Taxation

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Taxation
Professional Teaching (Camarines Norte State College)
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Republic of the Philippines

CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue, Brgy. 2, Daet, Camarines Norte – 4600, Philippines
COLLEGE OF BUSINESS AND PUBLIC
Name of faculty: Ryan Daves F. Quiñones, CPA
Subject: Taxation – HRM 2A
Schedule for Instruction: MW 9:30-11:00
Lesson/Topic:
Objectives
 Explain the Basic Principles, Objectives, State Powers and Aspects of Taxation.
 Apply the essential characteristics, Limitations and Situs of taxation.
 Identify the sources of tax authority and the functions of the Bureau of Internal
Revenue.
 Enumerate the categories of income and the tax rates applicable per type of
income
 Discuss the Classification of income tax payers other than individual.
 Identify and differentiate the categories of income.
 Determine the scope and different sources of gross income.
 Correctly classify gains and losses from dealings in properties if taxable under
income taxation.
 Calculate correctly the number of allowable interests, rents, royalties and other
passive incomes.
 Explain the Basic Principles, Objectives, State Powers and Aspects of Taxation.
 Apply the essential characteristics, Limitations and Situs of taxation.
 Identify the sources of tax authority and the functions of the Bureau of Internal
Revenue.
 Enumerate the categories of income and the tax rates applicable per type of
income
 Identify the taxpayers allowed to claim foreign tax credit
 Compute the correct amount of foreign tax credit to be deducted.
 Recognized allowable deductions from gross income.
 Identify and differentiate different types of individual taxpayers and to compute
their taxable income and tax payable.
 Differentiate the general professional partnership and ordinary partnership; to
know how to compute their taxable income and tax payable.
 Distinguish Domestic from Foreign Corporations and Resident from Non-resident
Corporations; to know how to compute their taxable income and tax payable.
 Distinguish estate and trust and to know how to compute the income tax on
estate and trust.
 Compute the income subject to income tax
 File an accurate income tax form.
 Recognize the definition, nature, compositions, powers and duties of the board of
investment and investment policies.
 Distinguish the creation, composition, qualification and requirement from PEZA
and BMBE

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Discussion
Taxation
Taxation is the inherent power by which the sovereign through its lawmaking body
raises revenue to defray the necessary expenses of the government.
Taxation as a power
It is the inherent power of the government to demand contributions for public purpose
Taxation as a process
It is the process by which the sovereign through its lawmaking body raises income to
defray the necessary expenses of the government.
Eminent Domain
It is the inherent power of the sovereign state to take private property for public use
upon payment of just compensation.
Police Power
is the power of the state to promote public welfare by restraining and regulating the
use of liberty and property. It is the most pervasive, the least limitable and the most
demanding of the three fundamental powers of the StPolice power is a power
coextensive with self-protection and is aptly termed the law of overruling
necessitIt is the inherent power of the sovereign state to enact laws to promote
public health, public morals, public safety and general welfare of the people.
Police Power vs. Taxation vs. Eminent Domain
Basis Police Power Taxation Eminent Domain

Extent of Power Regulates liberty and Affects only property rights
property
Power exercise by Exercised only by the government May be exercise by
whom private entities
Nature of property Property is noxious or Property is wholesome
taken intended for a
noxious purpose
Purpose as to Property taken is Property taken is for public use
property taken destroyed
Compensation Intangible altruistic Protection and Fair market value
feeling that one has public off the property
contributed to the improvements expropriated
public good/general
welfare.
As to Purpose To promote public To raise To facilitate the
welfare through revenue taking of private
regulations property for public

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use
Purposes of Taxation
The primary purpose of taxation is to raise revenue in order to satisfy government

needs.
Secondary or non-revenue purpose of Taxation (IRI-PREP)
1. Implement of Police power

2. Regulation of activities/industries
3. Implement of the power of imminent domain
4. Promotion of general welfare
5. Reduction of social inequality
6. Encourage economic growth
7. Protectionism – to protect local industries from foreign competition
Nature of the Power of taxation
1. Legislative in character*
2. Inherent attribute of sovereignty
3. The power of taxation may be the power to destroy
4. The power of taxation is bound by inherent and constitutional limitations
5. The power of taxation is comprehensive unlimited, plenary and supreme
* Only the legislature determines the (CONES) coverage, object, nature, extent and
situs of the tax to be imposed.
Taxation is inherent attribute of sovereignty. It is a power that is purely legislative.
The power to tax involves the power to destroy. But the power to tax is not the
power to destroy while this court sits. Reconcile.
The power to tax involves the power to destroy because being an enforced contribution
the subject is not at liberty to free himself from this burden. However, this power is not
absolute because it is subject to certain inherent and constitutional limitations. If the
exercise of the taxing power exceeds these limitations, then the court has the duty to
declare the same as invalid or unconstitutional, thereby preventing the destructive
nature of taxation.
Characteristics of taxation (CUPS)
1. Comprehensive – covers all persons, property, business, rights and privileges

