TAXATION LAW PRE-WEEK/LMT

BY ATTY. LUMBERA
Section 4 of the NIRC (Very important, lagi kasing nakakalimutan)

1st Power: Power of the CIR to interpret tax laws (NIRC and all other laws administered by the
BIR)
- Kapag hindi nag-agree ang taxpayer sa opinion ng BIR commissioner, (BIR Opinion,
or BIR Ruling, or BIR Specific Ruling, or BIR RMC, RMO, RR, itong output na mga
ito ay specific to a taxpayer situation, does not apply to all) Saan ka pupunta? Sec. of
Finance, within 30 days. Kapag nag-disagree naman sa decision ni Sec. of Finance,
then punta ka naman sa CTA Division within 30 days. Then go to CTA EB within 15
days, then to the SC within 15 days. (Rule 45)
- Huwag niyong kakalimutan that it is under the law that the CTA division has exclusive
jurisdiction over decisions of the secretary of finance.

2nd Power: Power to decide disputed assessments, refunds, other matters arising from the NIRC
or laws administered by the BIR.
- Here, BIR will be denying the protest, denying the claim, denying the claim of the
taxpayer, yan ang output, yan kunwari ang nangyari.
- Anong remedy ni taxpayer? Go to CTA Division within 30 days. Then go to CTA EB
within 15 days, then to the SC within 15 days. (Rule 45)
- Protest arises from issuance by the BIR of the final assessment notice or any collection
effort by the BIR relating the tax that is being collected.
- But don’t forget in protest cases, that after the CTA Division before going up to CBA
EB within 15 days, file a motion for reconsideration or motion for new trial. Doon sa
1st power, motion for reconsideration is a requirement, sa 2nd power, required lang ang
motion for new trial sa protest cases.
- Is the motion for reconsideration a pre-requisite here sa 2nd power? No, but it is an
accepted practice in our rules of procedure to give the court to correct itself by way of
filing of motion for reconsideration.

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Income

Income is anything that flows into the wealth of the taxpayer, or anything that increases net
worth of taxpayer other than mere return of capital.

The specific requirement before you consider what you receive is income, is that it must be
realized, whether in cash or in kind, legal or illegal sources, it does not matter. Meaning you
actually or constructively received the income.

Realized – dependent on the accounting method that we are using, whether cash or accrual
method.

Types of income Tax

Net income tax – graduated rates.

8% tax – This is in lieu of NIT. The rule is this does not apply to compensation income,
applies only to income from trade or business or exercise of profession without employer
employee relationship, and provided that the gross sales/receipts of INDIVIDUAL taxpayer
does not exceed the 3 million threshold of vat. (Explain natin to kasi ito yung medyo
mahirap)
- For example, if you are a purely compensation income earner, your tax due is net
income tax. If self-employed professional/individual, mamimili siya between NIT or
8%, pero mag-aapply lang yung 8% if si SEP/SEI yung gross sales/receipts niya ay
hindi nag-exceed ng 3 million in a year, kasi kapag nag-exceed NIT lang ang tax niya,
hindi na available ang 8%.
- Assuming that the 8% is available, when do you choose the 8%? And how do you
indicate the choice? You choose the 8% at the start of the calendar year (for individual
from January to December). Once you have chosen, that choice is irrevocable until
December. Next year, puwede ka ulit mamili, no problem.
- Where do you indicate the choice? Since you are SEP/SEI, you are required to file 4
QUARTERLY RETURNS. You must indicate your choice in the 1st QUARTERLY
RETURN, after then, it will be irrevocable until the end of the year.
- If you are a mixed income earner, your compensation income, automatic NIT ang tax
applicable. But in your income from trade or business or exercise of profession, you
may choose between NIT or 8%, provided not more than 3 million. ALWAYS
REMEMBER SI 3 MILLION THRESHOLD.

Withholding taxes (creditable withholding tax, final withholding tax, and expanded
withholding tax)
- What is the nature of WT? it means that income is taxed at source, meaning from the
source side kinukuha niya si tax at siya mismo ang nagreremit sa BIR.
- Parang employer, kapag binibigyan ka ni employer ng salary, si employer as an WT
agent withhold your tax from your salary and remit to BIR. For legal purposes of
refund, a WT agent is considered for all intents and purposes as a taxpayer, even if
wala siyang income at siya ang nagbabayad ng income.

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Capital gains tax – sa totoong buhay, this is in the nature WT.

Fringe Benefit tax – pertains to benefits received by employee on top of the salary, extended
only by the management in favor of managerial and supervisory employees. This is in the
nature of WT.

Corporate income tax – The difference between the individual and corporation, as far as the
net income tax system is concerned, is that FIXED ang rate ng corporation at 25%, general
rate. In lieu thereof, we have MCIT.

