BRB23 Tax

TAXATION LAW
I. GENERAL PRINCIPLES ....... . ................. ... .......... ..... . .. . ..... .............. 407
A. POWER OF TAXATION AS DISTINGUISHED FROM
POLICE POWER AND EMINENT DOMAIN ....................................... 409
B. INHERENT AND CONSTITUTIONAL LIMITATIONS OF TAXATION ........ 411
C. REQUISITES OF A VALID TAX........................................................ 421
D. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS ......... 422
E. KINDS OF TAXES . • ........ ............ ................................................ 425
F. DOCTRINES IN TAXATION .................................... , ..... . ....... ...... .. 426
II. NATIONAL TAXATION •••••••••••••••••••••··••••··•·••·•••••••••••...•••••••••••••••••• 4 35
A. TAXING AUTHORITY .......................... :...................................... 435
B. INCOME TAX .. ..... . ..... •• ....................... ••• .................... ...... ........ 439
C. VALUE -ADDED TAX ..... ... . ........... ............................................ 492
D. TAX REMEDIES UNDER THE NATIONAL INTERNAL REVENUE ........... 5·14
Ill. LOCAL T.AXATION .................. 1111............................................................... 5S0
A. LOCAL GOVERNMENT TAXATION ..... ........ ...... ............................ 550
B. REAL PROPERTY TAXATION . ..................................................... 580
IV. JUDICIAL REMEDIES ..................................................................... 595
A. COURT OF TAX APPEALS (CTA) ............................ ....................... 595
B. PROCEDURES.......... ..................................,... ......•.•.................. 598
Volume 1. Series of 2023. BEDAN RED BOOK 407
PARTTWO:
TAXATION LAW
I. GENERAL PRINCIPLES
0: What is taxation?
ANS: The term "taxation· is defined as the power by which the sovereign raises revenue
to defray the necessary expenses of governmen t. Taxation is merely a way of
apportioning the cost of g overnment among those who in so me measure are privileged
to enjoy its benefits and must bear its burd ens (51 A m. Jur. 34 1; 1 Coole y 7'2-93).
Q: What is the rationale of taxation?

ANS: It is said that taxes are what we pay for civilized society. Without taxes, the
govern ment would be pa ra lyzed for lac,k o · the motive power to activate and operate
It. Despite the na tu ra l reluctance to swren er part of one's hard-earned income to the
taxi ng au thori t ies, e very person whq i p,ble ust contribute his shore in the running of
the g ove rnm e nt. The government, for ifs pQ. t, is expected to respond in the form of
ta ng ible and inta ngible b enefits intended o improve the lives of the people and
enh a nce their mora l and materia l '1'1ues. This symblot"ic rdc:( ·onsh ip is the rationale of
taxation and should dispel the l!'rrone<S n'o flon t It an arbitrary method of
exaction by those in the sea~ of power (C v. Algue, Inc., . No. L-'28896, February
17. 1988).
a: What is the nature ff th ' power of t~ ation?

ANS: The power of tc;u<at ion ITIPY b e desdlbed as foll o s:
I
1. It is an inhere.nt attribute of vereignt • The po er of taxation is an
essentia l aQ,d 'Inherent attribut» of sover.~igr:il>/ belongi as a matter of
rig ht to e very indeeendent g o e ~nment, w·thou being xp ress ly conferred
by the people fPepsi-Co lcr BJmling Company of the Ph ilippines v.
Mun icipallty of Tahauan, /,:.e yte G.R. No. L -3 1156, February '27, 1976).
Note: However, the taxi ng po er
of p, . inces, cities, municipalities, and
barangays is np·t clotl:,e~ with the rilfeien ower of taxation unlike a
sovereign state. The (?_ower, when granted, is to be construed in strictissimi
juris (Peliz/oy Realty Gorp. v. Province of Benguet, G.R. No. 183137, April 10,
'2013).
'2. It is legislative in ch aracter - Taxation is a power that is purely legislative.

Esse ntia lly, t his mea ns t hat in the legislature primari ly lies the discretion l·o
de termine the nature (kind ), object (purpose), extent (rate ), coverage
(sub jects ) and situs (e lace) of t a ><ation. It ha s the auth ority to prescri be a
cert ai n tax at a speci fic rate for a particular public purpose on persons or
things wi thin its jurisd iction. In other words, the legislature wields t he power
to d efine wha t tax shall be imposed, why it sho1,1 ld be im posed, how muc h
tax sha ll be Imposed, a ga inst who m (or'wh a t) it shall be imposed, and where
it sha ll be imposed (Ch amber of Real Esta te a nd Builders ' Associa tions. Inc.
v. Romulo, G.R. No. 160756, Morch 9. '2010 ).
3. It is subject to constitutional a nd inher ent limita tions (MAMA L ATEO.
Reviewer on Taxation (20 19), p. 5 [hereinafter, MA MA LA TEO, Re viewer)),
0: What are the stages or asped s of ta xation? (LACo-PaRe.)

ANS: The stages or ospects of taxation are as fo llows:
1. __!._evy or Im posi ti on (Tax Legislation) • the act of imp ositio n b y the
legislature of tax on person, proper ty, or excises. It Inclu des t·he:
a . Discretion as to purposes for which taxes shall be levied;
408 BEDAN RED BOOK Volume 1. Series of 2023.
b. Discretion as to subjects of taxation;

c. Discretion as to amount or rate of tax; and
d. Discretion as to the manner, means and agencies of collection of taxes
(DIMAAMPAO. Tax Principles and Remedies ('20'21), p. 18-'21.
[hereinafter, DIMAAMPAO, Tax Principles], p. 16-19);
'2. Asse.s sment ,ond Collection (Tax Administra tion) - the act of administration
and Implementation of the tax low by the executiye deportment through its
adm inistrative agencies. The term ·assessment" here means notice and
demand for payment of tax liability (VITUG & ACOSTA, Tax Low and
Juri~prudence ('2014), p. '26 [hereinafter V/TUG & ACOSTA, Tax Law and
Ju risprudence]);
3. Payment - the act_of compliance by the ta~poyer, in~ludin~ such options,
schemes, or remedies as may be legally ova1lable to him (Id.); and
4. Rr_fund · the recove ry of any tax alleged 'to hove been erroneously or
illegally osse.ssed or collected, or of any penalty claimed to hove been
collected without authority, or of any sum alleged to have been excessively,
or In any manner wrongfully collected (Id.).
0: What are the characteristics of the taxing power? (CUPS)

ANS: The characteristics are the following:
1. ~omprehensive • It covers ersons businesses, activities, professions, rights,
and privileges ( .. · /es, p.31);
'2. !!nlimited • . d in force and so searching
in extent, t y lore that it is subject to any
restrictio • discretion of the authority
which e a G.R. No. L-75697, June
18, 1987
3. .elenory . er , he',~ venue Code (NIRC),
the Bu R~veh tl e '(Bl certain remedies to
ensure toxe · (Q.IM nciples, supra at 31);
and
4. Supre lnsof'a r as th subject of taxation
~ con b'ei n_r.e.pe at equities which result
from · ula r.cl r exemption infringe
no co 1\i. ';lid b ry Boo rd . G.R. No. L-
75697 • .: , ":-Z V
. h ..,.,,,c,.,,,,.,..L,
0: How 1s t e po ~str yW
ANS: As a general I ~ .~ veteignty and is unlimited
in its range, acknowl ~ o security against Its abuse
is to be found only in ;r,~I ch imposes the tax on th e
constituency who is to pay 1 ~ ;- er that it was once opined
that 'the powe r to tax involves desfroy arshall Doctrine) (Tridharmo
Marketing Corp. v. CT A. G.R. No. '215950, June '20, 2016, citing Philippine Health Care
Providers, In c. v. CIR, G.R. No. 167330 (Resolution), September 18, '2009) .
Note: However, ' the web of unreality spun from Marshall's famous dictum was brushed
away by one stroke of Mr. Justice Holmes's pen: 'The power to tax is not the power to
destroy wh ile this Court sits."' (Holmes doctrine) So it is in the Philippines (Sison. Jr. v.
Ancheta . G.R. No. L-59431, July '25, 1984).
0: What are the purJ>oses and objectives of taxation?

ANS: The purposes of taxation are as follows:
1. Primary Purpose: Revenue-raising - A tax is imposed under the taxing
power of the government principally for the purpose of raising revenues to
fund public expenditures (Diaz v. Secretary of Finance. G.R. No. 193007, July
19, '2011).
'2. Secondary Purposes: Non-revenue/sumptuary purposes, including:
(PR 2 EP)
a. fromotion of general welfare - taxing power may be used as an
implement of police power (Gerochi v. DOE, G.R. No. 159796. July 17,
'2007);
Volume 1. Series of 2023. BEOAN RED BOOK 409
b. .Regulation - taxes may be levied with a regulatory purpose to provide

means for the rehabilitation and stabilization of a th reatened industry
which is affected with public interest as to be within the police power
of the state (Caltex Philippines, Inc. v. COA, G.R. No. 92585, May 8,
1992);
c. .Reduction of social inequality - this is made possible through the
progressive system of taxation where the objective is to prevent the
undue concentration of wealth in the hands of a few individuals.
Prog ressivity is ba sed on t he pri nc!ple t ha t th ose who are able to pa y
must shoulder a bigger portio n of the tax b urde n. This is also known
os the comeensatory purpose (ABAN, Law of Basic Taxation in the
Philippines (200 1). p. 6 [h erein after, ABAN, La w of Basic Taxation]);
d. _Encou rag e economic g rowth - in the rea lm of tax exemptions and tax
relie fs, the p urpose is to gra nt incenti ves or exe mptions in order to
encoura~e inves tments and thereby pro mote the country's economic
growth (Id. a t p. 6);
e. f rotectionlsm - in t he case of foreig n imp ortations, protective tariffs
a nd custo ms are imposed fo r th e p rotection of local industries (Id. qt
6-7)
A. POWER OF TAXATION AS DISI/ UISHED FROM POLICE POWER AND

EMINENT DOMAIN
0: Distinguish the "power of taxaffon~ fro

ANS: They are d istinguished a s Follows:
xerc1se on y
y t government or
ver.nment or its political
litical subdivisions; sions.
isions; or
ed to public
ce
com~ltle or
uti lities .
To raise revenue; the The property is The use of the

property (generall y "taken· for publicuse; prope rty is
in the form of money) tt mud be regu lated" for the
is ta ken for the compensated . p urpose ofp romoting
sup port o-F t he the genero lwe lfare; it
government. is not comp e nsable.
Operates upon a Operates on an Operates upon a

community or class of individual as the communi ty or class of
individuals. owner of a particular individ ua ls.
property.
The money There is transfer of There is no transfer

contributed becomes the right to property. of title, but only
part of the public restraint on the
funds. exercise of property
rights
41 o BEDAN RED BOOK Volume 1. Series of 2023.
Indirect benefit; it is Direct benefit; he benefit; the

assumed that the receives the market person affected
individual receives value of the property receives indirect
the equivalent of the taken from him. benefits as may arise
tax in the form of from the
protection and maintenance of a
benefits he receives healthy economic
from the government. standard of society.
Generally, there is no No amount imposed Amount imposed

limit on the amount but rather, the owner should not be more
of tax that may be is paid the market than sufficient to
imposed. value of the property cover the cost of the
taken. license and necessary
expenses.
subject to certain Inferior to the Relatively free from

nstitutional ment constitutional
itations, in~dirl' · ; the limitations; superior
e . .P'o'fi! iti annot to the impairment of
contract provision.
0: How is the · .he police power?

ANS: Taxation r r,a Jse revenue to support
the existence of a egu latory purpose to
p rovide means for t · . • a threate ned industry which
Is affec~ed wi th pu b Ii i ,t )e p ice po er of the state (Caltex
Philippines. Inc. v. COA,
0: How is police power wer of taxation?

ANS: Fees may a lso be re ey also serve as an instrument
of regulation. I~ the purpose is ue, or revenue is, at least. one of the
real and substantial purposes, then the ex.a ction is e_roperly called a tax (Philippine
Airlines /nc. v, Edu, G.R. No. L-4 1383, August 15, J988) . Thus:
1. Where a permit collected from ali e n job applicants is In excess of the cost
of regulation, the exaction is a tax (Villegas v. Hiu Chiong Tsai Pao Ho, G.R.
No.L-2964-0. November 10. 1978).
2. A charge of a fixed sum which bears no relation at a ll to the cost of
Inspection and regulation may be held to be a tax rather than on exercise
of the police power (Progressive Deve lopment Corporation v. Ouezon City,
G.R. No. L-3608J, April 24, 1989).
0: What is the determining factor In distinguishing "ta.x" and "regu lation" as a

form of police power"?
ANS: In distinguishing tax and regu lation as a form of police power. the determining
factor is the purpose o,f the implemented measure. If the purpose is primari ly to raise.
revenue, then it will be deemed a tm< eveh though the measure results in some form of
regulation, On the other hand, if the pu rpose is primarily to regulate, then it Is deemed
a re gu lation and an exercise of the police power of the state, even though Incidentally,
revenue is generated (Angeles University Foundation v. City of Angeles, G.R. No.189999.
June 27, 2012}. Thus:
Volume 1. Series of 2023 . BEOAN REO BOOK 411
I. The collection of a universal charge under R.A. No. 9136 (otherwise known
as the EPIRA Low) is on exerc ise of police power, not of the taxing power
(Betoy v. Notional Power Corporation, G.R. Nos. 156556•57, October 4, '2011).
'2. The '20% senior citizen discount is an exercise of police power. The discou nt
may properly be viewed as belongihg to the cqtegory of price regulatory
measures which affect the profital:illlty of establishments subjected thereto.
On this face, therefore, the subject regulation is a police power measure
(Manila Memorial Park v. Secretory of DSWD, G.R. No. 175356, December
3, '2013) .
.B. INHERENT AND CONSTITUTIONAL LIMITATIONS OF TAXATION
0: What is the extent of the power of taxation bra State?

ANS: It is o settled principle that the power o taxation by o State is plenary,
comprehensive, and supreme on,d the principal check upon its abuse rests In the
responsibility of the members of the legislatu re to their constituents. However, there are
two kinds of limitations on the power of taxation: the inherent limitations and the
constitutional limitations (Planters Products, Inc. v. Fertlphil Corp., G.R. No. 166006,
March 14. '2008) .
0: What are the inherent limitations-·of t xation? (PINES)

ANS: Inherent limitations are tho,se'. lrmlfq ions which exist despite the absence of
an express constitutional provision. They, a,te as follows:
1. Taxes must be exacted for a fub c purpose;
'2. lnternational comity;
3. The power to tax is inhere_ntly legislatl ff~n ture (Mon•delegability of
the taxing power);
4. Government ~entfties, Oijenci. generally
E_xempt from tdxqtion; and
5. Territoriality qr' S.itus (MA MAL
0: What is the effttcf of a violation of ere taxation?

ANS: A violation of these inperent lim it can 9king of property
without due proces~ of~law ,(Pepsi -Colo v. ipo 'Leyte, G.R. No. L·
31156, February 27, , 1976). Hei;ice, , 11'1 thi e, hot any tax low
contravening any limitotjpn (i)f taxa tion, feet, will likewise be unconstitutional
(VITUG & ACOSTA, Tox Low and Jurispruclence su ra at 4•5) .
0: When is a tax consid~red for "public: P,u :1

ANS: Jurisprudence states thqt "public purpose· should be given a brood
interpreto·tion. l·t does no't only pertain to those purposes which ore traditionally
viewed as essentlolly government functions, such as building roods and delivery of
basic services, but also includes those purposes designed to promote social justice.
Public purpose is the heart of a lox low. When a lox low is only o mask to exact funds
from the public when its true intention is to give undue benefit and advantage to o
public enterprise, the law will not satisfy the requirement of "public purpose· (Planters
Products. Inc. v. Fertrphil Corp,, G.R. No. 166006, Morch 14, '2008) .
0: Is there a minimum number of persons that must benefit in order for a tax to
be considered as being for public purpose? .
ANS: No. It is the essential character of the dir'ect oblect of the expenditure which
must determine its validity as justifying o t·ox, and not tie magnitude of the interests
to be affected nor the degree to which the general advantage of the community. Thus,
the public welfare may be ultimately benefited by their promotion (Pascual v. Secretary
of Public Works and Communications. G.R. No. L -10405, December '29, /960) .
0: What is the principle of international comity? .
ANS: Under the principle of international comity, o state must recognize the generally
accepted tenets of international law, among which ore the principles of sovereign
equality among states and of their freedom from suit without their consent that limit
the authority of o government to effectively impose taxes on a sovereign state and its
Instrumentalities, as well as on its property held and activities undertaken in that
capacity (V/TUG & ACOSTA. Tax Law and Jurisprudence. supra cit II).
0: What are the bases of the rule of international comity?

ANS: The bases of the rule of International Comity are as follows:
1. The Philippines adopts the generally accepted principles of international
law as part of the laws of the land (CONST. Art. II Sec. 2);
2. Doctrine of Sovereign Equality among the states (p~r in parem non habet
imperium) (DIMAAMPAO. Tax Principles, supra at 57): and
3. Doctrine of Sovereign Immunity, which states that a foreign government
may not be sued without Its consent (Air Transportation Office v. Spouses
David, G.R. No. 159402, February 23. 2011).
0: What is the rule on non-delegability of the power to taK?

ANS: Taxation is a power that is purely legislative (Chamber of Real Estate and
Builders · Association, Inc. v. Romu/o. G.R. No. 160756 Morch 9, '2010) . One of the settled
max ims in constitutional law is that the power conferred upon the legislature to make
lows cannot be delegated by that department to any other body or authority. Where
the sovereign power of the State has located the a uthority, there It must remain; and by
the constitutional agency alone, the laws must be mode until the Constitution Itself is
changed (Abakada Gura Party List ,.Er-mlta G.R. No. 168056, September I, 2005).
Note: This is embodied in thy oti maxi . . qj>, ,_ o ' d'-/egoto non delegori potest. which
means "what has been ·€le egp e ma ot l:_je i!fele qted" (Quezon City PTCA
Federation, Inc. v. Dep ' n~of, · ducat/on G.R. No~f88 i7:> February '23, '2016).
0: What are the ility of the power to

taK.? (LPA)
ANS: The power legated In es:
1. Deleg vernme,nts . 5):
'2. Dele.9 the esident·of) a r-i ss under the Flexible
Ta riff O ( ST. ·Ar t:;-:, V/ 1 :5 Emergency Powers
(CON · or~ ;J o
3. Delega i er to promulgate
adminis and Secretary of
Finance }'
0: What is the rati f'' ntities from taxation?

ANS: It is a matter o cannot be taxed without
its consent and such dti ereignty, is to be strictly
construed (Gomez v. Po omor, . . . o. l,_ 5, ,,.1¢ er '29, 1968). Further, properties
of the National Government as wel!,.OS"those-·of'flie local government units (LGUs) are
not subiect to tax as it will result in the absurd situation of the government taking
money from one pocket and putting it in another (Board of Assessment Appeals of
Laguna v. CTA, G.R. No. L-18125. May 31, 1963).
0: How are government agencies taxed?

ANS: Agencies performing governmental functions ar.e exempt from tax, unless
expressly taxed. On the other hand, agencies performing proprietary functions are
subject to tax, unless expressly exempted therefrom (DIMAAMPAO, Tax Principles,
supra at 71) .
0: Why may the government tax its agencies even if they ore performing
governmental functions?
ANS: Noth ing con prevent the Congress from decreeing that even instrumentalities
or agencies ot the g_o v~rnment performing governmental functions may be subject to
tax. Where it is done precisely to fulfill a constitutional mandate and national policy,
no one con doubt- its wisdom (Macton Cebu International Airport Authority v. Marcos.
G.R. No. 120082, September 11, 1996).
0: In the Philippines, are all government entities exempt from INCOME TAX?
ANS: No. Generally, all corporations, agencies, or instrumentolitles ow,1ed or
controlled by the Government ore subject to income tox at such rate of tax upon their
taxable income as ore imposed upon corporations or associations engaged in a similar
business, industry, or activity, except:
l. Government Service Insurance System (GSIS);
'2. Social Security System (SSS);
3, Philippine Health Insurance Corporation (PH IC);
4. Local water districts; and
5. Home Development Mutual Fund (NIRC, as amended by R.A. No. 11534,
otherwise known as the Corporate Recovery and Tax Incentives for
Enterprises (CREA TE) Act, Sec. 27 (C)).
0: In the Philippines, are all government entities exempt from REAL PROPERTY
TAX?
ANS: No. Under Section 133(0) of the Local Government Code (LGC) on the common
limitations of the taxing power of LGUs, unless otherwise provided, the exercise of the
taxing powers of provinces, cities, municipalities, and barangays shall not extend to the
levy of taxes, fees, or char!;!eS of any kind on -the Notional Government, its agenc ies
and instrumentalities, anq LGUs. Thus, only government-owned and controlled
corporations are subject to real property tax (LGC. Sec. 133 (o)).
0: What is the doctrine of supremdcy of;rthe national government?

ANS: The doctrine provides that ob J ·ta or political subdivision con re~ulate a
(federal) instrumentality in such a wd y as to P. event it from consummating its (federal)
responsibilities, or even to serlously burden lt n {he___accompJi hment of them. Otherwise,
mere creatures of the State can d.~fea·~ rlil' O _ P-"dlkies tl{,o gh extermination of what
local authorities may perceive, IQ1Efo unclesi able octi\lttre~r nterprise using the power
to tax as "a tool for regulption."
In other words, the power to· tex which led by rshdl as the "power to
destroy" (McCulloch v.J-.1/a Y,lari'd, 17 U.S. l ~ (1819)) b allowed to defeat an
instrumentality or !<r_ 'lion of tfi-e"'v ery ,en which nh ent power to wield it
(Manila lnternationa./ Airpor,t Authority . Ju ......
G.R. _,__.a...:,,;_. , 20,_ 2006).
0: What is a govei>nme~t 'inifrum~ntalit NEVEA)?

ANS: A governmen f i.nstf J.11T1e1'tolity r~ fer ti any agency otf~e Notional Government,
which is: /
1.
'2.
3.
4.
5.
Note: This term includes regulatory agencies, chartered institutions and government-
owned or -controlled corporations (E.O. No. 292, otherwise known as the ''Administrative
Code of 1987", Sec. 2 (10)).
0: When a government instrumentality is vested with corporate powers, is it ipso

facto considered a GOCC?
ANS: No. When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corpora tion. Unless t he government instrumenta ity
is organized as a stock or non-stock corporation, ii rema ins a government
instrumentality exercising not only g.overnmental but also corporate powers. Many
government instrumentalities ore vested with corporate powers but they do not' become
stock or non -stock corporations_ These government lnsl"rumentolities ore sometimes
loosely called government corporate entities (Mon/la International Airport Authority
v. CA, G.R. No. 155650. July 20. 2006).
414 BEDAN RED BOOK Volume 1. Series of 2023 .
0: What are the recognized government instrumentalities (or government

corporate entities) exempt from real property tax?
ANS: The following ore the recogn ized g_o vernment instrumentalities or government
corporate entities exempt from real property tax:
1. Manila International Airport Authority;
2. Mocton International Airport Authority;
3. University of the Philippines;
4. Bongko Sentrol ng Pilipinas;
5. Philippine Rice Research Institute;
6. Laguna Lake Development Authority;
7. Fisheries Development Authority;
8. Bases Conversion Development Authority;
9. Philippine Ports Author ity;
10. Cogoyan de Oro Port Authori'ly;
11. Son Fernando Port Authority;
12. Cebu Port Authority;
13. Philippine National Railways;
14. Philippine Economic Zone Authority;
15. Government Service Insurance System; and
16. Social Security Commission (Mani/a International Airport Authority v.
CA,G.R. No. 155650, July '20, 2006) .
Note: Thi? list is not exclusive. •tong tity has the characteristics
of an instrumentality ( as a stock or non-stock
corporation, it is exe
0: What are the c

ANS: Constitution y ..
l. Provisio ing ta)a tfon: IL)
a. _er JJ!! p r'l s.2n~.nt t of poll tax;
b. Pr • o( taxation;,
c. !J. i ·~lity of ·taxotl
d. D I "oHhe,Pr.e~ld iff rates, import and
ex ge,..ancLwba ble Tariff Clause);
e. Qr t,a iff · ns;
f. Pro · - rpose;
g. Vot
h. Tax tion entities;
i. Pre
No 1ction;
l.I. Non-_
Non-toxa .
r religious purposes;
cotlonal lnstitutions; and
m. .!._GU's pow wn' sources of revenue.
'2. Provisions indirectly affecting taxation: (DENR-FPJ)

a . D_ue process;
b. fqua,1 protection;
c. Mon-impa irment of obligations of contracts;
d. Religious freedom ·
e. freedom of speech and expres·slon;
f. fresidcmtiol power to grant reprieves, commutations, and pardon~, and
remit fines and forfe itures ofter conviction by final judgement; and
g. No taking of privat·e property fo r public use wii·hout lust compensotlon.
0: What is a poll tax?

ANS: Poll tax (also knoY,'.n as "community. tax") is a tax of a fixed amount on ind ividuals
~esiding within a specified territory, whethel' citizens or not, without regard to their
property or the occupation in which they may be engaged (51 Am. )ur. 660, cited In
Villanueva v. City of 1/oilo. G.R. No. L·2652/, December 28, 1968).
Q: What is the rationale for the rule that no person shall be imprisoned for non-
p~yment of poll tax?
A~S: One cannot be imprisoned fo r non-payment of poll tax because payment thereof
is not mandatory (SABABAN. Taxation Law Review (2008), p. 14 [hereinafter
SABABAN. TaxaHon Low Review]). While a person may not be imprisoned for non -
payment of a cedula or poll tax, he may be imprisoned for non -payment of other kinds
of taxes where the law so expressly provides (People v. Linsangan. G.R. No. 43290.
December 21, 1935).
0: What is a progressive system of taxation?

ANS: Progressive taxation Is built on t he principle o-F the taxpayer's ability to pay. This
principle was also lifted from Adorn Smith's Canons of Toxotion stating that the
subjects of every state ought to contribute towards the support of the government, as
nearly as possible, in proportion to their respective abil ities; that is, in proportion to the
revenue which they respectively enjoy under the protection of the state. Taxation is
progressive when Its rote goes up depending on the resources of the person affected
(Abokada Guro Party List v. Ermita, G.R. No. 168056, September I, 2005).
0: What is the effect if a tax is not progressive in nature?

ANS: The tax remains valid. The Constitution does not really prohibit the imposition
of indirect taxes which, like VAT, ore regJ.essive. What it simply provides is that the
Congress shall evolve o progressive sysf.e . · f taxation. The constitu·tional provision has
been interpreted to mean simply that d ire tmtes ore to be preferred and as much as
possible, indirect taxes should be minimiz . The manda t e to Congress is NOT to
prescribe, but to evolve o proc.i re$illve +fal( s stem (Tolentino v. Secretory of Finance.
G.R. No. 115455. October 30. 1995).
Q: When is taxation equitable?

ANS: Taxation is said to b1f equitob!e1 w those who are better
able to pay (Reyes v. Alrnarzo.r, G.R. N.ps· 9-4 I).
0: What is the Flexible-TariH Clause?

ANS: The Congress, may, by Jaw, out~ori-ze he Preside ½ t fix, ithin specified limits,
and subject to s1.1ch,. limitations and restri ti ns as it ay I pos tariff rotes, import
and export quota~1 t6nnoge 1:1rd whorfa ge ues, an c,~:,ir 'lti _ d imposts, within
the framework of the notional .developme t • rogram .' :thJ gov. r-' ment (CONST. Art.
VI, Sec.28, Par. 2).
Q: Which body of Congreu sliould initial ➔h fling of revenue or tariff bills?
ANS: All appropriation, revenu'e or tariff blf~ li~I§' puthorizing the increase of the
public debt, bills of local appl icotion.,,and prrvafi? bills -shdll originate exclusively in the
House of Representatives Hut the Senate may propose or concur with amendments
(CONST. Art. VI, Sec. 24) .
Note: It is not the low, but the bill which is required to originate exclusively from the
House of Representatives, A bill originating In the House may undergo such extensive
changes in the Senate that the result may be o rewriting of the whole (Tolentino v.
Secre tary of Finance, G.R. No. 115455, August 25, 1994).
Cl: What is the nature of the money collected on tax levied for a special purpose?
ANS: All money collected on any tax levied for a special purpose shall be treated as
especial fund and paid out for such purpose only., If t he purpose for which o special
fund was creat ed hos b e en fulf illed or abandoned, the balance, if any, shall be
transfe rred to the general funds of the Government (CONST. Art. VI, Sec. 29, Par. 3).
0: What is the required vote of Congress for the granting of tax exc.-mptions?
ANS: A low granting any ta x exemption shall be passed with the concurrence of o
majority of all the Members of the Congress (CONST. Art. VI, Sec. 28, Par. 4). The phrase
' majority of all the members of the Congress· mea ns at least 1h plus I of oil the members
voting se parately.
Note: In 1;1ronting tax exemptions, on absolute majority of the members of Congress

is required; while in coses of withdrawal of such tax exemption, a relative majority is
sufficient (DIMAAMPAO, Tax Principles. supra at 143).
0: What is the rule on exemption of religious, charitable, and educational

institutions from taxation?
ANS: Choritable institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit ceme.teries, and all lands. buildings, and improvements,
actually, directly, and exclusively used for relig ious, charitable, or educational purposes
shall be exempt from taxation (CONST. Art. VI, Sec. 28, Par. 3).
0: What kind of tax is covered by the exemption of religious, charitable, and

educational institutions?
ANS: The exemption is only from the payment of taxes assessed on such properties
enumerated as property taxes, as contra-distinguished from excise taxes (Llodoc v. CIR,
G.R. No. L-19201, June 16, 1965).
0: What is the test of exemption from property tax of the religious, charitable,
and educational institutions?
ANS: The test of exemption is the use of the property and not ownership (Abra Volley
College, Inc. v. Aquino G.R. No. 39086, June IS, 1988). The properties must be actually,
directly, and exclusively used for rellDlovs, cho_ritabl e, or educational purposes (Lladoc
v. CIR G.R. No. L-19'201 June 16, 1965 . J ....
. . . I .
Q: What is meant by achlal, a·r ct. an'a excl silfe use?
ANS: What is meant bi octu,;:,l· direct and exclw,ive' use ,o f t,J,e property for charitable
institutions is the d ire t' a ~I~ tlpn ·ofr he propcut.y itl elf to t1,e purposes for which the
charitable Institution I Of9 ni ed. lt , 1s NO~ the l~se ~f the- income from the real
1
eroperty that is determin · tlve qf whether the proper is used .for tax exempt purposes.
Thus, only th e par 'ipr:is of redL_prop! rty act!!_aJfr, iredly,_and exclusively used for
charitable purpose or~ _exem11.t from real properly oxes, •rthi le those portions leased
to private entities an d l')divid' als · are not .exemp~ from reol 1 roperty taxes (Lung
Center of the Phi// pi v. Ou11 on Ci~y. G..R.. No. I !9..,
J ,le 29 '2004).
0: What is the ext~ : fl t~;ve~.- powe of (he; P,r~s ·de t in r lotion to taxation?
ANS: The Presidenf sha ha\. 1h~ p_o er to efo, l an~ part ular item or items in
an appropriation, re· enue, or ta l:if(SJll b 1,t t~ efo shpll not pffect the item or items
to which he does not abject (CONST. Ar . VI, S~c. ,27, P6r. '2) .
'\f / ' ',. \ \
Note: The item or item vet ~d"-hall be reJurrre_d, t ' the~Lower House of Con1:vess
together with the objection oFfh ;Presi ept'l..lf.....c;1f t-e"l' {econs ideration, '2/3 of all the
members of such House shal agree to p, s~!He\ blll If shall be sent, together with the
objection, to the other House by which it.shall li l<ewise be reconsidered, and if app roved
by '1./3 of all th e Members of that House, it shall become o law (DIMAAMPAO, Tax
Principles, supra at 1'2'2).
0 : What is the jurisdiction of the Supreme Court in tax cases?
ANS: The Supreme Court shall have the power to review, rev ise, reverse, modify, or
affirm on appeal or certiorari judgments or orders of lower co urts in all cases Involving:
1. The legality of any tax, Impost, assessment, or toll; and
'l. The legality of any penalty imposed in relation there to (CONST. Art. VIII.
Sec.5, Par. 2(b)).
0: What is the Princ.l ple of Judicial Non-Interference?
ANS: Under the princ iple of judicial non-interference, the co urts cannot inquire into
the wisdom of a taxing act unless there is o violation of constitutional limitations or
restrictions (CIR v. Lingayen Gulf Electronic Power Co.. Inc., G.R. No. L-'23n1, August 4,
1988). The courts cannot inquire into the Wisdom, morality, or expediency of policies
adopted by the political deportments of government in areas which foll within their
authority, except only when such policies pose a dear and present danger to the life,
liberty, or property of on individual (Basco v. Philippine Amusements and Gaming Corp.,
G.R. No. 91649, May 14, 1991).
0: What is the rule on the prohibition of appropriation of public money for religious
purposes?
ANS: No public money or property shall be opproprioted, applied, paid, or employed,
directly or indirectly, for the use, benefit. or support of any s.ect, church, denomination,
sectarian institution, or system of relig ion, or of any priest, preacher, minister, or other
religious teacher, or dign itary as such, except when such priest, preacher, minister, or
dign itqry is assigned to the -armed forces, or to any penal lnslrtutlon, or government
orphanage or leprosarium (CONST. Art. VI. Sec. 29. Par. 2).
0 : What is covered by the constitutional prohibition on the appropriation or use

of public money for religious purposes?
ANS: What is prohibited is the use of public money or property for the sole purpose
of benefiting or supporting any church. The prohibition contemplates o scenario where
the appropriation Is primarily in tended for the furtherance of a particular church. It
does not inhibit the use of public property for rel igious purposes when ·the relig ious
character of such use is merely incidental lo a temporary use which Is ovallable
indiscriminately to the public in general (Re: Tany Q. Valenciana. AM. No. 10-4-19-SC
(Resolution). March 7, 2017).
0: How are non-stock, non-profit educational institutions taxed?

ANS: All revenues and assets of non-stock, nan -profit educational institutions used
actually, directly, and exclusively for e9uc; itlonal pu reoses shall be exempt from taxes
and duties. Subject to conditions pr~# be.~ by law, all grants, endowments, donations,
or contributions, used actually, dlrei;tlyJ cm.'t.l exclusively for educational purposes shall
be e.xempt from tax (CONST. Art. XI~. Se.Cl', 4, Pars. 3 and 4) .
0: What are the requisites for the e,x•T,Pt o to P,P.IY,7'

ANS: The institution must pr,o.ve witl-\ 'su tantiol evl(ie'.nd'e hat (1) it falls under the
classification non-stock, non-profit educ'otlinol institution; (2) the income it seeks
to be exempted from taxqtion,.is used adu lly, directly, and lusively for educational
pu rposes (CIR v. CA. G.~. No. ~24043. Octa r 14, 1998) /
0 : What is an "edu,Gational institution"?
ANS: It is settled that the term "educational ins-tltuti n" w en §ed in lows grantin~
tax exemptions, refers too •~c~ool s'e!Jl}nor • college, r ~ tlonal utablishment" (Id.).
0: What taxes are non,.stpek, non-profit ucatlonal insfifu ions exempt from?
ANS: The exemption oi non -SfQc;k, non-r rof t educational institutions refers to internal
revenue ta xes imposed by the ~ationa Go ernm11nt on all revenues and assets used
actually, directly, and excl_uijJv.ely for j?guc.a iorfal p rP $e§ (BIR Revenue Memorandum
Circular (R.M.C.) No. 76-0$}.
0: Must revenues be earned fr.om educational activities to be exempt from tax?

ANS: No. A si mple reading of the Constitution would show that Article XIV, Section 4
(3) does not requ ire that the revenues and income must have also been earned
from educational activities or activities related to the purposes of an educational
insti tution. The ph rase "all revenues" is unqualified by any reference to the source of
revenues. Thus, so long as the revenues and income are used actually, directly, and
exc lusively for educational purposes, then said revenues and income shall be exempt
from taxes and duties (La Sal/ion Educational Innovators Foundation, Inc. v. CIR.
G.R. No. 202792, February 27, 2019)
0 : What is the nature of the LGUs' power to tax?
ANS: The power to tax is primarily vested in the Congress. However, in our jurisdiction,
it may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X
of the Constitution. Under the lotter, the exercise of the- power may be subject to such
guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local outonomv:. The LGC provfdes for the exercise by
the LGUs of their power to tax, the scope thereof or its limitaMons, and the exemptions
from taxation. Section 133 of the LGC prescribes the common limitations on the taxing
powers of LGUs (Macton Cebu In ternationa l Airport Authority v. Marcos. G.R. No.
1'20082, September II, 1996).
0: When may the due process clause be invoked against the taxing power?
ANS: The due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example: is where If con be shown
as omounting to the confiscation of property. which would be a clear abuse of power.
It then becomes the duty of the Supreme Court to sa y that such on arbitrary act
amounted to the exercise of on authority not conferred. It hos also been held that where
the assailed tax measure is beyond the jurisdiction of the State, or is not for a publi,
purpose, or in case a retroactive statute is so harsh and unreasonable, it is subject to
attack on due process grounds (Sison. Jr. v. Ancheta, G.R. No. L-59431, July 25, 1984).
0: Is the conduct of prior public hearings required for the validity of tax laws?
ANS: No. While the Songgunians ore required to conduct public hearings prior to
the enactment of tax ordinances and revenue measures (LGC. Secs. 186 and 187), the
National Legislature, on the other hand, has the discretion whether or not they would
conduct public hearings before the enactment of tax lol'.,ls (SABABAN, Taxation
Law Review, supra a't 9) ,
0: How Is the equal protection clause satisfied in relation to taxation?

ANS: Equal protection neither requires equal rot·es of taxation on different classes of
property, nor prohibits unequal taxation so long as the inequality is not based upon
arbitrary clossification. It merely requires tha·t· all persons or property of the same doss
subjected to such legislation shall b · under like circumstances and
condi.flons, both In t·he pr ilities Imposed (COOLEY,
cited in Sison, Jr. v. Anc
0: What does the o taxation?

ANS: The power o at would impair the
obligation of contr be passed that would
alter the relative. r act that a tax makes
the conduct of a ore dffficult does not
result in the impa t is impaired only if
the relative positi he operating statute
(MA MALA TEO. R
0: When may th 'b ke
ANS: The non-I to t mptions granted by
franchises or Ileen :
l. Public l I of the Constitution,
the leg1 a franchise or right is
subject to a ',er, , -1-~·'· ,. - - Congress when public
interest so r s;.\S~ga ight Co., Inc. v. CIR, G.R.
No. 60126, bee~s. 19 , 1 • ,
2. Licensees · T e licemee»takw;,. .'i license subject to such conditions as the
grantor sees fit to impose, Including ih revocation at pleasure. A license
can thus be revoked at any time since It does not confer an absolute right
(Republic v. Caguioa, G.R. No. 168584, October 15, 2007).
0: How has the constitutional limitations on religious freedom been applied to

taxation by the courts?
ANS: In app lying the constitutional limitation that no low shall be made respeding on
establishment' of rel igion or prohibiting the free exercise thereof (non-establishment
clause}; cind that t~e free exercise and e n1·oymen t of religious profession a~d worship,
w1thouf discrimination or preference, sha I forever be allowed (free exercise clause)
(CONST. Art. Ill, Sec. 5), the Court has ruled:
1. A municipal license ta>< on sale of bibles and religious articles by a non -
stock, non -profit missionmy organization at minimal profit constitutes
curtailment of religious freedom and worship which is guaranteed by the
Constitution (American Bible Society v. City of Manila, G.R. No. L-9637, April
30, 1957);
2. The VAT registration requirement does not curtail religious freedom
because the registrotloii fee is not imposed for the exercise of a privilege
but only for ·t he purpose of defraying port of the cost of registration
(Tolentino v. Secretary of Flnanct>, G.R. No. 115455, August 25, 1994).
0: How may the constitutional limitation on the freedom of speech be transgressed

through taxation?
ANS: There is curtailment of press freedom and freedom of thought and express.ion If
a tax is levied in order to suppress basic rights and Impose a prior restraint thereto. A
license fee may not be Imposed on the press because it lays a prior restraint on the
exercise of its right (Tolentino v. Secretary of Finance. G.R. No. 115455, August '25, 1994.).
Territoriality principle and sjtus of taxation
0: What is the principle of territoriality of taxation?

ANS: The power to tox con only be exercised within the terri torial ju-risdiction of a
taxing authority. The State may not tax property lying outside its borders or lay on
excise or privilege tax upon the exercise or enjoyment of a right or privilege derived
from the lows of another State and therein exercised or enjoyed . II is imposed by the
St-ate on persons, property, or excises within its jurisdiction, In accordance with the
principle of territoriality (MAMALATEO, Reviewer, supra at 11).
Note: The power of taxation may not be exercised within the premises of embassies and
diplomatic missions of a sending state located in the host or receiving State which ls
considered, by fict ion of international low, as on extension of the territorial jurisdiction
of the sending state, thereby granting the sending state exclusive sovereignty within its
premises (Id. at 11).
0: Over what subjects and object~ cloes a,State have the power to tax?
ANS: The taxing power of a state cto. 's I\Q~ extend beyond Its territorial limits, but
within such limits it may tax persons, pro~ income, or bus iness. No state may tax
anything outside its jurisdiction without, vfofating t·he due process clause of the
Constitution (Manila Gos Corp. v. C'IR, G.R bli>. l-'--42 60, don ary 17, 1936).
0: What is meant by "situs of taxatiqn:?

ANS: Situs is the place ~n au fh ority th·at
is also called "place of ta}tdtion· (ABAN, L
0: What is the r~I• on situs of toxatlcm

ANS: Under the ntle 1 on sl~· of taxotiJn te rty lying outside
its borders or lay an excise 'OT privll~~ t t yment of a right
or privilege derived Erom ,tl'i'e lc;i~s o c:io:'ot te ed or enjoyed (SI
Am. Jur. 87-88).
0: What is the reason for the rule on sit I of t otion?
ANS: The reason behind t.fie rule Is tbat t ~Ing ~ r of a country is limited to
f
person and roperty within l iod sulfiJ!ict to its jurisdiction (DIMAAMPAO , Tax Principles,
supra at 58.
0: What are the rules on situs of property taxes?
ANS: The place of imposition and collection of property ta xes shall be determined
according to the following rules:
I. Real Property • where the property is located, regardless of whether the
owner is a resident or a non -resident (/ex rei sitae or lex situs) (First National
Bank v. Maine, '184 U.S. 312 (193'2) as cited In DIMAAMPAO, Tax Principles,
supra at 58);
2. Personal Property • if the personal property is:
a. Tangible Personal Property - whefe the property is physically located
although the owner resides In a nother jurisdiction (SI Am. Jur.);
b. lntangibl.e Personal Property - as a general rule, the situs is the domicile
of the owner! applying the principle of mobilia sequuntur personom
(movables fo low the person). Except:
i. When the property has acquired a business situs in another
jurisdiction; or .
ii. When the law provides for the situs of the subject of tax (NIRC,
Sec.104).
0: What is "mobi/ia sequuntur personam"?

ANS: The maxim mobilio sequuntur personam means "movables follow the person."
According to this maxim, the situs of personal property is the domicile of the owner
(ABAN,Law of Basic Taxation. supra at 59).
Note: The maxim moblla sequuntur personam has been decried as a mere "fiction of law
having its origin in considerations of general convenience and public policy, and cannot
be applied to limit or control the right of the state to tax propertr with in its jurisdiction"i
and must ' yield to established fact of legal ownership, actuo presence and contra
elsewhere,onq cannot be applied if to do so wou ld result In inescapable and patent
injustice· (Wells Forgo Bonk and Union Trust v. CIR, G.R. No. L-46720, June 28, 1940).
0: What are the rules on situs of income tax, as to which types of income are to
be treated as sourced within the Philippines?
ANS: The following Items of gross income shall be treated as gross income from
sources within the Philippines:
I. Interest - those derived from sources within the Philippines (residence of
the debtor);
2. Dividends - the amount received from a domestic corporation or a foreign
corporation with 50% or more of its gross income for the 3-yeor period
preceding the declaration was derived from sources within the Philippines
Note: If it is mount which bears the same

from sources within the
Philip · ces is treated as income
within
3. Servi
with
4. Rent d or if royalties are
used
5. Sale in the Philippines;
6. Sale In the Philippines
(reg nd Income from the
so le sold without the
Phili Philippines, shall be
treat partly from sources
wltho .
Note: estic corpo ration shall

be treat within the Ph ilippines,
regardless NIRC, Sec. 42 (E)).
Please refer to the summary of income from sources within and without
the Philippines in Page 444.
0: What are the rules on situs of transfer tax?

ANS: The place of Imposition and collection of estate and donor's taxes shall be
determined by considering three factors, namely:
I. Location of the property;
'2. Nationality of the taxpayer; and
3. Residence of the taxpayer (NIRC, Secs. 98 and 104).
0: What are the rules on situs of business tax?

ANS: The place of imposition and collection of VAT shall be the place where the
transaction was mode, i.e., where the property is sold and consumed or where the
service is performed or to be performed (Cross-border Doctrine/Destination
Principle) (CIR v. American Express International, Inc., G.R. No. 152609, Jun e 29, '2005).
C. REQUISITES OE A V'ALID TAX
0: What are taxes?

ANS: Taxes are enforced proportlonol contributions from persons and properties,
exacted by the St-ate by virtue of its sovereignty for the support of government and for
all public needs. Based ,on this d·eflnition, taxation has three elements, namely:
1. It is an enforced proportional contribution from persons and properties;
2. It is imposed by the State by virtue of its sovereignty; and
3. It Is levied for the support of the government (Republic v. COCOFED. G.R.
Nos. 147062-64, December 14, 2001).
0: What are the requisites of a valid tax?

ANS: The requisites of a valid tax are the following: (JAPUL)
1. Either ·the person or property taxed must be within the lurisdiction of the
toxin~ authority (Reagan v, CIR, G.R. No. L-26379, Decen:iber 27, 1969);
2. The Assessment and collection of certain kinds of taxes must guarantee
against injustice to individuals, especially by providing notice and
opportunity for hearing (compliance with due process) (VITUG & ACOSTA,
Tax Low and Juriserudence, supra at 12);
3. It should be for Cl fublic purpose (Pascual v. Secretary of Public Works and
Communications G.R. No. L;.1019,5, December 29, 1960);
4. It should be ,Uniform ancl ett;lli,(f ble (CONST. Art. VI, Sec. 28, Par. I); and
5. The tax must not lmpinge '9f1 ·~ . Inherent ard constitutional !._imitations on
the power of taxation (' i sa,;>, v, (', i/ipp/ne Amusements and Gaming Corp.,
G.R. No. 91649. May 14, 19'9. j.
0: What are the characteristics aic s P-6)----li!i\%d

ANS: The attributes or characteristics are:
1. It is levied by, l,e State wh ~ risdicti
'2. It is levied by th~ J;.aw-majil slative)
of Basic Taxat l,on s,u pro at 2
3. It is a for5;'cl chorg~,_i mposi contri tes in invitum (by
force}, oncl is ,i.q__ no way de t upon tractual assent,
expre,ss or implieil, of ti,~ pe ed CE, ., Inc,, v. Collector
of lntert}al Reven 4-e< G.R . No. 4. MoY,
4. It is generally P~ dble in 'i':l
5, It is fropo~tlo,;iate'J\, chor~c Law of Basic Taxation, supra at 2);
6. It is levied on Persons and p
7. It Is levied for~blic:Ypu rpos
8. It is foid at r~tilor peri ~
9. It is fersonal to,the toxp-ayer (Id. at 3) .
0: Explain the principles of a l ound tax system. (FAT)

ANS: The following principles hove been suggested in order to make a sound tax
system, but not necessarily to make the tax low valid:
1. fiscal Adequacy • sources of government revenue must be sufficient to meet
government expenditures and other public needs (Chavez v. Ongpln , G.R.
No. 76778, June 6, 1990);
'2. Administrative Feasibility - the tax law should be capable of conveni.ent,
just, and effective administration, as well as easy compliance by the
taxpayer (MAMALATEO, Reviewer, supra at 15); .and
3. Iheoretlcol Justice · the tax burden' should be proportionate to the
taxpayer's ability to poy. Taxotion must be uniform ond equitable (CONST.
Art. VI, Sec. 28, Par. 1).
0: What is the effect if the principles of a sound tax syS'tem are not complied with?
ANS: A tax law will retain its validity even if it is not in consonance with the principles
of fiscal adequacy and administrative feasibility because the Constitution does not
expressly require so, These principles are only designed to make our tax s·ystem sound,
However, if a tax law runs contrary to the principle of theoretical justice, such violation
will render the low unconstitutional considering. that under the Constitution, the rule of
taxation should be uniform and equitable (DIMAAMPAO. Tax Principles, supra at 36).
D. TAX AS DISTINGUISHED FROM OTHER FORMS OF EXACTIONS·
0 : Distinguish taxes from debt.

ANS: Taxes are distinguished from debt os follows:
Tcix Deb t
Based on law Based on contract or judgment
Tax payer may be imprisoned No imprisonment for failure to

for his failure to pay the tax pay debt
(except poll tax)
Generally payable in money Payable in money, property, or

services
Not assignable Assignable
if stipulated or
sideration which is paid for

contribution , fr,,O fn( p use of a property which is of
property a public nature
A demand of sovereignty A demand of proprietorship
Depends upon the cost of

construction or maintenance of
Determined by the legislature
the public improvement used
May be imposed only by the May be imposed by the

government government or private
individuals or entities
(Id. at 22).
0: Distinguish tax from license fee.

ANS: Taxes are distinguished from license fees as fallows:
Tax License Fee
As to Purpose
As to Basis Imposed under the power of Imposed under the police power of
taxation the state
As to Amount No limit Limited to the cost of the

fallowing:
1. Issuance of license; and
2. Inspection and surveillance!
except for non-usefu
occupation (Physical Therapy
Organization of the
PhUippines, Inc. v. tvlunicipo/;ty
Board of the City of Manila.
G.R. No. L-10448, Aug,u st 30.
1957)
As to Time of Normolly paid aftFr the stq t of Normally paid before

Payment business operations comm~ncement of the business
erqtlo s
As to Effect Does 11ot

of Non- illegal
Payment
As to Nature Tax~s, b11lr1,g the lifebloo e with or without

St'a e,. can·not be .surre d red
except for. lawful ccmside
0: What is the test in determlning,rw~ettier th! (mf)!)iitlon is a tax or fee?

ANS: The Primary Purpos_e Test l~,.Wled lo cfete ifiine whefher an Imposition Is a tax or
a fee. Under this test, if the generqtlng of revenue is the primary purpose and regulation
is merely incidental, the imposl·tion is a tax; but if regulation is the prlmarypurpose, the
fact that incidental revenue Is also obtained does not make the imposition a tax
(Progressive Development Corp. v. Ouezon City, G.R. No. L -36081. April 24. 1989).
0: Distinguish taxes from penalty.

ANS: Toxes are distinguished from penalty as follows:
Ta x Penalty
As to Enforced proportional Sanction imposed as punishment

Definition contributions from persons and for violation of law or octs deemed
property injurious; violation of tax laws may
give rise to imposition of penalty
As lo Intended to raise revenue Designed to regulate conduct

Pu_ r ~
As lo May be imposed only by the May be imposed by the government
Authority government or private individuals or entities
(MAMALA TEO, Reviewer, supra at '25) .

0: Distinguish taxes from special assessments.

ANS: Taxes are distinguished from special assessment as follows:
TC1x Special Assessment
proportional Enforced proportional

from persons and contributions from owner of lands
especially or peculiarly benefited
by public improvements
are levied on land, Levied only on land

persons, property, income,
business, etc.
Personal liability of the taxpayer Cannot be made a personal

liability of the person assessed
Based on necessity and _eartld lly Based solely on benefits

on beneflt·s -
1
'-- J. ' ~peciq! application only as to a
_padicular time and place
. pra 1df 15). /·
0: Distinguish tax f.
ANS: A tax is a erm to .include- forced contributions
from persons for t p1,1blic purpo ther hand, is a kind
of tax imposed on traqed Cnte . 23).
-- 1
.,
0: Distinguish t •
ANS: A tax is a s · o a revenue is a broad term
that includes not J s ell (Id. at 23).
J
0: Distinguish taxe -- -'- \_ / t">-, /
ANS: A tax is levie ~-ing be e 'Sfote for the support of the
government and for p b~lcl,~ l\ p t1ve grant of money in aid of a
private enterprise dee me
0: Distinguish taxes from compromise penalty.

ANS:
------
th\? ffu'br re (Id. at 22) .
A tax is a basic imposition on persons, property, and excises. Compromise

penalties are those collected as compromise in cases involving violations of tax laws,
rules, or regulations (Id. at 15).
0: Why is it important to distinguish taxes from other exactions?

ANS: It is important to differentiate taxes and other exactions as follows, especially
when it comes to problems and iss ues on double taxation, ta x exemptions, the
jurisdiction of the Court of Tax Appeals, and ta><payer remedies such as refund claims:
1. If an e><action is not a tax, !·hen the defense of the taxpayer of double
taxation will necessarily fail;
2. In the same manner, a tax-exempt individual or corporation is generally
only exempt from paying taxes; hence, if the exaction is not a tax, then the
individual or corporation must still pay the exaction (INGLES, Tax Made
Less Taxing: A Reviewer with Coda/s and Cases (2021), p. 4 [hereinafter,
INGLES, Reviewer]).
Volume 1. Series of 2023. SEDAN RED BOOK 4'25
E. KINDS OF TAXES
0: What are the kinds of taxes?

ANS: Taxes may be r::lassified according to the following:
1. As to Subject 1-Aatter or Object
o. Personal, Capitation, or Poll Tax • a tax of a fixed amount imposed
upon a ll persons of □ certain class within the jurisdiction of the taxing
power without re_g ord to the amount of, their property, or the
occu pations or businesses in which they may be engaged (e.g.,
community tax).
b. Property Tax • o tax imposed on all prof)erties or all properfies of a
certain class within the jurisdiction of the loxing power (e.g., rea l
eroperty tax).
c. Excise or Privilege Tax• a char~e imposed upon the performance of
on act, the enjoyment· of a privilege, or engaging in on occupation,
profession, or business (e.g., donor's tax) (ABAN, Law of Basic Taxation,
supra at 23-24).
'2. As to who bears the Burden or Incidence

a. Direct tax - one which is demanded from the very person intended to
be the payor, although it ay ultimately be shifted to another (e.g.,
income tax)
b. Indirect tax - a ta1e whlo · is demanded from one person with the
expectation and int~nflon hot he shall indemnify himself at the
expense of anothe ~ (~.g., Y,A;r) (Maceda v. Macaraig, G.R. No. 88291,
May 31. 1991).
3. As to Determinat.ion of Amo
a. Specific tax - a tax of cl the head or number,
or by some stondard of w equ ires no valuation
o·ther than 0 1 listing or c s to be taxed (e.g.,
taxes or'i distilled spirits, ,a ors).
b. Ad V'alorem tax - o -tox o fixed clue of the property
With respect to whith the t s as ..t~e intervention of
assessors or appraisers to imat _'h property before
the pmount due from e taxp term ined (e.g., real
propl?)fy tax, d is.t oms 't:l uti ~ .
c. Mixed tax - a tax having H.gt e characteristics of specific tax and
ad valo rem lox (ABAN, Low of BaJi Jaxation, supra at '27).
4. As to Purpose
a. General or 'Fi~cal - a tax imposed for the general or ordinary purposes
of the government. or to raise revenue for governmental needs (e.g.,
income tax).
b. Special, Regulatory, or Sumptuary - a tax imposed for a special
purpose, lo achieve some social or economic ends irrespective of
whether revenue is actually raised or not (ABAN, Law of Basic
Toxation, supra at 26 -'27).
5. As to Scape or Authority Imposing_ the tax

o. National (Internal Revenue Taxes) • a tax levied by the Notional
Government, through Congress, and odmin-istered by the BIR or the
Bureau of Customs (BOC)
b. Local or Municipal (Real Property Tax., Municipal Tax) - a tax levied
by the loc_ol government, through their respective Songgunla ns, ond
administered by the loca l e>Cecutive government through the local
treasurer (Id.).
6. As to Rate
a. Progressive tax - one where the tax rate increases as the tax base or
bracket increases.
b. Regressive tax - one where the tax rate decreases as the tax base
increases (e.g., VAT).
c. Proportionate tax - one where the tax rate is based on a fixed
percentage of the amount of the property, receipts, or other bases to
be taxed (Id. at 27-28).
F. DOCTrR(NES OF TAXATION
0: What are the different theories of taxation?

ANS: The theories of taxation are:
l. Lifeblood Theory (CIR v. Algue. Inc .. G.R. No. L-28896, February 17. 1988);
'2. Necessity Theory (Philippine Guaranty Co .. Inc. v. CIR. G.R. No. L-'22074,
April 30, 1965); and
3. Benefits-Protection Theory or Doctrine of Symbiotic Relationship (CIR
v.Algue, Inc., G.R. No. L-'28896, February 17, 1988).
0: What is the "Lifeblood Theory"?

ANS: The 'lifeblood theo " · blood of the nation through
which government agenc· which the State effects its
functions for the welter ·_;,;;,;~-~i::· o. 106611, July '21, 1994).
Taxes are the lifeblo ed without unnecessary
hindrance. On the accordance with law
as aN< arbitrarine elf (CIR v. Algue, Inc.,
G.R. o. L-28896,
0: What is the "

ANS: The "necess s tqijj:i tio1;1 ;as ating from necessity.
It is a necessary t~i}~rit,e~ SOY a means to give the
citizenry an army ioii,_a ::navy to res from invasion, a
corps of civil serv hpp, 9ve;mel} he enjoyment of the
citizenry and thos 'h~t.a te'Y.fE . , cilities and protection
which a governm o~i e (@~{Je y Co .. Inc. v. CIR. G.R.
No. L -22074 A o cl ~ ·,, · rn en t cannot fulfill its
man.d ate of prom = ·' 15eing of the people (CIR v. Bank
of the Philippine Isl 7..J /
)~
0: What is the "Benefi n'e of Symbiotic Relationship)?
ANS: Under the "benefit r-,;,;,;..;.;;;~r..,< arises because of the reciproca l
relation of protection and su State and the taxpayers. The State
giv.e s protection and for it to continue giving protection, if must be supported by
taxpay.ers in the form of taxes (CIR v. Algue. Inc .. G.R. No. L -28896, February 17, 1988).
Such enjoyment a lso exter,ds to those members of a State who do not pay ta><es because
they are not able to do so (ABAN, supra at 7) .
CONSTRUCTION AND INTERPRETATION OF TAX LAWS, RULES, AND

REGULATIONS
0: What are the sources of Tax Laws? (CLeCAJI)

ANS: The sources of tax laws are as follows:
l. 1987 .Constitution;
2. Legislation, tax treaties, and tax ordinances;
3. !:,ontemporaneous construction by executive or adflilnistratlve officers,
including Revenue Regulations by the . Department of Finance a nd
administrative issuances by the BIR or the BOC;
4. Admin istrative regulations and rulings or opinions of tax officials, including
opinions of the Secretory of Justice;
5. !udiciol Decisions (CIVIL CODE. Art. B); and
6. lnterpretation of Arnel'ican Courts (Banos v. Court of Appeals, G.R. No.
102967, February 10, 2000),
0: How are tax laws construed?

ANS: Tax laws are construed lri accordance with the fallowing rules:
1. Tax laws are prospective in operation, unless t he language of the stdtute
clearly provides otherwl.s e (CIR v. Acosta, G.R. No. 15406B, August 3, 2007)
2. Where the language is plain • If the provision of the law is dear and
speaks categorically, the need for interpretation is obviated, no plausible
pretense being entertained to justify non-compliance. All that has to be done
is fo apply it in every cose that falls wit hin Its terms (Sea -Land Service, Inc.
v. CA, et al., G.R. No. 122605, April 30, 2001);
3. Where there is doubt • Tax laws mus! be construed strictly against the
government and in favor of the taxpayer. This is because taxes ore burdens
on the taxpayer, and should not be unduly Imposed or presumed beyond
what the statutes expressly and clearly import (CIR v. Philippine American
Accident Insurance Co., Inc .. G.R. No. 141658, March 18, 2005);
4. Legislative intention must be considered • Tox statutes should receive a
sensible construction, such as will give effect to the legislative Intention and
so as to ovoid an unjust or absurd conclusion (People v. Rivera, G.R. Nos.
38125 & 38216. December 22, 1933, as cited in CIR v. TMX Sales, G.R. No.
83736, January 15, 199'2);
5. Public purpose is always presumed • This is in consonance with the
doctrine that like any other stajute, tax legislation carries a presumption of
constitutionality (Chamber of'ijeal Estate and Builders ' Associations. Inc. v.
Romulo, G.R. No. 160756 , Marc~ 9, 2010);
6. Tax laws are special laws a!'ld prevail over general laws (Republic v,
Goncoyco, G.R. No. L-18307, )1111e"30 1964);
7. Principle of Legislative Ap,pr~· I b)( Re-ena tment - It means that the
re-enactment of a stat ute subs .a n all~ R\:, a g d is persuasive indication
of the adoption by,. 05ngres\ o a prio xecu IY construction (RECALDE,
A Treatise on Tox,'Principles; an Rem edies. p. 2 , ereinafter RECALDE)).
0: What is the general rule on th~ .con ns?

ANS: Tax exemptions. and •exclusions ion of sovereign
authority and to be~coristrued;rs·t;ictiss/,ni ntlty claiming the
exemption (CIR v, Eo.f tern Te{ecommu'nt£ o. 163835. July 7,
2010).
0: What are the excttptlons to the 5 rid onstruction O t X exemptions? cs~PEG-
L) '
ANS: As exceptions, tax exemptions are con,to,~ liberally in favor of the taxpayer in
the following instances:
1. When the .S.tatµte g :drytlng ·exemptfon provll::les for liberal construction
thereof (DIM'AAMPA'.'b. Tax Principles, surra at 144);
2. In case of .S.peclal tp>(es relating to specie coses and affectihg only special
classes of persons (DE LEON, The Fundamentals of Toxation ('2004). p.
60, [hereinafter, DE LEON, Fundamentals of Taxation));
3. If exemptions refer to fublic property (DIMAAMPAO, Tax Principles. supra
at 145);
4, In coses of exemptions granted to traditional persons who are _Exempt,
such as religious, charitable, and educational institutions (ABAN, Low of
Basic Taxotion. supra at 119);
5. In cases of exemptiom in favor of the ~overnment, its political subdivisions,
or instrumentalities (Macedo v. Macarqig, Jr .. GR. No. 8B291, May 31, 1991);
or
6. If the taxpayer foils within the purview of exemption by clear _!..egislotive
intent (CIR v. Arnoldus Carpentry Shop, G.R. No. 71122, March 25, 1988),
0: What are the rules an the construction of tax exclusions?

ANS: The rule that tax exemption should be applied in strictissimi juris against the
taxpayer and liberally in favor of the government applies equally to tax exclusions
(Philippine Long Distance Telephone Company, Inc. v. City of Davao, G.R. No. 143867,
Morch 25. '2003).
0: How are penal provisions of tax laws construed?

ANS: Penal provisions are given strict construction so as not to extend the plain terms
thereof that mi!;:!ht create offens.es by mere implication not so intended by the
legislative body (People v. Mortin, G.R. No. L-38019, Moy 16, 1980).
PROSPECTIVITY OF TAX LAWS

0: What is the doctrine of prospectivity of tax laws?
ANS: The general rule under the Civil Code that lows shall hove prospective
application applies to tax laws. Thus, tax lows ore prospective in application, unless
their _retroactive application is expressly provided (CIR v. Philippine National Bank, G.R.
No. 195147, July II, 2016), A tax low may be retroactive in application if the language of
the statute clearly demands or expresses that it shall have a retroactive effect (Lorenzo
v, Posadas, Jr., G.R.No. 43082, June 18, 1937).
0: What is the general rule on the application of the ex post facto rule to tax
laws?
ANS: Tax lows are neither political nor penal in nature, and they ore deemed laws of
the occupied territory rather than of the occupying enemy (Hi/ado v , Collector of
Internal Revenue, G.R. No. L-9408, October 31, 1956). A legislation merely imposing
taxes, without strictly penal sanctions for violations thereof, may hove a retrospective
operation, without being a /ssioner of Customs v. Caltex
P'hi/ipplnes. Inc., G.R. No.
0: When is retroocti ed?

ANS: As an excep make it inequitable and
violative of the C if the tax is oppressive
(Welch v. Henry,
Cl: What is the p

ANS: Under th s, any revocation,
modification, or r ny of the rulings or
circulars promulg application if the
revocation, mod i payers (NIRC, Sec.
246).
0: What are th
(MD 2 B)
ANS: Revocation,
application despite
1. Where t facts from his return or
any documen
2. Where the facts su re y t e BIR are materially .Qifferent
from the facts on which the ru ing is based;
3. Where it is the court and not the Commissioner which Declared null and
void a BIR issuance (Philippine Bank of Communicatio~ v. CIR, G.R. No.
112024, January 28, 1999); or
4. Where the taxpayer acted in Jad faith (NIRC, Sec. 246).
IMPRESCRIPTIBILITY OF TAXES
0: What is the doctrine of imprescriptibility of taxes?

ANS: The doctrine of imprescriptibility of taxes is a well -settled doctrint- both in this
·urisdiction as well as in that of the United States, that, unless expressly provided by
lapplicable
ow, the statutes of limitation do not r.un against the State, and that this principle is
to actions brought for the collection of taxes (Estate of Juan De La Vina v,
Government of the Philippine Islands. G.R. No. 42669, Jan uary 29, 1936). The law of
prescription, being a remedial measure, shou ld be interpreted in a way conducive to
bringing about the beneficent purpose of affording protection to the taxpayer (Republic
v. Ab/aza. G.R. No. L -14519. July 26, 1960).
DOUBLE TAXATION
0: What is double taxation?

ANS: Double taxation is defined as taxing the same person twice by the same
jurisdiction for the same thing (Victories Mi/ling v. Municipality of Victoria, Negros
Occidental. G.R. No. L-21183, September 27, 1968).
0: ls double taxation unconstitutional?

ANS: No. There is no constitutional prohibition against double taxation in the
Philippines. It is something not favored, but is permissible, provided that some other
constitutional requirement is not thereby violated, such as the requirement that taxes
must be uniform (Villanueva v. City of 1/oJ/o, G.R. No. L -26521, December 28, 1968).
0: What are the two kinds of double taxation?

ANS: The two kinds of double taxation are:
1. Direct double taxation (strict sense); and
2. Indirect double taxation (broad sense} (INGLES, Reviewer, supra at 21).
0: What constitutes direct double taxation?

ANS: In order to constitute double taxation in the objectionable or prohibited sense:
1. The same property must b twice when it should be taxed but once;
and
2. Both taxes must be imp ~ .
a. On the same prop~r · t matter;
b. For the same purpose
c. By the same State, go
d. Within the same J u il s
e. During the sam, ~axi '
f. They must -be t~e sa ax (Villanueva v. City of
1/oilo, G.R No. L -'26521 er
a: What constitutes iodirec double ?

ANS: It extends to all
case in, w hic s a r more pecuniary
impositions. It is usuolly allowed as Ion is equal protection
and uniformity eta_ ses .ofc f~ Cortst~t LE Income Toxation
('2016), p. 32 [hereinafter, 1/ALtNCIA lit . In
0: What are the typea of indirect doubt axation?
ANS: Indirect double taxation IJ'IOY be d0$Sif-i,dco,s follows
1. International Juridical Doubt• Taxat n - the imposition of comparable
taxes in two or: more states o'f<lthe !:'Orne · ' er and for identical periods
(CIR v. SC Johnson & Son. Inc., G.R. No. 127105, June 25, 1999)
'2. Local Double Taxation - happens when an LGU will impose a tax that is
already i!llposed 1,11;, tlie National Government or by another LGU that has
territorial jurisdiction over such LGU (RECALDE, supra at 65) .
0: What is international juridical double taxation?

ANS: International juridical double taxation is the imposition of comparable taxes in
two or more states on the same taxpayer in respect of the same subject matter and for
idEmtical periods. This double taxation usually takes place when a person is o resident
of the first contracting State and der ives income from or owns capita.I in the other
contracting State and both States Impose taxes on.such income and capital (CIR v. S.C.
Johnson & Son, Inc., G.R. No. 127105, June 25; 1999).
0: How is international juridical double taxation eliminated?

ANS: In order to eliminate double taxation, the two contracting States enter into a tax
treaty (Id.).
Q: What is the reason for avoiding International juridical do.ubfe taxation?

ANS: The apparent rationale for doing away with double taxation is to encourage the
free flow of goods and services and the movement of capital, technology, and persons
between countries, conditions deemed vital in creating robust and dynamic economies
(Id.).
0: What are the methods by which a tax treaty eliminates double taxation?
ANS: In order to eliminate double taxation, a tax treaty resorts to the following
methods:
1. First Method: It sets out the respective rights lo tax of the State of source
and of the State of residence with regard to certain classes of Income or
capitol. In some coses, on exclusive rig.h t to tax Is conferred on one of the
contracting Stoles; however, for other i'lems of income or capital. both
States are given the right to tax, although the amount of lax that may be
impose<! by the State of source is limited.
2. Second Method: The State of source is given a full or ll111ite<l right to tax
together with the State of residence. In th is case, the treaties make it
Incumbent upon the State of residence to allow re-lief in order to avoid
double taxation. There are two methods of relief under the second method.
These are:
a. Exemption Method • The income o r capital which is taxable in the
State of source or situs is exempted In the State of residence;
b. Credit Method • Although the Income or capital which is taxed in the
State of source Is still taxable in the State of residence, the tax paid in
the former Is credited against the tax levied in the latter (Id.).
0: What is the pre-emption rule in relation to avoiding local double taxation?
ANS: To avoid local double taxation C ress revents LG Us from Imposing taxes
which are already impos "unless otherwise provided in
the LGC: This limitati is common to all LGUs
(RECALDE, supra at
Q: What are the m

ANS: The measures
to avoid the resultln b u i1 t.a·xa
I. Tax C uni su _tr.!)cted ual's or entity's tax
liabilit ·e""tbtdl tax ·hab'I reduces the tax due,
includ ppj!i:able,. th!? i is determined after
applyi ndin,g,J (!X ;rote ome (CIR v. Central
Luzon ft No. '15964'7 A
2, Reduc ltep ne .~cqi:rie x rate applicable to
divide ,~ o.nt , l~ent" n (NRFC) within the
Philip '10•1~ ' er ate o, ._ lion that the country
In whi ~om i_f,le all •' inst the tax due from
the N ~ , '··- · -, aid in the Philippines
(NIRC, Manufacturing Corp.,
G.R. No.
3. Tox E_xempt1 reedom from a charge or
burden to whic :'":'c'....:i~i;:,,,.;~ ine Long Distance Te/ephone
Co. v. City of Baco . . y 15. 2005);
4. Tax Qeductions • on amount that is allowed by law to reduce income prior
to the application of the tax rote to compute the amount of tax which is due
(CIR v. Central Luzon Drug Corp., G.R. Na. 159647, April 15, 2005); and
5. Tox Ireoties • agreement between two countries specifying what items of
Income will be taxed by the authorities of the country where the income is
earned (Air Canada v. CIR, G.R.No. 169507. January II, 2016).
ESCAPE FROM TAXATION

0: What are the forms of escape from taxation? (SAvE • CTEx)
ANS: The "doctrine of escape from toxotlon" permits the taxpo.y er to minimize (if not
to escape) payment of tax by lawful means. The forms of escape from taxation are the
following:
I. Shifting of tax burden;
2. Tax _Ayoid.a nce;
3. Tox E_vosion;
4. .C,apitolizotion;
5. Ironsformotion; and
6. Tax Exemption (VALENCIA & ROXAS, Income Taxation, p. 32).
0: What is tax capitalization?

ANS: Tax capitalization refers fo the reduction in the price of a taxed object equal to
the capitalized value of the future taxes which the purchaser expects to be called upon
to pay. It is made when the price of the property is lowered to accommodate the
exclusion of tax which is exeected to be paid by the seller as a result of a sale
transaction (VALENCIA & ROXAS, Income Taxation, supra at 35).
0: When is there tax transformation?

ANS: There Is a tox transformation when the producer absorbs the payment of tax to
reduce prices and to maintain market share. The producer recovers his additional tax
expense by improving the process of production. The tax, therefore, is transformed into
again through the medium of production (Id.).
a) Shifting of Tox Burden
Q: What is the concept of shifting the tax burden?

ANS: It is the transfer of the tax burden to another; the imposition of tax is transferred
from the statutory taxpayer to another without violating the law (e.g., VAT) (Id. at 34).
0: To what kind of taxes does shifting apply?

ANS: Based on the possibility of shiftin he incidence of taxation, or as to who shall
bear the burden of taxation, taxes may classified into e ither direct tax or indirect
tax. It is upon indirect taxes wherein thei1 11~ ility for ·the payment of the tax falls on one
pers on but the burden thereof con be sn1fttict or passed on to another person, such as
when the tax is imposed upon goodi.,befo~• aching the consumer who ultimately pays
for it. When the seller passes on the tq to hi by,Y,~ J he, in Hect, shifts the tax burden,
not the liability to pay it, to the pur-<?~Qser ~,?art ot ,the c: of goods sold or services
rendered (CIR v. Philippine Lo.,;i.9 Distal'IJf iri/ep'1 n o~ R. No. 140230, December
15, 2005).
b) Tax Avoidanci:
0 : What is tax avoiclance?
ANS: Tax avoid ~nce Is tlie ,t_ax saving dev
method should be used by ,tlie.Jaxpay~ r in
Estate of Benigno T'oda, Jr., ~I<. No, 1'#718
a: Distinguish tax av~d ta
ANS: Tox avoidance (6r iza evasion (or tax
dodging) as follows:
Tax Avo,, lance Tax Evasion
As to saving device within the Tax evasion is a term that

Nature means sanctioned by law. This connotes fraud through the use of
method should be used by the pretenses and forbidden devices to
taxpayer in good faith and at arm's lessen or defeat taxes.
length.
As to Legal and not subject to criminal Illegal and subject to civil or
Legality penalty. c_riminal liabilities.
As to Effect Minimization of taxes. Almost always results in the

absence of tax payments.
c) Tax Evasion
Q: What is tax evasion?

