [Sec. 109(2), NIRC]. by government educational institutions;
“Educational services” does not include
EXEMPT TRANSACTION, seminars, in-service training, review classes
ENUMERATED and other similar services rendered by
(1) Sale/import of agricultural, marine food persons who are not accredited by the
products in original state; of livestock and DepED, CHED, and/or TESDA. [RR 16-
poultry 2005]
(a) Original state even if they have undergone (9) Services rendered by individuals
the simple processes of preparation or pursuant to an employer-employee
preservation for the market, such as relationship
freezing, drying, salting, broiling, roasting, (10) Services rendered by regional or area
smoking or stripping. headquarters established in the
(b) Polished and/or husked rice, corn grits, Philippines by multinational
raw cane sugar and molasses, ordinary corporations which act as supervisory,
salt, AND COPRA shall be considered in communications and coordinating
their original state centers for their affiliates, subsidiaries
Livestock or poultry does not include fighting or branches in the Asia-Pacific Region
cocks, race horses, zoo animals and other and do not earn or derive income from
animals generally considered as pets. [RR 16- the Philippines
2005] (11) Transactions which are exempt under
Original state – including preservation using international agreements to which the
advanced technological means of packaging, Philippines is a signatory or under
such as shrink wrapping in plastics, vacuum special laws, except those under PD No.
packing, tetra-pack, and other similar 529 [Petroleum Exploration
packaging methods. [RR 16-2005] Concessionaires under the Petroleum Act
(2) Sale/ import of fertilizers; seeds, seedlings of 1949]
and fingerlings; fish, prawn, livestock and
poultry feeds
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(12) Sales by agricultural cooperatives duly and other related laws, such as RA No.
registered with the Cooperative 7835 and RA No. 8763.
Development Authority to their “Low-cost housing" refers to housing
members as well as sale of their projects intended for homeless low-
produce to non-members. Exemption income family beneficiaries, undertaken
includes importation of direct farm by the Government or private developers,
inputs, machineries and equipment, which may either be a subdivision or a
including spare parts thereof, to be condominium registered and licensed by
used directly and exclusively in the the Housing and Land Use Regulatory
production and/or processing of their Board/Housing (HLURB) under BP Blg.
produce. 220, PD No. 957 or any other similar law,
Sale by agricultural cooperatives to non- wherein the unit selling price is within the
members can only be exempted from VAT if selling price ceiling per unit of
the producer of the agricultural products P750,000.00 under RA No. 7279, and
sold is the cooperative itself. If the other laws, such as RA No. 7835 and RA
cooperative is not the producer (e.g., No. 8763.
trader), then only those sales to its (c) Sale of real properties utilized for
members shall be exempted from VAT. [RR socialized housing as defined under RA
16-2005] No. 7279, and other related laws, such as
(13) Gross receipts from lending activities by RA No. 7835 and RA No. 8763, wherein
credit or multi-purpose cooperatives the price ceiling per unit is P225,000.00
duly registered with the Cooperative or as may from time to time be
Development Authority determined by the HUDCC and the NEDA
(14) Sales by non-agricultural, non- electric and other related laws.
and non-credit cooperatives duly "Socialized housing" refers to housing
registered with the Cooperative programs and projects covering houses
Development Authority are exempt BUT and lots or home lots only undertaken by
their importation of machineries and the Government or the private sector for
equipment, including spare parts the underprivileged and homeless citizens
thereof, to be used by them are which shall include sites and services
SUBJECT to VAT. development, long-term financing,
(15) Export sales by persons who are not liberated terms on interest payments,
VAT-registered and such other benefits in accordance
(16) Sale of real properties – the ff. sales are with the provisions of RA No. 7279and
exempt: RA No. 7835 and RA No. 8763.
(a) Sale of real properties NOT primarily "Socialized housing" shall also refer to
held for sale to customers or held for projects intended for the
lease in the ordinary course of trade or underprivileged and homeless wherein
business. the housing package selling price is
However, even if the real property is not within the lowest interest rates under
primarily held for sale to customers or the Unified Home Lending Program
held for lease in the ordinary course of (UHLP) or any equivalent housing
trade or business but the same is used in program of the Government, the private
the trade or business of the seller, the sector or non-government organizations.
sale thereof shall be subject to VAT (d) Sale of residential lot valued at
being a transaction incidental to the P1,919,500 and below, or house & lot
taxpayer’s main business. [RR 4-2007] and other residential dwellings valued at
(b) Sale of real properties utilized for low- P3,199,200 and below
cost housing as defined by RA No. 7279,
otherwise known as the "Urban
Development and Housing Act of 1992"
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(i) If two or more adjacent residential lots In cases where a lessor has several
are sold or disposed in favor of one residential units for lease, some are leased
buyer, for the purpose of utilizing the out for a monthly rental per unit of not
lots as one residential lot, the sale exceeding P12,800 while others are leased
shall be exempt from VAT only if the out for more than P12,800 per unit, his tax
aggregate value of the lots does not liability will be as follows:
exceed P1,919,500. [RR 13-2012] (a) The gross receipts from rentals not
(ii) Adjacent residential lots, although exceeding P12,800 per month per unit
covered by separate titles and/or shall be exempt from VAT regardless of
separate tax declarations, when sold the aggregate annual gross receipts.
or disposed to one and the same (b) The gross receipts from rentals
buyer, whether covered by one or exceeding P12,800 per month per unit
separate Deed of Conveyance, shall shall be subject to VAT IF the aggregate
be presumed as a sale of one annual gross receipts from said units
residential lot. [RR 16-2005] only (not including the gross receipts
Sale, transfer or disposal within a 12- from units leased for not more than
month period of 2/more adjacent P12,800 ) exceeds P1,919,500 .
residential lots, house and lots or Otherwise, the gross receipts will be
other residential dwellings to one subject to the 3% tax imposed under
buyer, whether from the same or from Section 116 of the Tax Code.
different sellers shall be considered The term 'residential units' shall refer to
one single transaction. Hence, the apartments and houses & lots used for
sale of the adjacent lots shall be residential purposes, and buildings or
subject to VAT if the aggregate value parts or units thereof used solely as
exceeds P1,919,500 for residential lots dwelling places (e.g., dormitories, rooms
and P3,199,200 for residential house and bed spaces) except motels, motel
lots or residential dwellings, rooms, hotels and hotel rooms.
notwithstanding that the value of the The term 'unit' shall mean an
individual properties do not exceed apartment unit in the case of
the VAT exemption thresholds. apartments, house in the case of
Sale/purchase of parking lots shall residential houses; per person in the
not be considered a sale of residential case of dormitories, boarding houses
lot/dwelling. Hence, it shall be and bed spaces; and per room in case of
subject to VAT regardless of its selling rooms for rent. [RR 16-2005]
price. [RR 13-2012] (18) Sale, importation, printing or
(17) Lease of residential units with a publication of books and any
monthly rental per unit not exceeding newspaper, magazine review or bulletin
P12,800, regardless of the amount of which appears at regular intervals with
aggregate rentals received by the lessor fixed prices for subscription and sale
during the year. and which is not devoted principally to
Lease of residential units where the monthly the publication of paid advertisements;
rental per unit exceeds P12,800 but the (19) Sale, importation or lease of passenger
aggregate of such rentals of the lessor or cargo vessels and aircraft, including
during the year do not exceed One Million engine, equipment and spare parts
Five Hundred Pesos P1,919,500 shall thereof for domestic or international
likewise be exempt from VAT, however, the transport operations [added by RA
same shall be subjected to three percent 9337];
(3%) percentage tax.
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The exemption from VAT on the derives revenue from other lines of
importation and local purchase of business which are otherwise subject to
passenger and/or cargo vessels shall be VAT, the same shall be combined for
limited to those of 150 tons and above, purposes of determining whether the
including engine and spare parts of said threshold has been exceeded.
vessels; The VAT-exempt sales shall NOT be
Provided, further, that the vessels to be included in determining the threshold.
imported shall comply with the age [RR 16-2005]
limit requirement, at the time of
acquisition counted from the date of the INPUT TAX AND OUTPUT TAX,
vessel's original commissioning, as
follows: DEFINED
(a) for passenger and/or cargo vessels, INPUT TAX – the VAT due on or paid by a
the age limit is 15 years old, VAT-registered person on importation of goods
(b) for tankers, the age limit is 10 years or local purchases of goods, properties, or
old, and services, including lease or use of properties, in
(c) for high-speed passenger crafts, the the course of his trade or business.
age limit is 5 years old [RR 16-2005] (1) It includes the transitional input tax and the
(20) Importation of fuel, goods, and presumptive input tax as determined in
supplies by persons engaged in accordance with Section 111 of the Code.
international shipping or air transport (2) It includes input taxes which can be directly
operations; [added by RA 9337] attributed to transactions subject to the VAT
The said fuel, goods and supplies shall plus a ratable portion of any input tax which
be used exclusively or shall pertain to cannot be directly attributed to either the
the transport of goods and/or taxable or exempt activity.
passenger from a port in the (3) Input tax must be evidenced by a VAT invoice
Philippines directly to a foreign port or official receipt issued by a VAT-registered
without stopping at any other port in person in accordance with Secs. 113 and 237
the Philippines; of the Code. [RR 16-2005]
If any portion of such fuel, goods or
supplies is used for purposes other OUTPUT TAX – the VAT due on the sale or
than that mentioned in this paragraph,
lease of taxable goods or properties or services
such portion of fuel, goods and
by any person registered or required to register
supplies shall be subject to 12% VAT
under Section 236 of the Code. [Sec. 110 (A),
starting Feb. 1, 2006. [RR 16-2005]
NIRC]
(21) Services of banks, non-bank financial
intermediaries performing quasi-
banking functions and other non-bank SOURCES OF INPUT TAX
financial intermediaries; and
(22)Sale or lease of goods or properties or PURCHASE OR IMPORTATION OF
the performance of services other than GOODS
the transactions mentioned in the (1) For sale; or
preceding paragraphs, the gross annual (2) For conversion into or intended to form part
sales and/or receipts do not exceed the of a finished product for sale including
amount of P1,919,500 packaging materials; or
For purposes of the threshold of (3) For use as supplies in the course of business;
P1,919,500, the husband and the wife or
shall be considered separate taxpayers. (4) For use as materials supplied in the sale of
However, the aggregation rule for each service; or
taxpayer shall apply. (5) For use in trade or business for which
For instance, if a professional, aside deduction for depreciation or amortization is
from the practice of his profession, also allowed under the Code.
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PRESUMPTIVE INPUT TAX If at the end of any taxable quarter, the output
[Sec. 111(B), NIRC] tax exceeds the input tax, the excess shall be
Persons or firms engaged in the processing of paid by the VAT-registered person. [Sec. 110(B),
sardines, mackerel and milk, and in NIRC]
manufacturing refined sugar and cooking oil and
packed noodle based instant meals, shall be DETERMINATION OF INPUT TAX
allowed a presumptive input tax, creditable CREDITABLE
against the output tax, equivalent to 4% of the [Sec. 110 , NIRC]
gross value in money of their purchases of (1) The sum of the excess input tax carried over
primary agricultural products which are used as from the preceding month or quarter and the
inputs to their production. input tax creditable to a VAT-registered
person during the taxable month or quarter
"Processing" shall mean pasteurization, canning shall be reduced by the amount of claim for
and activities which through physical or refund or tax credit for value-added tax and
chemical process alter the exterior texture or other adjustments, such as purchase returns
form or inner substance of a product in such or allowances and input tax attributable to
manner as to prepare it for special use to which exempt sale.
it could not have been put in its original form or (2) The claim for tax credit referred to includes
condition. [RR 16-05] not only those filed with the BIR but also
those filed with other government agencies,
DETERMINATION OF such as the Board of Investments the Bureau
of Customs.
OUTPUT/INPUT TAX; VAT
PAYABLE; EXCESS INPUT TAX ALLOCATION OF INPUT TAX ON
CREDITS MIXED TRANSACTIONS
A VAT-registered person who is also engaged in
DETERMINATION OF OUTPUT TAX transactions not subject to VAT shall be allowed
For the sale of goods, properties, and services to recognize input tax credit on transactions
and use or lease of properties, the output tax subject to VAT as follows:
shall be computed by multiplying the total
amount indicated in the invoice or receipt by (1) All the input taxes that can be directly
12%. attributed to transactions subject to VAT may
be recognized for input tax credit
For the sale of real property where the zonal Input taxes that can be directly attributable
value/market value applies, the output tax shall to VAT taxable sales of goods and services to
be computed by multiplying the zonal value or the Government or any of its political
market value by 12%. subdivisions, instrumentalities or agencies,
including GOCCs shall not be credited
For importation, the output tax is equivalent to against output taxes arising from sales to
the VAT due on such importation. non-Government entities
(2) If any input tax cannot be directly attributed
For transactions deemed sale, the output tax to either a VAT taxable or VAT-exempt
shall be based on the market value of the goods transaction, the input tax shall be pro-rated
deemed sold as of the time of the occurrence of to the VAT taxable and VAT-exempt
the transactions except that in the case of transactions and ONLY the ratable portion
retirement from or cessation of business, the tax pertaining to transactions subject to VAT may
base shall be the acquisition cost or the current be recognized for input tax credit.
market price of the goods, whichever is lower.
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Illustration: ERA Corporation has the following Ratable portion of the input tax not directly
sales during the month: attributable to any activity, computed as follows:
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DETERMINATION OF THE OUTPUT (1) Any input tax attributable to zero-rated sales
TAX AND VAT PAYABLE AND by a VAT-registered person may at his option
be refunded or applied for a tax credit
COMPUTATION OF VAT PAYABLE OR certificate which may be used in the payment
EXCESS TAX CREDITS of internal revenue taxes.
[Sec. 110 (B), NIRC]
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(5) ADVANCE VAT ON SUGAR shall be VAT withholding and VAT-exempt sales).
supported by the Payment Order showing [RR 16-2005]
payment of the advance VAT. Eastern Telecommunications Philippines,
Inc. v. CIR (2012): The absence of the word
REFUND OR TAX CREDIT OF “zero-rated” on the invoices and receipts
of a taxpayer will result in the denial of
EXCESS INPUT TAX the claim for tax refund.