2. Unlimited – tax does not cease to be valid merely because it regulates,
discourages or even definitely deters the activities tax.
3. Plenary - complete
4. Supreme – it is supreme in so far as the selection of the subject of taxation.
Theories of Taxation

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1. Lifeblood Theory
2. Necessity Theory
3. Benefit-Protection Theory (doctrine of symbiotic relationship)
4. Jurisdiction over subjects and objects
Lifeblood doctrine
Without revenue from taxation the government can neither exist nor endure. The
government will not survive resulting in detriment to society. Without taxes, the
government would be paralyzed for lack of motive power to activate and operate it.
Necessity Theory
The exercise of the power to tax emanates from necessity, because without taxes,
government cannot fulfill its mandate of promoting the general welfare and well-
being of the people.
Benefits receive principle
It dictates that the citizens support the State in order that they may, by means thereof,
be secured in the enjoyment of the benefits of an organized society.
It involves the power of the State to demand and receive taxes on the reciprocal duties
of support and protection between the State and its citizen.
Taxpayers should pay taxes because of the benefit received by the taxpayer from the
government.
No one is allowed to object to or resists the payment of taxes solely because no

personal benefit to him can be pointed out.
Doctrine of symbiotic relationship
Every person who is able must contribute his share in the burden of running the
government. The government for its part is expected to respond in the form of tangible
and intangible benefits intended to improve the lives of the people and enhance their
material and moral values.
Taxation arises because of the reciprocal relation of protection and support between the
State and taxpayers. The state gives protection and for it to continue giving protection, it
must be supported by the taxpayers in the form of taxes.
Rule on Jurisdiction over subjects and objects
1. Tax laws cannot operate beyond the State territorial limits.

2. The government cannot tax a particular object of taxation which is not within its
territorial jurisdiction.
3. Properties outside one’s jurisdiction do not receive any protection of the State
4. If a law is passed by Congress, it must ensure that the object and subject of
taxation are within the territorial jurisdiction of the taxing authority.

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The eclectic theory as applied to taxation means that a state tax law cannot extend
outside its territorial jurisdiction.
Taxation is territorial because it is only within the confines of its territory that a country,
state or sovereign may give protection.
Basic Principle of a sound Tax System (canons of Taxation (FAT)
1. Fiscal adequacy – sources of revenue must be sufficient to meet government

expenditures.
2. Administrative Feasibility – tax laws must be capable of effective and efficient
administration
3. Theoretical Justice – taxes must be imposed based on the taxpayer’s ability to
pay
“A tax law will retain its validity even if it is not in consonance with the principles of fiscal
adequacy and administrative feasibility. However, if a tax law runs contrary to the
principle of theoretical justice, such violation will render the law unconstitutional
considering that under the Constitution, the rule of taxation should be uniform and
equitable.”
Non-observance of the canon will not render the tax imposition invalid except to the
extent that specific constitutional or statutory limitations are impaired.
Stages/Aspects of a system of taxation (LAPR)
1. Levy or Imposition (Tax legislation) – technical term is impact of taxation; refers

to the enactment of tax laws or statutes.
2. Assessment and Collection (tax administration)
3. Payment – technical term is incidence of taxation
4. Refund
Scope of the legislative power to tax
1. Discretion as to subjects of taxation

2. Discretion as to purposes for which taxes shall be levied.
3. Discretion as to amount or rate of tax
4. Discretion as to the manner, means and agencies of collection of taxes
5. Kind of tax to be collected
6. Apportionment of the tax
7. Grant of tax exemptions and condonations
8. Power to specify or provide administrative as well as judicial remedies
Taxpayer’s Suit
It is a remedy available to a taxpayer when taxes are used for illegal activities OR when
public funds are used for projects which are not intended for public purpose.

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It is a case where the act complained of directly involves the illegal disbursement of
public funds collected through taxation.
Taxpayer’s suit may only be allowed when an act complained of, which may include a
legislative enactment, directly involves the illegal disbursement of public funds
derived from taxation.
Requisites:
1. Public funds derived from taxation are disbursed by a political subdivision or

instrumentality and in doing so, a law is violated or some irregularity is committed
2. The petitioner is directly affected by the alleged ultra vires act.
Inherent Limitations of Tax (PITIE)
1. Public purpose
2. Inherently legislative
3. Territorial
4. International Comity
5. Exemption of government entities, agencies and instrumentalities
A violation of any of the inherent limitations constitute a violation of the due process
clause.
Public Purpose
The concept of public purpose is synonymous with public interest, public benefit,
public welfare and public convenience.
Test in Determining Public Purpose
1. Duty Test – whether the thing to be furthered by the appropriation of public

revenue is something which is the duty of the State to provide.
2. Promotion of the general welfare test – whether the proceeds of the tax will
directly promote the welfare of the community in equal measure.
International Comity
Comity is respect accorded by nations to each other as co-equals. As taxation is an act

of sovereignty, such power should not be imposed upon equals out of respect.
The rule of reciprocity applies only if the property is an intangible personal

property situated in the Philippines.
Rules related to International Comity
1. Exemption from tax of foreign governments