ANS: Tax evasion a scheme used outside of those lawful means and when availed of,
it usually subjects the taxpayer to further or additional civil or criminal liabilities (Id.).
Q: What are the elements of tax evasion? (ESC)

ANS: Tax evasion connotes the integration of 3 factors:
1. _Ends to be achieved, i.e., payment of less than that what is known by the
taxpayer to be legally due, or non-payment of tax when it is shown that the
tax is due;
2. An accompanying State of mind which is described as being evil, in bad
faith, willful, or deliberate and not coincidental; and
3. A .C,ourse of action which is unlawful (Id.).
Q: What is the willful blindness doctrine?

ANS: The willful b lindness doctrine means thdt the taxpoye r's deliberate refusal or
avoidance to ver ify the contents of his or her Income Tax Return (ITR) and other
documents constitutes "willful b lindness· on his or her part. It is by reason of this doctrine
that taxpa yers cannot simp ly Invoke reliance on mere representations of their
accountonts or authorized represen tatives in order to avoid liability for failure to pay
the correct taxes. ft is a ru le that ignorance of the law excuses no one from compliance
therewllh. In order to be liable, It is enough that the taxpayer knows his or her obligation
to file the required return and he hos failed to comply thereto In the manner required
by law (Peop le v. Kotanos, CTA EB Crim. No. 006, December 3, 2010).
EXEMPTION FROM TAXATION
a: What is a tax exemption? l

ANS: Tax exemption Is rTTIT.I. ni p lied (or contractual), to
particu lar persons o tcr,:rer s of a particular class
from a tax which p io s . same State or taxing
district are obliged e ong i! of Bacolod, G.R. No.
149179, July 15, '2005) 0?11a aharge others are subjected
(Greenfield V. Mee pt emo~r 27, l
a: What are the ing tax exe

ANS: Tax exem ts eql:liva_len' as deductions, tax
amnesty, and tax e· gov~rn principles:
1. The s--q- hig overeignty so the
rel lnq
G.R. N
e-s~ed
19 ); '
poration v. Gorospe,
2. Any cl n! th be strictly construed

again on ::sre.v. r v. CTA, G.R. No. L-
30232 l }-.
3. They ~re ,:0 1511 sa id to be directly contrary
to the inten lo fric Company v. Vera, G.R. No.
L- 29987, Oc ;
4. He who claims ti able to justify his claim or right
(CIR v. P.}. Kiener Co., LTD., G.R. No. L-24754, July 18, 1975).
0 : What is the principle of strictissimi juris in tax exemption?

ANS: The principle of strictlss,i mi juris means that laws granting tax exemption are
construed strictly against the taxpayer and liberally in favor of the , taxing power.
Taxa tion is the rule and exemption is the exception. The law does not look with favor
on tax exemptions and that he who would seek to be privileged must justify It by words
t-o o plain to be mistaken and too categorical to be misinterpreted (Ph ilippine
Amusement and Gaming Corporation v. BIR, G.R. No. 172087. Mord, 15. 2011).
0: What are the kinds of tax exemptions?

ANS: Tax exemptions may be classified as follows:
1. As to Basis
a. Constitutional Exemptions - immunities from taxation which originate
from the Constitution; or
b. Statutory Exemptions - those which emanate from legislation.
2. As to Form
a. Express - when exemptions are expressly granted by the Constitution,
statutes, treaties, ordinances, franchises, or contracts;
Volume 1. Series of 2023. BEDAN REO BOOK 433
b. Implied - whenever particular persons, properties, or excises ore

deemed exempt as they fall outside the scope of the taxing provision
Itself (DE LEON. The Fundamentals of Taxation. p . 62); 01·
c, Contractual - Exemptions in consideration of a contractual agreement
with the government (VITUG & ACOSTA, Tax Law and )urh,prudence,
supra at 35).
3. As to Extent
a, Total Exemption - Connotes absolute immunity; or
b. Partial Exemption - One where collection of o part of the tax is
dispensed with (ABAN, Law of Basic Taxation, supra at 17).
0: What is the general rule on the revocation of tax exemptions?

ANS: A grant of exemption is on act of liberality which could be taken back by the
aovernment. Since taxation is the rule and exemption is the exception, the exemption may
thus be withdrawn at the pleasure of the taxing authority (Mactan Cebu International
Airport Authority v. Morcos. G.R. No. 120082. September 11. 1996).
0: When are tax exemptions irrevocable?

ANS: Tax exemptions ore irrevocable when:
1. Where the exemption was granted to private parties based on material
consideration of a mutual not re which then becomes contractual and is
thus covered by the non-i nt clause of the Constitution (Mactan
Cebu International Alrp9ilt v. Marcos, G.R. Na. 120062, September
11, 1996).
2, Where the tax exempti · ion, its revocation may
be effected through co (Mera/co v. Province of
Laguna. G.R. No. 13135,
3. Wfiere the tax ex,empt ~01,_0-•, necial law and not by a
general law, the special to the particular case
is not repeolei:I _by the lo its terms, provisions,
and opplicotion ·~ ~n I t e broad enough to
include t~e qps~s in the s , est intent to repeal
or alter t,:he spec ial law Pr.ovl c.~ of -agayan Electric
Powef ~ Light f o-, Inc., G.R. No. ll.-453 .
EQUITABLE RECOUPMENt
0: What is the doctri~v of equitable rec pment?
ANS: Under the doctrine. of equitable rec: ~ t o tax claim for refund which is
prevented by prescription may'' be 9lloW,~d t ' 1,~ i'd ~~ payment for unsettled tax
,f
liabilities if both taxes orise rom t~e same transact n in which overpayment is mode
and underpayment is due ( 1r AL E&C IA & ROXAS, supra at 36).
0: Why i~ t~e doctrine of equi~ab_le recau~ment n~t applicable in the Philippines_?

ANS: Thrs rs a common law principle and rs not b1ndin9 on our courts and there rs
nothini;i in our laws authorizing its acceptance and application because if jt will be
allowed, both the collecting agency and the taxpayer might be tempted to delay and
neglect the pursuit of their respective claims within the period prescribed by law
(Collector of Internal Revenue v. University of Santo Tomas, G.R. No. L-11274.
November 28, 1956).
PROHIBITION ON COMPENSATION AND SET-OFF

0: When does compensation or set-off take place?
ANS: Compensation or set-off tokes place when two persons, in their own right, ore
creditors and debtors of each other (CIVIL CODE. Art. 1278).
0: What is the general rule on the compensation or set-off of taxes?

ANS: As a general rule, no set-off is admissible against the demands for taxes levied
for general or local governmental purposes since a tax liability Is a legal and not a
controctuol obligation. Toxes cannot be subject ·to compensation because the
government and the taxpayer ore not creditors and debtors of each other (Phi/ex
Mining Corp. v. CIR. G.R. No. 125704. August 28, 1998).
434 BEOAN RED BOOK Volume 1. Series of 2023 .
0: When may taxes be subject to offsetting?

ANS: As exceptions to the general rule, taxes may be subject to compensation or set•
off in the following:
1. When the determination of the taxpayer's liability is intertwined with the
resolution of the claim for tax refund of erroneously or illegally collected
taxes under Section 229 of the NIRC (CIR v. Toledo Power Company, G.R.
No. 196415 December 02, '2015); or
2. Where both claims of the government and the taxpayer against each other
hove already become due, demandable, and fully liquidated (Domingo v.
Garlltos, G.R. No. L-18994, June '29, 1963).
COMPROMISE AND TAX AMNESTY

Compromise
0: What is meant by compromise?

ANS: A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid litigation or put an end to one already commenced (CIVIL CODE,
Art. '2028).
0: Distinguish compromise from abatement.
ANS: Compromise involve 's liapility, while abatement of
tax means that the entire celled (ABAN, Law of Basic
Taxation, supra at '235
a: When is comp
ANS: Compromis ct matter thereof is
not prohibited fr ring into it is duly
authorized to dos -----'---- ce, supra at 48) .
0: Who are the on behalf of the
government? -~
ANS: The followi1 ~~---1 ise on behalf of the
government:
1. Comm r certain conditions,
into a ities of the taxpayer
(NIRC.
2. Custa of the Secretory of
Finance, osition of fines and
surcha rge uct of a post clearance
audit, unless o Modernization and Tariff
Act, Sec. 1131 ).
Tax amnesty
0: What is tax amnesty?

ANS: Tax amnesty refers to the absolute waiver by a sovereign of its right to collect
taxes and its power to impose rendlties on persons or entities guilty of violating a tax
law. Simply put, ii partakes o an absolute relinquishment by the government of its
right ·to collect what i~ due it and to give tax evaders who wish to rele nt a chance to
start with a clean slate. A tax amnesty, much like a tax exemption, is never favored or
presumed in law. The grant of a tax amnesty, similar to a tax exemption, must be
co11strued strictly against the taxpayer and liberally in favor of the tax.ing authority
(Bureau of Internal Revenue v. Samuel Cagang, G.R . No. '230104, March 16, 2022,
Hernando Case).
0: What are the purposes of tax amnesty?

ANS: The purposes of tax amnesty ore as follows:
1. To grant a general reprieve to tax evaders who wish to come clean by
giving them an opportunity to straighten out their records (Id.); and
'2. To give a government a chance to collect uncollected tax from tax evaders
without having to go through the tedious process of a tax case (Banas, Jr.
v. Court of Appeals, G.R. No. 102967, February 10. 2000).
0: Distinguish tax amnesty fram tax exemption.

ANS: Tax amnesty is distinguished from tax exemption as follows:
Tax amnesty oper.a tes as a Tax exemption is freedom,

general pardon. It is an absolute immunity, or privilege from the
forgiveness or waiver by the burden of taxation to which others
government of its right to collect are subjected (Philippine Long
what is due it and ta give tax Distance Telephone Co. v. City of
evaders who wish to relent a Bacolod, G.R. No. 149179. July 15,
chance to start with a clean slate 2005).
(CIR v. Transfield Philippines, Inc ..
G.R. No. 211449. January 16. 2019).
It is immunity from all criminal Tax exemption is immunity from

and civil liabilities arising from civil liability only.
non-payment of taxes.
It applies to past tax pe~ ods, Has prospective application.

hence of retroactive a _p plicat on.
0: Can the DOJ, through promulgati RR the provisions of a tax

amnesty law by Inserting the phrase· e DOJ" as to taxpayers
with pending criminal caStt1 who are ed nesty?
ANS: No. Administrative agencies, wh ask , ulgate the IRR, cannot
supplant, modify, or amend' th~ law by enla icting the provisions
of the law it seeks to implem~t. Tilus, as • ween th nd the IRR, it is the
former that must e~~val'I if th!? DGJ insert e phra or in the DOJ" in
the IRR and in etfecj , e)IP,Orided the law ( eople .R. No. 206579,
December I. 202 1; Hernando Case).
II. NATIONAI TAXATION
A. TAXING AUTHOR/
0: What are the powers and duties of the Bureau of Internal Revenue? (AFEGiR)
ANS: The Bureau of Internal Revenue shall be under the supervision and control of
the Department of Finance and its powers and duties shall comprehend:
l. The Assessment and collectlon of all nat ional internal revenue taxes, fees,
and charges;
'2. The enforcement of all forfeitures, penalties, and fines connected
therewith;
3. The _Execution of judgments In all COS\?S decided in its vor by the Court of
Tox Appeals and the ordinary courts;
4. fuve effect to and administer the supervisory_and police powers conferred
to it by the Tax Code or other lows (NIRC. Sec 2); and
5. .Recommend to fhe Secretary of Finance all the needful rules and
regulations for the effective enforcement of the provisions of the NIRC
(NIRC. Sec. '244).
0: Who are the chief officials of the Bureau of Internal Revenue?
ANS: The Bureau of Internal Revenue shall have a chief to be known as Commissioner
of Internal Revenue and 4 assistant chiefs to be known as Deputy Commissioners
(NIRC. Sec. 3).
JURISDICTION, POWER, AND FUNCTIONS OF THE COMMISSIONER OF INTERNAL

REVENUE
0: What ar1t the powers of the Commissioner of Internal Revenue (CIR)? (IDOMS)
ANS: The CIR shall hove the power:
1. To Interpret tax lows and to Qecide coses (NIRC. Sec. 4);
'2. To _Qbto in lnfor,notlon, and to summon, examine, and toke testimony of
persons (Nl'RC, Sec. 5);
3. To Make assessments and prescribe additional requirements for tax
administration and enforcement (NIRC, Sec. 6); and
4. To .Suspend the business operations of a taxpayer (NIRC, Sec. 115).
0: What ore BIR Rulings?

ANS: BIR rulings ore administrative opinions issued by the CIR interpretative of a
provision of a tax low (ABAN, Law of Basic Taxation, supra at 149).
0: What cases ore within the power of the CIR to decide? (DROP)
ANS: The CIR shall hove the power to decide:
1. Qisputed assessments;
'2. Retunds of internal revenue loxes, fees or other charges;
3. fenolties imposed in relation thereto; or
4. Qther matters ther laws or portions thereof
administered e (NIRC, Sec. 4, Par '2).
Note: De ·ve appellate jurisdiction
of the C
0: What are in formation and to

summon, examin
ANS: Included in mon, examine, and
take testimony of
1. To ich may be relevant
or mo
'2. To Q n the person whose
intern lgation, or from any
office ments, government
~gen and GOCCs, any
inform
3. To Sum cl to file a return, or any
officer person having possession,
custody, or ther accounting records, or
any other per lssioner or his duly authorized
representative papers, records, or other data,
and to give testimony;
4. To Iake such testimony of the person concerned, under oath, as may be
relevant or material to such inquiry; and
5. To tause r.e venue officers and employees to make a canvass from time to
time of any revenu.e d i strict or region and inquire ofter and concerning all
persons therein who may be liable to pay any Internal revenue tax, and all
persons owning or having the ca re, management or possession of any object
with respect to which a tax is imposed (NIRC, Sec. 5).
0: What are the purposes for the exercise of the power of the CIR to obtain
information and to summon, examine, and take t1tstimony of persons? (AM-D1tCoE)
ANS: The f)Ower of the CIR to obtain information a nd t o summon, examine. and toke
testimony of persons ore e_xercise.d :
1. In Ascertaining the correctness of any return;
2. In Making a return when none has been mode;
3. In Determining the liability of any person for any internal revenue tax;
4. In ~llecting any such liabil ity; or
5. In _Evaluat ing tax compliance (NIRC, Sec. 5).
0: How does the CIR exercise the power to make asseuments?

ANS: After a return has been filed as required under the provisions of the NIRC, the
Commissioner or his duly authorized representative may authorize the eKominotion ,of
any taxpayer and the assessment of the correct amount of tax, notwithstanding any
low requiring the prior authorization of any government agency or instrumentality. The
tax or deficiency tax so assessed ~hall be paid upon notice and demand from the
Commissioner or his duly authorized representative (NIRC. Sec. 6 (A)).
0: What is the effect of failure to file a return vis-a-vis the CIR's power to make
assessments?
ANS: The failure to file a return shall not prevent the Commissioner from authorizing
the examination of any taxpayer (NIRC, Sec, 6 (A)) .
0: How does the CIR determine the proper tax when the taxpayer fails to submit
the required returns, statements, reports, and other documents?
ANS: The proper tax shall be determ ined as follows:
I. When a report required by law as a basis for the assessment of any noti,onol
internal revenue tax shall not be forthcoming with in the time fixed by· lows
or rules and regulations, or when the re Is reason to believe that any such
report is false, incomplete, or erroneous, the Commissioner shall assess the
proper tax on the best evidence obtainable; and
2. In case a person fo ils to file !!I- required return o.r other document at the
time prescribed by law, ,or willl lly or otherwise files a false or fraudulent
return or other document. tH'e'C missioner shall make or amend the return
from his own knowled ge- and f; m such Information OS he con obtain
through testimony or ot herw:lse, hich shall ~It pri mo fade correct and
sufficient for all legal g,ur~ ses ( l Sec, 6 (g))..
0: Enumerate the instancH when on bank deposits of
taxpayers. (DCF)
ANS: The Commissioner Is ·uthorize nk deposits and other
related information held •b ial in
1. A _Decedent ine hj
2. Any toxpoy s file romise of his tax
liability by .r ihanci iabillty; or
3. A specific ta t9ij,p the supply of tax
informatlo.n orei.9 on international
convention or agreemen t! o the Ph ilippines Is a
signatory ol"· ty of: Pro e the information obtained from the
banks and ot frlianciol l9nt mciy e used by the BIR for tax
assessment, v atlon, u , d enfort:i!'ment purposes (NIRC. Sec. 6
(F)).
0: What is the extent of the CIR's power to suspend business operation of a

taxpayer?
ANS: The Commissioner or his authorized rl;' presentotive is hereby empowered to
suspend the business operations and temporarily dose the business establishment of
any person for any of the following violat ions:
1. In the case of a VAT-registered Person. -
o. Failure to i.s sue receipts or invoices;
b. Failure to file a VAT retu rn os required under Section 114; or
c. Understatement of taxable sale~ or receipts by 30% or more of his
correct taxable sales or receipts for the taxable quarter.
'2. Failure of any person to reg is ter as required under Section 236.
The temporary closure of the establishment shall be for the duration of not less than 5
days and shall be lifted only upon compliance with whatever requirements prescribed
by the CIR in the closure order (NIRC, Sec. 115).
0: What is the general rule on the delegation of power by the CIR?

ANS: The Commissioner may delegate the powers vested in him under the pertinent
provisions of the NIRC to any or such subordinate officials with the rank equivalent to
a division chief or higher, subject to such limitations and restrictions as may be imposed
under rules and regulations to be promulgated by the Secretary of Finance, upon

recommendation of the Commissioner (NIRC, Sec. 7).
a: What powers may NOT be delegated by the CIR? (RICA)

ANS: The following powers of the Commissioner shall not be delegated:
l. The power to Recommend the promulgation of rules and regulations by the
Secretary of Finance;
2, The power to lssue rulings of first impression or to reverse, revoke, or mod ify
any existing ruli ng of the BIR;
3. r'he power to tompromise or abate, under Sec. 204(A) and (B) any tax
lia bility: Provided, however, that ass.e ssments issued by the regional offices
involv.ing basic defic iency taxes of PS00,000 or less, and minor criminal
violations discovered by regiona l and district officials may be compromised
by a regional evaluation board which shall be composed of the Regional
Director as Chairman, the Assistant Regional Director, the heads of the
Legal. Assessment and Collection Divisions and the Revenue District
Officer having jurisdiction over the taxpayer, as members; and
4. The power to ssign or reassign Internal revenue officers to establishments
where articles subjed to excise tax are produced or kept (NIRC. Sec. 7).
a)
a: Who has jurisdiction t

ANS: The powel' to i d other tax laws shall be
under the exclusive a
Note: lnterpretati Secretory of Finance

(NIRC, Sec. 4. Par
1
bJ
a: What is the divity of ~ulinga.
ANS: Ge,nerall ' revq~ofli:>n, mo I!f' eversal of any of the
rules and regul f·th e-i, B·· ~ irculars promulgated
by the Commis r_etrod'ch "e n if the revocation,
modification, or to hf~ C, Sec. 246).
a: What are the pje b,f_ vity of rulings?
ANS: The rules an .1:.tr. LI d by the Commissioner
will be given retroact1 follow'! B)
1. Where the y MJs-s . s material facts from his
return or any Hlof:him"l>y the BIR;
2. Where the facts su seguen y otl'iered by the BIR are materially _Different
from the facts on which the ru in9 is based; or
3. Where the taxpayer acted in ~ad faith (NIRC. Sec. '246).
RULE-MAKINCi AUTHORITY OF THE SECRETARY OF FINANCE
0: What is the rule-making power of Secretary of Finance?

ANS: The Secretory of Finance, upon recommendation of the Commissioner, shall
promulgate all needful rules and regulations for the effective enforcement of the
provisions of the Code (NIRC. Sec. '244) .
0: What are the specific provisions to be contained in the Rules and Regulations
of Bureau of Internal Revenue? (TF-EOSA-CERP)
ANS: The following shall be contained in the Rules and Regulations of the BIR:
1. The lime and manner in which revenue regional directors shall canvass
their respective revenue regions for the purpose of discovering persons and
property liable to national internal revenue taxes, and the manner in which
their lists and records of taxable persons and taxable objects shall be mode
and kept;
Volume 1. Series of 2023 . SEDAN RED BOOK 439
2. The forms of labels, brands, or marks to be required on goods subject to

on excise tax, and the manner in which the labeling, branding or marking
shall be effected;
3. The conditions under which and the manner in which goods intended for
.Export, which if not exported would be subject to an excise tax, shall be
labeled, branded or marked;
4. The conditions to be observed by revenue Q_fficers respecting the
Institutions and conduct of legal actions and proceedings;
5. The conditions under which goods Intended for toroge In bonded
warehouses shall be conveyed thither, their manner of storage, and the
method of keeping the entries and records in connection therewith, also the
books to be kept by revenue inspectors and the report.s to be mode by them
in connection with their supervision of such houses;
6. The conditions under which denatured Alcohol may be removed and dealt
in, the character and quantit'i of the denaturing material to be used, the
manner In which the process of denaturing shall be effected, so as to render
the alcohol suitably denatured and unfit for oral Intake, the bonds to be
given, the books and records to be kept, the entries to be made therein, the
reports to be made to the commissioner, and the signs to be displayed in
the business or by the person for whom such denaturing is done or by whom,
such alcohol is dealt in;
7. The manner in which revenJ,111- s~all be tollected and paid, the instrument1
document or object to whic;H tevenue stomps shall be affixed, the mode ot
cancellation of the same; the m nner in which the proper books, records,
Invoices and other pap;ers shall ._e kept· and entries therein made by the
person subject to the tax, ai; weH,qi the manner _· which licenses and stamps
shall be gathered up a l)d tetu 15! · . ~ ~ vid heir purposes;
8. The conditions to 15e obse ea oy ,e...,,..n.u officers respecting the
.Enforcement of Tltle Ill imposing a tax on estat f a decedent, and other
transfers mort/:s cause, as ,well as on glft, an such other rules and
regulations 'YI, ·11'1 th ~ ,com111J sioner may c s der suitable for the
enforcement of t~e sol d Title 111,
9. The manner in which ta)f .R rns, infor ati n, nd reports shall be
prepa1e·c;i and e-Ported and tax colle ted nd aid, as well as the
conditions undei \,Vhich evide,i,ce of ~ ~menti ha I be furnished the
taxpayer, and the.,Rrepa~al!,on i1 d publicot o Qfifi atistics; and
10. The manner in whlk:i h in ternal 1, enue taxes, s ch as income tax, including
withholding dx, estate , andr donor's taxes, value-added tax, other
percentage fa~es, e}l()lse taxes ,d,do~mentory stomp taxes shall be faid
through the colledioil officers, the a1R·"Qr through duly authorized agent
banks which are hereby._peputlred to recl!'l'ill~ ayments of such taxes and
the returns, papers andJstatements that may e filed by the taxpayers in
connection witH the payment of the tax: Provided, however, that
notwithstanding the other p rovisions of the Tax Code prescribing the place
of filing of returns and payment of taxes, the Commissioner may, by rules
and regulations, require that the tax returns, papers, and staleme.nts of
large taxpayers be filed and paid1 respectively, th rough collection officers
or through duly authorized agent banks (NIRC, Sec. 245).
8. INCOME TAX
DEFINITION, NATURE, AND GENERAL PRINCIPLES
0: What is income tax?

ANS: Income tax is a tax on all yearly profits arising from property, professions, trades,
or offices, or as a tax on a person's income, emoluments, profits, and the like (LG
Electronics Philippines v. CIR, G.R. No. 165451, December 3, 2014).
0: What is the nature of income tax?

ANS: Income tax is a kind of tax levied upon the privilege of receiving income or profit.
It is an excise tax and not a tax on property (2 DIMAAMPAO, Taxation, supra at 3).
0: What are the different kinds of income tax systems?

ANS: The f ollowing ore the recognized Income tax systems:
1. Global Tax System - a tax system which views indifferently the tax base
and generally treats In common all categories of taxable income of the
individu,al. It taxes all categories of income except certain passive incomes
and capital gains;
2. Schedular Tax System - a tax system where the income tax treatment
varies and is made to depend on the kind or category of taxable Income of
the taxpayer. It Itemizes the different income and provides for varied
percentages of taxes to be applied thereto; and
3. Semi-scheduler or Semi-global Tax System (MAMALATEO, Income Tax,
supra at 3-7).
0: What income tax system is followed in the Philippines?

ANS: The Philippines follows the semi-schedule r or semi -global system:
I. Global, in the sense that the taxable income (I.e., gross income less allowable
deductions and exemptions) Is subjected to one set of graduated tax rotes
(If ind ividual) or the regular corporate income lox rote (if corporation).
2. Scheduler, in the sense that, passive In vestment income subject to final tax
and capitol gains from the sole or transfer of shores of stocks of a domestic
corporation and sale or transfer of real properties remain subject to
different sets of tax rates co rent tax returns (Id.).
0: What are the feat

ANS: The following ax:
1. Direct recipient upon whom
the to
2. Progr ase increases. It is
found with Sec. 28(1), Art.
VI of
3. Comp ciple, the residence
princi
4. Se
5. Am e U.S Courts and
offi venue Code have
pecu /R v. Baler-Nickel,
G.R.
0: What are th
ANS: The gen ~--=- ilippines?
e as follows:
Citizen and resident of the Philippines All income derived from sources within and
without the Philippines
Nonresident citizen of the Philippines Only on income derived from sources

within the Philippines
Citizen of the Philippines who is
working and deriving income from Only on income derived from sources
abroad as on overseas contract within the Philippines
worker
Alien, whether resident or non-resident Only on income derived from sources
of the Philippines within the Philippines
Domestic corporation All income derived from sources within and

without the Philippines
Foreign corporation, whether engaged
or not in trade or business in the Only on income derived from sources
within the Philippines
Philippines
f,rrrrc:-!,..e-c-.,<v,,--- - - -- -- -'-- - -- - - -- - - - -- --_J
Volume 1. Series of 2023. BfDAN RED BOOK 441
a) Criteria in Imposing Philippine Income Tax
0: What criteria ore used in imposing Philippine income tax?

ANS: The three principles being used as criteria ore the following :
I. Citi2enship Principle • where o citizen taxpayer is subject to income ·tax on
his worldwide income (from sources within and without the Philippines) if he
resides in the Philippines, or only on his ir,come from sources within the
Philippines if he qualifies as a non-resident citizen;
2. Residence Principle • where on alien is subject to Philippine income lox
because of his residence in the Philippines, but only on his income from
sources within the Philippines; and
3. Source Principle • where on alien is subject to Philippine income tax
because he derives income from sources within the Philippines
(MA MALA TEO, Income Tax, supra at 89-90).
b) Types of Philippine Income Taxes
0: What type of income taxes does the Philippines impose?

ANS: The Philippines imposes the following types of income taxes:
I. Graduated Income Tax on Individuals (NIRC, Sec. 24 (A));
2. Optional 8% Income Tax on Individuals (Sec. 24 (A)(2)(b) and (c));
3. Regular/Normal Corporate !n,..co e Tax on Corporations (R/NCIT) (NIRC,
Sec 27(A));
4. Minimum Corporate Income O,J< on Corporations (MCIT) (NIRC, Sec.
27(E));
5. Special Income Tax on, Certalry Co porotion~ (i.e., private educational
institutions, foreign curr.e ney deeffl! t · 1.t,, pm;I '" emotional carriers);
6. Capitol Goins Tax (GGT) oh $al or exchong of- nlisted shares of stock of
a domestic corp.oration clasfifi as a capital a~ t (NIR_C. Sec. 24(9);.
7. CGT on sale o'r exchange of real proP-erty flo ted rn the Ph,lrpprnes
classified as capitol, ossft (NIR '{5 Sec. 24(0));
8. Final Withho\ding 'Ji.ox (FWT) nlcertain passive nv stment income (NIRC,
Sec. 2B(&)(S)(b));
9. Frlnge' Be,51efit Tax (FBT) (NIRC oec. 33); d
10. Bronc~ Profit Remittance TOX G•ifRPT) (N RC;; S . 26)
c) Taxable Period
0: What taxable periods are taxpayers rmitted to use?
ANS: The following ore the permissible t,Pl(a.J,le pe~Ui!g~, 1,!nder the NIRC:
J. Calendar year · on 0C!OOun ♦ lng f')erlod "'whl ch starts from January J to
December 31;
2. Fiscal year • an,q cq)untlng period of 12 months ending on the last day of
any month other fh·on December; and
3. Short period • a fractional port of o year (NIRC, Sec. 22 (P) and (0)).
0: When is a taxpayer re~uired to use a calendar period?

ANS: Taxable income shall be computed on the basis of the calendar year in any of
the following instances:
I. The taxpayer's annual accounting period is other than a fiscal year; or
2. The taxpayer has no annual accounting period; or
3. The taxpayer does not keep books; or,
4. The taxpayer is an individual (NIRC, Sec. 43).
0: When may a taxpayer change its taxable period?

ANS: A taxpayer may change his taxable period from fiscal year to calendar year,
from calendar year to fiscal year, or from one -Fiscal year to another, provided that:
1. The taxpayer is other than an individual; .
2. The change ls approved by the Commissioner· and
3. A short period return is filed for the period between the close of the old
taxable period and the close of the new taxable period (NIRC, Sec. 46).
Note: An individual taxpayer is always required to use o calendar period (NIRC, Sec.
43).
442 BEDAN RED BOOK Volume 1. Series of 2023,
d) Kinds of Taxpayers
0: What are the different kinds of taxpayers in the Philippines?
ANS: The different kinds of taxpayers are the following:
1. Individual taxpayers;
'2. Corporations; and
3. Estates and trusts (NIRC, Chapters Ill, IV and X).
2. INCOME
a) Definition and Nature
0: What is income?
ANS: Income refers to all wealth which flows into the taxpayer other than a mere
return of capital. It Includes the forms of income specifically described as gains and
profits, including gains derived from the sale or other disposition of capital assets (BIR
Revenue Regulations (R.R.) No. 0'2-40, Sec. 36).
0: Distinguish income from capital.
ANS: The essential difference between capital and income is that capital is a fund;
income is a flow. Capital is wealth, while income is the service of wealth. The fact is that
property is a tree, income is the fr JjJ., lobo, • e_e, income the fruit; capital is a tree,
income is the fruit (Madrigal ffert GR. ; 1 7, August 7, 1918).
0: What are the co e is taxable?
ANS: The followin whether income is
taxable:
1.
'2.
3. Reco
0: When is inco
ANS: Income is r erson, but also when
it is merely constr p . v. CIR, G.R. No. L-
'21570, July '26, 19
Q: When is inco
ANS: The term · there is a degree of
or sacri I e
undertaking led to the benefit
(BANGGA WAN, Income , " ANG GA WAN, Income
Taxation}. . MA. ._
0: When is income recognized?
ANS: Goins, profits, and income ore to be included in the gross income for the taxable
year in which they are received by the taxpayer, unless they are included when they
accrue to him in accordance with the approved method of accounting followed by him
(R.R. No. 2-40, Sec. 51)
b) When Income Is Taxable

0: When does a taxable income exist?
ANS: Taxoble income exists only when there is gain or profit (BIR Ruling No. DA-(C-
335) 815-09).
0: What is the "all-events test"?

ANS: For a taxpayer using the accrual method, the accrual of income and exrense Is
permitted when the all-events test hos been met. This test requires: (1) fixing o a right
to Income or liability to pay; and ('2) the ava ilability of the reasonable accurate
determination of such income or liability (CIR v. lsabela Cultural Corp., G.R. No.172231,
February 12, '2007).
0: What is_the rule on constructive receipt of income?

ANS: The rule of constructive receipt provides that income which is credited to the
account of or set apart far a taxpayer and which may, be drawn upon by him at any
time Is subject to tax for the year during which credit is set op1nt a l·though not then
actually reduced to possE'sslon. To con stitute receipt in such sens£>, the income must be
credited to the taxpayer without any subst antial I imitation -or restriction os to the t i me,
or manner of payment, or condition upon which payment is to be made (R.R. No. 2-40,
Sec. 52).
c) Tests in Determining Whether Income is Earned for Tax Purposes
Q: What are the tests to determine whether income is earned for tax purposes?
ANS: The following are the tests for determining whether an income is earned for tax
purposes:
1. Realization principle;
2. Claim of right doctrine;
3. Economic benefit test;
4. Severance test; and
5. All events test (ING LES, Reviewer, supra at 34).
(1) Rea Iization test
Q: What is the "realization principJ

ANS: Under the realization principle is generally recognized when both of the
following conditions are met:
1. The earning process is co ete; and
2. An exchange has takep ~I . v. CIR, CTA Case No.
5046, Marcil 24, 1997).
(2)
0: What is the •econoinlc ene· il te

ANS: Under the economic btn, f-lt test, son materially or
economically in whq tever v,o,y"is toxobl· o. 123-97).
fr,,
0: When is income consldered ,earned un er the "severance test"?

ANS: Under the severdnce tesl!,i there is n ,taxable income until there is a separation
from capital of something a f,;e changeabJe 'lalu ~ eby, supplying the realization or
transmutation which woulcl result if t lle recl!')p . lrrc·ome. This is also known as the
Macomber test (Eisner v.1Macoml:ler. 252 U .S. 189, 207-208).
d) Tax-Free Exchanges
0: What are tax-free exchanges?

ANS: Tax-free exchanges are exchanges in which no gain or loss is recognized. This
applies if one is a party to a reorganization and exchanges property in pursuance of a
plan of reorganization solely far stock or securities in another corporation that is a
party to the reorganization (NIRC, Sec. 40 (C)(2), as amended by R.A. No. 11534,
otherwise known as "CREA TE Law").
Q: What are the two kinds of tax-free exchanges of properties?

ANS: There are two kinds of taK -free exchanges under the NIRC:
1. Reorganizations; and
2. Transfer to a controlled corporotion (NIRC as amended, Sec. 40 (C)(2)).
0: What transactions qualify as tax-frci-e reorganizations?

ANS: The following are the transactions qual ifying os t a K-free reorganizations:
1. A corporation, which Is o party to a merger or consolidation, exchanges
property solely for stock ·in a corpol'ation, which Is a party to the merger or
consolidation; or
444 BEOAN RED BOOK Volume 1. Series of 2023.
2. The acquisition by one corporation, in exchange solely for all or a port of

its voting stock, or in exchange solely for all or part of the voting stock of
a corporation which is in control of the acquiring corporation, of stock of
another corporation if, immed iately after the acquisition, the acquiring
corporation hos control of such other corporation whether or not such
acquiring corporation had control immediately before the acquisition; or
3. The acqu isition by one corporation, In exchange solely for all or a port of
its voting stock or in exchange solely for all or port of the voting stock of o
corporation whk:h is in control of the acquiring corporation, of substantially
all of the properties of another corporation. In determining whether the
exchopge is solely for stock, the assumption by the acquiring corporation of
a liability of the others shall be disregarded; or
4. A recap italization, which shall mean on arrangement whereby the stock and
bonds of a corporation are readjusted as to amount, income, or priority or
an agreement of all stockholders and creditors to change and increase or
decrease the capitalization or debts of the corporation or both; or
5. A reincorporation, which shall mean the formation of the some corporate
business with the some assets and the same stockholders surviving under a
new charter (NIRC as amended. Sec. 40 (C)(2), Par. 1).
0: What qualifies as a tax-free transfer to a controlled corporation?

ANS: No gain or loss shall is transferred to a corporation
by a person, alone or to 4 persons, in exchange for
stock or unit of portici result of such exchange
the transferor or t tains control of said
corporation: Provide ______ considered as Issued
in return for prope
0: What are tran

ANS: It occurs wh transfer of property
is at least 51% oft ed to vote: Provided,
that the collective of stocks entitled to
vote of the transfe d in determining the
presence of contra
0: What is the ta s?
ANS: The tronsf made pursuant to
Section 40(()(2) ing taxes:
1. Capital Gal9,s
2. Creditable Wi h
3. Income Tax;
4. Donor's Tax;
5. VAT; and
6. DST on conveyances of real properties and shares of stocks. However, the
orlglnal issuance of shores in exchange for the properties transferred shall
be subject to the DST (R.M.C. No. 19-2022).
Note: A tax -free exchange transaction merely defers the recognition of gain or
loss on said exchanges of properties. Any gain or loss_shall be recognized when
the properties o r shores ore subsequently transferred (Id.).
e) Situs of Income Taxation
Q: What is meant by "situs of income taxation"?

ANS: The situs of income is the place of taxation of income. It is the jurisdiction that
hos the authority to impose tax upon the income (BANGGAWAN, Income Taxation,
supra at 77).
0: What factors determine the situs of income taxation?

ANS: Three factors ore considered:
I. Nationality of the taxpayer;
2. Residence of the taxpayer; and
3. Source of the income (Tan v. Del Rosario Jr. G.R. No. 109289 October 3
1994). ' ' .
Note: For items 1 and '2, recall under the general principles of income
taxation that resident citizens and domestic · corporations ore subject to
income tax on income from sources within and without the Philippines.
Nonresident citizens, aliens, and foreign corporations are subject to income
tax only on income from sources within the Philippines. The succeeding
discussions will focus on Item 3.
0: What items of income are treated as "sources within" and ·sources without· the
Philippines?
ANS: The following items of income are treated as sourced within and sourced without
the Philippines, respectively:
SUMMARY OF INCOME FROM SOURCES WITHIN

AND WITHOUT THE PHILIPPINES
T f I Income w1th1n the Income without the
O
ype ncome Phd1pp1nes ,f Philippines 1f
Interest on Bonds, Notes, Debtor is a resident Debtor is o nonresident

or Other Interest-
Bearing Obligations
Dividends a Received from a resident

foreign corporation. when less
50% • of its gross Income
he three-year period
with the close of its
ear preceding the
n of such dividends
ed from sources
hilippines; and
om o nonresident
oration
50% the dividend

a rt/y within and
ut the Philippines
ext two items for full
ssion)
Compensation for Labor Performed in the Performed outside the

or Personal Services Phllippines Philippines
Rentals and Royalties Located in the Located outside the

from Property Philippines or from Philippines or from any
any interest in such interest in such property
property
Gains, Profits, and Located in the Located outside the

Income from Sale of Philippines Philippines
Real Property
Gains, Profits, and Sold within the Sold outside the Philippines
Income from the Sale of Philippines
Personal Property
PURCHASED Within or
Without the Philippines
,L[cinc
0: What items of income are derived from sources partly within and partly without
the Philippines?
ANS: The following items of income ore derived from sources partly within and partly
without the Philippines:
1. Goins, profits and income from the sale of personal property:
a . Produced, in whole or in part, within and sold without the Philippines;
or
b. Produced, in whole or in part, without and sold within the Philippines
(NIRC. Sec. 42 (E), Par. 3).
Q: A resident foreign corporation has a gross income for the three-year period of
PSOO Million from sources within the Philippines, and derived gross income from
outside of the Philippines, amounting to P300 Million. In 2021, it declared dividend
amounting to PIO Million, and paid PS Million to a domestic corporation. What is
the tax treatment of the dividend received by the domestic corporation?
ANS: To determine the tax treatment of the dividend received by the domestic
corporation, there is a need to determine if the dividend paid is sourced within the
Philippines or not. Here, II qualified as sourced within the Philippines since the gross
income of the declaring corporation from within is more than 5096 of its total gross
income. (R.M.C. No. 62-21, April 30, 2021). Hence, It is e.xempt from income tax w1thout
compliance with the conditions imposed under Section 27 (D)(4) of the Tax Code.
GROSS INCOME
a) Definition
0: Define gross i
ANS: Gross inco urce (NIRC, Sec. 32
(A)), It means in y statutory provision
or otherwise, ex Sec. 36).
b)
a: at is t ver source"?
ANS: The word ive policy to include
all income note ome under our laws,
irrespective of th producing the gain
(Gutierrez v. CIR,
0: Are income from

ANS: Yes. Under th come received from any
property, activity, or s Tax Code stands as an
indifferent, neutral party o income comes from (CIR v.
Manning, G.R. No. L-28398, August 6, 1975).
c) Gross Income vs. Net Income vs. Taxable Income

0: Compare gross income vis-a-vis net income vis-a-vis taxable income.
ANS: The following are the distinctions:
GROSS INCOME vs NET INCOME vs TAXABLE INCOME
Gross Income I Net Income Taxable Income

. g . 9
profit subject to statutory deductions (R.R. income specified in the
income tax under No. 02-40, Sec. 36). NIRC, less deductions, if
Section 32(A) of the any, authorized for such
NIRC. types of Income by the
NIRC or other special laws
(NIRC. Sec. 31) .
d) Sources of Income Subiect to Tax

0: What are the sources of Income subject to tax?
ANS: Gross Income includes .(but is not limited to) the following:
I. Compensation for services in whatever form paid, including, but not limited
to fees, slillaries, wages, commissions, and similar items;
'2. Gross income derived from the conduct of trade or business or the exercise
of a profession;
3. Gains derived from dealings in property;
4. Interests;
5. Rents;
6. Royalties;
7. Dividends;
8. Annuities;
9. Prizes and winnings;
10. Pensions; and
11. Partner's distributive shore from the net income of the general professional
partnership (NIRC, Sec. 32 (A)).
(1) Comi;>ensotion income
0: What is compensation?
ANS: Comp1msation means all remJJ Olii!rl;J , on for servi.ces performed by an employee
for his employer under an employer,,employ• relationship, unless specifically excluded
by the Tax Code. The name by wl'iich •.h r muneratlon for services is designated Is
immaterial (R.R. 08-18, Sec. 2) .
Note: The BIR hos ruled that "lo d41.,.

rt_-V;...,j,s""'
M""l$tors from their pastoral
ministry are considered J;~obfe co uch as every form of
compensation for personal ~ t • es i w it is earned, by whom
it is paid, the label by whit h• des ich it is determined, or
the form by which it is _r,ecelv BIR ptl s. 2006).
a: What are inclu~ed in ci_on;ipensatics'

ANS: The followtng a~edn'2luiled i
1. Salaries, wagl)',5, eroblu t :;.91[~,olj~ J~ ommissions;
'2. Fees including , di,r.-ecto same time, on
employee of. ffte ·e plo c n;
3. Toxable bo fringe .. _ !itcept those which ore subject to the
fringe bene nd the all , · it' di :m,oJ. Is benefits;
4. Taxable pensio1:1s and ,etlremen pay; ond
5. Other income of a Si!'Jl'lpr nature (RR. No. 08-18, Sec. 2).
0: What are excluded from co',npensation income?

ANS: The following benefits (otherwise known as 13th month pay and other benefits)
ore excluded from the gross income of officials and employees of public and private
entities in an amount not to exceed P90,000:
l. Benefits received by officials and employees of the national and local
government pursuant to RA. No. 6686 (Christmas bonus to government
employees);
'2. Benefits received by employees pursuant to P.O. 851, as amended by
Memorandum Order No. 28 (13th month pay of rank-and -file employees);
3. Benefits received by o,fficiols ond employees not covered by P.D~ 851, as
amended by Memorondum Order No. '28 (13th month pay of other
employees); and
4. Other benefits such as productivity Incentives and Christmas bonus (NIRC.
Sec. 32 (B)(7)(e)).
(2) Fringe benefits
0: What are "fringe benefits"? (HEY-HIM-HEEL)

ANS: The term "fringe benefit" means any good, service or other benefit furnished or
granted by an employer in cash or in kind, ir;i additio n to basjc salaries. to an individual
employee such as, but not limited to the following :
1. .!:lousing;
2. _Expense account;
3. Yehicle of any kind;
4. Household personnel, such as maid, driver and others;
5. Interest on loan at less than market rate to the extent of the difference
between the market rate and actual rate granted;
6. Membership fees, dues and other expenses borne by the employer for the
employee In social and athletic clubs or other similar organizations;
7. Hol,iday and vacation expenses;
8. _Expenses for foreign travel;
9. _Educational ass istance to the employee or his dependents; and
10. .!,,_ife or health Insurance and other non -life insurance premiums or similar
amounts in excess of what the law allows (NIRC, Sec. 33 (B)).
0: What is the special treatment for "fringe benefits"?

ANS: A final tax of 35% (frin e benefits is im osed on the ~rossed-up monetary
value of fringe benefit furn ls ed mployee (exceflt rank-and-file
employees) by the empl orporatlon (NIRC, Sec. 33 (A)) .
The employer is then - e rossed -up monetary value
of the fringe benefit C, Sec. 34 ( · benefits furnished or
granted to rank ·e sha lt- fo employees ' gross
compensation inc e -;tiltltholding pensation (R.R. No.
02-98, Sec. '2.79 ( • ''
0: What is "fring FBT)?"

ANS: Fringe be nol withhold! on the grossed-up
monetary value o · rn1sheq, gl' the employer to the
employee, except er is on individual.
professional port r the corporation is
taxable or not, or iti . 03-98, Sec. '2.33(A),
Par. 1).
I
0: What fringe be
ANS: FBT covers -pr• fornished to managerial or
supervisory employees · -5.,No. 03-98, Sec. 'l.33(A), Par. 6).
0: What fringe benefits ore no subj ExB-DR~C)

ANS: The following fringe benefits are not subject to the fringe benefits tax:
1. Frin•g e benefits which are authorized and Exempted From income tax under
the Code or under any special low;
2. Contributions of the employer for the ienefit of the employ:ee to retirement.
insurance and hospital ization benefit plans;
3. Qe ininlmls benefits;
4. Benefits given to the _Rank and file, whether g ranted unde r a collective
bargain ing agreement or not;
5. If the grant of fringe benefits to the employee is .Required by the nature
of. or necessary to the trade. business1 or profession of the employer; or
6. If the grant ot the fringe benefit is tor the ~onv<?nience of the employer
(R.R . No. 03-98. Sec. 'l.33fC). Par. I) .
0: What is the extent of the tax exemption on fringe benefits?

ANS: The exemption of any frlng~ benefit from the fringe ben<?fit tax shall not be
interpreted to mean exemption from J:1"Y other incom<? tax imposed under the NIRC
exc:ept if the same is likewise expressly exempt from ony other Income tax imposed
under the NIRC or und<?r any other existing low. Thus, if the fringe benefit is exempted
from the frlng·e benefits tax. the same may. however. still form part of the employee's
gross compensation income which ls subject to income tax, hence. likewise subject to o
withholding tax on compensation income payment (R.R. No. 03-98. Sec. '2.33(C), Pdr. '2).
0: How is FBT computed?

ANS: Fringe benefits tax shall be computed as follows:
I RC, NRC, RA, NRA ETB
Monetary Value P XXX P XXX

Divide By Gross 65% 75%
Monetary Value
Factor
Grossed-Up P XXX P XXX
Monetary Value
Multiply By FBT Rate 35% '25%
Fringe Benefit Tax P XXX P XXX
Notes:
l, In general, the FBT is 35% of e grossed -up monetary value (GMW) of
fringe benefits granted :or f~, ished by the employer to his employees,
except rank-and -file employ.en. Jhe GMW of the fringe benefit shall be
determined by dividing th~ lnon ory value of the fringe benefit by 65%.
'2. Fringe benefits furnished to empl yees which ore taxaole under subsections
B, C, D, and E of Secti911 !2.Sof e
tl'I fiiUR~,:,-shall taxed at the applicable
rotes imposed thereat. The G Y l!Ye-'t.rl• nefit shall be determined
by dividing the actual monefury value of t fringe benefit by the
difference bet"'{ee11J00% and;the applicable r e f income tax prescribed
in the aforesaid :s Jb-sections (/i.llRC, Sec. 33 (B: ).
3. Alien employ.ees el'flplbyed b . egional or re eadq uarters, ROHOs,
OB Us, a.nd petro eum, service contractor a d be ntroctors which were
previously subJ~cfed to a ·final ! x of 15% re ow s bject to the regular
incomg ta~ ,0$" lriJrpduc~d by t e TRAlN bQw. How Yjlr, this is without
prejudiae to the aAplicat 1ori for referenflal' · ic'l'ates nder tax treaties, if
the soml!\are •aijpllcable.
0: What is grossed-up'•monetafy va'lue?

ANS: The grossed -up ITIO ~tary value of th:• ff\nsJe b.enefit represents the whole
amount of income realized 6y the ,.einplo-yee--whfo-h fnellirt s the net amount of money
or net monetary value of propert:V.,w h ich has been received, plus the amount of FBT
thereon otherwise due from the employee but paid by the employer for and on behalf
of his employee (R .R. No. 03-98: Sec. 2.33 (A), Par. 4).
0: How is the grossed-up monetary value of the fringe benefit treated for income
tax purposes?
ANS: The grossed-up monetary value of fringe benefit furnished or granted by the
employer to the employee is an allowable deduction as an ordinary and necessary
trade, business, or professional expense provided that the corresponding final tax on
the fringe benefit has been paid (NIRC, Sec. 34 (A)(l)(i)).
(3) Professional income

0: Define professional income.
ANS: It is income derived purely from the practice of profession, and not under on
employer-employee relationship (R.R. 08-18, Sec. 2).
0: Who is a professional? ·
ANS: A professional is o person formolly certified by a professional body belonging to
a specific profession by virtue of having completed a required examination or course of
studies and/or practice, whose competence con usually be measured against an
established set of standards. It also refers to a person who en~oges in some art or sr,ort
for money, as a means of livelihood, rather than as o hobby {R.R. No. 08-18, Sec. !2 ,
(4) Income from business

0: What is business income?
ANS: It arises from habitual engagement in any commercial activity involvin1;1 regular
sales of goods or services by an individual or a corporation. The income from business,
legal or illegal, registered or unregistered, is taxable (BANGGA WAN, Income Taxation,
supra at '219).
0: How is gross income from business computed?

ANS: Gross income from business means total sales, less the cost of goods sold, plus
any income from investments and from incidental or outside operations or sources (R.R.
02-40, Sec. 43).
(5) Income from dealings in property
0: How are assets classified for taxation purposes?

ANS: For taxation purposes, assets are classified as:
1. Ordinary asset; or
2. Capital asset (NIRC, Sec. 39 (A)(I)).
0: What are "ordinary assets"? (SIS-DR)

ANS: Ordinary assets include:
l. Stock in trade i r;' .
2. Other prope 6 pro included in the inventory
of the tax le year;
3. Propert to customers in the
ordinar
4. Prope hich is subject to the
al.Iowa
5. .Real p -~---~~-1 r (Id.).
Note: April 3, 2007).
0: What are "ca
ANS: Capital ass r not connected with
his trade or busin (A)(I)).
0: What is the y s an ordinary asset

or capital asset?
ANS: The yardstick pital asset or ordinary
asset is its actual use. in trade or business of
the taxpayer, whether o iness, or not held for lease
or sale to customers, it will be o, if the property is merely
held for capital appreciation and Investment purposes and remains vacant and idle, it
is deemed a capital asset (BIR Ruling No. OT-'284-20'2'2).
0: When are shares of stocks treated as "ordinary assets" and when are they
treated as "capital assets"?
ANS: Shares of stock like the other securities defined in Section 22(T) of the NIRC,
would b·e ordinary assets only to a dealer In securities or a person engaged In the
purchase and sale of, or an active trader (for his own account) in, securities. In the
hands, however, of another who holds the shores of stock by way of on investment, the
shares to him would be capitol assets. When the shores held by such investor become
worthless, the loss is deemed to be a loss from the sale or exchange of capital assets
(Chino Banking Corporation v. C.A., G.R. No. 125508, July 19, '2000).
0 : Is goodwill an "ordinary asset· or a "capital asset"?

ANS: Goodwill Is a capital as set. It ls not an ordinary· asset and is not among the
eKceptions under the definition of capital assets In Section 39(A)(l) of the NIRC (CIR
v. The Hongkong Shanghai Bank/ng Corp. Ltd. - Philippine Branch, CT A EB No. 1257.
September 9, 2016,- WM. H. Anderson v. Juan Posadas. Jr., G.R. No. 44100, September
22, 1938),
0: When may an •ordinary asset• be converted into a •capital asset"?

ANS: Generally, property purchased for future use in the business, even though this
purpose is later thwarted by circumstances beyond the taxpayer's control, does not lose
its character as an ordinary asset. Nor does a mere discontinuance of the active use of
the property chan9e its character previously established as a business property (R.R.
No. 07-03, Sec. 3 (a)(4)). However, properties classified as ordinary assets for being
used in business by a taxpayer engaged In business other than real estate business are
automotl,cally converted in.to capitol assets upon showing of proof that the same have
not been used in business for more than two years prior to the consummation of the
taxable transactions involving the properties (R.R. No. 07-03, Sec. 3(e)).
0: When may a "capital asset" be converted into an "ordinary asset"?

ANS: Property initially classified as a capital asset may thereafter be treated as an
ordinary asset if a combination of the factors indubitably tends to show that the activity
was in furtherance of or in the course of the taxpayer's trade or business. Thus, a sale
of inherited r'ea l property usually gives capital gain or loss even though the property
has to be subdivided or improved or both to make it salable. However, If the inherited
property is substantially improved or very actively sold or both, it may be treated as
held primarily for sole to customers in the ordinary course of the heir's business
(Ca/asonz v. CIR. G.R. No. L-'26'284, October 8, 1986).
0: How is a gain from dealings in pro~ y computed?

ANS: The gain from the sale or othlfr, cifs"0 sitio.n of property shall be the excess of the
amount realized therefrom over the basis e adjusted basis for determining gain, and
the loss shall be the excess of the bbsls or ,ad sted bases for determining loss over the
amount realized. The amount realiz.y<J. fr~m he sale or ot er disposition of property
shall be the sum of money received pll)~ t e ali ma~ et va)J e -of the property (other
than money) received (N/RC, Sec. 40 ('AJ).
0: What is the basis of ,ehnmining t sale or exchange of

property?
ANS: If the property is cqulr~:
1. By Purch se - ba~Js· Is the cost the proper. y;
'2. By ln ~f i nqr- ~asis Is tn"e fal market 1:i' ce
acquls1tton,(inhe. ltancel·
3. By Gift - the bas.is shoff be th ame as t o.J,ild fri the hands of the
donor or th~' last pr eceding o er by whom it was not acquired by gift,
except tho f sucb basi ls 'feater than fhe fair market value of the
property at the ti!1}.e of the gl tf ~e b sis shall be such fair market value
4.
for the purpose of determinin *;
For less than "O ade9uote>con1lcfecration :Y n m ney or money's worth - the
basis is the amo"unt pdl~ by the transferee for the property (N/RC, Sec. 40
(B));
5. Through tax-free 'e'xdi•o nge transactions:
a . Shares of stock received by transferor • original basis of the property
to be transferred less the money received and fa ir market value of
the other property received, plus the amount treated as dividend of
the shareholder and the amount of any gain that was recognized on
the exchange;
b. Property transferred in the hands of the transferee - some as it would
be in the hands of the transferor increased by the amount of the gain
recognized to the transferor on t,he transfer (R.M.C. No. 19-'20'2'2).
0: What are the types of gains or losses from dealings in property?

ANS: Gains or losses from dealings in property may be ordinary or capital (NIRC, Sec.
'2'2 (Z) and Sec. 39 (A) ('2) ).
0: Distinguish "ordinary gain" from "capital gain".

ANS: The distinctions are the following :
ORDINARY GAIN vs. CAPITAL GAIN
Ordinary Gain Capital Gain
As to Source Ordinary gain includes Capital gain is any gain from the
any gain from the sale or sale or exchange of capital assets
exchan}!e of ordinary (N/RC, Sec. 39 (A)('2)) .
assets (NIRC, Sec. '2'2 (Z)).
As to Tax Included in gross income Included in gross income subject to

Trec1tment subject to regular tax reg ular tax (NIRC. Sec. 32), capital
(N/RC, Sec. 3'2). ~ains tax (NIRC, Sec. 24 (C) and
(D), Sec. '27 (0)(2) and (5). and Sec.
28 (A)(7)(c) and (B)(S)(c)), or stock
transacti on tax (NIRC, Sec. 127).
As to Not applicable Applicable

Applicability of
Special Rules
.,.,.,...- -.
: en are capi T) instead of regular
tax?
ANS: CGT is assess nsactions:
1. Sale, ba on e, or ot stock in a domestic
co rporati t oded in tfiJ s(b-c
I • -
Note: hi from· th,e sa le of. sh_ oreign corporation
are su gu or ti:i11. ,
[I •. · ' '
2. Sale, e - · C, Sec. 24 (C) and
~s W~-
a: What are the r
ANS: The followin
•
On sale of shore, in d,,n,estic
Taxpayer corporations NOT truded in On sale of real property
the stock exchange
Individuals, 15% of net capital gain (NIRC, 6% of gross selling price or FMV,
Estates, and Sec. 24 (C)) . whichever is higher (NIRC, Sec.
Trusts 24 (D)).
Domestic 15% of net capital gain (NIRC, 6% of gross selling price or FMV,
Corporations Sec. '27 (D)(2)) . whichever is higher (NIRC, Sec.
27 (D)(S)).
Resident 15% of net capital gain (NIRC No provision for capital gains
Foreign as amended, Sec. '28 (A)(6)(c)). for sale of realty. Hence, subject
Corporations to regular corporate income tax
rate (INGLES, Tax Made Less
Taxin . su ra at 103).
Nonresident 15% of net capital gain (NIRC No provision for capital gains
Foreign as amended, Sec. '28 (B)(S)(c)) . for sale of realty. Hence, subject
Corporations to regular corporate income tax
rate (INGLES, Tax Made Less
Taxing, supra at 112).
0: What is "net capital gain"?

ANS: The term "net capital gain" means the excess of the gains from sales or
exchanges of capital assets over the losses from such sales or exchanges (NIRC. Sec.
39 (A)('2)).
0: What is the concept of presumed gain?

ANS: Every person shall be concl usivel y presu med to have rea lized cap ital gains from
every sale or e xchange or other dis position of real proper ty class ified as ca p ita l asset
a nd shall be StJbject to the fi nal capita l gains tax (R.R. No. 13-85, Sec. 2). Thus, the 6%
CGT on rea l p roperty Is im posed o n the basis of Its selling p rice or fa ir ma rket va lue,
regardless of th e existe nce of ga in.
0 : Who are not liable to pay CGT on the sale of shares in dome stic corporations
not traded in the stock exchange?
ANS: The CGT shall not' apply to the fo llowing:
1. Dealers in secu rities;
2.. Investor In sho res of stock in o mutual fund compan'(, as de fined in Section
22 (BB) of th e Tax Code, as amend ed, and Sec. 2{s) of these Regulations,
in connection with th e gains real ized by said Investor upon redemption of
sa id shores of stock in a mutual fu nd company; an d
3. All other pe rso ns, whether na tural or jurid ica l, wh o ore specifically e xe mpt
from notiona l inl·erna l re v enU axes under existing inves t ment incen tives
and other special laws (Ri,R. No 06-0 8. Sec. 4).
0: When is a sale of real proper~ e>uU~ P.tfrom CGT? (N -PUN-10)

ANS: CGT shall not be imposed wFren tlfe fol lowing cond i Ions ore met:
I. Sale is made by N a tu ra l P~rs9r,1t
2. What is sold or d isposed is tllie r .erinc,~ol r1 cl~ ce;
3. The proceeds of the sale Is fu ll !!til ized in a cl u 'ng or constr ucting a new
principa l resid t1nc within eight en (18) cal en l!I onths fr om the date of
sale or d ls pos;·tiol);
Note: If there is no f ull ·utilizotip of the pro ed of ale or disposition, the
portio/' of the gain pres umed to hove been r, a llz d from the sale or
d is position ,sha·II be subject to aa It a l gain rto. ..-- - . - ,
4. The Commissio ner rs du ly ;Motl led by the ta xpay r wi thi n thirty (30) days
from the dote 'of sa le o dlspo ition of his intention to avail of the tax
exemption; 6 np
5. The exemptio n Is avai led of only onci, e: ~ JQ., ears (NIRC, Sec. '24 (D)('2)) .
0: What is the tax con s•quence of sales of shares of stock listed and traded
through the local stock excna ni_e?
ANS: Sales of sha res of stocl< listed an d traded th rough th e local stock exchang e is
subject to the stock t ransaction tax at the rate of 6/10 of 1% (0.6%) of the g ross selling
price or g ross value in mone y of the shares of stock sold, bartered , exchanged or
otherwise d is posed. Any gain deri ved therefrom shall be exempt from CGT a nd regula r
ind ividu a l or corpora te tax (NIR C, Sec. 127).
Note: All capital gains other than those arising from sales of shares of stock and real
property are subject to regular tax.
0: What are the special rules applicable to capital gains or losses?

ANS: The following rules are applicable ONLY in the determination of capital gains
or losses:
I. Holding period (NIRC. Sec. 39 (B));
2. Loss Limitation Rule (NIRC, Sec. 39 (C)) ; and
3. Net Capitol Loss Carry-Over {NCLCO) Rule (NIRC. Sec. 39(D)).
0: What are the rules on holding period?

ANS: In the case of an individual taxpayer, only the following percentages of the gain
or loss recognized upon the sale or exchange of a capital asset shall be token into
account in computing net capitol gain, net capital loss, and net income:
454 BEOAN RED BOOK Volume 1. Series of 2023 .
1. 100% - if the capitol asset hos been held for not more than 12 months (short
term capitol gain); and
2. 50% - if the capitol asset hos been held for more than 12 months (long term
capital gain).
Note: In case of a corporation, regardless of the holding period, 100% of
the capitol gain or loss is recognized because the rule on holding period
does not apply (NIRC, Sec. 39 (B)).
0: What is the "loss limitation rule"?
ANS: As a rule, losses from sales or exchanges of capital assets shall be allowed only
to the extent of the gains from such sales or exchanges (NIRC, Sec. 39 (C)).
Q: Who are excepted from the loss limitation rule?
ANS: If a bank or trust company incorporated under the lows of the Philippines, a
substantial port of whose business is the receipt of deposits. sells any bond, debenture,
note, or certificate, or other evidence of indebtedness issued by any corporation
(including one issued by o government or political subdivision thereof), with interest
coupons or in registered form, any loss resulting from such sole shall not be subject to
the loss limitation rule and shall not be included in determining the applicability of such
limitation to other losses (Id.).
Q: What is the "net capitol • (NCLCO)?
ANS: If on individual t ear a net capitol loss, such
loss shall be treated in from the sole or exchange
of o capitol asset hel deductible). However, the
amount carried ove :_;;.;. = = ~'"--,,;.;.:_ • the year the loss was
incurred (NIRC, S
Note: This is on nerci ' · u - e deducted from the
gross income in t ,eg,r .it! .'c ncurred (CIR v. PAL,
G.R. No. 179259, S ).
Q: Are all the 5 capitcd _
gdili in determining net
capital gains fro s not traded in the
stock exchange s
ANS: No only t , exchange, or other
forms of dispositi n the net capitol gain
during the taxable e of transaction during
the taxable year ar ins from the same type
of transaction during t shares is an individual,
the rule on holding per apply, notwithstanding
the provisions of Section o ax J i s en e .R. No. 06-08, Sec. 7 (c.4)).
(6) Passive investment income
0: Define passive income.
ANS: Passive income are items of income earned with very minimal involvement from
the taxpayer and ore generally irregular in timing and amount (BANGGAWAN, Income
T oxotion, supra at 136).
0: What is the tax treatment of passive income?

ANS: Passive income may be:
l. Subject to final tax; or
2. Subject to regular tax.
0: What are the sources of passive income subject to final tax?
ANS: The following are the sources of passive income subject to final tax:
l. Interest;
2. Dividends;
3. Royalties; and
4. Prizes, awards, and winnings.
Note: They are not added to other income in the determination of ordinary income
tax liability (R.R. No. 02-98, Sec. 2.57.1).
FINAL TAX RATES ON INDIVIDUAL TAXPAYERS
I I I Nonresid,,nt
Noni es,dent Alien Aliens Not
C I t 17C"ns Clll d
Pc,ss1ve Income Res1 d en I Al 1ens Engoqed 111 TrC1de Engaged ,n
01 Business Trc,o1e 01
Bus,ness
I I
Interest 20% 20% 25%
fro m any Peso Bank
Deposi t, and Yield or
an y Other Monetary
Benefit from Deposit
Substitutes and From
Trust Funds and Similar
Arrangements
Interest Income 15% (except Exempt Exempt

from a Depo~~~rJ ~ank nonresident
under the Ex e citizen which is
Eornign Cyrr1mi;¥ exe mpt )
.[kposlt System
Interest Income N/A

Derived fr om .L.o.ng:
I c cm Deposit o r
Investment which was
ece-Terminatcd by the
Hold er before the 5th
Vear ,3, rs to less
4,yr';$, 12%;
I Less than
'!yrs, 20%.
Cash and/or Property '109t
Dividends Actua ll y o
Constructively Received
frnm g Domesti!;
Corporat ion
Roya lties 20% 20% 25%

(Except on Books as
well as O ther Literary
Works and Musical
Compositions )
Royalties 10% 10% 25%

On Books, as well as
Other Litera ry Works
and Musical
Compositions
Prizes 20% 20% 25%

(Except Prizes
Amounting to PJ0,000
or Less which shall be
Subject to Regular Tax)
Nonresident
Ct d Nonresident Alien Aliens Not
I
Passive Income R dizentsAaln Engaged in Trnde EngaJed 111
es1 en 1ens B
or us1ness
Tta e 01
Business
I : I
Winnings '20% (except '20% (except '25% (no
winnings from winnings from exemption
Phi lippine Philippine Charity on PCS and
Cha ri ty Sweepstakes and lotto winn ings)
Sweepsta kes lotto amounting
a nd lotto to Pl0,000 or less
amounting to which shall be
Pl0,000 or less exempt)
which shall be
exempt)
(R.R. No. 0'2-98 as amended by R.R. No. 11-18, Sec.2.57.1 (A)(B) and (C), as further
amended by R.A. No. 11534).
Interest
from any Peso Bon
Depos it, a nd Yield
any O ther Mo n·e ta
Benefit from De po If 1
Substitutes and Fr
Trust Funds and S ii
Arrangements {
Interest Income Exempt

from a DeposltorJ Bohk
under the ExponJd
Foreign Currency
Qeposjt System
Dividends '25%; if under
Received from a tax sparing
Domestic Corporation rule, 15%
Dividends Generally, '25% Not taxable (source Not taxable
Received from a or '20% RCIT is outside the {source is
Foreign Co rporation Philippines) outside the
Exception: Philippines)
Exempt if
requirements
under Sec. '27
(D)(4) met
Royalties '20% '20% '25%
Capital Gains 15% 15% 15%

From Sale of Shares
not Troded in the Stock
Exchange
(R.R . No. 02-98, as amended by R.R. Nos . 11-18 and 05-21 incorporating the changes in
CREA TE Law).
Notes:
1. The enumerated passive income must be derived from sources within the
Philippines to be subject to a final tax (R.R. No. 02-98 Sed!.57.J). If they
ore derived from sources without the Philippines, they shall be included as
port of gross income subject to regular tax but only with respect to resident
citizens and domestic corporations. (recall: only RC and DC ore taxed on
income sourced from within ond without the Philippines) (NIRC, Sec. 23).
2. All other passive income no.t included in the list above are subject to regular
tax.
Interest
0: What are the interest income subject to final tax?
ANS: The following interest income are subject to final tax:
1. Interest from any peso bank deposit and yield or any other monetary
benefit from deposit substitutes and from trust funds and similar
arrangements;
2. Interest income from a depository bank under the Expanded Foreign
Currency Deposit system; and
3. Interest income derived from long-term deposit or investment which was
pre-terminated by the holder before the 5th year (R.R. No. 02-98, as
.
amended by R.R. No. 11-18, Sec. 57.1) .
0 : What are deposit substitutes? ,
ANS: The term deposit substitute~ sh·ql tl'I n an alternative form of obtaining funds
from the public (the term 'public'• ,n~a'l b. rrowing from 20 or more individual or
corporate lende rs at any one time) othcit th~n depQ,ti"t§, through the issuance,
endorsement, or acceptance of debt i~,u ent.s fo the•borrqwer's own account, for the
purpose of relending or pu rch_a s!ng of l'ec lvobles and 'Othe'l: obligations or financing
their own needs or the ne,eds·of their qge_n or dealer (NIR ec. 22 (Y)).
0: What is meant by th~ phrase "at an e tim
ANS: From the point 9f view of the Finan mark t any one time" for
purposes of determinfng t lie '·20 or m lender every transaction
executed in the p rimary or., secondary ~ or in con urchose or sale of
securities (Banco De- O r.o Y. f?epub/ic, G.R. 19875 5).
0: What is the tax implication if th• debt instruri1ient~ qualify as deposit
substitutes?
ANS: If the bonds are con.sider~ deposit ubrmutes 20 or more lenders}, the interest
income is generally subJes:t to fhe 20% ftr,a witflh~ ding tax. If the bonds are not
considered deposit substitutes (19 or: less lender,1,), tli'e Interest income forms port of
gross income and is subject to the regular income tax rates (Id.).
0: Who are liable for final'tQX on interest income from depository bank under the
expanded foreign currency deposit system?
ANS: The following are subject to th e final tax:
I. Individual taxpayers except nonresident individuals (NIRC, Sec. '24 (B)(l));
and
2. Domestic corporations and resident foreign corporations (NIRC, Sec. 27
(D)(l), Sec. '2.8 (A)(7)(a)).
0: What are the requisites for interest income to be exempt from income tax?
(IRN-NFB-5-DETTI ·
ANS: Interest income from long term deposit {LTD) or investment shall be exempt
from tax, subject to the following conditions:
I. The depositor or investor Is on lndividuol citizen {resident or non-resident)
or Resident alien or Non-resident alien engaged in trade or business in the
Philippines and not a corporation:
2. The LTD or investments certificates should be under the Nome of the
individual and not under the name of the corporation or th;-bonk or the
trust deportment/unit of the bank;
3. The LTD or investments must be in the form of savings, common or
individual trust funds, deposit substitutes, investment management
accounts and other investments evidenced by certificates in such form
prescribed by the BSP;

4. The LTD or investments must be issued by B.anks only and not by other
financial institutions;
5. The LTD or investments must have a maturity period of not less than .S
years;
6. The LTD or investments must be in Qenominations of Pl0,000 and other
denominations as may be prescribed by the BSP;
7. Only the Interest income from LTD or investments certificates are covered
by the income tax _Exemption;
8. Income tax Exemption does not cover any other income such as gains from
Irading or foreign exchange gain; and
9. The LTD or investments should not be Ierminated by the investor before
the 5th year, otherwise it shall be subjected to the graduated rates of 5%,
12%, or '20% on interest income earnings (R.M.C. No. 18-11)
Dividends
a: What are dividends?
ANS: It refers to any distribution made by a corporation to its shareholders out of its
earnings or profits and payable to its shareholders, whether in money or other property
(NIRC, Sec. 73 (A)).
0: When is dividend income
ANS: Dividend income · ration by the corporation,
and not at the time o idend income is taxable,
whether actually or _, _ _,.-r:,--,.._ _ me Tax, supra at '213).
a: What is the ta
ANS: Where a c P.lete liquidation or
dissolution, the go hether individual or
corporate, is a tax y be (NIRC, Sec. 73
(A). Par. '2).
a: What is the ta
ANS: A stock di apitol account shall
NOT be subject t
Q: Why are stock
ANS: A stock d ivi tock which evidences
the interest of the s ration. The ownership
of the property represe ;,....;,;.;.;;;.,;..,.,,..- oration and not in the
holder of such stock, rded as income to the
stockholder (Fisher v. Tri 922).
Q: When may stock dividends
ANS: If a corporation cancels or redeems stock issued as a dividend at such time and
in such manner as to make the distribution and cancellation or redemption, in whole or
in part, essentially equivalent to the distribution of a taxable dividend, the stock shall
be considered as taxable income to the extent that it represents a distribution of
earnings or profits (NIRC, Sec. 73 (B)). Also, stock dividends constitutes income if it
gives the shareholder an interest different from that which his former stock holdings
represented (R.R. No. 0'2-40, Sec. '25'2).
Q: What are the rules on the taxation of dividends?
ANS: Dividends shall be taxed as follows:
SUMMARY OF RULES ON TAXATION OF DIVIDENDS
I Rec1p1ent of D1v1dends
Source of Div1 d ends · - - - - - - - - - - -- - - -- - - - - - -
lnd1v1duals Corporations
. p p
Foreign Corporation Regular tax Regular tax
(BANGGA WAN, Income Taxation, supra at 143).

Volume 1. Series of 2023. BEOAN RED BOOK 4 59
Notes:
I. See final tax rates on dividends for individuals and corporations in Pages
455 and 456, respectively.
2. The inclusion of dividends received from a foreign corporation in the gross
Income of the taxpayer subject to regular tax depends on the type of
taxpayer and situs of the dividend {I.e., except as to RC and DC, such
dividends shall be included In gross Income only if sourced within the
Philippines) (See Page 444 for discussion on situs).
0: What is the tax-sparing rule?

ANS: Under the tax-sporing rule, a final withholding tax at the rate of 15% {instead
of 25%) is imposed on the amount of cash and/or property dividends received by a
nonresident foreign corporation {NRFC) from a domestic corporation subject to the
condition that the country in which such NRFC is domici led shall allow a credit against
the tax due from the NRFC taxes deemed to have been paid in the Philippines, which
is equivalent to the difference between the regular Income tax rote of 25% and the 15%
ta>< on dividends (NIRC as amended, Sec. 28 (B)(5)(b)) .
Note: The ta><-sparing credit operates on dummy, fictiona l, or phantom taxes, being
considered as if paid by the foreign taxing authority, the host country (CIR v. Procter
& Gamble Philippines Manufacturing Core, G.R. No. 66838 (ResoluHon), December 2,
1991).
0: For domestic corporations, when ign-sourced dividends exempt from

income tax?
ANS: For fo reign -sourced dividends from such dividends
actually received or remitted intp sted in the business
operations of the domestic cor,i~pr otio the ne><t taxable yea r
from the time the foreign-,soln'ced divid; were r · ed, further, that the
domestic corporation holds directly at % ding shares of the
foreign corporation and has• held the.ls ings of 2 years at the
time of the dividends distribution (NIR de ).
0: How should th ~ivid1t,-ds received y

corporation be used? (WoCDI')
ANS: The d ividends recejvep shall Ire liml
1. W9.rking·c~pJtgJ,req'uirem~ ts,
2. t,apitol exA,endifures,
3. Qividend payments, ,
4. investment in dol'Jlesfic subsisl)arlfl;•a
5. infrastructure P.~oject. J/cl,~. -------
Roya !ty Income
Q: Define royalty Income.

