Professional Documents
Culture Documents
Lumbera - Taxation
GENERAL
PRINCIPLES
AND
NATIONAL
TAXATION
as lectured by Atty. Rizalina Lumbera
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DISCLAIMER
1. Lectures in Jurist Bar Review Program and notes of Atty. Rizalina Lumbera
Some of the contents of the above have been paraphrased and questions propounded differently in
order to tailor the author9s learning method.
Answers to some questions are likewise tailored to the personal preference of the author
I do not guaranty the absolute correctness of this work due to human errors and failure to understand
the question or concept perfectly. I apologize in advance for any error you may encounter in this work.
However, please see to it that the error is an opportunity to learn, as Dean Jose Sundiang puts it
<The beauty of an error is to correct it, and not to perpetuate it.=
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TABLE OF CONTENTS
INTRODUCTION ……………………………………………………………………... 1
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A questioned the tax imposed on the sale, X must pay IT and/or Withholding
alleging that as he already paid ExT, no IT Tax (WHT)
should be imposed on the sale. Is A
correct? Q: If instead, X invested his balance in a
bank and bought shares of stock in MMK,
No, as two or more taxes may be what tax should X pay?
imposed on the same subject matter,
which is valid as it is double taxation in X must pay IT on the interest earned
its broad sense. by the investments, as the income
earned upon such is subject to IT.
Thus, if ExT is paid due to the
importation of goods, the subsequent (NOTE: It is a different source of
sale may still be taxed based on IT, as it income from the compensation as an
realized income. employee)
The taxes imposed are for different Q: As X saved more money, he donated a
transactions, and thus a valid double sizable amount to Y. What tax should apply
taxation. to the donation?
EsT
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Subsequently, the AD, if any, shall be Over P800,000 but not over P2,000,000……..
deducted from the GI. P130,000 + 30% of the excess over P800,000
The total shall be the NIT (or TNI), Over P2,000,000 but not over P8,000,000…...
which shall be subjected to the P490,000 + 32% of the excess over P2,000,000
applicable tax rate Thus:
Over P8,000,000 ……………………………
GI P2,410,000 + 35% of the excess over
less AD, if any P8,000,000
TNI
multiplied by Tax rate xxx
Tax due
Sec. 27. Rates of Income Tax on Domestic
Tax rates Corporations;
The income tax rate shall depend on (A) In General:
the TP, whether: Except as otherwise provided in this Code, an
income tax of thirty-five percent (35%) is
1. Individuals; or hereby imposed upon the taxable income
2. Corporations derived during each taxable year from all
sources within and without the Philippines by
SEC. 24. Income Tax Rates; every corporation, as defined in Section 22(B)
of this Code and taxable under this Title as a
(A) Rates of Income Tax on Individual corporation, organized in, or existing under the
Citizen and Individual Resident Alien laws of the Philippines: Provided, That
of the Philippines. effective January 1, 2009, the rate of income tax
shall be thirty percent (30%). x x x
xxx
WHT
(2) Rates of Tax on Taxable
Income of Individuals; <Tax is withheld at source=. This is one
The tax shall be computed in way of advance collection of taxes.
accordance with and at the
rates established in the The source of income is obligated to:
following schedule:
1. Withhold a certain amount; and
2. Remit such withheld amount to the
(a) Tax Schedule Effective January 1, 2018 until
BIR.
December 31, 2022:
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Credited Yes No
BIR against tax
due?
Kinds of WHT Can it be No Yes
subject to
other taxes?
The following are the kinds:
GIT
1. Creditable (CWHT);
2. Final (FWHT); It is income tax on the gross. In effect,
3. Expanded (EWHT) there are no AD, and thus the GI itself
is multiplied to the tax rate.
CHWT
GS (benta)
All withheld taxes are to be deducted less COS (puhunan)
from the tax due (Tax due – CHWT). GI
Thus: multiplied by Tax rate
Tax due
GS (benta)
less COS (puhunan) (NOTE: Compare with NIT, where
GI the NIT/TNI is multiplied with the tax
less AD, if any rate.
TNI
multiplied by Tax rate As there are no ADs, the GI itself is
Tax due multiplied to the tax rate, as if it is the
less CHWT NIT/TNI.
Tax due
It is so, as there is no NIT/TNI to
FWHT speak of, considering that there are no
ADs)
All income or transaction which is
subject to FWHT shall NO LONGER
be subject to any other tax
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That there no ADs, there is no NIT to No, not all kinds of income are subject
speak of. (See example in GIT) to IT
With authority from her government Kind of TPs (according to residence and
agency, Curacha moonlights as a private citizenship)
practitioner and as a bar lecturer.
CLASSIFICATION KIND
Citizen
As Curacha, for some reason, lives as if she Resident Non-resident
has more than 24 hours in her daily life and
has worked with various plants prior to her Alien
Individual Resident Non-resident
becoming a lawyer, she owns a business
Engaged NOT
named as <Curacha’s Cures=, selling in T/B engaged
personalized scents which are scientifically in T/B
proven to ease headaches.
Corporations Domestic Corporations
Foreign Corporations
What is Curacha’s classification as an Resident Non-resident
income TP?
In fine, the following are the
Curacha is an MIE, considering that she classifications of TPs based on their
is a: residency and citizenship:
1. Individuals:
1. CIE, as a government employee; a. Citizen:
and i. Resident (RC); or
2. SEP, deriving income from:
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(NOTE: In short, there are five (5) Only the GCP may be taxable, as a
kinds of Individual TPs, while there are GPP is declared as exempt from tax
three (3) kinds of Corporate TPs, based
on their residence and citizenship: RC
Kinds of partnerships
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Corollary thereto, the TP shall be In the year 2021, X came back to the
considered as an NRC with respect to Philippines on the 1st day of August to visit
the taxable period that he was residing his relatives.
abroad., provided that the following
concurs: Assuming X stayed until December 31,
what is X’s classification as a TP for the
year 2021?
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Assume that W received dividends in the Only the Php25,000 shall be taxable in
amount of Php100,000, is his income the Philippines, as an NRA-ET/B is
considered within or without? taxable only on income generated
within the Philippines.