2. Foreign government are not constituted as withholding agents
3. Exemption from tax of salaries of diplomats and officials of foreign states

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4. Zero-rating of sale or exemption of importation of goods, supplies and fuel to

international carriers.
Exemption of Government Entities from Taxation
The government cannot tax itself. This inherent limitation applies only to the State itself.
Agencies performing governmental functions are exempt from tax unless expressly
taxed, while proprietary functions are subject to tax unless expressly exempted.
May the government tax itself?
Yes. The Constitution is silent on whether Congress is prohibited from taxing the
properties of the agencies of the government. Therefore, nothing can prevent Congress
from decreeing that even instrumentalities or agencies of the government performing
governmental functions may be subject to tax.
Instrumentality
It refers “to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed
with some if not all corporate powers, administering special funds and enjoying
operational autonomy, usually through a charter.
Exceptions to the non-delegability of the taxing power
1. The Congress may authorize the president to fix within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import
and export quotas, tonnage and wharfage dues and other duties or imposts
within the framework of the national development program of the government;
2. Each local government unit shall have the power to create its own sources of
revenue and to levy taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with the basic policy of local
autonomy. Such taxes, fees and charges shall accrue exclusively to the local
governments.
Flexible Tariff Clause
The power of the President upon recommendation of the NEDA to
1. Increase, reduce or remove existing protective tariff rates of import duty, but in no
case shall be higher than 100% ad valorem
2. Establish import quota or to ban importation of any commodity as may be
necessary
3. Impose additional duty on all import not exceeding 10% ad valorem whenever
necessary.
Define Situs of Taxation

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Situs of Taxation is the place of taxation. It is the place or authority that has the right to
impose and collect taxes.
All kinds of taxpayers are subject to income tax on income derived from sources within
the Philippines.
Only resident citizens and domestic corporations are liable to income tax on income
derived from sources without the Philippines.
Factors that determine the Situs of Taxation (ReCiNSuS)
1. Residence of the taxpayer

2. Citizenship of the taxpayer
3. Nature of the Tax
4. Subject matter of the tax
5. Source of Income
Rule on Situs of Property Taxes
1. Real Property taxes – Where the property is located regardless of whether the
owner is a resident or a non-resident.
2. Personal Property
a. Tangible Personal Property – where the property is physically located

although the owner resides in another jurisdiction
b. Intangible Personal Property –
GR: Situs is the domicile of the owner applying the principle of
mobilia sequuntur personam (movables follow the person)
XPN:
1. When the property has acquired a business situs in another

jurisdiction.
2. When the law provides for the situs of the subject tax.
Constitutional Limitations
1. Provisions DIRECTLY affecting taxation
1. Uniformity and equality of taxation

2. Prohibition on use of tax levied for special purpose
3. Majority vote of Congress for grant of tax exemption
4. Non-impairment of jurisdiction of the Supreme Court
5. Prohibition against imprisonment for non-payment of poll tax
6. Grant of Power to the LGU to create its own sources of revenue
7. Non-appropriation or use of public money for religious purposes
8. Grant by the Congress of authority to the president to impose tariff rates.

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9. Prohibition against taxation of religious, charitable and educational entities.

10. Prohibition against taxation of non-stock non-profit educational institution.
11. President’s veto power on appropriation, revenue, tariff bills (ART bills)
12. All ART bills, bills authorizing the increase of the public debt, bills of local
application and private bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
Constitutional limitations INDIRECTLY affecting taxation
1. Due Process clause

2. Equal Protection clause
3. Religious Freedom
4. Freedom of the Press and expression
5. Non-impairment of obligations of contracts
6. No taking of private property for public use without just compensation.
Poll tax or Community Tax
It is levied on persons who are residents within the territory of the taxing authority
without regard to their property, business or occupation. Only the CTC could qualify.
No person shall be imprisoned for a debt or non-payment of poll tax.
What is the required vote of Congress for granting of tax exemptions?
No law granting any tax exemption shall be passed without the concurrence of the
majority of all the members of the Congress.
In granting tax exemptions, an absolute majority of the members of Congress is

required, while in cases of withdrawal of such tax exemption, a relative majority is
sufficient.
When is tax exemption irrevocable? Revocable?
It is revocable if it is based on franchise, equity, public policy, economic policy that the
state can unilaterally revoke. It is irrevocable if it would result in violation of non-
impairment clause and when it is based on a contract whereby valuable consideration is
given.
Article VI Section 28(3), 1987 Constitution
Charitable institutions, churches, and parsonages or convents appurtenant thereto,