For corporate taxpayers, Minimum Corporate Income Tax (MCIT) – kapalit ng CIT, hindi
yan puwedeng i-impose kasama ang CIT. Laging isa lang.

For foreign corporations, Branch Profit Remittance Tax – applies only to certain type of
corporation.

TYPES OF INCOME TAXPAYERS

For individuals: RC, NRC, RA, NRAETB, NRANETB

- It is the intention of the taxpayer to stay either in the PH or outside PH, that is the
basic qualification kung paano siya clina-classify. The law does not specify the length
of stay.
- May include estates and trusts.
For corporations: DC, RFC, NRFC
- May include joint venture agreement, partnerships, consortium registered with SEC.

RESIDENT CITIZEN
- Napakadali, Pilipino na nakatira sa pilipinas.
- Ano meaning ng nakatira? Concept of domicile is applicable, it is the place where one
is absent has the intention of returning to.

NON-RESIDENT CITIZEN

1. PH citizen who establishes to the satisfaction of the CIR the fact of his physical presence
abroad with a definite intention to reside therein permanently.

2. PH citizen who leaves the Philippines during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.

3. PH citizen who works and derives income from abroad and whose employment thereat
requires him to be physically present abroad most of the time during the taxable year. To be
considered physically present abroad most of the time during the taxable year, a contract
worker must have been outside the PH for not less than 183 days during such taxable year.

4. PH citizen previously considered as a non-resident citizen and who arrives during the
taxable year to reside permanently in the PH - Treated as NRC with respect to his
income derived from sources abroad until his arrival in the PH.

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5. Seaman

RESIDENT ALIEN
- Foreigner na nakatira sa pilipinas.
- He has his domicile somewhere else.
- Hindi requirement ang length of stay, what matters is the intention to stay. For
instance, nag rent ka ng bahay, that’s clear manifestation to reside in ph.

NON-RESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS

- Principle of habituality, if an alien enters into a commercial transaction on a regular
basis within 1 calendar year in the Philippines, he is NRAETB.
- If an alien stays in the Philippines for an aggregate period of more than 180 days,
automatic he is NRAETB. Not necessary na continuous ang stay, alis balik alis balik,
bibilangin lahat ng araw ng stay sa pilipinas.
- If you appoint agents, hire employees, put up a branch of your business here in ph,
these are indicators that an alien is NRAETB.

NON-RESIDENT ALIEN NOT ENGAGED IN TRADE OR BUSINESS

- Foreigner na hindi nakatira sa pilipinas, at hindi engaged sa business or trade sa
Philippines.

DOMESTIC CORPORATION
- A corporation created and organized in the Philippines or under its laws regardless of
foreign equity.

RESIDENT FOREIGN CORPORATION

- Foreign corporation engaged in trade or business within the Philippines.

NON-RESIDENT FOREIGN CORPORATION

- Foreign corporation not engaged in trade or business within the Philippines.

GENERAL PROFESSIONAL PARTNERSHIP v. GENERAL CO-PARTNERSHIP (any

partnership other than GPP)

GPP is one which is established solely for the exercise of the common profession of the
partners, and no part of its income is derived from trade or business.

GPP is tax exempt whereas GCP is subject to tax.

EXEMPTION FROM TAX OF VARIOUS ORGANIZATIONS

Charitable, religious, non-stock non-profit educational institution, proprietary educational

institution, proprietary hospital, GOCCs, government.

Charitable organization, religious organization, charitable hospital, Government

educational institution.

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- Ang 2 possible questions ay about Real Property Tax (RPT) at income tax lang yan.
- Sa rpt, exempt provided actually, directly and exclusively used for charitable or
religious purposes (consti, local government).
- For income tax, income as such, exempted. (Section 30) However,
a. Income from property regardless of disposition, and
b. Income from activity conducted for profit regardless of disposition, are subject
to income tax.
Ex: interests of bank deposits, rental income, royalties, dividends (falls under a or b)

Regardless of disposition = means na kahit gamitin ang interest nila sa bangko sa

pagpapagawa ng simbahan hindi magiging exempted.

Non-stock non-profit educational institution

- Famous case is DLSU case.
- Sa rpt, exempt provided actually, directly and exclusively used for educational
purposes (consti, local government).
- For income, do not apply section 30 because it has been declared unconstitutional by
DLSU case.
- For income, regardless of source or kind of income received (tuition, library fee, etc.),
all are exempt from income tax provided all of these incomes are actually, directly
and exclusively used for educational purposes.
- How do you prove this? By the audited FS.