His income shall be considered as
follows: (NOTE: The same holds true if the
SH-TP is an NRC, RA, NRA-NET/B,
Within: Php25,000 RFC, and NRFC, as they are taxable
Without: Php75,000 only on income generated within)
The reason for this is because the FC Q: In case of interest from loans, what is its
derived from the Philippines an nature with respect to the debtor?
amount less than 50% of its total
income: It is an expense, considering that the
debtor pays such to the creditor.
Php16M (TI)
divided by 2 Q: In case of interest from loans, what is its
Php8M (50% of TI) nature with respect to the creditor?
Php4M (PhI) < Php8M (50% of TI) It is an interest income to the creditor
That it generated less than 50%, then, Q: X is an RC, indebted to Y in the amount
the portion of the dividends of W shall of Php100,000.
be within (pertaining to the portion of
FC9s income generated within), and the The loan produced interest in the amount
remaining portion out of his dividends of Php10,000.
shall be deemed as without, computed
as follows: If X paid the interest to Y, is the income
interest considered within or without?
For Income Within:
It is within, considering that in the
Php4M (PhI) determination of the source of income
divided by Php16M (TI) interest, the residence of the debtor
0.25 shall be considered.
multiplied by Php100K(Dividends)
Php25K (Within) That X is an RC, the income interest
shall be considered as within.
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1. Direct Duplicate DT/ in its Broad As to RCs and DCs, income derived
Sense (DTBS); or without the Philippines shall be taxed
by:
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Q: Assume that Lucio is qualified to avail No, as the option is only for the taxable
of 8%TG, but he did NOT choose it, what year in which it was elected.
is the applicable rate?
Thus, the following taxable year, Lucio
must exercise his option again if he
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The income shall be computed No, only to the income from SEP, as
separately, and added together for the the GR exceeds Php3M.
total tax due, as follows:
On the other hand, the income from
For the CIE: CIE cannot be liable for VAT, whether
or not the income exceeds Php3M.
Php4M (CIE)
minus Php2M (Exempt) Applicable rate to NRA-NET/B
Php2M
multiplied by 32% (Tax rate) NRA-NET/B9s GI shall be subjected
Php640K to 25% IT, thus:
plus Php490,000 (Basic)
Php1.130M(Tax due) GS (benta)
less COS (puhunan)
For the SEP: GI
multiplied by 25% Tax rate
Php2M Tax due
multiplied by 8% (Tax rate)
Php160K (Tax due) Rationale for applicability of GIT to NRA-
NET/B
Total tax due:
It is to ensure that tax will be paid for
Php1.130M (CIE) income earned, considering that the TP
plus Php160K (SEP) is:
Php1.29M (Tax due)
1. NOT in the Philippines; and
Difference between computations in tax 2. NET/B
due of SEP/SEI and MIE availing 8%TG
Thus, it is necessary that such tax be
In case of an SEP, there is an imposed which is in the nature of
exemption of Php250K, thus it is to be taxing at source, as to avoid a situation
deducted from the GS. where no tax will be paid for income
derived in the Philippines by an NRA-
On the other hand, in an MIE, the NET/B.
250K exemption does not apply,
considering there is already an Take not that the GIT is in the nature
exemption granted by law in the of a final tax as well, akin to FWHT.
computation for the CIE tax due.
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It shall fall under ALL income (A) The FWHT is 10%, as it is an income
other than B, C, and D. derived from a book
Q: Considering that it is under A, what tax
rate applies?
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Effect if prizes or winnings are won outside RTIA declared dividends, and as such,
the Philippines if TP is RC, NRC, RA, Raffy received dividends.
NRA-ET/B, DC, or RFC
What is the tax rate applicable to the
In such a case, FWHT would not apply, dividends received by Raffy?
as it would fall under A.
As a consequence, the applicable rate Raffy’s dividends shall be subjected to a
would be NIT of 8%TG 10% FWHT, considering that the
dividends were issued by a DC.
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Hence, it was merely removed from the It shall be NIT or 8%TG, as the
operation of B, considering that under income from dividends is under A.
such item, only dividends issued by a
DC are taxable with a 10% FWHT. Considering that the dividends were
issued by an FC, it does NOT fall
Dividends issued by an FC falls under under B, and thus falls under A.
A, for the simple reason that it is NOT
within the conditions falling under B, Q: Assume that RTIA’s income generated
and NOT because it is considered as in the Philippines is Php10M, how much of
income without. Jocelyn’s dividend income will be
subjected to tax and at what rate?
Q: Jocelyn, an NRC, is an SH of RTIA Inc.,
an FC. In this case, all of Jocelyn’s dividend shall
be subjected to tax, thus, the whole
RTIA declared dividends in 2021, to which Php100K.
Jocelyn received Php100,000.
Such dividend shall be subjected to
For the year 2018-2020, RTIA generated an NIT or 8%TG, considering that it does
income of Php5M within the Philippines, not fall under B, as it was issued by an
while Php15M outside the Philippines. FC.
While it is true that the value of X9s Considering that the loss was incurred
land indeed increased, such gain is without the fault of the Government,
merely a paper profit, as it is NOT as such loss was due to the fault of the
realized. seller by his selling the property lower
than its FMV, then he is liable for DT
Q: X opted to sell his land valued at with respect to the loss.
Php3,000,000, for such price.
Q: Considering that it pertains to a sale of In line with the above, only RCs and
real property, does it mean, then, that there DCs may be taxed on such income, as
could only be one value pertaining to such? they are taxed for income derived
within and without.
No, as in the case of a land and an
improvement (e.g. house) thereon, Condominium units
there would be two (2) different tax
declarations, to wit: Condominium units are included in the
operation of CGT
1. On the land; and
2. On the improvement Q: X owns a condominium unit which he
uses as his residence.
Thus, the FMV, assessed value, and
zonal value of the land, is different If X sells such condominium unit, what tax
from the FMV, assessed value, and rate would be applicable?
zonal value of the improvement.