(2) Cancellation of VAT Registration. [Sec. 112 (C),
WHO MAY CLAIM FOR NIRC]
REFUND/APPLY FOR ISSUANCE OF (a) A person whose registration has been
TAX CREDIT CERTIFICATE (TCC) cancelled due to retirement from or
(1) Zero-Rated Sales [Sec. 112(A), NIRC] cessation of business, or due to changes in
(a) Any VAT-registered person, whose sales or cessation of status under Section
are zero-rated or effectively zero-rated 106(C) of the Code may, within two (2)
may apply for the issuance of a tax credit years from the date of cancellation, apply
certificate/refund of creditable input tax for the issuance of a tax credit certificate
due or paid attributable to such sales, for any unused input tax which may be
EXCEPT transitional input tax, to the used in payment of his other internal
extent that such input tax has not been revenue taxes.
applied against output tax, within two (2) (b) He shall be entitled to a refund if he has
years after the close of the taxable quarter no internal revenue tax liabilities against
when the sales were made. The input tax which the tax credit certificate may be
that may be subject of the claim shall utilized.
exclude the portion of input tax that has
been applied against the output tax.
(b) The acceptable foreign currency exchange PERIOD TO FILE CLAIM/APPLY FOR
proceeds must have been duly accounted ISSUANCE OF TAX CREDIT
for in accordance with the rules and
regulations of the Bangko Sentral ng
CERTIFICATE [Sec. 112 (D), NIRC]
In proper cases, the Commissioner of Internal
Pilipinas (BSP) in the case of zero-rated
Revenue shall grant a tax credit
transactions paid for in acceptable foreign
certificate/refund for creditable input taxes
currency and requiring that such be
accounted for in accordance with BSP within one hundred twenty (120) days from the
date of submission of complete documents in
rules & regulations [Secs. 106(A)(2)(a)(1)
support of the application.
and (2), and Sec. 106(A)(2)(b) and Sec.
108(B)(1) and (2), NIRC].
In case of full or partial denial of the claim for
(c) Where the taxpayer is engaged in zero-
tax credit certificate/refund as decided by the
rated or effectively zero-rated sale and
Commissioner of Internal Revenue:
also in taxable or exempt sale of goods of
(a) The taxpayer may appeal to the Court of Tax
properties or services, and the amount of
creditable input tax due or paid cannot be Appeals (CTA) within thirty (30) days from
the receipt of said denial, otherwise the
directly and entirely attributed to any one
decision shall become final.
of the transactions, it shall be allocated
(b) If no action on the claim for tax credit
proportionately on the basis of the volume
certificate/refund has been taken by the
of sales.
Commissioner of Internal Revenue after the
(d) In the case of a person engaged in the
one hundred twenty (120) day period from
transport of passenger and cargo by air or
the date of submission of the application
sea vessels from the Philippines to a
foreign country, the input taxes shall be with complete documents, the taxpayer may
appeal to the CTA within 30 days from the
allocated ratably between his zero-rated
lapse of the 120-day period. [RR 16-2005]
sales and non-zero-rated sales (sales
subject to regular rate, subject to final
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(ii) The FMV as shown in the schedule no notice for audit or investigation of such
of values of the provincial and city return has been actually served on the
assessors taxpayer.
(6) INQUIRE into Bank Deposit Accounts
[Sec. 6(F), NIRC] (2) ACCESS Letter [Sec. 5(B), NIRC]
Notwithstanding any contrary provision of (a) Obtaining on a regular basis, from any
R.A. 1405 (Bank Secrecy Law) and other person OTHER THAN the person whose
general or special laws, the Commissioner tax liability is subject to audit or
is authorized to inquire into bank deposits investigation, or from any office or
of: officer of the national and local
(a) A decedent to determine his gross governments, government agencies or
estate, and instrumentalities, including BSP and
(b) Any taxpayer who has filed an GOCCs,
application for compromise of tax (b) Any information such as, but not
liability by reason of financial limited to, costs and volumes of
incapacity: the taxpayer must waive in production, receipts or sales and gross
writing his privilege under R.A. 1405 incomes of taxpayers, and the names
and other relevant laws, before the addresses, and financial statements of
Commissioner may inquire into his corporations, mutual fund companies,
bank accounts. insurance companies etc.
(7) ACCREDIT and REGISTER Tax Agents
[Sec 6(G), NIRC] Note: This is known as the Third Party
Accrediting and registering tax agents (may Information Rule.
be individuals or general professional
partnerships) based on the following criteria:
(C) INTERPRET Tax LAWS and to DECIDE Tax
(a) Professional competence
CASES [Sec. 4, NIRC; RMC 44-01]
(b) Integrity
(1) Shall be under the exclusive and original
(c) Moral fitness
jurisdiction of the Commissioner, subject
(8) PRESCRIBE additional PROCEDURAL
to review by the Secretary of Finance.
OR DOCUMENTARY requirements [Sec.
(2) A ruling by the BIR Commissioner shall
6(H), NIRC]
be presumed VALID unless modified,
In relation to the manner of compliance of
reversed or superseded by the Secretary
any requirement in connection with the
of Finance.
submission or preparation of financial
(3) A taxpayer who receives an adverse ruling
statements accompanying the tax
from the Commissioner may, within thirty
returns.
(30) days from the date of receipt of such
ruling, seek its review by the Secretary of
(B) To obtain information and to summon,
Finance, either by himself/itself or though
examine, and take testimony of persons [Sec. 5,
his/its duly authorized representative.
NIRC]
(4) A reversal or modification of the BIR
(1) EXAMINE RETURNS and DETERMINE
ruling shall terminate its effectivity upon
TAX DUE [Sec 5, NIRC]
the receipt by the taxpayer or the BIR of
Authorizing the examination of any
written notice of reversal or modification,
taxpayer and the assessment of the
whichever came earlier.
correct amount of tax, WON a return has
been filed by such taxpayer.
Note: DOF Order 7-02 added that the
Secretary of Finance may review the rulings
Note: Any return filed with the
MOTU PROPRIO.
Commissioner shall not be withdrawn,
BUT the taxpayer may MODIFY, CHANGE
or AMEND such return within three (3)
years from the date of filing, provided that
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The penalty shall be fifty percent (50%) of the • The delinquency interest is in addition to the
tax or of the deficiency tax, in the following interest in the FAN as a result of failure to pay
cases: the deficiency tax assessed within the time
(1) WILLFUL NEGLECT to FILE THE RETURN prescribed for its payment. [First Lepanto Taisho
within the period prescribed Insurance Corp. v. CIR (2013)]
(2) A FALSE OR FRAUDULENT RETURN is
wilfully made (c) Compromise penalties
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Protesting Assessment [Sec 228, NIRC; RR 12- (e) Inaction by Commissioner - If the protest is
99] not acted upon within one hundred eighty
(a) Protest of assessment by taxpayer (180) days from submission of documents,
(i) Made within thirty (30) days from receipt the inaction by the Commissioner is
of the assessment. considered as a denial of protest.
(ii) Protest is either a request for
reconsideration or a request for Remedies of Taxpayer to Action by
reinvestigation, or both Commissioner
(iii) A protest is considered validly made if it (a) In case of denial of protest
satisfies the following conditions: If the Commissioner DENIES THE PROTEST filed
(a) it is made in writing, and addressed by the taxpayer, the latter may appeal to the
to the Commissioner of Internal CTA within 30 days from receipt of the decision
Revenue, denying the protest [Sec. 228, NIRC]
(b) it contains the information required (i) The 30-day period starts when the
by the rule, taxpayer receives the decision of the
(c) It states the FACTS, applicable LAW, Commissioner denying the protest.
RULES and REGULATIONS or (ii) The decision of the Commissioner must
JURISPRUDENCE on which his categorically state that his action on the
protest is based, otherwise the disputed assessment is final, otherwise
protest shall be considered void and period to appeal will not commence to
without force and effect and run. [Advertising Associates v. CA (1984)]
(d) It is filed within the period prescribed
by law A Motion for Reconsideration on the CIR’s
denial of the protest or administrative appeal
(b) Submission of documents within 60 days shall not toll the 30-day period to appeal to the
from filing of protest CTA [RR 18-2013]
Within sixty (60) days from filing of the protest,
all relevant supporting documents must be Note: A Division of the CTA shall hear the
submitted, otherwise the assessment shall appeal. [Sec. 11, RA 1125 as amended by RA 9282
become final. [Sec. 228] (2004)]
(c) Effect of failure to protest: the assessment (b) In case of inaction by Commissioner within
shall become final, executory and demandable. 180 days from submission of documents
If the Commissioner did NOT ACT UPON THE
(d)Period provided for protest to be acted upon: PROTEST within 180 days from the time the
Protest should be acted upon within 180 days documents were submitted, the taxpayer may
from submission of documents either:
(i) Appeal to the CTA within thirty days from
Rendition of Decision by Commissioner the lapse of the 180-day period OR
CIR’s actions deemed equivalent to denial of (ii) Wait until the Commissioner decides
protest: before he elevates the case to the CTA.
(a) Filing of collection suit against taxpayer [CIR
v. Union Shipping (1990)] RCBC v. CIR (2007): In case the Commissioner
(b) Issuing a warrant of distraint and levy failed to act on the disputed assessment within
[Commissioner v. Algue (1988)] the 180-day period from date of submission of
(c) Where there is a request for reconsideration, documents, a taxpayer can either:
final demand letter from BIR [CIR v. Isabela (1) file a petition for review with the Court of Tax
Cultural Corp (2007)] Appeals within 30 days after the expiration
(d) Notice of delinquency [CIR v. Ayala Securities of the 180-day period; OR
(1976)] (2) await the final decision of the Commissioner
on the disputed assessments and appeal
such final decision to the Court of Tax
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In case the taxpayer or the person having the Procedure for Actual Distraint
possession and control of the property (A) Commencement of Distraint Proceedings
refuses or fails to sign the receipt, the Who issues the warrant of distraint:
revenue officer effecting the constructive (1) Commissioner or his duly authorized
distraint shall proceed to prepare a list of representative – where the amount
such property and, in the presence of two (2) involved is more than P1M
witnesses, leave a copy thereof in the (2) Revenue District Officer – where the
premises where the property distrained is amount involved is P1M or less [Sec.
located [Sec. 206, NIRC] 207(A), NIRC]
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(2) At the same time, written notice of the by paying the taxes, penalties and interest.
levy shall be mailed to or served upon the [Sec. 213, NIRC]
Register of Deeds of the province or city (2) Within one (1) year from the date of sale, the
where the property is located and upon taxpayer or anyone for him, may pay to the
the taxpayer (If he is absent from the Revenue District Officer the total amount of
Philippines: to his agent or manager of the following: public taxes + penalties +
business in respect to which the liability interest from the date of delinquency to the
arose or to the occupant of the property in date of sale + interest on said purchase price
question). [Sec. 207(B), NIRC] at the rate of fifteen percent (15%) per
annum from the date of sale to the date of
(C) Advertisement of the Sale redemption. [Sec. 214, NIRC]
(1) Within twenty (20) days after the levy, the
officer conducting the proceedings shall Note: If the property was forfeited in favor of
proceed to advertise for SALE the property the government, the redemption price shall
or a portion as may be necessary to satisfy include only the taxes, penalties and interest
the claim and costs of sale. Such plus costs of sale – no interest on purchase
advertisement shall cover a period of at price since the Government did not
least thirty (30) days. The notice shall be “purchase” the property anyway, it was
posted at the main entrance of the city or forfeited)
municipal all AND in a public and
conspicuous place in the barrio or district Note: The taxpayer-owner shall not be
where the real property lies. The notice deprived of possession of the said property
must also be published in a newspaper of and shall be entitled to rents and other
general circulation in the place where the income until the expiration of the period for
property is located, once a week for three redemption [Sec. 214, NIRC]
(3) weeks.
(2) CONTENTS of notice: statement of (G) Final Deed of Purchaser
amount of taxes, and penalties due, time After the period of redemption, a final deed of
and place of sale, name of taxpayer, short sale is issued in favor of the purchaser.
description of property. [Sec. 213, NIRC]
Forfeiture to Government for Want of Bidder
(D) Sale Forfeiture implies a divestiture of property
The sale shall be held either at the main without compensation in consequence of a
entrance of the municipal or city hall or on the default or offense. The effect of forfeiture is to
premises to be sold. Property will be awarded transfer the title of the specific thing from the
to the highest bidder. In case the proceeds of owner to the government. [De Leon, NIRC
the sale exceeds the claim and costs of sale, the Annotated, p. 412]
excess shall be turned over to the owner of the
property. [Sec. 213, NIRC] Instances when forfeiture is appropriate
(1) All chattels, machinery, and removable
(E) Forfeiture in Favor of the Government fixtures of any sort used in the
If there is no bidder for the real property OR if unlicensed production of articles [Sec.
the highest bid is not sufficient to pay the taxes, 268, NIRC]
penalties and costs, the IR Officer conducting (2) Dies and other equipment used for the
the sale shall declare the property FORFEITED printing or making of any internal revenue
to the GOVERNMENT in satisfaction of the stamp, label or tag which is in imitation of or
claim. [Sec. 215, NIRC] purports to be a lawful stamp, label or tag.
[Sec. 268, NIRC]
(F) Redemption of Property Sold (3) Liquor or tobacco shipped under a false
(1) At any time before the day fixed for the sale, name or brand [Sec. 262, NIRC]
the taxpayer may discontinue all proceeding
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Assessment not necessary before filing a change or refund their value upon proof of
criminal charge for tax evasion destruction) [Sec. 204, NIRC]
An assessment is not necessary before a
criminal charge can be filed. The criminal Requirements for refund as laid down by
charge need only be proved by a prima facie cases:
showing of a wilful attempt to file taxes, such as (1) Necessity of written claim for refund
failure to file a required tax return. [CIR v. Pascor (2) Claim containing a categorical demand for
Realty, June 29, 1999] reimbursement
(3) Filing of administrative claim for refund and
Suit to recover tax based on false or fraudulent the suit/proceeding before the CTA within 2
returns years from date of payment regardless of any
A proceeding in court for the collection of the supervening cause
tax assessed may be filed without assessment
at any time within ten (10) years after the General Rule: The taxpayer must file a written
discovery of the falsity, fraud or omission. claim for refund stating a categorical demand
Provided, that in a fraud assessment which has for reimbursement before the Commissioner
become final and executor, the fact of fraud within two years from the date of payment. [Sec.
shall be judicially taken cognizance of in the civil 229, NIRC]
or criminal action for the collection thereof.
[Sec. 222, NIRC] When it comes to recovery of unutilized input
VAT, Section 112, and not Section 229 of the
False Return v. Fraudulent Return 1997 Tax Code, is the governing law. Second,
A false return is due to mistakes, carelessness or prior to 8 June 2007, the applicable rule is
ignorance and a fraudulent return is filed with neither Atlas nor Mirant, but Section 112(A). The
intent to evade taxes. Atlas doctrine, which held that claims for refund
or credit of input VAT must comply with the
The fraud contemplated by law is actual and two-year prescriptive period under Section 229,
not constructive, and must amount to should be effective only from its promulgation
intentional wrongdoing with the sole object of on 8 June 2007 until its abandonment on 12
avoiding the tax. [Aznar v. CTA (1974)] September 2008 in Mirant. [CIR v. San Roque]
REFUND
NATURE OF A CLAIM FOR REFUND:
It partakes of the nature of an exemption and is
strictly construed against the claimant. The
burden of proof is on the taxpayer claiming the
Exceptions to requirement of a written claim:
refund that he is entitled to the same. [CIR v.