Proprietary educational institution and proprietary hospital

- For rpt, exempted. (LGC of 1991)
- For income tax, we have preferential tax rate of 10%. When do we apply this? If the
income from unrelated trade or activity exceeds 50% of total income, then regular rate
of 25% is applicable. However, if it does not exceed 50% of total income, preferential
tax rate of 10% applies.
- Unrelated trade or activity à activity which is not related to the primary purpose for
which it was created (ex: rental income)

GOCCs
- For rpt, exempted. (234, LGC)
- For income tax, general rule: subject to income tax except GSIS, SSS,
PHILHEALTH, PHIC, LWD.

GOVERNMENT
- For rpt, exempted.
- Exempted for income from governmental functions;
- Income from proprietary functions, subject to tax.

KINDS OF TAXPAYERS, SOURCE OF INCOME, TYPES OF TAX

TAXABILITY is dependent on source (w/in or without the ph)

WITHIN WITHOUT

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1 RC
2 NRC
3 RA
4 NRAETB
5 NRANETB
6 DC
7 RFC
8 NRFC

How do we impose tax on these A, B, C, D (Specific types of income)?

A (All income B (Passive C (Capital gains D (Capital

other than B, Income such as on sale of shares gains on sale of
C, D) interest on of stock in a real property
Bank Deposits, domestic located in the
royalties, corporation) PH)
dividends,
prizes and
winnings)
derived from
Philippines
sources
RC CGT 6% FMV
NRC NIT or 8% rate, FWT 20% or Gross Selling
RA if applicable Price or Zonal
NRAETB FWT 20% Valuation,
NRANETB 25% FT based on gross whichever is the
highest.

Exemption from
CGT, if you sell
your actual
principal
residence, within
30 days from
sale, inform the
BIR that you are
availing of the
exemption.
Within 18
months to buy
and build
another actual
principal
residence in lieu
of the one you
sold, that you

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avail the
exemption once
every 10 years.
DC CIT 25% FWT 20% CGT 6% FMV
or Gross Selling
GPP exempt. Price or Zonal
GCP not Valuation,
exempt whichever is the
highest.

Exemption does
not apply.
RFC Not Applicable
NRFC 25% FT based on gross (they are not
allowed to own
real properties in
the Philippines)
BPRT ICDT MCIT (1% of
Gross Income)
provided 1% of GI
is higher than the
NIT, imposed
beginning 4th year
following
commencement of
operations
DC NA Domestic – 1%
Domestic
(exempted)
RFC 15% FT Domestic – RFC 1%
(exempted)
NRFC NA DC – NRFC (15% NA (already
FT) subjected to FT on
the gross at the rate
of 25%)

REMEMBER: Only RC and DC are subject to tax for all income derived from within
and without. The rest, subject to tax only from income derived from within only.

Other notes:
- Under letter B on bank deposits, interest on long term deposits of individuals which
are not pre-terminated for a period of 5 years, not subject to tax. If pre-terminated
between 4-5 years, the tax is at 5%, if 3-4 years at 12%, prior to 3 years at 20%.
- Under B, prizes and winnings pertain to games of chance. PCSO and lotto winnings,
10,000 and below is exempt, more than 10,000 is FWT at 20%. Those regular (other

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than PCSO), 10,000 and below it is either NIT or 8%, if it is more than 10,000 it is
FWT at 20%.
- Prizes and winning from games of chance à are subject to FWT.
- Prizes and awards à 1. In sports competitions sanctioned by the NSC, completed not
subject to tax, since they are excluded from the computation of gross income of the
taxpayer. 2. In recognition of various purposes such literary, musical, artistic,
charitable, civic, scientific and educational purposes, shall not be subject to tax
provided that the winner did not actively participate to join the contest and the winner
is not required to render future service. These 2 types are not subject to tax, but the
law does not use the word exempted, because they are items of exclusions from the
computation of gross income of taxpayer.

How do we determine if the income is derived from within or without? Section 42.
- For compensation services rendered, whether it is by way of employer employee
relationship or in pursuit of profession, THE PLACE WHERE IT IS RENDERED.
- When we speak or real property, royalties and rentals, it is WHERE THE PROPERTY
IS LOCATED.
- In interest of bank deposits, shall be dependent on LOCATION OF THE BANK
which issued the interest income.
- In interest of loans, shall be dependent on the RESIDENCE OF THE DEBTOR. If the
debtor who paid the interest, which is in the nature of income on the part of the
creditor, is a resident of the Philippines, all interests paid by him shall be income
within on the part of the creditor. If the debtor is a non-resident of the Philippines,
then all the interests he paid become income of the creditor from without.
- In dividends, if it is issued by DC, automatic it is within. Dividends issued by FC as a
general rule are also within except if the income of the FC 3 years prior to the
declaration of dividends is less than 50% of his total income, then a portion of the
dividends shall be treated as within, and the other is without.