ANS: It is the payment for the use and exhaustion of property such as earnings from
copyrights, potents, trademarks, formulas, and natural resources under lease. It covers
both payments made:
1. Under a license; and
2. Compensation which a person would be obliged to pay for fraudulently
copyin9 or infringing the right (Model Tax Convention on Income and on
Capita/ (2017), Art. 12, par. 2) . .
0: What ore the rules on the taxation of royalty income?

ANS: Royalties of a passive nature such as royalfies of claim owners or landowners of
mining properties, royalties of inventors from companies that manufacture and sell
their invention, and royalty from licensing agreements that transfers the use of
trademark or technology are subject to final tax. When royalties accrue from an
undertaking where the taxP-ayer has active involvel'Jlent, it is an active income subject
to the regular income tax (BANGGAWAN, Income Taxation, supra at 147).
Rental Income
0 : Define rental income.
ANS: It refers to the amount or compensation paid for the use or enjoyment of a thing
or a right and implies a fixed sum or property amounting to a fixed sum to be paid at
a stated time for the use of the property (MAMA LA TEO. Income Tax, supra at '231).
0: What is the tax treatment of advance rental and security deposit paid by the
lessee?
ANS: Prepaid or advance rental is taxable income to the lessor in the year received,
if so received under a claim of right c;md without restriction as to its use, and regardless
of method of accounting employed. Security deposit applied to the rental of the
terminal month or period of contract must be recognized as income at the time it is
applied (CASASOLA. Nationo/ /nterna/ Revenue Code ('2013), p. '2'21 -'2'2'2), [hereinafter
'2 CASASOLA. NIRC].
Note: If the security deposit is to ensure contract compliance (security deposit with
acceleration clause), it is not income to the lessor until the lessee violates any provision
of the contract (Id.).
0: What is the tax treatment of leasehold improvements made by the lessee?

ANS: When the lessee erected o ovements in the leased property
which will become the pro I.ration of the lease contract,
the value of the improv of the lessor (R .R. No. 0'2 -
40, Sec. 49).
0: What are the vements made by the

lessee?
ANS: In reportin
any of the follow·
l. Out hen such buildings
or i
2. Sfr remaining period)
o such buildings or
impr as income for each
year when a building is
erect e of an agreement
with f the lessor at the
end
(7)
I
0: What Is an "annuity"?
ANS: It refers to the periodic Installment payments of income or pension by insurance
companies during the life of a person or for a guaranteed fixed period of time,
whichever is longer, in consideration of capita l paid l>y him. It is paid annually, monthly,
or periodically, computed upon the amount paid yearly, but not necessarily for life
(Peralta v. Auditor General, G.R. No. L•8480, March 29, 1957).
0: What Insurance proceeds are excluded from gross income?

ANS: The following insurance proceeds ore excluded from gross income:
I. Amount received by the insured as return of premiums;
2. Proceeds of life Insurance policies; and
3. Amounts received through accident or health insurance or under Workmen's
Compensation Acts (NIRC, Sec. 32 (B)(I). (2). and (4)).
0 : How are annuitiH generally treated for tax purposes?

ANS: The portion of the proceeds representing return of premiums paid is not taxable
(return of capitol), while t hat portion that represents interest or amounts in excess of
premiums paid (return on capital ) ore taxable. Where the total premium returns exceed
the aggregate premiums pciid, the excess shall be included in the gross income (R.R.
No. 0'2-40, Sec. 62).
Volume 1. Series of 2023. BEHAN Rm BOOK 461
0: What are the conditions for exclusion from gross income of life insurance
proceeds?
ANS: The proceeds of life insurance policies must be:
1. Paid by reason of the death of the insured;
2. To his heirs or beneficiaries; and
3. Whether in a single sum or otherwise (NIRC, Sec. 32 (B)(I)).
Note: Payments for reasor,s other than death ore subject to tax ta the
extent of the excess of the premiums paid. If there are o.ny policy loans
(borrowings made on the policy), these are to be considered as advances
deductible from the life insurance proceeds received upon death
(DOMONDON, National TaxaNon, p. 191), .{he;einafter DOMONDON,
Taxation].
0: What is the rationale for the exclusion of life insurance proceeds?

ANS: They partake more of Indemnity or compensation rather than gain to the
recipient. Life insurance proceeds serve fhe same purpose as non-taxable inheritance
(Id. at 192).
0: What is the tax treatment of interests paid on life insurance proceeds?

ANS: If the amount of life insurance .o ceeds is held by the insurer under an
agreement to pay interest thereon, the int rest payments shall be included in the gross
income (NIRC, Sec. 32 (B)(I)).
Q: What should be the designo ficiary in order for the exclusion of

life insurance proceeds to appl
ANS: The designation of the ben , .,...--:-.._ urposes of exclusion of
1
life insurance proceeds from ,tlfo ient. The concept of
revocabllity or irrevocobiliN· o'f d Is material only In
determining whether the !Jlsor~nce to e gross. estate ot the
decedent or not (DOMONDGN, Ta a a
0: What are the m.•tances ytf; e life i ranee pro ee

the gross income pf Jhe recipient? ,
ANS: In the foll (?,rf rl'g .,inst(Mtces, th . proelt ds fro olicies shall form
part of the gross income of:'."fhe recip1ent:
1. Where tl'te _l _l!l)l.ili£l nce p'ollcy d ligation;
2. Where the IWe Insurance transferred for o valuable
consideratio ; ,
3. The recipient of the insuran ""'._,.,_ ,is a business partner of the
deceased and, 1 e lnf',I -an1: WO! l:'.l'!rl!'n compensate the partner-
beneficiary for any I ' in income that may result as the death of the
insured partner,. '
4. Where the recipient of the insurance proceeds Is the partnership in which
the insured is a partner and the Insurance was taken to compensate the
partnership for any loss in income that may result from the dissolution of
the partnership c_a used by the death of the Insured partner; and
5. Where the recip ient of the life insurance proceeds is a corporation in which
the insured was an employee or officer (R.R. No. 02 -40 , Sec. 62).
0: What receipts under Accident or Health Insurance, or under Workmen's

Compensation Acts are excluded from gross inc9me?
ANS: Those received as:
1. Compensation for personal injuries or sickness; and
2. Amount of any damages received, whether by suit or agreement, on
account of such injuries or sickness (NIRC, Sec. 32 (B)(4)).
(8) Prizes and awards
0: Distinguish prizes from winnings.

ANS: Prizes refers to those obtained as a result of effort; while winnings ore products
of chance or luck (DE LEON, NIRC Annotated (2015), p. 146), [hereinafter, DE LEON,
NIRC Annotated].
Q: What are the rules on the taxation of prizes and winnings?

ANS: Prizes and winnings are taxed according to the fallowing rules:
SUMMARY OF RULES ON TAXATION OF PRIZES AND WINNINGS
Type of Prize or Winning
' lnd,v,duals I Corporation
Prizes Derived from Sources Pl0,000 or less - subject to Subject to regular tax
Within the Philippines regular tax;
More than Pl0,000 -
subject to 20% FWT
Winnings Derived from Subject to 20% FWT
Sources Within the
Philippines (other than
PCSO and Lotto Winnings)
PCSO and Lotto Winnings Pl0,000 or less - exempt;
More than Pl0,000 -
subject to 20% FWT
Exce
Prizes and Winnings

Derived from
Without the Phili
(R .R. No. 02-98, a ro ting the changes in

CREATE Law).
0: What prizes
ANS: The fallowi
1. Prizes 'l==-,.cc.;=-n= of religious, charitable,
scient ment but only if:
a. T his part to enter the
C
b. T I future services as a
condit on o
2. All prizes on aw nd international sports
competitions a e Philippines or abroad
and sanctioned ociations (NIRC. Sec. 32
(B)(7)(d-e)).
(9) Pensions. retirement benefit or separation pay
0: What is a pension?
ANS: It refers to the amount of money received in lump sum or on staggered basis, in
consideratio n of services rendered, given ofter an individual reaches the age of
retire ment (Pero/ta v. Auditor Genera/, G.R. No. L-8480, March 29, 1957).
0: What is the tax treatment of pensions?

ANS: Pensions, retireme nt be nefits, and gratuities are generally taxable to the extent
of the amount received, except if there is a Bl R approved pension plan and the
requisites for exe mption ha ve bee n met (NIRC, Sec. 32 (8)(6)) .
0: What are the retirement benefits, pensions, gratuities, etc. that are excluded
from gross income?
ANS: The following ore excluded from gross income:
1. Retirement benefits received under R.A. No. 4917;
2. Retirement benefits received under R.A. No. 7641;
3. Terminal Leave Benefits;
4. Separation pay due to death, sickness or other disability or any other cause
beyond the control of the employee or the official (e.g ., retrenchment);
Volume 1. Series of 2023. BEIJAN RED BOOK 463
5. Foreign social security, retirement gratuities, pensions, etc.;

6. Benefits due to residents under laws of the United States administered by
the United States Veterans Administration;
7. SSS benefits received in accordance with R.A. No. 8282; and
8. GSIS benefits received under R.A. 8291 (NIRC, Sec. 3'2 (B)(7)).
0: What are the conditions for the exclusion from gross income of retirement
benefits under R.A. No. ◄917 (providing for retirement benefits of employees of
private firms)?
ANS: In order for retirement benefits grar,ted under RA 4917 to be excluded from
gross income, the Following conditions must be meh
I. Retiree ls employed by the some employer for at least JO years;
2. Retiree is at least 50 years old;
3. Retiree avails of the benefit only once (Sec. 32 (B)(6)); and
4. Benefits are given under a BIR approved private benefit plan (R.R. No. 0'2-
98, Sec. '2.78.1 (B)(l)).
0: What is a "reasonable private benefit plan"?

ANS: It means o pension, g.rotulty, stock bonus, or profit-sharing pion maintained by
on employer for the benefit of some or -all his -officials or employees, wherein
contributions ore mode by such employer for the officials or employees, or both, for the
purpose of distributing the earnings ang f,it.incipol of the fund thus accumulated, any
part of which shall not be used or div:eftiitt; o any purpose other than for the exclusive
benefit of the sold officials and emplovees., t /RC, Sec. 3'2 (B)(6)(o)) .
0: What are the conditions for 'ti-ill' exidlUiion from gross income of retirement
benefits under R.A. No. 76◄1 (fro 'idh:i,sJ Nr r tiremen bemtfits of employees of
private firms In the absence o , any tf.tl~nwm~ltm}'l
ANS: Retirement benefits received R. . · 641 sholibe e1<c ded from gross income,
subject to the following rtAle:s:
I. Optional Ret1r1 r.n~ t:
a. Employee hos rec111hed th
years; ond
b. Hps serveg at least 5 'Y.iO
2. Mandi;,torv RefJr~l!" ent: •
a. ~fflployee hos ' reached th 1s the compulsory
retir.emei:,r-tige·, and
b. Has se(V._e d ot least· s, vea~
Note: In both ca~e''- the em Y,ff 'boll be entitled to retirement pay
equivalent to O leost ½ ruon 1ola i!fr liveljY year of service, a fraction
of at least 6 months beln.g cons,cle.re~ OS one whole year (R.A. No. 7641, Sec.
I).
0: Whot ore the conditions In order that separation pay may be excluded from
gross Income?
ANS: Separation pay shall be excluded from gross income provided that the amount
received by the official, employee, or by his heirs from the employer was in consequence
of separation of such official or employee from the service of the employer;
1. Because of death, sickness, or other physical disability; or
2. For any cause beyond the control of such official or employee (NIRC. Sec.
32 (B)(6)(b)).
0 : What does the phrase ·any cause beyond the control of such official or
employee" mean?
ANS: The phrase "any cause beyond the control of such official or employee· connotes
involuntariness on the part of the official or employee. The separation from the service
of the official or employee must not be asked or initiated by him (R.R. No. 1'2-86, Sec. 2
(B)).
0: What are the conditions for excluding foreign security, retirement gratuities,
pensions, etc. from gross income?
ANS: The conditions ore the following;
1. Benefits received are social security benefits, retirement gratuities, pensions,
and other similar benefits;
2. They are received by citizens and aliens who come to reside permanently in
the Philippines; and
3. They are received from foreign government agencies and other institutions,
private or public (NIRC, Sec. 32 (B)(6)(c)).
0 : What are the conditions for excluding USV A benefits from gross income?
ANS: The benefits must be:
1. Payments of benefits due or to become due;
2. To any person residing in the Philippines; and
3. Under the laws of the United States administered by the US Veterans
Administration (NIRC. Sec. 32 (B)(6)(d)) .
0: What is a Personal Equity Retirement Account (PERA)?

ANS: PERA refers to the voluntary retirement account established by and for the
exclusive use and bene.flt of the ContribL1tor (a na tural person with capacity to contract)
for the p·urpose of being invested sole ly in PERA investment products in the Ph ilippines
(RA. No. 9505, otherwise known as The Personal Equ ity And Retirement Account
(PERA) Act of 2008 ~ Sec. 3 (f)).
Note: Under the PERA Act, individuals are allowed to set up their own PERA, which
shall enjoy certain tax incentives (R.M.O. No. 42-16).
0: What are the incentives ra t Act?
ANS: Under the e ranted:
l. The ~ ~ = -"""'· cr=,-,=~'ia> the amount of 5% of the
agg re ne calendar year. The
same e,,er Contributors Income
tax Ii Sec: 7 (1,
2. Whe ~ con'tril:iu established by his/its
emp
a. plo\1ie--= 'f • hall not form part of
ross m e fro
=,~~d/Jf)d....!~,-.>!!.L.ll-"i"'~ wh_ i ax on compensation
'• (
b. e·~ ··- r .J), ca n be claimed as a
'Ii' · · · s- i / o the extent of the
,ib maximum allowable
PE o bye Sec. 7 (B));
3, lnvestmerthlincome• income earned from
the invest-~ sets in the maximum
amount allo ing taxes as may be
applicable:
a . The fina l wit o from any currency bank deposit,
yield, or a_ny other mane ary eneflt from deposit substitutes and from
trust funds and similar arrang ements, including a deposi tory bank
under the expanded foreign c urrency deposit system;
b. The capitol gains tax on the sole1 exchange, retire ment or maturity of
bonds, debentures, or other certltlcotes of indebtedness;
c. The 10% tax on cash and/or property dividends actually or
constructively received from a domestic corporation, Including a
mutual fund company;
d, The capital gains tax on the sole, barter, exchange or other disposition
of shares of stock in a domestic corporation; a nd
e . Regular income tax.
Note: Non-income taxes shall remain imposable (R.R. No. 17-11, Sec. 9).
4. Cualifled PERA Dis tributions received by the Contributor, or in case of the
dea.th of the Contributor, by his heirs or beneficiaries, whether in a lump
sum or pension for a deflnlte period or lifetime pension, shall be excluded
from the gross lncom~ of the Contributor and shall not be sub ject to income
tax. The same shall also be excluded from the gross income in the hands of
his heirs or beneficiaries, as ·the case may be, and shall not be subject to
estate tax (R .R. No. 17-11, Sec. 10 (A)) ,
(10) Income from any source

0 : What is the tax treatment of cancellation or forgiveness of indebtedness?
ANS: The cancellation or forgiveness of indebtedness may amount to o payment of
income, o gift, or a ca pital t ransaction, depending upon the circumstances:
1. Taxable income - if an individual performs services to a creditor who, in
consideration thereof, cancels the debt to the extent of t hat amount;
2. Gift - if o creditor merely desires to benefit a debtor and without any
consideration therefore cancels the debt; the some need not be included in
the latter's income because it is an exclusion under Section 32(B); or
3. Capital transaction - if the corporation forgives the debt of its stockholders
which has the effect of an indirect dividend (R.R. 02-40, Sec. 50).
0: Define bod debts.

ANS: Bad debts refer to those debts resulting from the worthlessness or
uncollectibility, in whole or in part, of amounts due the taxpayers by others, arising from
money lent or from uncollectible amounts of income from goods sold or services
rendered (R.R. No. 05-99, Sec. 2 (a)).
0 : Whe·n is the recovery of accounts previously written off taxable?

ANS: The recovery of accounts previouslY, written off Is taxable when the recovery of
bad debts Is covered by the Tax Benefit le; otherwise, the recovery is not taxable
(NIRC, Sec. 34 (1)) .
0 : What is the "tax benefit rule ·i
ANS: Under the tax benefit rule, • a ts previously allowed as a
deduction in the preceding year or i ,as port of the taxpayer's
gross income in the year of suah r X· he income tax benefit of
said deduction (R.R. No. 0,..5-99).
0: When are tax refunds taxable?

ANS: Tax refunds are .taxable if th wer
included as part QSs income in the
tax benefit of soi uctjon (NIRC,
0: What are the rules o? tl,e taxqlillity of amage

ANS: Damages mav. qr may 'flOt be:t co
(1)) ,
--------
ered ta xa e ncome depending on the
nature of damages. Compensation { r lo · of income and exemplary damages are
taxable. Moral domag_e\, relmj:,ursement r h~flital bil ls, return of capital ore not
taxable (DE LEON, The Notional lnterqol R•,,. C_c1de Annotated (2015). p . 3),
[hereinafter 1 DE LEON, ,f!,,l}(lc Annotat~J-. - - - - -
0 : Why is compensation recei~ from expropriation of property taxable?
ANS: The compensation or ncortfe derived from the expropriation of property located
in the Philippines is an income from sources within the Philippines and subject to the
taxing jurisdiction of the place. The acquislt(on by the Government of private ~rop!rties
through the exercise of the power of eminent domain, said properties being 1ustly
compensated, is embraced within the meaning of the term "sole" o r "disposition of
property" (Gutierrez v. CTA, G.R. Nos. L-9738 & L-9771, May 31, 1957).
e) Exclusions
0: What ore ·exclusions"?
ANS: Exclusions from gross income are those items of income exempted by statute or
by fundamental law. Such tax-free income should not be included in the income tax
return unless information regarding it is specifically called for (R.R. No. 02-40, Sec. 61).
0: What is the rationale for exclusions?

ANS: Some receipts are excluded from gross income because:
l. They are not income, gain or profit;
2. They represent return of capital;
3. They are subjed to another kind of internal revenue tax; or
4. They are income, gain, or profits which are expressly exempt from income
tax under the constitution, tax treaty, NIRC, or general or special law
(MAMALA TEO, Income Tax, supra at 150).
0: How are exclusions construed?
ANS: Exclusion is also an immunity or privilege which frees a taxpayer from a charge
to which others are subjected. Consequently, the rule that tax exemption should be
applied In strictissiml furis against the taxpayer and liberally in favor of the government
applies equally to tax exclusions (Philippine Long Distance Telephone Co. v. City of
Bocolod. G.R. No. 149179, July 15, 2005).
0: What are the exclusions under the Constitution?
ANS: The Constitution exempts all revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and exclusively for educational purposes
from taxes and duties (CONST., Article VI, Sec. 28(3)).
0: What are the exclusions from gross income under the NIRC? (PPG-CTR-FP 2 Sl3-
GBRS)
ANS: Under the NIRC, the following are excluded from gross income:
1. froceeds of life ins urance policies;
2. Amounts received by Insured as return of fremium paid;
3. Value of property acquired by .G,ift, bequest, devise, or descent;
4. ~ompensation for inju r,' · ·
5. Income exe "'
6. Retireme
7. Miscella
a. In
b. I subdivisions;
c. z.es'la,na· ition of religious,
c literary, or civic
a
d. p
e. , par. (B));
f.
g. G other certificate of
Ind ,
h. Gal ps and
i. Income .A. No. 7076 (NIRC
Sec. 3~ ·
(See discussion on Uems 1,
Subject to Tax" in Page 44
0: What gratuitous trans rom gross income?
ANS: The value of property acquired by gift, bequest, or devise is excluded from gross
Income. The income from said property however, is included as part of gross income
1 .
and Is subject to tax (NIRC, Sec. 32 (8)13))
0: When is a gift, bequest, devise or descent e,ccluded from gross income?
ANS: When a person gives a thing or right to another and It is not a legally
demandable obligation, then it is trea ted as a gift and excluded from gross income.
However, if there is o legally dema11doble obligation to give, such as for services
rendered by one to the donor or due to his merits, the amount received is taxable
Income to the recipient (Gift Tax Test) (DOMONDON, Taxation, supra at '208).
0: What is the reason for the exclusion of gratuities from gross income?
ANS: The consideration is based on pure liberality and is already subject to donor's
tax (gift) or estate tax (bequest or devise) as the case may be. Moreover, there is no
income (Id. at 206).
0: What is a ta,c treaty?
ANS: A t ax treal'y is on agreement entered into between sovereign States for purposes
of eliminating double taxation on income and copital, preventing fiscal evasion,
promoting mutual trode and investment, and according foir and equitoble tax
treatment to foreign residents or nationals (Air Canado v. CIR, G.R. No. 169507, January
11, 2016).
0: What is the reason for the grant of exclusions through tax treaties?
ANS: Tax treaties ore entered into "to reconcile the national fiscal legislations of the
contracting parties and, in turn, help the taxpayer avoid simultaneous taxations in two
different jurisdictions." CIR v. S.C. Johnson and Son, Irie . further clarifies that "tax
conventions ore drafted with a view towards the diminotion of international juridical
double taxation, which is defi,,ed as the impos ition o-F comparable taxes in two or more
states on the same taxpayer in respect of the same subject matter and for identical
periods. The apparent rationale for doin!:I away with double taxat ion Is to encourage
the free flow of goods ond services and the movement of capital. technology and
persons between countries, conditions deemed vital in creating robust and dynom.ic
economies. Foreign Investments will only thrive in a fa irly predictable and reasonable
international investment climate and the protection against double taxation Is crucial
in creating such a climate" (Deutsche Ban.k AG Manila Branch v. CIR. G.R. No. 188550,
August 19. 2013).
0: Enumerate special laws granting tax exemptions.
ANS: The following ore some special lows granting tax exemptions:
1. R.A. No. 7916 (Philippine Export Zone Authority- Low) • PEZA-reglstered
enterprises ore given income tax holidays for 6 or 4 years from the dote of
start of commercial operation, depend ing on whether their activities are
considered as pioneer or non- ioneer; after enjoying income tax holidays,
they are subject to the 5% f on their gross Income earned, in lieu of
oil national and local ta>1.e
2. R.A. No. 6657 (Compre · ion Reform Pro-ram) • gains arising
from the transfer of a perty covered under the low shall be
exempt from capitol go ears·
3. R.A. No. 7653 (New Cen empt from all national,
provincial, municipal a '
4. R.A. No. 7279 (Urban
Housing Authority is exem f
local or notiorial,.s.l:ich as i r
5. RA No. 8~.Q.2 (Je_welry e. f -998) - certain
incentives; ore avq;lobJe to Je ·
6. RA No. 9504, (An Act Amen c. 2 79 of the NIRC)
- comp_ens'atl9~ lf1i:ome f,9 111 in . minimum wage"
(SMW) ,paid to ~ ~W eqi 111er be e tox.
(1) To.!u22vt-rs who mo.y ava'U

0: Who may avail of exdusions?
ANS: All kinds of taxpaY,ers, wh1;>th~r citlttns- or. O lenl and whether residents or
nonresidents may avail of t he exclus:.i ons.
('2) Distinguished from dedLcrtions and tax credits

0: Distinguish exclusions, deductions, and tax credit.
ANS: These three terms are distinguished as follows:
EXCLUSIONS vs. DEDUCTIONS vs. TAX CREDIT
Amounts allowed An amount subtracted from

by law to reduce an individual's or entity's
the gross income tax liability to arrive at the
to taxable income. total tax liability.
Reduces taxable Reduces taxpayer's liability.

income.
Included Included
(R.R. No. '2-40, Sec. 61; CIR v. Bicolandia Drug Corp., G.R. No. 148083, July '21, 2006).
DEDUCTIONS FROM GROSS INCOME
0: Define deductions.
ANS: Deductions are items or amounts authorized by law to be subtracted from the
pertinent items of gross income to arrive at taxable income (NIRC, Sec. 34).
0: How are deductions construed?

ANS: Since a deduction for income tax purposes partakes of the nature of a tax
exemption, then it must also be strictly construed against the taxpayer (CIR v. lsabela
Cultural Corp., G.R. No. 172231, February 12, 2007).
0: On what type of income is a deduction NOT allowed?

ANS: No deductions are allowed on compensation income arising from personal
services rendered under an employer-employee relationship (NIRC, Sec. 34).
0: What are the general rules to be observed regarding deductions?

ANS: The general rules ore as follows:
l. ~chin~ Concep.t - Statutory deductions ore, in general, though not
exclusi ve y. expenditures other than capital expenditures, connected with
production of income (.R .R. No 02-40, Sec. 36);
2. Substgntigtion Rule · Dedudions must be supported by adequate receipts
or invoices. The taxpayer has,th f ovlng en.t itlement to a claimed
deduction or f the Philippines v, CA, G.R.
Nos. 10694
3. Subiect to deduct amounts only
within t ~ . voil onJ of a lesser
omou al Cl Co., Lt ., G.R. No. L-
il " .
4. nt p·a f_d csi-· payqt therwise deductible
count .in .compuli come or for which
dep tion may be ollcte llowed as deduction
only the tax -. r11quir d ucted and withheld
there 16 t~e '.B.I R (NI .~- ).
1
0: What are th ·, eral?
ANS: To be de e imposed, namely:
1. The
2. It must . d
3. It must business.
In addition, not only iness test, but he must also

substantially prove by b tions claimed under the law,
otherwise, the some will be 1sa owe . Th !legation of the taxpayer that an
item of expense is ordinary and necessary does not justify its deduction (Atlas
Consolidated Mining & Development Corp. v. CIR, G.R. No. L-26911, January 27, 1981).
a) Concept as Return of Capital
0: Why is return of capital not taxable?

ANS: The t·ax imf)osed by law Is upon income. Income, In the broad sense, means all
the wealth which flows to the taxpayer other than a mere return of capital (R.R. No.
02-40. Sec , 36). Hence, the cost of goods purchased for resale, with proper adjustment
for opening and closing inventories, is deducted from gross sales in computing gross
income (R.R. No. 02-40, Sec. 65).
0 : What may a seller of goods by manufacturers and dealers of properties deduct

as its return of capital?
ANS: In the sale of goods or properties representing inventory, the amount received
by the seller consists of a return of capital and the gain from the sale. Accordingly, the
cost of goods manufactured and sold (in case of manufacturers ) o r cost of sales (in
case of dealers) is deducted from gross soles (MAMALA TEO, Reviewer on Taxotion,
supra at 297).
0: What may a seller engaged in the dealing of real estate or securities deduct
as its return of capital? .
ANS: While real estate dealers and deal ers in securities also maintain stocks primarily
for sale to customers, they are not ord inarlly allowed to compute the amount
representing their return of capital through cost of sales. Instead, they ore required to
deduct the total cost specifically identifiable to the real property or shares of stock sold
or exchanged (Id.).
Q: What may a taxpayer engaged in the sale of services deduct as its return of
capital?
ANS: Sellers of services do not buy and cannot carry nor sell any stock in trade or
inventory of property. However, some sellers have cost of services that must be
deducted from their -gross receipts to arrive at their gross income in order to compute
their MCIT for the year (Id. ot 298).
b) Itemized Deductions vs. Optional Standard Deduction
0: What are the forms of allowable deductions under the NIRC?

ANS: The allowable deductions may be in the form of:
1. Itemized deductions; or
2. Optional standard deduction (OSD) (NIRC, Sec. 34).
0: Distinguish itemized deductions· from OSD.

ANS: Itemized deductions and OS fi) are clf-st· nguished as follows:
ord to any
, in lieu of the
ns
gross
income, if
ntiate wi t ,
taxpayers,. except taxpayers except

NETB and NRFC (Note: nonresident aliens (Hence,
These taxpayers are taxed on NRA-ETBs are also NOT
aross income) allowed to avail of the option).
Q: In the absence of an express selection, what kind of deduction are ta,cpayers

presumed to have availed of? .
ANS: Taxpayers shall be considered as having availed of the Itemized deductions;
unless they signify In their Income tax ref-urn the inten t ion to elect t•he OSD. Such
election ot the option, when made in the return, shall be irrevocable for th e taxab le
year for which the return is made (R.R. No. 08-18. Sec. 8).
0: What are the allowable deductions from the gross income if a taxpayer avails
of the itemized deduction?
ANS: There shall be allowed the following deductions from gross income:
1. Expenses (Ordinary and Necessary Trade, Business or Professional
Expenses and Expenses Allowable to Private Educational Institution);
2. Interest;
3. Taxes;
4. Losses;
5. Bad Debts;
6. Depreciation;
7. Depletion of oil and gos wells and mines;
8. Charitable and other contributions;
9. Research and development; and
10. Pension trusts (NIRC, Sec. 34).
c) Items Not Deductible
0: What items are not deductible in computing taxable income? (PIRP-LEN 2 L)

ANS: The following items are nQ1 deductible in computing taxable income:
1. .fersonal, living, or family expenses;
2. Amount paid out for new buildings or for permanent lmprovements, or
betterment made to increase the value of any property or estate (capital
expenditures);
3. Amount expended in .Restoring property or in making good the exhaustion
thereof for which an allo:,vance hos been made {major repairs);
4. .fremiums paid on any life insurance policy covering the life of any ~
ol' employee, or of any person financially Interested in any trade or business
carried an by the taxpayer, indl viduol or corporate, when the taxpayer is
directly or indirectly a be d~a_ty nder suc h policy (NIRC Sec. 36 (A));
5. Losses from sales ot..exc on e srJ- o 'r pe y between related parties (NIRC.
Sec. 36 (B)); "/
6. Expens es wh icl< con t tu g._bnbes k" knac~s d other similar payments;
7. lion-deductj6le ln'fe tes'f t NIRC. Sec. 04--~p,12~)
8. Mon-deductfio t1 xe~>tNIR . ec. 3-+,(.C ('I--) 1 ond,
9. .!..osses fr l Ii s les of,,stock o,~ ~ecu 'tie ( I.B , Sec. 38).
0: Who are relat
ANS: The followi rties:
1. lv1emb family (brothers n ether by the full or
half bl stors and·.llln s
2. Stockh rotio~,c.Wb · olds more than 50%
in val n '.i; _uts k, except in case of
distrib r -~ •
3. Two c on $0%, ing capitol stock of
each o rettly or the same individual
if either on r.; tlorr~ e taxable year of the
corporation p - so hange was a personal
holding compa i ol mpany;
4. Granter and fi uc1or:y m a
5. Fiduciary of a trust one! iduc,ary,in another trust, if the same person is a
grontor with respect to each trust; and
6, Fiduciary of a trust and beneficiary of such trust (NIRC, Sec. 36 (8)).
0: What itemized deductions are non-deductible when arising between related

parties?
ANS: The following items ore non-deductible when they arise between related parties:
l. Interest payments mode between related parties (NIRC, Sec. 34 (8)('2));
2. Bod debts sustained in a transaction entered into between related parties
(NIRC, Sec. 34 (D)(l)); and
3. Losses from sales or exchanges between related parties (NIRC, Sec. 36(8)).
0: When is interest expense not deductible?

ANS: No deduction shall be allowed in respect to interest:
l. If within the taxable year an Individual toxpayer reporting income on the
cash basis incurs an indebtedness on which on interest is paid in advance
through discount or otherwise;
2. If both the taxpayer and the person to whom the payment has been mode
or is to be made are related parties; or
3. If the indebtedness is incurred to finance petroleum operations (NIRC, Sec.
34 (8)(2)).
0: What are the elements of non-deductible losses from wash sales?

ANS: The following are the e lements of non-deductible losses from wash sales:
1. The sale or other disposition of the stock resulted to a loss;
'2. It appears tha·t within a period beginning thirty (30) days before the date
of such sole or disposition and ending thirty (30) days after such date, the
taxpa yer has acquired or hos entered Into a contract or option so to
acquire, substantia lly identical stock or securities; and
3. The seller is not a dealer in secu rities (NIRC, Sec. 38 (A)).
Note: The loss shall be deferred and added to the tax basis of the replacement shares
(BANGGA WAN, Income Taxation, supra at 185).
0: What is the rationale of the rules on wash sale?
ANS: The rationale for the rules on wash sale is to prevent taxpayers from claiming
pretended losses. The law Is designed to p revent a situation where the alleged seller
may try to give t he impression of a loss in such wash sale when the "loss· is actually
negated by the effects of his having boug ht or acquired "substantially identical stocks
or securities· within a period very close to the occurrence of the sale of his shares of
stocks (ABELLA Taxation Law ('201-7)) .
5. INCOME TAX ON INDIVIDUALS

0: What are the classifications of in,dlvldual taxpayers?
ANS: Individual taxpayers may be:
1. Citizens:
a . Resident citizens (RC)Jor
b. Nonresident citizens 1NRC);
'2. Aliens:
a . Resident Aliens (RA); o
b. Non resident aliens;
i. Nonr~sident aliens ·eo
(N ~ A- ~TB); or
Ii. ~onrestde t aliens pqt eng aged
PhiliRpirles (NRA•NE:TB); or
3. Specish 1lo~s of lhdividuol em~I ees.
0: What Income td es may b$ impo~d on individuals,,.,---~
ANS: The following ih"con, 'fahs may be posed on indivi uals:
1. Regu la r inc-ome tax posed on ~ e raduated tax rates;
'2. Optional 8% income tax;
3. Final withholdlng tax; arid
4. Capital gains qx (NIR~, Sec. '2
0: How is an individual's regular income tax determined?

ANS: Individuals ore subject to regular income tax as follows:
SUMMARY OF REGULAR INCOME TAX RULES FOR INDIVIDUALS
income Graduated
Nonresi ent Income rom sources within Taxa e rote of 0-35%;
Citizen the Phil. income unless
Income rom sources wit in Taxa e qualified and
Resident Alien income avails 8%
the Phil.
Nonresi ent Income rom sou rces wit in Taxa e option
Alien. ETB the Phil. income
Nonresi ent Income rom sources wit in '25%
Gross income
Alien - NETB the Phil.
Special Alien Income from sources within 15%
Individuals the Phil. Gross income
(R .R. No. 11-18, Sec. 3 and 4)

a) Resident Citizens Non-Resident Citizens and Resident Aliens

0: Who is a resident citizen?
ANS: A resident citizen is a Filipino citizen residing in the Philippines (BANGGA WAN,
Income Taxation, supra at 71).
0: Who is a nonresident citizen?
ANS: The term nonresident citizen means:
1. A citizen of the Philippines who establishes to the satisfaction of the
Commissioner the fact of his physical presence abroad with a definite
intention to reside therein;
2. A citizen of the Philippines who leaves the Philippines during the taxable
year to reside abroad, either as an immigrant or for employment on a
permanent basis;
3. A citizen of the Philippines V(ho 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; or
Note: The phrase "most of the time" which is used in determining when a
citizen's physical presence abroad will qualify him as non-resident, shall
mean that the said citizen shall have stayed abroad for at least 183 days
in a taxable year (R.R. OJ- • Sec;. 2(c)).
4. A citizen non-resident citizen and
who arriv e taxable year to reside
perman ted as a non-resident
citizen the Philippines with
respe ntil the date of his
arrive
Notes:
1. The i f his stay within or
outsid ropriate residence
classl umentary proof such
as vis such intention (R.R.
No.0
2. In def y of the taxpayer is
consi t least 183 days are
conside otion, supra of 73).
3. In other s for at least 183 days,
he shall s In the Philippines for
less than 1 sident citizen (R.R . No. 01-
79, Sec. 2(c) .
0: Who are the Filipino employees considered as honresidents?

ANS: The following Filipino employees shall be considered as nonresidents:
1. A permanent emp~ - one who leaves the Philippines to reside abroad
on o more or less permanent basis, whether or not his stay abroad is less
than 183 days; and
2. A contractual employee • one who leaves the Philippines on account of a
contract of employment which is renev.:ed from time to time within or during
the k1xable year under such circumstances as to require him to be physically
present abroad most of the time during the taxable year, which means
staying abroad for not less than 183 days during the taxable year (R.R. No.
01-79).
0: Who is o resident alien?

ANS: A resident alien is on individual whose residence is within the Philippines and
who is not a citizen thereof (NIRC, Sec. 22 (F)). An alien may be considered a resident
of the Philippines for income tax purposes if:
1. He is actually present in the Philippines and is not a mere transient or
sojourner;
2. He lives in the Philippines and has no definite intention as to his stay; or
3. He comes to the Philippines for a definite purpose of such a nature that an

extended stay may be necessary for its accomplishment and to that end,
the alien makes his home temporarily in the Philippines (R.R. No. 02-40, Sec.
5) .
Q: When may an alien lose his Philippine residence?

ANS: An alien who has acquired residence in the Philippines retains his status as a
resident alien until he abandons t ~ e i ; , a r t s from the Philippines.
Mere intention to change his residence is not enough (R.R. No. 02-40, Sec. 6) .
0: How are citixens and residents classified according to their source of income?
ANS: Citizens and residents are classified according to their source of income as
follows:
1. ~ensation Income earn ers • individuals whose source of income is purely
derived from an employer-employee re lationship;
2. Self-employed jndi'lis:!.Y.rus. - sole proprietors or Independent contractors who
report income earned from self-employment. He/she controls who he/she
works for, how the work is done and when it is done. It includes those hired
under a contract of service or job order, and professionals whose income is
derived purely from the practice of profession and NOT under on employer-
employee relationship; or
3. Mixed Income earners · indi-1-:idl.l Is earning compensation income
from employment, and incp e from business, practice of
profession and/or other souh:es ide from employment (R.R. No.
08-18. Sec. 2 (b)(J) and (n)).
(1) Inclusions and exclusions for t9xafign _ _,... me

0: How is the income of pute compen,
ANS: Individuals earning purely compe taxed based on the
graduated tax rates (0%-35%) To~oble i earners is the gross
compensation income less· non-taxable In not limited to the
thirteenth (13 th ) montli' pay ohd other b and employee's
shore in the SSS, GSIS, PHIC. Pog-ibig c (R.R. No. 08-18,
Sec. 3(8)).
(See discussion on in~i:~.ion.r-·artd exclusion

"Compensation Incom e, in"Poge 447)
(2) Toxation of business ln£-9me/income r rofessio,,

Q: How is the income of self-employed individuals taxed?
ANS: For purely self-employed individuals and/or professionals whose gross
soles/receipts and other non-operating income do not exceed the VAT threshold of f>3
Million, the tax shall be, at the J:Q.K129yer's option. either:
1. 8% income to n gross sales or gross receiDts In excess of P250,000 In lieu
of the graduated income tax rotes and the percentage tax; -or
2. Income tax based on the graduated income tax rates for individuals (NIRC,
Sec. 24(A)).
Q : How does a self-employed individual elect how his income will be taxed?
ANS: Unless the taxpayer signifies the Intention t,o elect the-8% income tax rote in the
1st Quartet Percentage and/or ITR. or on the initial quarter return of the taxable yea r
ofter the commencement of a new business/practice of profession, the taxpayer shall
be considered as having availed of the graduated rotes. Such election shall be
irrevocable. and no amendment of option shall be mode for the said taxable year (RR.
No. 08-18. Sec. 3(C)).
0: How is the income of mixed income earners taxed?

ANS: Mixed income earners shall be taxed on their income as follows:
I. For income from compensation - at the graduated income tax rates for
individuals; and
!2. · come f sine.ss o ractice ofes · n:
If gross soles/receipts do not excee the VAT threshold of P3 Million -
8% income tax on gross soles/receipts and other non -operating income
OR graduated income tax rates on taxable income. at the taxpayer's
option;
b. If gross sales/receipts and other non-operatin!;J income exceeds the
VAT threshold of P3 Million - at the graduated income tax rates for
individuals (NIRC. Sec. !24(A)(!2)(b)).
0: Why is there no P!ZS0,000 exemption on the income from business or practice

of Jlrofession of mixed income earners?
'.'NS: The soi~ P!2SO,O?O is ~ot arplicable ta mixed !ncome earners since it i_s already
mcorpordted 1n the first tier o the graduated income tax rates applicable to
compensation income. Under the said graduated rates, the excess of the P!250,000 over
the actual taxable compensation income is not deductible against the taxable income
from business/practice of profession under the 8% income lox rote option (R .R. No. 08-
18).
0: Who may not avail of th income tax rote? (3-VOP)

ANS: The option is n
1. A self-e earner whose gross
soles/r ____,.___ d s the VAT threshold
of P3
!2. A - e amount of gross
soles
3. A tax
Tax
Title;
4. _fortn ) by virtue of their
distri f cost and expenses
(R .R.
ional Partnerships
(GPP)?
ANS: Persons eng e liable for income tax
only in their separate a •....:;:;e,:::,;.i, shall report as gross
income his distributive sho e, o~~ -o/'Y or~c~ nR r~ ,¥ ~ eceived, in the net income of
the partnership (NIRC, Sec. !2~)~
Note: The share of a partner in the distributable net income of a taxable partnership
(not a GPP) is taxable as dividends and is subject to FWT.
Q : How is the distributive share of each partner computed?

ANS: For purposes of computing the distrl.butive share of the partners, the net income
of the GPP shall be computed in the same manner as a corporation (NIRC, Sec. 26). As
such, a GPP may claim either the itemized deductions allowed under Section 34 of the
Tox Code or in lieu thereof, it con opt to avail of the Optional Standard Deduction
(OSD) allowed to corporations in cloiminlJ the deductions in on amount not exceeding
40% of its g ross income, Once availed, the individual partner is not allowed to claim
further deduction from his distributive share and not allowed to avail of the 8% income
tax rate option since shore from GPP is already net of cost and expenses (R.R. No. 08·
18, Sec. 8).
(3) Taxation of passive income

(See full discussion 11nder "Passive Investment Income" in Page 454, and "Prizes and
Awards · in Page 461)
(4) Taxation of capital gains

(See full discussion under "Income from Dealings in Property" in Page 450450)
(5) Capital asset vs. Ordinary asset

(See full discussion under "Income from Dealings in Property" in Page 450)
b) Income Tax on Non-Resident Aliens Engaged in Trade or Business
0: Who is a nonresident alien?

ANS: A non-resident alien is an individual whose residence is not within the Philippines
and who is not a citizen thereof (NIRC, Sec. '2'2 (G)) . A non-resident alien individual
may be:
1.
or
'2. Not engaITed in trade or business CNETBl - if his aggregate period of stay
in the Phi ippines does not e,cceed 180 days for each calendar year (NIRC,
Sec. '25 (A)(I)) .
0: How are NRA-ETBs taxed?

ANS: A nonresident alien individual eng ged in trade or business in the Philippines
shall be subject to an income tax in tb e s me manner as an individual citizen and a
resident alien individual, on taxable \fie me received from all sources within the
Philippines (NIRC, Sec. '25 (A)(I)).
c)
0: How are N
ANS: All inco
be subject to
entitled to cla '
d) I div
Q: Who are the ual ,taxpay~r

ANS: The following indivir;fu_als are e
l. Senior cltiz.en s w~o are co'r) earners (R.A. No.
9994, Sec. 4i(,b)');
'2. Minimum wage earners (NI
9504); and
3. Those exemp~ unde~ intirnatlonol o s.
(l) Senior citizens
0: Who is a senior citizen?

ANS: Senior citizen or elderly refers to any resident citizen of the Philippines at least
60 years old. (R.A. No. 9994, Sec. 3 (a)).
Q: How are senior citizens taxed?

ANS: Senior citizens who are classified as minimum wage earners in accordance with
R.A. No. 9504 are exempt from payment of individual income tax, otherwise they are
subject to the payment of individual incom,1 tax ..,(RA No. 9994, Sec. 4 (b)).
('2) Minimum wage earners
0: Who is a minimum wage earner (MWE)?

ANS: A minimum wage earner refers to a worker in the private sector who is paid the
statutory minimum wage, or to an employee In the public sector with compensation
income o.f not more t·han the statutory minimum wage In the non-agricultural sector
where he is assigned (NIRC, Sec. '2'2 (HI-I)). He is exempt from Income tax. The
exemption also covers the holiday pay, overtime pay, nl1:1ht shift differential pay, and
hazard pay earned by an MWE (R.R. No. 08 -IB, Sec. '2 (i)).
0: What is the effect if an MWE has other income other than the statutory
minimum wage?
ANS: MWEs receiving other Income from other sources in addition to compensation
income, such os income from other concurrent employers, from the conduct of trade,
business, or practice of profession, except income subject to final tax, ore subject to
income tax only to the extent of income other than SMW, holiday pay, overtime pay,
night shift differential pay, and hazard pay earned during the taxable year (R.R. No.
11,18, Sec. 6).
Q: What is the tax consequence when an MWE receives other benefits in excess
of the statutory "13th month pay and other benefits" of P90,000?
ANS: The low exempts from Income taxation the most basic compensation an
employee receives - the amount afforded to the lo.west paid employees by the mandate
of low. In a way, the legislature grants to these lowest paid employees additional Income
by n·o longer demanding from them o contribution for the operations of government.
This is the essence of RA No. 9504 as a socia l legislation. The governmenthby way of
the tax exemption, affords increased pu rchasing power to this sector of t e working
class. The tredtment of bonuses and other benefits that on employee receives from the
employer In excess of the P90,000) ceiling cannot but be the same as the prevailing
treatment prior to RA No. 9504 • anything in excess of P90,000 is taxable; no more,
no less. The treatme nt of th is excess cannot operate to disenfranchise the MWE from
enjoying the exemption ex o. 9504 (Jaime N. Soriano v.
Secretary of Finance, G.R.
(3)
0: What exem u~ er· in nts?

ANS: The Go hi/ippii:ies•. i rtain international
agreements and ent h!u('' tre· lly provide for the
exemption of c entitles· fr by the Philippines.
E,(Omples of the ore. t~(!!!iie oc or ambassadors of
other countries Ines: ITThe nization is also tax
exempt upon an . · , ,· Sons, Inc., G.R. No.
L-31092, Februa
INCOMETAXO
0: What are cons yrposes I)
1
ANS: The term "co ' /
I. One pers
'2. f.ortnershi r,g ;
3. loinl-stock c
4. lolnt accounts;
5. Associations; or
6. lnsuronce companies.
The term ~
I. General professional partnerships; and
'2. Joint venture or consortium formed for the purpose of undertaking
cons truction projects or for the purpose of engaging In petroleum, coal,
geothermal, and other energy operations pursuant to o service contract
with the government (NIRC. Sec. 22(8) o.s amended by R.A. No. 11534).
0: How are corporation5 cla55ified for tax purposes?

ANS: Corporations ore classified as follows:
1. Domestic corporation • o corporation created or organized in the
Philippines or under its laws (NIRC, Sec. 22(C));
'2. Resident foreign cotporotion • o foreign corporation engaged in trade or
business within the Philippines (NIRC. Sec 2'2(H));
3. Non-resident foreign corporation - o foreign corporation not engaged in
trade or business with in the Philippines (NIRC, Sec. 22(/)); or
4. Special corporations • a domestic or foreign corporation subject to sp.e cial
tax rules or preferential tox rotes (BANGGAWAN. INCOME TAXATION,
supra at 75).
Volume 1. Series of 2023 . BEOAN RED BOOK 4 77
0: How are corporations in the Philippines taxed?

ANS: Corporations are taxed in the Philippines as follows:
What I Taxable On
Domestic corporation All income derived from sources within

and without the Philippines
Foreign corporation, whether Only on income derived from sources
engaged or not in trade or within the Philippines
business in the Philippines
ec. 23
a) Income Tax on Domestic Corporations and ~ ~ . m

Domestic Corporations
0 : What types of income taxes may be imposed on domestic corporations?
ANS: Domestic corporations may be subject to the following income taxes:
I. Normal or regular corporate income tax (NCIT/RCIT) (NIRC, Sec , 27(A),
Par. I);
2. Minimum corporate lncorpe (MCIT) (NIRC Sec. 27(E));
3, Final Income tax on pas5J~ . , . c;eme (NIRC, Se~. 27(D)(I) and (3)); or
4. Capital gains tax (NIRG, Sea. 2,7f )(2) and (5)).
Note: Improperly ace

NIRC is repealed by t .
Q: On what type of income tax is c erally liable?

ANS: Unless otherwise pr'o,~idecl un C, oration shall be liable
to the NCIT (NIRC, Sec. 27i(;i\9, P.or
0: How is NCIT computed?

ANS: NCIT is cOJJiP.1J,ted 259(, of the taxa o each taxable year
from all sources Mtffin"anc:l without the In rparatian (NIRC,
Sec. 27(AJ as amen°tl.ed, Par:. I)_.
NOTE: Corporations witfi net taxable Inca e not exceed ing PS Millian and with total
assets not exceeding PfO0 Ml/llon, exclu lr,g latfil on which the particular business
entity's office, plant. and e,~ y lpinent,,pr,~ :i~Q~ dutlgq e taxable year for which the
tax is imposed, shall be ta~ed at '20% (NIR'C:- ec: 127(AJ os amended, Par. 2).
0: What domestic corpordtion• are subject to MCIT?

ANS: The MCIT shall apply only to domestic corporations subject to NCIT (R.R. No.
09-98, Sec. 2.27(E)(8)).
0: What domestic corporations are exempt from MCIT? (PHFSR)

ANS: The MCIT shall not be imposed upon the following domestic corporations which
are not subject to NCIT:
1. Domestic corporations operating as froprietary educational institutions
subject to tax at 10% on their taxable income (check the predominance
test);
2. Domestic corporations engaged in Hospital operations which are nonprofit
subject to tax at 10% on their taxable income;
3. Domestic corporal'ions engaged in business as depository banks under the
expanded foreign currency deposit system, otherwise known as Foreign
Currency Deposit Uni-ts (FCDUs);
4. Firms that ore taxed under a .S,pecial income tax regime such as those in
accordance with RA 7916 and 7227 (the PEZA law and the Bases
Conversion Development Act, respectively) (R.R. No. 09-98, Sec.
2.27(E)(8)); and
5. Real Estate Investment Trust (R.A. No. 9856 otherwise known as the "Real
Estate Investment Trust Act of 2009", Sec. 10).
0: How is the MCIT applied when a corporation is subject to both the regular
(normal) income tax system and special income tax system?
ANS: In the case of a domestic corporation whose operations or activities are portly
covered by the regular income tax system ond portly covered under a special income
tax system, the MCIT shall apply only on operations covered by the regular income
tax system. For example, If a B01-registered enterprise hos a ·registered" and an
' unregistered• activity, the MCIT shall apply to the unregistered activity (R.R. No. 9 -
98, Sec. 2.27, par. (E)(!), Par. 3).
Q: When will a corporation begin to be subject to MCIT?

ANS: A corporation becomes subject to the MCIT beginning the 4th taxable Jeor
immediately following the taxable yeor in which such corporation commence its
business operations (NIRC, Sec. 27(E)(1)) .
Note: Simply stated, MCIT applies on the X+4 th year of operations. For example, a
corporation that started operations on any day in 2012 will be covered by MCIT on
2016 (BANGGA WAN, Income Taxation, supra at 663).
0: When Is a corporation considered to have commenced business operations?

ANS: For purposes of the MCIT, the taxable year in which business operations
commenced shall be the year in which the domestic corporation registered with the
Bureau of Internal Revenue (BIR) (R .R -98, Sec. 2.27(E)(S)).
0: When will a corporati of the NCIT?

ANS: The corporati
1. The cor ; or
2. The a m such corporation
(R.R.
Q: How is MCIT
ANS: MCIT is co ation as of the end
of the taxable ye
NOTE: From July I be 1%. (NIRC, Sec.

27(E)(1), as omen
0: What is . gros
ANS: For purpos e· shall mean gross
sales less sales ret ods sold. In the case
of taxpayers engage ---....,;._.,-, ans gross receipts less
soles returns, ollowonc , Sec. 27(E)(4)(a)).
0: What is · cost of goods sold"?

ANS: "Cost of goods sold " shall include all business expenses directly incurred to
produce the merchandise to bring them to their present location and use. For
taxpayers engaged in the sale of service, '"cost of services· shall mean all direct costs
and expenses necessarily incurred to provide the services required by the customers
and clients (NIRC, Sec. 27(E)(4)).
0: What are included in ·cost of goods sold"?

ANS: For trading or merchandising concern, ··cost of goods sold" shall include:
1. Invoice of the goods sold;
2. Import duties;
3. Freight In transporting the goods to the place where the goods are
actually sold; and
4. Insurance while the goods ore in transit.
For manufacturing concern, "cost of goods manufactured and sold" shall include:
1. Costs of production of finished goods, such as raw materials used, direct
labor, and manufacturing overhead;
2. Freight cost;
3. Insurance premiums; ond
4. Other costs incurred to bring the raw materials to the factory or
warehouse.
For corporations engaged In the sole of service, "cost of services" include:

I. Salaries and employee benefits of personnel, consultants, and specialists
directly rendering the servke;
2. Cost of facilities directly utilized in providing the service such as
depreciation or rental of equipment used; and,
3. Cost of supplies (NIRC. Sec. 27(E)(4)).
0: Why is MCIT not a tax on capital?

ANS: The MCIT Is imposed on gross income which is arrived at by deducting the
capitol spent by a corporation in the sale of its goods, i.e., the cost of goods and other
direct expenses from gross soles. Clearly, the capital is not being taxed (Chamber of
Real Estate and Builder's Associations, Inc. v. Romulo, G.R. No. 160756, March 9, 2010).
0: How is MCIT filed and paid?

ANS: The MCIT shall be paid in the same manner prescribed for the payment of the
NCIT which ls on a qy gr terl~ and on o yearly basis. In the computation of the tax due
for the taxable quarter, if t e computed quarterly MCIT is higher than the quarterly
NCIT, the tax due to be paid for such taxable quarter at the time of filing the quarterly
corporate income tax return shall be the MCIT which is 2% of the gross income as of
·the end of the taxable quarter. In the payment of said quarterly MCIT, excess MCIT
from the previous taxable year/s shall qt be allowed to be credited. Expanded
withholdin9 lax, quarterly corporate I 00 tax payments under the NCIT, and the
MCIT paid in the previous taxable q1.1 f eWs are allowed to be applied o~ainst the
quarterly MCIT due (R .R. 09-98. as ame a.a_ by R.R. No. 12-2007, Sec. 2.27(1::)).
0: What is the rule on the · carry f s T?

ANS: Any excess of the MCIT ov,e( J d forward and credited
against the NCIT for the 3 Imm ble years (NIRC, Sec.
'27(E)(2)).
0: What are the rules on the car~y forw d of excess

ANS: The following are,,:fhe rcules- on the cf ty-forward
I. The ex«eeJ s of M 11'1 over the Ii IT can be
and quarterly bas s;
2. It co '\ be «.edit~ ogal~st th~ NCIT • 3 immediately
succeei:ling tai1,pl:;J yea f.$J
3. Any excess not ,cr,edited in the xt 3 )ears s all ·l:ie forfeited;
4. Corry forw rd (anhually or qu terly Is possible only if NCIT is greater
than MCIT;
5. The maximum~Ar.nount that c n be v ~i;I ·s up to the amount of the
NCIT; and
6. The excess MCI cannoj be claimed as a credit against the MCIT itself or
against any otlfe.i1 losses (NIRC, Sec. 27(E)).
0: When may the imposition of MCIT be suspended?

ANS: The Secretory of Finance, upon recommendation of the Commissioner, may
suspend Imposition of the MCIT upon submission of proof by the applicant -
corporotlon, duly verified by the Commissioner's authorized representative, that the
corporation sustained substantial losses on account of a prolonged labor dispute or
because of force majeure or because of legitimate business reverses (R.R. No. 09-98,
Sec. 2.27(E)(3)).
0: What constitutes ·substantial losses from a 'prolonged labor dispute"?
ANS: Substantial losses from a p rolonged labor dispute means losses arising from a
strike staged by the employees which lasted for more than 6 months within a taxable
period and which hos caused the temporary shutdown of business operations (R.R. No.
09 -98, Sec. 2.27(E)(4)(b)).
0: What constitutes "force majeure"?

ANS: Force ma/eure means a cause due to on irresistible force as by "Act of God"
like lightning, earthquake, storm, flood and the like. This term shall also include armed
conflicts like war or insurgency (R.R. No. 09-9B, Sec. 2.27(E)(4)(c)).
0: What constitutes "legitimate business reverses"?

ANS: Legitimate business reverses shall indude substantial losses sustained due to
fire, robbery, theft, or embezzlement. or for other economic reason as determined by
the Secretary of Finance (R.R . No. 09-98, Sec. '2 .'27(E)(4)(d)).
0: What is the rule as to received by a domestic corporation from a foreign

corporation?
ANS: Dividends received by a domestic corporation from a forei9n corporation ore
generally subject to the '25% or 20% NCIT. For foreign -sourced dividends 'to be exempt,
the funds from such d ividends actually received or remitted Into th e Philippines are
reinvested in the business operotions of the domestic corporation in the Philippines
within the next taxable year from the time the foreign-sourced dividends were
received, Provided, further, that t he domestic corporation holds directly at least 20%
of the outstanding shares of th e fore l9n corporation and hos held the shareholdings
for a minimum of '2 years at the tim e ot the divid ends distribution (NIRC as amended,
Sec. '17 (D)(4)).
(Please see full discussion on passive income under "Income from Dealings in Property"
in Page 450 and "Passive Investment Income" in Page 454) .
Resident Foreign Corporations
0: What type of income --on a resident foreign corporation

(RFC)?
ANS: Res ident foreig je llowin~ . income taxes:
I. Normal tax (, 8 (AJ(J) Par. I);
'2. Minimu e ax 1':11G<II '28 (A)('2));
3. Final i sj11e ihco'T'e ( (A)(6)(a) and (b) as
1
amen l1); ,. • ''
4. Capit Sec. 28 (A)(6 by RA. No. 11534);
or
5. Bronc T,ox; ('NIRC. S c. s amended by RA.
No. 11 . jll ·,
(Discussions unde tions 0111 NCJ~ ~ n'B applicable to RFC,
except that an R , pe ,:t_q ;,lnc e sources within the
Philippines). ' / -..\ /
~ \/
a: What RFCs are ,. lt 1 ' / '',I\ \L '
ANS: The MCIT sh b-< .._;;;;;..,.;.;,.c;:, uqlec o normal income tax (R.R .
No. 09-98, Sec. 2.28 ( .' • ) ) '/
0: What RFCs are not subject to k-4

ANS: The MCIT shall only apply to RFCs which are subject to normal income tax.
Accordingly, the MCIT shall not apply lo the following resident fore ign corp0rations:
1. RFCs engaged In business as "international carrjer";
2. RFCs engaged in business a s Offshore Banking Units (OBUs);
3. RFC s engaged In business as regionol opera ting headquarters; and
4. Firms that ore taxed und er a special income tax regime such as those in
accordance with RA 7916 and 7227 (the PEZA low and the Bases
Conversion Development Act. respectively) (R.R. No. 09-98, Sec.
'2.'28(A)(2), Par. 3).
(Please see full discussion on passive income under ''Income from Dealings in Property"
in Page 450 and "Passive Investment Income" in Page 454) .
(1) Branch profit remittance tax
Q: What is "l:,ranch profit remittance tax (BPRT)"?

ANS: BPRT is a tax of 15% imposed on any profit remitted by a Philippine branch of
·o Foreign corporation to its head office abroad based on its total profits applied or
earmarked for rem'ittance without any deduction For the tax component thereof (R .R.
No. 02-98, Sec. 2.57 (H)('2)).
Volume 1. Series of 2023, BfDAN RED BOOK 481
Q: Who are not subject to BPRT?

ANS: Remittances mode by those entities registered with the Philippine Economic
Zones Authority (PEZA) and other companies with in the special economic zones such
as Subic Boy Metropolitan Authority (SBMA) and Clark Development Authority (CDA.)
shall not be subject to BPRT (R .R. No. 0'2 -9B, Sec. '2.57 (H)(2)).
0: What are the branch profits subject to BPRT?

ANS: Branch profits include Interests, dividends, rents, royalties, including
remuneration for technical services, salaries, wages, premiums, annuities, emoluments
or other fixed or determinable annual, periodic or casual gains, profits, income, and
capitol gains received by a foreign corporation during each taxable year from all
sources within the Philippines effectively connected with the conduct of its trade or
business in the Philippines (NIRC, Sec. 28 (A)(S)).
0: What is the rationale of imposing BPRT?

ANS: The remittance tax was conceived in on attempt to equalize the income tax
burden on foreign corporations maintaining, on the one hand, local branch offices
(taxable only on income without the Philippines) and organizing, on the other hand,
subsidiary domestic corporations where at least a majority of all the latter's shores of
stock ore owned by such foreign coq,orotions (taxable on income from sources within
and without the Philippines) (Bank of America NT & SA v. Coul't of Appeals, G.R. Nos.
103092 &.103106, July 21. 1994).
Note: A head office and the office titute but one corporate entity. Thus,
where the head office is a resident • ion, the branch is likewise a resident
foreign corporation (Marubeni September 14, 1989).
Meanwhile, a subsidiary has a "''""""''""·"- al personality, distinct
from that of its parent o. 153886, January 14,
2004),
('2)
(See
"Ded
b)
0: How are nonr NRFCs) taxe .
ANS: Except as ot hall pay a final tax of '25%
of its gross income received ,during rom all sources within the
Philippines (NIRC as am , _ed. Secr.l!lB ( .
0: Are interests, dividends, ents,, royalties, salaries, premiums (except reinsurance

premiums), annuities, emoluments or other income received py NFRCs subject to
a se_parate final tax?
ANS: No. NRFCs are subject to a final tax al '25% on all income derived from sources
within the Philippines, such as interests, dividends, rent.s, royalties, salaries, premiums
(except reinsurance premiums}, annuities, emoluments or
other fixed or determinable annual, periodic or casual gains, profits and Income, and
capital gains, except capitol gains (Id.).
(Please see full discussion of on passive income under "Income from Dealings in
Property· in Page 450 and "Passive Investment Income" in Page 454).
c) Income Tax on Special Corporations
Resident Foreign Corporations Subject to P r e f e r e n t i ~

0: What are the special RFCs subject to preferential income tax rates?
ANS: The RFCs subject to preferential income tax rates are:
1. International carriers; and
'2. Regional or area headquarters and regional operating headquarters
(RAHQs/ROHOs) (NIRC, Sec. 28 (A)(3)(4) and (6)).
0: How are international common carriers classified?

ANS: l~ternational carriers are classified as follows:
1. Internationa l Air Carrier • refers to a foreign airline corporation doing
business in the Philippines having been granted landing rights in any
Philippine port to perform International air transportation
services/activities or flight operations anywhere In the world. An
international air carrier may be:
a. An on -line carrier • having or maintaining flight operations to and
from the Philippines; or
b. An off-line carrier - having no flight operations to and from the
Philippines; or
2. International Sea Carrier - refers to a forei9n shipping corroration doing
business in the Philippines, having touched or intention o touching any
Philippine port. An in ternational sea carrier may be:
a. An on -line ca rrier • performing international sea transportation
services/activities from the Philippines to anywhere in the world and
vice versa; or
b. An off-line carrier • maintaining business establishment, agent, or
representative office in the Philippines for the sale of owned
tickets/passage documents or tickets/passage documents of other
shipping companies, which shi ping companies operate without
touching any Phil! 15-13, Sec. '2).
0: How are on-line int

ANS: International hall pay a tax of 2.5%
on its "Gross Philippi , f income derived by
international carri • rGros
to tax under the p q .,J· l ~C. a ~
Q: What is mea pi!!! Billings"?
ANS: Gross Phi s:
1. As orrle,s· • the s revenue derived
f ., ~ · d mail originating
f flight, irrespective
nt of the ticket or
p
2. As t r passenger, cargo
or ma 2,rl~m!J.115a,.,!Jc.t>,Jla.;,tlllS.~llill~~- tination, regardless
of the r freight documents
(NIRC,
Note: The t; as long as the uplifts of

passengers an Philippines, income is included
in GPB (South African Airways v. CIR. G.R. No. 180356. February 16, '2010).
0: When may international carriers be exempt from the Gross Philippine Billings
Tax (GPBT)?
ANS: International carriers doing business in the. Philippines may avail of a
preferential rate or exemption from the GPBT on the basis of an applicable tax treat'('.
or international agreement to which the Philippines is a signatory or on the basis of
reciprocity such that on international carrier, whose home country grants income tax
exemption to Philippine carriers; shall likewise be exempt from the tax (NIRC, Sec. '28
(A)(3J).
0: How are off-line international carriers taxed?

ANS: An off-line international ca rrier having a branch/office or a sales agent in the
Philippines which sells passage docume·nts for compensation or commission to cover
off-line flights/voyages of its principal or head office, or for other airlines/sea carriers
covering Flight s/voyages originating from Philippine ports or off-line flights/voyages,
is not consi.c lered engaged in business as on international carrier in the Philippines
and is, therefore, O.QLI t to Gross Philippine Billings Tax provided for in Section
28 (A) (3) of ·the NIRC, as amended. Nevertheless an off-line international carder
shall be subject to the regular rote of income tax under Section 28 (A) m
of the NIRC.
Volume 1. Series of 2023. BEDAN Rm BOOK 483
as amended, based on its taxable income from sources within the Philippines (R.R. No.
15-13, Sec. 4.3).
0: Are off-line international air carriers exempt from Income tax?

ANS: No. If on international oir carrier mointqins flights to and from the Ph ilippines,
It shall be taxed at the rote of 2.5% of its Gross Ph ilippine BIiiings, while International
air carriers that do not have fli9hts to and from the Philippines but nonetheless earn
Income from other activities in the country will be taxed at the rote of 32% (now 25%)
of such income (South African Airways v. CIR. G.R. No. 180356, February 16, '2010) .
Note: Thus, the Court hos ruled that off-line air carriers having general soles agents
in the Philippines ore engaged In or doing business In ·the Philippines and that their
income from soles of passage documents here is Income from within the Philippines
and such off-line air carrier is liable for the 32% (now 30%) tax on its taxable income
(CIR v. British Overseas Airways Corporation. G. R. No. L-65773-74, April 30, 1987).
0 : What is on "Offshore Banking Unit (OBU)"?

ANS: "Offshore Banking Unit" shall mean a branch, subsidiary or affiliate of a
foreign banking corporation which is duly authorized by the Central Bonk of the
Philippines to transact offshore banking business in the Philippines (P.D. No. 1034. Sec.
1).
NOTE: The provisions under the NIR~ ertaining to the taxobility of OBUs are
deleted in R.A. No. 11534
Branch estoblislied in
tke Philippines by which ore
n1il ~ti nofl'ondl a wing services:
conipani~s ond which strotion and
heodqUQ (;ters do not
earn or•derive fncome usiness planning and coordination;
from the ' Philippines So c· and procurement of row
and whi,:;h act as -~-~_,nd components;
!!Uperviso~y. inonce advisory services;
communicgJions, _ghd_ 5. Ma rketing control and soles
coordinating ½.a, ~enter promotion;
for their offi iates, 6. Training ond personnel
subsidiaries, or management;
branches in the Asia- 7. Logistic services;
Pacific Region and 8. Research and development services
other foreign and product development;
markets (NIRC. Sec. 9. Technicol support and maintenance;
22 (DD)). 10. Doto processing and
communication; and
11. By_siness development (NIRC, Sec.
22 (EE)).
Not subject to Taxed at 10% of their taxable income

income tax (NIRC, (NIRC. Sec. 28 (A)(6)) .
Sec. 28 (A)(6)) .
NOTE: Effective January I, 20'2'2, regional operating headquarters shall be subject to

the regular corporate income tox. (NIRC. Sec. 28 (A) (6), os amended by R.A. No. 11534)
Non-Resident Foreign Comorations Subject to Preferentia l Tox Rotes

0 : What NRFCs are subject to preferential rates?
ANS: The following .corporations are subject to preferential rates:
l. Nonresident cinematographic film owner, lessor or distributor - at '25% of
gross Income from sources within the Philippines;
'2. Nonresident owner or lessor of vessels chartered by Philippine nationals -
at 4.5% of gross rentals; and
3. Nonresident owner or lessor of aircraft, machineries, and other equipment
- at 7.5% of gross rentals or fe~•s (NIRC, Sec. '28 (8)('2)(3) and (4)).
Proprietary Educational Institutions and Hospitals
0: How are "proprietary non-profit educational institutions" and "non-profit

hospitals" taxed?
ANS: Proprietary educational institutions ,o nd hospitals which are non-profit shall pay
a tax of 10% on their taxable income except income subject to final tax. However, if
their gross income from unrelated trade, business, or other activity exceeds 50% of the
total gross income derived by such edu,:ational or hospitals from all sources (pre-
dominance test), th e '25% rate under SeC'tion '27(A) of the NIRC as amended by RA
No. 11534 shall be imposed on the entire taxable income (NIRC as amended, Sec. 27(8)).
NOTE: Beginning July 1, rate imposed on Propriety

Educational Institutions _- - - ~ . amended. Sec. 27 (8)) .
0: What do the t
ANS: "Prop rietor ool maintained and
admi nistered by mit to operate from
the Department Hi~her Education
(CHED). or the T :.:=c..::c..;:.;__;c.:.:r rity (TESDA). as the
case may be, in /RC, Sec. 27 (8) as
amended by R.A.
0: What do the
ANS: "Non-profl enefits any member
or specific person nstitution's purposes
ond all its activiti lco/ Center, /nc., G.R.
No. '203514, Febr
0: What is ·unrelat
ANS: The term "unrel eons any trade, business
or other activity, the con ial y related to the exercise or
performance by such educo pital of its primary purpose or
function (NIRC, Sec. 27(8) as amended by R.A. No. 11534).
0: Differentiate the tax treatment of a "non-stock and non-profit educational

institution" and "proprietary educational institution ".
ANS: Section 30 of t he NIRC provides that exempt organizations like non-stock, non -
profit educational institutions shall not be taxed on income received by them as such.
On the other hand, by t he Tax Code's clear terms, a proprietary educational institution
is entitled only to the reduced rate of 10% corporate income tox, The redu ced rate is
app licable only if: (1) the proprietary educational institution is non -profit and ('2) its
gross Income from unrelated trade, business or activity does not exceed 50% of its total
gross income (CIR v. De La Salle University, Inc., G.R. Nos. 196596. 198841 & 19894 1.
November 9, '2016).
0: May a "proprietary non-profit hospital" qualify for income tax exemption as a

charitable institution or social welfare organization under Section 30 (E) and (G)
of the NIRC?
ANS: Yes, provided the requirements for the exemption to apply are complied with.
The Court hos ruled that Sedion 27(8) on one hand, and Section 30(E) and (G) on the
other hand1 can be construed ·togethe r without the removal of such tax exemption. The
effect of the introduction of Section '27(8) is to s ubject the taxable income of two
specific institutions, namely, proprietary non -profit educational Institutions and
proprietary non-profit hospitals, amon1:1 the institutions covered by Section 30, to the
10% preferential rate under Section 27(B) instead of the ordinary 25% corporate rate
under the last paragraph of Section 30 in relation to Section 27(A)(1).
Thus, for on institution to be completely exempt from income t01e, Section 30 (E) and
(G) of the NIRC requires said institution to operate exclusively for charitable or sochal
welfare purpose. But in case on exempt institution under Section 30 (E) or (G) of t e
said Code earns income from Its for -profit activities, it will not lose Its tax exemption.
However, its income from for-profit act.iYioo will be subject to Income tax at the
preferential 10% rate pursuant to Section 27(.B) thereof (CIR v. St. Luke's Medico/
Center, Inc, G.R. No. 203514, February 13, 2017).
GOCCs Agencies. Instrumentalities

0: How are GOCCs agencies, or instrumentalities taxed?
ANS: In general, oft corporations, agencies, or instrumentalitles owned or controlled
by the Government shall pay such rate of tax upon their taxable Income as ore imposed
upon corporations or associations engaged in a similar business, industry, or activity
(NIRC, Sec. 27(C)).
0: What GOCCs, agencies, or instrumentalities are exempt from tax?