The applicable tax rate shall be 6%
If, however, it is only on the land, or on FWHT/CGT, as it is a sale of real
the improvement, then only one value property under D
could pertain to such
Q: Assume instead, that X leases out his
Q: If the SoS sold is issued by a FC, what condo unit to Y.
tax rate would apply?
If X sells his condo unit, what tax rate
It is NIT or 8%TG, considering that would be applicable?
what is covered by C are those SoS
issued by a DC. The applicable tax rate shall be NIT or
8%TG, if applicable.
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Thus, the Government initiated Q: If you were the counsel of X, what would
expropriation proceedings, and you suggest as the better option?
successfully obtained an order of
expropriation against X’s property. I would suggest to X to avail of the
NIT tax rate.
Considering that X was forced to sell his
property to the government for the price of The basis of just compensation
just compensation, what would be the is FMV, thus, in this case the
applicable tax rate considering that it is a Php1M.
<sale of real property= under D?
If the Government would pay
The owner of the expropriated only Php1M, (which most
property is given by law two choices as likely would happen), there is
to the applicable tax rate: no income to speak of and
therefore no tax to apply.
1. 6% FWHT/CGT of the following,
whichever is higher: On the other hand, if the 6%
a. FMV; FWHT/CGT is chosen, there will
b. Assessed value; or always be tax as it shall be attached to
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Thus, the exemption must be given to Years after the death of their parents, A, B,
the BIR prior to the payment of CGT, and C decided to sell their ancestral house.
otherwise, the seller shall be liable to Can all of A, B, and C, claim the exemption
pay CGT. for CGT on sales of principal residence?
Q: May a TP avail the exemption twice in No, only C may avail the exemption,
one year? considering that he is the only sibling
who has the ancestral house as his
No, in fact, it can only be availed once actual principal residence.
every 10 years.
Q: Considering that C may avail the
Q: X owns a land. On the said land, X built exemption, does it mean then that the total
his house as his principal residence. price of the sale of the house will NOT be
subjected to CGT?
If he sold the land and the house, may X
claim the exemption for both?
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Considering that X eventually earned Considering his dislike for the property
enough to get a bigger house for his given, he wanted to sell his property.
growing family, he intends to sell his
house. Can X validly claim an exemption due to
the sale of a real property which is an actual
Thus, a sale was concluded, principal residence?
X gave notice to the BIR that he will be Yes, the exemption applies even to
availing an exemption, but the BIR aliens, specifically in this case, X9s
claimed that a 6% CGT should be applied, being an NRA-NET/B.
considering that it is a sale of real property,
and the residence in Taytay cannot be Considering that X is physically present
considered as an actual principal here in the Philippines, the exemption
residence, considering he is outside the would still be possible.
Philippines.
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Kinds of income of Corporate TPs and It is NIT, at a global (fixed) tax rate of
applicable tax thirty percent (30%). Thus:
The same rule and concept in No, it is just because the rate under
Individual TPs apply to Corporate TPs. NIT and GIT are the same, which is at
30%.
Rule as to A
The difference is that for NRFCs, the
The same rule and concept in tax is final in nature, as it is a GIT, and
Individual TPs apply to Corporate TPs, thus the computation is different:
thus, if it is NOT in B, C, or D, then it
is in A For DCs and RFCs:
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On the other, hand, the NIRC provides Q: Assume, instead, that the income from
the exemption from income tax. the rentals amounting to Php500K were
used for charitable purposes.
Q: BLALOCO produces Christmas Cards,
as it is one of the activities given to the Considering that they are subject to IT as
elderly. income derived from real property, but is
used for its very own purpose, is it correct
If BLALOCO produces an income of to say that it is now exempt from IT?
Php1M from such activity, would it be
subject to IT? No, as it is still subjected to IT,
regardless of disposition of the said
No, as it is income derived from its income.
very own purpose (income as such)
Q: Assume, instead, that the interest
Q: McDo, Jollibee, and KFC, pays a total of income of Php20K from the peso account
Php500K to BLALOCO as rentals. deposit was used for a charitable purpose.
For purposes of IT, can the rentals be Considering that it was used for a
subjected to such? charitable purpose, is it now exempt from
IT?
Yes, as it is an income derived from a
real property owned by a charitable No, again, it is taxable regardless of
non-stock non-profit corporation disposition
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Yes, as the Php2M flows into the Q: Assume, that X is a Corporate TP, is it
wealth of the TP, as it is NOT a mere an AD to its IT?
return of capital.
Yes, up to 5% (Sec. 34(H))
Q: That it is an income, is it subject to IT?
Q: What tax would apply as to the donation
No, as the donation is an item of of X?
exclusion under Section 32(B)(3):
It would depend:
<(B) Exclusions from Gross
Income. – The following items If inter vivos: DT
shall not be included in gross If mortis causa: EsT
income and shall be exempt
from taxation under this Title: Q: If X donated the Php2M during his
lifetime and BLALOCO used Php100K
xxx from the said donation for its
administration. Will it be subject to DT?
(3) Gifts, Bequests, and Devises. –
The value of property acquired No, as the usage by BLALOCO is less
by gift, bequest, devise, or than 30%, and thus exempt from DT,
descent: Provided, however, to wit:
That income from such
property, as well as gift, <Exemption of Certain
bequest, devise or descent of Acquisitions and
income from any property, in Transmissions. –
cases of transfers of divided The following shall not be
interest, shall be included in taxed:
gross income.=
xxx
Thus, that it is an item of exclusion, it
shall not be included in the (D) All bequests, devises,
computation. legacies or transfers to social
welfare, cultural and charitable
(NOTE: Thus, in such a question, institutions, no part of the net
neither the Constitutional provision on income of which inures to the
RPT nor Sec. 30 would apply) benefit of any individual:
Provided, however, That not
Q: With respect to X, is it an AD to his IT? more than thirty percent (30%)
of the said bequests, devises,
It would depend: legacies or transfers shall be
used by such institutions for
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Discuss the taxes applicable. (NOTE: Thus, the rules for charitable
and religious institutions are one and
As to SBH’s RPT: the same)
On the other hand, SBH shall There are two (2) kinds of Educational
be liable for the properties Institutions for exemption purposes
rented by the fast-food chains, under the Constitution:
as these are NOT ADE used 1. NSNPEI; and
for its religious purpose. 2. PEI
MED
LAW
ii. Lands; and GY
M
CANTEE
SCIENCE
iii. Improvements
N
KFC
ARTS
Coverage of exemption Jolli
bee PARKING LOT ADMI DOR
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Q: May it be made part for the computation With respect to the taxable properties
of UFA’s IT? (rented properties) and exempt
properties, my answer would still be
No as gifts, bequests, or donations, are the same, as the former is NOT ADE
exempt from IT used, while the latter is ADE used for
educational purpose.