mosques, non-profit cemeteries, and all lands, buildings and improvements actually,
directly and exclusively used for religious, charitable or educational purposes shall be
exempt from taxation.
Rule on exemption from tax of religious, charitable and educational institutions.
Charitable institutions, churches, parsonages or convents, mosques, non-profit

cemeteries and all lands, buildings and improvements actually, directly and

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exclusively used for religious, charitable or educational purposes shall be exempt

from taxation.
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself to
the purposes for which the charitable institution is organized. It is not the use of income
from the property that is determinative of whether the property is used for tax exempt
purposes.
The tax exemption applies to Real Property tax only.
The test of exemption is the use of the property and not ownership.
Income from any activity conducted for profit by tax-exempt entities are subject to
income tax, including capital gains tax for sale of real property not actually used in
business by a corporation.
Requisites for a charitable institution to be exempt from Income Tax
1. A non-stock corporation or association

2. Organized exclusively for charitable purposes
3. Operated exclusively for charitable purposes
4. No part of its net income or asset shall belong to or inure to the benefit of any
member, organizer, officer or any specific person
Article XIV Section 4(3) 1987 constitution
All revenues and assets of non-stock, non-profit educational institutions used actually,
directly and exclusively for educational purposes shall be exempt from taxes and duties.
Upon the dissolution or cessation of the corporate existence of such institutions, their
assets shall be disposed of in the manner provided by law.
Rule on exemption from tax of non-stock, non-profit educational institutions
All revenues AND assets of non-stock, non-profit educational institutions used

actually, directly and exclusively for educational purposes shall be exempt from taxes
and duties. Upon the dissolution or cessation of the corporate existence of such
institutions, there assets shall be disposed of in the manner provided by law.
Proprietary educational institutions may likewise be entitled to such exemptions subject

to the limitations provided by law including restrictions on dividends and provisions for
reinvestment.
Ownership is not material in the determination of the exemption. Rather usage of the
property determines whether the property is covered by tax exemption.
Non-stock, non-profit educational institutions are exempt from income tax, real property
tax, donor’s tax, and customs duties because the provision speaks of all revenues and
assets.

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When a non-stock, non-profit educational institutions proves that it uses it revenues

actually, directly and exclusively for educational purposes, it shall be exempted
from income tax, VAT and LBT. When it also shows that it uses its assets in the form
of real property for educational purposes, it shall be exempted from RPT.
Taxation of revenues differs from the taxation of assets. When a non-stock non-profit
educational institution proves that it uses its revenues actually, directly and exclusively
for educational purposes, it shall be exempted from income tax, VAT and Local
Business Tax. On the other hand, when it also shows that it uses its assets in the form
of real property for educational purposes, it shall be exempt from real property tax.
Proving the actual use of the taxable item will result in an exemption, but the specific tax
from which the entity shall be exempted shall depend on whether the item is an item of
revenue or asset.
What is the Principle of Judicial Non-interference?
The courts cannot inquire into the wisdom of a taxing act unless there is a violation of
constitutional limitations or restrictions. The courts cannot inquire into the wisdom,
morality or expediency of policies adopted by the political departments of government in
areas which fall within their authority except only when such policies pose a clear and
present danger to the life, liberty or property of the individual.
Rational basis test
The equal protection clause recognizes a valid classification that is a classification that
has a reasonable foundation or rational basis and not arbitrary.
Notes on Equal Protection Clause
The prosecution of one guilty person while others equally guilty are not prosecuted,
however, is not by itself, a denial of equal protection of the laws.
A discriminatory purpose is not presumed, there must be a showing of a clear and

intentional discrimination.
Equality and uniformity in taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate.
Taxation is said to be equitable when its burden falls on those better able to pay.
It is inherent in the power to tax that a State be free to select the subjects of taxation
and it has been repeatedly held that inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional limitation.
Notes on Religious Freedom
A municipal license tax on sale of bibles and religious articles by non-stock, non-profit
missionary organization at minimal profit constitutes curtailment of religious freedom
and worship which is guaranteed by the Constitution.

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Rule of Strict Interpretation
A statute will not be construed as imposing a tax unless it does so expressly, clearly and
unambiguously.
Rule in the grant of power of taxation
With respect to the taxing power of the State, any ambiguity shall be resolved in favor of
the grant of taxing power of the State because the power of taxation is inherent. No
enabling law is necessary for the grant of such power.
Principle of strictissimi juris
Laws granting exemption from tax are construed strictissimi juris against the taxpayer
and liberally in favor of the taxing power. Taxation is the rule and tax exemption is the
exception.
Tax exemptions and exclusions are regarded as derogation of sovereign authority and
to be construed strictissimi juris against the person or entity claiming the exemption.
The general rule is taxation is the rule and exemption is the exception. It shall apply
when the grantee is a municipal corporation, and the property is not held in private
ownership but a public property.
Taxation is the rule and exemption is the exception. The effect of an exemption is
equivalent to an appropriation.
Exceptions to the principle of strictissimi juris
1. When the law expressly provides for liberal interpretation