ANS: The following ore exempt from tm ,
1. Government Service lnsu tqoce System (GSIS);
2. Social Security System ~~SS),
3. Home Development Mut_ual Fun
4. Philippine Health lnsuro,nc_e C:;liifflbro!Jon (PHI C)1 and
5. Local water districts (l'j/Rf:, 5'f: 27 CJ a~ a encled by R.A. No. 11534).
Foreign Currency Deposit Units

0: What is a "foreign cumt c_y deposit unit (FCDU)"?
ANS: FCDU shall refer. to tHot-unit of a I al bank or f lo I branch of a foreign
bank authorized by, the Bongko Sen trol Mg Pilipinas· (B P) en9oge in foreign
currency-denomin_pf~ tr9~ c;ictions. purs t to th pro isio at RA. 6426, as
amended (R.R. Nb. 10-98. Se,c, 2.22 (,B)).
0: How is an FCDU~taxed o Its i~come

ANS: An FCDU is taxed tis fo\lil>ws:
1. On income 'ae~ived,,b,y an FCD fr1:1m foreign currency transactions with:
a. Nonresident.s;-
b. Offshor~ banking units·
c. Local corilmerc di banks, including branches of foreign banks that
may be autl,orj~d by the BSP to transact business with FCDUs and
other depos tar,)'bonks under the expanded foreign currency deposit
system - exempt ~om all taxes,
2. On interest incomeerived from foreign currency loans granted to
residents, other than OB Us, or other depository banks under the expanded
system - su~ect to final t.IDLqt th!? rate of 10% (NIRC. Sec. 27(D)(3J).
3. On income~ erived from activities other than foreign currency transactions
- subject to the pertinent income tax/taxes prescribed under Section 27 or
Section 28 of the Code (R.R. No. 10-98, Sec. 2.27 and Sec. 2.28 (D)).
d) Exemptions from Tax on Corporations

Q: Enumerate the corporations exempt from income tax under the NIRC. (LMB-
CNB-CNG-FF)
ANS: The following organizations shall not be taxed in respect to income received by
them as such:
1. _Labor. agricultural, or horticultural organization n·o t organized principally
for profit;
2. Mutual savings bank not having a capitol stock represented by shares, and
cooperative bank without capital stock organized and operated for mutual
purposes and without profit;
3. A Beneficiary society, order, or association, operating for the exclusive

benefit of the members such as a fraternal organization operating under
t he lodge system, or mutual old association or a nonsfock corporation
organized by employees providing for the payment of life, sickness,
accident, or other benefits exclusively to th e members of suc h society, order,
or association, or nonstock corporatio.n or their dependents;
4. .C.emetery company owned and operated exclusively for the benefit of its
mem bers;
5, Nonsto.ck corporation or association organj:z.ed and operated exclusively for
re ligious, charitable, scientific, athletic, or cu ltu ra l purposes, or for the
rehabilitation of veterans, no port of Its net income or asset shall belong to
or Inures to the benefit of any member, organi:z.er, officer, or any specific
eerson;
6. ~usiness league chamber of commerce, or board of trade, not organi:z.ed
fo r profit a nd no port of the net income of which inures to the benefit of
any private stockhold er, or individual;
7. ~iylc league or organhotion not organized for profit but operated
exclusively for the promotion of social welfare;
8. A lionstock and nonprofit educational institution;
9. ~overnment ed ucational Institution;
10. forme rs' or other mutual typhoon or fire ins uran ce company, mutual ditch
o r irrigatio.n company, mu ug,I, o cooperative telephone company, or like
organ i:z.ation of a purely foc.;l cha r.acter-.,the income of which consists solely
of assessments, _c;lue s, ~nd fe s cloy ed~ r.om members fo r the sole purpose
of meetin!:l_ it exl?en,ses;~gnd [,,.
11. farmers', tr t- gr'4Vf'.el'S', or like assocla ion ot~fqnized and operated as a
sales agent foY._,the"P.u.r.pose o'f m rke.ti.Qg t,k.~ rpro~ucts of its members and
turning l:{ock-fo th "m the procc~ds of, salesi )l?ss the necessary selling
expense{ on t e ba, is of the q_uoritity o prod c:e i ished by them (NIRC,
Sec. 30)'. ~ f (_ 1
0: What is the li_ bi'i(ati~n on\ the tax exemption grant d to corporations under
Section 30 of the INIRC? ~1\ - • • ' ·- '-1
ANS: Income of w o ever k1\r;,~lq,nd cha.rocter of theffo..·r. g . In~ anizations from any
of t hei r properties ~ I GI p~i;s:-oti~ I. or fro ,ariy ~ t~ e' r oftivlt,J~i conducted for profit
Sec 30) ·) L
regardless of the dispositi n mti!dl!•Oi suC:h in~o e, ~~E>II bci.mbje 't to income tax (NIRC.
· '' 1
0: ~oe~ the limit on the tax e e ,;r:,i ion,_gi:&n_: J
~ / o e1~tities under Section 30 of the
NIRC apply to non-stoc no r11,roJ· e duc --·tipna in~ltut(ons?
ANS: No. The lost paragroi:ib-o } fc. 3 of th~. 'IRC' 5 ~ithout force and effect with
respect to non-stock, non -prollt e86catlo 1\11r~$li i<5ns, provided, tho·t the non -stock,
non-profit educational institutions t o.ve t hot, its•l:'i ssets and revenues are used actually,
directly and exclusively for ed ucationa l purposes. The tax -exemption constitutionally
granted to non-stock. non-profit educational institutions is not su bject to limitations
Imposed by low. The tax exemption granted by the Constitution to non -stock, non-profit
educational Institutions is conditioned only on the actual, direct and exclusive use of
their assets, revenues and income for educational purposes. To· avai l of ·t he exemption,
the taxpayer must factually prove that it used actually, directly and exclusively for
educational purposes the revenues or Income sought to be exempted (CIR v. De Lo
Salle University, G.R. No. 196596, Novembef 9, 2016) .
0: What are the tax-exempt corporations under special laws?

ANS: The follow ing co rpora-tions ore exempt _from income tax by virtue ~f special ~a_ws:
1. Borangoy Micro Business Enterprises (BMBEs) - exempt on income arising
from the operations of the enterprise (R.A. No. 9178, otherwise known as
"BMBE's Act of 2002~ Sec. 7);
Note: BMBEs are business entitles or enterprises engaged in the

production, processing, or manufacturing of products or commodities,
includ ing ogro-processlng, trading and services, whose total assets
includ ing those arising from loons but excl usive of the land on which the
particular business entity's office, plant, and equipment ore situated, are
not more than P3 mill ion (R.A. No. 9178, Sec. 3 (a)).
Volume 1. Series of 2023 . BEDAN REO BOOK 487
2. Tourism Enterprise Zone Operators - when grnnted an "i ncome taK holiday·
(R.A. No. 9593. otherwise known as "The Tourism Act of 2000", Sec. 86);
3. Foster Child Agencies (R.A. No. 10165, otherwise known as "Foster Care Act
of 2012 ". Sec. 23);
4. Homeowners' Associdtions - exempt on association dues and income derived
from rentals of their facilities (R.A. No. 9904, otherwise known as "Magno
Carta for Homeowners and Homeowners ' Associations·, Sec. 18); dnd
5. The following cooperatives:
a. Duly registered cooperatives which do not transact any business with
non -members or the general public;
b . Cooperatives transacting business with both members and non-
members shall not be subjected to tax on their transactions with
members; and
c. Cooperatives with accumulated reserves and undivided net savings of
not more than PlO Million (RA No. 9520. otherwise known as
"Philippine Cooperative Code of 2008", Art. 60 and 61).
e) Period Witbln Which to File Income Tax Return of Individuals and Corporations
Individual Returns
Cl: Who are the individual taxpayers r-e,q ired to file income tax returns?
ANS: The following individuals ore re9ul etl to file an income tax return:
1. Every Filipino citizen residiog in the Philippines;
2. Every Filipino citizen rhid!.f.!g ou side the Phil/ pines, on his income from
sources within the Phil jp pfii't~i
3. Every alien residing 'fn the P
within the Philippines; and
4. Every nonrestdentM
profession In the ~hi llppines ( RC, Sec. Sl(A), 'f
alien eng,a d in trade or ~ 1 ess or in the exercise of
0 : Who are the individual taxpayers t required o lie ·ncome tax returns?
(PSFM)
ANS: The following Individuals are not regj,jlred to f le an iocom x return:
1. An individu~I e!),r,;{jhg eii ~~ly 9 pensotfo lt1c~~e hose taxable income
does not exceed,, P2so.ooo,
2. to
An individ4.~I With r-espect, p ,e compensation income derived from such
sources with in ,the ~~ili pplnes, ·ir~r.ie tax on which has been correctly
withheld by Hfs. ~mployer, PJ ~jded that,Juch individual has only one
0
employer for the taxable year (Jubstltt'iteaicr-1 ng);
3. An individual whose sole income hos been subjected to final withholding
tax; and ·
4. A Minimum wage e'arner or an individual who is exempt from income tax
pursuant to the provisions of the NIRC and other laws, general or special
(NIRC. Sec. 51(AJ(2)).
0: When should individual income tax returns be filed?

ANS: The income tax return shall be filed on or before 15th day of April of each year
covering income for the preceding taxable year (NIRC, Sec.Sl(C)).
Cl: When are individual taxpayers required to file quarterly income tax returns?
ANS: Ind ividua ls engaged In business/practice of profession, regardless of amount of
sales/receipts, ore required to file quarterly income t·ax returns on or before May 15,
August IS and November 15 for the first, second and third quarters of the current yea r,
respectively pursuant to Section 74(A) of t he NIRC; and to file an annual Income tax
return, not later than April 15 as provided under Section Sl(C)(I) of the NIRC (R.R . No.
8-2018, Sec. 10).
0: Where should individual income tax returns be filed?

ANS: Except in coses where the Commissioner otherwise permits, the return sholl be
filed with an authorized agent bonk, Revenue District Officer, Collection Agent or duly
authorized Treasurer of the city or municipality in which such person has his legol
residence or prlnclpol ploce of business in the Philippines, or if there be no legal
residence or ploce of business in the Philippines, with the Office of the Commissioner
(NIRC, Sec. Sl(B)).
0: When should income tax be paid?

ANS: In general, the total amount of income tax shall be paid by the person subject
thereto at the time the return is filed (pay-os-you-file system) (NIRC, Sec. 56(A)(I)).
0: When may income tax be paid in installments?

ANS: When the tdJC due is in excess of P2,000, the individual may elect to pay the tax
in 2 equal installments, In which cose, the first Installment shall be paid ot the time the
onnual income tax return is fi led and the second instollment paid on or before October
15 following the dose of the calendar year. If any installment is not paid on or before
the dote fixed for Its payment, the whole amount of the unpaid tax becomes due and
payable, together with the delinquency penalties to be reckoned on the original dote
when the tax is required to be paid (NIRC. Sec. 56(A)(2)).
0: How should the income ~ .....,.._i..u.=~ : · ividuals be filed?

ANS: Married individual resident aliens, who do not
derive income purely for the taxable year to
include the income o for the spouses to file
one return, each s =="'""''"--·-· ut the returns so filed
shall be consolidot taxable year (NIRC,
Sec. 51(D)).
Corporate R~turns
0: What income t te taxpayers?

ANS: Every corp n corporations not
engaged in trade plicate, a true and
accurate quarterly (NIRC. Sec. 52(A)).
0: How is the cor

ANS: Every corpo ry declaration of its
gross income and receding quarter or
quarters upon whic and paid. The tax so
computed shall be deer paid or ossessed during
the preceding quotters (
0: How is the income tax due in the final adjustment return computed?
ANS: Every corporation liable to tax under Section 27 shall file a final od1·ustment
return covering the total taxable Income for the preceding calendar or fisca year. If
the sum of the quarterly tax payments made during the said taxable year is not equal
to the total tax due. on the entire taxable income of that year, the corporation shall
either:
1. Pay the balance of tax still due;
2. Carry-over the excess credit; or
3. Be credited or refunded with the excess amount paid, as the case may be
(NIRC, Sec. 76, Par. 1).
0: When should the !=!Uarterly corporate income tax returns and the final
adjustment return be filed?
ANS: The corporate quarterly declaration shall be filed within 60 days following the
close of each of the first 3 quarters of the taxable year. The final adjustment return
shall be filed on or before the 15th day of April, or on or before the 15th day of the ◄ th
month following the close of the fiscal year, as the case may be (NIRC. Sec. 77(8)).
Volume 1. Series of 2023. SEDAN RED BOOK 489
0: What is meant by ·carry•over of excess credit"?

ANS: In case the corporation is entitled to a tax credit or refund of the excess
estimated quarterly income tax/aid, the excess amount shown on its final odjustmen·t
return may be carried over on credited against the estimated quarterly Income tax
liabilities for the taxable quarters of the succeed ing taxable years. Once the option fo
carry-over and apply the excess quarterly income tax against the income tax due for
the taxable quarters of the succeeding taxable years has been made, such option shall
be consid-ered Irrevocable for the taxable period and no application of cash refund or
issuance of o tax credit certificate shall be allowed therefor (NIRC, Sec. 76, Par. '2).
Return on Capital Gain:; Realized from Sale of Shares of Stock and Real Estate
0: When should capital gains tax returns be filed?
ANS: Individuals and corporations subject to tax on capitcil gains from the sole or
exchange of shares of stock not traded thru a local stock exchange shall file the return
within 30 days after each transaction and a final consolidated return on or before April
15 of each year caverin9 all stock transactions of the preceding taxable year or on or
before the 15th day of the 4th month following th e close of the taxable year, as
applicable. Individuals and domestic corporations subject to tax on capital gains from
the sale or disposi tion of real propertx shall file a return \\'!thin thirty (30) days
following each sale or other disposition (NI C, Sec.51(C)(2) and Sec. 52(0)).
Q: When should capital gains taxe,s b,e id?

ANS: The total amount of capitaJJl°alfl.5 )C shall be paid on the date the return is
filed by the person liable thereto (~JRC, :M. 6(A)(3)) .
Q: When may a taxpayer avail o ="'""'=".:.,•.:,___ ains tax?

ANS: The taxpayer may ·
1. Before pay his intention to avail
himse der existin_g special
laws, .""'a~u..u,'l!",u.i~4J,il'-#llilL!'~"""'1L!ill-l'¥- case of failure to
quali men-ting rules and
regulatjo)'I u-e on , iginal transaction
shall iinmedia.telv, become cl to the penalties
presd;!)ed unde t applic ble
2. After ayment,,of the tgX: • I tax, submits such
proof of ·I ' ~i n 6 f." of the document
transferrin di rope g refund of such tax
upon veri 1ci:it·on o his - requirements for such
exemption (N c. 5
0: When should the ca galns tax returns be filed and paid if the taxpayer
reports capital gains by 1n1 allment?
ANS: In case the taxpayer elects and is qualified to report the gain by installments
under Section 49 of the NIRC, the tax due from each Installment payment shall be paid
within 30 days from the receip.t of such payments (NIRC. Sec. 56(A)(3)).
f) ~.ag
0: What is substituted filing?

ANS: Under substituted filing, the employer's annual withho lding tax return (BIR Form
1604-CF) is considered as the "substitute· lnconie tax return (ITR) of the employee
inasmuch as the information provided in his income tax return (Bl R Form 1700) would
exactly be the same information contained in the employer's annual return (BIR Form
No. 1604-CF) (R.M.C. No. 01 -03) .
a: Under what conditions will the substituted filing aprly?

ANS: Substituted filing shall of
ply when individua taxpayers receive purely
compensation income, regardless o amount, from only one employer In the Philippines
for the calendar yeor, the Income tax of which has been withheld correctly by the said
employer (tax due equals fox withheld). The certificate of withholding filed by the
respective employers, duly stamped "received" by the BIR, shall be tantamount to the
substituted filing of Income tax returns by said employees- (NIRC, Sec. 51 (A)) .
Cl: Who are the individual taxpayers not qualified for substituted filing?
ANS: The following individuals are not qualified for subsH.t uted filing and therefore,
are still required to file an ITR:
1. Individuals deriving compensation from 2 or more employers concurrently
or successively at any time during the taxable year;
2. Employees deriving compensation Income, regardless of the amount,
whether from a single or several employers during the calendar year, the
income tax of which has not been withheld correctly resulting to collectible
or refundable return;
3. Individuals deriving other non -business, non-professional-related Income in
add ition to compensation inco.me not otherwise subject to a final tax;
4. Individuals receiving purely compensation Income from o single employer,
although the Income tax of which hos been correctly. withheld, but whose
spouse falls under 1, 2 or 3; and
5. Non-resident aliens engaged in trade or business In the
Philippines deriving purely compensation income, or
compensation income and other non-business, non-professional-
related income (R .R. No. 2-98 as amended by R.R. No. 11 -18, Sec.
2.83.4).
g) Failure to File Returns
0: What is the penal lio · turn, supply correct and

accurate informatio _____ d refund excess taxes
withheld on compen
ANSt Any person lotions promulgated
thereunder to po supply correct the
accurate informo ch return, keep such
record, or supply remit taxes withheld,
or refund excess t mes required by low
or rules and reg vlde·d by low, upon
conviction thereo 10,000 and suffer
imprisonment of --~~"'-- /RC, Sec. 255).
0: What is the p or that a taxpayer
filed a return?
ANS: Any pe rso n that he or another
has in fact filed n or statement and
subsequently withd securing the official
receiving seal or sto ice wherein the same was
actually filed shall, up ed by a fine of not less than
Pl0,000 but not more t nment of not less than 1 year
but not more than 3 years. (NI , . .
WITHHOLDING TAXES
a) Concept
0: What is a withholding tax system?

ANS: The withholdin1;1 tax system is o rrocedure through which taxes (including income
taxes) ore collected (Chamber of Rea Estate and Builders' Association, Inc. v. Romu/o.
G.R. No. 160756, March 9, 2010). In the operation of the withholding t0>1 system, the
withholding agent is the poyor, o separate entity acting no more than on ogent of the
government for the collection of the tax in order to ensure its payments; the payer is
the toxpoyer · he Is the person subject to tax Imposed by low; ond the payee Is the
tox lng authority. In other words, the withholding agent is merely o tax collector, not a
taxpayer (CIR v. Court of Appeals, G.R. No. 108576, January 20. 1999).
0: What is the purpose of a withholding tax system?

ANS: The withholding tax system was devised for three primary reasons: first, to
provide the taxpayer a convenient manner to meet his probable income tax liability;
second, to ensure the collection of income tax which con otherwise be lost or
substantially reduced through foilure to file the corresponding returns; and third, to
improve the government's cash flow. This results in adminlstrofive savings, prompt and
efficient collection of taxes, prevention of delinquencies. and reduction of governmental
effort to collect taxes throug h more complicated means and remed ies. (Chamber of
Real Estate and Builders' Association, Inc. v. Romulo, G.R. No. 160756, March 9, 2010).
0: What are the kinds of withholding taxes?

ANS: There are two kinds of withholding taxes:
1. Final Withholding Tax; and
2. Creditable Withholding Tax (R.R . No. 02-98, Sec. 2.57).
b) Creditable vs. Withholding Taxes
0: What is a final withholding tax (FWT)?

ANS: Under the FWT system, the amount of Income tax withheld by the withholding
agent is constituted as a full and fina l DQ','.m eo1 of the income tax due from the payee
on the said income (R.R. No. 02-98, Sec. 2.57(A)).
0: Who is liable to pay the FWT?

ANS: The liability for payment of the tax rests primarily on the payor as a withholding
agent. Thus, in case of his failure to withhold the tax or in case of under withholding,
the defic ie ncy tax shall be collected from the payor/withholding agent. The payee is
not required to file on Income tax reti.l.m,fo the particular income (R.R. No. 02-98, Sec.
2.57(A)).
0: What is a creditable withholding ta

ANS: Under the CWT system, taxes with payments are intended
to equal or at least approximate the tax Id Income. The income
recipient is sti ll requ ired to fi!e ah locom ed in Sec. 51 and Sec.
52 of the NIRC, as amend.e d,,to report t e difference between
the tax withheld and the •tax due on th·e i ec. 2.57(8)) .
Q: Who are required to wlthholcl CWT?

ANS: The following persons" re-eonstituted -as withhol fng
creditable tax required to be withheld on i eome payments:
l. In geJ1er,al, any Juridical per on, whet e- or ged in trade or
business;
'2. An ind ividual, ~ftk respec t to . yments made th connection with his trade
or business: However, insotar i taxable sale, excha nge or transfer of real
property is cor:icernecl, individ al buy!N/s who are not engaged in trade or
business are a·ls? cbnstltute.9 ,ai;'wlthh'~lditt~ ggents; and
3. All government offjces rnHudlt'lg government-owned or controlled
corporations, as 'we ll ,i's provincial, city and municipal governments (R.R . No.
0.2 -98, Sec. 2.57:3)..
Q: What income payments are exempt from CWT?

ANS: The withhold ing of CWT shall not apply to income payments made to the
following:
l. National government and its instrumentalities, including provincial, city or
municipal governments; and
'2. Persons enjoying exemption from payment of income taxes pursuant to the
provisions of any law, general or special (R.R. No. 02-98, Sec.'2.57.5).
Q: When should FWT and CWT be withheld?

ANS: The obligation of the poyor to deduct and withhold final and creditable
wit hhold ing taxes arises ot the time on income is paid or payable, whichever comes
first; the term "payable' refers to the dote the obli1:1otion become due, demandable, or
legally enforceable (R.R. No. 02-98, Sec. 2.57.4). The taKes deducted and withheld by
the withholding agent shall be held as a special fund in trust for the government until
paid to the collecting officers (NIRC. Sec. SB(A), Par. 2).
Q: When should FWT and CWT returns be filed and paid?

ANS: The return fo r final and cred itable withholding taxes shall be filed and the
payment made not later than the last day of the month following the close of the
quarter during which withholding was mode (NIRC, Sec. 58(A), Par. 3).
0: What must be done by every withholding agent after deducting and

withholding taxes under Section 57?
ANS: Every withholding agent required to deduct and withhold taxes under Section
57 shall submit to the Commissioner an annual information return containing the list of
payees and income payments, amount of taxes withheld from each payee and such
other pertinent information as may be required by the Commissioner. In case of FWT,
the return shall be filed on or before January 31 of the succeeding year, and for CWT,
not later than lvtarch 1 of the year following the year for which the annual report is
being submitted (NIRC. Sec. 58(C)).
0: 1-Jow frequent does the DOF need to review regulations and processes for the
withholding of creditable tax under the NIRC?
ANS: The Depart·ment of Finance shall review, at least once every 3 years, regulations
and processes for the withholding of creditable tax under the Tax Code, and direct the
Bl R to amend rules and regulations for the some, should it be found during the review
that the e>dsting rules; regulations, and processes for the withholding of creditable tax
under the NIRC adversely and materially impact the taxpayer (NIRC as amended, Sec.
57).
Withholding Tax On Compensation

a: What is "withholding ta
ANS: The withholding o · a method of collecting the
income tax at source upo all employed individuals
whether citizens or alien for services rendered in
the Philippines. The em gent (R.R. No. 02-98,
Sec. '2.78). Taxes w· e in nature (R.R. No.
0'2-98, Sec. '2.57(8))
0: What is the co mpensation income

paid to employee
ANS: Every empl mount computed in
accordance with t n or on alien, except
nonresident alien t no withholding of
tax shall be requi oliday pay, overtime
pay, night shift di ivate/public sectors;
Provided, further, t at mpensation such as
commissions, honorori allowable statutory
amount of P90,000.0 ncome other than the
statutory minimum w pay, and night shift
differential pay, shall ensation received (R.R.
No. 11-18, Sec. 7(A)).
0: When should withholding tax on compensation be filed and paid?

ANS: The return shall be flied and the payment made wi·thin 25 days from the close
of each calendar quarter; Provided, however, That the Commissioner may, with the
approval of the Secretary of Finance, require the employers to pay or deposit the taxes
deducted and withheld at more frequent intervals, in coses where such requirement is
deemed netessary to p totect the interest of the Government (NIRC, Sec.Bl, Par. 2).
Further, every employer required to deduct and withhold the taxes in respect of the
wagt>S of his employees shal_l, on or before January 31 of the succeeding year, submit to
the Commissioner an annual information return (NIRC, Sec. 83(8)).
C. VALUE~ADDED TAX (VAT)
1. CONCEPT AND ELEMENTS OF VAT ABLE TRANSACTIONS

0: What is value-added tax (VAT)?
ANS: VAT is a tax on consumption levied on the sale, barter, exchange, or lease of
goods or properties and services in the Philippines and on importation of goods into
the Philippines (R .R. No. 16-05, Sec. 4.105-'2).
Volume 1. Series of 2023 . BEIJAN RED BOOK 493
0: What are the characteristics of VAT?

ANS: The characteristics of VAT are as follows:
l. It is a tax imposed on the value added to goods, properties, or services of
a taxpayer;
2. It is a transparent form of soles t ax imposed on the taxable sale, barter, or
exchange of goods, properties, or services;
3. It is a broad -based tax on consumption imposed on all stages of taxable
sale but the tax burden rests with the final consumer who consumes the
goods, properties, or services;
4. It is an indirect tax;
5. It is computed through "taf credit method" or "invoice method" wherein the
input tax shifted by these lers to the buyer is credited aga inst the buyer's
output taxes when he in turn sells the taxable goods, properties, or services
(NIRC, Sec. 105 and Sec. II0(A));
6. It follows the "destination principle/cross-border doctr.ine" (CIR v. Toshiba
Information Equipment (PHL) Inc.; G.R. No. 150154, August 9, 2005).
Q: Who are the persons liable for VAT?

ANS: Any person who, in the course of his trade or business, sells, barters, exchanges,
leases goods or properties, renders services and any person who imports goods shall be
subject to VAT (NIRC. Sec. 105).
0: When is a person characterixe le person for VAT purposes?

ANS: Generally, a person is cha ra axable person far VAT purposes, if:
l. He undertakes taxabl roperties, or services
consumed or destined f ines;
2. Such transactions are •~~W:=.W...l,.!,l.!.!.L~.,,_,_...u. rode or b ~
and
3. The amoun ross
or regulati ALA T
Q: What is meant by -u "in
regularity)?
ANS: "In the cours· o e or bu duct or pursuit of
a commercial or an lfc _tivlt1f.,, i al thereto, by any
person regardless of w not J.l'fe'1 on stock, nonprofit
private organization ~ e of tin e and whether or
not it sells exclusively· mem rs oi1t ent entity (NIRC, Sec.
105; R.R. No. 16-05, Sec. 4.IP5 j
0: What transactions arelsubjed to in the course of trade

or business? . ¾ . , .
at
ANS: As excep·tions to the ~11 le. regu la rity, the following transactions shall be sub1ect
to VAT although not made In tlfe ~ourse 9f trade or business:
1. Services rendered in the Philippines by non-resident foreign persons shall
be considered as being rendered in the course of trade or business (NIRC.
Sec. 105); and
2. Importation of goods (NIRC. Sec. 105). There shall be levied, assessed and
collected on ~.Y. importation of goods a VAT equivalent to 12% (NIRC,
Sec. 107 (A)).
0: When is VAT imposed?

ANS: VAT is imposed whenever there is:
l. Sale of goods or properties (NIRC, Sec. 106);
2. Importation of goods (NIRC, Sec. 107); and
3. Sale of services and use or lease of properties (NIRC, Sec. 108).
0: How Is VAT computed?

ANS: VAT is computed by multiplying the VAT rate of 12% to the appropriate tax base
for the particular transaction:
SUMMARY OF VAT RATE AND BASES
Gross selling price or gross value in money of the goods

or properties sold, bartered or exchanged (NIRC, Sec. 106
(A)).
l. The total value used by the Bureau ot Customs (BOC)

in determ ining tariff and cus toms duties, plus customs
duties, excise taxes, if any, and other charges, such as
postage, commission, and similar charges, prior to the
release of goods from customs custody; or
2. In case the valuation used by the BOC in computing
customs duties is bos.e d on volume or quantity of the
Imported goods. the landed cost shall be the basis for
computing VAT. Landed cost consists of the invoice
amount, customs duties, freight, insurance and other
char .es. lf.c the g~od.s imported are subject to excise
/ Jo t e ~ ci~e f:$: S!_al form port of the tax base (R .R.
/' ..Nd 16-05;, Sea 4,J0 -1( )
. I _;,-
sole or exchange of
of properties (NIRC.
0: What does iro~ert.ie.s"

ANS: The ter ~ ' · d intangible objects
which are capa
l. Real eld for lease in the
ordi
2. The sign or model, pion,
secre e brand or other like
proper
3. The rig t o ines of any industrial,
commercial o
4. The right or t re films, tapes and discs; and
5. Radio, television, sa e I e ransm1ss1on on cable television time (NIRC, Sec.
106 (A)(I)).
0: How is VAT on sale of goods or/roperties computed?

ANS: There shall be levied, assesse and collected on every sale, barter or exchange
of goods or properties, a VAT equivalent to 12% of the gross se lling p rjce or gross value
In money of the goods or properties sold, bartered or exchanged, such tax to be paid
by the seller or transferor (NIRC, Sec. 106 (A)).
0: What is meant by "gross selling price"?

ANS: The term "gross selling price· means the total amount of money or its equivalent
which the purchaser pays or is obligated to pay to the seller in consideration of the
sale, barter1 or exchange of the goods or properties, excluding VAT. The excise tax, if
any, on such good s or properties shall form part of the gross selling price (NIRC, Sec.
106 (A)) . In the case of sole, ba rter or exchange of real property, gross selling price
shall mean the consideration stated in the sales document or the ta ir market value
{whichever is higher of the zonal value or the fair market value as shown in the schedule
of values of the provincial and city assessors), whichever is higher (R.R. No. 16-05, Sec.
4.106-4).
Volume 1. Series of 2023 . BEDAN RED BOOK 495
0: What are the allowable deductions from the gross selling price?
ANS: The following shall be allowed as deduction hom gross selling price:
I. Discounts determined and granted at the time of the sale, which ore
expressly indicated in the _invoice, the amount thereof forming part of the
gross soles duly recorded 1n the books of accounts; and
'2. Sales returns and allowances for which proper credit or refund was made
d,u rin9 the month or quarter to the buyi?r for soles previously recorded as
taxable soles (R.R. No. 16-05, Sec . 4.106-9; NIRC, Sec. 106 (D)) .
0: When is VAT imposed on importation of goods?

ANS: VAT is imposed on goods brought into the Philippines, whether for use in
business or not (R.R. No. 16-05, Sec. 4.107.l (a)).
0: Who pays for the tax on importation of goods?

ANS: The VAT on importation shall be paid by the importer prior to the release of
such goods from customs custody (R.R. No. 16-05, Sec. 4.107.l (b)).
0: Who is an importer?
ANS: The importer is any person who brings goods into the Philippines, whether or not
made in the course of trade or business. It includes non-exempt persons or entities who
acquire tax-free imported goods from exe t persons, entities or agencies (R.R. No. 16-
05. Sec. 4.107.1 (b)).
0: What is the tax base of VAT on

ANS: The 1'2% VAT is based on:
l. The total value used by th C) in determining tariff
and customs duties, pJus xes, if any, and other
charges, such as pos og charges, prior to the
release of goo._ds Hom cus
'2. In case the val~_ption used customs duties is based
on volume or q q .t ity of • ort pnded cost shall be the
basis for computli,~.fVAT. La ed d· the invoice amount
customj d ties, H'f ight; lns~ o nd es. f the goods Imported
are s~l5'l !?Ct to .C?l,!~~se tax, tne ta par of the tax base (R.R.
No. 16"'<:ts: Se.e 4.107-l(a)).
0: What is meant by sale or exch nge o ervices?
ANS: The phrase "saleifor/ i!'xchQnge olf ser lees· means the performance of all kinds of
services in the Philippines for others for a fee, remuneration, or consideration (NIRC,
Sec. 108 (A)). m
0: What is meant by · sellv,,ce"?

ANS: "Service" hos been defined 'as "the art of doing something useful for a person or
company for a fee" or "usefurlcibo • or work rendered or to be rendered to another for
a fee (CIR v. American Express Int'/., Inc .. G.R. No. 15'2609, June '29, 2005).
0: When is the lease of properties subject to VAT?

ANS: The lease of properties shall be subject to VAT irrespective of the place where
the contract of lease or licensing agreement was executed, if the property is leased or
used in the Philippines (NIRC, Sec. 108).
0: What is the tax base of the VAT on sale of service and use or lease of
properties? ,
ANS: There shall be levied, assessed and collected, a VAT equivalent to 12% of the
gross receipts derived from the sale or exchange of services, including the use or lease
of properties (NIRC, Sec. 108).
0: What is meant by "gross receipts"?

ANS: It refers to the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits applied as payments for services
rendered and advance payments actually or constructively•received during the toxable
peri_o d for the services performed or to be performed for another person, excluding
VAT (NIRC. Sec. 108: R.R. No. 16-05, Sec. 4.1013-4).
IMPACT AND INCIDENCE OF TAX
0: What is the concept of "impact· and "incidence· of taxation in relation to

indirect taxation?
ANS: In indirect taxation, there is a need to distinguish between the liabil' for the
ll!JL(impact) and the burden of the tgx (incidence). The amount of tax poi may be
shifted or passed on by the seller to the buyer. What is transferred in such Instances is
not the liability for the tax, but the tax burden (Incidence). In adding or including the
VAT due to the selling price, the seller remains the person primarily and l,egally liable
for the payment of the tax. What Is shifted only to the intermediate buyer and
ultimately to the final purchaser Is the burden of the tax. Stated differently, o seller
who is directly and legally liable for payment of on indirect tax, such as the VAT on
goods or services, Is not necessarily the person who ultimately beors the burden of the
same tax. It is the final purchaser or consumer of such goods or services who, although
not directly and legally liable for the payment thereof, ultimately bears the burden of
the tox (Contex v, CIR, G.R. No. 151135. Joly 2. 2004).
DESTINATION PRINCIPLE AND CROSS-BORDER DOCTRINE
0: What is Destination Principle/Cross-Border Doctrine in relation to VAT?

ANS: The Destination Principle or Cross-Border Doctrine provides that goods and
services are taxed only in the coun consumed (Atlas Consolidated
Mining and Development C 148763, June 8. 2007). The
Philippine VAT syste , according to which, no
VAT shall be impos tined for consumption
outside of the terri . Toshlba Information
Equipment (PHL)
Note: The "cross

rendered ineffec
s bppfied
iv.e ' o~
i: Eco
pu p
rt zones hos been
e passage of the
CREATE Act bee ng; .
a . The C ;sl)\proviges fhat ds and services that
ore d ·v'e1v_~usecl Iii th ,.,. oject or activity of
regist rlse · ualify- purchases;
b. Secti ,He ~ II de as amended by
the C n Ld tion 5, and Rule 18,
Sectio . ain parameters for
the a
c. The iss s the VAT zero-rote
provisions es that the effectively
zero-rated and services rendered to
persons or e ct tax exemption granted
pursuant to spe n erna 1onal agreements to which the
Philippines is a signatory (R.M.C. No. 24-2022. February 23, 2022).
IMPOSITION OF VAT ON TRANSFER OF GOODS BY TAX EXEMPT PERSONS
0: Who shall pay for the VAT on importation of goods by tax exempt persons?
ANS: In the case of tax-free importation of goods into the Philippines by persons,
entit ies or agencies exempt from tax where such goods ore subsequently sold,
transferred or exchanged in the Philippines -to non-exempt persons or entities, the
purchasers, transferees or recipients shall be considered the importers thereof, who shall
be liable for any internal revenue tax on such importation. The tax due on such
importation shall constitute a lien on the 9.oods superior to oll charges or liens on the
goods, irrespective of the possessor thereof (NIRC, Sec, 107 (B)) .
TRANSACTIONS DEEMED SALE SUBJECT TO VAT

0: What transactions are deemed as sale? (TDCR)
ANS: The following transactions are deemed as sale:
l. Iransfer, use, or consumption not in the course of business of goods or
properties originally intended for sale or for use in the course of business;
2. Distribution or transfer to:

~ Shareholders or investors as share in the profits of the VAT-registered
person; or
b. Creditors in payment of debt;
3. t_onsignment of goods if actual sole is not made within 60 days following
the date such goods were consigned; and
4. _Retirement from or cessation of business, with respect to inventories of
taxable goods existing as of su1ch retirement or cessation (NIRC, Sec. 106
(B); R.R. No. 16-05, Sec. 4.106-7).
0: When are "transactions deemed as sole" subject to VAT?
ANS: Before considering whether the transaction is deemed sale, it must first be
determined whether the sale was in the ordinary course of trade or business. Even if
the transaction was "deemed sale; if it was not done in the ordinary course of trade or
business, still the transaction is not su j o VAT (CIR v. Magsaysay Lines, Inc., G.R.
No. 146984, July 28, 2006).
0: What is the tax base of VA ?

ANS: For transactions deemed ed on the market value
of the go ds deemed sold e of the transactions
tax base shall be the
perties, whichever is
nobly lower than the
market v (R.R. No. 16-05, Sec.
4.106-7).
0: What is the
ANS: A zero-ra -registered person
is a taxable transa ot result in any output
tax. However, the in s roperties, or services related to
such zero-rated sale s It Of' ef1,1 d (R.R. No. 16-05, Sec. 4.106-
5 and 4.108-5). ·
0: What is the rationale fot ro rating?

ANS: The Philippine VAT Lo adheres to the "cross border doctrine" of the VAT
system, which basically means that no VAT shall be imposed to form port of the cost
of goods destined for consumption outside the territorial border of the Philippine taxing
authority. Hence, actual export of goods and services from the Philippines too foreign
country must be free of VAT. Conversely, those goods destined for use or consumption
and services to be rendered within the Philippines shall be subject to the 12% VAT
(R.M.C. No. 50-07, Sec. 2, Par. 4).
0: When is 0% VAT imposed on the sales of VAT-registered persons?

ANS: The following soles by VAT-registered persons shall be subject to 0% rate:
I. Export sales (automatically zero-rated sole); and
2. Sales to persons or entities whose e,cemption under special lows or
International agreements to which the Philippines is a signatory effectively
subjects such sales to zero rote (effectively xero-roted sale) (NIRC, Sec. 106
(A)(2); R.M .C No. 05-7, Sec. 3).
0: Distinguish "automatically zero-rated sales" from "effectively zero-rated sales".

ANS: Although both are taxable and similar In effect, xero-rated transactions differ
from effectively zero-rated transactions as to their source. Zero- roted tran·sactions
generally refer to the export sale of goods and supply of services. Effectively zero-rated
transactions, however, refer ta the sale of goods or supply of services to persons or
entitles whose exemption under special laws or international agreements to which the
Philippines Is o signatory effectively subjects such transactions to a zero rate (CIR v.
Seagate Technology (Ph ilippines). G.R. No. 153866, February 11, 2005).
0: What are the Instances of xero•rated export sales? (SR-REI)

ANS: The following ore considered as zero-roted export soles:
1. The sole and actual .S.hipment of goods from the Philippines to o foreign
country irrespective of any shipping arrangement that may be agreed upon
which may influence or determine the transfer of ownership of the goods
so exported, paid for in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with the rules and
regulations of the BSP;
2. The sole of goods, supplies, equipment and fuel to persons engaged in
lnternational shipping or international air transport operations: Provided,
That the goods, supplies, equipment, and fuel shall be used exclusivelx for
international shipping or a ir transport operations (NIRC, Sec. 106 (A)('2)).
Note: The following, which ore previously considered as zero-roted soles of

goods under Section 106 (A)(2)(o) of the NIRC, ore now subject to 12%
VAT due to the amendments of TRAIN Low and satisfaction of the
requirements under the said section:
l. Sole of ro · ing materials to a nonresident buyer
for del iv · nted enterprise to be used
in m ocking in the Philippines
of table foreign currency
on ___._-..a..-...;..;;.;;,._.: and regulations of the
B
'2. to export-oriented
annual production;
3. Order No. 226,

of 1987, and other
0: What is mea rder No. 226"?

ANS: "Considere
1. The P s, bills of lading,
inwor · I
docum t
~
2. The net sel r ucer
to another =f"-"T"'i-'~~ quently
exports the s by R.R. No. 13-18, Sec. 4.106 -
5, Par. 2).
0: When ore sales to another producer or to an export tradu considered as export
sales?
ANS: Generally, sales of export prod ucts to anothe r producer or to on export trader
shall only be deemed export sales when actua lly exported by the latter, as evidenced
by landing certificates or similar commercial documents (R .R. No. 16-05, as amended by
R.R. No. 13-18, Sec. 4.106-5, Par. 2).
0: When are sales to another producer or to an export trader considered as

constructively exported?
ANS: Without actual exportation the following shall be considered constructively
exported:
l. Sales to bonded manufacturing warehouses of export-oriented
manufacturers;
2. Sales to export processing zones;
3. Sales to regist ered export traders operating bonded trading warehouses
supplying raw materia ls in the manufacture of export products under
g,uide lines to be set by the Board in consultation with the BIR and the BOC;
and
4. Sales to diplomatic miss ions and other agencies. and/or instrumentalities

granted tax immunities, of locally manufactured, assembled or repacked
products whether paid for In foreign currency or not (R.R. No. 16-05, as
amended by R.R. No. 13-18, Sec. 4.106-5, Par. 2).
0: What are the instances of zero-rated sale of services? (0SIT-R)

ANS: The following ore :z.ero-roted sale of services:
1. Services other than those mentioned in the r.reced ing paragraph rendered
to a person engaged in business conducted Qutside the Philippines or to a
nonresident person not engaged In business who is outside the Phillppines
when the services ore performed and paid for in acceptable foreign
currency and accounted for In accordance with the rules and regulations of
the BSP;
2. Services rendered to person.s or entitles whose exemption under £peciol
lows or international agreements to which the Philippines Is a signatory
effectively subjects the supply of such .services t o 0% rate;
3. Services rendered to persons engaged exclusively ih international sh ipping
or air transport operations, Including leases of property for use thereat;
Provided, that these services shall be exclusively for internotlonol shipping
or a ir transport operations;
4. Ironsport of passengers and cargo by domestic air or sea vessels from the
Philippines to o foreign countf Y,•,ond
5. Sole of power or fuel genei:a e through Renewable sources of energy such
as, but not limited to, liiomo111 solar, wind, hydropower, geothermal and
steam, ocean energy, dnd ,other merging sources u.slng technologies such
as fuel cells and hydrog~ n fqel~ he sole of po er or fuel Is the one being
subject to 0% and not th~ ·so)e o _ jCles re d to the maintenance or
operation of the plants gener.a Ing so1d poiu (.~IRC, Sec. 10B (B)).
Note: The f9ilowJng, whlcij P!_t previously co s · red as zero-roted soles

of services u11~ ~r Sectio11... T08(~~ of the NIRC a e ow subiect to 12% VAT
due to the a111end rhents o TRAIN L n satisfaction of the
requirements un er the said s ion:
I.
d q ing bus e,s.s outsJ.detj~
tr:fi$essi1;19, monufoc "Ori . or repo . ing l@oocl for other persons
exported y,,l,ere the se ~i es are

hilippi whi~lJ , are subsequently
•fdr 1 cceptable Foreign
cu rrency al'ld• .o cco~nte fo r in occor~ ce with the rules and
regulptlons oi, he BSP; a ·d
2. Services pe r.formed by 11bc~ntractors and/or contractors in
processin , converting, ,6 f ma11uJJ:1cl1tur~ g goods for on enterprise
whose exp!)rt sales e-icce~ 7&16 of-'totol nnuol production (R .R. No.
9-21. Sec. 2).
VAT-EXEMPT TRANSACTIONS
0: What are VAT exempt transactions?
ANS: ·vAT-exempt transactions" refer to the sole of goods or properties and/or services
and the use or lease of properties that is not subject to VAT (output fox) and the seller
is not allowed any tax credit of VAT (Input tox) on purchases (R.R. No. 16-05, Sec . 4.109-
1 (A)) .
0: What are the tax consequences of VAT-E}<empt Transactions?

ANS: The following ore the tax consequences of VAT-Exempt Transactions:
I. Seller Is exempt from VAT;
2. Seller cannot separately bill output tax to his c1.1stomers;
3. Seller is not entitled to Input tax credit (R.R. No. 16-05, Sec. 4.109-1 (A)); and
4. Seller shall be liable to VAT if he issues VAT invoice or receiP.t, but without
the benefit of input tax ,credit (R .R. No. 16-05, Sec. 4.113-4 (AJ)
soo BEDAN RED BOOK Volume 1. Series of 2D23 .
Q: Distinguish a "zero-rated sale transaction" from a "VAT-exempt transaction·.

ANS: A zero-rated sale and a VAT-exempt transaction is distinguished as follows:
ZERO-RATED vs. VAT-EXEMPT TRANSACTION
Transaction is taxable for VAT

purposes but shall not result to
output tax
Input tax on purchases of goods, Input tax on the VAT-exempt sale
properties or services, related to in NOT allowed as tax credit
the zero-rated sale shall be
available as tax credit or refund
0: What transactions are exempt from VAT? (AF-P'-GM-E 2 -RIC-GNE-R 2 -PTP-FB-

STAG-MO)
ANS: The following transactions shall be exempt from VAT:
1. Sale or importation of A r'icultural and marine food products in their
original state, llvestoc """'~~"""'~ ·nd gen·e rally used as, or yielding
or producin f breeding stock and genetic
materials t this paragraph shall be
considere undergone the simple
processes rket, sl1ch as freezing,
drying, s Ing. Polished and/or
huske . s, ordinary salt, and
copra red., n t ; , Sec. 109 (A))
'2. Sale o f fertili nd fingerlings; fish,
prawn, ··outfi' -~ ents, whether locally
produ , ·u{ed i.n nished feeds (except
special e ha~~,~ um fish, zoo animals
and ot I erolfy .co . Sec. 109 (B));
3. Import al and . ing to the residents
of the ' · dent citizens coming
to resetf ds ore exempt from
customs e Philippines (NIRC,
Sec. 109 (
4. lmportoti ments, tools of trade1
occupation omestic animals, and
eer,s onal on ons coming to settle in the
Philippines or .._,,,:.;;......, descendants who ore now
residents or citizens o o-t er countries, such parties hereinafter referred to
as overseas Filipinos, in quantities and of the class suitable to the
profession, rank or position of the persons importing said items, for the ir
own use and not for barter or sale, accompanying such persons, or arriving
within a reasonable time; Provided, That the Bureau of Customs may, upon
the producti,o n of satisfactory evidence that s.uch pe_rsons are actually
coming to settle in the Philippines and that the goods ore brought' from
their Former place of abode, exempt such goods from payment of duties
and to·x es; Provided, further, That veh icles, vessels, aircrafts, machineries
and other similar goods for use In manufacture, shall not fall wi'thin this
classification and shall therefore be subject to duties, taxes and other
charges (NIRC, Sec. 109 (D)).
5. Services subject to fercentage tax (NIRC. Sec 109 (E));
6. Services by agricultural contrad y_rowers and milling for others of palay
Into rice, corn into 9rits and sugar cone Into raw sugar; ''Agrlcultural
con-tract growers " refers to a person/entity producing for others poultry,
livestock, or other agricultural and marine food products in their original
state (NIRC, Sec. 109(F): R.R. No. 16-05, Sec. 4.109-1, Par. (B)(f)).
7. Medica l. denta l, hospital and veterinary service_s .e xcept those rendered by
professionals. Laboratory servii;es are exempted. If the hospital or clinic
Volume 1. Series of 2023. SEDAN RED BOOK 501
operates a pha rmacy or drug store, the sale of drugs and medicine is
subject to VAT (NIRC. Sec. 109(G); R.R. Na. 16-05, Sec. 4.109-1, Par. (B)(g));
8. .E_ducafianal services rendered by private educational institu·tions, duly
accredited by the Department of Educat ion (DepEd), the Commission on
Higher Education (CHED), the Technical Education and Skills Development
Authority (TESDA) and those rendered by government educational
institutions; "Educational services" shall refer to academic, technical or
vocational education provided by private educational institutions duly
accredited by the DepED, the CHED and TESDA, and those rendered by
government educational institutions and It does not include seminars, in-
service training, review classes and other similar services rendered by
persons .who ore not accredited by· the DepED, the CHED and/or the
TESDA (NIRC. Sec. l09(H); R.R. No. 16-05. Sec. 4.109-1, Par. (B)(h));
9. Services rendered by Individuals pursuant to on J;mployer-employee
relationship (NIRC, Sec 109 (/));
10. Services rendered by .Regional or area headquarters established in the
Philippines by multinational corporations wh ich act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Re~ion and do not e arn or derive income from
the Philippines (NIRC, Sec 109 (}));
11. Transoctions wh ich ore exemp under lnternational agreements to which
the Philippines is a signator~ r und_er special lows, except those under
Presidential Decree No,}2? '( ~J~C. Sec 109 (K));
Soles by agric.ultural ~o~~f.atl11t:es dµly reg istered with the Cooperative
Development Authority t,o ¾.helf embers as well as sale of their produce,
whether in its original ' tdte . roc:essed fo , to non-members; their
Importation of direct f: rr[i in~ ' / ~ l:iir;i.eri nd equipment, including
spore parts thereof t 'o be 1!$ red lf ncf ld usively In the production
and/or processiitc. g of their ip ,r uce. Sale by a icult ural cooperatives to
non-members ;,p~on only b e;~ . , pted from V, If the producer of the
agricultural pr&( ts ~pld is tb~ cooperative t e , It is to be reiterated
however, t~at sol~ o · import~ on ot agric tu I ood products in their
origina! )1tate is exempt from 'r/.AT irresp · tiv of he seller and buyer
thereof(INIRC Sec. 109(L); R.R o. 04-07. ec. I • Pa (B)(I));
12. ~ross 'r, 'ceipts f rom l~din activlti by crird· r multi-purpose
cooperatives c;IMJX egist _ ~ wt the Coop, cqf[v.e Oe.velopment Authority
(NIRC Se.1.. 10~,(MJ:), .
Soles by Hon•ogrigi ltural, non-electric and non-credit cooperatives duly
registered ~ t the (Z:o operotlv D_ evel'!pment Authority: Provided, That the
shore capital cor;i til!Yution ~f eQ~ it,'el\'\b'tt • oes not exceed PlS,000 and
regardless of the agg~.g ote edpitd nd el surplus ratably distributed
among the members. ilmportatian by 11011-agricultural, non-electric, and non-
credit cooperative s df machineries and equipment, lhcluding spare parts
thereof to be usel:'I , y them are subject to VAT (NIRC, Sec. 109 (N); R.R. No.
16-05, Sec. 4.109-1, Par. (B)(n));
13. fxport soles by persons who are not VAT-registered (NIRC, Sec. 109 (O));
Note: Export sales by VAT-registered persons are zero-rated.
14. Sole of Real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business or real property utilized
for low-cost and socialized housing as defined by Republlc Act No. 7279,
otherwise known as the Urban Development a nd Housing Act of 1992, and
other related lows, residential lot valued at P2,500,000 and below, hou.se
and lot, and other residential dwellings valued at P4,200,000 and below:
Provided, That beginning January 1, 2024 and e very three years thereafter,
the amount herein stated shall be adjusted to its p resent value using the
Consumer Price Index, as published by th e Philippine Statistics Authority
(PSA) (NIRC, Sec. 109 (P));
15. Lease of a Residential unit with a monthly rental not exceeding PlS,000
(NIRC. Sec. 109 (Q));
16. Sale, importation .frinting, or publication of books, and any newspaper,

magazine, journaf. review bulletin, or any such educational reading material
covered by the UNESCO Agreement on the Importation of Educational,
Scientific, and Cultural Materials, including the dig ital or electric format
thereof: Provided, That the materials enumerated herein are not devoted
erlncipally to the publication of paid advertisements (NIRC, Sec. 109 (R));
17. Iransport of passengers by International carriers (NIRC, Sec 109 (S));
Note: T ronsport of passengers by jnternatjonal carrie rs originating from

the Philippines to another country ore VAT exempt. Transport of cargoes,
baggage, or mails by lnternotianol carriers from the Philippines to another
country ore subject to 3% percentage tax. Transport of passengers, excess
baggage, cargoes or ma ils by ~ j c sea or gjr carriers with internotiono.l
opergtjon ore subject to zero-rated VAT (BANGGA WAN, Business and
Transfer Tax, supra at 158-159).
18. Sale, importation or lease of fassenger or cargo vessels and aircraft,

inc luding engine, equipment, and spare ports thereof for domestic or
International trohport operations (NIRC. Sec. 109 (T));
19. Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations: Provided, That the said
fuel. goods and sup lies s exclusively or shall pertain to the
transport_ of rt in the Ph_ilippines d irectly
to a fore1g r stopping at any other
port in t h at any other Philippine
port is and/or caraoes that
origina to oat! r cargoes bound for
abroo ; R,R. Na. . (v));
20. Servic o nk ..fin6nci performing quasi•
banki other non -b rmediaries such as
money wnshaps:SU bi e tax under Secs. 121
and 12 .,e ."fax Code C, Sec. 109 (V); R.R.
No. O ' )), ,.. , ,: .
21. Sale o ~d ::_;;~rv.ic s and persons with
disabil e rj R,eAu (Expanded Senior
Ci t ize 1-:i4 ng the Benefits and
Privilege . il't. e y ( /RC Sec 109 (W));
22. !ransfer p c)(2) the NIRC, as amended
(tax-free ex h
23. Association lll """'__,___.,.,.... n~ assessments and charges
collected by d condominium corporations
established un Carta for Homeowners and
Homeowners' . t No. 4726 (The Condominium
Act), respectively (NIRC, Sec 109 ( ); R.R. No. 13-18, Sec. 4, 109-1, Par.(y));
Reason: Associa tion dues are not intended for profit, but for the
ma intenance of the condominium project. The collection of association dues,
membe rship fees, and other charg es is purely for the benefit of the
condominium owners. The condominium corporation cannot be said to be
engaged In trade or business when collecting association dues, membership
fees, and other assessrrients/charges (Delos Santos v. CIR, G.R. No. 222548,
June 22, 2022).
24. Sale of ~old to the Bangko Sentral ng Pilipinas (BSP) (NIRC. Sec 109 (Z));
25. Sale or importation of prescription drugs and Medicines for:
a. Dlobetes, high cholesterol, and hypertension beginning January 1,
2020; and
b. Cancer, mental illness, tuberculosis, and kidney diseases beginning
January 1, 2021.
The exemption from VAT under this subsection shall only apply to the sole
or importation by the manufacturers, distributors, wholesalers and retailer
of drugs and medicines included in the "list of approved drugs and
medicines" issued by the Department of Health (DOH) for this purpose
(NIRC. Sec. 109 (AA); R.R. No. 04-21. Sec. 2):
'26. Sole or importation of the following beginning January 1, '20'21 to December

31, '20'23:
a. opitol equipment, Its spore ports and row materials, necessary for t he
production of personal protective equipment components such -as
coveralls, gown, surgical cap, surgical mask, N -95 mask, scrub suits,
goggles and face shield, double or surgical gloves, dedicated shoes,
and shoe covers, for COVID-19 prevention;
b. All drugs, vaccines, and medical devices specifically prescribed and
directly used for th.e treatment of COVID-19; and
c. Drugs for the treatment of COVID-19 orproved by the Food and Drug
Administration (FDA) for use In cllnica trials1 includ in~ row materials
directly necessary for the production of such drugs (NIRC, Sec. 109
(BB): R.R. No. 04-'21. Sec. 2. Par.(bb));
'27. Sale or lease of goods or prop rties or the performance of services Qther
than the transactions mentlQJ'li,d In the preceding paragraphs, the gross
annual sales and/or recejp(s ,d_ql\'bot exceed the amount of P3 Million (NIRC,
Sec.109 (CC)).
Note: Any person who I~, and who is not a VAT -

registered _person shall po rterly soles or receipts;
Provided, That coop_erativ . From July 1, '2020 to
June 30, '20'23, the tax rotes. a e , ).
0: What sales to senior citl~ns ore exe 1 ,pt.HAdFun)

ANS: Senior citizens a ,:,e gro,fffed 'exemptig f e sole of the following
goods and services from all e)toblishmen'I e and enjoyment or
availment of senior' ci_tizeris:
1. On the purllhase of ~dlcine ·, ncludln;g the;i~l,ll''C~C(l•,rof influenza and
pneumococcol ·voe.cine and uch otli · en tkil medical supplies,
accessories on<l eqi./lpmenf 'to e determined ~ '
(DOH); ,
'2. On Medical' o,nd de:ntol servi diopnostlc and laboratory fees in all
private hospitals, metlico! facilities~outpl'!t!£!.;l . clinics, and home health care
services, in acc:ordonce :wltfii tl'lcr rules and r · ulations to be issued by the
DOH, in coorHmation with the Philippine Health Insurance Corporation
(PhilHealth);
3. On the f.rofessional · fees of attending phy$iclon/s In all private hospitals,
medical facilities, outpatient clinics and home health care services;
4. On the f.rofessional fees of licensed professional health workers providinij
home health core services as endorsed by private hospitals or employed
through home health care employment agencies;
5. In actual fore for land transportation travel in public utility buses (PUBs),
public utility jeepneys (PUJsJ, taxis, Asian utility vehicles (AUVs), shuttle
services and public railways, including light Rail T ronslt (LRT), Moss Roil
Transit (MRT), and Philippine Natjonol Ra ilways (PNR);
6. In actual transportation fore for domestic air transrort services and sea
shipping vessels and the like, based on the actua fare and advanced
booking;
7. On the utilization of services in Hotels and similar lodging establishments,
restaurants and recreation centers;
8. On Admission fees charged by theaters, cinema houses and concert halls,
circuses, carnivals, and other similar places of culture, leisure and
amusement; and
9. On .E.i.m.erol and burial services for the death of senior citizens (R.A. No.
9257, otherwise known as the "Expanded Senior Citizens Act of 2003~ as
amended by R.A. No. 9994).
504 SEDAN RED BOOK Volume 1. Series of 2023 .
INPUT AND OUTPUT TAX
0: What is output tax?

ANS: The term "output tax' means the VAT due on the sale or lease of taxable goods
or properties or services by any person registered or required to register for VAT (NIRC,
Sec. 110 (A)(3)).
0: How Is output tax determined?

ANS: Output tax is determined in the following manner:
I. In a sale of goods or properties, the output tax Is computed by multiplying
the gross selling price by the regular rate of VAT;
2. In a sale of services/ the output tax is computed by multiplying the gross
receipts by the regu ar rate of VAT;
3. In all cases where the basis for computing the output tax is either the gross
selling price or the gross receipts, but the amount of VAT is erroneously
billed In the invoice, the total invoice amount shall be presumed to be
comprised of the gross selling price/gross receipts plus the correct amount
of VAT. Hence, the output tax shall be comf)uted by multiplying the total
Invoice amount by a fraction using the rate of VAT as numerator and 100%
plus rate of VAT as the denominator (R.R. No. 16-05, Sec. 4.110-6).
0:Whatisinputtax?
ANS: The term "input tax"
person in the course o ·
2.t...QOods or se?ices, · .
ltsliall also inc ude -~-..__;;;_- e wit on Ill
of the Tax Code (
0: What are the

ANS: The input I Receipt issued in
accordance with ransactions shall be
creditable agains
1. Purch
a. F
b. F finished product for
s
c. F
d. F e; or
e. For n for depreciation or
amo
2. Purchase o as actually been paid;
3. Purchase of _ ually been paid;
4. Transactions 12 (B) of the Tax Code;
5. Iransitional input tax on beginning inventories;
6. .e_resumptive input tax; and
7. Iransitional input tax credits allowed under the transitory and other
provisions of these Regulations (R .R. No. 16-05, Sec. 4.110-1).
0: What is "transitional input tax· credit?

ANS: "Transitional input tax· credit is an input tax credit allowed to a person who:
1. Became liable to VAT (exceeds the minimum turnover of P3 Million in any
12-month period);
2. Elects to be a VAT -registered (even if the turnover does not exceed P3
Million) (NIRC. Sec. 111 (A)); or
3. Is already a VAT-registered person and also deals In goods or properties,
the sale of which is exempt, but it becomes a taxable transaction under a
new or amendatory law (Fort Bonifacio Dev't. Corp. v. CIR, G.R. No. 173425,
January 22, 2013).
0: What amount is allowed as transitional input tax credit?

ANS: The allowed transitional input tax credit is whichever is higher between:
l. 2% of the value of the beginning inventory of goods, materials, and
supplies; or
2. The actual VAT paid on such goods, materials, and supplies (NIRC Sec. Ill
(A)). .
0: What is "presumptive input tax" credit?

ANS: "Presumptive input tax· credit is an input tax credit allowed to persons or firms
engaged in the:
1. Processing of sardines, mackerel, and milk; and
Note: The term 'processing' shall mean pasteurization, canning, and

activities which, through physical or chemical process, alter the exterior
texture or form or inner substance of a product in such manner as to
prepare it for special use to which it could not have been put in its original
form or condition.
2..Manufacturing of refined sugar, cooking oil, and packed noodle-based

instant meals (NIRC, Sec. Ill (B)).
0: What amount is allowed as presumptive input tax credit?
ANS: VAT-registered persons are entitled to presumptive input tax credit equivalent
to 4% of the gross value In money •of their purchas'es of primary a"1rlculturol food
products which are used as Inputs in thei r production (NIRC, Sec. Ill (BJ).
0: Who may avail of input tax er

ANS: The input tax credit on I f goods or local purchase of goods,
properties or services by a VAT-re n shall be creditable:
1. To the importer upon T rior to the release of goods from
customs custody;
2. To the purchaser of t · rties upon consummation
of the sole; or
3. To the purch s
compensotio r
0: How are input e~ 1fc

ANS: Where a V 'gis e e. pe ital goods, which are
depreciable asset o,ne ta isition cost of which
(exclusive of VA 11 of the acqu isition
cost of each capit ax in the following
manner:
1. If the o ore • The input
tax shall be .v v d o 60 mo t s and the claim for
input tax credit ill co mmence n . ,ca . lfClof onth when the capital good
is acquired. Tke fotal inp ut foxt!'!'orl pui'th'bse or importations of this type
of capital gooa, shall be.divided by 60 and the quotient will be the amount
to be claimed m . nthl~;
2. If the estimated u!fl?iful life of g capita I good Is less than 5 years - The input
tax shall be spread evenly on a monthly basis by .d ividing the Input tax by
the actual number of months comprising the estimated useful life of the
capitol good. The claim for input tax credit shall commence in the calendar
month that the capital goods we re acquired;
3. Where the aggre9ate acquisition cost (exclusive of VAT) of the existing or
finished depreciable capital goods purchased or Imported during any
calendar mont:h does not exceed Pl Million, the total input taxes will be
allowable as credit against output tax In the mon·th of acquisition (R.R . No.
16-05, Sec. 4.110-3).
Note: Amortization of the input VAT shall only be allowed until December
31, 2021 (NIRC. Sec. 110 (A)(2)).
0: What are ·capital goods or propertlH"?

ANS: It refers to goods or properties with estimated useful life greater than one year
and which are treated as depreciable assets under the Tax Code, used directly or
indirectly in the production or sale of taxable goods or services (R.R. No. 16-05, as
omended by R.R. No. 13-18. Sec. 4./10-3).
0: What are the guidelines to be observed in determining whether depreciation

expense can be claimed or not on account of vehicles capitalized by the taxpayer,
or in claiming other expenses and input taxes on account of said vehicle?
ANS: The following are the guidelines:
1. No deduction from gross income for depreciation sholl be allowed unless
the taxpayer substantiates the purchase with sufficient evidence, such as
official receipts or other adequate records which contain the following,
among others:
a. Specific Motor Vehicle Identification Number, Chassis Number, or
other registrable identification numbers of the Vehicle;
b. The total price of the specific Vehicle .subject to depreciationi and
c. The direct connection or re lation of the Vehicle lo the development,
management, operation, and/or conduct of the trade or business or
profession of the taxpayer;
2. Only one Vehicle for land transport is allowed for the use of an official or
employee, the value of which should not exceed P2.4 Million;
3. No depreciation shall be allowed for yachts, helicopters, airplanes and/or
aircrafts, and land vehicles which exceed the above threshold amount,
unless the taxpayer's main line of business is transport operations or lease
of transportation equipment and t he vehicles purchased are used in said
operations;
4. All maintenance ex ens t of non-depreciable Vehicles for
taxation purpo · · and
5. The input ble Vehicles and all input
taxes on e likewise disallowed for
taxation
0: What is •aggre
ANS: It refers to t or one or more assets
acquired and not t I ndar month (R.R. No.
16-05, as amende ,.--4
0: What is the e goods prior to the

exhaustion of th
ANS: In case of s riod of five years or
prior to the exhau amortized input tax
on the capital goo ax credit during the
month or quarter as amended by R.R.
No. 13-18, Sec. 4.11
0: What is Const
ANS: Constructio on work, which is not yet
completed. CIP is JJ.QLQ~m:.i.g;w;C{l~bih - paced In service. Normally, upon
completion, a CIP the reclassified asset is capitalized and
depreciated (R.R. No. 16-05, as amended by R.R. No. 13-18, Sec. 4.110-3),
0: What are the rules on determining input tax on CIP?

ANS: Input tax on CIP shall be determined and recognized as follows:
1. CIP is consid,ered, for purposes of claiming Input tax, as a hu rchase of
service, the value of which shall be determined based on t 1e progress
billings;
2. Until such time the construction has been completed, It will not qualify as
capital goods as herein defined, in which case, input tax credit on su ch
transaction can be t!;1CQ~njzed in the month the payment was mode:
Provided, that an officio receipt of payment has been issued on the
progress billings; and
3. Once the Input tax hcis already been claimed while the construction is still
In progress, no ~dd itionol input tqx can b e clalm~.d...@Q!L~.Q01J2ldi2!1 of the
asset when it as been reclassified as a depreciable capital asset and
depreciated (R .R. No. 16-05, as amended by R.R. No. 13-18, Sec. 4.110-3).
Volume 1. Series of 2023. BED.AN RED BOOK 507
0: How is input tax on mixed transactions allocated?

ANS: A VAT-registered person who is also engaged in transactions not subject to VAT
shall be allowed to recognize input tax credit on transactions subject to VAT as follows:
1. All the Input taxes that con b e ~ attributed to transactions subject to
VAT may be recognized for inpu~ tax credit; Provided, that Input taxes that
con be directly attributable to VAT taxabl.e soles of goods and services to
the Government or any of its political subdivisions, Instr umentali ties or
agencies, including government-owned or controlled· corporations (GOCCs)
shall not be credited against output loxes arising from sales to non-
Government entities; and
'2. If any input tax cannot be directly attributed to either a VAT taxable or
VAT-exempt transaction, the input tax shall be pro-roted to the VAT
taxable and VAT-exempt transactions and only the ratable portion
pertaining to transactions subject to VAT may be recognized for input tax
credit (R.R. No. 16-05, Sec. 4.110-4) ,
0: How is the total creditable input tax computed?

ANS: The amount of input taxes creditable during a month or quarter shall be
determined by adding:
l. Excess input tax carried over from the preceding month or quarter; and
'2. Input tax creditable to a VAT- eglstered person during the taxable month
or quarter;
Reduced by: ,
l. Amount of claim for re{ t:i' • and
'2. Other adjustments, sue ' Q owances and input tax
attributable to exemp ;5'ale ·
0: How is VAT payable determined?

ANS: There shall be allowecl as a ded,µ the amount of input
tax deductible to arrive al Y•AT poyci eclaration and the
quarterly VAT returns:
I. If, at -the.<encl of any taxob l eds the input tax,
the e)(cVss shqll be paid b'( - nd
'2. If the f~ put tax, i!/i luslv~ o lnp xc previous quarter,
exceeds- the ou(i;il'l: tax, J,ije e in rried over to the
succeedrhg. qua rtfer or qu liter . . -7).
I
TAX REFUND OR TAX CREDIT
0: Who may claim for efund or apply for the l'SSt:.farf"ce of tax credit certificate
(TCC)?
ANS: The following may dqh:n, fcir refund or apply for issuance of TCC for unutilized
input VAT, "'
l. A VAT-registered person, with respect to input tax attributable to sales of
goods, properties or services which ore zero-roted or effectively zero-
rated; and
'2. A VAT-registered person whose registration has been cancelled due to
retirement from or cessation of business, or due to changes in or cessation
of status under Sec. 106 {C) of the Tax Code (NIRC, Secs. 11'2 (A) and (B)).
0: What are the requisites for a claim for refund or tax credit of unutilized input
VAT on uro-rated or effectively zero-rated sales? (VZI-Not1 A-BaP-'l)
ANS: A claim for refund ·or tax credit for unutllized input VAT on zero-rated or
effectively zero-rated soles may be allowed only If the following requisites concu r:
l. The taxpayer is YA T-regislered;
'2. The taxpayer is engaged in .Zero-roted or effectively zero-rated soles;
3. The lnput 'laxes ore due or paid;
4. The Input taxes ore .h(2t transitional Input taxes;
5. The input taxes have Not been applied against output taxes during and In
the succeeding quarters;
6. The input taxes ck,imed ore Ath'ibutoble to zero-roted or effectively zero-
roted soles;
7, For zero-roted sales under Sections 106 (A)(2)(o)(1) and (3); and 108 (B)
(1) and (2), the acceptable foreign currency exchonge/roceeds have been
duly accounted for in accordance with the ru les on regulations of the
h ,n gko Sentrol ng Piliplnos;
8. Where there ore both zero-roted or effectively zero-roted sales and taxable
or exempt sales, and the input taxes cannot be directl_y and entirely
attributable to any of these soles{ the input taxes shall be froportionately
allocated on the basis of soles vo ume; and
9. The claim is filed within~ xears ofter the close of the taxable quarter when
such sales were made (Luzon Hydro Corp. v. CIR, G.R. No. 188260,
November 13, 2013).
Cl: When may a VAT-registered person whose registration hos been cancelled
d~im for refund or apply for the issuance of TCC?
ANS: A VAT-registered person whose registration has been cancelled due to
retirement from or cessation of business, or clue to changes in or cessation of status
under Sec. 106 (C) of the Tax Code may apply for the issuance of tax credit certificate
for any unused ihput tax which he may use in payment of his other internal revenue
tqxes. He shall be entitled to a refund if he hos no internal revenue tax liabilities against
which the t0>1 credit certificate may be utilized (R .R. No. 16-05, as amended by R.R. No.
1.3-18, Sec. 4.1/2-1 (b)).
0: What is considered usiness registration?

ANS: The date of can date of issuance of tax
clearance by the Bl relative to cessation of
business or change of the claim shall be
made only ofter co revenue tax liabilities
covering the imme urn and the issuance
of the applicable hich has jurisdiction
over the taxpayer c. 4.112-1 (b)) ,
0: When should und be made?

ANS: The written d must be filed with
the BIR:
1. For V ively zero-roted sole
• withi when the soles were
mode;
2. For V cancelled • within 2
years f s amended by R.R. No.
13-18, Sec,
0: Where should the cl

ANS: The claim must be IR Office-Lorge Taxpayers
Service (L TS) or RDO having jurisdiction over the principal place of business of the
taxpayer, Claims for input tax refund of direct exporters shall be exclusively filed with
the VAT Credit Audit Division (VCAD) (R.R. No. 16-05, as amended by R.R. No. 13-18,
Sec. 4.112-1 (c)) .
0: What is the period within which the BIR should decide on the application refund
or TCC?
ANS: The Commissioner shall grant a TCC or refund for creditable input taxes within
90 days from the dote of submission of the official receipts or invoices and other
documents in support of the application filed . Should the Commissioner find that the
grant of refund is not proper, the Commissioner must state in writing the legal and
factual basis for the denial (NIRC as amended, Sec. 112 (C)),
Note: All claims for refund/tax credit certificate filed prior to January 1, 2018 will be
governed by the 120-doy processing period (R .R. No. 16-05, as amended by R.R. No. 13-
18, Sec. 4.112-1 (d)).
0: What is the effect of BIR's failure to act upon the claim for refund within 90
days?
ANS: In the event that the 90-day period has lapsed without having the refund
released to the taxpayer-claimant, the VAT refu nd claim may still continue ta be
processed administratively provided that the BIR official, agent, or employee who was
found to have deliberately caused the delay In the processing of the VAT refund claim
may be subjected to penalties Imposed under Section 269 of the Tax Code, as amended
(R.R . No, 16-05. as amended by R.R. No. 26-18, Sec. 4.112-1 (d)) .
Note: The TRAIN law notably deleted the option of appeal to the CTA within 30 days
after the expiration of the 120-doy (now 90-day) period within which the BIR is to act
on the application and instead imposed a penalty on the erring official, agent, or
employee.
0: What is the remedy of the taxpayer in case of denial of refund by the BIR?
ANS: In case of full or partial denial of the claim for tax refund, the taxpayer affected
may, within 30 days from the receipt of the decision denying the claim, appeal the
decision with the CTA (judicial claim) (NIRC, Sec.112 (C)).
0: Can a taxpayer simultaneously file a claim for tax credit or refund with the CIR
and the CTA?
ANS: No. In CIR v. Aichi Forging C~ any of Asia, the Court delineated the
applicability of the 2-year prescriptlVi Jrlrlc mentioned in Section ll2(A) of the NIRC
solely to administrative claims for J~,o,t'¥ . tax credit or refund. The 2-year period
refers to appl ications for refund/cridlt f,l)ed ith the CIR and not to op_P-eols mode to
the CT A. Also, both subsections (A) a d (C) of Section 11 speak of ditferent periods
within which different claims ough, to ~ .,,..,...... Theie Is ti thing In the said Section
which sanctions the simultaneo1:1s 'f1ling df m nlsfr'fltlu .a judicial claims. and the
filing of the judicial clail'T). pjlor to the;_oc on of the CIR the lapse of the 90-day
period within which the. ¢lR is requir(ci act on the a · 1 istrotive claim (Energy
Development Corp. v. CIR, . No. 2()~ 6;'; arch 17, 20 nando Case) .
0: Are there exem.PJlons from the m nd

a refund or tax cre_clit?
ANS: Yes, there ar.e tw.o l'ec;1ogniz11d exceptions ·t
nature of the period:
1. If the Cl&. tl1i!:iU9J O sp !fl uling, mlsleoa particular taxpayer to
premature ly. 'f ile a jud ici I cl with the CT A, such specific ruling is
o_pplicable only to the particul , taxfitOyer; and
'2. If the CIR issu;e d a general i.9.tt!rpr.tcfflv ri.t in accordance with Section
425 of the T Code which 'ii'llsf~ds all fl,i axpayers into prematurely
filing judicial alalms t~ the CT A
Note: BIR Ruling Mo. DA-489-03 falls under t he second exception, stating
that o toxpoyer•cloimont may seek judiciol relief with t he CT A by filing a
petition for review without waiting for the 120-doy [now 90-doy] period to
lapse. Thus, judicial claims filed during the window period from December
10, 2003 to October 6, '2010, need not wait for the exhaustion of the 120-
doy [now 90-doy] period (Hedcor Sibulan, Inc. v. CIR, G.R. No. 202093,
September rs. 2021, Hernando Case).
0: What is the effect of the taxpayer's failure to comply with the period of filing
the judicial claim?
ANS: Failure to comply with the period of filing the judicial claim bars the taxpayer's
claim for tax refund or credit (CIR v. San Roque Power Corporation, G.R. No. 187485,
February 12, 2013).
0: When is the claim for refund considered to be filed?
ANS: The claim/application Is considered to hove been filed only upon submission of
the official receipts or invoices and other documents in support of the application as
prescribed under pertinent revenue issuances (R.R. No. 16-05, as amended by R.R. No.
13-18, Sec. 4.106-5 and 4.108-5).
0: Is the presentation of the subsidiary sales journal and subsidiary purchase

journal indispensable for a taxpayer to be entitled to refund or issuance of a tax
credit?
ANS: No. Section 112(A) of the Tax Code, which enumerates the requisites for o
taxpayer to be entitled to a tax refund or credit, does not require subsidiary journals
as po_rt of the substantiation requirements. The subsidiary journals are hot required,
but they may be util ized by the CIR as vital sources of inforr,n otion for other purposes
such as making assessments (CIR v, Phi/ex Mining Corp., G.R. No. 218057, January 18,
2021, Hernando Case)
Q; How is a refund made by the CIR?

ANS: Refunds sha ll be mode upon warrants drawn by the Commissioner or by his duly
authorized representative without the necessity of being countersigned by the
Chairman of t he Commission of Audit (N/RC, Sec. 112 (D)) .
0: What is the ·Enhanced VAT Refund System"?