Q: May X use the donation as an AD to his
IT? However, for the basis, my answer
would NOT be the same, as it is NOT
It depends: covered by the Constitution, but rather
of law, specifically Sec. 234(B), LGC:
If CIE: No
<All machineries and
I SEP/I/ equipment that are actually,
MIE: Yes, up to 10% directly and exclusively used by
local water districts and
Q: Assume, that X is a DC instead, can X government-owned or -
use it as an AD to his IT? controlled corporations
engaged in the supply and
Yes, up to 5% distribution of water and/or
generation and transmission of
electric power=
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It is deemed RTA if it is for a its Sec. 30. (NIRC) Exemptions from Tax on
educational purpose Corporations;
The following organizations shall not be taxed
Q: Assume, that the income from the under this Title in respect to income received
rentals is Php10M, while the income from by them as such:
tuition fees is Php5M, would your answer
be the same? xxx
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Q: If UFA, a GEI, used Php1M out of the On the other hand, as to DT, it is Sec.
Php2M of the donation for its 101, NIRC that governs.
administration, is it subject to DT or ET?
It is exempt as it is considered
No, as it is exempt as a gift for the use of the
National Government
(NOTE: Thus, with respect to DT or
ET, it is always exempt, regardless of Q: If X is a CIE, can he claim it as a
whether or not the 30% use for deduction?
administration has been breached)
No, as a CIE is not allowed to claim
Basis for absolute exemption with respect any deduction
to DT and ET
Q: If X is a SEP/I or MIE, or a Corporate
Sec.86. Computation of Net Estate: TP, can he/it claim the donation as a
For the purpose of the tax imposed in this deduction?
Chapter, the value of the net estate shall be
determined: It depends:
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The exemption for no pre-termination Q: Are the rates stated above applicable to
for five (5) years in case of time all kinds of corporations?
deposits is applicable only to Individual
TPs. No, the above rates are applicable only
to DCs and RFCs.
Q: Assume instead, that indeed, XYZ pre-
terminated the time deposit on the 3rd year, The rate applicable to NRFCs is GIT
and the BIR imposed 20%FWHT. of 30%. Thus:
Ordinary
No, in case of Corporate TPs, the Royalties
regular rate of 20% FWHT shall apply
regardless of the year of when the pre-
termination was made.
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Passive income of Individual v. DCs and Thus, an FC, whether a resident or not,
RFCs cannot sell real property, considering
that they cannot own real property in
VARIETY
Ind
RATE
Corp
the Philippines in the first place.
Local/ Peso account 20%
FMV;
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The rate of ICDT would depend: The BIR noticed that there are
numerous corporations not paying
TP ISSUER RATE taxes, considering that their allowable
(INCOME deductions are greater than their gross
EARNER)
DC Exempt
income. To illustrate:
RFC DC
NRFC 15% FWHT Php4M (GI)
minus Php5M (AD)
Q: XYZ Corp., a DC, declared dividends. Php0
multiplied by 30% (NIT)
One of its recipients is their SH Mr. Php0 (Tax due)
Robusto, a RC.
What is more alarming is that many of
What tax rate applies to the dividend these corporations are in their 4th year
income of Mr. Robusto? in losing profit already, but are still
continuing their business.
His dividend income shall be subjected
to a 10% FWHT, as it is an income It is contrary to logic that a business
under B for Individual TPs goes on despite the continuing loss,
instead of profit.
Q: XYZ Corp., a DC, declared dividends.
To remedy this dilemma, Congress
One of its recipients is their SH ABC Corp., introduced the concept of MCIT in
a DC. 1997 for the purpose of ensuring that
the Government will secure tax,
What tax rate applies to the dividend considering that if there are no taxes,
income of ABC Corp.? there would be no funds for regulatory
expenses.
Nothing, as DCs are exempt from
payment of ICDT. Applicability of MCIT to DCs
Q: Assume instead, that ABC is an RFC, Section 27. Rates of Income Tax on
will your answer be the same? Domestic Corporations;
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Q: Assume, instead, that LLC is an NRFC (NOTE: That is why the rate of
likewise in its 4th year under the same facts FWHT and IAET are one and the
stated above, will your answer be the same? same, specifically 10%, as it represents
what the Government should have if
No, the MCIT does NOT apply to not for the corporation9s refusal to
NRFCs, as it is NOT doing business in declare dividends.)
the Philippines.
Q: Are all kinds of corporations bound to
Nature of IAET pay IAET in case of refusal to declare
dividends?
It is a final tax in addition to all kinds
of other taxes. Thus, it may co-exist No, only DCs are required to do so.
with NIT/MCIT (A), FWHT (B, C,
and D,) and ICDT. Thus, FCs, whether resident or non-
resident, are NOT liable for IAET
(NOTE: Compare with the MCIT,
which is a tax in lieu of NIT) Items of inclusion
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☐
h. Gains from redemption of now a trend instead of giving the
shares in mutual fund inheritance to the heirs which may be
subjected to EsT.
How excluded
Thus, to avoid IT, a person may just
Exclusion is done by STILL including acquire a Life Insurance Policy instead,
the income relating to items of which is actually an inheritance in the
exclusion to the computation of the guise of a Life Insurance Policy.
total income.
(NOTE: Further, the proceeds may
It is only deducted from the total likewise NOT be subjected to EsT,
income prior to its being subjected to with the condition that the heirs must:
tax, as technically, it is still income.