2. When the grantee of tax exemption is religious or charitable institution
3. When the taxpayer falls within the purview of exemption by clear legislative intent
4. When the grantee is a municipal corporation with respect to its public property
only
5. When the imposition is special taxes relating to special cases and affecting only
special classes of persons.
6. When the grantee of tax exemption is the government, its political subdivisions or
instrumentalities
Definition of Taxes
Taxes are enforced proportional contribution from persons and property, levied by the
State by virtue of its sovereignty for the support of the government and all public needs.
Requisites of a valid tax
1. It should be uniform
2. It must be levied for public purpose
3. Person or property being taxed should be within the jurisdiction of the taxing
authority

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4. It must not impinge on the inherent and constitutional limitation on the power of
taxation
Characteristics of taxes
1. It is levied for public purpose

2. It is proportionate in character
3. It is generally payable in money
4. It is levied on persons and property
5. It is levied by the State through its law-making body
6. It is levied by the State which has jurisdiction over person and property
7. It is an enforced contribution not dependent on the will of the person taxed
Taxes vs. Toll
Basis Taxes Toll

As to purpose Taxes are levied for the support Toll is compensation for the
of the government use of another’s property
As to Taxes are determined by the Toll is determined by the cost
determination of sovereign of the property or of
amount improvement
Ass to who may Taxes may only be imposed by Toll may be imposed by the
impose the State government or private
individual
Tax vs. License fee
Tax License Fee

Imposed for revenue purposes Imposed for regulatory purposes
A tax is an exercise of the taxing power of Is an exercise of the police power of the
the state state
Amount is unlimited It is limited to the cost of regulation
Non-payment does not make the Non-payment makes the business illegal.
business illegal but may be ground for
criminal prosecution
Test in determining whether the imposition is a tax or a fee
If the generation of revenue is the primary purpose and regulation is merely incidental
the imposition is a tax; but if regulation is the primary purpose the fact that incidentally
revenue is also obtained does not make the imposition a tax.
Purpose of distinction
1. The nature of exaction determines the existence of double taxation

2. The nature of exaction determines the applicability of the tests of validity.
3. The nature of exaction determines whether an entity is exempt from payment of
such exaction.
Taxes vs. Special Assessment

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Basis Tax Special Assessment

As to definition Enforced proportional Enforced proportional
contributions from persons or contributions from owners
property of lands especially or
peculiarly benefited by
public improvements
As to subject Taxes are levied on lad, persons, Levied only on land
property, income, business, etc.
As to liability Personal liability of the taxpayer Cannot be made a
personal liability of the
person assessed
As to basis Based on necessity and partially Based solely on benefits
on benefits
As to application General application Special application only as
to a particular time and
place
Tax vs. Debt
Tax Debt
The source of the obligation is law The source of obligation is contract
Taxes are due to the government in its Debts are due to the government in its
sovereign capacity corporate capacity.
Failure to pay, other than poll tax may No imprisonment for non-payment of debt
result in imprisonment
Generally payable in money Payable in money, property or service
Not assignable Assignable
Not subject to compensation or set-off May be subject to compensation or set-off
Taxes does not draw interest unless Debt draws interest if stipulated or
delinquent delayed.
The assessment and collection of taxes may be barred by prescription.
Progressive tax vs. Regressive tax vs. Proportionate tax
Progressive tax – it is one where the tax rate increases as the tax base increase. (e.g.,
graduated tax rates for individual taxpayers)
Regressive tax – one where the tax rate decreases as the tax base increases (there
are no regressive taxes in the Philippines)
Proportionate tax – one where ta fixed percentage is applied regardless of the amount
of the income, property or other basis to be taxed. (e.g., single corporate income tax
rate imposed on the taxable net income of corporate taxpayers)
Direct taxes vs. Indirect taxes
Direct taxes – demanded from the very person who, as intended, should pay the tax
which he cannot shift to another. (Income tax, estate tax, donor’s tax)