ANS: The "Enhanced VAT Refund System· is a VAT refund system that grants and
pays refunds of creditable Input tax within ninety (90) days from the filing of the VAT
refund application with the Burea u. The 90-doy period to process and decide shall start
from t he Filing of the applicat ion/claim for refund up to t he release of the payment of
the VAT refund (R.R. No. 16-05, as amended by R.R. No. 13-18, Sec. 4.106-5 and 4.108-5) .
0: On what claims or ap · · · or anced VAT Refund System
effective?
ANS: All applications ocessed and decided within
90 days from the fil' 16-05, as amended by
R.R . No. 13-18, Sec.
FILING OF RETU · '· ·

(
0: Who ore liabl
ANS: The followi t6 ~~ iste y for V .
a) Any ss, sells, barters or
excha ale or exchange of
servic
a. s, other than those
t have exceeded P3
b. T t his gross sales or

rec those that are exempt
under Million (NIRC, Sec. 236
(G)(I));
b) Franchise grantee n broadcasting, whose gross
annual receipt for the preced ing calenda r year exceeded PlO Million, shall
register within 30 days from the end of the calendar year (R.R. 16-05, Sec.
9.236-1( b) ).
0 : What is the effect if a person liable to register for VAT foils to register?
ANS: Every person who becomes liable to be registered for VAT but fails to register
shall be liable to pay VAT as if he were o VAT -registered person, but without the benefit
of input tax credits for th e period in which he was not properly registered (R.R. 16-05,
Sec. 9.236-J(b)).
0: What is the "optional registration· for VAT of exempt person?

ANS: Any person who is not requ ired to re51ister for VAT may elect to register for VAT
by registering wit h the Revenue District O~tice t_hat hos jurisdiction over the head office
of that person and paying the annua l reg1strot1on fee (N/RC. Sec. 236 (H)(I)) .
0 : When may a pei'son who availed of optional VAT registration cancel the some?
ANS: Any person who elects to register under the optional VAT registration shall not
be allowed to cancel his registration for the next three (3) years (N/RC, Sec. '236(H)(I)).
However, for franchise grantees of radio and/or television broadcasting whose annual
gross receipts of th,e preceding year do not e xceed PIO Million, once the option is
exercised, it shall be irrevocable (NIR C, Sec. 119).
0: Who are not allowed to avail of the optional VAT registration?

ANS: Individual citizens and individual resident aliens who are qualified and elect to
be taxed ot 8% tax on gross soles or receipts shall not be allowed to avail of optional
VAT reglstrot,on (NIRC. Sec. 236(H)(2)).
0: When may a VAT-registered person cancel his registration?

ANS: A VAT- reglstere·d person moy cancel his registration for VAT if:
1. He makes written application and con demonstrate to· the Commissioner's
satisfaction that his gross soles or receipts for the following 12 months, other
than those that ore exempt under Sec. 109, will not exceed P3 Million; or
2. He hos ceased to carry on his trade or business and does not expect to
recommence any trade or business within the next 12 months (NIRC, Sec.
236 (F)(2)).
0: When will the cancellation take effect?

ANS: The cancellation of registration will be effective from the first day of the
following month (NIRC, Sec. 236 (F)(2)).
0: What is the effect when the status of a VAT registered person changes or is
terminated?
ANS: The goods or properties originoll in ended for sale or use in business, and
capitol goods which ore existing as of ccurrence of the following changes ore
subject to 12% VAT:
1. Change of business octivt VAT taxable status to VAT-exempt
status;
2. Approval of o request fort ion due to reversion to
exempt status;
3. Approval of reque_st.f o r co e to desire to revert
to exempt stoJµs;· cifte r the
registration b'y a person w
under Sec. 109(2'} of the Ta
4. Approval of request for fion of one who
commeoe~ busi!)ess with soles or receipts
exceedfpg P3 Milllon, but wh t during the first
12 mont $ of operCJtion ,(R.M
However, the VAT shall not apply to g ods

of the following: ·
1. Change of co~trol ,pf a corpo tjo,n Ill¥ the acquisition of the controlling_
interest of suc;h corporotio liy. c:inotb.e.r stockholder or group of
stockholders;
2. Change in the -trade or f Orporate name of the business; or
3. Merger or consolid.cffion of corporations • the unused input tax of the
dissolved corporation, as of the date of merger or consolidation, shall be
absorbed by the surviving or new corporation (R.R. No. 16-05, Sec. 4.106-
B(b)) .
0: What are the invoicing requirements for a VAT-registered person?

ANS: A VAT-registered person shall issue:
1. A VAT invoice for every sole, barter or exchange of goods or properties;
and ·
2. A VAT official receipt for every lease of goods or properties, and for every
sole, barter or exchange of services (NIRC, Sec. 113 (A)).
0: What information must be contained in the VAT Invoice or VAT Official Receipt
(OR)? (SP-DP)
ANS: The following information sha ll be indicated in the VAT invoice or VAT OR:
1. Statement that the sel!er is a VAT-reg istered person f~ll~we~ by his TIN;
2. The tota l omoun·t fa,d by the purchaser with the mdicohon that such
dmount includes VAT; provided that:
a . Amount of tax must be shown separately on the receipt;
b. If the sale is exempt, the term "VAT-exempt sale" must be written or

printed prominently on the invoice or receipt;
c. If the sale is subject to 0%, the term "zero-rated" sale must be written
or printed prominently on the invoice or receipt;
d. If the sale involves goods, properties or services some of which are
subject to VAT and some are exempt or zero-rated, the "breakdown"
of the sale price between the taxable, exempt, and zero-rated
components must be shown on the invoice or receipt;
3. Qate of the transaction, quantity, unit cost and description of goods; and
4. In case of soles in the amount of Pl,000 or more and the sole is mode to a
VAT-registered person, the name, business style, address and TIN of the
furchoser (NIRC. Sec. 113 (B); R.R. No. 16-05, Sec. 4.113-1 (B)).
0 : Why are the Invoicing requirements under the Tax Code mandatory?
ANS: Strict compliance with substantiation and Invoicing requirements is necessary
considering VA T's nature and VAT sys:tem's tax credit method, where tax payments ore
based on output and input taxes and where the seller's output tax becomes the buyer's
input tax that is available as tax credit or refund in the some transaction. It ensures
the proper collection of taxes at all stages of distribution, facilitates computation of
tax credits, and provides accurate audit trail or evidence for BIR monitoring purposes
(T earn Energy Corporation v. CIR. G.R. No. 197663, March 14. 2018).
0: What are the conse
official receipt?
ANS: If a person wh or receipt showing his
Tl N, followed by the suit to the following:
1. The non-
a. Per
b. V '""""'""""'-:"': 8 of the Tax Code,
c. e; and
2. The the purchaser, If
the re oice (R.R. No. 16-05,
Sec. 4
0: What is the invoice or official

receipt for a VA it is a·vAT-exempt
sale"?
ANS: If a VAT-re official receipt for a
VAT-exempt transo '=hi.,__,,.,, invoice or receipt the
term "VAT-exempt sol , the 12% VAT as if the
transaction is not an ex I be entitled to claim an
input tax credit on his pure ase , n is shown on the receipt or
invoice (R.R. No. 16-05, Sec. 4.113-4).
0: What Is the penalty of failure or refusal to show the amount of tax as a

Hparate item in the invoice or receipt?
ANS: Failure or refusal to comply with the requ irement that the amount of tax shall
be shown as a separate Item in the Invoice or receipt, shall, upon conviction, for each
act or omission, be punished by a fine of not less than Pl,000 but not more than
PS0,000 and imprisonment of not less than 2 years but not more than 4 years (R.R. No.
18- 11. Sec. '2).
0: Who are required to file a VAT return?

ANS: Every person liable to pay VAT shall be required to file a quarterly return (NIRC,
Sec. 114).
0: When should VAT returns be filed?

ANS: Every person liable to pay the VAT shall file a quarterly return of the amount
of his gross soles or receipts within 25 days following the close of each taxable quarter
prescribed for each taxpayer.
VAT-registered persons shall pay the VAT on a monthly basis. Amounts reflected in the
monthly VAT declarations for the first '2 months of the qua rter shall still be included in
the quarterly VAT return which reflects the cumulative figures for the taxable quarter.
Payments in the monthly VAT declarations shall, however, be credited in the quarterl-,,
VAT return to arrive at the net VAT payable or excess Input to>C/over-poyment as of
the end of a quarter (R.R. No. 16-05, as amended by R.R. No. 13-18. Sec. 4.114 • l(A)).
a: When should monthly VAT be filed and paid?

ANS: The monthly VAT Declarations (BIR Form '2550M) of taxpayers whether large
or non-large shall be filed and the taxes paid not later than the 20th day following the
end of each month (R.R. No. 16-05, as amended by R.R. No. 13-18, Sec. 4.114- l(A)).
Note: Beginning January 1, 2023, the filing and payment required under the Tax Code
shall be done within 25 days following the close of each taxable quarter (R.R. No. 16-
05, as amended by R.R. No. 13-18, Sec. 4.114- l(A)).
Q: What is meant by "taxable quarter"?

ANS: The term "taxable quarter" shall mean the quarter that is synchronized to the
income tax quarter of the taxpayer (i.e., the calendar quarter or fiscal quarter) (R.R.
No. 16-05, Sec. 4.114- I (A)) .
0: Where should the VAT Returns 6- fil and paid?

ANS: Except as the Commissioner ot.he ,i e permits, the return shall be filed with and
the tax paid to on authorized ~~~ k. Revenue Collection Officer or duly
authorized city or mun icipal Treas, "rf'r 1'1 flt Philippines located within the revenue
district where the taxpayer is regist or uired to regi er (NIRC, Sec. 114 (B)) .
0: What is the rule on wi "4GN!S,fo government?
ANS: The Government o s umentalities or agencies,
including GOCCs, shall b i each purchase ot goods
and/or services which or to t ns 106 and 108 of the
Tax Code, deduct and ~i e ross payment thereof.
However, the POY"!J,tl!lt, for 01' . ert rights to nonresident
owners shall be suli{je · '' f po~ment (R.R. No. 13-18,
Sec. 2).
Note: Beginning Ja'\u
a creditable system ( .
Q: What is the effect he input tax attributable
to the goods sold to
ANS: The final withhol r T payable of the seller. The
remaining 7% effective r the standard input VAT for soles of goods or
services ta government o oliticol subdivisions, instrumentalities or agencies
including GOCCs, in lieu ctual input VAT directly attributable or rotobly
apportioned to such sales.
Should actual input VAT e>Cceed 7% of gross payments, the e>Ccess may form part of
the sellers' expense or cost. On the other hand, if actual input VAT is less than 7% of
gross payment, the difference must be closed to expense or cost (R.R. No. 16-05, Sec. 4-
114.2).
0: When is the Commissioner empowered to suspend business operations and
temporarily close business establishments?
ANS: The Commissioner or his authorized representative is hereby empowered to
suspend the business operations and temporarily close the business establishment of
any person for any of the following violations:
1. In the case of a VAT-registered person:
a. Failure to issue receipts or invoices;
b. Failure to file a value-added tax return as required under Section 114;
or
c. Understatement of taxable soles or receipts by 30% or more of his
correct taxable sales or receipts for the taxable quarter; and
2. Failure of any person to register as required under Section 236 (NIRC, Sec
115).
514 SEDAN RED BOOK Volume 1. Series of 2023.
D. TAX REMEDIES UNDER THE NA TJONAL INTERNAL REVENUE CODE
0: What are Tax Remedies?

ANS: Tax remedies refer to procedural steps that may be undertaken by the
government or the taxpayer for the resolution of disputes concerning the levy or
imposition, assessment, co llection, and refu nd o f taxes (2C -DOMONDON. Bar Q&A
Taxation: National Taxation (2018), p. 209 [hereinafter DOMONDON. Bar Q&A:
Taxation]) .
0: What are the remedies available to the Government under the NIRC, as
amended?
ANS: The following are the tax remedies available to the Government under the NIRC,
as amended:
Administrative Remedies Jud1c1al Remedies
1. Assessment; and 1. Civil Action; and

2. Collection 2. Criminal Action.
a. Enforcement of a tax lien;
b. Distra i nt of personal property and
garnishment of b o ·tcs:-
c. Levy of real pro
d. Compromise
e. Penalties a
f. Non-avail
restrain c
g. Forfeitur
h. Suspensio
ASSESSMENT OF , IJE'l'AXES Q.-✓ ~

0: What are the • of the Bl it . r~; to internal revenue
taxes? . · / .. •· . / /
ANS: The BIR s p cor rtd t e ass ent and collection of
all national intern s. and/ the enforcement of all
forfeitures, penalti ct41! i9c!ludin9 the execution of
judgments in all case r..h d the ordinary courts (NIRC,
Sec. 2) •1
0 : How does the BIR exerciSR • s powe o ssessments?
ANS: After a return has been filed by the taxpayer, the CIR or his duly authorized
representative may authorize the examination of any taxpayer and t h e assessment of
the correct amount of tox, notwithstanding an y law requiring the prior authoriwtion of
any government agency or instrumentality, Provided, however, That failure to file a
return shall not prevent the Commissioner from authorizing the examination of any
taxpayer (NIRC, Sec. 6 (A)).
a) Procedural Due Process in Tax Assessments
0: What is the procedural due process requirement in the issuance of a deficiency

tax assessment by the BIR?
ANS: Due process is satisfied when t he following modes of procedure are followed in
the issuance of a deficiency· tax assessment:
1. Issuance and proper service to the subject taxpayer of a Letter of Authority
(LOA);
2. Tax Audit or Investigation;
3. Issuance and . proper service to the subject taxpayer of a Notice of
Discrepancy (NOD);
Note: Under RR No. 22-2020, if a taxpayer is found to be liable for

deficiency tax or taxes in the course of on investigation, the taxpayer shall
be informed through a Notice of Discrepancy. With this, Notice. of
Discrepancy is now prepared instead of Notice of Informal Conference.
4. Issuance and proper service to the subject taxpayer of Preliminary

Assessment Notice (PAN);
5. Issuance and proper service to the subject taxpayer of Formal Letter of
Demond/ Final Assessment Notice (FLD/FAN); and
6. Administrative Action/Inaction on Disputed Assessment (RR No. 12-99, as
amended by RR No. 18 -13, RR. No. 7-18, and R.R. No. 22-20).
b) Requisites of a Valid Assessment
0: What is an assessment?
ANS: In the context in which it is used in the NIRC, an assessment is a written notice
and demand made by the BIR on the taxpayer for the settlement of o due tax liability
that is there definitely set and fixed (Adamson v. CA, G.R. Nos. 120935 & 124557, May
21, 2009).
Q: What are the kinds of assessments?

ANS: Assessments may be class ified o,s fC!Oows:
1. Self-Assessment - the ta >C' j5)?!{:;essed by the taxpayer himself, reflected in
the return filed by him, a11d pafi:I on the day of filing of the return {pay-as-
you -file system) (ABAN, L'.:a~ of 8,asic Taxation, p . 176) .
2. Deficiency Assessment - made bY. the tax assessor whereby the correct
amount of the tax is 9etet:m rn id"att.lr a exim notion or investigation is
conducted. This ass ss'men"Hs ocle' Mr t e &IToxting reasons:
a . The amount a s certained exceeds that whicH',\. shown OS the tax by the
taxpayer In hJs return1
b. No amount of tax Is sho the
c. The tq~payer 1drd' not file etur ec. 56 (B));
3. Illegal and Void ~Mssment sse e tax assessor has
no poW.~ to q.C:t cit all (Vicfori ii/in G.R. No. L-24213,
March, 13, 1968);
4. Erroneous Assessment - one l:iere!n the a98Sor ihe power to assess
but errs ln the e)5e cise of ~.'uch p - wer (ABAN, s p a at 176);
5. Disputed Assessment - tok place when a taxpayer questions an
assessment Cind ask~ t he Callee~ to-rffonsider or cancel the same because
he believes thl:it he i not liable theref(!l' <Pl1"'5 tephen's Association and St.
Stephen 's Chinese Gir~ Scfioo/. v. CEIR, G.R. No. L-11238, August 21, 1958); or
6. Jeopardy Asse,smcH1t - tax assessment which was assessed without the
benefit of complete at partial audit by an authorized revenue officer, who
has reason to beheXte that the assessment and collection of a deficiency tax
will be jeopard ized by delay because of the toxpayer's failure to:
a. Comply with audit and investigation requirements to present his books
of accounts and/or pertinent records; or
b. Substantiate all or any of the deductions, exemptions, or credits
claimed in his return (R.R No, 30-02, Sec. 3(1)(0)).
0: What are instances which do not constitute an assessment from the BIR?
ANS: The following do not constitute on assessmen·t from the BIR:
1. A written communication by o revenue officer of tax liability of the taxpayer
(Adamson v. CA. G.R. No. 120935, May 21, 2009);
2. The advice of tax deficiency and preliminary five-day letter given by the
CIR to an employee of the taxpayer (Somar-1 Electric Cooperative, Inc., v.
CIR, G.R. No . 193100, December ro, 2014); and
3. The Revenue Officers' Affidavit-Report (CIR v. Poscor Realty and
Development Corporation, G.R. No. 128.315, June 29, 1999) .
516 BEOAN RED BOOK Volume 1. Series of 2D23 .
O: What are the essential requisites of a valid assessment (FLO/FAN)? (WCD-

FacLOS)
ANS: The following are the requisites for a valid assessment:
I. The assessment must be in Writing and signed by the Commissioner or his
duly authorized representative (NIRC, Sec. 228, Par. 2);
2. It must contain not only a tomputation of tax liabilities, but also a Qemand
for payment within a definite due date (Republic v. First Gas Power Corp.,
G.R. No. 214933, Feb'ruary 15, 2022, citing CIR v. Fitness by Design Inc., G.R.
No. 215957, November 9, 2016);
3. It must state the fmtual and legal bases of the assessment on which it is
based (NIRC, Sec. 228, Par. 2);
4. It must be issued on account of or covered by a validly issued Letter of
Authority (CIR v. Sony Philippines, Inc .. G.R. No. 178697, November 17, 2010);
Note: Identifying the name of the Revenue Officer (RO) who will be
conducting the oudi-t is a 1·urisdictlonal requirement of a valid assessment.
Otherwise, taxpayers wou d be In a situation where they cannot verify the
existence of t he authority of the RO to conduct the examination and
assessment. Due process reg_uires that taxpayers must hove the right to
know that the revenue ofticers ore duly authorized to conduct the
examination and assessment (CIR v. McDonald's Philippine Realty Corp.,
G.R. No. 242670.
5. It must be i es r.· • period prescribed by law
or within ·r ly agreed between the
BIR and ecs.
6. It mus - IR v. Poscor Realty &
Devel . No. 12831,_~•
. ,, . \
0: What is Best able.ii'! _the essment?

ANS: It provides f assess tF.e , n the best evidence
obtainable in the
I. When ·..,. ment of any national
Intern he records are lost)
within or
2. When is false, incomplete,
or err
0: What are inclu e BIR may use as a

basis for the asses
ANS: The "best evide nd accounting records of
the taxpayer who Is the , the accounting records of
other taxpayers engaged In , luding their gross profit and
net profit soles, Such evidence also rndudes data, record, paper, document or any
evidence gathered by internal revenue officers from other taxpayers who hod personal
transactions or from whom the subject taxpayer received any income; and record, data,
document and information secured from government offices or agencies, such as the
SEC, the Bangko Sentral ng Piliplnos, the Bureau of Customs, and the Tariff and
Customs Commission (CIR v. Hantex Trading Co .. Inc .. G.R. No. 136975, March 31, 2005).
0: What is the rule on prHumption of regularity?

ANS: Under t·he rule on presumption of regularity, asse.ssments are prime facie
presumed correct and mode in good faith. The taxpayer hos the duty of proving
otherwise. All pres.u mptlons ore in favor of tax assessments (/nterprovincial Autobus
Co., Inc., v. Collector of Internal Revenue, G.R. No. L-6741, January 31, 1956).
0: Why is "presumption of regularity" not a defense on questions of validity of an

assessment based on mere presumption?
ANS: The Suf)reme Court concluded that while it is true that tax assessments hove the
presumption of correctness and regularity in its favor, it is equally true that assessment
should not be based on mere presumption. No matter how reasonable and logical the
presumption might be (CIR v. Hantex Trading Co., Inc .. G.R. No. 136975, March 31, 2005).
Note: To stand the test of judiciol scrutiny, the assessment must be based on actual
facts. The presumption of correctness of assessment, being a mere presumption, cannot
be mode to rest on another presumption (CIR v. Fart Bonifacio Development
Corporation, CTA EB No. 481, January 2. 2010, citing CIR v. Benipayo, G.R. No. L-13656,
January 31, 1964).
0: What is the natun1 of the CIR's power to make assessments?

ANS: Assessment Is discretionary on the port of the CIR. Mandamus will not lie lo
compel him lo assess tax If ofter investigation, he finds no ground to assess (MERALCO
Securities Co. v. Savellano, G.R. Nos. L-36181 & L-36747, October 23 1992). However, the
CIR may be compelled to assess by mandamus if in the exercise oi his discretion, there
is evidence of orb/trarin·e ss and grove abuse of discretion as to go beyond statutory
authority (Maceda v. Macaraig, Jr,, G.R. No. 88291, June 8, 1993).
c) Tax De/Ing~ vs. Tax Detk.iffl_cy_

0: What is tax delinquency?
ANS: Tax delinquency refers to the state of a person upon whom the personal
obligation to pay the tax hos been fixed by lawful assessment and who thereafter foils
to pay the tax within the time limited by law (U.S. v. Abejo, G.R. No. L-12362, August 29,
1917).
0: What is tax deficiency?

ANS: The term 'deflclenozy' means:
1. The amount by whic exceeds the amount shown as the
tax by the taxpayer u h so shown on the return
shall be Increased by d (or collected without
assessment) as a .de 'ic1 he amount previously
abated, crediteq, tefurned ect of such tax; or
2. If no amount is shown as ·he n his return, or if no
1
return is mode'c0',(: the tpx • th ich the tax exceeds
the omounll p~evio1isly as r c assessment) as a
deficienozy1 l'.iut such omou iou collected without
osses~ITi,e nt s~all first be b reviously abated,
credite~:l,ifeturnl d 'or ofherw d In ax (NIRC Sec. 56
(B)). , I"' --...,_,,_...- •
0: Distinguish tax dehi1CJUency from tax

ANS: The following ore ·the dis,ri11ctions:
When taxpay~7 -f2ms to pay When the amount by which the tax
the amount of the tax due imposed by law as determined by the
on any return required to be CIR or his authorized representative
filed (i.e., the taxpayer filed exceeds the amount of lox in the
a return but did not pay the taxpayer's return; or
entire amount written in the
return); or
If there is no amount of tax in his
When the taxpayer fails to return or if no return is made, then
pay the deficiency tax on the the amount by which the tax as
dote appearing in the determined by the CIR or his
demand of the CIR. authorized representative exceeds
the amounts previously assessed or
collected without assessment as
deficiency.
Can be collected Must be assessed prior to collection
administratively via distroint as the deficiency has to be
or levy or by judicial action. determined first.
(ING LES, Reviewer, p. 430) .

d) fuE.ri.ptiye Period for Assessment
a: What is the general rule on prescription for assessment of taxes?

ANS: As a general rule, internal revenue taxes shall be assessed within 3 years after
the last day prescribed by lctw for the filin9 of the return, and no proceeding in court
wit·hout assessment for the collection of such taxes shall be be9un after the expiration
of such period: Provided, That In a case where a return is tiled beyond the period
erescribed by lo....,, the 3-yeor period shall be counted from the day the return was filed.
For purposes of Sectlo:;m 203, a return filed before the last day prescribed by law for
t he filing thereof shall be considered as filed on such lost day (NIRC, Sec. '203).
Note: In other words, the assessment must be made within 3 years from the date of
actual filing of the return or the last day for filing the return, whichever is later
(ING LES. Reviewer, supra at 418).
0: Who has the burden of proving that the assessment is made before
prescription?
ANS: The fact that the assessment notice was mailed before the prescriptive period
sets in must be proved with substantial evidence by the CIR (Basi/an Estates. Inc. v. CIR,
G.R. No. L-22492, September 25, 1967).
0: When is an assessment notice dee e roade before prescription?
ANS: In determining if prescriP-tJor( to ss et In, the important date to
remember is the date w d ased, mailed; or sent by
the Collector of Inter sessment is made within
the prescriptive peri ot be within said period,
But it must be clo · he requirement that the
taxpayer should he •,tCJSS~ s . eyond the prescriptive
period (CIR v. GJ ufoct1:1rjng, 695, February '29, '2016) .
1
0: What is the e ·•wrong"r et ip ive period to assess?
ANS: If the taxp g teturn, ' i,t fll d no return at all. In
situations like this rl pti v;e ,P.e O!µ n Sawmill, Inc. v. CA,
G.R. No. L-20601, • . .
0: What happe · ue to prescribe is a

Saturday? 1
ANS: If the date ~ falls on a Saturday, the
following day being nment has until the next
succeeding business the tax (CIR v. Western
Pacific Corp., G.R. No, L-188
1·
0: What is the effect if an assesslYNPn is--.-made eyond the prescribed period?
ANS: Assessments made beyond the prescribed period would not be binding on the
taxpayer (Tupaz v. Ulep, G.R. No. 127777, October I, 1999).
0: What are the exceptions to the general rule on prescription for assessment of
taxes? (FFW)
ANS: In the following cases, the general prescriptive period of 3 years does not apply:
1. In the case of a false or fraudulent return with intent to evade tax or of
fa ilure to file a return, the tax may be assessed, or a proceeding In court
for the collec tion of such tax may be filed without assessment, at any time
.with in 10 years ofter the discovery of the falsity, fraud or omission: Provided,
That in a fraud assessment which has become final ond exec.utory, the foct
of fraud shall be judicially token cognizance of in the civil or criminal action
for the collection thereof; and
'2. If before the expiration of the time prescribed In Section '203 for the
assessment of the tax, both the Commissioner and the taxpayer hove
agreed in writing to It s ossessm~ht after such time, the tax may be assessed
·with in the period agreed upon. The period so agreed upon moy be extended
by subsequent written agreeme nt made before the expiration of the period
previously agreed upon (Ylaiver of the Statute of Limitations) (NIRC, Sec.
22'2).
Cl: What is the nature of the waiver of the Statute of Limitations?

ANS: A waiver of the statute of limitations is o derogation of a taxpoyer1s right to
security against prolonged and unscrupulous in vestigations. Thus, it mu st be carefully
and strictly construed. Hence, both the assessment and collection "should be made ln
accordance with law as any arbitrariness will negate the very reason for governmen't
rtself (Lo Flor Delo lsobelo Inc. v. CIR, G.R. No. 202105. Apr/I 28, 2021. Hernando Case).
Q: What ore the requisites for a valid waiver of the Statute of Limitations? (WEx-
SES)
ANS: For waiver of the Statute of Limitations on the period of assessment to be valid,
the following requisites must concur:
1. The waiver must be in Writing;
2. It must be Executed before the expiration of the period to assess or to
collect taxes. The dote of execution shall be specifically indicated in the
waiver;
3. It must be ~igned by the taxpayer himself or his duly authorized
representative. In the case of o corporation, the waiver must be signed by
any of Its responsible officials;
4. The .Expiry dote of the period agreed upon to assess/collect the lax ofter
the regular three-year period of prescription should be indicated; and
5, Except for wa iver of collection of taxes which shall indicate the particular
taxes assessed, the waiver ,r,e not Specify the particular taxes to be
assessed nor the amount t~er of, and it may simply state "all Internal
revenue taxes (R.M.O. No. 14 ~6),
Note: R.M.O. No. 14-16, i revised the guidelines

relative to the executign' q ___ f Limitations. Thus, the
waiver no longer n.e.ecJs to:
I. Conform k,.·the for No. 20-90 or RDAO
No. 05-Ql;
2. Be noto ri,ecli or .,
3. lndicat, the elate of a h waiver.
0: What is the ef.fect, of 9-defective or e of Limitations?
ANS: Defective ~np involr<Ji w,aive'rs of t extend the Cl R's
period to issue ossessmen,ts, Thus, tb g ~i sess or collect the
alleged deficiency tox.e,s Is oli:eody barr nts issued by the
BIR beyond the three-year presciriptive per re considered void and of no legal effect
(CIR v. Systems Technology Institu te, G.R. 220835, July 26, 2017).
a: Can a taxpayer belatedly question th de-fttct'-'oi,,-the waivers, on the ground

that the alle-ged defects causecj by the BIR outnumber the one caused by the
taxpayer?
ANS: No. If o waiver suffers from defects on account of both parties, the waiver's
volidity in relation to the timeliness of the Cl R's subsequent iss uonce of o tax assessment
is not determined by a mere plurality of the defects committed betv,,een the BIR and
the taxpayer. The taxpayer's contributory fo ult or negligence, coupled with estoppel,
will render effective on otherwise flowed waiver, regardless of the physical number of
mistakes attributable to a forty (Asion Transmission Corp. v . CIR (Resolution). G.R. No.
230861, Februory 14. 2022 .
Q: When may a waiver be rendered valid despite not being in conformity with the
requisites for its validity?
ANS: Where the CIR and the taxpayer are In par/ delicto, to uphold the validity of the
waivers would be consistent with the public policy embodied in the principle that taxes
ore the lifeblood of the government. a nd their prompt ond certoin availability is on
imperious need (CIR v. Next Mobile, In c., G.R. No. 212825, December 7, 2015).
Q: What is the effect if the waiver is defective due to BIR's fault?

ANS: The Waiver is void. When t he defect to t he waiver is because the BIR did not
follow its own rules on woiver, the waiver hos no effect and do not extend the 3-year
prescriptive period under the NIRC (CIR v. Philippine Doily Inquirer, Inc., G.R. No.
'213943, Morch 22, 2017).
0: Will the waiver bar the taxpayer from invoicing the pr.scription?
ANS: No. A waiver of the statute of limitation, whether on assessment or collection,
should not be cor,strued os a waiver of the right to invoke the defense of prescription
but, ra.ther, on agreement between the taxpoY.er and the BIR to extend the period to a
date certain, within which the later could still assess or collect taxes due (CIR v. The
Stanley Works So/es (PHL) Inc., G.R. No. 187589, December 3, 2014).
(1) False returns vs. Fraudulent returns vs. Non-filing of returns
0: What are the differences among false return, fraudulent return, and non-filing
of return?
ANS: The differences among false return, fraudulent return, and non-filing of return
are as follows:
return.
to 25% surcharge
; but if due to
eglect, subject to
urchorge penalty
Sec. 248).
znor v. ,
Note: The Court he y is imposable only in

coses of intentional be proven. Hence, the
fraud penalty of 50% 1
0: What constitutes a "false retur "-'that ou d trigger the operation of the 10-
year prescriptive i>eriod?
ANS: If the return filed was false with the intent to evade tax, the BIR is given 10 years
from the dote of falsity as provided under Section 222(a) of the NIRC of 1997. If no
evidence Is on record which would show that the said mistake was intentionally made
to evade the payment of tax, the mistake in the taxpayer's return, absent proof of intent
to evade tax, does not trigger the operation of the 10-year prescriptive period. The
entry of wrong information due to mistake, carelessness, or ignorance, without intent to
evade tax, does not constitute a false return (CIR v. Philippines Daily Inquirer, GR. No.
213943, Morch 22, 2017). There being no false return filed with the Intent to evade tax,
the three-year prescriptive period should apply (CIR v. Hoya Glass Disk Philippines, Inc ..
CTA EB No. 1524, January 10, 2018).
(2) Susi;,ension of the running of statute of limitations

0: When is the Statute of Limitations suspended? (Pre-Ad-WO)
ANS: The running of the Statute of Limitations provided in Sections 203 and 2'22 on
the making of assessment and the beginning of distroint or levy or a proceeding in
court for collection in respect of any deficiency shall be suspended in the following
instances:
Volume 1. Series of 2023. BEDAN RED BOOI( 521
I. For the period during which the Commissioner is frohibited from making
the assessment or beginning distraint or levy or a proceeding in court and
for 60 days thereafter;
2. When the taxpayer requests for a Reinvestigation which is granted by the
Commissioner;
3. When the taxpayer cannot be located ln the Ad.dress given by him in the
return flied upon which o tax i_s bein_g assessed or collected: Provided, That,
if the taxpayer informs the ·Commissioner of any change in address, the
running of the Stat ute of Limitations will not be suspended·
4. When the Y{arron t of d fst ralnt or levy is dulr served upon the taxpayer, his
authorized representative, or a rpember _o - his hou_sehotd with sufficient
discretion, and no property Col!ld be located; and
5. When the taxpayer is Qut of the Philippines (NIRC, Sec. 223).
Note: The grounds for suspension of the Statute of Limitations for collection of taxes
are the same as the grounds for suspension thereof in an assessment.
TAXPAYER'S REMEDIES
Q: What are the remedies available to taxpayers under the NIRC as amended?
ANS: The following are the remedies av lloble to taxpayers -
I. Before payment: ·
a. Protest with reques.f, for reconsideration or request for reinvestigation;
and
b. Compromise and ab
2. After payment:
a. Tax Refund; and,,
b. TaxCredit.
a)
(I)
a: What is
assessment?
ANS: The ta ent may protest
administratively a ssessment Notice
(FLD/FAN) within 3 . 12-99, as amended by
R.R. No. 18-13, Sec. 3.1.
ReQuisites To File Protest
Q: What are the requisites of ra Yalid protest?

ANS: The requis ites of a valid protest ore the following:
I. Must be in writing (R.R. No. 12-99, Sec. 3.1.4, as amended by R.R. No. 18-13);
2. t:,,lust be addressed to the CIR or his duly authorized representative (R.R.
No. 12-99 Sec. 3.1.4, as amended by R.R. No. 18-13);
3. Must be liled within 30 days from rece ipt of FLD/FAN (R.R. No. 12-99, Sec.
3.1.4, as amended by R.R. No. 18-13);
4. Must be filed by the taxpayer or hl's duly authorized representative, In
person or through registered ma ll wi t h return card, with the Office of the
duly authorized representoHve of the CIR (i.e. Reg ional Director, ACIR -LTS,
ACIR-Enforcement and Advocacy Service) who signed the FLD/FAN
(R.M.C. No. 11-14; R.M.C. No. 39-13); and
Note: The revenue officials who received the protests shall submit a report
on all protests filed to the CIR. The Office of the CIR shall then create a
database of the protests. If the protest filed is not included in the database,
the same shall be considered as not officially filed, hence, without force and
effect (R.M.C. No. 39-13).
5. Must Contain the following: (Na 2 TADl 2 F}

a. Name of the taxpayer and address for the immediate past 3 taxable
y~ors;
6. J"!gture of request whether reinvestigation or reconsideration. If it is a
request for reinvestigation, specify newly discovered evidence he
intends to present;
C. Iaxable periods covered;
d. Assessment number;
e. Qate of receipt of assessment notice or letter of demand and date of
assessment notice;
f. Itemized statement of the findings to which the taxpayer agrees as a
basis for computing the tax due, which amount should be paid
immediately upon the filing of the protest;
g. Itemized schedule of the adjustments with which the taxpayer does
not agree; and
h. Statement of the facts and law in support of the protest (R.R. No. 12-
99, Sec. 3.1.3, as amended).
0: What are the rules on payment when protest is filed?

ANS: The general rule is that no prior payment of the assessed internal revenue tax is
required wlien protested or disputed.
Exceptions:
1. If there are se th FLD/FAN, but the taxpayer only
protests a · · e ·f h issues raised, the assessment
attribute e final, executory, and
demand
attribu
2. If the . assessment and the
taxpa • e f-tkts' 0t:m pport of the protest
again eral 1.s~ues o ss ment is based, the
same s cl undlisputecl , case the assessment
shall cut ory, and . e taxpayer shall be
requir 1de--!:l<f :;j oxes reto (R.R. No. 12-99,
Sec. 3. 8.R • o .18,.J
I
0: What is a Pro
ANS: A pro-form eration. The alleged
"protest letter bask tten or answered the
PA N a·nd that it expl neither a request for
reinvestigation nor a hasized that a protest
to the PAN is not the the FAN (Security Bank
Corp. v. CIR, CTA Case o. ove~ e · .. •.
Defenses of Taxpayers in Filing a Protest
0: What are the defenses of a taxpayer in filing a protest?

ANS: The defenses of taxpayers are the following:
1. Prescription
An FLD/FAN must be served to the taxpayer Within the prescriptive
period to make a valid assessment (NIRC, Sec. 203). The defense may
be raised even for the first time on appeal when it is apparent on the
record that the assessment has already prescribed (CIR v. First
Sumiden Realty, Inc .. CTA EB No. 97'5, January 7, 2014).
2. Legal and Factual Bases of Tax Assessment
The details in the assessment no1'ices issued to the taxpayer must be
sufficient to allow t he taxpayer to Intelligently answer the assessment
as well as prepare the documentary evidence for its protest. If the BIR
merely stated that per computerized matching, the taxpayer hos
undeclared importations, the assessment is invalid (CIR v. BASF PHL,
Inc., CTA EB No. 872, September 12, 2013).
Volume 1. Series of 2023. BED AN RED BOOK 523
An assessment based on a Summary List of Purchases (SLP) cannot

be used as the sole basis. The SLP is doubtful, inconclusive, and
unreliable. The CIR must prove the source of the information,
otherwise, the assessment is invalid (CIR v. Fax N Parcel, Inc., CTA EB
No. 883, February 14, '2013).
Kinds of Protest
0: What are the kinds of protests?

ANS: A protest is a written request that comes in either of the following forms:
I. Request for Reconsideration - a plea for re-evaluation of on assessment
on the basis of existing records without need of additional evidence, may
involve a question of foct or low or both; or
'2. Request far Reinvestigation - a plea far re-evaluation of on assessment
on the bosls of newly discovered or additional evidence that a taxpayer
intends to present in the reinvestigation, which may also involve a fact or
law or both (R.R. No. 18-13, Sec. 3.1.4, Par. I).
0: What matters should be stated in a protest? (NOA)

ANS: The taxpayer shall state in his protest the following matte rs, otherwise his protest
shall be considered void and without force and effect:
I. The Mature of protest .-.whe her reconsideration or reinvestigation,
specifying newly discover~ OJ , dditional evidence he intends to present if
it is a request for relnve.5tJgcjl lor.i
'2. The ~ate of the assessrpent ·not,ee; and
3. The Applicable law, rules and r gula_tions, or jl,/risprudence on which his
protest is based (R.R. No. 12-99, cu: endii;{.b, RR. No. 18-13, Sec. 3.1.4, Par.
2).
('2) Submission of su pporH ng .documents
0: When is a submis~ion 6f ~upporting ent

ANS: For requests fa 'teinvesflga tion, ~be yer s relevant supporting
documents in support, of his- protest wlthi ays iling of his letter of
protest; otherwise, tne assesswent shall come l y period for the
submission of all' relevant Qppor,ti g ments s d ..,,._=_..pp' y to requests for
reconsideration (R.R. /):lo. 18i lif. Sec. 3.1~ . P ).
Note: The term "relevon suppor,t ing docu ·nl$" refers to those documents necessary
to support the legal and foc;tuo'l 'boses tn
cl.~utln_'1 o , ~ ssessment as determined by
the taxpayer (R.R. No. 18 -J:5,-5ec, 3,1.;4, Par s,.
0: What is the effect of failur• to submit documents?

ANS: Non-submiss ion of the documents renders the assessment final (NIRC, Sec. '228
par. 4). The BIR shall then deny the request for reinvestigation through the issuance ol
a Final Decision on Disputed Assessment (FDDA) (R .R. No. 12-99, as amended by R.R.
No. 18-13, Sec. 3.1.4, Par 5).
0: What is meant by "the assessment shall become final"?
ANS: The term "the assessment shall become final' shall mean the taxpayer is barred
from disputing the correctness of the issued a5sessment by introduction of newly
discovered or additional evidence (R.R. No. 18 -13, Sec. 3.1.4, Par 5).
(3) Effect of failure to file protest
0 : What is the effect if the taxpayer fails to file a valid protest?

ANS: If the taxpaye r fails to file a valid protest ai:Jainst the FLD/FAN within 30 days
from date of receipt thereof, the assessment shall become final, executory and
demandable. No request for reconsideration or reinvestigation shall be granted on tax
assessments that have already become final, executory and demandable (R.R. No. 18-
13, Sec. 3.1.4, Par 6).
(4) Action of the commissioner on the protest filed
0: How does the CIR or his duly authorized representative decide on a disputed
assessment?
ANS: The Commissioner or his dulx authorized representative shall iss ue a Final
Decision on a Disputed Assessment (FDDA) stating the (i) facts, the applicable law,
rules and regulations, or jurisprudence on which such decision is based, otherwise, the
decision shall be void, and (ii) that the same is his final decision (R.R. No. 18-13, 3.1.S.),
0: What are the possible scenarios after protest?

ANS: The possible scenarios are the following:
I. Direct denial or 9rant of protest through the FDDA;
2. Indirect denial of protest; or
3. Inaction by CIR or the duly authorized representative.
0: What are the remedies of the taxpayer after filing the protest?
ANS: The following are the remedies of the taxpayer, depending on the scenario:
I. Denial of the protest - file a Petition for Review with the CT A within 30
days from the receipt of the adverse decision
2. Inaction by the CIR - the taxpayer may either:
a. file a Petition for Review with the CT A within 30 days ofter the
expiration of ·the CIR to act on the disputed
assessme
b. await disputed assessments and
opp O days after receipt of
a 80-day period for the
C dy expired.
resort to one bars the
ority v. BIR, G.R. No.
0: What constitu r of Finality Rule)?

ANS: If the ten e BIR against the
reconsideration o considered the final
decision of the Bl he FDDA (Cagayan
Corn Products Co
That final decision I emended payment of

the amount assesse that in the event the
taxpayer failed to fa o enforce the collection
thereof by means o the yes v. CIR, CTA Case No. 6124,
June 19, 2002).
0: What is a Final Decision on Disputed Auessment (FDDA)?

ANS: It is the communication issued by the CIR or his duly authorized representative
containing the decision on the protest to the FAN, whether the taxpayer's protest is
accepted or den ied partially or wholly (R .M.O. No. 26-16).
0 : Does a void FDDA nullify a duly issued FAN?

ANS: No. A void FDDA does not nullify o duly Issued FAN . The decision resulting from
a void FDDA is different from an assessment on which it is based. The invalidity of one
does not necessarily result in the Invalidity of the other, unless the law or regulations
otherwise provide. In tax assessments, the decision of the CIR evidenced in the FDDA
will only give rise to a disputed assessment, which may then be appealed to the CT A
Thus, the assailed decision arising from a voided FDDA may still be appealed (denial
due to Inaction) and decided ui,on, without voiding the assessment Itself (CIR v.
Liquigaz Philippine Corp., G.R. No. 215534. April 18, 2016) .
0: Distinguish the FDDA by CIR from the FDDA by Duly Authorized

Representative.
ANS: The FDDA by CIR is distinguished from the FDDA by duly authorized
representative, as follows:
FDDA by Duly Authorized

FDDA by CIR
Representnhve
Remedies of the File a motion for File Administrative Appeal

Toxpnyer reconsideration to the CIR through Request
with the CIR; or for Reconsideration; or
Appeal to the CT A 2. Appeal to the CT A
Effect of F,ling Will not toll the 30- Will toll the 30-day period to
l'--1 R/ Administrotive day period to appeal appeal to the CT A
Appecd to the CIR to the CTA
Effect of Foilure to The assessment shall become final, executory, and

Appeol to the CT A demandable (R.R. No. 12-99, Sec. 3.1.4, as amended).
With11, the 30-Doy Period
0: What are the instances wherefn 1,h• Su reme Court and/or CT A held that the
CIR's actions were equivalent to de lal of he p otest?
ANS: The Supreme Court and/or G't t a denial of the protest
in the following cases des ·t the a n on the part of the
Commissioner:
1. Filing of collectio <suit a aye Shipping Corp., G.R.
No. 66160. M 0);
2. Issuance .,9,,f d of and
South Enterta all .R.
Not In the c-· nsl (G.R. No. 231238

June 20, 202, up cla mcpayer has filed
an appe I 1¥i IR, ent issuance by the BIR of a warrant
of distrain't and/or levy w1 as the Cl R's decision on the
protest. To in lst o fiierwise taxpayer of the remedy of
awaiting the decision of -the
3. Issuance of findl demand letter from the BIR, reiterating to the taxpayer
the immediate pq ent of a tax deficiency assess.ment previously made
(CIR v. /sabela Cu fural Corp., G.R. No. 135210. July 11. 2001); and
4. Referral by the CIR of request fo r reinvestigation to the Solicitor General
(Republic v. Lim Tian Teng Sons, G.R. No. L-21731, March 31, 1966).
b) Compromise and Abatement of Taxes
Tax Compromise
0: What is a tax compromise?
ANS: A tax compromise involves the reduction of the taxpayer's liability (ABAN, Law
of Basic Taxation, supra at 235).
0: Who may enter into a compromise of a tax liability?

ANS: The following may enter into a compromise on tax liabilities:
1. The Commissioner, provided that compromise shall be subject to the
approval of the Evaluation Board composed of the Commissioner and four
Deputy Commissioners where:
a. The basic tax involved exceeds Pl Million; or
b. The settlement offered is less than the prescribed minimum rates
(NIRC, Sec. 204); and
'2. Regional Evaluation Boards, provided:

a. It involves basic deficiency taxes of P500,000 or less; or
b. It involves mino r criminal violations discovered by the Regional and
District Offices (NIRC, Sec. 7(C)).
0: At what stage of litigation may a tax be compromised?

ANS: A tax compromise is possible at any stage oaf the litigation, even during appeal,
although legal propriety demands that prior leave of court shou ld be obtained
(Pampanga Sugar Dev't. Corp. v. Court of Indu strial Re lations. G.R. No. L-13178. March
25, 1961). But a compromise can never be entered into after final judgment, because by
virtue of such final judgment, the Government had already· acquired a vested right
(Rov/ro v. Amparo. G.R. No. L-548'2, May 5, 198'2.).
0: What are the requisites for the compromise of taxes to be valid? (TORAP)
ANS: For the compromise of taxes to be valid, the following requisites must be present:
I. The taxpayer has a Iax liability (R.R. No. 30-0'2, Sec. I);
'2. There must be an Qffer (by the taxpayer or Commissioner) of an amount
to be paid by the taxpayer (R.R. No. 30-0'2, Sec. 3);
3. A .Reasonable doubt as to the validity of the claim against the taxpayer
exists or th e financial position of the taxpayer demonstra'fes a clear
Inability to pay the assessed tax (NIRC, Sec. '204 (A));
4. There must be Ac a er or Commissioner, a s the case
may be) of th · al claim (R.R. No. 30-02, Sec.
6); and
5. The com • D•~ .!l~:1.( el' upon filing of the
applicat' 13, Sec. '2).
Note: , . , the waiver in writing

of th o )-fhe'• sec osits when he enters
into c e 9 .':£!!!!S,-2,f hi city (R.R. No. 30-0'2,
S ec. 3
I \
0: What are the eptqi:ice•.O.f ·an romise? (DoFi)
ANS: The Cammi pr.on:iise._any...n venue tax when:
I. There D011bt gi,s _t~ t e claim against the
taxpa , ~om se··rJ:JJI:'. ic tax assessed) The
taxpa , re, u -s , . ate lower than 40%:
Provi ·· ·' is request in writing
stating val of the National
Evaluati
'2. The .Einanc1 es a clear inability to pay
the assessed , '20% or 40% of the basic
tax assessed, d epe the taxpayer) (R.R. No. 30-
02, as amended by R.R. No. 08-04, Sec. 3).
Cl: What are the grounds for the DENIAL of an offer of a compromise based on
financial incapacity?
ANS: The Commissioner may deny compromis1 ng any notional internal revenue tax:
1. If the taxpayer hos a Tox Credit Certificate, issued under the NI RC;
2, If the taxpayer has a pending claim for tax refund or tax credit with the
BIR, Department of Finance One-Stop-Shop Tax Credit and Duty
Drawback Center (Tax Revenue Group or Investment Incentive Group)
and/or the courts;
3. If the taxpayer has an existing finalized agreement or prospect of future
agreement with any party that resulted or could result to an increase in the
equity of the taxpayer at the time of the offer for compromise or at a
definite future time; or
4. If the taxpayer failed to execute a waiver of his privilege of the secrecr of
bank deposits under Republic Act No. 1405 or under other genera or
special laws (R.R. No. 30-02, Sec. 3).
0: Which cases may be compromised? (DAC>)

ANS: The following cases may be the subject matter of compromise seHlement, viz:
1. .Qellnquent accounts;
2. Cases under Administrative protest after Issuance of the Final Assessment
Notice to the taxpayer which are ~till pending in the Regional Offices,
Revenue District Offices, Legal Service, Large Tox~ayer Service (L TS),
Collection Service, Enforcemen t Service and other offices in the National
Office;
3. .C.ivil tax cases being disputed before the courts;
4. .C.ollection cases filed in courts; and
5. .C.riminal violations, other than those already filed in court or those involving
criminal tax frauds (R.R. No. 30-02, Sec. 2).
Note: In crimin.a l cases, other than those involving fox fraud, the CIR has
full discretion to comprom ise before the information {criminal complaint) is
filed in court. After the case reaches the prosecutor's office, the prosecutor
must give his consent before he con ente-r Into compromise-. Once the
information is filed In court, compromise Is no longer permitted with or
without the consent of the prosecutor (People v. Magdaluyo, G.R. No. l -
16235. April 20, 1961).
0: Which cases may NOT be com (WiPS-ReFE)

ANS: The following coses may not ct matter of a compromise settlement:
I. Withholding tax cases, plicc;rnt-taxpayer invokes provisions of
law that cast doubt on t withhold;
2. Criminal tax fraud co the CIR or his duly
authorize-d representa_t' ·
3. Criminal violations ,olf ea
4. De-linquent acco nls wit ·nstallment payments;
5. Cases where ETnal Bitp'or s _ 1nves sideration have been
issued resulting -In ~edu;.:: tio in he ori and the taxpayer is
agreeable to sud decision by ning ment form for the
purposeA)n the otfier hand, oth r pr e handled by the
Reglong l Eval1:1c;itlp n Board f r _"L.-_...__.,.___ lon Board (NEB)
on a cg se'-to-cd ~ basis'
6. Cases which b,e"c,o qie Eip~I c ment of a court,
where compromise Is reque th ul validity of the
assessment; and r
7. &state tax ctises e com on the ground of financial
incapacity of ~ e ayer .....,_..............,.....,.· 2).
0: How is an offer of compromii e approved?
ANS: Except for offers of C~ITIB ~b,:nise where the approval is delegated to the Regional
Evaluation Boord (REB), a!l oi'n promise settlements within the jurisdiction of the
National Office (NO) shall be approved by o major ity of al.I the members of the NEB
composed of the Commissioner and the 4 Deputy Commissioners. All decisions of the
NEB, granting the request of the taxpayer o r favorable to the taxpayer, shall hove the
concurrence of the Commissioner (R .R. No. 30-02, Sec. 6, as amended by R.R. No. 9 -
2013).
0: What is the effect of a judicially approved compromise agreement?

ANS: When given judicial approval, a compromise agreement becomes more than a
contract b inding upon the parties. Having been sanctioned by the court, it is entered
as a determination of a controversy and has the force and effect of a judgment. It is
immediately executory 011d not appeolable, exceet for vices of consent or forgery
(Metro /vfanilo Shopping /vfecco Corp. v. Toledo. G.R. No. 190818, November 10, 2014).
0: Can there be issuance of a writ of execution aher a compromise agreement

has been judicially approved?
ANS: Yes. The nonfulfillment of Its terms and conditions justifies the issuance of a writ
of execution; in such on Instance, execution becomes o ministerial duty of the court (Id.),
0: Should a compromise offer be paid upon filing of the application for

compromise settlement?
ANS: Yes. No alplication for compromise settlement shall be processed without the
full settlement o the offered amount. In case of disapproval of the application for
compromise settlement, the amount paid upon filing of the aforesaid application shall
be deducted from the total outstanding tax liabilities (R.R. No. 30-02, Sec. 6, as
amended by R.R. 9-2013).
Q: What are the remedies in case the taxpayer refuses or fails to follow the tax
compromise?
ANS: The remedies in case the taxpayer refuses or fails to follow the tax compromise
are as follows:
1. Enforce the compromise (CIVIL CODE, Art. 2041); or
Note: If it is a judicial compromise, it can be enforced by mere execution
(CIVIL CODE. Art. 2037).
2. Regard it as rescinded and insist upon original demand (CIVIL CODE, Art.
2041).
Tax Abatement
0: What is tax abatement? ~ .

ANS: Abatement is the di min cion or dicreas'lt in l mount of tax imposed, such that
to abate is to "nullif ment or cancellation, no
mutual concession are made (People v.
Sandiganbayan , G.
a: Who has the

ANS: CIR has th enue taxes, penalties
and/or interest (R elation to l(c)).
a: What is the C
ANS: The authori ble to surcharge and
compromise penal toriaus instances, the
CIR may abate th , however, that cases
for abatement or by the CIR shall be
coursed through c
a: When may the

ANS: The Commiss internal revenue taxes,
penalties and/or inte ion to Sec. 7(C) of the NIRC
when:
1. The tax or any portion to be unjustly or excessively
assessed; or
2. The administration and collection costs involved do not justify the collection
of the amount due.
0: What are the instances when the penalties and/or interest im!Josed on the
taxpayer may be abated on the ground that the imposition thereof is unjust or
excessive? (WE-SIBLO)
ANS: The instances are the following:
I. Filing of the return/payment of tax at the Y!_rong venue;
2. Taxpayer's mistake in payment of tax is due to .Erroneous written official
advice of a Revenue Officer;
3. Taxpayer's failure to file the return and pay the tax on time is due to
.Substantial losses from prolonged labor dispute, force majeure, legitimate
business reverses such as in the following instances:
a. Labor strike for more than 6 montlis which has caused the temporary
shutdown of business;
b. Public turmoil;
c. Natural calamity such as lightning, earthquake, storm, flood and the
like;
d. Armed conflicts such as war or insurgency;
e. Substantial losses sustained due to fire, robbery, theft or

embez.zlement;
f. Continuous heavy losses incurred by the taxpayer for the last 2 years;
g. Liquidity problem of the taxpayer for the last 3 years; or
h. Such other instances which the Cl R may deem analogous to the
enumeration above.
4. Assessment resulted from taxpayer's noncompliance with the law due to a
difficult interpretation of said law;
5. Toxpayer's failure to file the return and pay the correct tax an 'time due to
circumstance.s .!leyond his control;
6. l,ote payment of tax under meritorious circumstances such as those
provided hereunder,
a. Use of wrong tax form but correct amount of ·tax was remitted;
b. Filin9 an amended return under meritorious clrcumstanc·es;
c. Surcharge erroneo.usly imposed;
d. Late filing of return due to unresolved Issue on classification/valuation
of real property;
e. Offsetting of taxes of the same kind, I.e., ove rpa yment In one
quarter/month is offset against underpaymen t In another
quarter/ month;
f. Automatic offsetting of overpayment of one kind of withholding tax
against the underpayment In another kind;
g. Late rc.rmittance of ' ).YltH}ll lding lox on compensation of expatriates
for services rende ife<I Ip the Philippines pending the issuance by the
SEC of the license fo. fhe r>h lippine branch office or subsidiary;
h. Wron<;J use of To Credit ·~rtHica te (TCC) where Tax Debit Memo
(TDM) was not p ~pt rly ljlP lledi o~· nd
i. Other onalog~l,(s instono .
7. Qther si milar or,onalogous cos (R.R. No. 13"2 0 Sec. 2 as amended by R.R.
No.4-12) .
Note: In QJI th, above-me ned cases, th atement shall cover

surchor9es, interest, and compr ise penalty exdept os. 3 and 5, and 6(9)
in wh,io_p case. the abatement sha ll not incl.tide I ter<?1it, and 6(6) in which
the abqtement wl I co-le_~ only hl? penal i •('R~. No. - I, Sec. 2).
0: What are the instances.ofi abaten!ent n ground tli t'collection costs are more
than the tax sought? (AWARD·)
ANS: The instances th t .J!lOY fi:!11 under t 1! f otegory are the following,
I. Abatement of 1:>,erialtles on o~lff!n•~nf cmf.itpied by the lower court but
Appealed by t!))!poyer to o ~Jglie court:
2. Abat·e ment of p'e nalt es:1on Y'fithholding tax assessment under meritorious
circumstances;
3. Abatement of pena ties on assessment reduced ofter _Reinvestigation but
taxpayer is still contesting reduced assessment
4. Abatement of penalties on .Qelayed installment payment under meritorious
circumstances (R .R. No. 13-01, Sec, 3); and
5. Other Analogous instances;
Note: Far items 1 and 4 above, the abatement of the surcharge and
compromise penalty shall be allowed only upon written application by the
taxpayer (R.R. No. 13-01, Sec. 3).
Q; Does repeated request for abatement prevent the collection of deficiency tax?
ANS: No, repeated req uest for abatement does not pr-event the collection of deficiency
tax. The taxpayer questioned the computaHon of the deficiency tax but did not protest
the FAN. Instead, It repeatedly requested to pay the deficiency in monthly Installments.
Moreover, due to its sensitive financial situation, the taxpayer requested For the
reduction, waiver, and abatement of the interest and compromise penolty. The Cou rt
held that the repeated request of the taxpayer for reduction, waiver or abatement did
not induce the BIR to postpone its collection nor did It warrant the suspension of the
prescriptive period for the BIR to collect the assessed taxes (Asia United Insurance Inc.,
v. CIR, CTA Cose No . 8916, May 17, 2017).
0: Must an approval of tax abatement be supported by a termination letter?

ANS: Yes, because on application for tax abatement is deemed approved only upon
the issuance of o termin.a tion letter by the BIR. The last step of the tax abatement
process is the issuance of termination letter. The mere issuance of a BIR Certification l.s
not sufficient proof that ·the taxpayer's application was validly approved (Asiatrust
Dev't Bank. Inc. v. CIR, G.R. No. '201680-681, April 19, 2017).
c) Recovery of Tax Erroneously or Illegally Collected

0: What are the remedies of a taxpayer in case a tax has been erroneously or
illegaHy collected?
A~S: The taxpayer may recover taxes erroneously or illegally collected by filing a
claim for tax refund or credit (NIRC. Sec. '2'29).
0: Distinguish tax refund from tax credit.

ANS: Formally, o tax refund requires q physical return of the sum erroneously paid by
the taxpayer, while a tax credit involves the application of the reimbursable amount
against· any sum that may be due and collectible from the taxpayer. On the practical
siae, the taxpayer to whom the tax Is refunded would have the option, among others,
to Invest for profit the retu:rned sum, an option not proximately available if the taxpayer
chooses instead to receive a tax credit (Commissioner of Customs v. Philippine
Phosphate Fertilizer Corp., G.R I, '2004).
Noh,: The options of t ·ve and the choice of one

precludes the other. e taxpayer will not bar
a valid request for . The indication of the
chosen o~tion is on Asset Management
Inc. v. Cl . G.R. N
0: What is the n
ANS: A claim fo tlon and is strictly
construed a9ainst xpayer claiming the
refund that he is e G.R. No. 6825'2, May
'26, 1995).
0: What ore the e titled to a refund or

credit erroneous!
ANS: For tax cred II cted taxes, it is clear in
Sections '.204 and '2'2 dote of payment of tax,
the claimant must fir JR before filing its judicial
cla im with the courts im, tax law even explicitly
provides that it be file the tax, regardless of any
supervening cause that may arise eF. pa,ymer1 . ,me mess of the filing of the claim
is mandatory and iu risdictional, and the Court cannot take cogni:zonce of a judicial
claim fo r refund filed either prematurely or out of time. (CIR ., v. San Miguel
Corporation, G.R. No. 180740, November II, 2019, Hernando Cose.).
The taxpayer's failure to comply with the requirement regarding the Institution of the
act ion or proceeding in court within two years after the payment of the taxes bars him
from recovery of the same, Irrespective of whether a claim for the refund of such taxes
flied with the CIR is still pending action on the latter. (CIR v. Sweeney, G.R. No. L-1'2178,
August 21. 1959)
0 : Is the written claim for credit or refund filed with the CIR a mandatory
requirement?
ANS: As a rule, yes because it is a condition precedent. If the taxpayer fails to comply
".(ith the same, any action in recovering the tax alleged to be erroneously or illegally
collected will necessarily foil. If a judiclol qction is brought for recovery, it will be
dismissed by the court. (NIRC. Sec. 2'29; Vda. de Aguino/do v. CIR, G.R. No. L-199'27,
February '26, 1965)
Volume 1. Series of 2023. BED AN RED BOOK s31
Exceptions:
1. A return filed showing on overpayment shall be considered a.s o written
claim for credit or refund. (NIRC Sec. '204(())· and
.2. When on the face of the return upon which payment was. made, such
payment appears clearly to hove been erroneously paid, the CIR may
refund or credit t he tax even without a written claim (NIRC, Sec. 229)
0: What is a Tax Credit Certificate?

ANS: It Is a certification duly Issued to the taxpayer named therein by the CIR or his
du ly authorized representative, reduced In a Bl R Accountable Form in accordance with
the prescribed formalities, acknowledging tho't the grantee-taxpayer named therein is
legally entitled to a tax credit. The money value of th.e TCC may be used in payment
or in satisfaction of any of his internal revenue tax liability (except those elCcluded), or
may be converted as o cash refund, or may otherwise be disposed of in the manner
and in accordance with the limitatio ns, if any, as may be prescribecl by the provisions
of the Revenue Regulations (R.R. No. 5-00, Sec. I.BJ,
Gro!,lnds Requisites and Periods For Filing a Claim for Refund or Issuance of a Tax
~l.Cutiflr.s:ite
0: What are the grounds for a claim for tax refund or tax credit? (EPS)
ANS: A claim for tax refund or tax crCcdit oy be made when:
1. Tax is collected .E_rroneo1:1aji or legally;
There is erroneous pay~rt 'oft es when a taxpayer pays under a mistake
of fact, where he is not c;iwpre at a n exis ting exemption in his favor at the
time the payment wa·s made. (51 A,m. )ur., cited iJ1 UST Cooperative Store v.
City of Manila. G.R. No/ L-m~. ecgmber. 3!, 1~5).
Note: An "erioneous or ill x" one levied without
statutory authority, or up o/1' rt y taxation or by some
person having nq~autr,orify y th hich is some other
similar resp,11ct·is1!lr gaj (CIR irias Corp., G.R. No. No.
188497, Apr// 25. 201~).
2, fenalty )s collected without au b rity; o

3, S.um collected ii eiccessi-i'"c~ or l1 any m
Sec. 229).
~--.Ji!'-'' collected (NIRC,
0: What are the requi sites for a claim for tax r•fund or tax credit to be granted?
(ErC-Cat-2-Proof)
ANS: For a claim of tax f~fund o.r tax· ci'edll"-fo be mo · e, • he following requisites must
be present:
1. There is a tax c~ltecte!;I Erroneously or illegally, penalty is collected without
authority, or a s·urrf'""cottected is excessive or in any manner wrongfully
collected (NIRC, Sec. 229);
2. There must be o written ~laim for refund filed by the taxpayer to the
Commissioner (Vda. de Aguinaldo v. CIR, G.R. No. L-19927, February 26,
1965);
Reason: The claimant must file a written claim before resorting to an

action in court to:
a. Afford the CIR an opportunity to correct the action of subordinate
officers; and
b. Notify. the Government that such ta xes have bee_n questioned a nd the
notice should be borne in mind in estimating the revenue available for
expenditure (NIRC, Sec. 229; CIR v. Acosta, G.R. No. 1'54068, August 3,
2007),
3. The claim for refund must be a Categorical demand for reimbursement

(Bermejo v. Collector of Internal Revenue, G.R. No. L-3029, }u.ly 25, 1950);
4, The claim for refund must be fi led within .2. yea rs from the date of payment
of the tax or penolfy reg·o rd less of any superve ning caL1se (NIRC, Sec. 229);
and
532 BEDAN RED BOOK Volume 1. Series of 2D23.
5. The taxpayer must show .&9.91 of payment of the tax. A daimant must
positively show compliance with the statutory requirements provided for
under the NI RC to successfu lly pursue one's daim (Wineb renner & Inigo
Insurance Brokers, Inc., v. CIR, G.R. No.206526, Janu ary 28, 2015).
0: When is a written claim for refund or credit not necessary?

ANS: A written claim for refund or credit shall not be necessary in the following
instances:
1. A return filed showing on overpayment shall be considered as a written
claim for credit or refund (NIRC, Sec. '204 (C)); and
2. The Commissioner may, even without the written claim therefor, refund or
credit any tax where on the face of the return upon which the payment was
made, such payment appears clearly to have been erroneously paid (NIRC,
Sec. '2'29).
0: What are the basic conditions in order for a taxpayer to be entitled for a refund
claim or issuance of a tax credit certificate? (FSE)
ANS: The basic conditions are:
1. The claim Is filed with the Commissioner of Internal Revenue within the
two-year period from the date of payment of the tmc;
2. It ls Shown on the return of the recipient that the income payment received
was declared as art of · ; and
3. The fact of w· y of a statement du ly issued
by the pay aid and the amount of the
tax withh perations Corporation,
G.R. No.
0: What is the pr
ANS: A claimant im for refund before
the CIR, prior to e administrative and
1,udicial claims for tive period indicated
therein, and the t out waiting for the
resolution of the through prescription
(Metropolitan Ban 017).
0: When does the r credit commence?

ANS: Generally, rs from the date of
payment of the ta e (NIRC, Sec. '2'29).
The exceptions to t
1. Overpaid ate the final adjustment
return is file a , (CIR v. CA. G.R. No. 117254.
January '21, 1999); --
Reason: It is at that point where it can already be determined whether

there has been overpayment (Id.);
2. When the final adjustment return was actually filed before the last
day prescribed by law for filing - from the date of actual filing (Id.);
Note: Wh ile the law provides 'that the 2-yeor period is counted from the
date of payment. jurisP.rudence, however, .clarified that the 2-year
prescriptive period actua lly commences to run, at the earliest, on the dote
of the filing of the adjusted final tax return because this is where the
figures of the gross receipts and deductions have been audl·ted and
adjusted, reflective of the results of the operations of a busi ness enterprise.
Thu.s, It Is only when the Adjustment Ret urn covering the whole year Is filed
that' the taxpayer would know whether a tax is still due or a refund can be
clQimed based on the adjusted and audited figu,·es (CIR v. Philippine Bank
oF Communications. G.R. No. '211348, February 23, 20'2'2, H ernando Cose),
3. Tax is paid only in installments or only in part - from the date the lost
or final installment or payment (Collector of Internal Revenue v. Prieto, G.R.
No. L-11976, August 29 1961);
4. Taxpayer merely made a deposit - from the conversion of the deposit to
payment (Union Garment v. Collector of Inferno/ Revenue, CTA Cose No.
416, November 17, 1958).
Reason: Merely making a deposit is not equivalent to payment until the

amount is actually applied to the specific purpose for which it was
deposited (Union Garment v. Collector of Internal Revenue, CTA Cose No.
416, November 17, 195B); and
5. Tax has been withheld from source (through the withholding tax
system) - from the dote it falls due at the end of the taxable year (2-C,
0OMONOON, supra at 448).
0: Does a taxpayer filing his administrative claim for refund in the morning, and
who thereafter filed his judicial claim with the CT A in the afternoon of the same
day satisfy the 2-year requirement for filing?
ANS: Yes. The low does not specify -the interval between the two types of claims. The
law only requires that on administrative claim be priorly filed. In CIR v. Carrier Air
Condltionin9 Philippines. Inc., the Suprem Court held that the short interval between
the filing of the administrative claim, ~09,Jydicial claims was inconsequential; the low
merely requires that both claims be flied within the 2-yeor prescriptive period. (CIR v.
Estate of Chor/es Romig, CTA EB N~. 2214, July 19, 2022).
0: What are the rules in determining •~• dcit• of p.,ay_~ i t"?

ANS: The date of payment is de+ermTnefl occor tng to.th ·ollowing rules:
I. For Corporate Income Tax, - e judicial claim fP.r refund should be filed
within 2 yea rs from the tit,ne ., e Final Adjust , e t Return or the Annual
Income Tax Retu n wqs , filed This is so b a s quarterly Income tax
payments ar., treotecl as mere aclvonce pay en . " -·f the annual corporate
income t_gx (Metr~pollton Ban Trust Co pa y v. CIR. G.R. No. 182582,
April 1 z, 2017) ·
2. For Flnc;al Withhpl~ing Taxes - tb or refund should
be fil ed within 2 years from t e of • nee of the tax or
from the lqst d(l,Y, of the man following t~e lose of the quarter during
which with~olcl1ng wos n-fode, hichever comes first (NIRC, Sec. 58, as
omended);
3. For Creditable Withholding ;r~xltl (CWT) - the filing of the Judicial claim
is wHhin 2 years from fifing ol tl'tc ftnal lntom tox return of the payee or
the last day for Its fi Ing, whichever comes first. It is only upon the filing of
the finol income to return con it be determined wit·h certainty whether
there is a refundable amount (ACCRA Investments Corporation v. CA, G.R.
No. 96322, December 20, 1991); and
4. For Documentary Stamp Taxes (DST) - the 2-year prescriptive period
commences upon the occurrence of a tmmble transaction because It is then
that the liability for the payment of the DST falls due. Therefore, It ls only
then that payment may be considered fo r the purpose of filing a cloim for
a refund or tax credit. Since actual payment was already mode upon
loading/reloading of the DS metering machine cmd the filing of the DST
Declorotiol') Return, the date of Imprinting the documentary stomp on the
taxable document must be considered as the date of payment
contemp lated under Section 229 of the N!RC (Philippine Bank
Communications v. CIR, G.R. No. 194065. June 20. 2016).
0: What is the remedy of the taxpayer upon denial or inaction on the claim for
refund or credit?
ANS: In case of full or partial denial of the doim for tax refund, the taxpayer affected
may, within 30 days from the receipt of the decision denying the claim appeal the
decision with the CT A: Prov1ded, however, That failure on the part of any official, agent,
or employee of the BIR to act on the opplicotion within the n·inety (90) -doy period shall
be punishable under Section 269 (NIRC as am e nded, Sec. 112 (C)).
0: Is it necessary to submit documents supporting the tax refund or credit?

ANS: Yes. The submission of complete supporting documents is necessary to support
o claim for refund or fo r lssuan·c e of tax credit. However, failure to submit documents
in support of a taxpayer's claim for refund at the administrative level does not prevent
the CT A from entertaining the appeal. Non -submission of documents at the
administrative level is not fatal to o judicial claim for refund. The coses filed before the
CT A are litigated de novo ond party litigants should prove every minute aspect of their
cases (CIR v. Philippine Bank of Communications, CTA EB No. 933, October 7, 2013).
0: When is offsetting of tax deficiency and tax refund or credit allowed?

ANS: Offsetting of taxes is allowed only when the determination of the taxpayer s
liability is intertw ined wit·h the resolution of the claim fo r tax refund of erroneously, or
illegally collected taxes under Section 229 of l·he NIRC (CIR v. Toledo Power Co., G.R.
No, 196415, December 2. 2015).
0 : Is the government liable for interest on taxes refunded to the taxpayer?

ANS: The Government cannot be required to pay interest on taxes refunded to the
taxpayer In the absence of a statutory provision clearly or e xpressly directing or
authorizing such payment (CIR v. Sweeney, G.R. No. L-12178, August 21, 1959).
However, there ore certain exceptions to this:

1. When the CIR acted wlth~_gi;dg ariness. Arbitrariness presupposes
inexcusable or obsti di1rl?'9 ~ gal provisions (CIR v. American
Rubber Co. G.R.,No. 67, N< ); and
-
2. Refunds ' - · ln~o on the wages of the
employee i..79 (C)).
0: Once granted, w t ax r11fund . . credit utilized?

ANS: A refund chec or ...,_orropt should be cfoi .hin 5 years from the
dote such worran he,t k wc{s malled or. deliv shall be forfeited in
favor of the gove ·ton . c:i-m,ou nl' the r~p e general fund.
A tax credit certlfi · i~ed w.i.thlr S te of issue, otherwise,

unless reval idate · e.r.ed -inv ed as payment for
internal revenue t i om u,rH · e · ificate shall revert to
the general fund 1
0: Is payment under d of ernal revenue taxes?

ANS: No. Payment u .. lain lefund of internal revenue
taxes. Such suit or pro he or not such tax, penalty, or
sum hos been paid un .' 229).
0: Can the remedy of tax re un ·b revive the right to contest the

validity of an assessment once the some hos been lost?
ANS: The re1T1edy of to>< refund cannot be availed of to revive the right to contest the
validity of an assessme nt once the same has been losi not only by Failure to appeal but
by the lapse of the reglemen-tory pe riod wit·hln which appeal could have been taken
(CIR v. Concepcion, G. R. No. L-23912, March 15, 1968).
GOVERNMENT REMEDIES FOR COLLECTION OF DELINQUENT TAXES
a) Requisites
0: What is tax collection?

ANS: It is the means, process, and method of implementing the tax law for the purpose
of satisfying the tax obligation. It is the actual effort in obtaining payment of the to><
(I DOMONDON. Bar Q&A Taxation, p.190).
0: What are the remedies available to the government for the collection of
delinquent taxes?
ANS: The Government has the following civil remedies for the collection of internal
revenue ta><es, fees, or charges, and any increment thereto resulting from delinquency:
1. Adm inistrative Remedies:
a. Tax lien (NIRC, Sec. 219);
b. Distraint and levr (NIRC. Sec. 205);

c. Forfeiture of rea property (NIRC, Sec. 224);
d. Further distraint and levy (NIRC, Sec. 217); and
e. Suspension of business operations (NIRC, Sec. 115).
2. Judicial Remedies
a. Civil; and
b. Criminal (NIRC. Sec. 205).
Note: The remedy for enforcement of statutory penalties of all sorts shall
be by criminal or civil action (NIRC, Sec. 221).
Q: What are the re9uisites before a taxpayer may be required by the BIR to pay
taxes? (PANot-Pre-FloN)
ANS: A taxpayer is required to pay taxes when the following conditions concur:
I. The amount bei ng collected must be _earl of tne government's accounts
receivable;
'2. There must be on Assessment t ha t has become final, executory, and
collectible;
3. The amount being collected ml.lst liQt have been written-off or cancelled;
4. The right of the government to collect has not yet fttscribed;
5. The proper procedure for collection whether adminisf'rative or judicial ore
followed;
6. The taxpayer can sti ll betl.R'c'_g d; and
7. The government is liot. enJoln from collecting the tax (DOMONDON,
Taxation, supra at 334)J
Q: Is assessment necessary before colJe~Htin?