DOUBLE TAXATION is applicable.

- Direct duplicate double taxation – double taxation in the strict sense (unconstitutional,
prohibited).
- Indirect duplicate double taxation – in the broad sense (not unconstitutional, not
prohibited, but is frowned upon because law recognizes the impact of double
taxation).

For example, sa table sa taas, numbers 3,4,5,7,8, puwede kasi silang taxable din sa
country where they domicile, tapos taxable din sila for income derived within, so
diyan papasok ang indirect duplicate double taxation, which is not prohibited. So, our
laws also provide for remedy to reduce a little bit the impact, it cannot be eliminated it
cannot be zero, the most common remedy is the TAX CREDIT, this is to reduce the
impact of double taxation albeit in the broad sense.

There is double taxation where THERE IS SAME SUBJECT MATTER, TAX IMPOSED,
TAX JURISDICTION, PURPOSE, AND SAME PERIOD. If all of these are present, then
you have double taxation in the strict sense. This is prohibited in our jurisdiction because this
is violative of the constitutional provision of due process and equal protection clause.

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CAPITAL V. ORDINARY ASSET

Ito ang technique ko, kasi mahirap i-memorize ang Section 39. Daming nahihirapan na
students dito.

Technique: Determine whether it is capital or ordinary asset.

Capital assets à nonbusiness related assets. Assets which are not used in trade or business.

Ordinary assets à business related assets, including stocks in trade.

Relevance of the difference:

- While using the asset, in case of appreciation of value, no income for both ordinary
and capital asset. In case value depreciates, then you can claim depreciation expense
as a form of deduction for ordinary asset only, but never for capital asset.
- Once you sell or transfer the asset, doon niyo marerealize ang effect. If gains, that is
income. If loss, then you recognize the loss.

INCLUSIONS IN GROSS INCOME

Do not memorize the list!

Ongoing principle: All income is taxable unless excluded by law from GI or exempted by
law.

EXLUSIONS: 32 B
a. Life insurance proceeds
- proceeds of life insurance policy taken by the insured during lifetime and received by
himself during lifetime or his heirs shall be excluded from the computation of gross
income.
- what is excluded is the principal amount of proceeds. If proceeds earn interest,
interest is included taxable.
- For return of premium, excluded.

b. Compensation for injury or sickness (keyword is reparation of damage)

- As long as what you receive is for reparation for actual damage, then excluded from
GI, no tax.
- Applies to all types, whether from SSS, private insurance, etc.
- Pertains only to ACTUAL DAMAGES.
- Moral, exemplary, nominal damages, attorney’s fees are all included and taxable.
- In labor cases, separation pay not taxable, backwages taxable, moral exemplary
nominal damages are all taxable. These are for causes beyond the control of the
employee.

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c. In addition, retirement pay, SSS, GSIS, private retirement plan where taxpayer is
50 years old with 10 years of service, no tax. Without private retirement plan,
requirement is 60 years old and 20 years of service, no tax.

d. Prizes and awards (sports competition and for various purposes)

e. 13th month pay and other benefits (90k per year)

DEDUCTIONS

Purely compensation income earner – no deduction allowed.

SEP/SEI/Mixed Income Earner – deductions are allowed.

All income subject to FWT – no deduction allowed.

Income subject to NIT or CIT – deductions are allowed.

2 TYPES OF DEDUCTIONS:
1. Itemized à needs proof of expenses. Requisite, necessary in trade or business,
actually paid or incurred, in the year that you are claiming the same, reasonable in
amount.
2. Optional standard (OSD) à no need for proof of expense. All you need to do is to
claim deduction. Rate is 40% of GI. Thus, 60% of GI is taxable.

When do you choose? – 1st quarterly return. Otherwise, the default deduction is itemized.
Irrevocable until the end of the year. May choose again next calendar year.

Allowable deductions from GI: (ITO MGA LAGING PABORITO SA BAR, I will highlight
the favorite bar questions)

CAPITAL EXPENDITURE à an expense incurred by a taxpayer to purchase an

ordinary asset or in making good an already existing ordinary assets to extend its life.
Not allowed as deductions and in lieu thereof, taxpayer may claim depreciation
expense.

Bumili ka ng building para sa business mo, you cannot claim it as deduction, what
you do is depreciate the asset within a certain period of time.

Major repairs of existing ordinary asset (capital expenditure) à no deduction as

business expense, instead claim depreciation expense.

Expenses for minor repairs, claim as deduction as business expense.

Marketing expenditures, if for the purpose of increasing the sales, allowed as

deduction. If for the purpose of maintaining the sales, which already in the nature of
goodwill, then these are in the nature of capital expense, not allowed as deduction.