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Indirect taxes –demanded in the first instance from one person with the expectation
that he can shift the burden to someone else, not as tax but as part of the purchase
price (VAT, excise tax, other percentage taxes & DST).
In indirect taxes, the incidence of taxation falls on one person but the burden can be
shifted or passed on to another person.
How to determine if a tax is direct or indirect?
It is direct tax when the impact or liability for the payment of the tax as well as incidence
or burden of the tax falls on the same person.
It is indirect tax when the impact or liability for payment of tax falls on one person but
the incidence or burden thereof can be shifted or passed to another.
What is meant by taxation at source?
It refers to the withholding system of collecting taxes. Under this method, the payor of
the income acts as the withholding agent of the government by deducting the tax in
advance from the income to be paid to the recipient taxpayer and remitting the same to
the BIR within the period mandated by law.
Notes on withholding taxes
Withholding tax is not a tax. It is a method of collecting income in advance from the
taxable income of the recipient of the income.
In withholding taxes, the incidence AND burden of taxation fall on the same entity, the
statutory taxpayer.
The burden of taxation is not shifted to the withholding agent who merely collects, by
withholding the tax due from income payments to entities arising from certain
transactions and remits the same to the government.
Philippine withholding tax system has no application to income derived from foreign
countries.
Who is the withholding agent for final withholding tax? For creditable withholding
tax?
The FWT should be withheld and remitted to the BIR by the withholding agent/payor
corporation.
Under the withholding tax system, whether final or creditable tax, the withholding agent
is the person who has control over the funds from which the payment of the income is
made.
When will the prescriptive period for refund of final withholding taxes
commence?

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Final withholding taxes are considered as full and final payment of the income tax due
and thus are not subject to any adjustments. Thus, the 2-year prescriptive period
commences to run from the time the refund is ascertained, i.e., the date such tax was
paid and not upon the discovery by the taxpayer of the erroneous or excessive payment
of taxes.
Are tax laws civil or penal in nature?
Tax laws are civil in nature. It is the civil liability to pay taxes that gives rise to criminal
liability.
BIR Rules and Regulations that revoke, modify or reverse a ruling or circular
GR: It shall not be given retroactive application if the revocation, modification or reversal
will be prejudicial to the taxpayer.
XPN:
1. Taxpayer acted in bad faith.

2. Taxpayer deliberately misstates or omits material facts from his return or in any
document required of him by the BIR
3. Where the facts subsequently gathered by the BIR are materially different from
the facts on which the ruling is based;
Double Taxation
It is taxing the same subject or object twice by the same taxing power within the same
taxable period for the same purpose.
Double taxation exists when the two taxes are imposed on the same subject matter for
the same purpose, by the same taxing authority, within the same jurisdiction, during the
same taxing period and the taxes must be of the same kind or character.
Elements of Double taxation
The two taxes must be imposed on the same:
1. subject matter
2. same purpose
3. same taxing authority
4. within the same jurisdiction
5. during the same taxing period
6. the taxes must be of the same kind or character.
Double taxation in the strict sense vs. Double Taxation in the broad sense
Double taxation in the strict sense refers to direct double taxation. This occurs when
the same property is taxed twice where it should be taxed but once; both taxes must be
imposed on the same property or subject matter, for the same purpose, by the same

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state or government, or taxing authority, within the same jurisdiction or taxing district,
during the same taxing period and they must be of the same kind or character.
Double taxation in the broad sense refers to indirect double taxation. It is one not
covered by direct double taxation. It is one not covered by direct double taxation
although it imposes two or more taxes.
Direct double taxation is the prohibited type while indirect double taxation is
permissible as two taxes of different nature or character are imposed by two different
taxing authorities.
Modes of eliminating Double Taxation
1. Tax credit
2. Tax deduction
3. Tax exemption
4. Tax treaty
5. Vanishing deduction
6. Application of reciprocity rule
7. Imposition of a rate lower than the normal domestic rate
Exemption Method
The income or capital which is taxable in the state of source or situs is exempted in the
state of residence, although in some instances it may be taken into account in
determining the rate of tax applicable to the taxpayer’s remaining income or capital.
Credit Method
The tax paid in the state of source is credited against the tax levied in the state of
residence.
The basic difference between the two method is that in the exemption method, the focus
is on the income or capital itself, whereas the credit method focuses upon the tax.
Most favored nation clause
The most favored nation clause is intended to established the principle of equality of
international treatment by providing that the citizens or subjects of the contracting
nations may enjoy the privileges accorded by either party to those of the most favored
nation.
International juridical double taxation means the imposition of comparable taxes in

two or more states on the same taxpayer in respect of the same subject matter and for
identical periods.
Elements of International Juridical Double Taxation
1. There are two or more States

2. There is one and the same taxpayer

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3. The same subject matter is taxed