1. NOT be named as executors
Thus, it is WRONG to not include it in and/or administrators; and
the addition of total income. 2. The designation must be
irrevocable)
(NOTE: It is akin to deduction, but it
is NOT per se a deduction, as it is still Return of premium
an item of exclusion)
Premiums returned to the insured or
Proceeds of Life Insurance Policy person acquiring the insurance for
another are NOT part of the income.
It refers to the insurance proceeds
received by the: It is so, considering that the premium
paid is a capital, and once returned is
1) Insured; or merely a return of capital.
2) Upon his death, his:
a. Heirs; or Be reminded that income is anything
b. Designated beneficiaries that flows into the wealth of the TP,
other than mere return of capital
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The loan is the investment, while the On the other hand, <prizes and
interest is the income. awards= are those given for recognition
of achievements in certain fields
Q: Who is the TP in the above example?
Q: X, a genius, joined a contest for the
It is China, as it earned income (loan) research of a full proof vaccine against
from the investment (loan) made in the Covid.
Philippines
He won the contest prize of Php50M as he
Inherent limitation involved in exclusion of successfully discovered a vaccine that
income derived by a foreign government in eradicates the Covid virus immediately
investments in the Philippines upon entering the human body.
If X won, would the award be exempt tax? That deduction applies only to NIT,
the following TPs may deduct:
No, as there is a substantial future
service that he must do in exchange of 1) RC;
the award. 2) NRC;
3) RA;
In such a case, the award is treated as 4) NRA-ET/B
advance compensation for the future
service to be rendered (NOTE: Take note, however, that if
the TP is a CIE, no deduction can be
Prizes and awards in sports competition had)
The prizes and award won by the Who CANNOT deduct based on NIT
athlete in a competition sanctioned by
the National Sports Commission shall Thus, the following TPs cannot
be exempt from tax deduct:
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Q: As to rent, can X claim his rent on the Q: Do a purchase of property, whether real
area where his tapsilogan is located as a or tangible personal, as an ordinary asset,
deduction? fall under an expense considering that it is
purchased for trade or business?
Yes, as it is a reasonable business
expense, as long as the requisites are No, rather it falls under depreciation
met
Q: Is it always that, capital expenditures
Q: If Y rents a unit, can he claim it as a result in acquisition of capital asset?
deduction?
No, rather, it is capital expenditures for
No, as a CIE cannot claim any acquisition of ordinary asset,
deduction considering that the latter shall be used
for the trade or business of the TP
Q: Are all <rentals= counted as deductions?
Rationale of Depreciation
No, the rule is as follows:
Depreciation is due to the fact that
GR: Rentals are deductions assets are being used in the business
and thus subject to wear and tear.
ER: Rentals are NOT
deductions if the Ways of depreciating assets in Philippine
lessee-TP acquires jurisdiction
more than possessory
interest There are two (2) ways of depreciation
in the Philippines:
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Q: If X did not pay the Php100K when it On the other hand, as to bad debts, it
became due, what is the tax implication? includes the principal and the interest.
That it is NOT paid, the same shall be Q: Assume that two (2) years after Z’s
a deduction which may be claimed by claiming the bad debt as deduction, X paid
Z. the loan and the interest of Php600K.
Q: That it may be claimed by Z, does it fall Considering that Z has already claimed the
under interest on loan? same as deduction and that two (2) years
have already passed from such claiming, is
No, rather it is a bad debt it correct to say that Z has nothing else to
do with respect to the Php600K received
(NOTE: May utang na sa kasamaang from X?
palad di nabayaran nang masamang
nangutang) No, as under the tax benefit rule, Z is
obligated to make the Php600K as part
Q: Is it correct to say that considering that of his GI for the year that it was
X failed to claim Php100K, the deduction recovered.
based on bad debt is limited to the value of
the interest? Thus, it is incorrect to say that the
deduction would nullify the effect of
No, rather, Z may claim as deduction payment in some future time.
the principal plus the interest, thus
amounting to Php600K. Q: If instead, it is Y who obtained a loan
from Z, and it likewise produced an
Requisites for bad debt interest of Php100K.
The following are the requisites for a If Y paid the interest to Z, what is the tax
bad debt: implication?
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No, as the tax arbitrage rule applies in From this, the rule is as follows,
this case. whether the business is legitimate or
illegitimate:
Under such rule, any interest
on a loan subjected to a FWHT GR: Expenses may be
shall produce an effect of deducted as long as for
deducting 33% on the interest a legitimate purpose
expense deduction.
ER: No expense that are
That the loan was invested in a bank, contrary to law, morals,
and such an interest on bank deposits customs, tradition,
is subjected to a 20%FWHT as passive public policy, etc. etc.
income under source of income B, the etc. may be allowed as
deduction must be reduced by 33%. deductibles
Thus, X can only deduct up to Q: X paid an RPT of Php4K over the land
Php66,666.66 where his tapsilogan is located.
(NOTE: The situation can only be Can he claim the same as deduction from
possible in case of interest on bank his IT?
deposits)
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Q: Assume that X paid the said RPT on Its basis is from the amount of
2021. deduction up to the time the
gas range was stolen, or
In 2023, the BIR returned Php1.5K, as the specifically up until the time it
payment made by X was excessive. was used and subject to
depreciation.
What is the effect to X?
Thus, considering that it is on
X must include the Php1.5K as the 3rd year, and the
income, in line with the tax benefit depreciation is equivalent to
rule Php20K per year, the total
deduction based on
Q: Y paid an RPT of Php4K over the land depreciation is Php60K.
where his house is located.
YEAR DEDUCTION
Can he claim the same as deduction from AS OF THE
YEAR
his IT? 2021 Php20K
2022 Php40K
No, as a CIE cannot claim any 2023 Php60K
deduction. 2024 Php80K
2025 Php100K
Casualty loss
On the other hand, the Php40K9s
The requisites are as follows: deduction shall be based on casualty
loss.
1) The loss must NOT be
compensated by insurance; and This is based on the book value
2) The loss must be caused by: of the gas range at the time it
a. Theft; was stolen.
b. Robbery;
c. Embezzlement; That it was stolen in 2023, the
d. Fire; book value is Php40K.
e. Storm;
f. Shipwreck; or YEAR BOOK
g. Other natural calamity VALUE
2021 Php80K
characterized by 2022 Php60K
suddenness 2023 Php40K
2024 Php20K
Q: Going back to X’s gas range, assume 2025 0
that, in the year 2023, it was stolen.