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Bad debts à taxpayer creditor is claiming the deduction.

Interest on loans à taxpayer debtor is the one claiming the deduction.

Casualty loss à should not be compensated by insurance.

Taxes à incurred in connection with trade or business.

TAX BENEFIT RULE à applies only to bad debts, casualty loss, and taxes refunded. If after
claiming as deductions, subsequently the taxpayer recovers the said amount of bad debts,
casualty loss or taxes by way of refund, then the taxpayer must declare in year of recovery as
part of his gross income the said amount up to the extent of the income tax benefit that he has
previously received when he claimed the deduction. He has to declare in the year of recovery
how much he recovered and that will form part of the gross income of the taxpayer in the
year of recovery.

ITEMS NOT ALLOWED AS DEDUCTIONS, SECTION 36 B

1. PERSONAL, LIVING, AND FAMILY EXPENSES.

2. CAPITAL EXPENDITURES
3. PREMIUM ON LIFE INSURANCE TAKEN BY THE EMPLOYER OVER THE
LIFE OF THE EMPLOYEE WHEREIN THE EMPLOYER OR HIS BUSINESS IS
DIRECTLY OR INDIRECTLY THE BENEFICIARY

TAXABILITY OF SENIOR CITIZENS AND MINIMUM WAGE EARNERS

MWE – automatic not subject to tax because by law their income in a year does not exceed
250,000 pesos.

SC à subject to tax, but if they have income not more than 250,000 in a year, then not
subject to tax. Otherwise, treated as an ordinary taxpayer. They have discounts at 20%, not
subject to VAT, but when it comes to their income, they are subject to tax unless their income
for the year does not exceed 250,000 pesos.

VALUE-ADDED TAX

Things you need to consider:

1. TRANSACTIONS COVERED
A. Sale of goods in the course of trade or business.
- Transactions deemed sale, meaning there is no actual sale that happened but the
following transactions are considered as sale: (i) transfer, use or consumption of
goods not in the course of trade or business, (ii) transfer of goods in favor of creditors
and investors, (iii) consignment of goods if not sold within 60 days from
consignment, (iv) closure or cessation of business wherein all stocks in trade shall be
considered sold. Walang bentahan na nangyari but the goods are deemed sold for
purposes of VAT.

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B. Sale of service in the course of trade or business.
C. Importation of goods

RATES OF VAT
1. 12% (vatable transaction)
2. 0% (vatable transaction)
3. Exempt transactions
4. Effectively zero rated (0%)

Vatable transactions à the sale sale in the course of trade or business and importation.

Zero rated – all stages of transactions not subject to VAT

Exempt – not subject to VAT only at a particular stage. (Sec. 109)

Effectively zero rated (0%) à hindi nakasulat sa batas. Under regular circumstances, the
transaction is subject to 12% VAT but the law may provide under certain situations to impose
0% VAT.

OUTPUT VAT v. INPUT VAT

Output – VAT na binabayaran mo for sales.

Input – binabayaran mo for purchases.

Kung kayo ay plain consumer hindi kayo engaged sa trade or business, ang meron lang kayo
is input VAT, wala kayong output VAT kasi hindi kayo nagbebenta.

Formula: crediting of input against output

When you have sales, you credit your input against your output. I after crediting, the result is
more output VAT, then remit pay or remit to BIR. If more input VAT, then claim for crediting
for the succeeding quarter. Napakadali. That’s it!

EXEMPT TRANSACTIONS
a. Sale of food, agricultural, marine products in the original state à simple
procedures for preservation like roasting, smoking do not result in finish product
that still exempt.
b. Compensation for services under employer-employee relationship.
c. Lease of residential units (take note of the 15,000 per month threshold). à Kapag
kayo nakadorm, it is not residential unit, it is a commercial unit therefore the
15,000 pesos per month does not apply to you. Kaya kahit 3k ka lang, may VAT
dapat.
d. Sale of real properties à take note of the threshold limit and amount.
e. Gross sales or gross receipts do not exceed 3 million pesos.

Yan lang mga importante!

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Very important topic in BAR: SECTION 112 V. SECTION 226

112 Refund of excess input VAT in zero rated transaction

- Does not result from any illegality in collection.
- Limited only to input VAT in zero rated transactions.
- In terms of procedure, (i) taxpayer files administrative claim for refund within 2 years
from close of quarter when taxpayer had the zero rated transaction, (ii) BIR must
decide the claim within 90 days from filing of claim for refund or if documents were
required to be submitted 90 days from submission of documents
(What can BIR do? BIR grants, taxpayer smiles, end of process.)
(If BIR denies the claim, then taxpayer cries, taxpayer proceeds to CTA Division with
MR, CTA EB, SC) (If BIR partly grants/denies, taxpayer cries, taxpayer proceeds to
CTA Division with MR, CTA EB, SC) (What happens if BIR does not decide within
90 days? BIR will file administrative case against its personnel. Remedy of taxpayer,
he may still go up to CTA Division within 30 days based on the implementing rules of
the court of tax appeals by way of petition for review. (Not in the tax code, but it is
based on the implementing rules of the court of tax appeals, kawawa naman si
taxpayer, inalis na kasi sa current rule ang 120-day period non action rule.)