4. The same period
Tax Credit
Tax credit is a remedy that is afforded to a taxpayer for the purpose of minimizing the
effects of international double taxation, the taxpayer having to pay income taxes to the
Philippine and foreign governments. This remedy though is available only to resident
citizens and domestic corporations whose income is derive from sources within and
without the Philippines. Resident aliens, non-resident foreign corporations are not
allowed to claim any tax credit for foreign income taxes that they have paid.
Tax credit is a remedy that is afforded to a taxpayer for the purpose of minimizing the
effects of “international double taxation”, the taxpayer having to pay income taxes to the
Philippine and foreign governments. This remedy though is available only to resident
citizens and domestic corporations whose income is derived from sources within and
without the Philippines.
Tax treaty
Tax treaty is an agreement entered into between sovereign states for purposes of
eliminating double taxation on income and capital, preventing fiscal evasion, promoting
mutual trade and investment, and according fair and equitable tax treatment to foreign
residents or nationals.
It is 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.
How does a tax treaty eliminate double taxation?
1. It sets out the respective rights to tax of the state of source or situs and of the
state of residence with regard to certain classes of income or capital.
2. The method for the elimination of double taxation applies whenever the state of
source is given a full or limited right to tax together with the state of residence.
Application of Reciprocity Rule
The reciprocity rule does not apply to tax credits. The reciprocity rule applies to non-
resident alien only if the property is intangible and the decedent is a non-resident alien.
What is an exchange of notes?
An exchange of notes is considered as an executive agreement which is binding on the

State even without Senate Concurrence. It is a record of a routine agreement that has
many similarities with private law.
Escape from Taxation
1. Shifting of tax burden

2. Tax avoidance/tax minimization

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3. Tax evasion/Tax dodging

4. Capitalization
5. Transformation
6. Exemption
Only indirect taxes may be shifted
What are the ways of shifting the tax burden?
1. Forward shifting – when the burden of tax is transferred from the manufacturer,
then to the distributor and finally to the ultimate consumer of the product; best
example is VAT.
2. Backward Shifting – when the burden is transferred from the ultimate consumer
through the factors of distribution to the factors of production.
3. Onward shifting – when tax burden is shifted two or more times either forward
or backward.
Tax avoidance or tax minimization
Tax avoidance is the use of legal means to reduce tax liability and it is the legal right of
a taxpayer to decrease the amount of what otherwise would be his taxes by means
which the law permits.
It is the exploitation by the taxpayer of legally permissible alternative tax rates or

methods of assessing taxable property or income in order to reduce or avoid tax liability.
It is tax saving device sanctioned by law and should be used by the taxpayer in GF and
arms-length.
Tax evasion or tax dodging
Tax evasion is a scheme used outside of those lawful means to escape tax liability and
when availed of, it usually subjects the taxpayer to further or additional civil or criminal
liabilities.
Willful in tax crimes means voluntary, intentional violation of a known legal duty, and bad
faith or bad purpose need not be shown.
Tax evasion is deemed complete when the violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat a part or all of the tax. An assessment
of tax deficiency is not required in a criminal prosecution for tax evasion.
Elements of tax evasion (CAE)
1. Course of action (or failure of action) which is unlawful;

2. Accompanying state of mind which is described as being evil, in bad faith, willful
or deliberate and not accidental;
3. End to be achieved, i.e., payment of less than that known by the taxpayer to be
legally due or non-payment of tax when it is shown that the tax is due;
Doctrine of Willful Blindness

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A deliberate avoidance of knowledge of a crime especially by failing to make reasonable

inquiry about a suspected wrongdoing despite being aware that it is highly improbable.
An individual or corporation can no longer say that errors on their tax returns are not
their responsibility or that it is the fault of the accountant they hired.
The taxpayer’s deliberate refusal or avoidance to verify the contents of his or her ITR
and other documents constitutes willful blindness on his or her part. It is by reason of
this doctrine that taxpayers cannot simply invoke reliance on mere representations of
their accountants or authorized representatives in order to avoid liability for failure to
pay the correct taxes.
Tax exemption
It is the privilege of not being imposed a financial burden to which others may be
subject. It is strictly construed against the taxpayer and liberally construed in favor of the
government. Taxation is the rule; tax exemption is the exception.
Tax exemption is a grant of immunity from payment of tax while assumption of tax
liability does not provide immunity from payment of tax as it merely allows the shifting
of the burden of taxation to another entity.
Rules governing compensation or set-off as applied in taxation
GR: No set-off is admissible against the demands for taxes levied for general or local
governmental purposes.
XPNs:
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.
2. Where both claims of the government and the taxpayer against each other have
already become due, demandable and fully liquidated.
Where both the claim of the government and the taxpayer against each other have
already become due, demandable and fully liquidated compensation takes place by
operation of law and both obligations are extinguished to their concurrent amounts.
Taxes that are already fully liquidated, due and demandable may be set-off by operation
of law and as a matter of practical convenience.
Taxes and claims for refund cannot be the subject of set-off because the government
and the taxpayer are not creditors and debtors of each other. Claims for refunds just like
debts are due from the government in its corporate capacity while taxes are due to the
government in its sovereign capacity.
While as a rule, taxes cannot be subject to compensation because the government and
the taxpayer are not creditors and debtors of each other, the Court have allowed the
offsetting of taxes where the determination of the taxpayer’s liability is intertwined with