(1) When on the face of the return upon which
Tokyo Shipping (1995)]
payment was made, such payment appears
clearly to have been erroneously paid (e.g.
GROUNDS FOR REFUND:
mathematical errors), the Commissioner may
(1) Tax erroneously or illegally assessed or
refund or credit the tax even without a
collected [Sec. 229, NIRC]
written claim therefore. [Sec. 229, NIRC]
(2) Penalty claimed to have collected without
(2) A return filed showing an overpayment shall
authority [Sec. 229, NIRC]
be considered as a written claim for credit or
(3) Any sum alleged to have been excessively or
refund. [Sec. 204(C), NIRC]
in any manner wrongfully collected [Sec. 229,
NIRC]
Note: Under Sec. 229, there is no exception to
(4) Value of internal revenue Stamps when they
the 2-year prescriptive period.
are returned in good condition by the
purchaser [Sec. 204, NIRC]
(5) Unused stamps that have been rendered
unfit for use (Commissioner may redeem,
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Taxpayer/withholding agents of non-resident Period for using the Tax Credit Certificate (TCC):
foreign corporation - the withholding agent is Tax credit certificates (TCCs) can be applied
directly and independently liable for the correct against all internal revenue taxes, excluding
amount of tax that should be withheld and for withholding tax. TCCs which remain unutilized
deficiency assessments, surcharges and after five years from the date of issue shall be
penalties. considered as invalid, unless revalidated. If not
revalidated, the amount covered by the TCC
Prescriptive Period for Recovery of Tax shall revert to the general fund. [Sec. 230, NIRC]
Erroneously or Illegally Collected
GOVERNMENT REMEDIES
Two-year period when counted:
From the date that tax was paid. ADMINISTRATIVE REMEDIES
(1) Tax lien (supra)
How date of payment determined:
(2) Levy and sale of real property (supra)
(1) If the income tax is withheld at source –
(3) Forfeiture of real property to the government
payment is at the end of the taxable year.
for want of bidder (supra)
(2) If the income is paid on a quarterly basis –
(4) Further distraint and levy (supra)
payment is from the time of filing the final
(5) Suspension of business operation
adjustment return.
The Commissioner or his authorized
CIR vs. TMX Sales (January 16, 1992): When a tax representative is empowered to suspend the
is paid in installments, the prescriptive period business operations and temporarily close
should be counted from the date of final the business establishment of any person for
payment or the last installment. This rule any of the following violations:
proceeds from the theory that there is no
payment until the entire tax liability is (a) In the case of a VAT-registered Person. -
completely paid. Installments should be treated (i) Failure to issue receipts or invoices; or
as advances or portions of the annual tax due. (ii) Failure to file a value-added tax return
as required under Section 114; or
Other Consideration Affecting Tax Refunds (iii) Understatement of taxable sales or
receipts by thirty percent (30%) or
Remedy of the taxpayer upon denial or inaction more of his correct taxable sales or
on the claim for refund: receipts for the taxable quarter.
(1) CIR denies claim - appeal to the CTA within
thirty (30) days from the receipt of the (b) Failure of any Person to Register as
Commissioner’s decision and within two Required under Section 236.
years from the date of payment. The temporary closure of the
(2) CIR does not act on the claim and the 2-year establishment shall be for the duration of
period is about to lapse - file a claim before not less than five (5) days and shall be
the CTA before the 2-year period lapses. lifted only upon compliance with whatever
Otherwise, he may no longer file a claim requirements prescribed by the
before the CTA in case the Commissioner Commissioner in the closure order. [Sec.
renders an adverse decision beyond the 2- 115, NIRC]
year period. (Revised Rules of the CTA, as
amended) (6) Non-availability of injunction to restrain
collection of tax
Period for claiming refund once granted: No court shall have the authority to grant an
Within five years from the date such warrant or injunction to restrain the collection of any
check was mailed or delivered, otherwise it shall national internal revenue tax, fee or charge
be forfeited in favor of the government and the imposed by the National Internal Revenue
amount thereof shall revert to the general fund. Code. [Sec. 218, NIRC]
[Sec. 230, NIRC]
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JUDICIAL REMEDIES
(1) Civil Action Offender Penalty
(2) Criminal Action
Not a citizen of the he shall be deported
FORM AND MODE OF PROCEEDING Philippines immediately after serving
(SUPRA) the sentence
A public officer or the maximum penalty
Civil Action employee prescribed for the offense
Two ways by which civil liability is enforced: shall be imposed on him
(1) by filing a civil case for the collection of sum shall be dismissed from
of money with the proper regular court; and public office, and
(2) by filing an answer to the petition for review perpetually disqualified
filed by the taxpayer with the Court of Tax from holding any public
Appeals. [Mamalateo, 2008] office, to vote, and to
participate in any election
Criminal Action CPA his license shall be
Any person convicted of a crime under the Code automatically revoked or
shall: cancelled once he is
(1) be liable for the payment of the tax, and convicted
(2) be subject to the penalties imposed under Corporations, imposed on the partner,
the Code. [Sec. 253(A), NIRC] associations, president, general
partnerships etc. manager, branch
Payment of tax not defense: manager, treasurer,
Payment of the tax due after a case has been officer-in-charge and
filed shall not constitute a valid defense in any employees responsible for
prosecution for violation of the provisions under the violation (Sec. 253,
the Code. [Sec. 253(A), NIRC] NIRC)
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Criminal Offenses
Willful attempt to evade or Any person who willfully Fine: P30,000 - P100,000
defeat tax. [Sec. 254] attempts in any manner to evade AND
or defeat any tax or the payment Imprisonment: 2-4 years
thereof. Plus other penalties
Failure to File Return, Supply Any person required to pay any Fine: P10,000 or more
Correct and Accurate tax, make a return, keep any AND
Information, Pay Tax, Withhold record, or supply correct and Imprisonment:1-10 years
and Remit Tax and Refund accurate information Plus other penalties
Excess Taxes Withheld on
Compensation [Sec. 255] Any person who attempts to Fine - P10,000 - P20,000
make it appear for any reason AND
that he or another has in fact Imprisonment: 1-3 years
filed a return or statement, or Plus other penalties
actually files a return or
statement and subsequently
withdraws the same return or
statement
Making false entries, records, or Any financial officer or Fine - P50,000 - P100,000
reports, or using falsified or fake Independent CPA engaged to AND
accountable forms [Sec. 257] examine and audit books of Imprisonment: 2-6 years
accounts of taxpayers under Sec.
232 (A) and any person under his
direction.
Unlawful pursuit of business Any person who carries on any Fine: P5,000 - P20,000
[Sec. 258] business for which in annual AND
registration fee is imposed Imprisonment: 6 months-2 years
without paying the tax as
required by law.
A person engaged in the Fine: P30,000 - P50,000 AND
business of distilling, rectifying, Imprisonment: 1-2 years
repacking, compounding or
manufacturing any article subject
to excise tax.
Illegal Collection of Foreign Any person who knowingly Fine: P20,000 - P50,000;
Payments [Sec. 259] undertakes the collection of AND
foreign payments under Sec. 67 Imprisonment: 1-2 years
without a license or without
complying with the
implementing rules and
regulations.
Unlawful Possession of Cigarette Any person, manufacturer or Fine: P20,000 - P100,000; AND
Paper in Bobbins or Rolls, Etc. importer of cigar or cigarettes Imprisonment - 6 years 1 day - 12
[Sec. 260] years
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Unlawful Use of Denatured Any person who for the purpose Fine: P20,000 - P100,000; AND
Alcohol [Sec. 261] of manufacturing any beverage, Imprisonment - 6 years 1 day - 12
uses denatured alcohol or years
alcohol specially denatured to be
used for motive power or
withdrawn under bond for
industrial uses or alcohol
knowingly misrepresented to be
denatured to be unfit for oral
intake or who knowingly sells or
offers for sale such preparations
containing as an ingredient such
alcohol.
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Failure or Refusal to Issue Any person who, being required Fine: P 1,000 - P50,000
Receipts or Sales or Commercial under Section 237 to issue AND
Invoices, Violations Related to receipts or sales or commercial Imprisonment: 2- 4 years
the Printing of Such Receipts or invoices
Invoices and Other Violations
[Sec. 264]
Offenses Relating to Stamps Fine: P20,000 - P50,000
[Sec. 265] AND
Imprisonment: 4-8 years
Failure to Obey Summons [Sec. Any person who being duly Fine: P 5,000 - 10,000;
266] summoned to appear to testify, AND
or to appear and produce books Imprisonment:1-2 years
of accounts, records, memoranda
or other papers, or to furnish
information as required under
the pertinent provisions of this
Code.
Declaration under Penalties of Any person who willfully files a Penalty for Perjury under the
Perjury [Sec. 267] declaration, return or statement Revised Penal Code
containing information which is
not true and correct as to every
material matter
Misdeclaration or Any manufacturer subject to Summary cancellation or
Misrepresentation of excise tax withdrawal of the permit to
Manufacturers Subject to Excise engage in business as a
Tax [Sec. 268] manufacturer of articles subject
to excise tax
Use of Property in Unlicensed Any person who conducts an Forfeiture of property used
Business or Use of Dies for unlicensed business or uses dies
Printing False Stamps, Etc. [Sec. for printing false stamps
268]
Illegal Storage or Removal of Any person subject to excise tax Forfeiture of goods
Goods [Sec. 268] who fails to store the goods in
proper place, or removes goods
without payment of excise tax
Penalty for Second and Maximum of the penalty
Subsequent Offenses [Sec. 274] prescribed for the offense
Violation of Other Provisions of Any person who violates any Fine: P1000 or less
the Tax Code or Rules or provision of this Code or any rule OR
Regulations in General [Sec. 275] or regulation promulgated by the Imprisonment: 6 months or less
Department of Finance for which OR Both
no specific penalty is provided by
law
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
Penalty for Selling, Transferring, Any taxpayer, whose property Fine: at least P5,000 AND
Encumbering or in any way has been placed under at least twice the value of the
disposing of property Placed constructive distraint property
under Constructive Distraint OR
[Sec. 276] Imprisonment: 2 years 1 day - 4
years
OR Both
Failure to Surrender Property Any person having in his Fine: P 5,000 or more
Placed under Distraint and Levy possession or under his control OR
[Sec. 277] any property or rights to Imprisonment: 6 months 1 day -
property, upon which a warrant 2 years,
of constructive distraint or actual OR Both
distraint and levy has been
issued
Procuring Unlawful Divulgence Any person procures an officer or Fine: not more than P 2,000
of Trade Secrets [Sec. 278] employee of the BIR to divulge OR
any confidential information Imprisonment: 6 months - 5
regarding the business, income years
or inheritance of any taxpayer, OR Both
knowledge of which was
acquired by him in the discharge
of his official duties, and which it
is unlawful for him to reveal, and
any person who publishes or
prints in any manner whatever,
not provided by law, any income,
profit, loss or expenditure
appearing in any income tax
return
Penalties Imposed on Public Officers [Sec. 269, (4) Conspire or collude with another or others to
NIRC] defraud the revenues or otherwise violate the
The law imposes a fine of not less than law;
P50,000 nor more than P100,000 or (5) willfully make Opportunity for any person to
imprisonment for not less than 10 years nor defraud the revenues, or who do or omit to
more than fifteen years on every official, agent do any act with intent to enable any other
or employee of the BIR or of any agency or person to defraud the revenues;
employee of the Government charged with the (6) negligently or by design Permit the violation
enforcement of the Tax Code, who shall: of the law by any other person;
(CONED- FRAP) (7) make or sign any False certificate or return in
(1) Extort or willfully oppress under color of law; any case where the law requires the making
(2) knowingly Demand other or greater sums by them of such entry, certificate or return;
than are authorized by law or receive any fee, (8) having knowledge or information of a
compensation or reward, except as by law violation of any provision of the Code or of
prescribed, for the performance of any duty; any fraud committed on the revenues
(3) willfully Neglect to give receipts, as by law collectible by the BIR, fail to Report such
required, for any sums collected in the knowledge or information to their superior
performance of duty, or who willfully neglect officer, or to report as otherwise required by
to perform any of the duties enjoined by law; law; or
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(9) without the authority of law, demand or time prescribed for its payment in the
Accept or attempt to collect, directly or notice of assessment; or
indirectly, as payment or otherwise, any sum (d) Failure to pay the full or part of the
of money or other thing of value for the amount of tax due on or before the date
compromise, adjustment or settlement of prescribed for its payment [Sec. 246 (A),
any charge or complaint for any violation or NIRC]
alleged violation of law.
(2) 50% of the tax or of the deficiency tax in the
Informer’s Reward [Sec. 282, NIRC] following cases:
To whom given: (a) Willful neglect to file the return within
Persons instrumental in the discovery of the period prescribed; or
violations of the NIRC and in discovery and (b) A false or fraudulent return is willfully
seizure of smuggled goods. made [Sec. 248(B), NIRC]
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START
Regional
Send Formal Letter Assessment
Is response w/n Taxpayer
of demand and Final NO to Division issues a
15 days? Is it responds w/in
Assessment Notice either Preliminary
meritorious? 15 days
(FAN) is issued Assessment Notice
(PAN)
Yes to ASSESSMENT
both ENDS
Assessment becomes
NO to
Final, Warrant of Distraint
either
& Levy Issued
Decision Commissioner
YES favorable to YES decides w/n
taxpayer? 180 days?