ANS: A valid assessment should prece flie enf.6tc me t of collection remedies
(NIRC, Sec. 203). Tax collection must be p eceded by a va assessment to allow the
taxpayer to protest the ass'ctssment, pre;sfn· their case and · ce s upporting evid ence.
Without complying with tne. unequl',!ocol m !date of first f . r ing the taxpayer of the
government's claim, the,r eJ cqn ,be no deij~ vation of p i:>pqrt because no effective
protest can be ma~e (.CIR v. IJJhloll Corp .. G . No. 204405. A gu 04, 2021, Hernando
Case) .
0: What are the lnstance.s y,hen .a proc:~ding in GO collection of tax
may commence even without prior asses11 ent? -.___.._.
ANS: A proceeding in 'CO'urt for th colhrctlon of tax may be filed without prior
assessment in the following cases:
I. No assessment htsued within the-'Z•YfOi' pl.(l9d (CIR v. CTA. G.R. No. 258947.
March 29, 202:2 citing 0 IR2v. tJnfted 5etM:tg and Towage Phils., Inc .. G.R.
No. 197515, July .2 2014) .
2. When the unpaid to111 is a tax d ue per return as in case of a self-assessed
income tax unde r"t ~e"pa y-as,you-file system (DIMAAMPAO, Tax Principles
and Remedies p . 175)
3. False or fraudulent return with intent to evade tax; or
4. Failure to file return (NIRC, Sec. 222 (a)).
Note: A warrant of distraint and/or levy without issuance of a FAN is void

(Golden Harvest Global Corp. v. CIR. CTA Case No. 7503, September 18,
2009).
0: When does assessed tax become collectible?

ANS: The government can collect when the assessment becomes final and executory
for:
l. Failure to protest FLD/FAN within the prescribed period;
2. Failure to appeal FDDA within the prescribed period; or
3. Failure to appeal an adverse decision of the court within the prescribed
period.
If the assessment has become final and executory, the assessment is considered correct
which may be enforced by summary or judicial remedies (R.R. No. 12-99, Sec. 3.1.1, as
amended by R.R. No. 18-13, supra).
A taxpayer who foils to contest the Bl R assessment in the CT A cannot contest the some
in on action to collect (Basa v. Republic, G. R. No. L-45277, August 5, 19135).
0: When is tax deemed collected?

ANS: If collection is throug~ summary remedies (distroint ond levy), tax is deemed
collected when government avails of a d istrnint and levy procedure prescribed under
the NIRC (ABAN. supra at 2133-2134). Distraint and levy proceedings are validly begun
or commenced by the Issuance of the warrant and service thereof on the taxpayer (Bank
of the Philippine Islands v. CIR. G.R. No. 139736, October 17, 2005).
If collection is through judicial remedies (civil or criminal), tax is deemed collected when
the government files the complaint with the proper regular trial court, or where the
assessment Is appealed to the CTA, by filing an answer to the taxpayer's petition for
review wherein payment of the tax is prayed for (Philippine Notional Oil Co. v. CA. G.R.
No. )09976, April 26. 2005).
Tax Lien
a: What is a tax lien?
ANS: Tox lien is a legal claim or charge on property, real or personal, established by
law as security in default of the payment of taxes (Hong Kong and Shanghai Banking
Corp. v. Rafferty, G.R. No. L-13
Q: What is the nature

ANS: When a taxpo venue tax liability ofter
demand (issuance o II be a lien in favor of
the government fr e Commissioner until
paid with Interest . .. , ion thereto upon all
property and righ ngin~ to•'fo . 219).
0 : When does th the Govern

ANS: Tox lien o
1. With I •propeft the tax become due
and d
2. With trotion with Register
of De 1994).
Note: gagee, purchaser or

Judgm II be filed by the
Commlss ~ ;...;.;.,;..-~· s of the province or city
where the r located (NIRC, Sec. 219).
0: Whic!h is superior - a t title or a prior annotation of a

notice of levy on execution?
ANS: A prior annotation of o notice of levy on execution is superior. A tax lien
annotated on o title is not superior. Prior registration of a lien creates a preference as
the act of registration Is the operative act that conveys and affects the land, even
against subsequent judgment creditors. Sec. 219 of the NIRC provides that a tax lien Is
enforceable against oll property and rights to property belonging to the taxpayer, and
retroacts to the time when the tax assessment was made. However, the tax lien shall
not be valid against any judgment creditor until notice of such lien is filed with the
Reg is ter of Deeds of the city, or province, where the taxpayer's properties ore located.
In other words, It is only ofter the notice of tax lien is annotated on the pertinent title
that a judgment creditor's rights con be affected and the tox lien may be considered
to r.e trooct to the date of assessment. (BIR v. Tico Insurance, G.R. No. 204226, April 8,
2022. Hernando Case).
Note: In this case, the notice of levy on execution was registered by the purchaser in
2000, while the BIR's tax lien could only hove been enforceable in 2005. The taxpayer
being held liable is no longer the owner of the subject property at the time the tax lien
attached. Hence, the purchaser on execution hos superior rights over the subject
property.
Volume 1. Series of 2023. BEDAN RED BOOK 53 7
0: Which is superior • a tax lien or a claim based on a judgment?

ANS: The rule is settled that the claim of the government predicated on a tax lien is
superior to the claim of o private litiga nt predicated on a judgment. Execution s.oles
affect the rights of the judgment debtor only, and the purchaser in on auction sole
acquires only such rig~ts as the judgment debtor hos at the time of sole. It is also well-
settled that the sheriff is not authorizeq to attach or levy on property not belonging to
the judgment debtor (CIR v. NLRC. G.R. No. 74965. November 9, 1994).
0: When shall lien be valid against any mortgagee, purchase or judgment

creditor?
ANS: The lien shall be valid against any mortgagee, purchaser or judgment creditor
only when notice of such lien shall be filed by the CIR in the office of the Register of
Deeds of the province or city where the property of the taxpayer is situated or located
(NIRC, Sec. 219).
0: How are tax liens extinguished? (P~FD)

ANS: Tax liens may be extinguished as follows:
l. By .eoyment or reces sion of the tax (NIRC, Sec. 219);
'2. By frescription of the right of the government to assess or collect (NIRC.
Secs. 203 and 222);
3. By failure to file notice of lie in the office of the Register of Deeds as
again. st mortgagee, purchas_e} judgment creditor (NIRC, Sec. 219); or
4. By Qestruction of the praperry, ubject of the lien.
Note: In cases of Nos. 1 &, ~ the~ is no more tax liabilit}'; Under Nos. 3 &
4, the taxpayer is still liable (D&,. LEON, Fund enta/s of Taxation (2016),
p. 498-499). .
Distroint And Levy
0: What is distraint?
ANS: Distroint is a remedy h•ereby the
the goods, chattels, or effed~ and other
the taxpayer (NlfK, Sec. 205(0)).
0: What are the kinds of clistralnt7

ANS: There are two klndf of disfra1nf:
l. Actual Dist1aint - resor,ted t when there is actual delinquency in tax
payment (NIRC. Sec; 207(0)); Q
2. Constructive Di&jl'aint - a_preventlve i'fl'l'lt~.Y which aims at forestalling a
possible dissipdtien qf the 'tcfxpaye~ assets when delinquency sets in
(NIRC. Sec. 2061..
0: How is actual distrairit and garnishment of personal property effected?

(CSRNS)
ANS: Distroi nt of personal properly Is effected through the following procedure:
I. tommencement of dlstraint proceedings;
a . CIR or his duly authorized rep resentati ves - where the amount
involved is in excess of PlM; or
b. Revenue District Officer - where the amount involved
2. .S.ervlce of warrant of dist raint;
o. Distroint of Tangible Properties
The officer serving the warrant of distralnt shall make or cause to be
mode an account of the goods, or other personal property dis·tralned.
A signed copy of which shall be left either with the owner or person
from whose possession such personal property wos taken, or at the
dwelling or place of business of such person, and with someone of
suita ble age and di scretion, to which list shall be added a statement
of the sum demanded and note of the time and place of sale (NIRC,
Sec. 208).
b. Distroint of Intangible Properties
i. Stocks and other securities shall be dlstroined by serving a copy
of the warrant of distroint upon the taxpayer and upon the
president, manager, treasurer, or other responsible officer of the
corporation, company or association, which issued the said stocks

or securities;
ii. Debts and credits shall be distrained by leaving o copy of the
warrant of distraint with the person, or his agent, owing the debts
or having In his possession or under his control such credits; and
iii. Bank accounts shall be garnished by serving a warrant of
garn ishment upon the 'taxpayer and upon the president,
manager, treasurer, or other responsible officer of the bank
(NIRC, Sec. 208).
3, .Report on the distro int;
a . It shall be submitted by the distraining officer to the Revenue District
Officer, and to the Revenue Regional Director within 10 days from
receipt of warrant;
b. The CIR or his duly authorized representative hos the power to lift the
order of distroint (NIRC, Sec. 207 (A)).
4. Notice of sale of d istroined properties; and
o. Notice shall specify the time and place of sole and the articles
dlstrolned;
b. The time of sole shall not be less than 20 days ofter notice to the
owner or possessor of the property and posting of such notice; and
c. The posting shall be mode in not less than 2 public places in the city
or municipali ode. One place for posHng of
s~ch nof r of such city or municipality
in wh· ec. 209).
5. Sole at
a. Sa in the notice;
b. It or through a duly
11
c. T d b.y\. oific officer serving the
w lic _0_!!.tf!<i>.!!.. ~ shall be sold to the
h cp,sE; ill] ..
d. I _lis enJt~d ,co xchange, it must be
w oT 0fe; ~I.R; '
e. I cth u .ecu. oking the sole shall
e ' the buyer and to the
c issued the stocks or
o bill of sole, on entry
o , and o corresponding
ce
f. A .--,..,_..,_.-:· o pay the entire claim
inc u ""'""'~n, ner of the property sold;
and
Note: Expenses chargeable upon seizure shall include only those
actual expenses of seizure and preservation of the property pending
the sole and does not include services of the RO (NIRC, Sec. 209).
g. The officer making the sole shall make o written report of the
proceedings to the CIR within 2 days ofter the sole (NIRC, Sec. 211).
Note: Any residue over and above what is required to pay the entire
claim, including expenses, shall be returned to the owner of the
property sold (NIRC, Sec. 209}. Moreover, if at any time prior to the
consummation of the sole, all proper charges are paid to the officer
conducting the sale, all distrained properties shall be restored to owner
{Right of Pre-emption) (NJRC, Sec. 210).
Cl: What is garnishment?

ANS: Garn ishment refers to o warning to a person in whose hands the effects of
another are attached, not to pay the money or deliver the property or allow withdrawal
of deposits of the defendant in his hands (MAMALATEO, Reviewer, p. 696).
By the process of garnishment, the plaintiff virtually sues the garnishee for o debt due
to defendant. The debtor stronger becomes a forced intervenor (Director of Bureau of
Commerce and Industry v. Pedro Concepcion, G.R. No. L-9031, Moy 22, 1922). In other
words, through the service of the w.rit of garnishment, the garnishee becomes a "virtual
party" to, or a "forced intervenor" In, the case, and the trial court thereby acquires
jurisdiction to bind him to complionce with all orders and processes of the tri al court
with a view to the complete satisfaction of the judgment of t he court (Bank of the
Plii/ipplne Islands v. Carl/to Lee, G.R. No. 190144, August I, 2012) .
0 : Moy the State distrain (garnish) bank accounts for the satisfaction of tax
delinquencies?
ANS: Yes. Bonk accounts may be distroined notwithstanding the Bank Secrecy Act
(R.A. No. 1405) whlch_prohibits inquiry into bank accounts, since in the case of distroint,
no inquiry is made. The BIR simply s.eizes so much of the deposit as is sufficient to
discharge the obligation without havin5i to know how much the deposits ore, or where
the money or any port of it came from (VE LEON, NIRC Annotated, supra at 481, citing
Op. of Sec. of Justice, No. 54, S. 1956).
0: Who commences the seizure of properties in actual distraint?

ANS: The seizure shall be done by:
1. The Commissioner or his duly authorized representative - If the amount
involved is in excess of Pl Million; or
2. The Revenue District Officer - If the amount involved is Pl Million or less
(NIRC, Sec. 207(A)).
0: What is the right of pree-mptioi,7
ANS: If at any time prior to the con~ur;nmatt n of the sale, all proper charges are paid
to the officer conducting the sole, rhe dlstr. ined propertLes shall be restored to the
owner (NIRC, Sec. 210).
0: When may the Government purch~s of distraint?

ANS: The Commissioner or his deputiesi a al Government, may
purchase the goods subject of the distro en for the distroined
property is not equal to tHe omou·nt of t very the actual market
value of t·he property, Properiy' so-purcbos yb mmissioner or his
deputy, subject to th:e rules qnd regulation crib y of Finance. The
net proceeds therefrom,5hall be re'T'itted Na nd accounted for
05 internal reve11ue ,(NIRC,_Sec, 212).
0: When can there b~ constructive distr lht? (RLR-H0)

ANS: To protect the interest of the Government, the Commissioner may place under
constructive distraint the property of a delinquent taxr,ayer or any taxpayer, who in his
opin ion is: '
l. Retiring from any bus1ness subject to tax;
2. Intending to J,,eove th~ Philippines;
3. Intending to Remove his properties 1·herefrom;
4. Intending to J:!.lde or conceal his property; or
5. Intending to perform any act tending to Q.bstruct the proceedings for
collecting the tax due or which may be due from him (NIRC, Sec. 206).
0: How is constructive distraint effected?

ANS: The constructive d1stralnt of personal propertr shall be effected by requiring the
taxpayer or any person having possession or contra of such property to:
1. Si~n o receipt covering the property distrolned; and
'2- Obligate himself to preserve the same intact and unaltered and not to
dispose of the some In any manner whatever, without the express authority
of the Commissioner (NIRC, Sec. 206, Par. 2).
0 ; What is the distraining officer's remedy if the person in possession or control
of the property refuses to sign the receipt?
ANS: In case the taxpayer or the person having the possession and control of the
property sought to be placed under constructive distraint refuses or fails to sign the
receipt; the revenue officer effecting the distraint shall proceed to prepare a list of such
properiy and, in t he presence of '2 witnesses, leave o copy thereof in the premises where
the property distrolned Is located, after which the said property shall be deemed to
hove been placed under constructive distraint (NIRC. Sec. 206, Par. 3).
540 BEDAN REO BOOK Volume 1. Series of 2023.
0: Until when may the remedy by distraint ond levy may be repeated?
ANS: The remedy by distraint and levy may be repeated if necessary until the full
amount of the tax delinquency due; including all expenses is collected from the taxpayer
(NIRC, Sec. 217).
0: What is levy?
ANS: Levy involves the seizure by the government of real property to enforce payment
of taxes followed by the public sale of such property, if the taxpayer fails to pay the
taxes voluntarily (NIRC, Sec, 207(B)).
0: When may levy be effected?
ANS: For the levy of real property, it shall be upon before, simultaneously, or after the
distraint of personal property belonging to the delinquent taxpayer (NIRC, Sec.
207(B)).
In case the warrant of levr Is not Issued before or simultaneously with the warrant of
distraint, and the persona property of the taxpayer Is not sufficient to satisfy his tax
delinquenc'y' the CIR or his authorized representative shall, within 30 doys after the
execution of the distraint, proceed with the levy on taxpayer's real property (NIRC. Sec.
207(B)).
0: What is the procedure for a levy on real property? (W 0 RAd-SRC)
ANS: The procedure Is as follows:
1. Levy shall b authenticated certificate
(Warrant upon which levy is made.
This certl · ecution throughout the
Philippi
2. Yf_ritte upon the Register of
Deed o is located and the
delinq iP1he 1s\absen pines, to his agent or
the m sineis•Jn .resp liability arose, or if
there ~ cuponti o_f the;, tlon;
3. Withi ceipt _of th,e w on any levy shall be
submi officer!+o th r his duly authorized
repre ~
4. Withl he proceedings shall
proce t least 30 days. The
adver
a. icipal building or city
hall ai\d i e barrio or district in
which ttti
b. Publicatl a newspaper or general
circulatio ere the property Is located
(NIRC, Sec. ;
5. .Sale shall be held either at the main entrance of the municipal building or
city hall, or on the premises to be sold, as the officer conducting the
proceedings shall determine and as the notice of sale shall specify;
6. Within 5 days ofter the sale, a Return by the distraining or levying officer
of the proceedings shall be entered upon the records of the Revenue
Collection Officer, the Revenue District Officer, and the Revenue Regional
Direotor; and
7. A t_ertificate of sqle shall be delivered to the purchaser and if the proceeds
of the sale exceed the claim and cost of sole, the excess shall be turned
over to the owner of the property (NIRC, Sec. 213).
Note: The taxpayer may discontinue all the proceedings by paying the
taxes, penalties and interest at any time before the day fixed for the sale
(Right of Pre-emption) (NIRC. Sec. 213).
0: How may the taxpayer redeem the property sold on levy?
ANS: The real property may be redeemed by the delinquent taxpayer or anyone for
him, within 1 year from the dote of the sole, by paying to the Revenue District Officer
the amount of:
1. Public Taxes;
2. Penalties;
3. Interests thereon from the time of the delinquency to the date of sale; and
4. Interest on purchase price at 15% per annum from the dote of purchase to
the date of redemption (NIRC, Sec. 214).
Q: When is a Final Deed of Sale issued to the purchaser in a sale on levy?

ANS: The Final Deed of Sale shall be given to the purchaser only ofter the failure of
the taxpayer to redeem the property after the expiration of redemption period (NIRC,
Sec. 202).
0: What is the remedy of the Government when there is still tax delinquency after
initial distraint or levy?
ANS: Distraint and levy may be repeated, if necessary, until the full amount of the tax
delinquency due, including all expenses, is collected from the taxpayer (NI-RC. Sec. 217).
Further, distroint and levy Is necessary because o clever taxpayer may be able to
conceal most of the valuable part of his property from the revenue officers to escape
payment of his tax liability by sacrificing on insignificant portion of his holdings (Castro
v. Collector of Internal Revenue, G.R. No. L-12174, April 26, 1962).
Forfeiture
0: What Is forfeiture?
ANS: The Incurring of o liability to pay efinite sum of money as the consequence
of violating the provisions of some st,ot te r refusal to comply with some requirement
of law (Black 's Law Dictionary, 4,h f:dltlori, R•
0: How is forfeiture enforced by th

ANS: Forfeiture is enforced:
l. In case of personol, Rr"6perf or destruction of specific
forfeited prope,rlY/;and
2. In case of real property - by
action or proce~il'Jg, civil or c fminal,
224). .
Q: What are the Instance, Jhen the govtr ment m fo eit ersonal properties?
ANS: The NIRC ,provides for forfeiture as e app r<Qf!ricm,;g ment remedy for:
l. All chattels•. machinery, a ~d '!?~Ovoble 'fl res Qr any sort used in the
unlicensed grocludipn o'f a rticle¥
2. Dies and otHer eq~ll:1menf use~ for the printing or making of any internal
revenue stamp, label or tag Y!f!!.ch i in imitation of or purports to be a
lawful stamp, label or tag {N/R(;. Sec. 266~;
3. Liq uor or tobacfc o shipped undl! '' d fdls'e "iictm or brand (NIRC, Sec. 262);
an 0
4. Goods illegally sti>tetl or removed (NIRC, Sec. 268 (C)).
Q: What are the remedies of the owners of forfeited personal properties?

ANS: In case of the seizure of personal property under claim of Forfeiture, the owner
desiring to contest the validity of forfeiture may:
1. At any time before the sole or destruction of the property, bring on action
against the person seizing the property or having possession thereof to
recover the some, and upon glvin9 pro.per bond, may enjoin the sale; or
'2. After the sole and within six months, he may brin9 an ·action to recover the
net proceeds realized at the sole (NIRC, Se.c. 231).
Cl: How may the Government dispose of the forfeited goods or articles?
ANS: The goods or articles mo'l be disposed as follows :
1. Sold - in case of forfe ited chattels and removable fixtures, so for as
practicable, in l·he some monner and under the same conditions as the
public notice and the time and manner of sale as are prescribed for sales
of personal property d is-trained for non-payment of taxes;
12. Destroyed - in case of distilled spirits, liquors, cigarettes, other
manufactured products of tobacco and all opparotus used in or about the
illicit production of such articles, by the order of Commissioner, when the
sale of th e same for consumption or usi? would be Injurious to public heolth
or p rejudicial to th e enforceme_nt of low; or
3. Sold or Destroyed - in cases of all ether articles subject to excise tax, which
have been manufactured or removed in violation of the NIRC, dies for
printing or making of internal revenue stamps and labels which are in
imitation of or purport to be lawful stamps, or labels, in the discretion of
the Commissioner (NIRC, Sec. 225).
Note: Forfeited property shall not be destroyed until at least '20 days after
seizure (NIRC, Sec. 225).
0: When may the Government forfeit real property?

ANS: The Internal Revenue Officer conducting the sale on levy of real property shall
declare the said property forfeited to the Government in satisfaction of the claim for
taxes in case:
1. There is no bidder for real property exposed for sale; or
2. The hil;J~est bid is for an amount insufficient to pay the taxes, penalties and
costs (NIRC, Sec. 215).
0: How may the taxpayer redeem forfeited real property?

ANS: The taxpayer or anyone for him may, within 1 year from the date of such
forfeiture, redeem said property by faying to the Commissioner or the latter's Revenue
Collection Officer the full amount o the taxes and penalties, together with the interest
thereon and the costs of sale, but if tbe properf be not thus redeemed, the forfeiture
shall become absolute (NIRC S 5). J 6,/
0: How may the Go .$.e .o re.a ·e o~rt taken for taxes?
ANS: The Commi
1. Sell a s'd1'n7 o o pub on giving of not less
than ; or ·- • ~
2. Dispo pfivo-t'e' sale with I of the Secretory of
Finan
In eit ee.ds of the so l· ed with the National

Treas 'untiJ,g . of . t e rendered to the
Chair sioo~on.A ).
0: How are fun p

I I d from forfeitures
disposed? J
ANS: All judgme l' taxes, costs, forfeitures,
fines and penalties thorized deputies as the
taxes themselves are =u.;;.,;;;;..,,,- ••;. ifically p rovided, shall be
accounted for and dea 6).
0: Distinguish ·seizure· an or e-it

ANS: In seizure for t·he enforcement of tax lien, the residue, after deducting the tax
liability and expenses, will go to the taxpayer (Bank of the Philippine Islands v. Trinidad,
G.R. No. 16014. October 4, 1941) while in forfeiture, all the proceeds of the sale will go
to the coffers of the government (U.S v. Sur/a. G.R. No. 6536, September 2, 191').
Suspension of Business Operation
Q: What is the scope of the power of the Commissioner to suspend the business
operations of a taxpayer?
ANS: The Commissioner or his authorized representative may suspend the business
operations and temporarily close the business establishment of any person for the any
of the following violations:
1. In the case of a VAT -registered person:
o. Failure to issue receipts or invoices;
b. Failure to file VAT return and pay tax due as required under the
provisions of Sec. 114 of the NIRC;
c. Understatement of taxable soles or receipts by 30% or more of his
correct taxable sales or receipts for the taxable quarter; and
2. For failure of Value-Added Tax subject pe rson to register for VAT (NIRC.
Sec. 115).
0: What duration of temporary closure is the Commissioner authorized to impose?

ANS: The temporary closure of the ·establishment shall be for the duration of not less
than 5 days and shall be lifted only upon compliance of whatever requirements
prescribed by the Commissioner in the closure order (NIRC, Sec. 115).
Judicial Remedies
0: What are the available judicial remedies of the Government for the collection
of taxes?
ANS: Judicial remedies of the Government for the collection of taxes are civil action
and criminal action (NIRC, Sec. 220).
(Please refer to full discussion under part IV on Judicial Remedies, in Page 595595)
Civil Action
0: When should a civil action, as a tax remedy be resorted to?

ANS: A civil action is resorted to when a tax liability becomes collectible, that is, the
assessment becomes final and unappealable, or the decision of commissioner has
become final, executory and demandable (DIMAAMPAO, supra at 200).
0: How is civil action for collection nstituted?

ANS: Civil action for collection of tox e instituted either:
l. By fil ing a civil case fof q f a sum of money with proper regular
court (NIRC. Sec. 222); er
2. By filing an answer to ff\ by taxpayer with CT A
(Fernandez Hermanos, lh .....---__....__.._ eptember 30, 1969).
0: Can the BIR file a civil act ding decision of the
administrative protest? ·•
ANS: Yes. The request fo ,r.einvestiga
denied by CIR when the latter, fileci a
v. Union Sh ipping, G,R, ·i<lo. L -~6160,
0: What is the form and mode of proce l'"actiob•,t or the collection

of taxes? l ' ~
ANS: The form and mode of pl'oceedlng
as follows:
1. Civil actions sJ1oll pe brough , il!i .t,91_ Name of the Government of the
Philippines (i.ei, Bep\lblic of the,J1'11~ -~ qelinquent taxpayer);
2. It shall be conclucted by' legal '©ff!een of e :e1R; and
3. No civil or crim nal acti9n for the recovery of taxes shall be filed in court
without the Ap1> rov9l of the CIR (N'/RC Sec. 2120), but the latter may
fo
delegate such po'we~ his subordinate of~loials in the legal service through
administrative issuances (NIRC, Sec. 7).
0 : Whose written conformity must be secured before a civil action for the
collection of taxes may be instituted?
ANS: In view of the amendment of Sec. 220 of the NIRC, the written conformity of the
CIR (and no longer of the Solicitor General or the Government Corporate Counsel),
should be secured (DE LEON. NIRC Annotated, supra at 501). Sec. '220 of the NIRC
must not be understood as overturning the long-established-procedure before the SC
in requiring the Solicitor General lo represent the interest of the Republ_ic. This court
continues to ma intain that it is the Solicitor General who has primary re~ponsibil ity to
appear for the government In appellate proceedings (CIR v. La Suerte Cigar. G.R. No.
144942. July 4. 2002).
Criminal Action
0: When should criminal action be resorted to?

ANS: The remedy of criminal action is resorted to, not only for collection of taxes, but
also for enforcement of statutory penalties of all torts (DIMAAMPAO, supra at 204).
0 : When do viola tions of any provision of the NIRC prescribe?

ANS: All violations o f a ny p rovision of the NIRC shall prescribe a fter 5 ye a rs (NIRC
Sec. 281). However, in case of falsity or fraud with in te nt to evad e the tax, the righ t oi
the g overn me nt to collect t hroug h criminal a ction is imprescript lble fo r as long a s the
pe riod fro m th·e d iscove ry a nd Insti tu tion of jud icial p roceed ings for its ln ves·tigation
a nd pu nishment, up t o the fi ling of the Infor ma tion in court, d oes not exceed 5 years
(Lim, Sr. v. Cou rt of Appeals, G.R. Nos. L -48 134-37, Octob_er 18. 1990) .
Q: When shall prescriP.tion begin to run?
ANS: Presc ript ion shall begin to run:
1. From the dax ot the commiss ion of the violation of the law (NIRC. Sec. 281).
2. In cqse of willful failure to pay deficiency tax, the 5-year prescriptive period
should be reckoned from the date of the final notice and demand for
pa ym ent of the deficiency taxes. This is because prior to t·he recei pt of the
letter-a ssess ment, no violation has yet been comm itted by th e taxpaye rs
(Lim. Sr. v. Cou rt of Appeals, G.R. Nos. L -48134 -37, O ctober 18, 1990).
3. If the same be not known at the time - from the d iscove ry thereof and the
instituti on of jud icial proceedings for its investigation and punishment
(NIRC, Sec. 281) .
0: When shall the prescriptive period be interrupted?

ANS: The period slia ll be interr ·
1. When proceedings uilty persons; or
Note: Th eed ings are dismissed

for recs ~-..,.....-- 1).
2. C, Sec. 281).
a: What are the

ANS: The two c
1. Atte
2. Fail u formation, pay tax,
wi thh Id on compensation
(NIR
0: What are the r file a return under
Section 255 of th
ANS: The elements a • ·
1. The acc used a eturn, keep any record,
or supply corre withhold or remit taxes
withheld, or refu mpensation, at the time or
ti mes requ ired b ns;
2. The accused _fail ed to pa y the requ ired tax, make a return, or keep the
required record, or supply the correct and accurate information; and
3. The accused Willfull y foiled to pay such tax, make such return, keep such
record, or su p ply such co rrect and accurate information, or withhold or
remit taxes wit hh e ld , or refund excess taxes withheld on compensation, at
the time or times req uired by low or rules and regulations (NIRC. Sec. 255).
0: What is the Willful Blindness Doctrine?

ANS: The doctrine provides that a taxpayer can no longer raise the defense that the
errors on their tax returns are not the ir responsibility or that it is the fault of the
accountants they hired (INGLES, Reviewer, p. 413) ,
Criminal action in violation of the NIRC also constitutes a collection method because
the judgment in the criminal case shall not only impose the penalty but shall also order
the payment of the taxes subject of the criminal case as finally decided by the CIR
(NIRC, Sec. 205).
Any pe rson convicted of a crime penalized by the NIRC shall, in addition to being liable
for the payment of the tax, be subject to the penalties imposed therein (NIRC, Sec. 253
(a)).
Volume 1. Series of 2023. BEDAN REU BOOK 545
0: Is assessment necessary before filing a criminal action and may it be filed

during the pendency of cm administrative protest in the BIR?
ANS: No. An assessment is not necessary before filing a cri minal action and criminal
action may be filed during the pendency of on adm inist rative protest in the BIR.
It is not a requirement for the filing thereof that there be a precise computation ond
assessment of the tax, since what is involved in the criminal action is not the collection
of tox but a criminal prosecu tion for the violation of the NIRC, p rovided, however, that
there is o prima focie showing of a willful attempt to evade taxes or failure to file the
required retu rn (Ungab v. Cusf. G.R. Nos. L-4I919-24. May 30, I9B0 in relation to CIR v.
CA, G.R. No. 11.9322, June 4, 1996; CIR v. Poscor Realty Development Corp .. G.R. No.
12B315, June 29, 1999).
Protesting an a ssessment cannot stop criminal prosecution under the NIRC. However,
an exception to this is when the fact t hat a tax Is due is not proved. Before one Is
prosecuted for willful attempt to evade or d-e feat any tax under Secs. 253 and 255 of
the NIRC, the fact that a tax is due must first be proved (CIR v. CA. G.R. No. 119322,
June 4, 1996).
Q: What is the effect of the acquittal of a taxpayer in a criminal action?

ANS: It does not necessarily result in the exonera,tlon of said taxpayer from his civil
liability to pay taxes. The duty to pay tax is, mposed by statute prior to and independent
of any. attempt on the part of the fq~pa er to evade poymen't. It is neither a mere
consequence of the felonious acts cJ,arg¢d r is It a mere civil liability derived from o
crime (Republic v. Patanao, G.R. No. (1414.2, ay 30, 1961).
Note: The civil liability to pay taxes arise 001 betici use o : ~lony but upon taxpayer's
failure to pay taxes. Criminal ]iability 11n f o 1on 6 rls8 , a result of one's liability to
pay taxes.
Q: What is the effect of pa'tment of·t ue a sion?

ANS: Any person convic t~ oj A. ci'ime p by th n addition lo being
liable for the payment of the tax, sh.al ~e c s Imposed herein.
Payment of the ta,x due a f ter apprehens II n lid defense in any
prosecution for vi~l9tlon of dn¥ prov!s ion IR for the forfeiture
of untaxed articles (NIRC. ~~Ci 253). ,
0: What is the effect of sJbsflluent satisfaction of civil liability?

ANS: The subsequent sotlsfactlon of civil liob ility ,~y payment or prescription does not
extinguish the taxf.oyer·s criml al liability (~opfe 'o!, ierra, G.R. Nos. L-17I77-B0,
December 28, 1964 .
0: Can subsidiary imprisonme.11t be imposed in case of the insolvency of the

taxpayer?
ANS: In case of insolvency 011 the port of th e taxpayer, subs·idio ry Imprisonment cannot
be imposed as regards the tax whic h he is senten ced to pay (People v. Jean-Arnoult,
G.R. No. L -42B8. November 20, 1952). However, ii may be imposed in cases of failure
to pay the fine imposed (NIRC, Sec. 2B0) .
Q: May criminal action be filed despite the lapse of the period to file a civil action
for collection of taxes?
ANS: Yes. When ·the civil action a ris ing out of a tax delinquency is extinguished by the
5-year prescription period for collection, it is still possible for such t ax to be collected
by criminal action because actions of this kind prescribe only after t he lapse of 5 years
counted from the d iscove ry of the crime and the institution of p roceedings for Its
investigation and punishmen·t (NIRC. Sec. 2BI).
0: Is the filing of a criminal action an implied assessment by the CIR?

ANS: No. This is because on affidavit, wh ich was exe<uted by revenue officers stating
the tax liab ilities of a taxpayer and attached to a criminal complaint for tax evasion,
cann·o t be deemed as an assessment (CIR v. Poscor Realty, G.R. No. 128315, June 29,
1999).
The recommendation letter of the CIR (addressed to the DOJ for the filing of a criminal
complaint against the taxpayer) cannot be considered a formal assessment due to the
following reasons:
1. It was not addressed to the taxpayers;
2. There was no demand mode on the taxpayers to pay the tax liability, nor a
period for payment set therein; and
3. The letter was never mailed or sent to the taxpayers by the CIR (Adamson
v. Court of Appeals, G.R. No. 120935, May 21, 2009).
In fine, the recommendation letter served merely as the prime facie basis for filing
criminal information that the taxpayers had violated (penal provisions) of the NIRC
(Adamson v. CA, G.R. No. 120935, May 21, 2009).
0: May resei-vation to file civil action be made?

ANS: No. Under R.A. No. 9282, the filing of the-criminal case implies also the filing of
the civil case. No reservation for the filing of the civil case may be made under this law,
unlike that of a felony under the RPC (MAM ALA TEO. Reviewer. p. 724).
0: Is assessment still necessary even if the accused is found guilty under Sec. 255
of the NIRC?
ANS: Yes. In case the accused is found guilty beyond reasonable doubt for violation
of Sec. 255 of the NIRC (for failure t · or to supply correct information),
the imposit ion of the civil liabih atic and assessment notice
from the BIR is necess os. 013 and 015, January
5, 2011).The computa civil liabilities may not
be used because th o res provided for in the
NIRC and in the i -1 Crim. Cose Nos . 013
and 015. January ,,
b) ~~riptive P
0: What are the · ds-and ods of collection of
taxes allowed to · ·., ' 1 ,,
ANS: The prescr aor, e,{ collection of taxes
allowed to the go 1
w;s:
I. In cos ·t xe 3-yeor period under
Sectio th r tra int, levy or court
procee In ·. . 2022. citing CIR v.
United Sa 15. July 2, 2014).
2. In case of f ----· vade the tax or failure
to file a ret
a. Wit hin m, int, levy or by a proceeding
In court (NIRC, e . •
b. Within 10 years from discovery of the falsity, fraud or omission, If
without assessment, by a proceed ing in court (NIRC. Sec. 222(0)).
3. In the case of Internal revenue taxes assessed within the extended period
in a duly executed Waiver of Statute of Limitations - Within the period
agreed upon in writing before the expiration of the 5-year period by
distraint, levy o r by a proceeding in court. The period so agreed upon may
be extended by subsequent writte·n agreements made before the expiration
of the period previously agreed upon (NIRC. Sec. 222 (d)) .
Note: The administrative remedies of distraint and levy are available only
when the collection is preceded by a valid assessment.
CIVIL PENALTIES
Q: What is the purpose behind the imposition of penalties?
ANS: Penalties are imposed to discourage delay in the payment of taxes due to the
government and in this sense, the penalty and interest are not penal but compensatory
for the concom itant use of the funds by th e ·taxpayer beyond the date when he is
supposed to have pa id them to the Gove rnment (Philippines Refining Co. v. CA. G.R.
No. 116794. May B. 1996).
a) Delinquency Interest and Deficiency Interest

Q: What is the rate of interest imposable under the NIRC?
ANS: In general. there shall be assessed end collected on ony unpaid amount of tax,
interest a t the rote of double the legal Inte rest rate for loans or forbearance of any
money in the absence of an express stipuloi'ion as set by the Bongko Sentral ng Pilipinos
from the -dote prescribed for payment until the amount is fully paid (NIRC, Sec. 249
(A)) .
Note: From July 1, '2013, as per BSP Circular No. 799, Series of '2013, the legal interest
rate is 6%. Therefore, the interest rate imposable under the NIRC is 1'2% (R.R. No. '21-18,
Sec. 2).
0: What are the types of interest under the NIRC?

ANS: Under the NIRC, interest may be on account of:
1. Deficiency;
'2. Delinquency; or
3. Extended payment (NIRC. Sec. 249).
0: What is "deficiency interest''?

ANS: Deficiency interest is that imposedOJ,I any deficienc y tax due, which interest shall
be assessed and collected from the date p l!Scrlbed for its payment until:
1. Full payment thereof; or
'2. Upon issuance of o notit'e Ofl • demand by the Commissioner or his
authorized representative, w~i<Zhe er comes first (R.R. No. '21-18, Sec. 3).
0: What is "delinquency interest"?

ANS: Delinquency interest is tho+ imposed on th :
1. The amount of ,th'e tax due on any ret
'2. The amount of the tax due for hich Ired; or
3. A deficiency tax, or any surcl!,9 rge n on the due date
appearing in the notice and der,i:and er or his authorized
repi'esentdtive un'~il the amount Is full st shall form part
x. (R.R .,No. '21 -18, Sec. 4).
of the_ q_
0: What is the new rule on double l!!)po slt on of inttre,t?

ANS: Upon the effectivity of the TRAIN ILow, in no case sh~ I the deficiency and
delinquency interest be Imposed simultaneoi:isly (R.R. No. '21-18, Sec. 5).
Note: Prior to the TRAIN L9w. delinquency lriter,st l~ h, d to "form part" of the tax,
resulting in a double imposition of ln-teresti This hos now 15een expressly prohibited.
b) Surcharge
0: What is a surcharge?
ANS: A surcharge is a civil penalty imposed in addition to the tax to be paid (NIRC,
Sec. '248).
0: What are the 2 categor ies of surcharge?

ANS: The two catego ries of surcharge ore:
1. Surcharge at 25% pena lty; and
'2. Surcharge at 50% penalty (otherwise termed as "fraud penalty") (NIRC,
Sec. 248).
0: When shall the 25% surcharge be imposed? (RID~)

ANS: A penalty equivalent to '25% of the amount due shall be imposed in case of:
1. Failure to file any .Return and pay the tax due thereon as required by the
NIRC or the rules;
'2. Filing a return with on ln terno l revenue officer other than those with whom
the return is required to be filed;
3. Failure to pay the .Q.efic iency tax within the time prescribed fo r the payment
of the some in the notice ot assessment; or
4. Failure to pay the full or part of the amount of tax shown on any return, or
the full amount of the tax due for which no return is required to be filed,
on or before the prescribed Qate for its payment (NIRC, Sec. 248 (A)).
0: What is the nature of the payment and collection of surcharges?

ANS: The payment of su rcharge is mandatory and the Commissioner is not vested
with any authority to waive or dispense with the collection of the some, however, such
rule is not absolute and is subject to exceptions (Phi/ex Mining Corporation v. CIR, G.R.
No. 125704, August 28, 1998).
0: What are the exceptions to the rule that payment of surcharge and interest is
mandatory?
ANS: Surcharge and interest may be deleted in the following instances:
1. When there is good faith and honest belief that one is not subject to tax
on the basis of previous interpretation of government agencies (Michel).
Lhuillier Pawnshop, Inc. v. CIR. G.R, No. 166786, September 11, 2006); or
2. When the imposition of a tax statute wos controversial (Cogoyon Electric
Power & Lfg/1t Co., Inc. v. CIR, G.R. No. L-60126, September 25, 1985).
0: When shall the 50% surcharge (fraud penalty) be imposed? (FiFa)

ANS: The penalty of 50% of the tax or of the deficiency tax shall be imposed in case
of:
1. Willful neglect riod prescribed by the NIRC
or the rule
2. Willful fili Sec. 248 (B)).
0: What type of f e fraud penalty?

ANS: For the im ployed is intentional
fraud, consisting esorted to to induce
another to give ht or gross, is not
equivalent to the by the low. It must
amount to intenti' ng the tox (knor v.
CTA. G.R. No. L -2
Q: What is the p eturn?
ANS: A return substantial under
declaration of to ment of deductions
(NIRC, Sec. 248 (
0: What is the t ~.,-,;- ration of income· or

·substantial overstat
ANS: The failure to rep amount exceeding 30% of
that declared per return an amount exceeding 30% of the
actual deductions shall render the taxpayer liable for substantial under-declaration of
sales, receipts or income or for overstatement of the deductions (NIRC, Sec. 248 (B)).
c) Compromise Penalty
0 : What Is a compromise penalty?

ANS: A compromise penalty is on amount collected by the BIR in lieu of criminal
prosecution for violcitlons committed by taxpayers, the/ayment of which is based on
the compromise agreement between the taxpayer an the BIR (DIMAAMPAO, Tax
Principles and Remedies, p. 190).
0: What is the effect of the taxpayer's failure to comply with the compromise
agreement?
ANS: If the taxpayer reneges to pay the suggested compromise, the CIR may NOT
collect the compromise penalty throu~h a court action or by distrolnt or levy. This is
because a compromise penalty is neither a tax nor on administrative penalty for tax
delinque~cy. ~he remedy of _t~e ~IR is ~o file a _criminal action against the taxpayer for
the tax v1olotto11 (CIR v. Ph,l,pp,ne Da,/y Inquirer, Inc., CTA EB No. 905, November 4,
2013).
Volume 1. Series of 2023. 8£0AN RED BOOK 549
Summary of the Assessment Process
Issuance If RO finds that taxpayer is liable for

Conduct of tax deficiency tax - Notice of Discrepancy
and service i----. audit by RO ~ shall be issued and served to the
of LOA named in the taxpayer
LOA
...
Conduct of Discussion of Discre3.anci shall
in no case extend beyond 30 ays rom
RO still finds that taxpayer is liable receipt of notice - Taxpayer presents his
.,.J __ , ·~- --·-
but taxbayer is not amenable - PAN
shall e issued and served to the
taxpayer except in cases Novided
-~
,--------------•
I
·--------------,
under Sec. 226 of the IRC I \
I RO still finds that taxpayer is I
1 liable and taxpayer is I
: amenable - Taxpayer pays the
t ._.. ,;
'--------··-----·---------·----------'
( --------- ------------ .....\ ------------"-----------,
Tax a ·r is not
------------'--------- . ,'
I Tax payer is l ame h the PAN
Taxpayer is not I
I
I I amenable but do<?s not
1
amenable with the
PAN - Taxpayer paysI - T
rep
ay file a
ays from
reply to the PAN - !
II,... ____________________ ,JI
the tax Tax payer is- In default
___________ .,J
'"'·• dt
Tax payer's reply Is meritorious

- assessment is d iJJ)'liSsed
,,-------- --------~, ,,. To payer is n

f Taxpayer Is l ry,0y file !'Ire;>
I ame nable with tf;e I 'I1 "' r,vost!Odtl s,t - Ass<?ssme nl ,
FLD/FAN -
I
I
Tax payer pays the
I
! j If- the p o s or
II
I comes final , executory, ;
\ tnv I :, reir~vestigat
submit IIr musl olso h
cfocumon ~, _______________________
and demandable ,l
'~------------------' , v;ft .offtj}__.,.~,/
Inaction by CIR or his duly authorized

representative within 160 days
,- '"\ ,- - .. ..,
Decision is in f Appeal to the , I Wait for t·he ~
favor of the I CT A within I I decision of the I
representativ I 30 days from I I CIR/ l
taxpayer -
Assessment is
e denies ; lapse of 160 ; I authorl~ed ;
nrntPr.t , davs ; ~---•epre seniotive)
dismissed
,,,-----;.::i~~ni;~~~~~---,,l ( Ahpeal to ..,~ (" MR with- ~; CIR''~

'~-------------'
.,
., ... _______ ___ ,..
1 1 1
,' If den ied, ')
t appeal to CIR within , 1 t e CTA I appea l to the I
, 1•
11
I I Note: This does l
not toll the 30. I
: 30 days within 30 , 1 l CT A within 30 I
,, Note: T is to s t e •, ,'
h II h da Ys f rom 1• ,, day prescriptive I I days From ,
I prescriptive period 11 receibt of 11 period to , I receipt of I
~,, ___________________
to appeal to the , : l,, ____________,, FD A J I,____appeol _(
CT A l
--- to______ ,, l , _________
\
decision l ---~''
Legend:
. - • - . - . . . . . Taxpayer's Remedies r, ,,
If denied, appeal ta the I
j'
R;;;,~die~-
Government
L_
I CT A within 30 days
from receipt of FDDA ~
sso BEDAN RED BOOK Volume 1. Series of 2023.
Ill. LOCAL TAXATION
A, "LOCAL GO_VERNMENT TAXATION
GENERAL PRINCIPLES
0: What are the fundamental principles of local government taxation? (UEP-Not2 -

LIP)
ANS: The following are the fundamental principles that shall govern the exercise of
the taxing and other revenue-raising powers of local government units (LGUs):
1. Taxation shall be .Uniform in each LGU;
2. Taxes, fees, charges, and other impositions shall:
a. Be ,Equitable and based as far as practicable on the taxpayer's ability
to pay;
b. Be levied and collected only for fub lic purposes;
c. Not be unjust, excessive, oppressive, or confiscatory;
d. Not be contrary to law, public polic y, notiona l econom ic policy, or in
restraint of trade;
3. The collection of local -to' e;;' e~s. cl1arges, and other impositions shall in no
case be 1.,et to Qfl prjv~ te erfo ;\ l
4. The revenue s;t:J!lec i;cf pur,5u'a~t pYtb. ~rqwts_(ons of the LGC shall lnure
sol ely to t he"'.ben~i 6f, and be subject · to tj,i, d isposition by, the LGU
levyi~g th~.ta. Jft ,
c~;a ige, ·~ ther lmp6si o"n 'u ess otherwise specifically
provided e1: Pi! n , ... _.- )
5. Eac h L ·, U h· ·11, fa r as predicable evo ve o frog ressive system of
taxatio ,(LG . Sec 13_9). t_ I
. ;--
NATURE AND SO RC O
{ FT . ING P_
O ~E~_ - • i
I 1] , 11• I '
0: What is the na ure 'of theJoca l taxtng powe~ } D,l:'..QT
ANS: The nature o lj cM, tax ~g- ~qwet mpy,. ~e de~c-rjlSed as fol , ws:
1. Not inh rent ,ut O Qire~t grr nt ./ ;~e.}pow/ r to t x is no longer vested
exclusive It in G~ng r~ss:,) loc~f..le~isl9t1ve Bodies are now given direct
au t hori ty t.o levy fox~~.\ / ef~•- a{19' ot.heJ; ·charges pursuant to Article X,
Section 5 the, .1~8J d>'nstifu'tlni,- •(Bt;,J an~6s Power Corporation v.
Botangas Cit GtR.<Wo, ] 52675r-Ar,l'fl {l\ 290 );
2. r
.!,,_imited - Wh ile thi l9~t Car),s t{t t/tl n'o,... ,-,i ncludes taxation OS one of the
powers of local go er,r;i menH1/fb'c I g.overnments may o nly exercise such
power subject to such guidelines a nd liml ta·tions as the Congress may
provide (Manila /nternatlonol Airport Authority v. CA, G.R. No. 155650, Ju ly
20, 2006);
3. _!..egislotive in natu re - The power to impose a tax, fee, or charge or to
generate revenue shall be exercised by the Sanggunian of the LGU
concerned through an appropriate ordinance (LGC, Sec. 132); and
4. Ierritorial • Each LGU shall exercise its power to create its own sources of
revenue and to levy taxes, fees, and charges consistent with the basic policy
of local autonomy. Such taxes, fees, and charges shall accrue exclusively to
the LGUs (LGC, Sec. 129).
a) Grant of Local Taxing Power Under the Local Government Code
0: What are the. so urces of loca l taxing power?

ANS: The grant of the local taxing power is made through the 1987 Constitution and
t he· Local Government Code of 1991, particu larly:
1. Under Sec. 5, Art. X of the 1987 Constitution • "Each local government unit
shall hove the power to create its own sources of revenues and to levy taxes,
fees, dnd charges subject to such guidelines ond limitations os the Congress
may provide; consistent with the l:iosic policy of loca l autonomy. Such taxes,
fees, and charges shall oc_c rue exclusively to the loca l governments"; cmd
Volume 1. Series at 2D23. BEDAN RED BOOK 551
2. Under Sec. 129 of the LGC · "Each local government unit shall exercise its
power ta ere.ate its own sources of revenue and to levy taxes, fees, and
charges subject to the provisions herein, consistent with the basic policy of
local autonomy. Such taxes, fees, and charges sha ll accrue exclusi vely to
the local government units."
0: Who has the authority to exercise local taxing powers?

ANS: The power to impose a tax, fee, or charge or to generate revenue under the
Code shall be exercised by the Sanggunian of the LGU concerned (LGC, Sec. 132).
0: How is the local taxing power exercised?

ANS: The power to impose a tax, fee, or charge or to generate revenue shall be
exercised through an appropriate ordinance (LGC, Sec. 132).
0 : How often may local tax rates be adjusted?

ANS: LGUs shall have t he autho rity to adjust the tax rates as prescribed herein not
oftener than once every 5 yea rs, but In no case shall such adjustment exceed 10% of
the rotes fixed under the LGC (LGC, Sec. 192).
0 : What is the residual taxing power of LGUs?

ANS: LGUs may exercise the power to 1£:V.Y ta xes, fees or charges on any base or
su b ject not otherwise specifically enum~rcff'id in the LGC or taxed under the provisions
of the Notional Internal Revenue Code1 ·a amended, or other applicable laws (LGC,
Sec. 186).
0: What conditions must be compll/o?~ · ercise of the residual

taxing power? (FCUP)
ANS: In order for the exercise by the · ing power to be valid,
the following conditions must b-e compli
l. The Imposition, m4st not be
local taxation ,(LGC, S('.c. 13
2. The imposition must •not be ositions under the
tommon limitotions••on the Sec. 133);
3. The to).\.es, fe.e s1 'or charge sive, oppressive,
confisca·tory or 'contrary, to dee Q5e n
4. The ordinance l_e'(¥in9 sue~ fee not be enacted
without an.y ,prior J!ublic h u e (LGC, Sec. 186).
0: Who hos the authority to prescribe penaltltt for local tax violations?
ANS: The Sanggunian of;,o local govern ment unit is autho riled to prescribe fines or
other penalties for viola tion of tax ordinances (LGC, Sec. 516) .
0: What is the scope of the authority of the Sanggunian to prescribe penalties

for local tax violations?
ANS: The penalties prescribed by the Songgunian shall not be less than Pl,000 nor
more than PS,000, nor shall imprisonment be less than one (1) month nor more than 6
months. Such fine or other penalty, or both, shall be imposed at the discretion of the
court. The Sangguniang Barangay may prescribe a fine of not less than PlOO nor more
than Pl,000 (LGC, Sec. 516).
c) Authority to Grant Local Tax Exemptions
Q: Who may grant local tax exemptions?

ANS: LGUs may, through ordinances duly approved, grant tax exemptions, incentives
or reliefs under such terms and conditions as they may deem necessary (LGC. Sec. 192).
However, such grant shall not apply to regulatory fees which are levied under the police
power of LGUs (Administrative Order (A.O.) No. 270, otherwise known as the "/RR of
the LGC of 1991", Art. 282 (a)) .
0: How are tax exemptions conferred?

ANS: Tax exemptions shall be conferred through the issuance of a tax exemption
certificate which shall be non-transferable (/RR of the LGC of 1991, Art. 282 (a)) .
552 BEDAN RED BOOK Volume 1. Series uf 2023.
0: What are the guidelines which the Sanggunian should follow in granting tax
exemptions or tax reliefs? (COrAp-12)
ANS: The Sanggunian granting tax exemptions or ta-x reliefs may be guided by the
following:
I. Tax exemption or tax relief may be granted In cases_ of natural ~alamities,
~ ivil di.s turbonce, yeneral failure of crops, or Adverse economic conditions
such as substantial decrease in the prices of agricultural or agri-bosed
products (C 2GAD);
'2. The grant of exemption or relief shall be through an Qrdinance;
3. Any exemption or relief granted to a type or kind of business shall AJlply
to all businesses similarly situated; and
4. Any exemption or relie~ granted shall toke effect only during the next
calendar year for a period not exceeding 12 months as may be provided In
the ordinance. In the case of shared revenues, the exemption or relief shall
only extend to the LGU granting such exemption or rel ief (/RR of the LGC
of 1991, Art 282, (b)).
0: What are the guidelines which the Sanggunian should follow in granting tax
incentives? (NI-OrAp)
ANS: The Sanggunian granting tax incentives mc1y be. 9uided by the following:
1. The tax incentive shall be granted only to ,Hew Investments In the locality
and the ordlnonc ·..c:.~~ ~ and conditions therefor;
'2. The grar:,t of t efinite period not exceeding
1 calendar
3. The gran assed prior to January
l of an
4. Any t ess shall ~ply to all
busine 1
e. , rt. 282 (b)J.
0: Distinguish lo LBT) '!!Id real T) as to the power
of the LGU to gr
ANS: LGUs mo nces ,duly qJ:Sp I al tax exemptions,
incentives or relie s and •,conditio eem necessary (LGC,
Sec. 192). Howeve n to the exemptions
stated in the LGC
0: What is the e
the enactment o
ANS: The said tax the enactment of the
LGC in 1991 (/RR oft
0: What entities ore stl e LGC? (LC0Non-B 1 PEx)

ANS: The following entitles s under the LGC:
1. _!...ocal water districts;
'2. ~operatives duly registered under RA No. 6938, otherwise known as the
Cooperative Code of the Philippines;
3. liJw,-stock and non-profit hosp itals and educational institutions;
4. .8.uslness enterprises certified by the Board of Investments (B01) as pioneer
or non-pioneer for a pel'iod of 6 and 4 years, respectively, from the dote of
registration;
S. .B.usiness entity, association, or cooperatives registered under R.A No. 6810
(Countryside and Barangay Business Enterprises);
6. f.rinter and/or _publisher of books or other read ing materials prescribed by
Deportment of Education Culture and Sports (DECS) as school texts or
refere nces, insofar as receipts from the printing and/or publishing thereof
ore concerned; and
7. Unless otherwise repealed by low, business and economic enterprises
operating wit hin Ellport processing zones administered by the Export
Processing Zone Authority shall continue to enjoy the tax exemption
privileges and tax incentives granted in P.D. No. 66, as amended (/RR of
the LGC of 1991. Art. 283).
Volume 1. Series of 2023. BEDAN RED BOOK s 53
0: How are tax exemptions construed?

ANS: Tox. exempti.on is o privilege to wh ich the ru le that tax exemptions must be
interpreted strictly aga inst the taxpayer ond in favor of the taxing authority applies.
Along with the police power and eminent· domain, taxation is one of the three necessary
attributes of sovereignty. Consequent·ly, statutes in de rogation of sovereignty, such as
those containing exemption from taxation, should be iliktly consttued lo favor of th e
filQ.k. A state cannot be stripped of th is most essential power by doubtful words and
of this highest attribute of sovereignty by ambiguous language (PLDT v. City of Davao,
G.R. No. 143867. March 25, 2003).
d) Withdrawal of Exemptions
0: May the government grant tax exemption to taxpayers whose previous

exemptions has been withdrawn?
ANS: Yes. Withdrawal of a tax exemption does not prohibit fu ture grants of tax
exemptions. The grant of taxing powers to local government units under the
Constitution and the LGC does not affect the power of Con!ilress to grant exemptions
to certain persons, pursuant to a declared national policy (P/,ilippine Long Distance
Telephone Co. v. City of Davao, G.R. No. 143867, August 22, 2001).
SCOPEOFTAXING POWER
0: What is the scope of the local taX:1 er?

ANS: Under Section 5, Article X of' th tion, the exe rcise of the local taxing
power may be subject to such guidelln, Congress may provide
which, however, must be consistent wi t, I autonomy. The LGC,
enacted pursuant to Section 3, Art icle ovides for the exercise
by local government units of their powe or Its lim1tatlons, and
the exemptions from 'toxo1tion (Moctan Authority v. Marcos,
G.R. No. 120082, Septem8e II, 1996).
0: Under the LGC, whaf Is the scope

ANS: The scope of tne local to x:fng po
SCOPE OF :rHE TAXING POV{!;R
Provin ce M ,. 11, oal,ty
Except as ExceP,t a s .otherwise ~ .rq ~ otherwise The barangays may

otherwise prov(de'cl in the, e ovitd d I the levy taxes, fees, and
provided in the LGC, municipglities L~C, tfie city may charges, as
LGC, the province may le11y to es, fees, le vy the taxes, fees, P.~ovided In .8.J:.tkk
may levy Qfil¥ the and cko r.g es n.o± and charges wh ich J.Y. of the LGC, which
taxes, tees, and otherwise levied b:t the g;Tvince or shall exclusively
charges as provinces (LGC, Sec. munic jpo it')! mov a ccrue to them
provided in Article 142). im129_1e, Provided, (LGC, Sec. 152).
I of the LGC how:ever, That the
(LGC, Sec. 134). taxes, fees and
charges levied and
collected by highly
urbanized and
independent
comronent cities
shol accrue to them
and distributed in
accordance with the
prov1s1ons of the
LGC (LGC, Sec. 151).
0: What is the Principle of Pre-emption (otherwise known as the Exclusionary

Doctrine)?
ANS: Pre-emption in the matter of taxation simply refers to on instance where the
notional government elects to tax a particular area, impliedly withholding from the
local government the delegated power to tax the some field. This doctrine primarily
rests upon the intention of Congress. Conversely, should Congress allow municipal
corporations to cover fields of taxation it already occupies, then the doctrine of pre-
emption will not apply (Victor/as MIiling Co. Inc. v. Municlpollty of Victorios. G.R. No. L-
21183, September 27, 1968).
SPECIFIC TAXING POWER OF LOCAL GOVERNMENT UNITS
Provinces
0: What is the scope of the taxing power of provinces? (TBF-SPAF)

ANS: The province may only 1.e vy the following ta1<es, charges and fees:
1. Tax on Ironsfer of Real Property Ownership (LGC. Sec 135);
2. Tox on Business of Printing and Publication (LGC. Sec 136);
3. franchise Tox (LGC Sec 137);
4. Tax on Sand, Grovel and Other Ouorry Resources (LGC, Sec 138);
5. f_rofessionol Tax (LGC. Sec 139);
6. Amusement Tax
7. Annual fixe Von of Manufacturers or
Producers, · , Certain Products (LGC.
Sec 141).
0: What is the sc o t~ transfer tax?

ANS: The provin tix or.'i• th" " s er, or on any other
mode of tron sferr titte of ~ed l"p 135).
0: What rate an be jm'posed n the transfer of
real property? ] '~ .
ANS: The provinc "' · :- - · ' ore than 50% of 1%
of the total consl erty or of the fair
market value in he transfer is not
substantial, which
ANS: The "fair ma revoiling schedule of fair

market values enact the LGC of 1991. Art. 224,
Par. 2).
0: Who are liable for local trans e ax on a property?
ANS: It shall be the duty .of the seller, donor, transferor, executor, or administrator to
pay the tax herein imposed (LGC, Sec. 135).
0: When should the local transfer tax on real property be paid?

ANS: The tax should be paid within 60 days from the date of the execution of the
deed or from the dote of the decedent's death (LGC, Sec. 135).
0: What is the scope of the power of the province to impose tax on the business
of J>rinting and publication?
ANS: The province may impose a tox on the business of persons engaged in the
printing and/or publication of books, cards, posters, leaflets, handbills, certificates,
receipts, pamphlets, and others of similar nature (LGC, Sec. 136, Par. I).
0 : What type of printing and/or publishing is exempt from the local tax on the
business of printing and publication?
ANS: The re·c elpts from the printihg and/or publishing of books or other reading
materials prescribed by the Deportment of Education Culture and Sports as school
texts or references shall be exempt from the local tax imposed on the business of
printing and publication (LGC. Sec. 136, Par. 2).
0 : What rate and tax base may be imposed by the province on the business of
printing and publication?
ANS: The province may impose o tax on the business of printing and publicotlon at a
rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar
year. In the case of o newly started business, the tax shall not exceed 1/20 of 1% of the
capitol investment. In the succeeding colendor year, regardless of when the busin•ess
started to operate, the tax shall be bosed on the gross receipts for the preceding
calendar year, or any fraction thereof, as provided herein (LGC. Sec. 136).
0: What is the scope of the power of the province to impose franchise tax?
ANS: Notwithstanding any exemption granted by any low or other special law, the
province may impose a tax on businesses enjoying o franchise (LGC. Sec. 137).
0: What is the limit imposed on the power of provinces to impose franchise tax?
ANS: A province shall not Impose franchise tax on · business enjoying franchise·
operating within the territorial jurisdiction of any city located within the province (IRR
of the LGC of 1991, Art. 226),
0: What are excluded from the term "businesses enjoying franchise"?

ANS: The term "businesses enjoying franchise· shall not Include holders of certificates
of public convenience for the operation of public utility vehicles for reason that such
certificates ore not considered as franch ises (IRR of the LGC of 1991, Art. 226).
0: Will the conversion into a highly ' r~n~zed city of a municipality which Issued
an ordinance imposing franchise tax cur• the infirmities of the said ordinance?
ANS: No. The power to levy o froncHise, ta~ is bestowed nly to provinces and citi.es
under Sections 134, 137 and 151 of the ' LGC. Sinc1t p o~c ave been vested with the
power to levy a franchise tax, i,t follows t '•a mu i'ilcipolltie'S pursuant to Section 142,
could no longer levy it. The conversion j nt a highly urbat . d city does not cure the
infirmities of an invalid ordinance. A votd ordinance or a ; ision thereof is a nullity
that gives no legal effect, cannot bi enfor d, and no rig t y come from it (Manila
Electric Company v. City of M'Hn'tinlupa, G , . No. 198529 Fe ' rriary 9, 2021, Hernando
Case).
0: What rote and base of ft1e franchise ax may~• impou.d--; province?

ANS: The provincl?-'.moy imeo,~ o to)\ Qn 1:Jus·nesses e Jo '19 Q f nchise at a rate not
exceeding 50% of 1%' of tlie g '<i~S annual refe,l pts for the prece-8 ng calendar year based
on the incoming receip ; or realized, withit1· its territorial jurisdiction. In the case of a
newly started business, the tax.shall not exceed 1/,20 of 1% of the capital investment
(LGC, Sec. 137).
0: How is the •capitol investment~ of a newly started business determined?

ANS: The 1,apitol investme11t to be used as basis of the franchise tax of a newly started
business shall be de'termined in th-e following manner:
I. In the locality where the principal office of the business Is located, the paid-
up-capltol stated In the articles of incorporation, In case of corporations, or
in any similar document in case of other types of business organizations or
enterprises shall be considered as the capital investment;
2. Where there is a branch or sales office which commences business
operations during the sa me year as the principal office but which is located
in another province or In o city outside the province the paid -u p co'p ital
referred to above shall be reduced by the amount of the capital investment
mode for the said branch or sales office which shall be taxable instead by
the province or city where it is located; or
3. Where the newly started business is o branch or sales office commencing
business operations o year later than that of the principal office, capital
investment shall meon the total funds in vested in the branch or soles office
(/RR of the LGC of 1991, Art. 226 (d)).
0: What is the nature of "franchise tax" under the LGC?

ANS: In Section 131(m) of the LGC, Congress unmistakably defined a franchi se in the
sense of a secondary or special franch ise. This is to ovoid any confusion when the word
franch ise is used in the context of taxation. As commonly used, a franch ise tax is "a ta><
on the privile!;!e of transacting business In the state and exercising corporate franchises
granted by the state." It is not levied on the corporation simply tor exis ting as a
corporat ion, upon its property or its income, but on Its exercise of the rights or privileges
granted to it by the government. Hence, a corporation need not pay franchise tax from
the time it ceased to do business ond exercise its franchise. It ls within this context that
the phrase ' ta~ on businesses enjoying a franchise" in Section 137 of the LGC should be
interpreted and understood. To stress, a franchise tax Is imposed based n.o t on the
ownership but on the exercise by the corporation of o privilege to do business. The
taxable entity is the corporation which exercises the franchise, and not the individual
stockholders (Notional Power Corporation v. City of Cabanatuan, G.R. No. 149110, April
9, 2003).
Q: What are the requirements before a taxpayer may be held liable for franchise
tax levied by the province?
ANS: The requirements before a taxpayer may be held liable for franchise tax levied
by the province are as follows:
1. It has a "franchise" in the sense of a secondary or special franchise; and
2. It is exercising its rights nder this franchise within the territory
of the LGU Cit ity of Cabanatuan, G.R No.
149110, Apri
0: When is a gra pay local franchise

tax despite bein onllt'fTci?ri: all taxes"?
ANS: Aside fro n~,bise_.:i,! ox, , ill liable to pay the
local franchise t expre.ssly' · exempted from the
payment thereof Ive fraach is u of all taxes" in a
legislative franch1 1ca )ly51tate pplies to both local
and national ta ·-exem'; tio · e strictly construed
against the tax · .,. . authority (Smart
Communications. 9).
0: What is the s ax on sand, gravel.

and other quarr
ANS: The provin h, and other quarry
resources, as defin s amended, extracted
from public lands o .,__ --~-,..., ms, creeks, and other
public waters within its or. I).
0: May a province extend and, gravel and other quarry

resources extracted from private lands?
ANS: No. Section 151 of the NIRC levied a lax on all quarry resources, regardless of
origin, whether extracted from public or private land. Thus. o province may not
ordinarily impose taxes on sfon.es, sand, gravel. earth, and other quarry resources, as
the same is already taxed under the NIRC. The province can, however, impose o tax on
stones, sand, gravel, earth, and other quarry re.s ources extracted from public land
because It is expressly empowered lo do so under the LGC. As to stones, sand. gravel,
earth, and other quarry resources extracted from private land, however, it moy not do
so because.of the limitation provided by Section 133 of the LGC in relation to Section
151 of the NIRC (Province of Bu/aeon v. Court of Appeals. G.R. No. 126232, November
27, /998) .
Q: What rate and ta,c base may be imposed by the province on sand, gravel and
other quarry resources?
ANS: The province may levy and collect not more than 10% of fair market value in the
locality per cubic meter of ordinary stones, sand, grave l, earth, and other quarry
resources (LGC. Sec. 138, Par. 1).
0: Who shall issue the permit to extract sand, gravel and other quarry resources?
ANS: The permit to extract sand, gravel and other quarry resources shall be issued
exclusively by the provincial governor, pursuant to the ordinance of the Sangguniong
Panlolawigan (LGC. Sec. 138).
0: Haw are the proceeds from the tax on sand, gravel, and other quarry resources
distributed among the LGUs?
ANS: The proceeds of the tax on sand, gravel and other quarry resources shall be
distributed as follows:
1. Province - 30%;
2. Component City or Municipality where the sand, gravel, and other quarry
resources are extracted - 30%; and
3. Barangay where the sand, gravel, and other quarry resources are extracted
- 40% (LGC, Sec. 138, Par. 3).
The proceeds of the tax on sand, gravel and other quarry resources in highly urbanized
cities shall be distributed as follows:
1. Highly urbanized city - 60%; and
2. Barangay where the sand, gravel, and other quarry resources are extracted
- 40% (IRR of the LGC of 1991, Art. 239).
0: What is the scope of the power of th province to impose professional tax?

ANS: The province may levy an annual ,1 - fessional tax on each person engaged in
the exercise or practice of his profedi o equiring government examination as such
amount and reasonable classificati.Qr\ a the Sangguniang Panlalowigon may
determine but shall in no case exceetl f>SQ8 GC, Sec. 139 (a)).
0: Who are considered professionals?;

ANS: The professionals subject to ta x'l\.ei- n impo r ly those who have passed
the bar examinations, qr any board a other exami • ons conducted by the
Professional Regulation :C9m,mission (PR · ). For exampl , • lawyer who is also a
Certified Public Accounto .t (GPA) mu'ft p the professipn - I ax imposed on lawyers
and that fixed for CPAs, rf> he ls to practic both profes fon ( R of the LGC of 1991,
Art. 228 (f)).
0: Who are exemp ed from the payment

ANS: Professionalsl exclusively emptoi,:ed i
payment of this tax '(L..JiC:, Sec, 139 (;Jj ,
0: _W hen should the p rofessional tax be · 2

ANS: The professional tax, s!u,11 be payabl annually1 ri o. before the thirty-first (31st)
day of January. Any persdn first beginning-to proctlee'1!1 p ofession after the month of
January must, however, pay, the ijll tax before ·e ngaging therein. A line of profession
does not become exempt eve11 if .c onducted with some other profession for which the
tax has been paid (LGC. Sec. 13'9 (d)).
0: Where should the professional tax be paid?

ANS: Everr person legally authorized to practice his profession shall pciy the
professiona tax to th e province \Vhere he practices his p rofession or where he maintains
his principal office in case he practices his profession in several places: Provided,
however, that such person who has paid the corresponding professionol tax shall be
entitled to practice his profession in any port of the Philippines without being subjected
to any other national or local tax, license, or fee for t he practice of such profession
(LGC, Sec. 139 (b)).
0 : What is the scope of the power of provinces to levy amusement tax?

ANS: The province may levy on amusement tax t o be collected from the proprietors,
lessees, or operators of theaters, cinemos, concert halls, circuses, boxing stodia, and
other places of amusement (LGC, Sec.140 (a)) .
0: Define "amusement".
ANS: "Amusement" is a pleasurable diversion and entertainment. It is synonymous to
relaxation, avocation, pastime, or fun (LGC, Sec 131 (b)).
0: Define "amusement place•.

ANS: "Amusement places" include theaters, cinemas, concert halls, circuses, and other
places of amusement where one seeks admission to entertain oneself by seeing or
viewing the show or performances (LGC, Sec 131 (c)).
0 : Define "other places of amusement".

ANS, In determining the meaning of the phrase ·other places of amusemenf, one must
ref.er to the prior enumeration ot theaters, cinemotographs, concert halls, and circuse,s
with artistic expression as their common characteristic. Thus, the province cannot impose
amusement taxes on admission fees to resorts, swimming pools, both houses, hot springs,
and tourist spots. While it is true that they may be venues where people ore visually
engaged, they are not primarily venues for their proprietors or operators to actively
d isplay, stage or present shows and/or performances. (Peli:r./oy Realty Corp. v. Province
of Benguet. G.R. No. 183137, Apr// JO, 2013).
0: Con amusement tax be imposed on proprietors, lessees or operators of golf
courses?
ANS: No. In light of Pe//:r.loy Re_a lty v. Prov/nee of Benguet, a golf co.urse cannot be
considered a place of amusement; people do not enter a golf course to see or view a
show o r performance. The proprietor or opera-tor of the golf course does not actively
display, stage, or present a show or performance. People go to a golf course to engage
themselves In a physical sport activi olt; the some reason why people go
to a gym or court lo ploy bodmi J-0n hooting range for target practice,
h
-----
yet there is no showin bu , or shooting range is similarly
considered on amuse b en, f.o {A/to Vista Golf and Country
Club v. The City of •I . -20:'2gJ6j.
0: Whr are PBA 1tu11s-,,or ·ect11 to amu~eme f. ta '
ANS: n determ i g dt tfl:e phrase 'oth -· of amusement", one
must refer ta the ion of theaters, c1\,em s, concert halls and
circuses with artis heir commcin-c e fessional basketball
games do not foll ategory' as -th ci raphs, concert halls
and circuses as th belo119} (? orti m rtalnment while the
former caters to (ehilipplne t- t ociotlon v. Court of
Appeals. G.R. No. 0 ,,
,·-1
0: What rate an be il1)p y the province?
ANS: The provin ~ a rd te more than 30% of the
gross receipts fro ·. . . . _0
0: Who is liable to pa ahluse't'~{lt t /

ANS: The amusement ta e'-i:ollec ~tl fro};i
roprietors, lessees, or operators
of theaters, cinemas, concert 1-i 11s 1 i;ircuses, coxing stadia, and other places of
amusement (LGC, Sec. 140 (a)) .
0: When should the amusement tax be paid?

ANS: The Sangguniong Pon/olowlgon may prescribe the time, manner, terms and
conditions for the payment of tax. In case of fraud or failure to pay the tax, the
Sangguni.a ng Pon/alowlf]an may impose such surcharges, interest and penalties as it
may deem appropriate (LGC. Sec. 140 (d)).
0: What activities ore exempt from amusement tax? (OpCon-DRP-FMLO)

ANS: The holding of Qp,eros, Concert·s.~ramas, Recitals, fainting and art exh ibitions,
flower shows, Musical programs, _Literary, and Qratoricol presentations, except pop,
rock. or similar concerts shall be exempt from ·the payment of the taxes herein imposed
(LGC. Sec. 140 (c)) .
0: What places of amusement are exempt from amusement tax?'

ANS: Under the Principle of Pre-Emption, the following amusement places are not
subject to amusement tax because they are already subject to other percentage tax
under Sec. 1'25 of the NIRC:
1. Cockpits;
'2. Caburets;
3. Night or day clubs;
4. Boxing exhibitions;
5. Professional basketball games;
6. Jai-Alai; and
7. Racetracks (NIRC, Sec. 1'25 in relation to LGC, Sec. 133 (o)).
0: How are amusement taxes allocated?