In effect, a TP still successfully
For purpose of deduction, how should the deducted the total value of the
deduction be made and on what basis? property.
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In case of purchase of real property or 1) Bad debts paid in some future time;
tangible personal property, deduction 2) Taxes refunded due to excessive
based on expense does NOT apply. payment; and
3) Return of lost property priorly
In effect, the expense transforms to claimed as deductions
depreciation, as it is an asset that will
be used for trade or business. NATURE OF BASIS OF
DEDUCTION INCLUSION IN
GROSS INCOME
In case of loss, depreciation transforms Bad debts Actual value (as it is
further into loss Taxes cash)
Casualty loss FMV (as it is asset)
By the combination of the depreciation
and the loss, the total value of the Q: X donated Php300K each to
property in effect has been used as a BLALOCO, a home for the aged,
deduction Simbahayanan, a religious institution,
UFA, a NSNPEI, and the Department of
Rationale of depreciation’s transforming Education (DepEd).
into a loss
May X deduct such contributions to his
It transforms into a loss considering GI?
that the asset which was formerly
subject to depreciation is no longer Yes, but the rule shall differ.
subject to depreciation as it is NO
LONGER OF USE to the TP. With respect to BLALOCO,
Simbahayanan, and UFA, the
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Q: Y, tired of being a CIE, acquired the In relation thereto, take note of the
services of Mr. RD to conduct a feasibility following:
study on what could be a successful
business. 1) It is the importation which is being
subject to VAT;
Can Y claim as deduction the fees paid to 2) If subsequently sold, the VAT on
RD? the sale of it is different from the
VAT on the importation
No, as a CIE cannot deduct from his
GI Q: A, seller of pentel pen, sold one pentel
pen to B. Assume that the gross selling
Q: After the feasibility conducted by RD, Y price of A is Php100.
went on to do business on the very same
year, as he was excited on the possibilities. Discuss the effect of VAT.
Can Y claim as deduction the fees paid to The Php100 must be subjected to a
RD? 12%VAT.
Yes, as now he ceases to be a or purely Thus, the price shall be Php112, the
a CIE. Php12 pesos resulting from the VAT,
and have different implications on A
This kind of expense shall be called as and B.
mobilization expense, as it refers to a
start-up business. As to the seller, A, the Php12 is
called as the output
Nature of VAT
On the other hand, as to the
It is an indirect tax which is passed on buyer, B, the Php12 is called as
and on (and on and on and on…) the input
It adds up to one TP9s burden, and Q: After acquiring the pentel pen, B
when it is passed on, it forms part of improved it by placing art and stones on it.
the expense
After computation of expenses for the
Transactions covered by VAT production of such, he determined that he
used Php18, and therefore now at Php130.
There are only three (3) transactions
covered by VAT: To make a profit out of it, he plans to sell it
to C at Php150.
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No, as he must compute the excess B is still presumed that the VAT have
output (EO), and remit the same with been paid and have received the same,
the BIR, using the following formula: as it is his obligation.
Output as seller (OAS) In effect, the BIR shall still collect from
minus Input as buyer (IAB) B whether or not the latter indeed
(EO) collected the 12%VAT or not.
Thus, in line with the above, the Q: Assume, instead, that B sold a real
computation is as follows: property. Is it covered by VAT?
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His COS for pork, beef, oil, and other raw X has the OAS VAT of Php1.2M,
materials is Php6M. computed as follows:
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ZRT EXEMPT
No, as deduction can only be made by Effect The transaction shall NOT
a TP engaged in trade or business, and be subject to tax
VAT registered
When ALL stages PARTICULAR
(NOTE: Thus, a CIE can NEVER NOT of the stage of the
subject to transaction transaction
claim a credit based on VAT) VAT
Credit of Allowed NOT allowed
Q: What then is the role of VAT to a CIE? input
against
It is merely an addition to the expense output
of the TP
Q: With the above distinctions, which is
Zero-rated transaction (ZRT) more beneficial among the two?
It is VATable but to the rate of zero (0) It is the ZRT. The reason for this is
because it has an economic benefit to
It applies only to: the Government.
=
Importation of goods is always a. Thus, it has the effect of
VATable at 12%. reducing the foreign
currency reserves of the
(NOTE: But the exportation of goods country;
may be subjected to ZRT)
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(8) Services rendered to: Provided, That subparagraphs (B)(1) and (B)(5)
hereof shall be subject to the twelve percent
(i) Registered enterprises within a separate (12%) value-added tax and no longer subject to
customs territory as provided under special zero percent (0%) VAT rate upon satisfaction
law; and of the following conditions:
(ii) Registered enterprises within tourism (1) The successful establishment and
enterprise zones as declared by TIEZA subject implementation of an enhanced VAT refund
to the provisions under Republic Act No. 9593 system that grants refund of creditable input
or the Tourism Act of 2009. tax within ninety (90) days from the filing of
the VAT refund application with the Bureau;
(NOTE: The amendment introduced by the TRAIN Provided, That, to determine the effectivity of
Law was vetoed by the President. The veto message item no. 1, all applications filed from January 1,
reads: 2018 shall be processed and must be decided
within ninety (90) days from the filing of the
I am constrained to veto the provisions under Section 33 VAT refund application; and
of the enrolled bill, to wit:
(2) All pending VAT refund claims as of
Section 33: December 31, 2017 shall be fully paid in cash
by December 31, 2019.
(8) Services Rendered To:
Provided, That the Department of Finance
I. Registered Enterprises Within A Separate Customs shall establish a VAT refund center in the
Territory As Provided Under Special Laws; and Bureau of Internal Revenue(BIR) and in the
Bureau of Customs(BOC) that will handle the
II. Registered Enterprises Within Tourism Enterprise processing and granting of cash refunds of
Zones As Declared By the TIEZA Subject To the creditable input tax.