ASSESSMENT
ENDS NO NO
If MR is denied, appeal to
the CTA within remainder
of the 30 days
Assessment
CTA decides on Appeal made becomes Final,
YES NO
the appeal on time? Warrant of Distraint
& Levy Issued
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
W/in 5 days after sale, W/in 2 days after Excess of proceeds over the Officer sells the goods to the
distraining officer shall enter the sale, officer entire claim, shall be returned highest bidder for cash or
return of proceedings in the shall report to the to the owner. No charge shall with the Commissioner’s
records of RCO, RDO and Commissioner. be imposed for the services of approval, through commodity/
RRD (Sec. 213) (Sec. 211) the officer (Sec. 209) stock exchanges. (Sec. 209)
No, bid ok
W/n 1 year from sale, the W/n 5 days after the sale, Excess of proceeds
The Commissioner may, owner may redeem, by paying levying officer shall enter of the sale over claim
after 20 days notice, sell to the RDO the amount of the return of the proceedings and cost of sale shall
property at public auction taxes, penalties, and interest upon the records of the RCO, be turned over to the
or at private sale with thereon from the date of RDO and RRD (Sec. 213) owner (Sec. 213)
approval of the SoF. delinquency to the date of sale,
Proceeds shall be and 15% per annum interest on
deposited with the National purchase price from the date
Treasury (Sec. 216) Owner shall not be
of purchase to the date of Levy and distraint
deprived of the
redemption. (Sec. 214) may be repeated until
possession and shall
the full amount due,
be entitled to the
and all expenses are
fruits until 1 year
collected. (Sec. 217)
expires (Sec. 214)
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(b) Failure to file a value-added tax return as Nature and Source of Taxing Power
required under Section 114; or (1) Grant of local taxing power under the Local
(c) Understatement of taxable sales or Government Code
receipts by thirty percent (30%) or more of (a) Each LGU shall exercise its power to
his correct taxable sales or receipts for the (i) create its own sources of revenue
taxable quarter. (ii) levy taxes, fees, and charges.
(b) Both are subject to the provisions in the
(2) FAILURE OF ANY PERSON TO REGISTER LGC and consistent with local autonomy
AS REQUIRED UNDER SECTION 236. - (c) Taxes, fees and charges levied accrue
The temporary closure of the establishment exclusively to the local government units.
shall be for the duration of not less than five [Sec. 129, LGC]
(5) days and shall be lifted only upon
compliance with whatever requirements (2) Authority to prescribe penalties for tax
prescribed by the Commissioner in the violations
closure order. The sanggunian may impose
(a) a surcharge not exceeding twenty-five
LOCAL GOVERNMENT CODE OF 1991, percent (25%) of the amount of taxes, fees
AS AMENDED or charges not paid on time and
(b) an interest at the rate not exceeding two
LOCAL GOVERNMENT TAXATION percent (2%) per month of the unpaid
taxes, fees or charges including
Fundamental principles (UEPIP) surcharges, until such amount is fully paid
(1) Taxation shall be Uniform in each local but in no case shall the total interest on
government unit; the unpaid amount or portion thereof
(2) Taxes, fees, charges and other impositions exceed thirty-six (36) months. [Sec. 168,
shall: (EPUC) LGC]
(a) be Equitable and based as far as
practicable on the taxpayer's ability to (3) Authority to grant local tax exemptions
pay; LGUs may, through ordinances duly
(b) be levied and collected only for Public approved, grant tax exemptions, incentives
purposes; or reliefs under such terms and conditions as
(c) not be Unjust, excessive, oppressive, or they may deem necessary. [Sec. 192, LGC]
confiscatory;
(d) not be Contrary to law, public policy, (4) Withdrawal of exemptions
national economic policy, or in the Unless otherwise provided, tax exemptions
restraint of trade; or incentives granted to, or presently enjoyed
(3) The collection of local taxes, fees, charges by all persons, whether natural or judicial,
and other impositions shall not be let to any including government-owned or controlled
Private person; corporations, except local water districts,
(4) The revenue collected shall Inure solely to cooperatives duly registered under R.A. No.
the benefit of, the local government unit 6938, non-stock and non-profit hospitals
levying the tax, fee, charge or other and education institutions, are withdrawn
imposition unless otherwise specifically upon the effectivity of the Code. [Sec. 193,
provided herein; and, LGC]
(5) Each local government unit shall, as far as
practicable, evolve a Progressive system of (5) Authority to adjust local tax rates
taxation. [SEC. 130, LGC] LGUs shall have the authority to adjust the
tax rates as prescribed not oftener than once
every five (5) years, but in no case shall the
adjustment exceed ten percent (10%) of the
rates fixed by the Code. [Sec. 191, LGC]
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(6) Residual taxing power of local governments (b) Within ten (10) days after the approval of
LGU may exercise the power to levy taxes or the ordinance, certified true copies of all
charges on ANY base or subject tax ordinances or revenue measures shall
be published in full for three (3)
Required: consecutive days in a newspaper of local
Not otherwise specifically enumerated in the circulation. In provinces, cities and
LGC or taxed under NIRC or other applicable municipalities where there are no
laws newspapers of local circulation, it must be
(1) Not unjust, excessive, oppressive, posted in at least two (2) conspicuous and
confiscatory or contrary to declared publicly accessible places. [Sec. 188, LGC]
national policy
(2) Pursuant to an ordinance enacted with Scope of Taxing Power
public hearing conducted for the purpose.
[Sec. 186, LGC] LGU Scope of Taxing Power
(7) Authority to issue local tax ordinances Provinces May levy only:
The power to impose a tax, fee, or charge, or [Sec. 134, (1) Transfer of Real Property
to generate revenue under this Code shall be LGC] Ownership
exercised by the sanggunian of the local (2) Business of Printing and
government unit concerned through an Publication
appropriate ordinance. [Sec. 132, LGC] (3) Franchise Tax
(4) Tax on Sand, Gravel and
Local Taxing Authority Other Quarry Resources
(1) Power to create revenues exercised thru (5) Professional Tax
LGUs (6) Amusement Tax
(a) Each LGU shall exercise its power to (7) Annual Fixed Tax for every
create its power to create its own delivery truck or van
sources of revenue and to levy taxes, Municipalities May levy taxes, fees and
fees and charges. [Sec. 128, LGC] charges not otherwise levied by
(b) Exercised by the Sanggunian concerned provinces [Sec. 142, LGC]
through an appropriate ordinance. [Sec. Cities May levy taxes, fees and
132, LGC] charges which the province or
(c) Ordinances may be vetoed by local chief municipality may impose [Sec.
executives of the LGUs, except the 151, LGC]
Punong Barangay, on the ground that it Barangays May levy only:
is ultra vires or prejudicial to public (1) Taxes on stores or retailers
welfare. His reasons shall be stated in (2) Service fees or charges
writing. [Sec. 55 (a) and (b), LGC] (3) Barangay clearance
(4) Other fees and charges [Sec.
(2) Procedure for approval and effectivity of tax 152, LGC]
ordinances
(a) A public hearing must be conducted prior But all LGUs may also impose reasonable
to the enactment of a tax ordinance. [Sec. service fees, rates for operation of public
187, LGC] utilities, andtoll fees and charges. (See letter e
below) [Sec. 153-155, LGC]
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
(1) Tax on Transfer of Not more Total Sale, transfer, or Evidence of payment
Real Property. than 50% of acquisition price other disposition of of tax is to be required
Imposed on the sale, 1% or fair market real property by Register of Deeds
donation, barter, or value, whichever pursuant to R.A. as a requisite to
any other mode of is higher 6657 registration; and by
transfer of ownership (Comprehensive the provincial
or title to real property Agrarian Reform assessor as a
[Sec 135, LGC] Law) condition for
cancellation of old tax
declaration.
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
In the succeeding
(b) Newly-started Not more Capital calendar year,
business than 1/20 of investment regardless of when
1% business started
operating, tax shall be
based on gross
receipts for preceding
calendar year, or any
fraction thereof.
(4) Tax on Sand, Gravel Not more Fair market Permit to extract
and Other Quarry than 10% value in the sand, gravel and other
Resources. Levied on locality per quarry resources to be
ordinary stones, gravel, cubic meter of issued exclusively by
earth and other quarry resources the provincial
resources as defined in referred to in governor pursuant to
the NIRC, extracted Column 1 an Ordinance by the
from public lands or Sangguniang
from the beds of seas, Panlalawigan
lakes, rivers, streams,
creeks, and other public Distribution of
waters within its proceeds:
territorial jurisdiction (a) Province -
[Sec 138, LGC] 30%
(b) Component
City/ Municipality
where resources
were extracted -
30%
(c)Barangay where
resources were
extracted - 40%
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
Employers shall
require payment of
professional tax as a
condition for
employment.
Payable annually, on
or before Jan 31.
(6) Amusement Tax. Not more Gross receipts Holding of operas, In case of theaters or
Collected from than 10% from admission concerts, dramas, cinemas, tax shall first
proprietors, lessees, or (amended by fees recitals, painting, be deducted and
operators of theaters, RA 9640, and art exhibitions, withheld by their
cinemas, concert halls, 2009) flower shows, proprietors, lessees
circuses, boxing stadia, musical programs, and operators
and other places of literary and
amusement [Sec 140, oratorical
LGC] presentations Proceeds to be shared
equally by the
Exception to province and
exemption: Pop, municipality where
rock, or similar amusement places
concerts are located.
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
(7) Annual Fixed Tax For Amount not Every truck, van, Manufacturers,
Every Delivery Truck or exceeding vehicle producers,
Van of Manufacturers P500 wholesalers, dealers
or Producers, and retailers referred
Wholesalers of, to in column 1 shall be
Dealers, or Retailers in, exempt from tax on
Certain Products. peddlers
Imposed on vehicles
used for the delivery of
distilled spirits,
fermented liquors, soft
drinks, cigars and
cigarettes, and other
products as may be
determined by the
sanggunian, to sales
outlets, or consumers
in the province,
whether directly or
indirectly [Sec 141, LGC]
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
Ceiling on business tax impossible on (3) The tax on a business must be paid by the
municipalities within Metro Manila person conducting it.
Such municipalities may not 50% more than the (4) If a person operates 2 or more businesses
maximum rates prescribed in Sec 143. [Sec. 144, mentioned in Sec. 143 which are taxed;
LGC] computation shall be based on:
(a) combined total gross sales/receipts IF
Tax on retirement on business subject to the SAME tax rate
Upon termination of a business subject to tax (b) separate reports on gross sales/receipts
under Sec. 143 a sworn statement of its gross IF subject to DIFFERENT tax rates
sales or receipts for the current year shall be
submitted. If the tax paid is less than the tax Yamane vs. Lepanto Condo Corp. (Oct. 23, 1995):
due, the difference shall be paid before the Condominium corporations are not business
business is considered officially retired. [Sec. entities, and are thus not subject to local
145, LGC] business tax. Even though the corporation is
empowered to levy assessments or dues from
Rules on payment of business tax the unit owners, these amounts are not
(1) Taxes in Sec. 143 shall be paid for every intended for the incurrence of profit by the
separate or distinct establishment or place corporation, but to shoulder the multitude of
where business subject to tax is conducted. necessary expenses for maintenance of the
(2) One line of business is not exempted by condominium.
being conducted with some other businesses
for which such tax has been paid
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
RULE 5: In case of 2 or more factories, (2) Service Fees or Charges. For services
plantations, etc. in different localities, the 70% rendered in connection with the regulations
shall be prorated among the localities where or the use of barangay-owned properties or
the factories, plantations, etc. are located in facilities such as palay, copra, or tobacco
proportion to their respective volume of dryers.
production. (3) Barangay Clearance. A city or municipality
cannot issue a permit for business without a
Illustration: clearance from the barangay concerned. The
A company has a principal office in Valenzuela sangguniang barangay may impose a
and has its factory in Bulacan. It also has reasonable fee on the clearance.
branches selling merchandise in Muntinlupa, (4) Other Charges Allowed.
Bacolod, Cebu. (a) charges on commercial breeding of
(1) sales made in Muntinlupa, Bacolod and fighting cocks, cockfights and
Cebu will go to the said cities cockpits;
(2) sales in all other places which do not have a (b) charges on places of recreation which
sales branch shall be distributed as follows: charge admission fees; and
30% to Valenzuela and 70% to Bulacan (c) charges on billboards, signboards,
neon signs, and outdoor
Excise Tax: Allied Thread Co., Inc. v. City Mayor of advertisements. [Sec. 152, LGC]
Manila (1984)
Tax is imposed on the performance of an act or Common revenue raising powers
occupation, enjoyment of a privilege. The power (1) Service fees and charges
to levy such tax depends on the place in which LGUs may impose and collect such
the act is performed or the occupation is reasonable fees and charges for services
engaged in; not upon the location of the office. rendered. [Sec. 153, LGC]
Sales Tax: Shell Co., Inc. v. Municipality of (2) Public utility charges
Sipocot, Camarines Sur (1959) LGUs may fix the rates for the operation of
It is the place of the consummation of the sale, public utilities owned, operated and
associated with the delivery of the things which maintained by them within their jurisdiction.
are the subject matter of the contract that [Sec. 154, LGC]
determines the situs of the contract for
purposes of taxation, and not merely the place (3) Toll fees or charges
of the perfection of the contract. (a) The sanggunian may prescribe the terms
and conditions and fix the rates for the
Taxing powers of barangays imposition of toll fees or charges for the
The following shall exclusively accrue to the use of any public road, pier, or wharf,
barangays: waterway, bridge, ferry or
(1) Taxes on Stores or Retailers with Fixed telecommunication system funded and
Business Establishments. constructed by the local government unit
(a) RATE: not greater than one percent (1%) concerned.
(b) BASE: (b) The sanggunian may also discontinue the
(i) Cities: gross sales or receipts of the collection of the tolls when public safety
preceding calendar year of and welfare requires.
P50,000.00 or less (c) NO toll fees or charges shall be collected
(ii) Municipalities: gross sales or receipts from:
of P30,000.00 or less (i) Officers and enlisted men of the AFP
and members of the PNP on mission
(ii) Post office personnel delivering mail
(iii) Physically-handicapped
(iv) Disabled citizens who are sixty-five
(65) years or older. [Sec. 155, LGC]
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Community tax
Who may levy [Sec. 156, Cities or municipalities
LGC]
(1) Individuals who are:
(a) Inhabitants of the Philippines
(b) Eighteen years of age or over
(c) Either:
(i) Regularly employed on a wage or salary basis for at least 30
consecutive working days during any calendar year
(ii) Engaged in business or occupation
(iii) Owns real property with an aggregate assessed value of P1,000 or
more
Persons Liable [Sec. 157 (iv) Is required by law to file an income tax return
&158, LGC] (2) Juridical Persons
(a) Every corporation no matter how created or organized,
(b) Whether domestic or resident foreign,
(c) Engaged in or doing business in the Philippines
(1) Individuals
(a) Annual community tax of P5.00 PLUS annual additional tax of P1.00
per P1,000.00 of income regardless whether from business, exercise of
profession or property
(b) Never to exceed P5000
(c) Husband and wife shall pay a basic tax of P5.00 each PLUS additional
tax based on total property owned by them and the total gross receipts
or earnings derived therefrom
(2) Juridical Persons
(a) Annual community tax ofP500.00 PLUS annual additional tax of not
more than P10,000.00 according to the ff. schedule:
(i) P2.00 for every P5,000 worth of real property in the Philippines
owned during the preceding year based
Rates [Sec. 157 &158, (ii) P2.00 for every P5,000.00 of gross receipts derived from business
LGC] in the Philippines during the preceding year.