ANS: The proceeds from the amusement tax shall be shared equally by the province
and the municipality where such amusement places are located (LGC, Sec. 140 (e)).
0: What is the scope of the power of the province to impose tax on delivery
truck/van?
ANS: The province may levy on annual fixed tax for every truck van, or any vehicle
used by manufacturers, producers, wholesalers, dealers, or retailers in the delivery or
distribution of distilled spirits, fermented li~uors, soft drinks, cigars and cigarettes, and
other product.s as may be determined , jj, the Sangguniang Pon/o/awlgan, to soles
outlets, or consumers, whether directly r ! directly, withln the province (LGC, Sec. 141
(a)).
Municipalities
0: What taxes, fees, and charges alities? (B0Se-Fish)
ANS: The following are the-, taxes may be levied by the
municipalities: ~
l. Tax on _iusiness (1!1GC. S
'2. Reasonable 'fees . nd except
erofessiooal taxe"s· reserv
3. Fees for~alip·9e.and licen
4. .Ehh.er,y.. rentols;" f'e ~ artd ch
0: Define business 'withlli tlie ·purviey, o 't e LGC.

r
ANS: "Business" means tro~e or com.merc1 activity regularly engaged in as a means
of livelihood or with a view to p~ofit (LGC, lij (d)) .
0: Why are condominiuitl orpo~ations·g•nna ly n•m t from local business tax?
ANS: In order that the Gorpora/ lop may be subjected fo business taxes, its activities
must fall within the definition of business as provided In the LGC, and to hold that they
do is to ignore the very ·statt.ltor-y nature of a condominium corporation. We con elicit
from the Condominium Act that o condominium corporation is precluded by statute
from engaging in corporate activities other than the holding of the common areas, th.e
administration of the condominium project, and other acts necessary, incidental, or
convenient to the accomplishment of such purpos.e s. Neither the maintenance of
livelihood, nor the procurement of profit, fall within the scope of permissible corporate
purposes of a condominium corporation under the Condominium Act (Yamane v. City
Treasurer of Makati City, G.R. No. 154993, Odober '25. '2005),
Q: ~~at .a.re the types of businesses upon which taxes may be Imposed by
mumc1palihes? (M-WER-Cf,PA)
ANS: Municipalities may impose local business taxes on the folio.wing businesses at
the correspond ing rates:
I, On Manufacturers, assemblers, re-packers, process.ors, brewers, distillers,
rectifiers, and cornpounders of liquors, distilled spirits, and wines or
manufacturers of any article of commerc·e of whatever kind or nature • at
rates based on the schedule under Sec. 143 (a) of the LGC;
'2. On Wholesalers, distributors, or dealers in any article of commerce of
whatever kind or nature - at rates based on the schedule under Sec. 143 (b)
of the LGC;
3, On ,Exporters and on manufacturers, millers, producers, wholesalers,
distributors, dealers or retailers of essential commodities enumerated in the

LGC • at rates not exceeding ½ of the rates imposed under Sec. 143 (a)
and (b) of the LGC;
4. On R.etaijers - at t·he following rates:
a. On sales of P400,000 or less · '2%; and
b. On sales of more than P400,000 · 1% (LGC, Sec. 143 (d));
5. On .C,ontractors and other independent contractors · at rates based on the
schedule under Sec. 143 (e) of the LGC;
6. On banks and other financial institutions • at a rote not exceeding 0 .5%
(LGC, Sec. 143 (f));
7. On feddlers engaged in the sale of any merchandise or article of commerce
• at a rate not exceeding PSO per peddler annu·olly (LGC, Sec. 143 (g)); and
On Any business, not otherwise specified in the preceding paragraphs,
which the Sanggunian concerned may deem proper to tax · at o rate not
exceeding 2% (LGC. Sec. 143 (h)).
0: What is the maximum rate which may be imposed by municipalities within

Metro Manila?
ANS: The municipalities within the Metropolitan Manila Area may levy taxes at rates
which shall not exceed by 50% the maximum rates prescribed in the preceding section
(LGC, Sec. 144).
0: What is the tax base

ANS: Local business t s receipts (except LBT on
peddlers) (LGC, Sec.
a: Define "gross s
ANS: 'Gross Sales ey or its equivalent
representing the eluding the amount
charged or moteri -~ ~ -~ - , advance payments
actually or constru e services performed
or to be performe rminoble at the time
of sales, soles retu
a: When is there
ANS: There is c r the articles sold,
exchanged, or lea n placed under the
control of the person lthout any restriction
by the payor (Ericsso sig, G.R. No. 176667,
November 22, 2007). )
Q : Who are · exporters" in relut
ANS: The term · exporters' shol ref
oJt er of municipalities?
o are principally engaged in the
business of exporting goods and merchandise, as well os manufacturers and producers
whose good~ or products ore both sold domestically and abroad. The amount of export
soles shall be excluded from the total sales and shall be subject to the rotes not
exceeding one half (1/'2) of the rotes prescribed on (o) manufacturers, (b) wholesalers
and (d) retailers (IRR of the LGC of 1991, Art. 232 (c)).
Q: What are considered as essential commodities under the LGC? (RWO-LAg-FSC)

ANS: The following ore considered as essential commodities, the manufacture and
sale of which ore subject only to one half (1/'2) of the rotes generally imposable:
1. _Rice and corn;
2. ytheot or cassava flour, meat, dairy products, locally manufactured,
processed or preserved food, sugar, salt and other agricultural, marine, and
freshwater jroducts, whet·her in their original state or not;
3. Cooking Qi and cooking gos;
4. .Laundry soap, detergents, and meqicjne;
5. _Agricultural implements, equipment, and post-harvest facilities, fertilizers,
pesticides, Insecticides, herbicides, and other fartn inputs;
6, Poultrr feeds and other animal feeds;
7. .S.c,hoo supplies; and
8. .C,ement (LGC, Sec. 143 (c)).
0: Define "retail".
ANS: "Retail" means a sale where the purchaser buys the commodity for his own
consumption, irrespective of the quantity of the commodity sold (LGC, Sec. 131 (w)).
0: What is the scope of the municipalities' taxing power on retailers?

ANS: The municipalities have the power to levy taxes on retailers whose gross sales or
receipts for the preceding calendar year is more than P30,000.
Note: Sec. 143 of the LGC states that barangays shall have the exclusive power to levy
taxes, as provided under Section 152, on gross soles or receipts of the preceding
calendar year of PS0,000 or less, in the case of cities, and P30,000 or less, in the case
of municipalities.
0: What is the scope of the LGU's taxing authority over banks and other financial
institutions?
ANS: LG Us have the power to tax banks and ot her financial institutions at a rate not
exceeding 0 .5% on the gross receipts of the preced ing calendar year derived from
interest, commissions and discounts from lendin~ activities, income f rom financial
leasing, dividends, rentals on property and profit from exchange or sale of property,
Insurance premium (LGC, Sec. 143 (fJ) . All other income and receipts of banks and
financial Institutions not otherwise enumerq ed above shall be excluded from the taxing
authority of the LGU concerned (/RR o th LGC of 1991, Art. 232 (f)).
0: Define a "peddler".
ANS: "Peddler" means any persor:1 who, ~el er for himself or on commission, travels
from place to place and sells his goocl~ or ·offers o sell and deliver the some (LGC, Sec.
131 (t)). ~
0: Who are exempted to pay local tax

ANS: Manufacturers, pfo~uc~rs, whol . ilers In the delivery or
distribution of distilled spirits, l ermente cf ors and cigarettes, and
other products as may be· de term ined . an/alawigon, to sales
outlets, or consumers mall be-exempt f!_O C, Sec. 141).
0: How is the taxing power of ,~unici,p qlities ~o an • bu,· .,s, not otherwise
specified in preceding paragfaphi 1:1nder ec. 143 (h) con1tru !?
ANS: It is apparent''f om a pewsal of,Sec 1 3 of the LGC th'dt when a municipality or
city has already impose.cl •o 'l:5us l'h ess ta,x on anufacturers, etc. of liquors, distilled spirits1
wines, and any other a rlicle of commerce, P4r~uont to Section 143 (a) of the LGC, said
municipality or city may no lpnger subjec,t th"~ ~me q!)li!factu rers, etc. to a business
tax under Section 143 (h) of the same Code. !Sectiorf 11''3 th) may be Imposed only on
businesses that are subJeq Jo exdse tax, VAT, or percentage tax under the NIRC, and
that ore "not otherwise spec'ffied 11!1 preceding paragraphs" (City of Manila v. Coco-Co/a
Bottlers Philippines Inc .. G.R. No.1181845, August 4, 2009).
0: What is the purpose of paying business taxes?
ANS: Business taxes imposed in ·the exercise of police power ·For regulatory purposes
are/aid for the privilege of carrying on a business In the year the tax was paid. It Is
pai at the beginning of the year as a Fee to allow the business to operate for the rest
of the year. It is deemed a prerequisite lo the conduct of business (Mobil Philippines.
Inc. v. City Treasurer of Makoti. G.R. No. 154092, July 14, 2005).
0: How do entities pay the business taxes levied by the municipality?

ANS: The taxes imposed under Section 143 shall be payable for every separate or
distinct establishment or place where busi ness subjed to t he tax is conducted and one
line of business does not become e xempt by being conducted with some other
businesses for which such tax hos been paid . The tax on a business must be paid by the
person conducting the same (LGC. Sec. 146).
0: How is business tax computed when a person operates two or more businesses?
ANS: In cases where a person conducts or operates two or more of the businesses
subject to local business tax under Sec. 143 of the LGC:
1. If both businesses ore subject to the some rote of tox - the tox shall be
computed on the combined total gross soles or receipts of the soid two or
more related businesses; or
'2. If both businesses ore subject to different rates of tax - the gross soles or
receipts of each business shall be seporotely reported for the purpose of
computing the tox due from each business (LGC, Sec. 146).
0: What are the scenarios for determining situs of local businvss tax?
ANS: The situs of local busi11ess tox is determined according to the following scenarios:
1. With branch or sales outlet (LGC, Sec. ISO (o));
2. Where there is no branch or sales outlet (LGC, Sec. ISO (a));
3. Where the.re Is o factory, project office, plants, or plantation in pursuit of
business (LGC, Sec. ISO (b});
4. Where there are two or more factories, project offices, plants or plantations
located in different localities (LGC, Sec. ISO (c) & (d)); ond
5. Soles mode by route trucks, vons, or vehicles (IRR of the LGC of 1991, Art.
243 (d)).
0: What is a principal office?

ANS: Principal office is the heod or main office of the business appearing in the
eertinent documents submitted to the Securities and Exchange Commission, or the
Department of Trade and lndust · te agencies, as the cose may be.
The city or municipality specifi s of incorporation of officio!
registration papers as · principal office shall be
considered as the situ 3 (aJ(I)) .
0: What is the d he business whose

principal office i
ANS: In case ther ce to another city or
municipality, it sh er of the business to
give due notice of ecu tives of the cities
or municipalities c sfer or relocation is
effected (/RR oft
0: What is a bra
ANS: A branch o conducts operations
of the business a sed only as display
areos of the produ although orders for
the products ma't' es offices as herein
contemplated (IRR o
0: What is a warehous .
ANS: A warehouse is a bui mg u I lied.Jo t • orage of products for sale and from
which goods or merchandise are withdrawn for delivery to customers or dealers, or by
persons acting on behalf of the business. A warehouse that does not accept orders
and/or issue soles invoices shall not be considered a branch or soles office (IRR of Ifie
LGC of 1991, Art. 243 (a)(3)).
0: How is a warehouse which accepts orders and/or issues sales invoicvs trvatvd
for local tax purposes?
ANS: A warehouse which accepts orders and/or issues sales invoices ind epe nden t of a
branch with sales office shall be considered as a sales off ice (IRR of the LGC of l991
Art. 243 (a)('2)). .
0: What is the situs of tax if there is a branch or sales office or warehouse in the
locality of sale?
ANS: All soles made in a locality where there Is a branch or sales office or warehouse
shall be recorded in .s a id branth or sa les office or warehouse and the tax shall be
payable to the city or municipality where the some is located (/RR of the LGC of 1991.
Art. 243 (b)(I)).
0: What is the situs of tax if the goods are delivered outside the locality where
the branch is?
ANS: The fact that goods are del i-v ered to customers whose_ places of business a re
outside of the city; wou ld not place those sales beyond the city's texin«:;1 power. Those
sales formed part of the merchand is ing business bein9 carried on by the company in
the city. In essence, they ore the some a s soles of g·o ods fu ll y consummated In the city
(Phi lippine Match. Cp., LTD v. City of Cebu. G.R. No. L-30745, January 18. 1978).
Note: What is essential is the place of sale and not the place of delivery of the goods.
0: What is the situs of tax if there is no branch or sales office or warehouse in the
locality of sale?
ANS: In coses where there is no such branch, sales office, or warehouse in the locality
where the sale ls made, the sa le shall be recorded in the principal office along with the
sales made by said prlnclpol -offlce and the tax shall accrue to the city or municipality
where said principal office is located (IR R of t/ie LGC of 1991, Art. 243 (b)(2)).
0 : What is the situs of tax if o taxpayer has o factory, project office, plant, or
plan tatio n?
AN S: The following sales a llocation shall apply to manufacturers, assemblers,
contractors, produce rs, and l?Xporters wi th factories, project offices, plants, and
plantations in the fursuit of their busi1,ess:
1. 30 % o all sales recorded in ,the principal office shall be taxable by the city
or municipa lity where t l1·~ Al:) no!PSJ I oftice is located; and
2. 70% of _a(I sa!es recorde'~ iii t'h! e rlncipa_l office _shall be taxable by th_e cit_y
or municipality where the fodor , ero1ect offtce, plant, or plantation ts
located (LGC, Sec 150 (b )~i ""'
In case of a pJanratl on loc . pie the place where the

factory is locat ed, said 709', m,an 1oned ph (b) of subsection
(2) above shdlt 'be div ided as fo llows:
1. 60% t~ t he c.lty or munic lity wh is located; and
2. 40% fo th e ·i;'lty or m1,1,nici lity wh ion is located (LGC,
Sec,150 (a)).
~
0: How a re sales· a lloca ted. when there ar.e two or 111or• fadol'ies, project offices,
plants or plan ta tions loc~Jted\ !n dlfferen Jocalities?
ANS: In cases where a 1manu rcicturer-, assembler, prod uce r, exporter or contrador has
2 or more facto ries, project offices, plants, r plontotions located in different localities,
the 70 % so les a llocation s~oll be p ~oratd:11~moruc:th.e ocalities where the factories,
project offices, plants, and plontqtions •ore 1Hcal·£~fl, !)faportion to their respective
volumes of production du rirfg the ' period for which the tax is due (LGC, Sec 150 (c)).
0: How are sales alloca ted in cases where the manufacturers or producers engage
the service of an independent contractor?
ANS: In cose ,of manufacturers o r producers which engage the services of an
independe nt contractor to produce or manufacture some of their products, the ru les on
situs of taxation shall app ly except that th e factory or plant and warehouse of the
contractor uti lized for the production and storage of the manufactu rers' products shall
be considered as the factory or pla·nt and wareh ou·s e of the manufacture r (IRR of the
LGC of 1991, Art. 243 (b)(7)).
0: What is the situs of tax of sales made by route trucks, vans, or vehicles?
ANS: The situs of tax of soles made by route trucks, vans, or vehicles shall be
determined accord ing to the following rules:
1. For route sales made in a 1.o cality where a manufacturer, producer,
wholesa ler, retailer, o r dealer has a branch or sales office or warehouse, the
sales are recorded in the branch, sales office or warehouse and the tax due
thereon is paid to the LGU where such branch, sales office or warehouse is
located; and
2. For route sales made in a locality where a manufacturer, producer,

wholesaler, retailer or dealer has no branch, sales office or warehouse the
sales are recorded in the branch, sales office or warehouse from where the
route trucks withdraw their products for sale, and the tax due on such sales
is paid to the LGU where such branch, sales office or warehouse is located
(IRR of the LGC of 1991, Art. 243 (d)).
0: What tax may be impose.d by LGUs where route trucks deliver merchandise?
ANS: LGUs where route trucks deliver merchandise cannot impose ony tax on sold
trucks except the anhual fixed tox authorized to be Imposed by the province on every
delivery truck or van or any motor vehicle used · by r,,anufocturers, producers,
wholesalers, dealers, or retailers, in the delivery or dJstrJbution of distilled spirits,
fermented liquors, soft drinks, cigars and cigarettes, and other products as moy be
determined by the Sangguniong Pan/a/awigon, and by the city, pursuant to ArticlE.> 223
of the Rules. In addition to this annual fixed tax, cities may also collect from the some
manufacturers, producers, wholesalers, retailers, and dealers using route trucks a
mayor's pE.>rmit fee which sholl be imposed in a local tax ordinance pursuant to Article
234 in relation to Article 2'23 of the Rules (/RR of the LGC of 1991, Art. 243 (d)).
0: What are the fees and charges for regulation and licensing which a
municii:,ality may impose?
ANS: The following ore fee ~ - =.:.· e imposed by a municipality:
1. Reasonable f ss and occupation E.>xcept
professional Sec. 147);
2. Fees for s res {LGC, SE.>c. 148); and
3. Fishery
0: What is the sco

on business and "'"' \
ANS: The munici e and cbllect ees and charges on
businesses and oc cept as reser e, on the practice of
any profession or · ' pe_rsol') mc::l'v: siness or occupation,
or prdctlce such g p_r;,o.Y_i~.e d · horges shall only be
commensuratE.> to · · ·· expenses incurred in
the conduct of th he LGC of 1991, Art.
233).
0: What is the to impose fees and

charges on busine
ANS: No such fee or '·I'-,.;.; ;;.,:,;- ment or gross sales or
rE.>ceipts of the person o GC of 1991, Art. 233).
0: What is the scope of the impose fees for sealing and

licensing of weights and measures?
ANS: The municipality may !E.>vy fees for the sealing and licensing of weights and
measurE.>s at such reasonable rates as sha ll bE.> prescribed by the Sangguniang Bayon
(IRR of the LGC of 1991, Art. 234).
0: What is the scope of the power of municipalities to impose fishery rentals, fees,
and charges?
ANS: Municipalities shall have the exclusive authority to grant fishery privileges in the
municipal waters and impose rentals, fees, or charges (IRR of the LGC of 1991, Sec. 149).
0: When may the municipality issue licenses for the operation of fishing vessels?
ANS: The Songguniong Bayon may issuE.' licenses for the operation -of fishing vessels
of 3 tons or less for which purpose the Songguniang Boyan shall promulgate rules and
regu!otions regarding thE.> issuances of such licenses to qualified applicants under
exlst1r,g laws (LGC. Sec. 149 {b)(3)) .
0: What are the requirements imposed by the LGC on retiring businesses?

ANS: A business subject to local business tax shall, upon termination thereof, submit
a sworn statement of its gross sales or receipts for the current year. If the tax paid
during the year is less than the tax due on sold gross soles or receipts of the current
year, the difference shall be paid before the business is considered officially retired
(LGC, Sec. 145).
0: What would happen if there is an excess of payment of taxes due upon

retirement of business?
ANS: If ·the amount paid is more than the amount computed based on petitioner's
actual gross sales, the taxpayer, upon retkemcnt of business, is not liable for additional
taxes and the excess may be refunded (Mobil Philippines. Inc. v. City Treasurer of
Makoti. G.R. No. 154092. July 14, 2005).
0: When is there a termination of business?

ANS: Termlna'tion shall mean that business operations ai'e stopped completely. Any
change in ownership, management and/or name of the business shall not constitute
termination. Unless stated otherwise, assumption of the business br any n.ew owner or
manager or registration of the same business under a new name wil only be considered
by t·he LGU concerned for record purposes In the course of the renewal of the permit
or license to operate the business (IRR oft e LGC of 1991. Art. 241 (a)) .
Cities
0: What is the scope of the taxinfl P,Ow•ri of cities?

ANS: The city may levy the ta xes, fctes1 ,p rovlnce or municipality
may impose: Provided, however, Tha t i he es levied a nd collected
by highly urbanized and independent accrue to them and
distributed in accordance wit.I, ·he provi~I ec. 151).
Barangays
0: What is the scope of the taxing ij.OW

ANS: Barangays m.o y levy the foflowihg which shall accrue
exclusively to them: '
1. Taxes on small business e.s-t abl '1'1ments;
2. Service f-ees ,o r ehctr,ges;
3. Barangay ~li!ora ncf,. and
4. Other fees an~ chatges (LGC. $tt. ·152),
0: What is the scope of,.the power ·of -the ·barangay to impose taxes on small
business establishments?
ANS: Barangays may impose focal business taxes on stores or retailers with fixed
business establishments with gross sales or receipts in the preceding calendar year of
?50,000 or less, in the case of cities and P30,000 or less, in the case of municipalities,
at o rate not exceeding 1% on such gross sales or receipts (LGC, Sec. 152 (a)) ,
0: What is the scope of the power of the barangay to impose service fees or
charges?
ANS: Barangays may impose service fees or charges for services rendered in
connection with the regulation or the use of barangay-owned properties or service
facilities such as palay, copra, or tobacco dryers (LGC, Sec. -152 (b)) ,
0: What Is the scope of the power of the barangay to impose fees for the issuance
of barangay clearance?
ANS: No city or municipallly may issue any license or permit for any business or
activity unless a clearance is first obtained fro.m the barangoy where such business or
~ctlvity is located or conducted. For such clearance, the Sangguniang Baranga_v i:nay
impose a reasonable fee. The application for clearance shall be acted upon within 7
working days from the filing thereof. If the clearance is not issued within the said period,
the city or municipality may issue the said license or permit (LGC. Sec. 152 (c)).
0: What other fees and charges may be imposed by the barangay?

ANS: The barangoy may levy reaso nable fees and charges on:
1. Commercial b,reeding of fighting cocks;
2. Cockfights and cockpit5;
3. Places of recreation which charge admission fees; and
4. Billboards, signboards, neon signs, and outdoor advertisements (IRR of the
LGC of 1991, Art 240 (d)) .
Cl: Define commercial breeding of fighting cocks.

ANS: For purposes of imposing barangay Fees and charges on the commercial
breeding of fighting cocks, commercial breeding shall mean on annual sole of more
than 5 figh ·ting cocks of o duly registered breeder (IRR of the LGC of 1991, Art 240
(c)(I)) .
0: Define places of recreation.
ANS: Places of recreation shall include places of amusement where one seeks
admission to entertain himself by seeing or viewing the show or performance or those
where one amuses himself by direct participation (IRR of the LGC of 1991, Art 240
(c)(3)) ,
COMMON REVENUE RAISING POWERS
0: What are the common rer,enue raiiing P.P ers-of all LGUs?
ANS: All LGUs may impose f e llowing:I 1
1. Fees ond cha rges f~ • e ~vicl!! trndere'd ()..GC, -Sec. 153);
2. Public uti litv"' hor e (LGC S_g_c. 154); an ,
3. Toll fees o h r,9.e's, ,1:&c. Sec. 1
55). ' ,
/ 11 M ,'
0: What is the scope o t e power of LGi:Js tb coll
rendered? , · '
ANS: Provinces, cjti ~ ~ f1i1Unicip lities, OJ'.ld boranijay may mpo's and collect fees and
service or user ch~·rges' or any servk:e rendered by LGU in 'l1 amount reasonably
commensurate to s oh~~ vice li( ovided tliat no servi',? ~bar~e sh !I be based on capital
0
investments or gro s _sales o\ r.~~~lpts 9f ?f e ·perso s!or; busi.r,ie 5i{s liable therefor (IRR
of the LGC of 1991' - ~I.
,.
2~4 10J);'
' . -~
. '"'.'
. ·
' publl
0: When may the L'GUs c Uect I '
u iii , charges?
ANS: Provinces, citieSi municlpalit1es'.J,:.ancl-bo r-angoys 5J;'all ex.1Hcise the power to collect
charges for services r l\de red bY. (;\.,Li_s 'in \c ·nnect,o.n wit}I the operation of public
utilities owned, ope ratecl a cl )Jli: lntoln,d b t bem at rates to be fixed by the
Sanggunian concerned (IRR . net
LGC of . 9.9~t-~t<. '2"«'1b)),
1/ ' \
0 : What is the scope of the power of 1:.GUs•fo collect toll fees or charges?
ANS: The Songgunion concerned may prescribe the terms and conditions and fix the
rates for the imposition of toll fees or charges for the use of any public rood, pier, or
wharf, waterway, bridge, ferry, or tel ecommunication system funded and constructed
by the local government uni't concerned (LGC. Sec. 155),
0: Who are exemft from toll fees or charges?

ANS: No such tol Fees o r charges ~hall be collected from:
1. Officers and enlis-ted men of the Armed Forces of the Philippines and
members of the Philippine Notio nal Police on mission;
'2. Post office personne l delivering mail;
3. Physically-handicapped persons; and
4. Disabled cifaens who are 65 years or olde r (LGC. Sec. 155).
COMMUNITY TAX
0: Who ore liable for community tax?
ANS: The following ore liable for community tax:
I. Individuals • Inhabitants of the Philippines, 18 years of age or over, who:
a . Hos been regularly employed for at least 30 consecutive days;
b . Is engaged in a business or occupation;
c. Owns o real property with an aggregate value of Pl,000 or more; or
d. Is required by low to file an Income tax return (LGC, Sec. 157);
2. Corporations • Whether domestic or resident foreign, engaged in or doing
business in the Philippines (LGC. Sec. 156).
0: What are the rotes of annual community tax?
ANS: The community tax rotes are as follows:
1. For individuals - PS and an annual additional tax of Pl for every Pl,000 of
income regardless of whether from business, exercise of profession or from
property which In no case shall exceed PS,000 (LGC, Sec. 157); and
'2. For corporation - PSOO and on odqltlonal tax, which, In no case shall exceed
Pl0,000 in accordance with the following schedule:
a . For every PS,000 worth of real property in the Philippines owned by
the juridical en-tily during, the preceding year, based on the assessed
value used for the paY,m·e t of the real property tax under existing
lows • P'2; and
b. For every PS,000 1 dl gros) receipts or earnings derived from the
business in the PhilIAplnes a
ring the pre.:eding year - P2 (IRR of the
LGC of 1991, Art. Z46 (cl).
0: How much should a husbandrand wlf~ ay as c~mw, ty tax?
ANS: In case of husband .and v'.iife, eof h Hf them shall Eie oble to pay the basic tax
of PS, but the additional tax in;iposoble OJJ the husband a lfe shall be Pl for every
Pl,000 of income from the total proJ?~rfv o ned by them a dlo the total gross receipts
or earnings derived by them (IRR ,of the L of 1991, A,· '24'6 ( )).
0: Who are exem~t from community ta -?
ANS: The followfng_ 6re e ein pt from payiri{:I communi, ¥-,,-I,\-'.,.,,,._""""_
1. Diplomatic rihd•co'r'\ sula'r 1,pre e •totives; ni.i
'2. Transient visitor-s ~hen ~eir st y in the Phlllpplnes exceed 3
months (LGC,,$ec. 'f59).
0: Who ore the persons not lia.ble for c mmi.mlf,y t x during the year?
ANS: The following perso11s 'are not ~ublff d to eg -h community tax during the
current taxable year: · ·
1. Persons who come to r,e1 ide in the Philippines on or after July 1 of any year;
'2. Persons who reaclt the age of 18 years on or after July l of any year;
3. Persons who cease t o belong to an exempt class on or after July 1 of any
year; and
4. Corporations established and organized on or after July 1 of any year (LGC,
Sec 161 (a) and (b)).
0: Where should community tax be paid?
ANS: The community tax is paid at the residence of the individual, or in the place
where the principal office of the juridical entity is located (LGC, Sec. 160).
0: When should community tax be paid?
ANS: The commun ity tax shall accrue on January 1 of each year, which shall be paid
not later than the lost day of February of each year. If o person reaches the a~e of 18
years or otherwise loses the benefi t of exemption on or before the lost day of June, he
shall be liable for the community tax on the ddy he reaches such age or upon the day
the exemption ends. However, if a person reaches the age of 18 or loses the benefit of
exemption on or before the lo.st day of March, he shall have 20 days to pay the
community fa){ without becoming delinquent. Corporations established and organized
on or before the last day of June shall be liable for the community lox for that year.
But corporations established and organized on or before the last day of March shall
have 20 days within which to pay the community tax without becoming delinquent
(LGC. Sec. 161 (a) and (b)) .
0: Who may the city or municipal treasurer deputize to collect community tax?
ANS: The city or municipal treasurer shall deputize the barangay treasurer to collect
the community tax in their respective jurisdictions: Provided, however, that said
barangay treasurer shall be bonded in accordance with existing laws (LGC. Sec. 164
(b)).
0: How are the proceeds of the community tax collected through the city or
municipal treasurer apportion!.'d?
ANS: The proceeds of the community tax actually and directly collected by the city or
municlpdl treasurer shall accrue e nt irely to the general fund of the city or municipality
concerned (LGC, Sec. 164 (c)) .
0: How are the proceeds of the community tax collected through the barangay
treasurer apportioned?
ANS: The proceeds of the community tax collected through the barangay treasurers
shall be apport ione.d a s follows:
1. 50% shall accrue to the general fund of the city or municipality concerned;
and
2. 50% shall accrue to the barangoy where the tax is collected (LGC, Sec. 164
(c)) .
COMMON LIMITATIONS XING P.O OF LOCAL GOVERNMENT

UNITS
0: What are the co of LGUs? (GAMERBINE-

TED-PC-Co•)
ANS: LGUs conn
1. Taxes, s carried into, out of
or pas Us in the guise of
cha rg
2. Toxes, oducts when sold by
them
3. Taxes, ehicles, and issuance
of all f except tricycles;
Note: ~C e mpowers LGUs to

regul to rant franchises for the
opera t e guidelines prescribed
by the D cm ~DI s,onary clause under Section
133 of the d\ o lie effect of withdrawing the
express po t n of all motor vehicles and
the issuance o cens ljyJng"t ereo (Land Transportation Office
v. City of Butuan, G.R. No. 13 Sfi, January 20, 2000).
4. Taxes, fees, and other charges on Philippine products actually .Exported

except as otherwise provided herein;
5. Taxes on premiums paid by way of .Reinsurance or retrocession;
6. Taxes on Jusiness enterprises certified to by the Board of Investments as
pioneer or non-pioneer for a period of 6 and 4 years, respectively from the
date of registration;
7. lncome tax except when levied on banks and other financial institutions;
8. Taxes, fees, or charges of any kind on th e Motional Government, its
agenc ies a nd instrumentalities and local government units;
9. .Excise taxes on articles enumerated under t he NIRC, as amended, and
taxes, fees, and charges on petroleum products;
10. Taxes on the gross receipts of Iransportation contractors, persons engaged
in the transportation of passengers or freight for hire, and common carriers
by air, land, or water;
11. Taxes on _E.stote, inheritam:e, gifts, legacies, and other acquisitions mortis
cal.Isa except as otherwise provided herein;
12. Qocumentory stamp tax;
13. f ercen toge o r VAT on sa les, barter or exchanges or similar transactions on
goods and services except as otherwise provided herein;
14. .C.ustorns duties, registration fees of vessels and whorfage on wharves,

tonnage dues and all other kinds of customs fees, charges, and dues except
wharfoge on wharves constructed and maintained by the local government
unit concerned; ond
Note: Munlcipali ties and cities may Issue licenses for the operation of
fishing vessels of 3 tons or less and shall, by appropriate ordinance,
penalize the use of explosives, noxious or poisonous substances, electricity,
muro-omi, and o·ther deleterious methods of fishin~ and prescribe a
criminal pendlty therefor (LGC, Secs. 149(b)(3) and 151).
15. Taxes, fees, or charges on:
a . yuntryside and borangay business enterprise registered under RA
No. 6810 (Magna Carta for Countryside and Barangay Business
Enterprises); and
b. Cooperatives duly registered under RA No. 6938 (Cooperative Code
of the Philippines) (LGC, Sec. 133).
0: Define "wharfage".
ANS: Wharfage is defined as a fee assessed against the cargo of a vessel engaged in
foreign or domestic trade based on quantity, weight, or measure received and/or
discharged by vessel. It is appa rent that a y.,horfoge does not lose its basic character
by being labeled as a service foe, ',1for police surveillance on all goods" (Po/mo
Development Corporation v. Municfp'm//ty o Ma/angas. G.R. No. 152491, October 16,
2003).
0 : Why is an ordinance imposing fees on o · ·des "passing through"
a violation of the limitations intpased .U
ANS: By express language of Sections T I cal government units,
through their Songgunioq, may prescriP. ter ns for the imposition
of toll fees or charges fol- t.he use of ubli wharf funded and
constructed by them. A s':r,vloe fee lmpo ve ipal roads leading
to the wharf is thus valid. Howe.Ver, Secti e) sition, In the guise
of wharfage, of fe li!Ji - as well as "all oth s o arm whatsoever •
on goods or merc llondise. It is therefore ' nt d are actually for
police surveillance on the gQ.,odS\ beca11.se er on goods passi ng
through the territorial ju r-isdictio•n of•fhe ip ibited by Section
133 (e) (Parma Developmen•t €:orpor ,ti o/ongos, . . o. 492, October 16,
2003).
0: What is the reckoning point of ~h• "'lit (~) fa1:1~ four (4)1 -year period of
exemption of business enterpriHS certified byth lloard of Investments?
ANS: Sec. 133 (g) of the L~C., which proscribes LGUs from levying taxes on BO1 -
certified pioneer enterprises for o period of six years from the dote of registration,
applies specifically to taxes l mposed by the local government, like the business tax
imposed by Batongos City on BPC in the case at bar. The 6 -year tax exemption of BPC
should thus commence from the da te of BPCs registration with the 801 (Batongos
Power Corporation v. Batangas City, G.R. No. 152675, April 28, 2004).
0 : When may taxM, fees, or charges be imposed by LGUs on the National
Government, its agencies and instrumentalities?
ANS: Sec. 234 of the LGC has an exemption clause which renders the Republic of the
Philippines or any· of its political subdivisions liable to real property tax for real
property, the beneficial use of which has been granted, for consideration or otherwise,
to a taxable person (L GC, Sec. 234 (a)).
Q: How is the local government's invocation of the power to tax national
government instrumentalities construed?
ANS: When local governments invoke the power to tax on national government
instrumentalities. such power is construed strictly against local governments. The ru le is
that a tax is never presumed and there must be clear language in the low Imposing the
tax. Any doubt whether a person, article or activity Is taxable is resolved a_g ains·t
taxation. This rnle applies with greater force when local governments seek to tax
notional government Instrumenta lities (Moctan -Cehu International Airport Authority v.
City of Lapu-lapu, G.R. No. 181756. June 15, 2015).
0: What are the two kinds of limitations covered by Sec. 133 (h)?
ANS: Apparently, paragraph (h) of the Section mentions two kinds of taxes which
cannot be Imposed by local government units. namely: "excise taxes on articles
enumeratf.'d under the NIRC, as amended;" and "·taxes, fees or charges on petroleum
products" (Petron Corp. v. Tiangco, G.R. No. 158881, April 16, 2008).
0: Define "excise tax".

ANS: The current definition of an excise tax is that of a tax levied on a specific article,
rather than one "upon the performance, carrying on, or the exercise of an activity"
(Petron Corp. v. Tiangco, G.R. No. 158881, April 16, 2008).
Q: What is the scope of the exemption of taxes, fees or charges on petroleum

products?
ANS: We can concede that a tax on a business is distinct from a tax on the article
Itself, or for that matter, that a business tax is distinct from an excise tax. However,
such distinction is immaterial lnsofor as the lotter port of Secti_o n 133 (h) Is concerned,
for the phrase_"taxes, fees or charges on petroleum produc_ts" does not qualify the kind
of taxes, fees or charges that coulcl withstand the absolute prohibition imposed by the
provision. The absence of such a qualification leads to the conclusion that all sorts of
taxes on petroleum products, including business taxes, ore prohibited by Secti"on 133
(h). Where the low does not distinguish, we should not distinguish (Petron Corp. v.
Tiangco. G.R. No. 158881, April 16 2008
0: What percentage t d by LGUs?

ANS: Section 140 o general rule In Section
133 {1). Section 140 s of amusement taxes
on "the proprietor ncert halls, circuses,
boxing stad1·a , an ,. __ Corp. v. Province of
Benguet, G.R. No. ). H,'.6i;ve,;/er, nly levy amusement
taxes on those ac in Sec.J 40 r, supra at 500) .
REQUIREMENTS . 'ORblNAN'
~~ mr?:
0: What are the n,.,, ..... ,.. P)
ANS: The requlsit
1. It mus ·
2. It mus
3. It must
4. It must
5. It must b y;
6. It must no _ roperties Corp., Inc., G.R.
No. 111097, July 20,
7. It must not be enact _ prior _eublic hearing conducted for the
purpose (LGC. Sec. 186).
Q: What is the procedure for the enactment of local tax ordinances and revenue
measures?
ANS: The following are the steps for the enactment of local tax ordinances and
revenue measures:
I. Filing of proposal • The proposed tax or revenue ordinance Is prepared in
writing. Every proposed ordinance shall be accompanied by a brief
explanatory note containing the justification for -its approval (IRR of the
LGC of 1991. Art. 107);
2. Publication or posting • Within 10 days from filing of any proposed tax
ordinance or revenue measure, the same shall first be published for 3
consecutive days in a newspaper of local circulation or shall be posted
simultaneously in at least 4 conspicuous f)ublic places within the territorial
iurisdiction of the LGU concerned (IRR of the LGC of 1991. Art. 276 (b)(I));
3_ Notifjcgtl<;m - The Sanggunian shofl cause the sending of written notices of
the proposed ordinance enclosing a copy_ to Interested or affected par·tles
operatl_ng or doing business within the territorial jurisdiction of the LGU.
The notice(s) shall specify the date(s) and venue of the public hearing (/RR
of the LGC of 1991, Art. 276 (b)(2) and (3));
4. M.9 d9.!Q.ry_g ublic hiad.o.g_ • The initial public hearing shall be held not
earlier than 10 doysrnm the sending out of notice or 0otlces, or the last
doy of publication, or dote of posting thereof, whichever is later. All
affected o r interested parties shall be accorded on opportunity to appear
ond present or express their views. comments and recommendotlons, and
such public hearing or heorin9s shall continue until all issues have been
presented and fully delibera t·ed upon and/or consensus is obtained, whether
tor or against the enactment of the proposed t ax ordinance or revenue
measure (/ RR of the LGC of 1991, Art'. Art. 276 (3) and (4});
5. Approval of the tox ordinance and re:,,enue measure;
6. Pub icot'o o a rove x •rdin c ev nu. • Within 10 days after
t eir app rove , ce rtlfie true copies of oil provincia l, city, and municipal tax
ordinanCe5 or revenue measures shall be published in full for 3 consecutive
days in a newspaper of local clrcula t i.o n provided that In rrovinces, cities,
an d municipalities where there are no newspapers ef loco circu lati on, the
same may be posted in at least '2 conspicuous and publicly accessible places
(/ RR of the LGC of 1991, Art. 276 (a)); and
7. £i.u:n.i.mln9-Qf~opies of t a x ordinance and revenue measure • Copies of all
provinciaT,-cfty, municipal, a nd barangoy tax ord inances and revenue
measures shall be furnished the respective local treasurers concerned for
public dissemination (/RR of the LGC of 1991, Art. 277).
a: Distinguish local tax and natioQal ta a s to the requirement of rublic hearings.

ANS: In local taxation, no tax oraln,once, r revenue measure shal be enacted or
approved in the absence of a pu blic ke9rll'.l'g (/RR of the LGC of 1991, Art. 276). The
National Legislature, on the other h·o rid,; hds- ·he discretion "hether they would conduct
public hearings before the en actrrient of fgll ~ s JS BA! i N. Taxation Law Review,
supra at 9).
Q: What is the add it ional req uiremen

revenue measure which contains penal
ANS: If the tax ord ino.rw~ or, ~tenue me "slons as authorized
in Article 280, IRR of.c LGC, the gist of ~u measure shall be
published in a newspap.e r of general ovince where the
Songgunian concer r:l'e cLbe lo ngs. In the ab eneral circulation
within the provinc~, posting'. $>( such o rdin ode in accessible
and conspicuous pu blic plafiie s In all mun o province to which
the Sanggunian enacting the o~dinance easure belongs (/RR of the LGC
of 1991, Art. 276 (a)).
0: What is the effect if the tax ordinance fallect~to~ omply with the publication
requirement? .
ANS: The tax ordinance will be null and void if it fails to comply with such publication
requirement (Coca-Cola Bottle ~s· Phillpplnes. Inc. v. City of Manila, G.R. No. 156252, June
27, 2006).
TAXPAYER'S REMEDIES
0: What are the remedies available to taxpayers in relation to local taxes?

ANS: In local taxation, the taxpayer's remedies are as follows:
1. Administrative
a. Before Assessment
i. Question the Constitutionality or Legality of Tax Ordinance or
Revenue Measures on Appeal (LGC. Sec. 187); and
ii. Declaratory Relief (RULES OF COURT, Rule 63).
b. After Assessment
i. Protest (LGC Sec. 195);
ii. Claim for Re/und or Tax Credit (LGC. Sec. 196);
iii. Redemption (LGC, Sec. 179, par. I); and
c. Compromise (LGC, Sec. 148 (b) in relation to Sec. 151).
2. Judicial
a. Court Action
b. Declaratory Relief (RULES OF COURT. Rule 63).
c. Injunction (Angeles City v. Angeles City Corp., G.R. No. 166134, June 29,
2010).
a) Protest
0: What is the procedure for protesting an assessment?

ANS: The procedure to be followed in protesting an assessment is as follows:
1. Within 60 days from the receipt of the notice of assessment, the taxpayer
may file a written protest with the local treasurer contesting the assessment;
otherwise, th·e assessment shall become final and executory;
2. The treasurer must decide within 60 days from the time of its filing. If the
treasurer finds the protest meritorious, he shall issue o notice cancelling the
assessment; if not, he shall deny the protes1 with notice to the taxpayer;
and
3. The taxpayer shall have 30 days from the receipt of the denial of the
protest or from the lapse of the 60-day period within which to appeal with
the court of competent jurisdiction, otherwise the assessment becomes
conclusive and unappeoloble (LGC, Sec. 195)
b) Refund
0: What are the requisites for a tax refund or credit of local taxes?
ANS: The requisites for o t xes are as follows:
I. Th e refund or c , or charge erroneously or
illegally co
2. A writte
and
3. The cl
a.
b. it (LGC, Sec. 196).
a: How are tax C

ANS: The tax ere n cash but shall only
be applied to fut some business. If a
taxpayer hos pol II hove no other tax
obligation pa')'obl credits, if any, shall
be applied in full on the tax due from
him for the same balance of the tax
credit shall be ref tes operation of the
business involved w ....._ __. 286, Pars. 2 and 3).
0: Distinguish protest the LGC and claim for

refund or tax credit unde
ANS: The following are the distinctions between the two concepts:
Protest of 1. Procedure for contesting an assessment issued by the local

Assessment treasurer.
(Sec 195) 2. The administrative remedy is the written protest.
3. The treasurer has to decide within 60 days from the time of
its filing .
4. The assessment is made by the treasurer.
Claim for 1. Procedure for the recovery of an erroneously paid or illegally
Refund or Tnx collected tax, fee or charge.
Credit 2. The administrative remedy is the written claim for refund or
(Sec 196) credit.
3. It does not provide a specific period within which the local
treasurer must decide.
4. It does not mention an assessment made by the local
treasurer.
(City Treasurer of Manila v. Philippine Beverage Partners, Inc., G.R. No. 233556,
September 11, '2019).
0: When is a protest of assessment (Sec. 195) the proper remedy of the taxpayer?
ANS: What determines the appropriate remedy is the local government's basis far the
collection of the tax. It is explicitly stated in Section 195 that It is a remedy against a
notice of assessment issued by the local treasurer, upon•a find ing that the correct taxes,
fees, or charges hove not been paid. The notice of assessment must st'ate the nature of
the ·tax, fee, or charge, the omaunl· of deficiency, the surcharges, interests and penalties
(International Container Termina/ Services, Inc. v. City of Mani/a, G.R. No. 185662,
October 17, 2018) ,
0: When can the court action be availed of?

ANS: The court action may be availed of within the follow ing periods:
1. Within 30 days after receipt of decision or lapse of 60 days in case of
Secretary of Justice's inaction before RTC (LGC. Sec. 187);
2. Within 30 days from receipt when protest of assessment is denied or lapse
of 60 days in case of local treasurer's inaction before MTC, RTC, or CT A
Division depending an amount of tax (LGC, Sec. 195); and
3, If no action is taken by treasurer in refund cases and the 2-year period Is
about ta lapse before MTC, RTC, or CT A Division depending on the amount
of tax (LGC, Sec. 196).
c) Action Before the Secretary of Justice

0: What is the procedure to be foll n questioning the constitutionality of on
ordinance?
ANS: The procedures ta be follawe
1. Appeal to the Secretar\ ys from the effectivity of
such ordinance or revenu
2. The Secretory of Justice within 60 days from the
dote of the reqiipl of th
3. Within 30 days after th er the lapse of the
60-doy periodlwHhout th y pan the appeal, the
aggrieved patty l"Qay fl p with a court of
compet~r;it urlsdictlon 1(LG 7)
Q; Will the failur• to .avail fhe remedy un er Se llr ( ~ I the Secretary of

Justice) bar the ecourse to Sec. 195 C ppeal ..__
·.~ -~
JO rt of competent
jurisdiction)?
ANS: No. A taxpayer s fa ilure '\a avC!II o e of the remedy under Sec. 187 does not
necessarily bar recourse t Sec, T95 when t e ~m Is grounded an the illegality of the
tax measure complained of (Michigan Ha/dfnf/,s In \~. CJ y Treosurer af Makoti, CTA
EB Na. 1093, April 13, 2016).
0: What is the scope of the power of the Secretary of Justice in reviewing the
constitutionality or legality of a tax ordinance?
ANS: All he is perm itted ta do is ascertain the constitutionality or legality of the tax
meosure, without the right ta declore that, in his opinion, it is unjust, excessive,
oppressive or confiscatory. He has no discretion on this matter (Ori/on v. Lim, G.R. Na,
112497, August 4, 1994).
0: Is a protest required to be filed before assailing the validity of a tax ordinance?

ANS: Na. When on ordinance imposes a fee, direct recourse ta the courts may be had
without prior protest before the Secretary of Justice. Simply put, fees are not subject to
the procedure outline under Section 187 (City of Cagayan De Oro v. Cagayan Electric
Power & Light Ca., Inc., G.R. Na. 224825, October 17, 2018).
0: Does the appeal made to the Secretary of Justice suspend the effectivity of the
ordinance in question?
ANS: Na. The appeal made ta the Secretary of Justice shall not have the effect of
suspending the effectivity of the ordinance and the accrual and payment of the tax,
fee, or charge le vied therein (LGC, Sec. 187).
0: What is the effect of the Secretary of Justice's inaction on the validity of the
ordinance in question?
ANS: The failure of the Secretory of Justice to review an ordinance within the
prescribed period does not validate an otherwise invalid ordinance (Estanis/ao v.
Costales, G.R. No. 96516, May 8, 1991).
Note: The taxpayer may file an appeal with the court of competent jurisdiction for the
Secretary of Justice's inaction.
Q: Where should the aggrieved party file its appeal from the decision or inaction
of the Secretary of Justice?
ANS: "Court of competent jurisdiction" refers to the RTC (DOMONDON, supra at
729). The method of judicial recourse has not been specified in the LGC, although it
might be said that such proceedings could include, bl-II certainly will not exclude, the
special civil actions of certiorari, m·a ndamus, or prohibition (VITUG & ACOSTA, Tax
Law ,ond Jurisprudence (2014), p. 485-486).
0: When disputing an ordinance, is appeal to the DOJ mandatory?

ANS: Yes. If no appeal to the DOJ is made, RTC will dismiss the case (Jardine Davies
Insurance Brokers v. Aliposa, G.R. No. 118900, February 27, 2003).
Q: When taxing law or ordinance Is y.r:ic tutional or illegal. may a taxpayer

avail the remedy of filing a P.etltion fr,r atory relief?
ANS: Yes. A petition for d liira' ory r lie Qe FIi d with the RTC to prevent an
Impending violation o .fl}ig toxp (,R OURT, Rule 63).
0: In case where all y of tax cu uestioned, should the
tax be paid first , ,locfg·e dJ
ANS: No. Prior ,uired ,whJ n the s questioning the very
authority of the a xe,{A'a /a v. ' 2781, January 10, 2017).
ASSESSMENT A
0: What is the · t
ANS: Unless oth
I
F LOCAL T
...
'-~ .'
I ta~eli?
;~
; -;
, the/2" If
~)
of,,o I local taxes, fees and
charges shall be t c: 16'9)." '
,, I
0: When do local _,'\ I
ANS: Unless othe In--.. . C, 'a x~s, fees, and charges shall
accrue on January 1 .,, ,g)',S.1:- ; e es, or charges, or changes in
the rates thereof, shal · doy1of th . next following the effectivity
of the ordinance imposing sue l'.\l?W evi~ ,or rot-es l:.G C, Sec. 166).
0: When should local taxes be paid?

ANS: Unless -otherwise provided in the LGC, all local taxes, fees, and charges shall be
paid within the first '20 days of January or of each subsequent quarter, as the case may
be (LGC, Sec. 167).
0: When may local taxes be paid in installments?

ANS: Such taxes, fees and charges may be paid in quarterly installments as may be
provided in the tax ordinance (/RR of the LGC of 1991, Art. 253).
0: What is the scope of the authority of Sanggunians to extend the time for
payment of local taxes?
ANS: The Sanggunion concerned may, for a justifiable reason or cause, extend the
time for payment of such ta xes, fees, or charges without surcharges or penalties, but
only for a period not exceeding 6 months (LGC, Sec. 167).
Volume 1. Series of 2D23. BEOAN RED BOOK 575
Cl What penalties may be impoHd on unpaid taxes, fees, or charges?

ANS: The Songgunlon may impose:
1. Surcharge - not exceeding 25% of the amount of taxes, fees or charges not
paid on time; and
'2. Interest · not exceeding '2% per month of the unpaid taxes, Fees or charges
includ ing surcharges, until such amount is fully paid. However, in no case
shall the total interest on the unpaid amount or portion thereof exceed 36
months (LGC. Sec. 168).
0: Who may inspect or examine the books of persons subject to local taxes?
ANS: The provincial, city, municipal, or borongoy treasurer may, by himself or through
any of his deputies duly authorized in writing, examine the books, accounts, and other
pertinent records of any person, partnership, corporation, or association subject to local
taxes, fees, and charges to ascertain, assess, and collect the correct amount of the tax,
Fee, or charge (LGC, Sec. 171).
0: When should examination of books be made?

ANS: The examination shall be made during regular business hours not more than
once o year for every tax period, which shall be the year immediately preceding the
examination, and shall be certified by the examining official. Such certification shall be
made of record in the books of accounts o the taxpayer examined (/RR of the LGC of
1991, Art. 259).
0: What should the written authoill , e duly authorized deputy of the local
treasurer contain?
ANS: In case the examination here ,Is mode b a duly authorized deputy
of the local treasurer, the written 9utb ~ erned shall specificqlly
state the name, address, and busines' · books, accounts, and
pertinent records are to be exdmined, t nd examination and the
procedure to be followed ilJ conductin~ e (L
Cl Why can't injunctions be 111ued in e of

ANS: The prohibltiof'l"On the•lssuance of i in the collection of
taxes appl ies only, 'f9 9ational.,internol r- axes I taxes. There is no
express provision In the LBf P,rohi~!tin fro 151nction to restrain
local governments •Hom co.Uect'tng tal(C?$, s Ci ._:.........__ tric Corp., G.R. No.
166134, June 29, 2010). '
a) Remedies of Loco ll~'Gavernµren t Units

Q: What are the remedi•! availab!.·to the<Governm nt in relation to local taxes?
ANS: The following remec;lies are ovollable to the Government:
I. Local Governme.r, '.5 Uen
2. Administrative Action
a. Distraint
b. Levy
3. Judicial Action
Q : What is the nature of the government's lien for delinquent taxes?

ANS: Local taxes, fees, charges, and other revenues constitute o lien, superior to all
liens, charges, or encumbrances in favor of any person, enforceable by appropriate
administrative or judicial action, not only upon any/roperty or rights therein which
may be subject to the lien but also upon property use in business, occupation, practice
of profession or calling, or exercise of privilege with respect to wh ich the lien is imposed
(LGC, Sec. 173).
0: How is the tax lien extinguished?

ANS: The lien may only be extinguished upon full payment of the delinquent local
taxes, fees, and charges, including related surcharges and interest (LGC, Sec. 173).
0: What are the civil remedies available to the LGU for collection of revenues?
ANS: The remedies available to the LGU ore:
1. Administrative action:
a . Distroint of personal property (LGC, Sec. 174 (a));
b. Levy upon real property (LGC Sec. 174 (a));
c. Compromise (LGC, Sec. 148 (b)); and
2. Judicial action (LGC, Sec. 174 (b)).
(Please refer to part IV for full discussion on 'judicial Remedies" in Page 595595)
0: How may the civil remedies be exercised by LGUs?

ANS: Either of these remedies or all may be pursued concurrently or simultaneously
at the discretion of the LGU concerned (LGC, Sec. 174).
0: How is the administrative remedy of distraint and levy exercised?

ANS: Distraint and levy is exercised by administrative action through distraint of
goods. chattels, or effects, and other personal property of whatever character, including
stocks and other securities, debts, credits, bank accounts, and interest in and rights to
personal P.roperty, and by levy upon real property and interes t in or rights to real
property (LGC, Sec. 174),
Distraint
0: What is the proced {ain o, i:operty?

ANS: The procedure f perso , ,, •~s fo llows:
1. Seizure;
2. Accoun d~cls;
3. Public 9 ,, not;ce-~f goods;
4. Sale a ion, and ,,-,
5. Dispo ('=._G~.~ec.Jl
0: When may th sei:r;e ·persa,n
ANS: Upon fail u in.g. OCJY Jot f rge to pay the some
at the time requ ir .e.i:.: i:Jiis d written notice, seize
or confiscate any " y personal property
subject to the lie uch case, the local
treasurer or his ificote (Warrant of
Distroint) showin tax, fee, or charges
and penalty due
0: With whom shoul · strained goods be left?

ANS: The officer execu use to be mode on account
of the goods, chattels or ef e y o w ich signed by himself shall be
left either with the owner or person from whose possession the goods, chattels, or effects
ore toke.n, or at the dwelling or place of business of that person and with someone of
suitable age and d iscretion (LGC, Sec. 175 (b)).
0: Whot is the publication requirement for the notice of sale of distrained goods?
ANS: The officer shall cause o notification to be exhibited in not less than 3 public
and conspicuous places in the territory of the local governmen't unit where the distraint
is made, specifying the time and p lace of sole, and the articles distroined. The time of
sale shall not be less than 20 days after notice to the owner or possessor of the property
and the publication or fosting of the notice. One place for the posting of the notice
shall be at the office o the chief executive of the local gove rnment unit in which the
property is d ist roined (LGC. Sec. 175 (c )).
0: What happens if prior to the consummation of the sale, the taxpayer pays all
the charges?
ANS: The goods or effects distrained shall be restored to the owner (LGC Sec. 175
(d)). .
0: What is the procedure for the sale of the personal property distrained?
ANS: At the time and place fixed in the notice, the officer conducting the sole shall
sell the goods or effects so distralned at public a·uction to the highest bidder for cash.
Within 5 days after the sale, the local treasurer shall make a report of the proceedings
In writing to the local chief executive concerned (LGC, Sec. 175 (e)) .
0: What happens if the personal property distrained is not sold within 120 days
from the date of distraint?
ANS: The property shall be considered as sold to the LGU concerned for the amount
of the assessment made thereon by the Committee on Appraisal and to the extent of
the some amount, the tax delinquencies shall be cancelled (LGC, Sec. 175 (e)).
0: How should the proceeds of the sale be disposed of?

ANS: The proceeds of the sale shall be applied to satisfy the tax, Including the
surcharges, interest, and other p e nalties Incident fo d e linquency, and the expenses of
the distraint and sale. The expenses chargeable upon the seizure and sale shoH cover
only the actual expense~ of seizure and pre~ervation of the pr~perty p':nding the sale,
and no charge shall be imposed for the services of the local officer or his deputy (LGC.
Sec. 175 (f)).
0 : How are the excess proceeds disposed of?

ANS: The balance over and above wh_pt req uired to pay the entire claim shall be
returned to the owner of the prope.rt.S- ·sala~ LGC, Sec. 175 (f)).
Q: What happens if the procevcls "f sale of the distrained property is
insufficient?
ANS: Other property may, in llk11, JllCI I I the full amount due,
including all expenses, Is collect~d 1'(LG f) ,__ _
Levy
0: What is the procttdur for levy of re I

ANS: The procedur~ ~or levy of real PJOP I'
1. Levy; ,.., '"\
2. Advei(trsement,
3. Public ·sale: +
4. Delivery to,tHe :Orc,haser of the .certificate o
5. Disposition ot'proceeds; and
6. Final deed of purcha,se • in cos ~ 01<poye r fails to redeem the property
within 1 year Hom Ifie d '/,te ~f~olf1}ij~J.9 bl t. ~asurer shall execute a deed
conveying to th~ purchaser ~6 muctf'o~"ttie ~toperty as has been sold (LGC.
Secs. 176 to 180).
0: When may fhtt LGU exercise levy on real property?

ANS: After the expiration of the time required to poy the delinquent tax, fee, or
charge. real property moy be levied on before, slmultaneously, or ofter the distroint of
personal property belonging to the delinquent taxpayer (LGC, Sec. 176).
0: How is levy an real property done?

ANS: Levy is made as follows:
I. The local treasurer shall prepare a duly authenticated certificate {Warrant
of Levy} showing the name of the taxpayer and the amount of the tax, fee,
or charge and penalty due to him. Said certificate shall operate with the
force of a legal execution throughout the Philippines; and
2. Levy shall be effected by writing upon said certificate the description of
the property upon wh ich levy is mode (LGC, Sec. 176).
Q: To whom should the notice of levy btt mailed or served?

ANS: Written notice of the levy shall be moiled to or served upon:
I. The assessor on.d the register of deeds who shall annotate the levy on the
tax declaration and certificate of title of the e roperty; and
2. De linquent l·oxpayer or agents or manager of the business -or occupant of
the property in question (LGC, Sec. 176).
0: What happens if the levy on real property is not issued before or simultaneously
with the warrant of distraint?
ANS: In case the levy on real property is not issued before or simultaneously with the
warrant of distraint on personal properly, and the personal properly of the taxpayer is
not sufficient to satisfy his delin9uency, ·the provincial, city or municipal treasurer, as
the case may be, shall within 30 days after execution of the distraint, proceed with the
levy on the taxpayer's real properly (LGC, Sec. 176).
0: What is the advertising requirement for the .sale of the levied real properties?
ANS: Within 30 days after the levy, the local treasurer shall proceed to publicly
advertise for sale or auction the property or o usable portion thereof as may be
necessary to sotis.fy the claim and cost of sale; and such advertisement shall cover o
period of at least 30 pays. It shall be effected by posting a notice at the main entrance
of the municipal building or city hall, and in a public and conspicuous place in the
barangay where the real property is located, and by publication once a week for 3
weeks in a newspaper of general circulation in the province, city or municipality where
the properly is located (LGC, Sec. 178).
0: What should be contained in the advertisement for the sale of levied real
properties?
ANS: The advertisement shall contain the amount of taxes, fees, or charges, and
penalties due thereon, and the time ale, the name of the taxpayer against
whom the taxes, fees, or c , art description of the properly to
be sold (LGC. Sec. 178).
/'
0: What may the he sale of the levied
real property?
ANS: At any ti
proceedings by
so, the sole sh.al
r te•/ ix·ea for t
es,l chor,'g es; p
c. 178)_: ._ _
ayer may stay the
ests. If he fails to do
0: Where should ' d real, prop~

ANS: The sale s ~· a, · e provincial, city, or
municipal buildin ...f place as determined
by the local treas · ce of sale (LGC, Sec.
178),
0: When may the ser?

ANS: Within 30 de uty shall make a
report of the sale to t
records. After consultati
-~ ..;;;=-~ 1
shal form part of his
easurer shall make and
deliver to the purchaser e proceeding of the sale,
describing the property so , s a ng-t. e..Jlom t e purchaser, and setting out the
exact amount of all taxes, fees, charges, and related surcharges, Interests, or penalties
(LGC, Sec. 178).
0: What happens if there is an excess from the proceeds of the sale of the real
property?
ANS: Any excess in the proceeds of the sole over the claim and cost of sales shall be
turned over to the owner of the property (LGC, Sec. 178).
0: How may the taxpayer exercise his right of redemption of real property sold?
ANS: Within 1 year from the date of sale, the delinquent taxpayer or his representative
shall have the rlght to redeem the property. Upon payment to the local treasurer of the
total amount of taxes, fees, or charges, and re.lated surcharges, Interests, or penalties
from the date of delinquency to the date of sale, plus interest of not more than 2% per
month on the urchase price from the date of purchase to the dote of redemption. Such
1
payment shal invalidate the certificate of sole Issued to the purchaser and the owner
shall be entitled to a certificate of redemption from the provincial, city or municipal
treasurer or his deputy (LGC, Sec. 179).
0: What is the effect of the taxpayer's failure to exercise his right of redemption?
ANS: In case the taxpayer fails to redeem the property as provided herein, the local
treasurer shall execute a deed conveying to the purchaser so much of th e property as
has been sold, free fro m liens of any taxes, fees, cha rges, related surcharges, interests,
and penalties. The deed shall succinctly recite all the proceedings upon which the
validity of the sale d ,.?pends (LGC, Sec. 180).
0: When may the LGU purchase real property advertised for sale?
ANS: In case there is no bidder for the real property advertised for sale, or if the
highest bid is for an amount insufficient to pay the taxes, fees, or charges, related
surcharges, interests, penalties and costs, the local treasurer conducting the sale shall
purchase the property in behalf of the LGU concerned to satisfy the claim (LGC, Sec.
181).
0: How many times may LGUs exercise the remedy of distraint and levy?
ANS: The remedies of distraint and levy may be repeated by the LGU if necessary,
until the full amount due, including all expenses, is collected (LGC. Sec. 184).
0: What properties are exempt from the remedies of distraint and levy? (TBCF-
ProvLib-FiMa)
ANS: The following property shall be exempt from dis.train! and levy, attachme nt or
execution thereof for delinquency in the. payment of any local tax, fee or charge,
including the related surcharge and interest:
1. Iools and implements r,'eaessci II used by ·the de linquent taxpayer in his
trade or empl,oyrr,ent;
2. 1 horse, cow, . carabao, or other least of burden, such as the del inquent
taxpayer may select, and neceHc,ri l;y used by him in his ordinary occupation;
3. His necessary ~lothi g, ·and thtjt ofJall l'Mamlly
4. Household furniture and utj?'ns;l/s necessary foy Housekeeping -and used for
that purpose by, the delinqueQ,t' oxpayer, such e may select, of a value
not exceeding Pl0,000;
5. fr.2yisions, indyd!Hg crops, oc ally provide
suffic ient for "mon:~hs;
6. The pr.ofesSional .!..!.b.raries oJ doctors, engi ·ers, law rs and judges;
7. l .fishing boat 011d net, not e Geeding th otgl vahi! o Pl0,000, by the
lawful use of which a fisherman earns hi liv.el1hood: o a
8. Any ~terial o-r: a nticle ~o nn\iin ,~a rt of a ha\Jjf: er lmj:>rovement of any real
property (~GG, Sec. JBS) ,
b) ~ j j y1:..fui.2d
0 : What is the prescriptive periocl for assessmerit of-local taxes, fees or charges?
ANS: Local taxes, fees, oi' c.harges shall be assessed within 5 years from the date they
became due. No action for the collection of such taxes, fees, or charges, whether
administrative or judicial, shall be instituted after the expiration of such period. In case
of fraud or Intent to evade the payment of taxes, fees, or charges, the same may be
assessed within 10 years from d iscovery of t he fraud or inten t to evade payment (LGC,
Sec. 194).
0: What is the prescriptive period for collection of local taxes?
ANS: Local taxes, fees, or cnarges may be collected within 5 years from the date of
assessment by administrative or judicial action. No such action shall be instituted ofter
the expiration of such period (LGC, Sec. 194).
0: What are the grounds for the suspension of the running of the prescriptive
periods? (PRO)
ANS: The following are the grounds for the suspension of the running of the
prescriptive periods:
1. The treasurer is legally frevented from the assessment or collection of the
tax·
2. Th; taxpayer requests for a Reinvestigation and executes a waiver in
writing before the expiration of the period within which to asses~ or collect;
and
3. The taxpayer is Qut of the country or otherwise cannot be located (LGC,
Sec. 194).
'B. *REA'L PROPERTY TAX~TION
FUNDAMENTAL PRINCIPLES
0: What is a real property tax?

ANS: A real property tax is a direct tax on the ownership of lands and buildings or
other lmproverrtents thereon, not specially exempted, and is payable regardless of
whether the property Is used or not, al·though the value may vary In accordance with
such factor (Villanueva v. City of l/ollo. G.R. No. L- 26521, December 28, 196B).
Q: What are the fundamental principles of real property taxation? (PAUCE)

ANS: The appraisal, assessment, levy, and collection of real property tax shall be
guide-cl by the following fundamental principles;
l. The appraisal, assessment, levy,, and collection of real property tax shall not
be let to any _frivate person;
2. Real property shall be classified for assessment purposes 01, the basis of Its
Actual use;
3. Real property shall be assessed on the basis of o !,Lniform clossificotion
within each locol 1,1overnment unit;
4. Real property shall be appraised ot its .C.urrent and fair market value; and
5. The appraisal and asses
Sec. 19B). 1\ uN al property shall be _Equitable (LGC,
NATURE "\) ~~----_ / /✓• )
0: What is the n
ANS: Real prape
1. Qirect ---1 one who pays to other
person
'2. lndlvls
3. Ad vol operty;
4. Local
5. Tax im the property; and
6. Tax th certoi n extent on the
use on ion, supra at '235).
IMPOSITION
0: What are the kin

ANS: Real properf)>: ta
1. Basic Real Prope
'2. Special Levies on eal Property (LGC, Chapter V) .
Q: What are the rates of basic real property tax?

ANS: The rates for basic real property tax are as follows:
1. For provinces · Not exceeding 1% of assessed value;
'2. For cities • Not exceeding '2.% of assessed value; and
3. For municipalities within Metro Manila - Not exceeding '2% of assessed
value (LGC, Sec. 233).
0: What is the tax base for the imposition of real property tax?
ANS: The real property tax shall be imposed on the assessed value of the real property
(LGC, Sec. 233).
0: What are special levies on real property?

ANS: The folloYl'ing are the special levies on real property:
1. Spedol Education Fu11d (SEF) (LGC, Sec. 235);
2. Additional Ad Yalorem on Idle Lands (LGC, Sec. 236); and
3. Special Assessments (LGC, Sec. '240).
0: What are the differences between Special Education Fund, Additional Ad

Valorem on Idle Lands and Special Assessments?
ANS: The foll owi ng a re t he differences between Special Education Fund, Additional
Ad Va lorem on Id le La nd, and Special Assessment:
DISTINCTIONS OF SPECIAL LEVIES ON REAL PROPERTY
Special Education I Additional Ad

Special Assessments
j Fund (SEF) Valorem on Idle Lands
As to Imposed to fund Imposed as a Imposed on the

Nature the SEF which shall deterrent on the lands comprised
be expended apparent and within its territorial
exclusively for the continued jurisdiction specially
activities of the accumulation of benefited by public
Department of p rivate la nds for works projects or
Education s peculation and ot her improvements
enumerated in Sec. non-p rodu cti ve funded by the local
1 of RA No. 5477. purposes (P.D. No. government unit
1446). concerned.
As to 1% on assessed Not exceeding 60%

Amount value in addition of the actual cost of
of Levy to the basic RPT. such projects and
improvements,
including the costs
.__ _,,, of acquiring land
. and such other real
roperty in
onnection
~ erewith.
%_
As to May b e levie d by: M be levied by:

LGU 1. A p rovince; I. Pf.Ovince;
with 2. A city; o r 2., ci ty; or
Power to 3. A mu11.iciptjll1Y 3, 'A . urici mu nici pality.
Levy wit hin ¥he wltijl the
Metro politan Mefif.o polHQn
Ma nila A•rea. MonilB Ar.ea.
(LGC, Secs. 235, 236 a nd ,2~0)
a) Power to Levy
0: Who has the power to levy basic real property tax?

ANS: The following LGUs may levy an annual ad valorem tax on real property:
1. Provinces;
'2. Cities; and
3. Mun icipalities within Metro Manila (LGC, Sec. 23'2).
b) Exemption from Real Property Ta x
0 : What properties are exempt from payment of basic real property tax? (RCW •
CP)
ANS: The fo llowing o re exempted fr om paym ent of the real property tax:
1. Re al p ro perty owned by -the .Re p ub lic of th e Philippines or any of its political
subdivisions excep t when the benef icial use thereof has been granted, for
co nsideration or otherwise, to a taxable person;
'2. ~her itabl e institution.s, churches, parsonages, or convents appurtenant
thereto, mosq ues, non-profit or religious cemeteries, and all lands, buildings,
and improvements a ctua ll y, di rectly, a nd exclusively used for religious,
chari tab le, or ed ucotiono l purposes;
3. All machineries and equipment that are actually, directly1 and exclusively
used by local Water districts and government-owned or -controlled
corporations engaged In the supply and distribu ti on of water and/or
generation and transmission of electric power;
4. All rea l property owned by duly registered ~ ooperatives as provided under
R.A. No_6938; and
5. Machinery and equipment used for _eollution control and environmental
protection (LGC, Sec. 234).
Note: LGUs have no power to add to the exemptions stated herein

(INGLES, Reviewer, supra at 573).
0 : Why are the real properties owned by the national government generally not
subject to real property tax?
ANS: This recog nizes the basic principle that local governments cannot tax the
notional government, as the former' s power "to tax is, historically, merely delegated by
the latter. Also, Section '234 (o) of the LGC exempts from real property tax any real
property owned by the Republic of the Philippines (Light Rall Transit Authority v. City
of Posey, G.R. No_ 211'299 June '28. 2022, Hernando Case).
0: What is the only instance when the national government is liable to pay real
property tax?
ANS: The Republ ic may grant the ben ficial u e o{ its real property to an agency or
instrumentalit y of the natio ~ g ~yernm~t. pt ' is / Jo.es not result in the loss of the
tax exemp'llon privilege. TJre · rbperf\/Joses it- a exemp ~ n only if the beneficial use
thereof h,as been grant✓cl Jo.o ',tmt'able person n<;[ ( Sebfl9 n '234(a) . In such a case,
properties I.eased to p fvat e fftl ·-o f nof e mpt f110 t'Q'1-eal roperty tax and the tax
must be paid by the sdicl"ijeyable person fLig~t Roi Tr •ns· A thority v. City of Pasay,
G.R. No. '211'299 Jun 28. 2022, Hernando Cose-). t' )
I
Note: In the cited t:ase, t e Li ht Rori Trcinsft Autho ity wq~ Jhel4, by the Court to be a
government ins tru en!' lity. .T us, portions- of the rope i\tfes ' ich LRT A leases to
said taxable perso . :

U, )
\~ '
, ,
·T '
0: Are GOCCs subject to real ptoRerty tax?·
I .
A(",) "
priva-te entities or n t xemp from real estate ta ,and t ~ o,x must be paid by the
1
11--./
~ · /
'<
ANS: Yes. Any·exelT\ption om' p\:i'(__m ~nt pf 1 ea l:prb"per;t;, tax g, evlously granted to, or
presen tly enjoyed by. ·all p erSQ!lS, 1Yh th~r-h§turp l\6r i pl8ical, !,l cluding all government-
owned and -controlledl corporot iohs "'ri-r.e •~fthi:frdv,:n I.A on ~e effectivity of the LGC
(LGC, Sec. 234). 7<) -
0: Define "actual, direct, an cl M_ usivll!\ ~,'f 9/ J>J operty for charitable purposes.
ANS: What is meant by actual, d frect, and exelus,ve use of the property for charitable
pu rposes Is the direct and immed iate and actual application of the property itself to
the puri:?OSes for which the charitable institution is organized. It Is not the use of the
Income From the real property that is determinative of whether the property is used for
tax-exempt purposes (Lung Center of the Philippines v, Quezon City, G.R. No. 144104,
June 29, 2004).
0: When ore charitable institutions liable to pay real property tax?
ANS: The portions of th e land leased to private entitles a.s well as those parts of the
hospital leased to private individuals ore not exernpt from such taxes. On the other
hand, the portions of the land occupied by the hospital and portions of the hospital
used for il5 patients, whether paying or non -paying, are exemp·t from real property
taxes (Id.).
0: What are the elements to successfully claim exemption under Section ~34 (c)
regarding the machineries and equipment of local water utilities and GOCCs?
ANS: To successfully claim exemption under Section '2-34 (c) of the LGC, the claimant
must prove two elements:
1. The machineries and equipment ore actually, directly, and e xclusively used
by local water d istricts and GOCCs; and
2. The local water districts and government-owned and -controlled

corporations claiming exemptio n must be engaged in the supply and
distribution of water and/or the generation and transmission of electric
power (Notional Power Corporation v. Province of Quezon, G.R. No. 171586,
July 15, 2009).
Q: What is the extent of the real property tax exemption granted to cooperatives?
ANS: The exemption from rea l property taxes given to cooperatives applies re~ardless
of whether the land o~ned is leased. Th.ls exemption benefits the cooperatives lessee
(Provincial Assessor of Agusan Del Sur v. Filipinos Palm Oil Plantation, Inc., G.R. No.
183416, October 5, 2016).
Q : What real properties are exempt from special assessments?

ANS: The special levy shall not apply to lands exempt from basic real property tax
and the remainder of the land portions of which have been donated to the LGU
concerned for the construction of such profects or improvements (LGC, Sec. 240).
0: When may idle lands be exempted from special levy?

ANS: The LGUs may exempt idle lands from the additional levy by reason of:
1. Force majeure;
2. Civil disturbance;
3. Natural calamity; or
4. Any ca use which p hysically or I gaily prevents the owner of the property or
person having legal interest therein from improving, utilizing, or cultivating
the some (LGC, Sec. 238}.
APPRAISAL AND ASSESSMENT
Q: What steps are included in the pro

ANS: Assessment is the act _or proces e e of o properly, or
proportion th ereof subj!ild to t-ax1 inclu i • the classification, and
appraisal of properties (LGC, S~.,J99 (f))
Q: Who has the dlffy'to decl~{e real prop ty for t urp ~e.s orn declaration)?
ANS: It shall be ti{e duty of all perso.t;1s, r Qfural or )L11."idlcdl1 ownlng or admin is tering
real p_roperty, 1ncludi1J,9 the'ffT'!Arove'me ts ni rein, within a , ~,ty o municipality, or their
duly authorized repres,nta'tlve, to prifpor~(.,! r cause to be prepared, and file with the
provincial, city, or munf<iipal as.s essor, a sm--r.n ~t.a tement declari ng the true value of
their property, whether p reviously declo r~ 01'1 Jl".fle<l ored, taxable or exempt, which
shall be the current and fo1r marke,t ,value...oLth:e pmperty, as determined by the
declarant. Such declaroti~IJ shall C'Ontain o description of the property sufficient in
s
detail to enable the assessor OJ h deputy to identify the same for assessment purposes
(LGC, Sec. 202).
0 : When should the sworn declaration of real property be filed?