226 Refund of illegally accessed, illegally collected, erroneously assessed, erroneously

collected taxes
- There is illegality in collection/assessment.
- Applies to all internal revenue taxes except input vat in zero rated transaction.
Procedures: (i) taxpayer files administrative claim for refund within 2 years from
payment, (ii) BIR grants, taxpayer smiles, end of process. If BIR denies the claim,
then taxpayer cries, taxpayer proceeds to CTA Division with MR, CTA EB, SC. If
BIR partly grants/denies, taxpayer cries, taxpayer proceeds to CTA Division with MR,
CTA EB, SC.

The judicial claim for refund (CTA Division) must likewise be filed within the same 2
years from payment.

Both administrative and judicial claims for refund must be filed within the same 2
year period.

*may illustration siyang ginawa pero di makita sa zoom hahaha*

*huwag niyong isagot sa bar yang mga taxpayer cries, pinapadali ko lang ang
illustration*

Cut off: 0% transaction on or before 31 December 2017, apply the old rule where there is
non-action by BIR 120 day period. If 0% transaction is January 1, 2018 onwards, then apply
the current rule.

Prior to the cut off – don’t apply the procedure above, apply the old rule wherein there is 120
day period of non-action. In the current rule, that 120 day period no longer applies. Most of
the cases penned by Hernando pertains to prior to the cut off.

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REMEDIES UNDER THE NIRC / inclusive of JURISDICTION OF CTA

1. PROTEST CASES

Rule: Exhaustion of administrative remedies before proceeding to judicial actions.

ADMINISTRATIVE PROCEEDINGS

TAXPAYER
(i) Taxpayer file returns (Pay as you file, self-assessed).
(ii) He may file in good faith, fraudulent return, non-filing.
(iii) He can amend return (3 years from filing of original return provided no notice
of investigation is received by taxpayer). Effect? Original and amended are
consolidated.
(iv) You cannot use the amended return as a disguise for refund, in lieu of filing a
claim for refund. Lahat ng amendment pataas ang tax, walang pababa.
(v) For purposes of prescriptive periods, assessment or collection consider the
date of filing of amended return as the starting point.
(vi) Substituted filing à for compensation income earner only. The return is filed
by the employer on behalf of the employee provided that there is only one
employer for the year.

BIR
(i) He will evaluate, study the return.
(ii) In the course of evaluation, he will use powers and duties under sections 5 – 15 of
the tax code such as power to issue subpoena, presumptive gross sales, net worth
method, compare taxpayer records, validate taxpayer records using records of
other taxpayers.
(iii) If the BIR finds something wrong, he will issue letter of authority to investigate,
followed by the notice of discrepancy, then will issue preliminary assessment
notice, then final assessment notice. (Strict procedural requirements)
(iv) Prescriptive period for issuance of FAN: (i) 3 years from due date, if filed on or
before due date, (ii) 3 years from actual date of filing if filed beyond due date, (iii)
10 years from BIR discovery of filing of fraudulent return; (iv) 10 years from BIR
discovery of non-filing; (v) WAIVER
(v) Requisites of WAIVER: (i) in writing, (ii) signed by both taxpayer and BIR duly
authorized representative, (iii) date of application/submission of taxpayer
indicated in the waiver, (iv) date of acceptance by BIR indicated in the waiver, (v)
3 original copies, 1 for taxpayer, 1 for BIR, and 1 for records, all 3 should bear
dates, (vi) executed prior to expiration of the period.
(vi) Are successive waivers allowed? YES, provided executed prior to expiration of
the period of the previous waiver.
(vii) Who waives? When waiver is executed, BIR waives its right to assess the
taxpayer within the original period. Taxpayer, on the other hand, gives way to BIR
to issue FAN beyond the prescriptive periods.
(viii) Failure to comply with these requirements = waiver is not valid, thus, BIR loses
its right to issue FAN beyond the prescriptive periods.

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(ix) Requisites of a VALID FAN: (i) in writing, (ii) address of taxpayer, (iii)
providing for the amount in detail broken down principal amount, penalty,
surcharge, interests, the year covered, demand to pay, due date to pay, basis in law
and in fact of the assessment, signed by the duly representative of the BIR and
served/issued within the prescriptive period of assessment as indicated above.
(x) If it is not a valid FAN, and it prescribes, then the BIR loses its right to collect any
amount of tax from the taxpayer.