(b) Dividends received by a corporation from another corporation shall be
deemed part of the gross receipts or earnings for purposes of computing
additional tax.
Persons Exempt [Sec. (1) Diplomatic and consular representatives
159, LGC] (2) Transient visitors who stay in the Philippines for not more than 3 months
Place of Payment [Sec. Where individual resides, or where the principal office of the juridical entity is
160, LGC] located.
Time of Payment [Sec Accrues on the 1st day of January of each year to be paid not later than the last
161, LGC] day of February of each year
Penalty If unpaid within the prescribed period, an interest of 24% shall be added per
annum from the due date until payment. [Sec. 161, LGC]
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Presentation of Community Tax Certificate is (6) Taxes, fees or charges on Agricultural and
necessary when an individual subject to aquatic products when sold by marginal
community tax: farmers or fishermen;
(1) Acknowledges any document before a (7) Taxes on business enterprises certified to by
notary public the Board of Investments as Pioneer or non-
(2) takes the oath of office upon election or pioneer for a period of 6 and 4 years,
appointment to any position in the respectively from the date of registration;
government service (8) Excise taxes on articles enumerated under
(3) receives any license, certificate, or permit the NIRC, as amended, and taxes, fees or
from any public authority charges on petroleum products;
(4) pays any tax or fee (9) Percentage or VAT on sales, barters or
(5) receives any money from any public fund exchanges or similar transactions on goods
(6) transacts other official business or services except as otherwise provided
(7) receives any salary or wage from any person herein;
or commission (10) Taxes on the Gross receipts of
transportation contractors and persons
Presentation of certificate is NOT needed in the engaged in the transportation of
registration of a voter. [Sec. 163, LGC] passengers or freight by hire and common
carriers by air, land or water, except as
The city or municipal treasurer shall deputize provided in the Code;
the barangay treasurers to collect, provided the (11) Taxes on premiums paid by way or
latter be bonded. Reinsurance or retrocession;
(12) Taxes, fees or charges for the Registration
If: actually and directly collected by the city or of motor vehicles and for the issuance of all
municipal treasurer, community tax accrues kinds of licenses or permits for the driving
entirely to the general fund.If: collected through thereof, except tricycles;
the barangay treasurers, apportioned equally. (13) Taxes, fees, or other charges on Philippine
[Sec. 164, LGC] products actually Exported, except as
otherwise provided;
Common limitations on the taxing powers of (14) Taxes, fees, or charges, on Countryside and
LGUs Barangay Business Enterprises and
Unless otherwise provided, the following cannot Cooperatives duly registered under the
be levied by the local governments: (IDEC- Cooperative Code of the Philippines; and
GAPEP-GRR-ECN): (15) Taxes, fees or charges of any kind on the
(1) Income tax, except when levied on banks and National Government, its agencies and
other financial institutions; instrumentalities, and local government
(2) Documentary stamp tax; units. [Sec. 133, LGC]
(3) Estate tax, inheritance, gifts, legacies and
other acquisitions mortis causa, except as Collection of business tax
otherwise provided; (1) Tax period and manner of payment
(4) Customs duties, registration fees of vessel (a) Based on calendar year, unless otherwise
and wharfage on wharves, tonnage dues, provided.
and all other kinds of customs fees, charges (b) May be paid annually or in quarterly
and dues except wharfage on wharves instalments. [Sec. 165, LGC]
constructed and maintained by the LGU
concerned; (2) Accrual of tax
(5) Taxes, fees or charges on Goods carried into (a) Accrues on the first day of January of each
or out of, or passing through, the territorial year
jurisdictions of local government units in the (b) Except: New taxes, fees or charges, or
guise of charges for wharfage, tolls for changes in the rates thereof which shall
bridges or otherwise, or other taxes, fees, or accrue on the first day of the quarter next
otherwise following the effectivity of the ordinance
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
imposing such new levies or rates. [Sec. Instances When Running of Prescription
166, LGC] Periods is Suspended
(1) When the treasurer is legally prevented
(3) Time of payment from making the assessment or collection
Within the 20 days of January or of each (2) When taxpayer requests for
subsequent quarter. (i.e., Jan 20, Apr 20, July reinvestigation and executes a waiver in
20, and Oct 20). It may be extended by the writing before lapse of the period for
sanggunian for justifiable reasons, without assessment or collection.
surcharges or penalties. Extension cannot (3) When the taxpayer is out of the country or
exceed 6 months. [Sec. 167, LGC] otherwise cannot be located [Sec. 194 (d),
LGC]
(4) Penalties on unpaid taxes, fees or charges
(a) Surcharge not exceeding 25% on taxes, (2) Protest of assessment
fees or charges NOT paid on time; and Within sixty (60) days from the receipt of the
(b) Interest not exceeding 2% per month of notice of assessment, the taxpayer may file a
the unpaid taxes, fees or charges written protest with the local treasurer
INCLUDING surcharges, until the amount contesting the assessment; otherwise it shall
is fully paid become final and executory. [Sec. 195, LGC]
(c) In no case shall the total interest exceed
36 months. [Sec. 168, LGC] (3) Claim for refund of tax credit for erroneously
or illegally collected tax, fee or charge
(5) Authority of treasurer in collection and (a) Requires a written claim for refund or
inspection of books credit to be filed with local treasurer
(a) All local taxes, fees and charges shall be before protest is entertained
collected by the local treasurer or their (b) Must be brought within 2 years from
duly authorized deputies [Sec. 170, LGC] payment of tax or from the date the
(b) The local treasurer may, by himself or taxpayer became entitled to refund or
through his deputies duly authorized in credit [Sec. 196, LGC]
writing, examine the books, accounts, and
other pertinent records of any person Civil remedies by the LGU for collection of
subject to local taxes, fees and charges in revenues
order to ascertain, assess and collect the (1) Local government’s lien for delinquent taxes,
correct amount of the tax, fee or charge. fees or charges
(c) Examination must be done during (a) Non-payment of a tax, fee or charge
business hours, only once for every tax creates a lien superior to all liens or
period and shall be certified to by the encumbrances in favor of any other
examining official. [Sec. 171, LGC] person, enforceable by administrative or
judicial action
Taxpayer’s remedies (b) The lien may only be extinguished upon
(1) Periods of assessment and collection of local full payment of the delinquent local taxes,
taxes, fees or charges fees, and charges including related
(a) Assessment: Within 5 years from the surcharges and interests. [Sec. 173, LGC]
date they become due
(b) In case of Fraud or Intent to Evade Tax: (2) Civil remedies, in general
Within 10 years from discovery of fraud (a) Administrative action
or intent to evade payment. [Sec. 194, (b) Judicial action
LGC]
(c) Collection: 5 years from the date of (3) Procedure for administrative action
assessment by administrative or judicial (a) Distraint of personal property
action.
Personal properties subject to distraint:
goods, chattels or effects and other
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(2) Actual use shall be the basis of classification The rate shall be as follows:
for assessment (1) Province: not exceeding one percent (1%) of
the assessed value of real property; and
(a) Real property shall be classified, valued (2) City or municipality within Metro Manila: not
and assessed on the basis of its actual exceeding two percent (2%) of the assessed
useregardless of where located, whoever value of real property. [Sec. 233, LGC]
owns it, and whoever uses it.
(b) Actual Use- refers to the purpose for Special Levy on Idle Lands
which the property is PRINCIPALLY or (1) A province, or city or municipality within
PREDOMINANTLY utilized by the person Metro Manila may levy an annual tax on idle
in possession thereof [Sec. 199(b), LGC] lands at the rate not exceeding five percent
(c) MCIAA v. Marcos (G.R. No. 120082, Sept. (5%) of the assessed value of the property in
11, 1996)- “Usage means direct, immediate addition to the basic tax
and actual application of the property (2) Lands covered
(a) Agricultural Lands
(3) Private persons cannot be left to the More than one (1) hectare in area suitable
appraisal, assessment, levy and collection of for cultivation, dairying, inland fishery,
real property tax. and other agricultural uses, one-half (1/2)
of which remain uncultivated or
(4) Uniform classification within each local unimproved
government unit shall be observed. (b) Other than Agricultural
More than one thousand (1000) square
(5) Equitable appraisal and assessment is meters in area one half (1/2) of which
required. [Sec. 197, LGC] remain unutilized or unimproved [Sec. 236
and 237, LGC]
Nature of Real Property Tax (3) Exempt Idle Lands
(1) It is a direct tax on the ownership or use of Lands exempt by reason of force majeure,
real property civil disturbance, natural calamity or any
(2) It is an ad valorem tax. Value is the tax base. cause or circumstance which physically or
(3) It is proportionate because the tax is legally prevents improving, utilizing or
calculated on the basis of a certain cultivating the same. [Sec. 238, LGC]
percentage of the value assessed.
(4) It creates a single, indivisible obligation Special Levy for Public Works
(5) It attaches on the property (i.e., a lien) and is (1) A tax ordinance shall describe with
enforceable against it. reasonable accuracy the nature, extent and
(6) With respect to LGUs, it is levied thru a location of the public works to be
delegated power undertaken, the estimated cost, the metes
and bounds by monuments and lines and the
Imposition of Real Property Tax number of annual installments which should
not be less than five (5) nor more than ten
Coverage (10) years.
For a Province, or a City or Municipality within (2) The sanggunian may fix different rates for
Metro Manila different parts or sections thereof, depending
(1) Land on whether such land is more or less
(2) Building benefited by the proposed work. [Sec. 241,
(3) Machinery LGC]
(4) Other improvements not specifically
exempted [Sec. 232, LGC]
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(3) Condonation of real property tax Purchase by LGU for Want of Bidder
(a) By SANGGUNIAN: in case of general There is no bidder; or
failure of crops or substantial decrease in The highest bid is for an amount
the price of agricultural or agri-based When insufficient to pay the real
products or calamity in any LGU [Sec. Available property tax and the related
276, LGC] interest and costs of sale
(b) By the PRESIDENT of the Philippines: The local treasurer conducting
when public interest so requires [Sec. Duty of the the sale shall purchase the
277, LGC] Local property in behalf of the LGU to
Treasurer satisfy the claim and within two
Remedies of LGUs for Collection of Real (2) years thereafter shall make a
Property Tax report of his proceedings.
Redemption Within one (1) year from the date
Administrative Period of forfeiture
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appeal to the LBAA. The procedure likewise (b) Copies of tax declarations and other
does not permit the property owner the remedy affidavits or documents must be submitted
of filing a motion for reconsideration before the [Sec. 226, LGC]
local assessor.
The LBAA shall decided the appeal within 120
days from the date of receipt of such appeal
Victorias Milling v. CTA (G.R. No. L-24213, Mar. 13, [Sec. 229, LGC]
1968)- The failure to appeal within the statutory
period renders the assessment final and Appeal to the CBAA
unappealable. Appeal must be filed within 30 days from the
receipt of the decision of LBAA [Sec. 229, LGC]
Appeal to the Central Board of Assessment
Appeals (CBAA) Appeal to the CTA En Banc
Appeal must be filed within 30 days from the Appeal must be filed through a petition for
receipt of the decision of LBAA [Sec. 229, LGC] review within 30 days from the receipt of the
decision of CBAA [Sec. 11, R.A. 1125 as
Effect of payment of tax amended]
Appeal on assessments of real property shall
NOT SUSPEND the collection of the Appeal to the SC
corresponding realty taxes on the property Appeal must be filed within fifteen (15) days
involved as assessed by the provincial or city from receipt of decision of the CTA (Rule 45,
assessor without prejudice to the subsequent Rules of Court)
readjustment depending upon the final
outcome of the appeal. [Sec. 231, LGC] Judicial
(1) Question on the legality of a tax ordinance
(2) Payment of real property under protest (a) Any question on the constitutionality or
File protest with local treasurer legality of a tax ordinance may be raised
No protest shall be entertained unless the tax is on appeal within thirty (30) days from
first paid. The protest must be in writing and effectivity to the Secretary of Justice who
filed within 30 days from payment of the tax to shall render a decision within sixty (60)
the local treasurer. days from the date of receipt of the
appeal.
Meralco v. Nelia Barlis (G.R. No. 114231, May 18, (b) The appeal shall not have the effect of
2001): The trial court has no jurisdiction to issue suspending the effectivity of the tax
a writ of prohibition which seeks to set aside the ordinance and the accrual and payment
warrant of garnishment over petitioner’s bank of the tax.
deposit in satisfaction of real property taxes (c) Within thirty (30) days after receipt of the
without paying first under protest the tax decision or the lapse of the sixty-day
assessed and without exhausting available period without the Secretary of Justice
administrative remedies. acting upon the appeal, the aggrieved
party may file appropriate proceedings
The local treasurer shall decide the protest with a court of competent jurisdiction.
within 60 days from receipt. (Sec. 187, LGC)
(2) Assailing the validity of a tax sale
Appeal to the LBAA No court shall entertain any action assailing
Appeal must be filed within 60 days from the the validity of any sale at public auction until
date of receipt of denial of protest or upon lapse the taxpayer shall have deposited with the
of 60 days to decide court the amount for which the real property
(a) By filing a petition under oath in the form was sold, together with interest of two
prescribed for the purpose percent (2%) per month from the date of sale
to the time of the institution of the action.
[Sec. 267, LGC]
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Flowchart V: Procedure for Assessment of Land Value for Real Property Tax
Purposes-Local Gov’t Code
For purposes of this flowchart owner means owner or administrator of real property or any person having legal interest thereto
Assessor prepares
Owner declares real Assessor declares
assessment rolls
property once every 3 real property if owner/
START wherein real property
years (sec. 202) w/n administrator fails to
shall be listed, valued
Jan 1 to June 30 do so (sec. 204)
and assessed (sec. 205)
Submit documents
Owner may claim
supporting exemption w/ Is real property
for tax exemption Yes
in 30 days from tax exempt?