Provisions Under Republic Act No. 9593 Or The
Tourism Act of 2009. An amount equivalent to five percent (5%) of
the total value-added tax collection of the BIR
The above provisions go against the principle of limiting and the BOC from the immediately preceding
the VAT zero-rating to direct exporters. The year shall be automatically appropriated
proliferation of separate customs territories, which annually and shall be treated as a special
include buildings, creates significant leakages in our tax account in the General Fund or as trust receipts
system. This makes the tax system highly inequitable for the purpose of funding claims for VAT
and significantly reduces the revenues that could be better Refund: Provided, That any unused fund, at the
used for the poor. As to tourism enterprises, the current end of the year shall revert to the General
law only allows for duty and tax free importation of Fund.
capital equipment, transportation equipment and other
goods. The TIEZA Law explicitly allows only duty Provided, further, That the BIR and the BOC
and tax free importation of capital equipment, shall be required to submit to the COCCTRP a
transportation equipment and other goods (in certain
cases and always subject to rules provided by the DOF).
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(E) Services subject to percentage tax under (M) Gross receipts from lending activities by
Title V; credit or multi-purpose cooperatives duly
registered with the Cooperative Development
(F) Services by agricultural contract growers Authority;
and milling for others of palay into rice, corn
into grits and sugar cane into raw sugar; (N) Sales by non-agricultural, non- electric and
non-credit cooperatives duly registered with
(G) Medical, dental, hospital and veterinary the Cooperative Development Authority:
services except those rendered by Provided, That the share capital contribution
professionals; of each member does not exceed Fifteen
thousand pesos (P15,000) and regardless of the
(H) Educational services rendered by private aggregate capital and net surplus ratably
educational institutions, duly accredited by the distributed among the members;
Department of Education(DepED), the
Commission on Higher Education (CHED), (O) Export sales by persons who are not VAT-
the Technical Education and Skills registered;
Development Authority (TESDA) and those
rendered by government educational (P) Sale of real properties not primarily held for
institutions; sale to customers or held for lease in the
ordinary course of trade or business or real
(I) Services rendered by individuals pursuant to property utilized for low-cost and socialized
an employer-employee relationship; housing as defined by Republic Act No. 7279,
otherwise known as the Urban Development
(J) Services rendered by regional or area and Housing Act of 1992, and other related
headquarters established in the Philippines by laws, residential lot valued at One million pesos
multinational corporations which act as (P1,500,000) and below, house and lot, and
supervisory, communications and coordinating other residential dwellings valued at Two
centers for their affiliates, subsidiaries or million five hundred thousand pesos
branches in the Asia-Pacific Region and do not (P2,500,000) and below: Provided, That
earn or derive income from the Philippines; beginning January 1, 2021, the VAT exemption
shall only apply to sale of real properties not
(K) Transactions which are exempt under primarily held for sale to customers or held for
international agreements to which the lease in the ordinary course of trade or
Philippines is a signatory or under special laws, business, sale of real property utilized for
except those under Presidential Decree No. socialized housing as defined by Republic Act
529; No. 7279, sale of house and lot, and other
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(R) Sale, importation, printing or publication of (Z) Sale of gold to the Banko Sentral ng
books, and any newspaper, magazine, journal, Pilipinas (BSP);
review bulletin, or any such educational reading
material covered by the UNESCO Agreement (AA) Sale of or importation of prescription
on the Importation of Educational, Scientific drugs and medicines for:
and Cultural Materials, including the digital or
electronic format thereof: Provided, That the (i) Diabetes, high cholesterol, and hypertension
materials enumerated herein are not devoted beginning January 1, 2020; and
principally to the publication of paid
advertisements; (ii) Cancer, mental illness, tuberculosis, and
kidney diseases beginning January 1, 2021.
(S) Transport of passengers by international
carriers; Provided, That the DOH shall issue a list of
approved drugs and medicines for this purpose
(T) Sale, importation or lease of passenger or within sixty (60) days from the effectivity of
cargo vessels and aircraft, including engine, this Act; and
equipment and spare parts thereof for
domestic or international transport operations; (BB) Sale or importation of the following
beginning January 1, 2021 to December 31,
(U) Importation of fuel, goods and supplies by 2023:
persons engaged in international shipping or air
transport operations: Provided, That the fuel, (i) Capital equipment, its spare parts and raw
goods, and supplies shall be used for materials, necessary for the production of
international shipping or air transport personal protective equipment components
operations; such as coveralls, gown, surgical cap, surgical
mask, N-95 mask, scrub suits, goggles and face
(V) Services of bank, non-bank financial shield, double or surgical gloves, dedicated
intermediaries performing quasi-banking shoes, and shoe covers, for COVID-19
functions, and other non-bank financial prevention; and
intermediaries;
(ii) All drugs, vaccines and medical devices
(W) Sale or lease of goods and services to specifically prescribed and directly used for the
senior citizens and persons with disability, as treatment of COVID-19; and
provided under Republic Act Nos. 9994
(Expanded Senior Citizens Act of 2010) and (iii) Drugs for the treatment of COVID-19
approved by the Food and Drug
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It is the filing of the returns done by the Q: If X was fraudulent or in bad faith in
ER in favor of the EE. belatedly filing his returns, what is the
effect?
It is available in case the EE only has
one ER for the whole taxable year. Aside from his taxes, the following
shall attach:
The returns filed by the ER shall serve
as a substitute to the returns supposed 1. 50% surcharge; and
to be filed by the EE. 2. 12% interest per annum for one (1)
day
Q: Y worked as a CIE for X from January
to June 2021. From July to December 2021, Q: If X already filed a return, can he amend
Y worked for W. it?
May X, W, or both, file the returns for Y? Yes, but the following should be
attached together:
No, as substituted filing is available
only in case a CIE has one ER for the 1. Original return; and
whole year. 2. Amended return
The following attaches to the taxes to It is allowed within three (3) years from
be paid: date of filing of the original return,
provided the no Notice of
1. Penalties: Investigation (NOI) has been received
a. Without fraud or bad by the TP.
faith:
i. 25% penalty; or The reason for no amendment
b. With fraud or bad faith: allowed after receipt of NOI is
i. 50% surcharge; to avoid the situation where the
2. Interest of double the legal interest amendment will just change the
for each day: matter subject of the
a. As of 2018, this would be investigation.