ANS: The sworn declorotlon of rea l property he rein referred to shall be fi led with the
assessor concerned once every three (3) years during the period from Ja nuary l to June
30 commencing with the calendar year 1992 (LGC, Sec. 202).
Q: When may the Provincial/City/ Municipal Asse-ssor himself declare the property
for tax purposes?
ANS: When any person, natural or juridical, by whom real property is required to be
declared under Section 202 hereof, refuses or foils for any reason to make such
declaration within the time prescribed, the provincial, city, or municipal assessor shall
himself declare the property in the name of the defaulting owner, if known, or against
on unknown owner, as the case mcry be, and shall assess the pr~perty for taxation. No
oath sha ll be required of a declaration thus made by the provlnclol, city, or mun icipal
assessor (LGC, Sec 204).
0: What duty is imposed on a person acquiring real property or making

improvement thereon?
ANS: It shall also be the duty of any person, or his authorized representative, acquiring
ot any time rea l property In any municipa lity or city- or making any improvement on
real property, to prepare, or cause to be prepared, and file with the provincial, city, or
munidpal assessor, a sworn statement declaring t he true value of subject property,
with in 60 days ofter the acquisition of such property o r upon completion or occupancy
of the Improvement, whichever comes earlier (LGC. Sec. 203).
0: What is an assessment roll?

ANS: An assessment roll i-s a list prepared and maintained by the provincial, city, or
municipal assessor of all real property, whether taxable or exempt, located within the
territorial jurisdiction of the LGU concerned. Real property shall be listed, valued, and
assessed in t he name of the owner or administrator, or anyone having lega l interest in
the property (LGC, Sec. 205 (a)) ,
0: When should the assessment roll be submitted to the local treasurer?

ANS: The provincia l( city, or municipal assessor shall prepare and submit to the
treasurer o-F the loco government unit, on or before the December 31 each year, an
assessment roll containing a list of all persons whose real properties have been newly
assessed or reassessed a nd the values of such properties (LGC, Sec. 248).
0: How are real properties a ep

ANS: All real propert r be appraised at the current
and fair market valu perty is situated (LGC,
Sec. 201).
0: What is fair
ANS: Fair marke
not compelled to
199 (/)).
C/
a: Who has the e asse,ssm '
ANS: The assess orplied to e of real property to
determine its as I be fJ_x f the Sangguniang
Panlolowigan, S . n.._gi n of a municipality
within the Metropo r " · the limits prescribed
under Sec. 218 of the :\2
(
0: Under what inst - of real/roperty?
ANS: The provlnc.ial, lpol ass . authorize deputy shall
make a classification, a nd § , l s real property listed and
described in the declaration irresp'e<!-ti:ve, oi- o V previous assessment or taxpayer's
valuation thereon In coses where:
1. The real property is declared and listed for taxation purposes for the first
time;
2. There is on ongoing general revision of property classification and
assessment; or
3. A request is made by the person in whose name the property is declared
(LGC, Sec. 220).
0: What is the limitation imposed on the power of the provincial. city, or municipal
assessor to make valuation of real property?
ANS: The assessment of real property shall not be Increased oftener than once every
3 years except in case of new Improvements substantially increasing t he value of said
property or of any change In· Its actual use (LGC, Sec. 220).
0: When does a general revision of real property assessment take place?

ANS: The provincial, city, or municipal assessor shall undertake a general revision of
real property assessments within two (2) years ofter the effectivity of the LGC and
every 3 years thereafter (LGC, Sec. 219).
0: What is reassessment?
ANS: Reassessment refers to assigning new assessed values to property, particularly
real estate, as the result of a general, partial, or individual reappraisal of the property
(LGC, Sec. 199 (q)) .
0: What is the general rule on the effectivity of assessments or reassessments?

ANS: Generally, all assessments or reassessments made after the January 1 of any
year shall take effect on January 1 of the succeeding year (LGC, Sec. 221).
0: What are the exceptions to the rule on the effectivity of assessments or

reassessments?
ANS: Reassessments shall take effect at the beginning of the quarter next following
the reassessment if the same was made due to and within ninety (90) days from the
date any of the following causes arise:
1. Partial or total destruction;
2. Major change in its actual use;
3. Great and sudden inflation or deflation of real property values; or
4. Gross illegality of the assessment when made or to any other abnormal
cause (LGC, Sec. 221).
0 : When may the government assess a real property for back taxes?
ANS: Real property declared for the fl , time shall be assessed for taxes for the
period during which It would have been 1,1ble but in no cose for more than 10 years
prior to the date of Initial assessmefit: P~!O ided, however, that such taxes shall be
computed based on the applicable s~ffecl le ci values in force during the corresponding
period (LGC, Sec. 222, Par. 1).
0: When may a taxpayer pay back t

ANS: If back taxes are pa cl on or b
the notice of assessment ' w.as received
for delinquency shall be imposed H,ere all be subject to an
interest at the rate of 2% pei:1month or ate of the receipt
of the assessment \.llltil such t~X'es ,..a re f 2).
0: When should the asses~o~ give noti ent?

ANS: When real property. I a ssess,d fo ing assessment
·.:.:.:.=..,,- ·
is increased or decrebseq,. t~e pr.ovincl~I, oil within 30 days
give written notice of sych ·new o,r rev se ment to t e person in whose name the
property is declared (LGC. Sec. 223).
0: What is included in the .authority of dJs'enoi's"tc, Cilce evidence for purposes of

obtaining information on -ythich to base the market value of any real property?
ANS: The assessor of the pr9vince, city, or municipality or his deputy may summon the
owners of the properties to be atfected or persons having legal interest therein and
witnesses, administer oaths, and ·take deposition concerning the property, its ownership,
amount, nature, and value (LGC, Sec. 213).
a) Classes of Real Property
0: What are the classes of real property for assessment purposes? (CAR-MITS)
ANS: Real eroperty shall be classified as:
l. .Commercial;
2. Agricultural;
3. _Residential;
4. Mineral;
5. Industrial;
6. limberland; or
7. ,Special (LGC, Sec. 215).
0: What are included in the special class of real property?

ANS: The special class of real property includes all lands, buildings, and other
improvements thereon:
1. Actually, directly, and exclusively used for hospital, cultural, or scientific
purposes; and
'2. Those owned and used by local water districts, and GOCCs rendering
essential public services in the supply and distribution of water and/or
generation and transmission of electric power (LGC, Sec. 216).
0: Who has the power to classify lands?

ANS: The city or municipality within the Metro Manila Area, through their respective
Sanggunian, shall have the power to classify lands as residential, agricultural,
commercial, industrial, mineral, timberland, or special in accordance with their zoning
ordinances (LGC, Sec. 215).
0: What is the basis of the classification of real properties?

ANS: Real property shall be classified, valued, and assessed based on its actual use
regardless of where located, whoever owns it, and whoever uses it (LGC, Sec. 217).
0: What is the importance of knowing the classification of the land subject to real
property tax?
ANS: It is important to determine the classification of the land subject to real property
tax because the assessment level applicable differs according to the classification of
the land (LGC, Sec. 218).
b) Assessment Based on Actual Use

0: Define "actual use". .
ANS: "Actual Use" re ~~~t os, · roperty is principally or
predominantly utilize ~ .n,,pos C, Sec. 199 (b)).
0: How are lands r ,"Of mixed" ed?
ANS: For lands I reas 1,gf "'mlxe,d· as residential with
commercial or indu ed.ominari'.t\·use t area shall govern
the classification, ass~sment redominant use is
residential, all Ian hall b~ as~es · if the predominant
use Is commercial · ~ i~lethat a sed as such (Manual
on Real Property s-m.~T,J:f,'- 0 '' OF Bureau of Local
Government flnan 13 ).
. l
0: What is the cl cl, cc~ used for a purpose
different from th Lan~ i 1
ANS: A lot or p i~9J1d " ercial or industrial
occupied by the mercial or industrial
purposes shall be ass f -...=..,r::..:..;:. e building or buildings.
If the predominant use of 'h~ b ent level fixed thereon
for residential land shall be ap'pl e lot or parcel determined
based on the schedule of base m ndtis trial or commercial, the assessment
level for industrial or commercial land shall be applied on the basis of the schedule of
the base market values (Id.).
COLLECTION
0: Who collects real property taxes?

ANS: The collection of the real property tax with interest thereon and related
expenses, and the enforcement of the remedies provided by the LGC or any applicable
laws, shall be the responsibility of the city or municipal treasurer concerned (LGC, Sec.
247, Par. 1).
0: When may a barangay treasurer collect real property taxes?

ANS: If deputized by the city or municipal 'treasurer and provided that the barangay
treasurer is properly bonded for the purpose: Provided, further, That the premium on
the bond shall be paid by the city or municipal government concerned (LGC, Sec. 247,
Par. 2).
0: Haw is notice of time for collection of real property taxes made?

ANS: The notice of the dotes when the tax may be paid without interest shall be:
1. Posted by the city or municipal treasurer in o conspicuous and publicly
accessible place at the city or municipal hall:
a. On or before January 31 each year, in ·the case of the basic real

prop_e rty tax and the additional f·ox for the SEF; or
6. On any other dote to be prescribed by the Sanggunian concerned in
the case of any other tax levied upon; and
'2. Published in a newspaper of general circulation in the locality once a wee~
for '2 consecutive weeks (LGC, Sec. 249).
0: Who has the obligation to pay real property taxes?

ANS: For purposes of real property taxation, the registered owner of the property is
deemed the taxpayer (Spouses Hu v. Spouses Unico, G.R. No. 146534, September 18,
2009).
0: How are payments of real property taxes arplied?

ANS: Payments of real property taxes shal first be applied to prior years'
delinquencies, Interes ts, and penalties, if any, and only after said delinquencies are
settled may tax payments be credited for the current period (LGC, Sec. 250).
0: When can the taxpayer avail of real property tax discount?

ANS: If the basic real properly tax and the additional tax accruing to the SEF are
paid in advance In accordance with the prescribed schedule of payment as provided
under Section '250 of the LGC, the Sangg nian concerned may grant a discount not
exceeding 20% of the annual tax due (1.G ·. Sec. 251). Prompt payments may be given
a discount of 10%, while advanced pqyJ'!)e may be entitled to the maximum discount
of 20% (IRR of the LGC of 1991, Arti 34~).
0: What is the interest rate for fajlure. to pa the real operty tax?
ANS: Failure to pay the basic _r~dl pr.oRer, , qio or an · ther tax levied upon the
expiration of the periods as provJaed ih S tion 2'50, o due, as the case may be,
shall subject tl,e faxpaye::.,.t.!:f Hie payment of interest at th ate of 2% per month on
the unpaid amount or o traction there - til the delinqu an ox s.holl hove been fully
paid. However, the total interest on tHe u paid tax or, , ' o thereof should not 36
months (LGC, Sec. 255).
0: When may re9I P,roper,ty tax be cond ned or red1,ced

ANS: The SangglJhion conc~t,ried, by ordioa ce pass~:11mirtQ Ji uary 1 of any year
and upon recommendation of fhe Local D)s • ster Coor. lndtln ¢'8 ncil, may condone
or reduce, wholly or ~r.tl'ally, t~e tax~ or terest for t e ·de eeding years in the city
or municipality affectecl fn cases of:
1. General fo ifure of c_r'ops;
2. Substantial decrll\aSe in the r,deeioA:igr,IGl.(l.hm:il or agri-based products; or
3. Calamity in any ,provinc:e, city, or mu'ntcipdltty (LGC, Sec. 276).
0: In what instance may thir, Prtt.sident condone or reduce real property tax?
ANS: When public interest so -requires, the President of the Philippines may condone
or reduce the real property tax and interest for any year in any province or city or a
municipality within the Metro Manila Area (LGC, Sec. 277).
0: When is notice of delinquency issued?

ANS: The provincial, city, or municipal treasurer shall immediately cause a notice of
delinquency when the real property tax or any other tax becomes delinquent (LGC, Sec.
254).
0: How is notice of delinquency given?

ANS: The treasurer concerned will cause a notic.e of delinquency to be:
1. Posted at the main entrance of the provincial capitol, or city or municipal
hall and in a publicly accessible and consplcuou's place in each barangay
of the local government' unit concerned; and
'2. Published once a week for 2 consecutive weeks-, in a newspaper of general
circulation in ·the province, city, or mUniclpal!ty (LGC, Sec. 254).
0: What should be contained in the notice of delinquency?

ANS: The notice of delinquency shall specify:
1. The dote upon which the tax became delinquent;
'2. That personal property may be dlstroined to -effect payment;
3. That at any time before the distraint of personal property, payment of the
tax with surcharges, interests and penalties may be mode; and
4. Unless the tax, surcharges, and penalties ore paid before the expiration of
the year for which the tax is due (except when the notice of assessment or
spedal levy is contested administratively or fudiciolly), the delinquent re.a l
property will be sold at public auction, and the title to the property will be
vested In the purchaser subject, hoYfever, to the right of redemption within
one year from the dote of sale (LGC, Sec. .254).
a) Date of Accrual
0: When does real property tax accrue?
ANS: The real property tax for any year shall accrue on the first day of January and
from that date It shall constitute a lien on the property which shall be superior to any
other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished
only upon the payment of the delinquent tax (LGC. Sec. 246).x
0: When does special levy accrue?

ANS: The real f)roperty tax shall accrue on the first day of the quarter next following
the effectivity of the ordinance imposing such levy (LGC, Sec. 245).
b) Periods to Collect
0: What are the pres I property taxes?
ANS: The basic rea all be collected within 5
years from the dot on of the tax, whether
administrative ot I such period. In case
of fraud or intent e instituted for the
collection of the rs f .om 4 . fraud or intent to
evade payment ( ~
0: When is the pr for c~_~lecti taxes suspended?

(PRO) , .i- ,.
ANS: The period w
'n 'kh t ended for the time
during which:
1. The lo the tax;
2. The o al interest therein
reques n writing before the
expirati
3. The own -.......;.;.;;;-.,,.- . interest therein is Out
of the cou GC, Sec. 270). -
0: When are installment p axes due?

ANS: The owner of the real property or the person having legal interest therein may
pay the basic real property t·ax and the additional tax for SEF due thereon without
interest in 4 equal installments: the first Installment to be due and payable on or before
Mo rch 31; the second installment, on or before the June 30; the third Installment, on or
before September 30; and the lost installment on or before December 31, except the
special levy the payment of which shall be governed by ordinance of the Sanggunlan
concerned. The date for the payment of any other tax imposed under Title II of the
LGC without interest shall be prescribed by the Sanggunian concerned (LGC. Sec. 250).
c) Remedies of Local Government Units

0: What are the remedies of the LGUs for collection of real property tax?
ANS: For the collection of the basic real property tax and special levies, the LGU may
avail the following remedies:
1. Lien on property subject to tax (LGC, Sec. 257);
2. Civil Remedies, in General
a . Administrative action; or
i. Distrain of f)ersonal property (LGC, Sec. 254(b));
ii. Levy on real property subject to tax (LGC. Sec. 258,265).
b. Judicial action (LGC, Sec. 266 in relation to Sec. 270).
Q: How may the government exercise the remedies under the LGC?
ANS: These rem edies ore cumulative, si mult an eous, and unconditional, that is, any or
all of the remedie.s or combination thereof may be resorted to and the use or non-use
of one remedy shall not be a bar against the institution of the others (/RR of the LGC
of 1991, Art. 347).
Q: Is formal demand for payment a pre-requisite to avail of administrative and

judicial remedies?
ANS: No. Formal demand for the payment of the delinquent taxes and penalties due
is not a pre-requisite to ovail of administrdtlve and judicial remedies. The notice of
delinquency shall be sufficient for the purpose (/RR of the LGC of 1991, Art. 347).
0: Define local government's lien_

ANS: Local government's lien is a legal claim on the property subject of the real
property tax as security for the payment of the tax obligation. It is superior to all liens,
charges or encumbrances in favor of any person, irrespective of the owner or possessor
th·e reof (LGC, Sec. '157).
Q: When may on LGU levy on real property?

ANS: After the expiration of the time required to pay the basic real property tax or
any other tax le vied, real property subject o such tax may be levied upon through the
issuance of a warrant on or before, or sj ltaneously with, the institution of the civil
action for the collection of the delin e x (LGC, Sec. '158)_
Q : What is the procedure for the

ANS: Le vy on real property shall in set forth:
1. The provincial or city t urer of a municipality
within Metro Manilq Ar f levy, shall prepare a
duly authentlc_pted certif e delinquent prorerty
owner or per,son having description o the
eroperty, the amdunt of t hereon;
'l. The warrant hallfb~ m-ail uent real property
owner or.•person hd-ilng le out of the country
or cannot be located, to _ _ _..____ r of the subject
propertw •
3. Written notice of t~e lev II be moiled to or
served up.Qn fh.e·'Q,uessor the province, city,
or mun lcipdlity with1n M . operty is located;
4. The assessor and Registrar o . li>eed shall annotate the levy on the tax
declaration and the certificate o·f 'title, espe_c.fvely;
5. The levying officer shall su~ml o wrlft'en eport on the levy to the
Sanggunian ca 'lcernlicf within 10 days after receipt of the warrant by the
property owner or person having legal interest in the property (LGC, Sec.
'158).
0: What is the penalty for failure to issue and execute a warrant?

ANS: Without prejudice to criminal prosecution under the Revised Penal Code and
other applicable lows, any local treasurer or his deputy who foils to issue or execute the
warrant of levy within I year from the time the tax becomes delinquent or within 30
days from the dote of the issuance t hereof, or who Is found guilty of abusing the
exercise thereof in an adm inistrative or Judicia l proce.e ding shall be d ismissed from the
service (LGC, Sec. '159).
Q: With respect to real property tax assessment on properties belonging to exempt

tax,=,oyers, is there a need to serve such assessment to lessees?
ANS: Yes. The assessment shall be validly served on the lessees which have actual and
beneficia l use thereof. It is f·he "taxable person· with beneficial use who shall be
responsible for payment of real property taxes due on governmen t properties
(Philippine Heart Center v. Local Government of Ouezon City, G.R. No. 225409, March
" · '10'10)_
Q: When should the advertisement of sale be made?

ANS: Within 30 days after service of the warrant of levy, the local treasurer shall
proceed to publicly advertise for sale or auction the property or a usable portion thereof
as may be necessary to satisfy the tax delinquency and expenses of sale (LGC, Sec.
260).
0: How should the advertisement of sale of levied real property be made?

ANS: The advert isement sha t! be e ffected by posting a hotice at the main entrance of
the provincial, city, or municipal building, and in a publicly a ccessible and conspicuous
place In the barangoy where the real rroperty is located, and by publication once a
week for 2 weeks in a newspaper o general circulation in the province, city, or
municipality where the property is located (LGC. Sec. 260).
0: To whom should the notice of sale be sent?
ANS: In determining to whom the notice of sale should have been sent, settled is the
rule that for purposes of real property taxation, the registered owner of the property is
deemed the taxpayer. Thus, in iden,tifying the real delinquent taxpayer, a local treasurer
cannot rely solely on the tax declaration but must verify with the Register of Deeds who
the registered owner of the particular property is (Spouses Hu v. Spouses Unico, G.R.
No. 146534, September 1B, 2009).
0: What is the nature of th · " · e and publication for sale" of

levied real property?
ANS: Notices and pub · nts for a tax delinquency
sole, are man·d atory, alidate the sale in view
of requirements of _ _, .._ _ faan, G.R. No. 173B29,
June 10, 2013).
he sale of the levied

real property?
ANS: At any tim the real property or
person having leg aying the delinquent
tax, the interest d ----~--- 260).
Q: Where should d?
ANS: The sale s he provincial, city, or
municipal buildin r place as specified in
the notice of the s
0: What happens i f the public sale?

ANS: Proceeds of the s he intefest due thereon,
and the expenses of sale e real property or person
having legal interest therein .
a: How may the taxpayer exercise his right of redemrtion?

ANS: Within 1 year from the date of sale, the owner o the dellnguenf real property
or person hav-ing legal interest therein, or his representafive, shall have the right to
redeem the property upon payment to the local treas urer of the amoun·t of the
deli nquent tax, including the interest due thereon, and the expenses of sale from the
date of delinquency to the date of sale, plus interest of not more than 2% per month
011 the purchase price from the date of sale to the date of redemption. Such payment
shall invalidate the cert ificate of sale issued to ·the purchaser and the owner of the
delinquent real property or person having legal interest therein shall be entitled lo a
certificate of redemption which shall be issued by the local treosurer or his deputy
(LGC, Sec. 261).
0: When should the period of redemption of tax delinquent properties be counted

from?
ANS: The period of redemption of tax delinquent properties should counted not from
the dat e of registration of the certificate of sale but rather on the date of sale of the
tax del inquent property (The City of Davao v. The Intestate Estate of Amado S. Da/isay,
G.R. No. 207791, July 15, 2015).
Volume 1. Series of 2023. B£DAN RED BOOK 591
0: What happens if the taxpayer foiled to exercise his right of redemption?

ANS: In cose the owner or person having legal Interest t herein fa ils to redeem the
delinquent property as provided herein, the local treasurer shall execute o deed
conveying to the purchaser soid property1 free fro.m lien of the delinquent tax, interest
due thereon and expenses of sole. The deed shall briefly state the proceedings upon
which the validity of the sole rests (LGC, Sec. 262).
0: When may the LGU purchase real property advertised for sale?
ANS: In case there is no bidder for the real property advert ised for sale, or if the
highest bid is for an amount Insufficient to pay the real property tax and the related
Interest and costs of sole, the local treasurer conducting the sole shall purchase the
property in behalf of the local government unit concerned to satisfy the claim (LGC.
Sec. 263).
Note: Within l year from the dote of such forfeiture, the taxpayer or a ny of his
representatives moy redeem the property by paying to the local treasurer the full
amount of the real property tax and the related Interest and the costs of sole. If the
property is not redeemed as provided herein, the ownership thereof shall be vested on
the local government unit concerned (LGC, Sec. 263).
0: When may the Sanggunian dispose o the real property acquired?

ANS: The Songgunian concerned may:, ordinance duly approved, and upon notice
of not less than 20 days, sell and disP.OS'lt 6 he reol property acquired at public auction.
The proceeds of the sale shall accrue to. t • enerol fund of the local government unit
concerned (LGC, Sec. 264).
0: What is required before a taxp ,-.,,,,.-=a.-.-il the a 'dlty of a tax sale?

ANS: No court shall entertain orly a I cl ity of any sale at public
auction of real property or ri!;J lrts ther all have deposited with
the court the amount for whicf1. the reO'I ther with interest of 2%
per month from the date of' s<llle to th the action. The amount
so deposited shall be f)_qic:l''toifhe' purch le f the deed is declared
invalid but it shall be rl turn €~ 'to the oil (LGC, Sec. 267).
0: When can the LGU,,enforce the c erty tax or any

other tax in relation therdo l:,y civil Q ent Jurisdiction?
ANS: Within 5 yea rs, f.r,i?m ~ date t~'e roud or intent to
evade payment of the tpc, Within 10 y,3 o ch fraud or intent to
evade payment (LGC, Se , 266 In re/atio
TAXPAYER'S REMEDIES
0: What are the remedies .;f the taxpayer In real property taxation?
ANS: The remedies of the taxpayer in relation to real property taxation are as follows:
1. Ouestion the legality of o tax ordinance and revenue measures (LGC, Sec.
187);
'2. Administrative Action;
a. Payment unde r Protest (LGC, Sec. 252);
b. Claim for refund or cred it (LGC, Sec. 253); or
c. Remedy against the Assessment (LGC Secs. 226 and 229).
3. Judicial Action; and
a . Court action (REVISED RULES OF THE COURT OF TAX APPEALS
(RRCTA), Rules 8 and 16);
b. Action assailing validity of the tax sale (LGC. Sec. 267); or
c. Injunction, only when pending before the CT A (Philippine Ports
Authority v. The City of Davao, et. al. G.R. No. 190324, June 6, 2018).
4. Compromise
0: In disputes involving real property taxation, is the taxpayer required to avail

first the administrative remeclies and pay the tax under protest before allowing
any resort to judicial action?
ANS: Yes. The general rule is to require the taxpaY.er to first avail of administrative
remedies and pay the tax under protest before allowing any resort to any judicial
592 SEDAN RED BOOK Volume 1. Series of 2023 .
action, except when the assessment itself is alleged to be illegal or is made without
legal authority (Capito/ Wireless, /nc. v. Provincial Treasurer of Batangas, G.R. No.
180110, May 30, 2016).
0: What is the effect of an appeal on assessments vis•o•vis collection?

ANS: An appeal on assessments of rl;.'al property sholl, in no cose, suspend the
collection of the corresponding realty taxes on the property involved as assessed by the
provincial or city assessor, without prejudice to subsequent odjustment depending upon
the final outcome of the appeal (LGC. Sec. 2.3 1).
Q : What is the remedy of the taxpayer in case of excessive collections?

ANS: When on assessment of basic real property tax, or any other -tax levied, is found
to be illegal or erroneous and the tax Is accordingly reduced or adjusted, the taxpayer
may fi le a written claim for rl;,'fund or credit for taxes and Interests with the provincial
or city treasurer with in 2 years from t he date the taxpoyer is entitled to such reduction
or adjustment.
The provincial or city treosurer shall decide the claim for tax refund or credit within 60
doys from receipt thereof. In case the claim for tax refund or credit is denied, the
taxpayer moy avail of the remedies as provided in Chapter 3, Title II, Book II of the
LGC (oppeal to the LBAA and CBAA) (LGC, Sec. 253).
0: Is the deposit a jurisdi · pl e m ._

ANS: Yes. The deposit of 07)0 ~ operty was sold plus interest
equivalent to 2% per mo - ,I.lire q the LGC is a jurisdictional
req uirement, the non- vil ich war f the action (Spouses
Wong v. City of II lZ48, !i'ly .
""•-· -...,-
a: Who has the o~' to ~hoi c all the prescribed
requisites for a t __
ANS: The purch sale to sati~fy y has the burden of
proof to sho"'.-' tho ·. plianc·e !with requisites for a tax
sale (Francia v. In ·· · ' ne 28, 1988).
0: May a taxpoy col assessor?

ANS: No. Un der local assessor on a
particular ossess t action which gives
the owner of the B procedure does not
permit the propert f nsideration before the
local assessor (FE . .R. No. 168557. February 16,
2007).
0: How may a taxpayer . · ·f' the valuation made by the local

assessor?
ANS: Any owner or person having legal intere_s t in the property who is not satisfied
with the action of the provinciol, city or municipal assessor in the assessment of his
properly may, within 60 days from the date of recelrt of the written notice of
assessment, appeal to the Boord of Assessment Appeals o the province or city by filing
a petition under oath In the form _prescribed for the purpose, together with copies of
the tax declarati.ons and such oftidovits or documents submitted in support of the
appeal (LGC, Sec. 226),
a) Contesting an Asse:ssment
(1) Pa yment under protest; exceptions
0.: How is protest made?
ANS: The protest in w.ritlng mus t be filed within 30 days from payment of the tax to
the· provincial, city treasurer, or m~nicipal treasure~, I~ the case of o muni 71palit)'.' within
tv1etro tv1onlla Area, who shall dec ide the p,rotest with in 60 days from receipt (LGC, 5,fc.
252).
0: When is the remedy of protest needed?

ANS: The protest contemplated in Sec. 252 of the LGC is needed when the issue
involved Is purely factual in nature 01· when the Issues involved are both factual and
legal in nature (Dr. Pablo R. Olivares v. Mayor Joey Marquez G:R. No. 155591, September
22, 2004; Jett/ Petroleum, Inc., v. Talento, CTA EB No. 2093 (CTA Cose No. AC 211)
(Resolution), December 17, 2020).
0: Is payment a requirement before protest may be given due course?

ANS: Yes. No protest shall be entertained unless the taxpayer first pays the tax. There
shall be annotated on the tax receipts the words "paid under protest" (LGC, Sec. 252).
~ What is the exception to the rule on payment under protest?

ANS: In the event that the taKpayer questions the authority and power of the assessor
to Impose the assessment, and of the treasurer to collect the real property tax, payment
under protest is not required (National Power CorporaNon v. Municipal Government of
Novotas, G.R. No. 192300, November 24, 2014).
Note: The protest contemplated under Sec. 252 is needed where there is a question as
to the reasonableness of the amount assessed.
0: What is the effect of failure to com ly with the mandatory requirement of

payment under protest?
ANS: Failure to comply with this mol,id to , requirement is fatal, and any appeal shall
not be entertained by the Local Boord of ~s~ssment Appeals (LBAA) (Notional Power
Corporation v, The Provincial Trea:surer of Senguet, G.R. No. 209303, November 14,
2016).
0: Distinguish real property taxes a'nd axes as to protest.

ANS: Payment under protest is necess:o a t t on rea I property taxes
would be entertained; whl e 'p9yment u,:icl est is n ary In local taKes (LGC,
Sec. 252 in relation to Sec, ,195).
0: What happens ~en the protest is d in fa Kpayer?

ANS: In the event that the protest is decid f the taKpayer, the
amount or portiorj f· the. to]( protest~d s re
as tax credit against his exiding or futur bi
0: What is the remedy ofthe taxpayer ifi he protest is denied?

ANS: The taxpa'{er may qppes;il t·o the LB};-~ w\thJn 60 days from receipt of the local
treasurer's denia or the expiration of the 6(i) ay ~ l'/Q,p ,(LGC. Sec. 252, in relation to
Sec. 226).
1
0: Does a taxpayer que•fionlng the local assessor's authority to assess real
property taxes and to collect the same have to pay under protest?
ANS: No. The protest contemplated under Sections 226 and 229 of the LGC is not an
adequate remedy, since such protest is limited to question ing the assessment itself, and
not the authority of the assessor to assess real property taxes (Light Roll Authority v,
City of Pasay, G.R. No. 211299. June 28, 2022, Hernando Case)
b) Contesting a Valuation of Property
(1) Appeal to the local board of assessment appeals
0: Within what period may the Local Board of Assessment Appeals (LBAA) decide
the appeal?
ANS: The LBAA shall decide the appeal within 1'20 days from the date of receipt of
such appeal. The LBAA. ofter hearing, shall re nder Its decision based on substantial
evidence or such relevant evidence on record as a reasonable mind might accept as
adequate to support the conclusion (LGC, Sec. 229),
0: What is the remedy of the taxpayer in case he is not satisfied with the decision
of the LBAA?
ANS: Th·e owner of the property or the person having legal interest therein or the
assessor who is not satisfied with the decision of th e LBAA, may, within 30 days ofter
receipt of the decision of said LBAA, appeal to the Central Board of Assessment
Appeals (CBAA), The decision of the Central Boord shall be final and executory (LGC,
Sec. 229).
0: What is the remedy of a taxpayer if the LBAA concurs with the assessment
made by the local assessor?
ANS: The owner of the property or t·he person having legal interest therein or the
assessor who Is not satisfied with the decision of the Board, may, within 30 days after
receipt of the decision of said Board, appeal to the CBAA. The decision of the Central
Board shall be final and executory (LGC. Sec. .229),
(2) Appeal to the central board of assessment appeals
0: What is the remedy of a taxpayer who is not satisfied with the decision of the
CBAA?
ANS: If the CBAA rejects the protest or concurs with the assessment of local assessor,
the owner may appeal to CT A En Banc within 30 days from receipt of the decision
(RRCTA, Rule 8, Sec. 3 (c)).
0: What is the remedy of with the decision of the
CTA En Banc?
ANS: If the CT A En Bop ppeal to the Supreme
1
Court within 15 days "
(3) .Efru.t...Q.f...p ~ULI,!J...,I.!.-1./i!;'._;j i: :\ ·-~
0: Does the o pay the re despite an appeal

made ta the
ANS: Yes. Th · · eal pr9 • r all not suspend the
collection of th ·the-pf '.f d as assessed by the
provincial or p,re{uq sequent adjustment
depending u C.
c) .C.Ql!l!.1,,1:[2[WA!~L!l!:.HI..LL.lle!ITCl!:..lc!JK.~~Wllro.J
0: May a comprom, ~ e se tlement of delinquent

real properry tax? ' 7
ANS: Yes. The settlement rty tax by way of a compromise
agreement is not specifically a , ed by the LGC. Equally significant
however is there is likewise no prohibition. Therefore, the compromise agreement may
be resorted to in the settlement of a delinquent real property tax which must be
provided for in the real property tax ordinance, or in any amendments thereto,
conferring authority upon the provincial or city treasurer or the municipal treasurer of
Metropolitan Manila to enter into a compromise agreement consistent with their
statutory responsibility to collect real property tax (Bureau of Local Government
Finance Opinion, January 6, 2010) ,
0: When may parties enter into compromise agreements? (DA•F-P)

ANS: The following are the periods compromise agreements may be entered into:
1. Prior to the Qistraint of personal property or the Expiration of the year for
which the tax is due;
2. At any time before the date fixed for the Auction sale;
3. Within one year from the date of Auction sale;
4. Within one year from the date of forfeiture by the Local Government unit
for want of bidder; and
5. During the fendency of a civil action for the collection of delinquent real
property tax (Bureau of Local Government Finance Opinion. January 6,
2010),
IV. JUDICIAL REMEDIES
A. COURT OF TAX APPEALS (CTA)
EXCLUSIVE ORIGINAL AND APPELLATE JURISDICTION OVER CIVIL CASES
0: What are the civil cases within the exclusive original or appellate jurisdiction
of the CT A Division?
ANS: The CT A Division shall exercise exclusive original or appellate jurisdiction on the
following:
1. Decisions of the CIR: (DRO)
a. In cases involving Q.isputed assessments, _Refunds of internal revenue
taxes, fees, or other charges, penalties in relation thereto; or
b. _Q_ther matters arising under the NIRC or other laws administered by
the BIR;
Note: The exclusive appellate jurisdiction of the CT A Division is not

limited to cases involvirJ.!i!Jpecislons of the CIR or matters relating to
assessments or refunds. 1:fe law denotes an intent to view the CT A's
jurisdiction over disp .u'(~d assessments and over "other matters" (e.g.,
Issue of presc riph on) ·orlsing under the NI RC or other laws
administered by t ~e i@IR,a epa rate and ind e·penden t of each other
(C IR v. CTA, G.R. "Jo.,<JS.89 · ,Mcu:ch 29, 2.Qi2. citing CIR v. Hambrecht
& O uist Phi//pp)nes, lnq., If. No. 1_69:225; N bvember 17, 2010).
2. Inaction by th~ CI~: ( DRO Vf:)
a. In ca ses lnit~l,ving .Qi~putef:l asses sments,_ f nds of internal revenue
taxes, fees or qthe'r chorg , penalties iri re foho n thereto; or
b. _Q_ther. motter,s o,rising un •er the N IRC -or o\ he lows administered by
the BIR ,Where the NlijC . r-0vides o s ecifil pe 'od of action;
3. Deci sfOI'). ord~ or resoluHons:' 6 tht- RI~ in l, a,I o Coses decided or
resol ve_c;i by 11-i"em· [n the e-x~ rci s:~of their arlglmil J~rlu!J - lon;
4. Decisi ons of the,e ommissf:Qner o Customs: (·Du~FO)
a. In case's Jnvol~ing lip bili Y. fo r custom Qyties, fees or other money
ch arges, ,Seizu~e, d eten l·iq, o,i; release of property affected, fines,
forfeitures ~r, ~ther penal.flet~f:I iJPlg;ti,pn thereto; or
b. _Q_ther matters o,ds,ivg undgc tb..e ©Jt;toms Law or other laws
adminis tered by the Bu reau of Customs;
5. Decisions of the -SecYetary of Finance on customs cases elevated to him
automaticall y frir · evll?w t rom decisions of the Commissioner of Customs
which are adverse to the Government under the CMT A;
6. Decisions of DTI Secretary in the case of non-agricu ltural product,
co mmodity or article and the DA Secretary in the case of agricultura l
product, commodity or article, Involving dumping and countervailing duties
under Sections 301 and 302 of the Tariff Code, and safeguard measures
under th,e Safeguard Measu res Act (RA No. 8800 ) where either party may
appeal the decis ion to Impose or not to impose sa id duties (RRCTA, Rule 4,
Sec. 3 (a )); and
7. Over appeals from the judgments, resolutions or orders of the Regional
Trial Courts in tax collection cases originally decided by them within their
respective territorial jurisdiction (RRCTA, Rule 4, Sec. 3(c)).
0: Does the CT A have jurisdiction to rule on the validity of the assessment a nd

Warran t of D istra int and/or Levy ( WDL) issued by the CIR?
ANS: Yes. Section 7 of RA 9282 provides for the.exclusive appellate jurisdiction of the
CTA on matters arising under the N IRC or other law administered br
the BIR. Its
appellate jurisdiction is not limited to cose s involvln~ decisions of the C R an matters
relating to assessments or refunds. Section 7(a)(2} of RA 9282 also covers 'other
matters arising under the NIRC other laws administered by the BIR." (La Flor Dela
lsobe/a, /nc. v. C IR, G.R. No. 202105, April 28, 2021, Herna ndo Case).
0: What are the civil collection cases within the exclusive original jurisdiction of
the CTA Division?
ANS: The CT A Division shall exercise exclusive original jurisdiction over tax collection
coses involving final and executory assessments for taxes, fees, charges and penalties,
where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is Pl Million or more (RRCTA, Rule 4, Sec. 3(c)(I)).
0: What are the civil cases within the exclusive appellate jurisdiction of the CT A
En Banc?
ANS: The CT A En Banc shall exercise exclusive appellate jurisdiction over:
l. Decisions or resolutions on motions for reconsideration or new trial of the
Court in Divisions in the exercise of its exclusive appellate jurisdiction over:
(ALT)
a . Ca ses a risin g from Ad ministrative agencies • BIR, BOC, DO F, DT I, DA;
b. .Local ta x coses decided by the Reg io na l Trial Cou rts in t he exercise
of their o rigi nal jur isd iction• and
c. Iox collection cases d ecided by th e Re g ional Trial Co urts in t he
exercise of t heir o rigin al ju risd iction in volv ing final and e xecutory
a ssessments for t a xes, fees, charges a nd p enal t ies, where the princip a l
amoun t of taxes a nd pe na lt ies cla imed is less than Pl Mill ion;
2. Decisions, re solutions or orde rs of t he Regio na l T ria l Cou rts In local tax
coses d ecid e d o r res ol v,ed- b.y in the exe rcise of th e ir app ellate
jurisdiction; ]
Note: T •E a refund of real property

taxes i lat CT A since real property
tax is a nd no · we/ v. CTA. G.R. No.
174759, ). ,~
... ,.
3. Decisio decs.llf the... urts in tax collection
cases ' d by t_he111 of their appellate
jurisd i
4. Dec isl · on Mo erotion or New Trial
of the :e xev •· original jurisdiction
over t
5. Decisi r e als (CBAA) in the
exerci the assessment and
toxati op ,' . vincial or city board
of asses as 'R8[,. e)).
0: Is a Motion for n etition for review of a

decision of CT A Divisio
ANS: Yes. Before the CT A o ne con ce of an appeal via petition for
review, a timely motion for reconsideration or new trial must first be filed with the CT A
Division that issued the assailed decision or resolution (Asiatrust Development Bank,
Inc. v. CIR. G.R. No. 201530, April 19, 2017) .
In order for the CT A En Banc to take cognizance of an appeal via a petition for review,
a timely motion for reconsideration or new trial must first be filed with the CT A Division
that issued the assailed decision or resolution (EHS Lens Philippines. Inc. v. CIR, CTA
EB No. 1712, October 11, 2018).
0: What are the instances when the decisions of the CIR, which are appealable to
the CTA, considered final?
ANS: The instances when the decisions of the CIR are considered final are:
l. A dema nd letter for tax de ficienc y Issued and signed by o n au thorized
sub.o rdinate officer with the warni ng that fa ilu re to p ay wou ld res ult to
issuance of a warra nt of distro int and le vy withou t further notice (O ceanic
W ireless v. CIR. G.R. No. 148380, December 9, 2005);
2. A letter of BIR Commissioner reiterating p revious demand to pay on
assessmen t (CIR v. Ayala Securities Co rp., G.R. No. L-2948 5, November 21.
1980);
3. The filing of o judicial action for collectio.n (CIR v. Union Shipping, G.R. No.
l-66160. May 21. 1990);
4. A Formal Letter of Demand (FLD) with assessment issued by the BIR to o
taxpayer, although ordinarily must be administratively protested by the
lotter, but the language and the tenor thereof indicate that the same is the
final decision of the CIR on the matter (Al/led Banking Corp. v. CIR. G.R.
No. 175097. February 5. 2010);
S. Where several requests for reconsideration ore filed with the Commissioner,
the appealoble decision Is that which affirms the disputed assessment in
terms which clearly indicate the finality of the action token by the
Commissioner (Tenor of Finality Rule) (Dy Pac & Co., /nc. v. CTA, G.R. No.
l-31369, October 18 1977); and
6. The Commissioner did not rule on the taxpayer's motion for reconsideration
of the assessment ond summons on the civil action for ·the collection of
deficiency tax was received by the taxpayer (CIR v. Union Shipping Corp.,
G.R. No. L-66160, May 21. 1990).
0: What are the instances where CTA would have jurisdiction even if there is no
decision?
ANS: The CT A would have jurisdiction even if there is no decision in the following
instances:
1. If the CIR has not acted in a t~x refund case and the 2-year prescriptive
period is obout to expir~ (R u/e 8, Sec. 3(a));
2. If the Commissioner of .<:! as not rendered a decision on an
application for refund of•j nue taxes and the suit is about to
prescribe (RRCTA. Rule 4.,S
3. Where the CIR hos not,&ct~ sment within 180 days
from submission of all rele'~, g the protest (R.R. No.
12-99, Sec. 3.1.5(6)),
EXCLUSIVE ORIGINAL ANf> APPELLATE CRIMINAL CASES
0: What are the crimlhal ca Jes Within

Division?
ANS: The Court ln Division shall exerci over all criminal
cases where the p rlnci pal amount of ta ____ es and penalties
claimed, is Pl Millian''or rpore arising ft.o
1. NIRC;
2. CMTA; and
3. Other laws odminlst~red , by the BIR or t e B,OC.
Note: The regular c.ourts shall have original jurisdiction in offenses or

felonies where:
1. The prlncipal "'-"a mount of taxes. and fees, exclusive of charges and
penalties claimed, is less than Pl Million;
2. No specified amount is claimed (as to wh ich court shall exercise
jurisdiction - fallow the rules on jurisdiction of criminal cases); or
3. The Jurisdiction of CT A in these cases Is Appellate (RA 9282. Sec. 7(b)).
0: What are the criminal cases within the exclusive appellate jurisdiction of the
CT A Division?
ANS: The Court in Division shall exercise exclusive appellate jurisdiction over appeals
from the judgments, resolutions or orders of the RTCs in th eir original jurisdiction in
criminal offenses arising from violations of the NIRC or CMT A and other lows
administered by the BIR or BOC, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than Pl Million or where there is no
specified amount claimed (RRCTA, Rule 4, Sec. 3(b)).
0: What are the criminal cases within the exclusive appellate jurisdiction of the
CTA En Banc?
ANS: The Court En Banc shall exercise exclusive appellate jurisdiction over:
1. Decisions, resolutions or orders on motions for reconsideration or new trial
of the Court in Division in the exercise of its exclusive original jurisdiction
over cases involving criminal offenses arising from violations of the
National Internal Revenue Code or the Tariff and Customs Code and other
laws administered by the Bureau of Internal Revenue or Bureau of Customs;
'2. Decisions, resolutions or orders on motions for reconsideration or new trial
of the Court in Division in the exercise of its exclusive appe llate jurisdiction
over criminal offenses mentioned in the preceding subparagraph; and
3. Decisions, resolutions or orders of the Regional Trial Courts in the exercise
of their appellate jurisdiction over criminal offenses (RRCTA. Rule 4. Sec.
2(f to h)).
8. PROCEDURES
FILING OF AN ACTION FOR COLLECTION OF TAXES
a) Internal Revenue Taxes
0: What is the form an 9: mod~ of p ;o ~ ing' qr civil and criminal actions

involving internal reven~e ox ~? · • ~ ,
ANS: Both in civil and criminal actions involving /11.terna 181 venue Taxes, the following
rules shall be observe : I) .•
1. It shall b )?~o~gl,t ~~t he ,D,Cl11J~ of;,the Gpv '1f'\.~.nt1of the Philippines; and
2. It shall e cor,cluct<f' by leg_a l offlt"ers 0¥ the BIR
3. No civil I or crlhlinal action for recovery of the ~xe-s ·,s hall be filed in court
without trye opprovp l of the CIR (NIRC. Sec. 2 ·'ij,_
< \ I
0: How may the (ioyetlnment , nforce collqction o (latio al~ ernal revenue taxes
through judicial c{clldn~ \. 1 1 _ . /JI' 1
ANS: The G':>v.e rn f '}'t' ay •e/if.o ce col.le tio? of) q t_e/ al e9e: e taxes by:
1
1. C1v1I Ac ton: . ,, /. .
a . By lllng ci vll~'cl?S~ for th,!} ~~ll~c:'tio of a sum of money with the
p roper reg lar cqurt (N/Re, S/ q : 20l and 222); or
b. By_ fi n11,g an o i:u;we rtto1 tl1e PJ'n tib or review filed by taxpayer with
CT A (F'e no9d · lde! iTlanos; In c. ' C• R · G.R. No. L -21551, September
30, 1969); or l::i OJ · _., I'
'2. Cr im inal Action · 1\1 {'
Note: The judgment in the criminal case shall not only impose the penalty
but shall also order the payment of taxes which is the subject of the
criminal case as finally decided by the CIR (NIRC, Sec. '205).
0: When should the action for collection of national taxes be filed in court?
ANS: The action for collection should be fi led in court within the following periods:
1. General rule - If no assessment Is issued, 3 years from the filing of the
return. However, when the BIR validly issues an assessment within the 3-
year period to assess, it hos another 3 years within which to collect the tax
due by court proceedin9 (CIR v. Un ited Salvag e and Towoge Phils., Inc .. G.R.
Na. 197515, July 2, '2014) .
'2. Exception - If no assessment in cases of false return, fraudulent return with
intent to evade tax, and failure to file a return, anytime within 10 years
after the discovery of the falsity, fraud or omission (NIRC, Sec. Q22 (a)) ,
However, if the BIR validly issues an asse ssment within the 10-year period,
it hos another 5 years following the assessment of tax to institute a
proceeding in court for the collection (NIRC, Sec 2'2'2 (c)) .
0: Where should the civil action for the collection of national or local taxes be
filed?
ANS: The civil action for the collection of national or local taxes shall be filed with the
court of competent jurisdiction, determined as follows:
Court ___[ Original Jurisdiction

tv1unicipal In all other cases where the principal amount of taxes and fees,
Trial Court exclusive of charges and penalties does not exceed P2 Million (B.P
Big 129, as amended by R.A 11576).
Court- of Tax Over tax collection cases whe re the p rincipal amount of taxes and
Appeals fees, exclusive of charges and penalties is Pl Million or more.
Division
(B.P. Big. 129, as amended by RA. 11576, Sec. 19(8) and 33(1); RA. No. 1125, as amended
by RA. No. 9282, Sec. 7 (b)(2)(c))
b) Local Taxes
0: How may LGUs enforce the collection of local ta xes through judicial action?
ANS: The LGU concerned may enforce th~~ollection of de linquent taxes, fees, cha rges
or other revenues by civil action in an yec.ou it of co mpe tent ju risdicti on (LGC, Sec. 183).
0 : Who should institute the civil aetlbp fp collection of local taxes?

ANS: The civil action shall be fil ed bf the lo a l treasurer (LGC, Sec. 183).
0: When should the civil action for colle~tlon of local taiws be filed?
ANS: The civil action for the c6llectio~ ·'of, taxes, fees, or 111 a rges shall be instituted
within 5 years from the da ft of ossesslJlen , (LGC, Sec. 194 1
CIVIL CASES
a) Who May A
0 : Who may appea l tci the CTA Dlvl ion
ANS: The followi ng rnoy or,peol to +ho Cl)/ii Division:
1. A party adve:rse ly a ffected by o Jdec ision, ruling or the inaction of the CIR
on :
a . Dispu ted a s_s~ssments; or
b. Claims for f(ffun d of lnterrfi!I re<i..ett.ue rakes;
2. A party adverse ly off~cted by a decision or ruling of the:
a . Commi ssio n.er. of Customs;
b. Secretory of filnance;
c. Secreta ry of T rode a nd Industry;
d. Secretorr of Agricql ture; or
e. Regiona Trial Cou rt in the exercise of its original jurisdiction (RRCTA,
Rule 8, Sec. 3).
0 : Can the FDDA, Preliminary Collection Letter, Final Notice Before Se izure, or
the Warrant of Distraint a nd/or Levy be cons idered as a "decision or ruling by the
CIR" which warrants an appeal to th e CT A? .
ANS: No. O therwise, It will render nugato ry th e remed y of a ppeal to the C IR of the
deri io l of protest Iss ued by his o r her du ly authorized re presentative. When o taxpa yer
protests o n assess ment, he nat ura lly expects the CIR to decide e ither _positive ly or
neg a ti vely. A taxpa yer ca nnot be prejudiced if he chooses to wait for the tinal decision
of the CIR on the protested assessment (Lig h t Rall Transi t Au thority v. BIR, G .R. No.
231238, Jun e 20 , 2022).
0: What is the period to appeal and mode of appeal to the CTA Division by
taxpayer on a disruted assessment?
ANS: The mode o appeal to the CTA Division must be by a Petition for Review, which
must be fi le.d within 30 days ofter the receipt of the decision, ruling, or after the
expi ra tion of the period fixed by law for t he CIR to act on the disputed assessment. In
case of inaction of the CIR on claims for refund of internal revenue taxes erroneously
or illegally collected, the taxpayer must file a petition for review within the two-year
period prescribed by law from payment or collection of the taxes (RRCTA, Rule B, Sec.
3(a) and Sec. 4 (a)).
Note: The TRAIN law notably deleted the option of appeal to the CT A within 30 days
after the expiration of the 120-day (now 90-day) period within which the Bl R is to act
on the application and instead imposed a penalty on the erring official, agent, or
employee.
0: Does the filing of motion for reconsideration with the BIR toll the 30-day period
to appeal to the CTA?
ANS: No. A motion for re<lons ideration of the denia l of the administrative protest does,
not toll the 30-day period to appeal 'lo the CTA. The period to appeal is still reckoned
from the dote the taxpayer Is notified of the denia l of the CIR (Fishwealth Canning
Corp. v. CIR, G.R. No. 179343, January 21, 2010).
0: What is the effect of filing a motion for reconsideration or new trial on the
running of the period for perfection of the appeal?
ANS: The flli,n g of ,o motion for reconsideration or new trial shall suspend the running
of the period within which on appea l may be perfected (RRCTA), Rule 15, Sec 4).
0: What is the effect of an a · n of the tax?

ANS:. Generally. the a P. levy, distraint, or sale of
any property of the t r · bility (RRCT A, Rule 10.
Sec. I) .
b) S m ~ . i . u . u ~ ~~ Ui.!#,~ .:,i, ,: •.
,, .... •/'
0: What may e coll_!c!i

ANS: The CT A llection oft motion filed by on
Interested port c. 2f .'
, 1,1,. __/_; S:·
0: When shoul _sus nsio of the tax be filed?
ANS: The moti ' ay be filed together
with the petition motion filed by the
interested party , Sec. 3).
0: What ore the spend collection of

taxes? (AJD)
ANS: The requisites ollection of taxes are as
follows:
1. There is an App ecision of the CIR;
2. In the opinion of the CT A, the collection may leopordize the interest of the
Government and/or the taxpayer; and
3. The taxpayer may be requ ired either to Qeposlt the amount claimed or to
file a surety bond for not more than double the amount with the Court (R.A.
No. 1125. Sec. 11).
0: When may the bond required for the suspens.ion of the collection of tax be
dispensed with?
ANS: The required posting of a bond for the suspension of the collection of the tax
liability may be dispensed with:
1. When p rescription hos set In; or
'2. When it is determined by the courts that the method employed by the
Collector of Internal Revenue in the collection of tax is not sanctioned by
law (Spouses Pacquiao v, CTA, G.R. No. 213394, April 06, 2016).
Note: The purpose of the ru le is not only fo prevent jeopardizing the

interest of the taxpayer, but more Importantly, to prevent the absurd
s-ituation wherein the court would declare tha t the collection by the
summary methods of distra lnt and levy was violative of low, and then, in
the some breath require the petitioner to deposit or file a bond as a
prerequ'lslte for the issuance of a writ of injunction (Id.).
Volume 1. Series of 2023 . BEOAN RED BOOK 601
c) lniunction Not Available to Restrain Collection
0: May the collection of taxes be enjoined through an injunction?

ANS: No. A court doesn 't hove the authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee, or charge imposed by the NIRC
(No Injunction Rule) (NIRC, Sec. 218).
Q: What is the reason behind the prohibition dgainst the issuance of an injunction
to restrain the collection of any internal revenue tax?
ANS: A principle deeply embedded in our /'urisprudence is that taxes, being the
lifeblood of the government, should be co lected promptly, without unnecessary
hindrance or deldy. Section 218 of the NIRC Is in line with this principle. An exception
to t~is rule, provided under Section 11 of RA 1125, obtains on ly when In the opinion of
the CT A, the collection thereof may jeopardize !'he Interest ot the government and/or
the taxpayer. Thus, a Petition for Declaratory Relief cannot be utilized as a vehicle to
assail and prevent the enforcement of the tax assessments by alleging the supposed
unconstitutionality of provisions of the NIRC (CIR v. Standard Insurance Co.. Inc.
(Resolution). G.R. No. 219340. April 28, 2021, Hernando Cose).
CRIMINAL CASES
a)
Q: Where should the criminal action foi t e collection of national taxes be filed?
ANS: The criminal action for the c,ollectlb of national taxes shall be filed with the
court of competent jurisdiction, determined Q . folio. s:
the BOC, where

of charges and
there is no
O ·v er ,!:f inii~~I offenses qri Ing from vi~ latrons of the NIRC or
TC(p and o\h~r laws administered by the BIR or the BoC, where
the principal amount of 01;1es a d fees, exclusive of charges and
penal'tle,, claimed ls 1>1 MIiiion or mme.
(R.A. No. 1125, as amended by R.A. No. 92B2, Sec. 7 (b)(l)).

0: How ore criminal actions falling within the exclusive original jurisdiction of the
CT A Division instituted?
ANS: All criminal actions before the CT A Division in the exercise of its original
jurisdiction shall be instituted by the filing of an information in the name of the People
of the Philipfines. The Institution of the criminal action shall interrupt the running of
the period o prescription (RRCTA, Rule 9, Sec. 2).
Note: In criminal actions involving violations of the NIRC and other laws enforced by
the BIR, the Cl R must approve their filing . Those that involve violations of the Tariff
Code and other laws enforced by the BOC, the Commissioner of Customs must approve
their filing (RRCTA, Rule 9, Sec. 2).
0: Who may prosecute criminal actions i11 the CTA Division?

ANS: All criminal actions shall be conducted and prosecuted under the direction and
control of the public prose-cutor. In crimina l actions involving vlolotlon of the NIRC or
other laws enforced by the BIR. and violations of the CMT A or other laws enforced by
the BOC, !he _prosecution may be conducted by their respective duly deputized legal
officers (RRCTA, Rule 9. Sec. 3).
b) Institution of Civil Action in Criminal Acti.2.a
0: Does the filing of criminal action include the civil action for recovery of civil
liability for taxes and penalties?
ANS: Yes. In cases with in t he juri sd ict ion of the CT A, the criminal action and the
co rrespond ing civil actio n for the recovery· of civi l liability for ta xes ond pena lties shall
be d eemed jointl y Institu t ed in ·the some p roceed ing. The filing of the crimina l action
shall necessarily carr y w,l th it the filing of the ci vil action. No right to reserve the fi ling
of such civil a ction separately from the cri minal action shall be all owed or recognl2.ed
(RRCT A, Rule 9, Sec. 11).
c) Period to Appeal
0: How is an appeal on criminal cases falling within the exclusive appellate
jurisdiction of the CTA Division made?
ANS: An appeal to the CTA Division in criminal coses decided b y a RTC In the exercise
of its original jurisdiction shall be token by f iling a notice of appea l pursuant t o Sec t ion s
3(o) and 6, Rule 1'2'2 of the Rules of Court, wi t hin 15 days f rom receip t of a cop y of t he
decision or final order with the court wh ic h ren d ered the fi na l judgme nt or o rd er
appealed from and by serving a copy upon t he adverse party (RRC TA. Rule 9, Sec. 9
(a)).
0: What is the period I to the CTA En Banc in

criminal cases?
ANS: Decisions of t e appealed to the CT A En
Banc by filing a pet' l~s of Court within 15 days
from receipt of a c , f~om (R RCT A, Rule 9, Sec.
9(b)). , ,.,
od.. cciu~e, e x e or fil ing the petition for

review for an add i excee(iling 15 1A;-!Ru le 9 Sec. 9(b)).
ii" ' '
0: What is the pe d 'mdcl1t~o r cases decided by the RTC
in the exercise of
ANS: Cases d eci p pella e jurisdiction may be
of pealed to the C 'w under Rule 43 of the Rules
o Court within 15 is ion or final order appealed
from (RRCT A. Ru/
Note: The CT A En , --........,,..... na l actions for violation of

NIRC and other lows e rove their filing while those
involving violation of the y the BOC, the COC must
approve their filing (RRCT ,
APPEAL TO THE CTA EN BANC
0: Who may appeal to the CTA En Banc?

ANS: A party adversely affected by a decision or resolution of the following may
appeal to the CT A En Banc:
1. A CT A Division on a motion for reconsideration or new trial (RRCTA, Rule
8, Sec. 3 (b));
'2. The CBAA in the exercise of its appellate jurisdiction (RRCTA, Rule 8 , Sec.
3 (c)); or
3. The RTC in the exercise of its appellate jurisdiction (Id.).
0 : What may be the subject of an appeal to the CT A En Banc?

ANS: A ccording to Section 1, Ru le 41 of the Revised Rules of Court, an appeal ma y be
toke n only from a jud g ment or f inal order tha t com pletely disposes o f the case or of a
matter t h.e rein when declared b y the Rules t o be a p pea lable. Said provision, thu s,
e><plici tly sta tes that no a ppeal ma y b e to ken from on interlocu tory order. It Is, therefore,
clear t hat the CTA En Bone hos ju ri sd iction over fina l order or judgment but not over
interlocuto ry orders l$sued by the CT A in di vision.
Note: The CT A merely adopts the procedure for petitions fo r review and appeals long
estab lished and practiced in other Ph ilippine courts. Accordi ngly, doctrines, principles,
rul es, ond/recedents laid down in jurisprudence by this Court as re9ords petitions for
review on appeals in courts of general jurisdiction should likewis.e bind the CT A, and
it cannot deport therefrom (CIR v. CTA, G.R. Nos. 203054-55, July 29, 2015}.
Q: What is the proper remedy to assail the interlocutory orders of the CTA
Division?
ANS: Section 1, Rule 41 of th e Revised Rules of Court applies suppletory to proceedings
before the CT A Thus, where the judgment or final order is not oppeolable, the
aggrieved party may file an appropriate special civil action under Rule 65 (CIR v. CTA,
G.R. Nos. 203054-55, July 29, 2015).
0: Can the CIR avail of a petition for certiorari before the Supreme Court if the
CT A Division cancels the assessments against a taxpayer on the ground of
prescription?
ANS: No. A CT A Resolution which cancels the asses sment a~ainst a tax payer on the
basis of prescription are final judgments or orders. The CIR s proper remedy on the
adverse Resolutions of the CTA Division is to file on appeal by way of a petition for
review with the CT A En Bone. Also, the CT A has jurisdiction over the issue of
prescription since it is covered by the te_r!JI "other matters" over which the CTA has
appellate jurisdiction (CIR v. CT A Second' lvfsJon And 01 Development, Inc., G.R. No.
258947, March 29, 2022).
Q: Within what feriod should the op the CTA En Banc be made?

ANS: An appea to the CT A En Banc s . d withi the following periods:
1. For appeals from the decislo on civil and criminal
coses - within 15 days· horn te · questioned decision or
resolution;
2. For appeals fi;qm t.he d ecisi.o n· he rul in AA and Regional Trial
Court in the exercise of their llote ju civil cases - within 30
days from receipt,.,of a co py o questi n or ruling; and
3. For o ppedls from ,t he decision he Reg urt in the exercise of
its o pp~Uote j1,1~is~ictlon in crl I coses Q.ays from the receipt
of a co_p y of. the_.oecisiqr.,,,op ed fro RJle , Secs. 3 (b) and
(c); Ru fe 9, Sec. 9 (h) and (Cj)),
0: What should be th'• mode of appeal 9 the CTA En Banc?

ANS: An appeal in civll 1;Jnd ctl minal cos.- shall be taken to the Court En Banc by
in
petition for review as provi~ed· Rule 43 of the Rul ol Court (RRCTA , Rule 8, Sec. 4
(b) and (c); Rule 9, Sec. 9 (b} and (c));
0: What is required befor• a decision of a CT A Division may be appealed to the

CTA En Banc?
ANS: The petition for rev-iew of a decision or resolution of the Court in Division must
be preceded by the filing of a timely motion for reconsideration or new trial (RRCTA,
Rule 8, Sec. I). The filing of a motion for reconsideration or new trial before the CT A
Division is on indispensable requirement for fili ng an appeal before the CT A En Bone.
Failu re to fi le such motion for reconsideration or new trial is cause for d ismissal of the
appeal before the CT A En Banc (City of Mani/a v. Cosmos Bottling Corporation, G.R.
No.196681, June 27, 2018).
0: Who may file a motion for reconsideration or new trial?

ANS: Any aggrieved party may seek a reconsideration or new trial of any decision,
resolution or order of the court (RRCT A, Rule 15, Sec. 1).
0: What are the grounds for filing a motion for reconsideration or new trial?
ANS: The grounds for fil ing a motion for reconsideration or new tria l are as follows:
1. Eroud, ccident, Mistake, or _Excusable negllgence (FAME) which ordinary
p rudence could not hove 9uarded against and by reason of which such
a ggrieved party has probably been impaired in his rights; or
2. Newly discovered evidence, which he could not, with reasonable diligence,

have been discovered and produced at the trial and which, if presented,
would probably alter the result (RRCTA, Rule 15, Sec. 5).
0: To which courts may a motion for reconsideration or new trial be filed?

ANS: A party adversely affected by a ruling, order or decision of a CT A Division may
file a motion for reconsideration or new trial before the same Division (RA No. 1125,
Sec. II (3)). A rr,otion for reconsideration or new trfol can also be filed before the CTA
En Banc. In such case, the period fixed shall run from the party's receipt of a copy of
the resolution denying the motion for reconsideration or for new trial (RRCTA, Rule 16,
Sec. 1).
0: When should the motion for reconsideration or new trial be filed?

ANS: The aggrieved party shall file a motion for reconsideration or new trial within 15
days from the date he received notice of the decision, resolution, or order of the court
in question (RRCT A, Rule 15, Sec. I).
0: What is the effect of filing the motion?

ANS: The filing of a motion for reconsideration or new trial shall suspend the running
of the period within which an appeal may be perfected (RRCTA, Rule 15, Sec. 4).
0: What is the effect of _,"'.,.---=~

1
Supreme Court pending the
resolution of the Motion 'I in CTA En Sane?
ANS: The pending mo I in the CT A En Banc shall
be deemed abandon
0: Who shall act Government?

ANS: The Solici e Philippines and
government offici ught to the Court in
the exercise of its
Note: The Solicit or the legal officers

of BOC, to appea eir official capacity;
Provided, the Soli rvision at all times
over them (RRCT
0: When may a P reme Court be taken

in Civil Cases?
ANS: Any party adve of the CTA En Banc may
file with the Supreme Co on Certiorari within 15 days
from receipt of a copy of the , provided in Rule 45 of the Rules
of Court (RRCTA, Rule 16, Sec. 1).
0: When may a Petition for Review on Certiorari to the Supreme Court be taken
in Criminal Cases?
ANS: A party adversely affected by . a decision or ruling of the Court En Bone may
appeal therefrom by filing with the Supreme Court o verified petition for review on
Certiorari within 15 days from receipt of a copy of the decision or resolution, as proviqed
in Rule 45 of the Rul es of Court, If such party has filed a motion for reconsideration or
for new trial, the period herein fixed shall run from the party's receipt of o copy of the
resolution denying the motion for reconsideration or for new trial (RRCTA, Rule 16. Sec,
I).
CTA Procedure for Appeal

Civil Case
I
;
;----------------------, ' \
Decisions, Rulings or Inaction of I Petition for Review
the: (RULES OF COURT, Rule 42)
1. Commissioner of Internal Within 30 days after the receipt of the
Revenue decision or ruling or after lapse of 180 days
'2. Commissioner of Customs I within which the BIR should act (RRCTA, Rule
3. Secretary of Finance ~ 8, Secs. 3(a) and 4)
4. Secretary of Trade and Industry : In case of inaction of the CIR on claims for
5. Secretary of Agriculture I refund of internal revenue taxes erroneously
6. RTC, in the exercise of their I or illegally collected, it must file a petition for
original jurisdiction (local tax I review within the 2-year period prescribed by
and tax collection cases) I RRCT A, Rule 8, Sec. 3(a)
\
', ___________ ----------~~ I
Decisions or rulings of RTC in the I CTA D£1SION I

exercise of its
jurisdiction involving
originally decided by
Me TCs, or MCTCs
appellate
tax cases
the MTCs, ·--- -------_i_ -----------'
f r M tion for Reconsideration / New Trial 1
I Within 15 days from receipt of decision :

Decisions or rulings of the CBAA
in the exercise of its appellate 1~ --- - - - - - - - ,,- - - - - - - - - - - - ;
jurisdiction over cases Involving
the assessment and taxation of
,-- ----- - ~-i -----------, I
real property r Review 1
URT, Rule 43) 1
ce pt of resolution of the I
otl n of reconsideration :
,. , -- ----- --------, u/e . Sec. 3(b) and 4) 1
,.
I
I Petition for Review ' '
1
I (RULES OF COUR.T, Rule,,61) :
I Within 30 days fron'i' receipt of . - .
resolution of the CT /i.. D fvi sion 1
on the motion fo r. 1
rial I
',
reconsideration or new
(RRCTA. Rule 8, Sec. 3(b) a"n~ 4) :
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ .,,,.✓ I
------------,
Motion for Reconsideration / New Trial :
I Within 15 days from receipt of decision 1
: (RCCT A, Rule 15, Sec. 1) ,
'------------1 -----------'
Court where
1
, ~-----------t----------, '
motion Petition for Review on Certiorari 1
should be (RULES OF COURT, Rule 45)
filed Within 15 days from receipt of resolution of
the CT A En Banc on the motion for
Decisions of reconsideration or new trial (RRCTA, Rule 16,
lower courts or Sec. 1).
quasi-judicial
agencies subject Note: The motion for reconsideration or for
to appeal new trial filed before the Court shall be
deemed abandoned if, during its pendency,
the movant shall appeal to the SC (RCCT A ,
,-----,I , Rule 16, Sec. '2) ,.
I
1--+ Motion to file
'~--- --- ----f __________ ;
I SUPREME COURT I
606 SEDAN RED BOOK Volume 1. Series of 2023.
CTA Procedure for Appeal

Criminal Case
,, - Notice of Appeal ... '
1
(RULES OF COURT, Rule 1!2!2, :
In cases decided by RTC in the I Secs. 3 (a) and 6) 1
exercise of its original ~ Wit hin 15 days from receipt of a copy of the 1
jurisdiction I d ecision o r final o rder ap peale d from the some I
cou rt and by serving a copy upon t he a dverse I
~~ :
'-- ----- ------~ ---- --- -----'
I CTA DNISION I
(
--- -------- - --- ------ ---,
Motion for Reconsideration/ New Trial 1
Within 15 days from receipt of decis ion :
(RCCTA. Rule 15. Sec. I) 1
~ ---------i--- ------ --- '

~ -- --- -----------, \
In coses decided by or Review 1
exercise of its URT. Rule 43) I
jurisdi lpt of a copy of the I
c!e e ale d from :
No the pe titio n may be I
e)(t exceedinr 15 days I
_ _ _ _ _ _ _ _ t---cJ-\-.--,- Sec. 9(b) )
1
I Petition ' ' .,.
1 (RULES OF C
1 Within 15 days
I copy of the
I order a ppea led
: Rule 9, Sec. 9(c))
\
.. - - - - - - - - -
-- ----- ---,
ration / New Trial
m receipt of decision
___:£ __ ____ _____ _
A, Rule 15. Sec. 1)
I
I
,- -- - -- , \
I \
D Court where Petition for Review on Certiorari

motion (RULES OF COURT. Rule 45)
should be Within 15 days from receipt of resolution of
filed the CT A En Bone on the motion for
reconsideration or new trial (RRCTA, Rule 16,
Sec. 1).
Decisions of lower
courts or quasi- Note: The motion for reconsideration or for
judicial agencies new trial filed before the Court shall be
subject to appeal deemed abandoned if, during its pendency,
the movont shall appeal to the SC (RCCTA,
Rule 16. Sec. 2).
,----- .... \ I
I
I
I
......... Motion to file '-- ---- -- ---- 1----- -- ---- ~
_- - - - .,'
\
I SUPREME COURT I
VINA LAURICE C. CAYABYAB
Subject Chair
PATRICIA NICOLE C. TY
Assistant Subject Chair
ALEXANDRA MAE V. LUCAS
Subject Electronic Data Processing
PATRICIA NICOLE C. TY
Persons And Family Relations
STEFFI ARANTXA R. GIANAN
Property, Ownership And Its Modifications
CHARISMA LORRAINE T. CHAN
Land, Titles And Deeds
CASEY ANDREAS. UY
Wills And Succession
LOUISE ATHENA G. MONSERRAT
Obligations And Contracts
MARYH WHYTE GLYNDAILE G. BALUYOT
Sales And Lease
KIMBERLY JOY V. NAPARAN
Agency
EDD HA MARIES. SALAS
Credit Transactions; Compromise
AUBREY JOYCE B. RAZON
Quasi Contracts; Torts And Damages
CHRISTIAN U. EBETUER
JOHN PAUL S. LUCERO
RAMON TIMOTHY F. BAUTISTA
RALDIN HILARIO A. CARAAN
JAIME M. LUNA
APRIL ANGELICA D. LOPEZ
ARLYN A. ANGOLUAN
JASON B. ANCHORES
JAZMINE B. ATIENZA
ANGELICA P. CARPITANOS
CHRISTINE YVONNE L. BALINAS
MOIRA LOU J. CLEMENTE
JEREMIAH T. BERNALDEZ
MARIAN A. OBOG
ALYANNA A. SHI
DANIELLE B. CALMA
MARIE LOUISE ELIZABETH C. ESTABILLO
ANGELICA GENINA D. CARRIEDO
LEAD. PAGUIO
PATRICIA MARIE G. CARLON
DEAN MARCIANO DELSON

DETLEF ADANZA
Preliminary Title & Persons and Family Relations
ATTY. ROWELL ILAGAN
ATTY. JUN MARR DENILA

Obligations and Contracts
ATTY. MANUEL CASINO
Sales and Lease
ATTY. LUIS MANUEL BUGAYONG
Agency
DEAN ROCKY DELSON
DETLEF ADANZA
Credit Transactions and Compromise
ATTY. JESUS ERICK STA. BARBARA
Torts and Damages, Quasi-Contracts
DEAN MARCIANO DELSON
DETLEF ADANZA

BRB23 Tax

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BRB23 Tax

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TAXATION LAW

Q: What is the rationale of taxation?

a: What is the nature ff th ' power of t~ ation?

'2. It is legislative in ch aracter - Taxation is a power that is purely legislative.

0: What are the stages or asped s of ta xation? (LACo-PaRe.)

b. Discretion as to subjects of taxation;

0: What are the characteristics of the taxing power? (CUPS)

0: What are the purJ>oses and objectives of taxation?

b. .Regulation - taxes may be levied with a regulatory purpose to provide

A. POWER OF TAXATION AS DISI/ UISHED FROM POLICE POWER AND

0: Distinguish the "power of taxaffon~ fro

To raise revenue; the The property is The use of the

Operates upon a Operates on an Operates upon a

The money There is transfer of There is no transfer

Indirect benefit; it is Direct benefit; he benefit; the

Generally, there is no No amount imposed Amount imposed

subject to certain Inferior to the Relatively free from

0: How is the · .he police power?

0: How is police power wer of taxation?

0: What is the determining factor In distinguishing "ta.x" and "regu lation" as a

.B. INHERENT AND CONSTITUTIONAL LIMITATIONS OF TAXATION

0: What is the extent of the power of taxation bra State?

0: What are the inherent limitations-·of t xation? (PINES)

0: What is the effttcf of a violation of ere taxation?

0: When is a tax consid~red for "public: P,u :1

0: What are the bases of the rule of international comity?

0: What is the rule on non-delegability of the power to taK?

0: What are the ility of the power to

0: What is the rati f'' ntities from taxation?

0: How are government agencies taxed?

0: What is the doctrine of supremdcy of;rthe national government?

0: What is a govei>nme~t 'inifrum~ntalit NEVEA)?

0: When a government instrumentality is vested with corporate powers, is it ipso

0: What are the recognized government instrumentalities (or government

0: What are the c

'2. Provisions indirectly affecting taxation: (DENR-FPJ)

0: What is a poll tax?

0: What is a progressive system of taxation?

0: What is the effect if a tax is not progressive in nature?

Q: When is taxation equitable?

0: What is the Flexible-TariH Clause?

Note: In 1;1ronting tax exemptions, on absolute majority of the members of Congress

0: What is the rule on exemption of religious, charitable, and educational

0: What kind of tax is covered by the exemption of religious, charitable, and

0 : What is covered by the constitutional prohibition on the appropriation or use

0: How are non-stock, non-profit educational institutions taxed?

0: What are the requisites for the e,x•T,Pt o to P,P.IY,7'

0: Must revenues be earned fr.om educational activities to be exempt from tax?

0: How Is the equal protection clause satisfied in relation to taxation?

0: What does the o taxation?

0: How has the constitutional limitations on religious freedom been applied to

0: How may the constitutional limitation on the freedom of speech be transgressed

Territoriality principle and sjtus of taxation

0: What is the principle of territoriality of taxation?

0: What is meant by "situs of taxatiqn:?

0: What is the r~I• on situs of toxatlcm

0: What is "mobi/ia sequuntur personam"?

Note: If it is mount which bears the same

Note: estic corpo ration shall

0: What are the rules on situs of transfer tax?

0: What are the rules on situs of business tax?

C. REQUISITES OE A V'ALID TAX

0: What are taxes?