Required (sec. 206)
declaration (sec. 206)
Documents
submitted w/in
30 days? Property shall be
Property dropped from
Yes proven as tax Yes
assessment roll
No exempt? (sec. 206)
Property shall be
listed as taxable in
No
the assessment
roll (sec. 206) END
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Amount of tax
LT must decide w/
protested shall be
LT grants LT decides w/in in 60 days from
refunded or Yes Yes
protest? 60 days? receipt of protest
applied as tax
(sec. 252)
credit (Sec. 252)
No
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For purposes of this flowchart owner means owner or administrator of real property or any
START person having legal interest thereto
LT returns to the
Sanggunian concerned
purchaser/bidder the
may, by ordinance sell
price paid + interest
and dispose of the real
of 2% per month
LT shall deliver to property acquired under
(sec. 261)
purchaser certificate the preceding section at
of sale public auction. (sec. 264)
If property is not
redeemed, the local Levy may be repeated
Proceeds of sale in treasurer shall until the full amount due,
excess of delinquent execute a deed of including all expenses, is
tax, interest & conveyance to the collected. (sec. 265)
expenses of sale purchaser (sec. 262)
remitted to the owner
(sec. 260)
END
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TARIFF AND CUSTOMS CODE OF (c) U.S. Dollars, having ceased to be legal
1978, AS AMENDED tender in the Philippines, fall within the
meaning of the term merchandise [Bastida v,
TARIFF AND DUTIES, DEFINED Commissioner of Customs, G.R. No. L-20411,
Tariff October 24, 1970]
(a) Taxes or list of articles liable to duties
(b) A list or schedule of articles on which a duty PURPOSE FOR IMPOSITION
is imposed upon the importation into the For the protection of consumers and
country, with the rates at which they are manufacturers, as well as Phil. products from
severally taxed. And derivatively, the system undue competition posed by foreign-made
of imposing duties or taxes on the products.
importation of foreign merchandise
FLEXIBLE TARIFF CLAUSE
Custom duties Constitutional Basis: Sec. 28(2), Art. VI, 1987
(a) Taxes on the importation or exportation of Constitution:
commodities
(b) Tariff or tax assessed upon the merchandise The Congress may, by law, authorize the
imported from or exported to a foreign President to fix with specified limits, and subject
country to such limitations and restrictions, as it may
impose, tariff rates, import and export quotas,
(1) Export tariff – levied, assessed and tonnage and wharfage duties, and other duties
collected an export duty on the gross FOB or imposts within the framework of the national
value at the time of shipment based on development program of the Government.
the prevailing rate on traditional export
products, such as certain wood products, The flexible tariff clause refers to the authority
mineral products, plant and vegetable given to the President, upon the
products [Sec. 514, TCC] recommendation of NEDA, to adjust the tariff
rates in the interest of national economy,
Note: export tariff had been abolished general welfare and/or national security [Sec.
except upon logs (Sec. 1, EO 26). 401, TCC]
(2) Import tariff – articles, when imported The President is empowered to:
from any foreign country, shall be subject (1) increase, reduce or remove existing rates
to duty upon each importation, even (increase in the rate cannot exceed 100% ad
though previously exported from the valorem), including authority to modify the
Philippines, except as otherwise form of duty
specifically provided under the Code or (2) establish import quota or ban import of any
special laws [Sec. 100, TCC] commodity
(3) impose an additional duty not exceeding
GENERAL RULE: ALL IMPORTED ARTICLES 10% ad valorem
ARE SUBJECT TO DUTY. IMPORTATION BY
THE GOVERNMENT TAXABLE. Procedure:
(a) All articles, when imported from any foreign (1) Tariff Commission shall conduct an
country into the Philippines, shall be subject investigation and hold public hearings
to duty upon each importation, even though wherein interested parties shall be afforded
previously exported from the Philippines, reasonable opportunity to be present,
except as otherwise specifically provided produce evidence, and be heard. It shall also
[Sec. 100, TCC] hear the views and recommendations of any
(b) Articles = goods, wares, merchandise and in government office, agency or instrumentality
general anything that may be made subject concerned.
of importation or exportation [Sec. 3574, (2) Commission shall be submit their findings
TCC] and recommendations to the NEDA within
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THREE YEARS from the date of the the latter should be dissatisfied with
final payment of duties. the appraisal or return
(d) Upon demand by the Commissioner
Exceptions: of Customs after the completion of
(1) Fraud compliance audit pursuant to the
(2) Protest provisions of this Code." [R.A. 9135,
(3) Compliance audit pursuant to the April 27, 21001]
provisions of the Code
(f) Keeping of records
Note: Exception dies not apply in case of (1) all importers are required to keep at
TENTATIVE LIQUIDATION their principal place of business, in the
manner prescribed by regulations to
Fractions in the Liquidation. — A fraction be issued by the Commissioner of
of a peso less than fifty centavos shall Customs and for a period of 3 years
be disregarded, and a fraction of a peso from the date of importation , all
amounting to fifty centavos or more records of their importations and/or
shall be considered as one peso. In case books of accounts, business and
of overpayment or underpayment of computer systems and all customs
duties, taxes, surcharges, wharfage commercial data including payment
and/or other charges paid on entries, records relevant to the verification of
where the amount involved is less than the accuracy of the transactions value
five pesos, no refund or collection shall declared by the importer/customs
be made. [Sec. 1604, TCC] brokers on the import duty
(2) all brokers are required to keep at their
Other Notes: principal place of business for a period
Readjustment of Appraisal, of 3 years from date of importation
Classification or Return [Sec. 1407, TCC] copies
(a) custom officer authorized by BOC
Prescriptive Period for Appraisal, may enter during office hours any
Classification or Return premises or place where the records
are kept to conduct an audit
Rule: Appraisal, classification or return examination, inspection, verification
as finally passed upon and approved or or investigation
modified by the Collector shall not be (b) officer may make copies or take
altered or modified in any manner. extracts from any of such
documents
Exceptions (c) certified copy may be evidence
(a) Within one year after payment of the admissible in all courts as if original
duties, upon statement of error in
conformity with seventeen hundred IMPORTATION IN VIOLATION OF TCC
and seven hereof, approved by the
Collector Smuggling
(b) Within fifteen days after such In order to prevent smuggling and to secure the
payment upon request for collection of the legal duties, taxes and other
reappraisal and/or reclassification charges, the customs service shall exercise
addressed to the Commissioner by surveillance over the coast, beginning when a
the Collector, if the appraisal and/or vessel or aircraft enters Philippine territory and
classification is deemed to be low concluding when the article imported therein
(c) Upon request for reappraisal and/or has been legally passed through the
reclassification, in the form of a customhouse. [Sec. 2202]
timely protest addressed to the
Collector by the interested party if
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Smuggling: Any person who shall fraudulently (3) Concealment or Destruction of Evidence of
import or bring into the Philippines, or assist in Fraud: Any person who willfully conceals or
so doing, any article, contrary to law, or shall destroys, any invoice, book or paper relating
receive, conceal, buy, sell, or in any manner to any article liable to duty, after an
facilitate the transportation, concealment, or inspection thereof has been demanded by
sale of such article after importation, knowing the Collector of any Collection district, or at
the same to have been imported contrary to any time conceals or destroys any such
law; includes the exportation of articles in a invoice, book or paper for the purpose of
manner contrary to law. [Sec. 3519, TCC] suppressing any evidence of fraud therein
contained [Sec. 3605, TCC]
Penalties for Unlawful Importation: (4) Affixing Seals: Any person who shall willfully
Person found guilty of smuggling shall be break or destroy any seal placed by a
punished by a fine of not less than six hundred customs official upon any car, or other
pesos nor more than five thousand pesos and conveyance by land, sea or air, or any
imprisonment for not less than six months nor compartment thereof [Sec. 3606, TCC]
more than two years and, if the offender is an (5) Removal, Breakage, Alteration of Marks: Any
alien, he shall be deported after serving the person who alters, defaces or obliterates any
sentence. distinctive mark placed by a customs official
on any package of warehoused articles [Sec.
When the defendant is shown to have or to have 3607, TCC]
had possession of the article in question, such (6) Removing Goods from Customs Custody: Any
possession shall be deemed sufficient evidence importer or owner of warehoused articles, or
to authorize conviction, unless the defendant person in his employ, who by contrivance,
shall explain the possession to the satisfaction fraudulently opens the warehouse, or gains
of the court. [Sec. 3601, TCC] access to the articles, except in the presence
of the proper official of the customs acting in
Other fraudulent practices the execution of his duty [Sec. 3608, TCC]
(1) Various Practices against Customs Revenue: (7) Failure to Keep Importation Records and Give
Any person who makes or attempts to make Full Access to Customs Officers: Any person
any entry of imported or exported article by who shall fraudulently remove warehoused
means of any false or fraudulent invoice, articles from any public or private warehouse
declaration, affidavit, letter, paper, or by or shall fraudulently conceal such articles in
means of any false statement, written or any such warehouse, or shall aid or abet any
verbal, or by means of any false or fraudulent such removal or concealment [Sec. 3609,
practice whatsoever, or shall be guilty of any TCC]
willful act or omission by means of whereof
the Government might be deprived of the CLASSIFICATION OF GOODS
lawful duties, taxes and other charges, or any (1) Taxable importation
portion thereof, accruing from the article or All articles, when imported from any foreign
any portion thereof, embraced or referred to country into the Philippines, shall be subject
in such invoice, declaration, affidavit, letter, to duty upon each importation, even though
paper, or statement, or affected by such act previously exported from the Philippines,
or omission [Sec. 3602, TCC] except as otherwise specifically provided for
(2) Failure to Report Fraud: Any master, pilot in in this Code or in other laws. [Sec. 100, TCC]
command or other officer, owner or agent of
any vessel or aircraft trading with or within (2) Prohibited importation [Sec. 101, TCC] (POPP-
the Philippines and any employee of the LAW-DING)
Bureau of Customs, who, having cognizance (a) Dynamite, gunpowder, ammunitions and
of any fraud upon the customs revenue, shall other explosives, firearm and weapons of
fail to report all information relative thereto war, and detached parts thereof, except
to the Collector, as required by law [Sec. when authorized by law.
3603, TCC]
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(b) Written or printed article in any form habit forming by the President of the
containing: Philippines, any compound,
(1) any matter advocating or inciting manufactured salt, derivative, or
treason, rebellion, insurrection or preparation thereof,
sedition against the Government of the
Philippines Except when imported by the Government
(2) forcible resistance to any law of the of the Philippines or any person duly
Philippines authorized by the Collector of Internal
(3) containing any threat to take the life of Revenue for medicinal purposes only.
or inflict bodily harm upon any person
in the Philippines. (j) Opium pipes and parts thereof, of
(c) Written or printed articles, photographs, whatever material.
engravings, lithographs, objects, (k) All other articles the importation of which
paintings, drawings or other is Prohibited by law.
representation of an obscene or Immoral
character. (3) Conditionally-free importation [Sec. 105, TCC]
(d) Articles, instruments, drugs and
substances designed, intended or The following articles shall be exempt from
adapted for Preventing human the payment of import duties upon
conception or producing unlawful compliance with the formalities prescribed
abortion, or any printed matter which in, or with, the regulations which shall be
advertises or describes or gives directly or promulgated by the Commissioner of
indirectly information where, how or by Customs with the approval of the Secretary
whom human conception is prevented or of Finance:
unlawful abortion produced.