12% considering that the
legal interest is 6% (NOTE: NOI and Letter of Authority
are one and the same)
Q: X, a SEI, filed his first returns on 16th of
May 2021. Q: X filed his FCR on 15 April 2021. On the
16th of April 2022, he filed his amended
What is the effect?
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No, as an amendment is allowed only If X filed his returns and paid his taxes in
within three (3) years from the date of the adjacent RDO, which is DEF RDO, is
the filing of the original returns it correct to say that X properly filed his
returns and paid his taxes?
Q: X filed his FCR on 15 April 2021. On the
16th of April 2022, he filed his amended No, as payment in the wrong venue
return of the FCR dated 15 April 2021, amounts to non-payment.
attaching it thereto.
Actions of BIR upon receipt of returns
A day prior to the said filing, specifically on
15 April 2022, X received an NOI. Upon receipt of the returns and study
of such, The BIR may do any of the
Can the amendment be allowed? following:
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I would still do the same as above. No, as the prescriptive period merely
refers to the issuance of the FAN.
Q: Aside from X, M is bound to deliver a
FAN to ABC Corporation. The service may be done even after the
lapse of the prescriptive period, as long
To whom should the FAN be addressed as the FAN was issued within the
and delivered? prescriptive period.
It is so, considering that the waiver Q: Are the above remedies in the
must be executed and accepted prior to alternative?
the expiration of the period.
No, rather they are successive.
(NOTE: There is nothing to extend if
already expired) Thus, resort to administrative protest
must first be done prior to judicial
protest
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No, the thirty (30) day period is non- Q: After receipt of the FAN, X filed his
extendible administrative protest on the 12th day from
receipt thereof.
(NOTE: Take note, however, that if
the last day falls on a weekend or a The BIR determined that the documents
holiday, the period is <extendible= up are complete.
until the next working day.)
For purpose of determining whether the
Q: Would your answer be the same if the BIR sat on the protest, should the counting
TP raises a supervening event to extend the of the 180 days be counted from the 30th day
period? from the receipt of the FAN?
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Options of the TP upon denial, partly No, it is against logic that the BIR will
denying, or non-action of BIR protest against its own decision.
The options available to the TP are as For this reason, only the TP may avail
follows: a judicial protest.
Jurisdiction BIR CTA division No, as the filing with the CTA en banc
requires a prior MR or MNT with the
Period to file Within 30 days CTA division, as a condition sine qua
non
Reckoning From receipt From From
point of FAN receipt lapse of
of 180
Remedy of BIR and/or TP against CTA en
order days bank decision
Actions of the CTA division The BIR and/or the TP may file a
Petition for Review on Certiorari (Rule
The CTA division may: 45)
1. Deny;
2. Grant: or
3. Partly:
a. Grant; and
b. Deny
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Q: Considering that the collection may be The period resumes to run as soon as
done despite an existing protest, what is the ground for the suspension ceases.
the rule as to the running of the period to
collect taxes? Q: X’s returns filed in 2021 indicates that
his address is 123 Numero St., Quezon
GR: Running of period to collect is City.
NOT suspended, as collection
of taxes is NOT suspended, However, he changed his address to 456
considering that taxes are the Numbers St., Quezon City.
lifeblood of the government
In 2024, the BIR found that X fraudulently
ER: The period to collect is filed his returns, but by reason of laziness
suspended, in the following the BIR only collected the taxes from X on
cases: 2033.
1. When the CIR is Thus, in 2033, BIR served X with the notice
prohibited from making that his taxes are being collected, in 123
assessment Numero St., Quezon City, but he is not
a. Beginning: found there.
i. Distraint;
ii. Levy; or Eventually, in 2035, the BIR successfully
iii. Proceeding in found and served the collection to X in 456
court; Numbers St., Quezon City.
b. Up until:
i. 60 days after X claims that the BIR’s right to do so has
any of the already prescribed, as 10 years have passed
above; from the discovery of the fraudulent filing.
2. Reinvestigation requested
by the TP and granted by Is X correct?
the CIR;
3. TP cannot be found in No, X is incorrect.
location indicated in
returns; The non-informing by X to the BIR
4. Despite the warrant of has the effect of suspending the statute
distraint or levy9s service to of limitations.
the TP, his authorized
representative, or member
of household with
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In 2024, the BIR found that X fraudulently RTC: Exceeds Php400K if within
filed his returns, but by reason of laziness MM; or
the BIR only collected the taxes from X on Exceeds Php300K if outside
2033. MM
X claims that the BIR’s right to do so has The BIR filed a civil collection case with
already prescribed, as 10 years have passed the RTC.
from the discovery of the fraudulent filing.
X questioned the jurisdiction of the RTC.
BIR on the other hand, claims that due to If you were the Judge, how would you
the change in the address, the running of decide?
the period was suspended.
I would rule in favor of X, declaring
Is X correct? that the RTC has no jurisdiction over
the case.
Yes, the period of collecting was NOT
suspended, considering that X In ruling so, I would hold that the
informed them of the change in the proper jurisdiction is with the MTC, as
address. the jurisdictional value is based solely
on the tax due, which is Php300K.
Thus, the suspension of the period
would NOT apply Q: Assume, instead, that X has a tax due of
Php1M, and the BIR filed the civil
Original jurisdiction as to civil collection collection case in the RTC.
case
Considering that the tax due exceeds
The exclusive original jurisdiction shall Php400K, is the BIR correct in filing the
depend on the amount of the tax due, civil collection case with the RTC?
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It is a condition sine qua non. Q: Can a criminal case which has no tax
deficiency as a result be filed with the
Q: If a case reaches the CTA en banc, is it CTA?
required that an MNT be availed prior to
appeal to the SC? No, as it does NOT exercise
jurisdiction over such.
No, an MNT is NOT a condition sine
qua non to the filing of an appeal with In such a case, its jurisdiction is merely
the SC appellate.
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