TAXPAYER
(i) Taxpayer receives a copy of the FAN.
(ii) Remedy? Administrative Protest filed within 30 days from receipt of the FAN;
Protest is in the nature of motion for reconsideration or motion for reinvestigation
(presumption is documents are submitted by the taxpayer)
(iii) To whom submitted? By taxpayer to BIR RDO/RO which issued the FAN.
(iv) Failure to file admin. Protest on the part of the taxpayer = FAN becomes a final
final assessment notice, final and executory.

BIR
What will BIR do with your admin. Protest?
- Grants, taxpayer smiles.
- Denies, taxpayer cries.
- Partly grants/denies, taxpayer cries.
- Non-action within 180 days from filing of protest.

If taxpayer is required to submit additional documents (maximum period of 60 days),

then count 180-day period from BIR receipt of documents.

JUDICIAL PROCEEDINGS (HERE, ANG NAGFA-FILE NA PAAKYAT AY YUNG

LOSING PARTY)

TAXPAYER
- If granted, end of process.
- If denied, taxpayer cries, proceed with JUDICIAL REMEDY: Go to CTA Division
within 30 days from receipt of the final decision on the disputed assessment, likewise
final letter of demand.
- Partly granted/denied, same rule as denied.
- Non-action à Judicial remedy: CTA Division within 30 days from expiration of the
180-day period.

IN CASE OF PREJUDICIAL DECISION BY CTA DIVISION, FILE MOTION FOR

RECONSIDERATION/MOTION FOR NEW TRIAL WITHIN 15 DAYS FROM RECEIPT
OF DECISION. (REQUIRED)

CTA EN BANC (15 DAYS)

SUPREME COURT (15 DAYS), PETITION FOR REVIEW, RULE 45

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Question: Does CTA have jurisdiction over special civil actions, Like petitions for certiorari
and injunction? YESSS!!! Puwede yan.

2. REFUND OF TAXES (Section 112 v. Section 226, na-discuss na sa taas)

3. COLLECTION CASES

Prescriptive periods of collection:

1. With assessment
(a) Dumaan sa LOA, NOD, PAN, FAN
(b) 3 years
(c) 10 years
(d) WAIVER
Note: For a,b,c,d, the collection is 3 years from receipt by the taxpayer of the final
assessment notice.
Mode of collection: Administrative or Judicial

What are the modes of collection:

- Warrant of Distraint and Levy
- Garnishment
- Compromise
- Suspension of taxable periods
- Civil or criminal cases

2. Without assessment (BIR may decide not to issue an assessment)

(i) Applicable only if taxpayer filed fraudulent return or did not file any
return.
(ii) Collection is 10 years from discovery of filing of fraudulent return or
non-filing.
(iii) Mode of collection: only by way of judicial action

What are the modes of collection:

- Civil or criminal cases

When you receive a warrant of distraint and levy, that is in the nature of an action by the BIR
denying your administrative protest.

If you have a pending protest, and BIR instead issues a final letter of demand, warrant of
distraint and levy, the protest is denied, so you can go up to CTA Division within 30 days
from receipt of the FDDA, FLD, or WD/L.

JURISDICTION IN CIVIL/CRIMINAL CASES OF TAX COLLETION

COURTS OF ORIGIN: MTC, MCTC, METC, RTC, CTA

- (Based on jurisdictional amount, ROC)
- (Basis of jurisdiction will be the principal amount of tax only excluding penalties,
surcharges, and interests)

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In determining which Court has jurisdiction, BIR may file it in MTC, MCTC, METC, RTC,
CTA.

CTA à exclusive original jurisdiction if the principal amount of tax is P1million and above.

Question: Under the current rules of court, the jurisdiction of RTC has been increased to P2
million, unfortunately the law on the expanded jurisdiction of CTA was not expressly
amended, so what is the effect when the RTC now has P2 million exclusive original
jurisdiction in cases of collection of sum of money?
à The interpretation is that BOTH have concurrent jurisdiction over tax collection cases
where the principal amount of tax due exceeds P1 million. (between 1m and 2m)

APPELLATE JURISDICTION

SEQUENCE IF GALING SA MTC:

MTC, MCTC, METC
APPEAL TO RTC
GO TO CTA EN BANC
SUPREME COURT

Kailan direcho sa CTA EN BANC? à (i) RTC Decision in the exercise of appellate
jurisdiction and (ii) decision of the Central Board of Assessment Appeals in real property tax.
Dalawa lang yan.