(e) Roulette wheels, Gambling outfits, loaded (a) Aquatic products (e.g., fishes,
dice, marked cards, machines, apparatus crustaceans, mollusks, marine animals,
or mechanical devices used in gambling, seaweeds, fish oil, roe), caught or
or in the distribution of money, cigars, gathered by fishing vessels of Philippine
cigarettes or other articles when such registry: Provided, That they are imported
distribution is dependent upon chance, in such vessels or in crafts attached
including jackpot and pinball machines or thereto: And provided, further, That they
similar contrivances. have not been landed in any foreign
(f) Lottery and sweepstakes tickets, territory or, if so landed, they have been
advertisements thereof and lists of landed solely for transshipment without
drawings therein. having been advanced in condition;
Except those authorized by the Philippine (b) Equipment for use in the salvage of
Government vessels or aircrafts, not available locally,
upon identification and the giving of a
(g) Any article manufactured in whole or in bond in an amount equal to one and one-
part of gold silver or other Precious metal, half times the ascertained duties, taxes
or alloys thereof, the stamps brands or and other charges thereon, conditioned
marks of which do not indicate the actual for the exportation thereof or payment of
fineness or quality of said metals or alloys. the corresponding duties, taxes and other
(h) Any Adulterated or misbranded article of charges within six (6) months from the
food or any adulterated or misbranded date of acceptance of the import entry:
drug in violation of the provisions of the Provided, That the Collector of Customs
"Food and Drugs Act." may extend the time for exportation or
(i) Marijuana, opium poppies, coca leaves, or payment of duties, taxes and other
any other Narcotics or synthetic drugs charges for a term not exceeding six (6)
which are or may hereafter be declared
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months from the expiration of the original articles, portable appliances and
period; instruments and similar personal effects,
excluding vehicles, watercrafts, aircrafts,
(c) Cost of repairs, excluding the value of the and animals purchased in foreign
article used, made in foreign countries countries by residents of the Philippines
upon vessels or aircraft documented, which were necessary, appropriate and
registered or licensed in the Philippines, normally used for the comfort and
upon proof satisfactory to the Collector of convenience in their journey and during
Customs (1) that adequate facilities for their stay abroad upon proof satisfactory
such repairs are not afforded in the to the Collector of Customs that same
Philippines, or (2) that such vessels or have been in their use abroad for more
aircrafts, while in the regular course of her than six (6) months and accompanying
voyage or flight was compelled by stress them on their return, or arriving within a
of weather or other casualty to put into a reasonable time which, barring
foreign port to make such repairs in order unforeseen circumstances, in no case
to secure the safety, seaworthiness or shall exceed ninety (90) days before or
airworthiness of the vessel or aircraft to after the owners' return: Provided, That
enable her to reach her port of the personal and household effects shall
destination; neither be in commercial quantities nor
intended for barter, sale or hire and that
(d) Articles brought into the Philippines for the total dutiable value of which shall not
repair, processing or reconditioning to be exceed two thousand pesos (P2,000.00):
re-exported upon completion of the Provided further, That the returning
repair, processing or reconditioning: residents have not previously received the
Provided, That the Collector of Customs benefit under this section within one year
shall require the giving of a bond in an from and after the last exemption
amount equal to one and one-half times granted: Provided furthermore, That a
the ascertained duties, taxes and other fifty (50) per cent ad valorem duty across
charges thereon, conditioned for the the board shall be levied and collected on
exportation thereof or payment of the the personal and household effects
corresponding duties, taxes and other (except luxury items) in excess of two
charges within six (6) months from the thousand pesos (P2,000.00): And
date of acceptance of the import entry; provided, finally, That the personal and
household effects (except luxury items) of
(e) Medals, badges, cups and other small a returning resident who has not stayed
articles bestowed as trophies or prizes, or abroad for six (6) months shall be subject
those received or accepted as honorary to fifty (50)per cent ad valorem duty
distinction; across the board, the total dutiable value
of which does not exceed two thousand
(f) Personal and household effects belonging pesos (P2,000.00); any excess shall be
to residents of the Philippines returning subject to the corresponding duty
from abroad including jewelry, precious provided in this Code;
stones and other articles of luxury which
were formally declared and listed before (g) Wearing apparel, articles of personal
departure and identified under oath adornment, toilet articles, portable tools
before the Collector of Customs when and instruments, theatrical costumes and
exported from the Philippines by such similar effects accompanying travelers, or
returning residents upon their departure tourists. or arriving within a reasonable
therefrom and during their stay abroad; time before and after their arrival in the
personal and household effects including Philippines, which are necessary and
wearing apparel, articles of personal appropriate for the wear and use of such
adornment (except luxury items), toilet persons according to the nature of the
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months from the expiration of the original of foreign embassies, legations, consular
period; and technical and scientific films officers and other representatives of
when imported by technical, cultural and foreign governments: Provided, That such
scientific institutions, and not to be privilege shall be accorded under special
exhibited for profit: Provided, further, That agreements between the Philippines and
if any of the said films is exhibited for the countries which they represent: And
profit, the proceeds therefrom shall be Provided, further, That the privilege may
subject to confiscation, in addition to the be granted only upon specific instructions
penalty provided under Section Thirty-six of the Secretary of Finance in each
hundred and ten as amended, of this instance which will be issued only upon
Code; request of the Department of Foreign
Affairs;
(j) Articles brought by foreign film producers
directly and exclusively used for making or (l) Imported articles donated to, or for the
recording motion picture films on location account of, any duly registered relief
in the Philippines, upon their organization, not operated for profit, for
identification, examination and appraisal free distribution among the needy, upon
and the giving of a bond in an amount certification by the Department of Social
equal to one and one-half times the Services and Development or the
ascertained duties, taxes and other Department of Education, Culture and
charges thereon, conditioned for Sports, as the case may be;
exportation thereof or payment of the
corresponding duties, taxes and other (m) Containers, holders and other similar
charges within six (6) months from the receptacles of any material including kraft
date of acceptance of the import entry, paper bags for locally manufactured
unless extended by the Collector of cement for export, including corrugated
Customs for another six (6) months; boxes for bananas, mangoes, pineapples
photographic and cinematographic films, and other fresh fruits for export, except
undeveloped, exposed outside the other containers made of paper,
Philippines by resident Filipino citizens or paperboard and textile fabrics, which are
by producing companies of Philippine of such character as to be readily
registry where the principal actors and identifiable and/or reusable for shipment
artists employed for the production are or transportation of goods shall be
Filipinos, upon affidavit by the importer delivered to the importer thereof upon
and identification that such exposed films identification, examination and appraisal
are the same films previously exported and the giving of a bond in an amount
from the Philippines. As used in this equal to one and one-half times the
paragraph, the terms "actors" and ascertained duties, taxes and other
"artists" include the persons operating the charges within six (6) months from the
photographic cameras or other date of acceptance of the import entry;
photographic and sound recording
apparatus by which the film is made; (n) Supplies which are necessary for the
reasonable requirements of the vessel or
(k) Importations for the official use of foreign aircraft in her voyage or flight outside the
embassies, legations, and other agencies Philippines, including articles transferred
of foreign governments: Provided, That from a bonded warehouse in any
those foreign countries accord like collection district to any vessel or aircraft
privileges to corresponding agencies of engaged in foreign trade, for use or
the Philippines; consumption of the passengers or its crew
on board such vessel or aircrafts as sea or
Articles imported for the personal or air stores; or articles purchased abroad for
family use of the members and attaches sale on board a vessel or aircraft as saloon
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stores or air store supplies: Provided, That uncut, and jewelry set with precious
any surplus or excess of such vessel or stones), the value of any single
aircraft supplies arriving from foreign importation of which does not exceed ten
ports or airports shall be dutiable; thousand pesos (P10,000.00) upon the
giving of a bond in an amount equal to
(o) Articles and salvage from vessels twice the ascertained duties, taxes and
recovered after a period of two (2) years other charges thereon, conditioned for the
from the date of filing the marine protest exportation of said samples within six (6)
or the time when the vessel was wrecked months from the date of the acceptance
or abandoned, or parts of a foreign vessel of the import entry or in default thereof,
or her equipment, wrecked, abandoned in the payment of the corresponding duties,
Philippine waters or elsewhere: Provided, taxes and other charges. If the value of
That articles and salvage recovered within any single consignment of such
the said period of two (2) years shall be commercial samples exceeds ten
dutiable; thousand pesos (P10,000.00),the
importer thereof may select any portion of
(p) Coffins or urns containing human same not exceeding in value of ten
remains, bones or ashes, used personal thousand pesos (P10,000.00) for entry
and household effects (not merchandise) under the provision of this subsection, and
of the deceased person, except vehicles, the excess of the consignment may be
the value of which does not exceed ten entered in bond, or for consumption, as
thousand pesos (P10,000.00), upon the importer may elect;
identification as such;
(r) Animals (except race horses), and plants
(q) Samples of the kind, in such quantity and for scientific, experimental, propagation,
of such dimension or construction as to botanical, breeding, zoological and
render them unsalable or of no national defense purposes: Provided, That
appreciable commercial value; models no live trees, shoots, plants, moss, and
not adapted for practical use; and bulbs, tubers and seeds for propagation
samples of medicines, properly marked purposes may be imported under this
"sample-sale punishable by law," for the section, except by order of the
purpose of introducing a new article in the Government or other duly authorized
Philippine market and imported only once institutions: Provided, further, That the
in a quantity sufficient for such purpose by free entry of animals for breeding
a person duly registered and identified to purposes shall be restricted to animals of
be engaged in that trade: Provided, That recognized breed, duly registered in the
importations under this subsection shall book of record established for that breed,
be previously authorized by the Secretary certified as such by the Bureau of Animal
of Finance: Provided, however, That Industry: Provided, furthermore, That
importation of sample medicine shall be certificate of such record, and pedigree of
previously authorized by the Secretary of such animal duly authenticated by the
Health that such samples are new proper custodian of such book of record,
medicines not available in the Philippines: shall be produced and submitted to the
Provided, finally, That samples not Collector of Customs, together with
previously authorized and/or properly affidavit of the owner or importer, that
marked in accordance with this section such animal is the animal described in
shall be levied the corresponding tariff said certificate of record and pedigree:
duty. And Provided, finally, That the animals
and plants are certified by the National
Commercial samples, except those that Economic and Development Authority as
are not readily and easily identifiable (e.g., necessary for economic development;
precious and semi-precious stones, cut or
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(s) Economic, technical, vocational, scientific, Philippine articles and returned empty if
philosophical, historical, and cultural imported by or for the account of the
books and/or publications: Provided, That person or institution who exported them
those which may have already been from the Philippines and not for sale,
imported but pending release by the barter or hire subject to identification:
Bureau of Customs at the effectivity of Provided, That any Philippine article
this Decree may still enjoy the privilege falling under this subsection upon which
herein provided upon certification by the drawback or bounty has been allowed
Department of Education, Culture and shall, upon re-importation thereof, be
Sports that such imported books and/or subject to a duty under this subsection
publications are for economic, technical, equal to the amount of such drawback or
vocational, scientific, philosophical, bounty.
historical or cultural purposes or that the
same are educational, scientific or cultural (u) Aircraft, equipment and machinery, spare
materials covered by the International parts commissary and catering supplies,
Agreement on Importation of Educational aviation gas, fuel and oil, whether crude
Scientific and Cultural Materials signed by or refined, and such other articles or
the President of the Philippines on August supplies imported by and for the use of
2, 1952, or other agreements binding scheduled airlines operating under
upon the Philippines. Congressional franchise: Provided, That
such articles or supplies are not locally
Educational, scientific and cultural available in reasonable quantity, quality
materials covered by international and price and are necessary or incidental
agreements or commitments binding for the proper operation of the scheduled
upon the Philippine Government so airline importing the same;
certified by the Department of Education,
Culture and Sports. (v) Machineries, equipment, tools for
production, plants to convert mineral ores
Bibles, missals, prayer books, Koran, into saleable form, spare parts, supplies,
Ahadith and other religious books of materials, accessories, explosives,
similar nature and extracts therefrom, chemicals, and transportation and
hymnal and hymns for religious uses; communication facilities imported by and
for the use of new mines and old mines
(t) Philippine articles previously exported which resume operations, when certified
from the Philippines and returned without to as such by the Secretary of Agriculture
having been advanced in value or and Natural Resources upon the
improved in condition by any process of recommendation of the Director of Mines,
manufacture or other means, and upon for a period ending five (5) years from the
which no drawback or bounty has been first date of actual commercial production
allowed, including instruments and of saleable mineral products: Provided,
implements, tools of trade, machinery and That such articles are not locally available
equipment, used abroad by Filipino in reasonable quantity, quality and price
citizens in the pursuit of their business, and are necessary or incidental in the
occupation or profession; and foreign proper operation of the mine; and
articles previously imported when aircrafts imported by agro-industrial
returned after having been exported and companies to be used by them in their
loaned for use temporarily abroad solely agriculture and industrial operations or
for exhibition, testing and activities, spare parts and accessories
experimentation, for scientific or thereof;
educational purposes; and foreign
containers previously imported which (w) Spare parts of vessels or aircraft of
have been used in packing exported foreign registry engaged in foreign trade
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(d) assists (value of goods and services (4) Any person directly or indirectly
supplied by the buyer free of charge or at owns, controls or holds 5% or more
a reduced price for use in connection with of the outstanding voting stock or
the production and sale for export of the shares of bother seller and buyer;
good) (5) One of them directly or indirectly
(e) royalties & license fees controls the other;
(f) value of any part of the proceeds of (6) Both of them are directly or
subsequent resale, disposal or use of indirectly controlled by a 3rd person;
imported goods that accrue directly or (7) Together they directly or indirectly
indirectly to seller control a 3rd person; or
(g) cost of transport (8) Related by affinity or consanguinity
(h) loading, unloading, handling up to 4th civil degree.
(i) insurance
IF RELATED, USE OF TRANSACTION
Dutiable Value (DV) must NOT include: VALUE (TV) ACCEPTABLE IF:
(a) charges for construction, erection, (1) circumstances surrounding
assembly maintenance or technical transaction show that relationship
assistance undertaken after importation did not influence the price
(b) cost of transport after importation (2) TV closely approximates:
(c) duties and taxes of Phil (a) TV of unrelated buyers of
(d) other permissible deduction under WTO identical or similar goods
Valuation Agreement (b) Deductive value of identical or
similar goods determined
ALL the following CONDITIONS must be according to method #4
satisfied so the Transaction Value shall be (c) Computed value of identical or
the DV (CREPD): similar goods determined
(1) sale for Export to Phil according to method #5
(2) no restrictions as to the Disposition or (2) Transaction Value of Identical Goods
use of goods by buyer except: The DV shall be the transaction value of
(a) those imposed by law or Phil identical goods sold for export to the Phil
authorities and exported at or about the same time as
(b) limit the geographical area where the goods being valued. Identical goods
goods may be resold must be same commercial level and
(c) do not substantially affect the value substantially same quantity as the goods
of the goods being valued.
(3) not be subject to some Condition or
consideration for which value cannot Identical goods
be determined (a) Same in all respects (physical characteristics,
(4) no part of the Proceeds of any quality and reputation)
subsequent disposal shall accrue to (b) Produced in the same country as the goods
the seller being valued
(5) buyer and seller are not Related or if (c) Produced by producer of the goods being
they are, relationship did not affect the valued
price
Excludes: imported goods for which
DEEMED RELATED IF: engineering, development, artwork, design
(1) They are officers or directors of one work, plans and sketches is undertaken in the
another’s business; Phil and provided by the buyer to the producer
(2) They are legally recognized free of charge or at a reduced rate
partners in business;
(3) There exists in an er-ee relationship
between them;
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DV is calculated by:
determining aggregate of relevant costs,
charges and expenses or value of (1)
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(b) Specific [Sec. 202, TCC] (2) Seizure and Forfeiture [Sec. 2205]
Rates are based on unit of weight
number or measurement Who may effect:
customs official; Fisheries Commissions;
Kinds of weight: Philippine Coast Guard
(a) Gross Weight - weight of same,
together with the weight of all Note: Person who is exercising such an authority
containers, packages, holders and has the duty to make known his official
packings, of any kind, in which said character, upon being questioned at the time of
articles are contained, held or packed the exercise. If his authority came from a special
at the time of importation authorization, he has the duty to exhibit the
(b) Legal Weight – weight at the time of written authority upon demand.
their sale to the public in usual retail
quantities What:
(c) Net Weight – only the actual weight to make seizure of any vessel, aircraft, cargo,
at the time of importation excluding animal or any movable property when the same
the weight of the immediate and all is subject to forfeiture or liable for any fine
other containers under the tariff and customs law
(2) Special duties – additional import duties Where authority may be exercised:
imposed on specific kinds of imported at any place within the jurisdiction of the Bureau
articles (See Table of Special Duties) of Customs
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Other Rights/Authority of the Official effecting (4) Collector shall make a list and particular
the search and seizure: description and classification of the seized
(1) Authority to require assistance of any police property, appraisal based on local
officer if necessary [Sec. 2207] wholesale values by
(2) At any time, right to enter, pass through or (a) at least 2 appraising officials
search any inclosure or warehouse, or other (b) absent such, 2 competent
building, not being a dwelling house [Sec. disinterested citizens
2208]
(3) Right to enter and search a dwelling house, If within 15 days from notification, no
upon warrant issued by the Judge of the owner or agent is found or appears before
Court, or any responsible officer as may be Collector, then the property would be
authorized [Sec. 2209] forfeited to Government and sold at
(4) Right to Search Vessels or Aircrafts and auction
Persons or Articles Conveyed [Sec. 2210]
(5) Right to Search Vehicles, Beasts and Persons Settlement [Sec. 2307]
when he has reasonable cause to suspect the While case is pending, Collector may accept
presence therein of dutiable or prohibited settlement of any seizure case
article introduced into the Philippines (a) Upon approval of Commissioner
contrary to law [Sec. 2211] (b) Payment of fine ( 25% - 80% of the landed
(6) Search of Persons Arriving From Foreign cost of the article)
Countries [Sec. 2212] (c) In case of forfeiture, should pay the domestic
Administrative Proceedings [Secs 2301 – 2316] market value of the seized article
Procedure for Seizure:
(1) Collector shall issue a warrant for the When Settlement NOT allowed:
detention of the property (a) Fraud in importation
(b) Importation prohibited by law
Cash bond (c) Release would be contrary to law
(a) if importer wishes to secure release of article
for legitimate use Compromise [Sec. 2316, TCC]
(b) amount fixed by Collector Commissioner may compromise any case
(c) appraised value of article and/or fine, subject to approval by Secretary of Finance
expenses, costs
Judicial
Note: Article will NOT be released if:
(1) prima facie evidence of fraud in the Requisites for filing of criminal/civil case [Sec,
importation 2401, TCC]:
(2) article is prohibited by law (1) Brought in the name of the government of
the Phil
(2) Report to Commissioner and Chairman of (2) Conducted by Customs officers
Commission of Audit (3) With approval from the Commissioner
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How:
(1) Claim made in writing
(2) Collector shall verify with the records in his
office
(3) Certify claim to Commissioner with his
recommendation and necessary papers
(4) Commissioner shall then cause the claim to
be paid if found correct
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START
Collector’s Amount
decision favorable Automatic review* by Customs
Yes involved less Yes
to taxpayer/ Commisioner (Sec. 2313)
than 5M?
adverse to gov’t?
Is
Does
No Commissioner’s
commissioner
Yes decision favorable
decide w/in 30
Taxpayer appeals to taxpayer/
days?
to Customs adverse to gov’t?
Commissioner 15
days from receipt No
of notice
Inaction construed as affirmation
of Collector’s decision
Does
Commissioner
Yes No, amount is at least
decide w/n 30
Is 5M
days?
Commissioner’s Yes
Automatic Review* by
decision
the Secretary of
favorable to Yes
Finance (SOF) (Sec.
taxpayer/
2313, CMO 3-2002)
adverse to
gov’t?
Is SOF’s
decision Does SOF
No favorable to Yes decide within
No No taxpayer/adverse 30 days?
to gov’t?
No
Yes
Inaction construed as
affirmation of
Decision becomes
commissioner’s decision No
END final &
(or of collector’s decision Appeal
unappealable
in case of inaction by to CTA
commissioner)
Appeal to the
Inaction construed
Court of Tax
as affirmation of
Appeals within 30
Collector’s
days from notice
decision
of decision
Appeal to CTA en
MR within 15 days
banc 15 days from Appeal to the
from receipt of END
receipt of decision Supreme Court
decision
denying MR
*Automatic review is intended to protect the interest of the Government. W/o auto review, the Commissioner and SoF would not know
about the decision laid down by the Collector favoring the taxpayer. Automatic review is necessary because nobody is expected to appeal
the decision of the Collector which is favorable to the taxpayer & adverse to the Government. (Yaokasin v. Commissioner 180 SCTA 591
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Anti-Dumping Duty Equivalent to the subsidy 5% ad valorem of the Not exceeding 100% ad tariff increase, either For a):
= Normal Value - articles valorem upon the articles ad valorem or specific,
Export Price or both, to be paid appropriately set to a
through a cash bond level not exceeding one-
set at a level sufficient third of the applicable
to redress or prevent out-quota customs duty
injury to the domestic on the agricultural
industry [Sec. 8, RA product under
8800] consideration in the year
when it is imposed
For b), compute as
follows:
(a) 0 - if price difference
is at most 10% of the
trigger price
(b) 30% of the amount
by which the price
difference exceeds
10% of the trigger
price
(c) 50% - if it exceeds
40% but less than
60%
(d) 70% - if it exceeds
60 but at most 75%
(e) 90% - if it exceeds
75%
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
(5) Decisions of the Secretary of Trade and Criminal cases [Sec. 7, RA 1125 as amended]
Industry, in the case of non-agricultural
product, commodity or article, and the Exclusive Original Jurisdiction
Secretary of Agriculture in the case of All criminal offenses arising from violations of
agricultural product, commodity or article, the National Internal Revenue Code or Tariff
involving dumping and countervailing duties and Customs Code and other laws administered
under Section 301 and 302, respectively, of by the Bureau of Internal Revenue or the Bureau
the Tariff and Customs Code, and safeguard of Customs. Principal amount of taxes and fees,
measures under Republic Act No. 8800, exclusive of charges and penalties, claimed is
where either party may appeal the decision more than or equal to One million pesos
to impose or not to impose said duties. (Sec. (P1,000,000.00).
7, RA No. 1125 as amended)
The filing of the criminal action being deemed
CTA en Banc to necessarily carry with it the filing of the civil
(1) Decisions or resolutions on motions for action, and no right to reserve the filling of such
reconsideration or new trial of the Court in civil action separately from the criminal action
Divisions in the exercise of its exclusive will be recognized.
appellate jurisdiction over:
Exclusive appellate jurisdiction in criminal cases
(a) Cases arising from administrative
agencies – Bureau of Internal Revenue, CTA Division
Bureau of Customs, Department of (1) Over appeals from the judgments,
Finance, Department of Trade and resolutions or orders of the Regional Trial
Industry, Department of Agriculture; Courts in tax cases originally decided by
(b) Local tax cases decided by the Regional them, in their respected territorial
Trial Courts in the exercise of their original jurisdiction.
jurisdiction; and (2) Over petitions for review of the judgments,
(c) Tax collection cases decided by the resolutions or orders of the Regional Trial
Regional Trial Courts in the exercise of Courts in the exercise of their appellate
their original jurisdiction involving final jurisdiction over tax cases originally decided
and executory assessments for taxes, fees, by the Metropolitan Trial Courts, Municipal
charges and penalties, where the Trial Courts and Municipal Circuit Trial
principal amount of taxes and penalties Courts in their respective jurisdiction.
claimed is less than one million pesos;
CTA En Banc
(2) Decisions, resolutions or orders of the (1) Decisions, resolutions or orders on motions
Regional Trial Courts in local tax cases and for reconsideration or new trial of the Court
in tax collection cases decided or resolved by in Division in the exercise of its exclusive
them in the exercise of their APPELLATE original jurisdiction over cases involving
jurisdiction; criminal offenses arising from violations of
the National Internal Revenue Code or the
(3) Decisions, resolutions or orders on motions Tariff and Customs Code and other laws
for reconsideration or new trial of the Court administered by the Bureau of Internal
in Division in the exercise of its exclusive Revenue or Bureau of Customs;
original jurisdiction over tax collection cases; (2) Decisions, resolutions or orders on motions
for reconsideration or new trial of the Court
(4) Decisions of the Central Board of in Division in the exercise of its exclusive
Assessment Appeals (CBAA) in the exercise appellate jurisdiction over criminal offenses
of its appellate jurisdiction over cases mentioned in the preceding subparagraph;
involving the assessment and taxation of real and
property originally decided by the provincial
or city board of assessment appeals;
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
(3) Decisions, resolutions or orders of the (3) The taxpayer is out of the country or
Regional trial Courts in the exercise of their otherwise cannot be located. [Sec. 194, LGC]
appellate jurisdiction over criminal offenses
mentioned in subparagraph (f). Civil cases
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How: The motion shall be in writing stating Restrictions: No party shall be allowed
its grounds, a written notice of which shall be to file a second motion for
served by the movant on the adverse party. reconsideration of a decision, final
resolution or order; or for new trial.
A motion for new trial shall be proved in
the manner provided for proof of Appeal to the CTA, en banc:
motions. A motion for the cause No civil proceeding involving matter arising
mentioned in subparagraph (a) of the under the National Internal Revenue Code, the
preceding section shall be supported by Tariff and Customs Code or the Local
affidavits of merits which may be Government Code shall be maintained, except
rebutted by counter-affidavits. A motion as herein provided, until and unless an appeal
for the cause mentioned in has been previously filed with the CTA and
subparagraph (b) of the preceding disposed of in accordance with the provisions of
section shall be supported by affidavits this Act.
of the witnesses by whom such evidence
is expected to be given, or by duly A party adversely affected by a resolution of a
authenticated documents which are Division of the CTA on a motion for
proposed to be introduced in evidence. reconsideration or new trial, may file a petition
for review with the CTA en banc. (Sec. 18, RA
A motion for reconsideration or new No. 1125 as amended)
trial that does not comply with the
foregoing provisions shall be deemed Petition for review on certiorari to the Supreme
pro forma, which shall not toll the Court (Rule 16, A.M. No. 05-11-07)
reglementary period for appeal. A party adversely affected by a decision or ruling
of the Court en banc may appeal by filing with
Effect: The filing of a motion for the Supreme Court a verified petition for review
reconsideration or new trial shall on certiorari within fifteen days from receipt of a
suspend the running of the period copy of the decision or resolution, as provided in
within which an appeal may be Rule 45 of the Rules of Court. If such party has
perfected. filed a motion for reconsideration or for new
trial, the period herein fixed shall run from the
Grounds: A motion for new trial may be party’s receipt of a copy of the resolution
based on one or more of the following denying the motion for reconsideration or for
causes materially affecting the new trial.
substantial rights of the movant:
(a) Fraud, accident, mistake or The motion for reconsideration or for new trial
excusable negligence which ordinary filed before the Court shall be deemed
prudence could not have guarded abandoned if, during its pendency, the movant
against and by reason of which such shall appeal to the Supreme Court.
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Petition for review on certiorari to the Supreme and illegal official action. At the other
Court end, there is the public policy precluding
A party adversely affected by a decision or ruling excessive judicial interference in official
of the CTA en banc may file with the Supreme acts, which may unnecessarily hinder the
Court a verified petition for review on certiorari delivery of basic public services.
pursuant to Rule 45 of the 1997 Rules of Civil
Procedure. (Sec. 19, R.A. No. 1125 as amended) The Court has adopted the "direct injury
test" to determine locus standi in public
TAXPAYER’S SUIT IMPUGNING THE suits. In People v. Vera, it was held that a
VALIDITY OF TAX MEASURES OR ACTS OF person who impugns the validity of a
TAXING AUTHORITIES statute must have "a personal and
substantial interest in the case such that
Taxpayer’s suit, defined he has sustained, or will sustain direct
A "taxpayer's suit" refers to a case where the act injury as a result." The "direct injury test"
complained of directly involves the illegal in public suits is similar to the "real party
disbursement of public funds derived from in interest" rule for private suits under
taxation. (Kilosbayan v. Guingona, Jr. (1994)) Section 2, Rule 3 of the 1997 Rules of Civil
Procedure. [Planter’s Products, Inc. v.
Distinguished from citizen’s suit Fertiphil Corporation, G.R. No. 166006,
The plaintiff in a taxpayer's suit is in a different March 14, 2008]
category from the plaintiff in a citizen's suit. In
the former, the plaintiff is affected by the (2) AS APPLIED TO TAXATION:
expenditure of public funds, while in the latter, (a) It is well-stated that the validity of a
he is but the mere instrument of the public statute may be contested only by one
concern. [De Castro v. Judicial and Bar Council who will sustain a direct injury in
(2010)] consequence of its enforcement. Yet,
there are many decisions nullifying, at
Requisites for challenging the the instance of taxpayers, laws
constitutionality of a tax measure or act of providing for the disbursement of
taxing authority public funds, upon the theory that "the
expenditure of public funds by an
(1) Concept of locus standi as applied in taxation officer of the State for the purpose of
(1) CONCEPT OF LOCUS STANDI: The administering an unconstitutional act
doctrine of locus standi is the right of constitutes a misapplication of such
appearance in a court of justice. The funds," which may be enjoined at the
doctrine requires a litigant to have a request of a taxpayer. [Pascual v.
material interest in the outcome of a case. Secretary of Public Works (1960)]
In private suits, locus standi requires a (b) A taxpayer is allowed to sue where
litigant to be a "real party in interest," there is a claim that public funds are
which is defined as "the party who stands illegally disbursed, or that the public
to be benefited or injured by the judgment money is being deflected to any
in the suit or the party entitled to the improper purpose, or that there is
avails of the suit." wastage of public funds through the
enforcement of an invalid or
In public suits, this Court recognizes the unconstitutional law. A person suing
difficulty of applying the doctrine as a taxpayer, however, must show
especially when plaintiff asserts a public that the act complained of directly
right on behalf of the general public involves the illegal disbursement of
because of conflicting public policy issues. public funds derived from taxation. He
On one end, there is the right of the must also prove that he has sufficient
ordinary citizen to petition the courts to be interest in preventing the illegal
freed from unlawful government intrusion expenditure of money raised by
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UP LAW BOC TAXATION LAW 2 TAXATION LAW
taxation and that he will sustain a The constitutionality of the levy is already in
direct injury because of the doubt on a plain reading of the statute. It is
enforcement of the questioned statute Our constitutional duty to squarely resolve
or contract. In other words, for a the issue as the final arbiter of all justiciable
taxpayer’s suit to prosper, two controversies. The doctrine of standing,
requisites must be met: (1) public funds being a mere procedural technicality, should
derived from taxation are disbursed by be waived, if at all, to adequately thresh out
a political subdivision or an important constitutional issue.
instrumentality and in doing so, a law
is violated or some irregularity is (3) Ripeness for judicial determination
committed and (2) the petitioner is “Ripeness for judicial determination” means
directly affected by the alleged act. that litigation is inevitable or there is no
[Mamba v. Lara, G.R. No. 165109, Dec. adequate relief available in any other form or
14, 2009] proceeding.
(2) Doctrine of transcendental importance CJH Development Corp. v. BIR (GR No. 172457,
Recognizing that a strict application of the Dec. 24, 2008) However, CJH is not left
"direct injury" test may hamper public without recourse. The Tariff and Customs
interest, this Court relaxed the requirement Code (TCC) provides for the administrative
in cases of "transcendental importance" or and judicial remedies available to a taxpayer
with "far reaching implications." Being a who is minded to contest an assessment,
mere procedural technicality, it has also been subject of course to certain reglementary
held that locus standi may be waived in the periods. The TCC provides that a protest can
public interest. (Ibid) be raised provided that payment first be
made of the amount due. The decision of the
Planters Products, Inc. v. Fertiphil Corp.: Even Collector can be reviewed by the
assuming arguendo that there is no direct Commissioner of Customs who can approve,
injury, We find that the liberal policy modify or reverse the decision or action of the
consistently adopted by this Court on locus Collector. If the party is not satisfied with the
standi must apply. The issues raised by ruling of the Commissioner, he may file the
Fertiphil are of paramount public necessary appeal to the Court of Tax
importance. It involves not only the Appeals. Afterwards, the decision of the
constitutionality of a tax law but, more Court of Tax Appeals can be appealed to this
importantly, the use of taxes for public Court.
purpose. Former President Marcos issued
LOI No. 1465 with the intention of
rehabilitating an ailing private company. This
is clear from the text of the LOI. PPI is
expressly named in the LOI as the direct
beneficiary of the levy. Worse, the levy was
made dependent and conditional upon PPI
becoming financially viable. The LOI
provided that "the capital contribution shall
be collected until adequate capital is raised
to make PPI viable."
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