IF GALING NAMAN SA RTC:

RTC
CTA DIVISION W/IN 15 DAYS
CTA EN BANC
SUPREME COURT

IF GALING NAMAN SA CTA DIVISION:

CTA DIVISION
CTA EN BANC
SUPREME COURT

SECTION 4, NIRC
Decisions of Secretary of CTA Division CTA En Banc Supreme Court
BIR interpreting Finance
NIRC, Tax
Code, Tax laws

VERY IMPORTANT NOTES:

1. DOCTRINE OF EXHAUSTION OF ADMINISTRATIVE REMEDIES
2. DOCTRINE OF HIERARCHY OF COURTS

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3. CAN YOU GO TO OFFICE OF THE PRESIDENT FROM BIR TO SECRETARY
OF DOF TO OP? YES! BUT THE PERIODS OF APPEAL TO CTA NOT
SUSPENDED NOR AFFECTED

DELINQUENCY INTEREST V. DEFICIENCY INTEREST

Kapag nag-file ang taxpayer ng return, he pays the tax that he computed and provided in the
return because it is pay as you file system.

Kapag ang BIR nag-issue ng fund, tapos sabi sayo, kulang ang ibinayad mong buwis, kaya
sinisingil kita ng DEFICIENCY TAX. Kaya magbabayad ka ng deficiency interest.

Deficiency interest à kulang ang buwis na binayaran mo sa return, kaya magbabayad ka ng

interest. Ang sinisingil sayo sa FAN ay deficiency tax with deficiency interest. Hanggang
kailan magbabayad? Hanggang hindi mo nakukumpleto ang kakulangan mo.

Delinquency interest à Noong inissue-han ka ng final assessment notice, may nakasulat na

due date in the FAN or due date in the Final Letter of Demand. Kapag hindi ka nagbayad on
due date, indicated in the FAN or FLD na delinquent taxpayer ka, kaya merong delinquency
interest.

Under the TRAIN Law, BAWAL magkasabay singilin ng BIR ang deficiency and
delinquency interest.

BRIEF BACKGROUND ON LOCAL TAXES

MGA DAPAT TANDAAN:

1. Local taxes due every January 1 of the year, and payable on or before January 20 of
the year.
2. No returns for local taxes. (LGU issues Tax Order of Payment)
3. Kinds of Local Taxes

Real Property Tax

Ordinary Local Tax Section 234, LGC of 1991
Real properties are exempt from taxes

4. Constitutional and inherent limitations for national taxes are also applied in local
taxes.
5. Tax exemptions are strictly applied. By way of ordinance approved by the
Sanggunian.
6. Nature of local taxes – it is not a delegated or inherent power anymore of LGU.
7. Assessment and Collection

ASSESSMENT COLLECTION
Prescriptive period: 5 years 5 years
Exceptional period: 10 years (in case of 5 years
fraud)

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Remedy of Taxpayer: Protest (60 days from
receipt of assessment)

8. Protest of Local Taxes

LGU TAXPAYER TREASURER TAXPAYER/PREJUDICED
TREASURER PARTY
Grant End of process
Deny Taxpayer goes to RTC within
30 days from receipt of
Files protest (60 Partly Grant/Deny decision of denial; CTA
Issues assessment days) from Division; CTA EB, SC
receipt of Taxpayer goes to RTC within
assessment Non-Action (60 30 days from expiration of
days from filing 60-day period; CTA Division;
of protest) CTA EB, SC

9. Refund à 2 years from payment.

Granted: end of process.

Denied: Taxpayer goes to MTC, METC, MCTC, RTC depending on jurisdictional amount,
CTA, SC

Take note: Kapag local taxes, kalaban niyo treasurer, huwag kayong pupunta direcho sa
CTA dahil walang exclusive jurisdiction walang connection, padaanin muna sa first and
2nd level court and RTC.

Question: May exclusive original jurisdiction ba ang CTA sa local taxes kapag nag-exceed sa
P1 million? WALA RIN PO!

10. Real Property Tax

Don’t forget SECTION 234 OF LGC OF 1991: Properties exempt from real property tax.

11. Aspects of RPT

a. Assessment à valuation of real properties within LGU jurisdiction such as FMV,

Assessed value, classification of properties, etc. Kalaban si ASSESSOR.

The issue is the Valuation or classification of property: LBAA (60 DAYS), CBAA (120
DAYS), CBA EB (30 DAYS), SC (15 DAYS)

b. Levy à ang pinag-uusapan dito ay collection. Kalaban ay si TREASURER.

Courses of Action: SEE PROTEST AND REFUND CASES ABOVE.

VERY IMPORTANT REQUIREMENT: PAYMENT UNDER PROTEST BEFORE YOU

FILE A PROTEST!

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