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the resolution of the claim for tax refund of erroneously or illegally collected taxes
under S229 of the tax Code.
Tax Amnesty
Tax amnesty is a general pardon or the intentional overlooking by the State of its
authority to impose penalties on persons guilty of tax evasion or violation of revenue or
tax law. It partakes of an absolute waiver by the government of its right to collect what is
due it and to give evaders who wish to relent a chance to start with a clean slate.
Under RA 9480, they are specifically excluded from the coverage of the tax amnesty
program. The withholding agent is liable only insofar as he failed to perform his duty to
withhold the tax and remit the same to the government. The liability for the tax remains
with the taxpayer because the gain was realized and received by him. Since the liability
for the tax belongs to the taxpayer and not tot the withholding agent, only the former
may avail of the tax amnesty.
Purposes of Tax Amnesty
1. to give tax evaders who wish to relent a chance to start a clean slate; and
2. to give the government a chance to collect uncollected tax from tax evaders
without having to go through the tedious process of a tax case.
Tax pyramiding is the imposition of a tax upon another tax. It has no basis in fact or in
law.
Tax condonation or remission is when the State desists or refrains from exacting,
inflicting or enforcing something as well as to reduce what has already been taken.
Taxing Authority
Powers and duties of the BIR (ERAGE)
1. Enforcement of all forfeitures, penalties and fines

2. Recommend to the Secretary of Finance all needful rules and regulations for the
effective enforcement of the NIRC
3. Assessment and collection of all national internal revenue taxes, fees and
charges.
4. Give effect and administer the supervisory and police powers conferred to it by
the NIRC and other laws
5. Execution of judgments in all cases decided in its favor by CTA and regular
courts
What are the powers of the CIR?
1. Interpret tax laws

2. Decide tax cases
3. Make arrest and seizures
4. Prescribed real property values
5. Suspend business operations of taxpayers

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Power of the CIR which cannot be delegated (RICA)
1. Recommend promulgation of rules and regulations by the Secretary of Finance

2. Issue rulings of first impression or to reverse, revoke or modify any existing rule
by the BIR
3. Compromise or abate any tax liability
4. Assign or re-assign internal revenue officers to establishments where articles
subject to excise tax are produced or kept.
To be valid, ruling of first impression must not only be conformable with law. It must also
be issued by the CIR himself, as it is one of the non-delegable powers of the CIR.
Disclosure of Bank Deposits to the CIR
GR: Bank deposits of an individual taxpayer may not be disclosed by a commercial

bank to the CIR.
XPNs: (CIR is authorized to inquire into the bank deposits)
1. To determine the decedent’s gross estate

2. When the taxpayer has filed an application for compromise of his tax liability by
reason of financial incapacity
3. A taxpayer who authorizes the CIR to inquire into his bank deposits
4. The Philippines is under a Treaty obligation and a specific taxpayer is subject of
a request for the supply of tax information from a foreign tax authority.
Requisites of the power of the CIR to prescribed property values
1. Mandatory consultation with competent appraisers both from private and public
sectors.
2. With prior written notice to affected taxpayers
3. Automatic adjustment once every 3 years
4. Adjustment must be published in a newspaper of general circulation and posted
in provincial capital, city or municipal hall and two other conspicuous places
5. That the basis of any valuation including the records of consultation done shall
be public records open to the inquiry of any taxpayer.
Is the BIR acts of issuing rules and regulations in the exercise of judicial or quasi-
judicial power?
No. BIR’s act of issuing rules and regulations is not in the exercise of any judicial or
quasi-judicial capacity. It is in the exercise of BIR’s quasi-legislative or rule making
power.
Revenue Regulation
Issuances signed by the Secretary of Finance upon recommendation of the CIR that
specify, prescribe, or define rules and regulations for the effective enforcement of the
NIRC and related issuances.

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Requisites of a valid BIR Rules and regulations
1. Reasonable
2. Useful and necessary
3. Consistent and in harmony with the law
4. Published in the official Gazette or newspaper of general circulation
Revenue Regulation vs. Administrative Ruling
Basis Revenue Regulation Administrative Ruling

Issuing It is issued by the Secretary It is issued by the CIR if it is a ruling of first
body of Finance impression or his subordinates if the ruling is
not in the nature of first impression
Nature It is in the nature of It is the best guess of the CIR concerning
implementing rules of tax tax applications
laws
Scope It is applicable to all It is applicable to taxpayer who requested
taxpayers the ruling, except when the ruling is in the
nature of general interpretative rule
Binding It is binding upon court for It is not binding but has great weight.
Effect being a subordinate
legislation
Legislative rule vs Interpretative rule
Legislative Rule is in the matter of subordinate legislation, designed to implement a

primary legislation by providing the details thereof.
Interpretative Rule is designed to provide guidelines to the law which the

administrative agency is in charge of enforcing. General Interpretative rule applies to
all taxpayers alike, and not only to one particular taxpayer.
Income tax systems
Global tax systems
All items of income which are earned during the taxable period are lumped together
and subjected to a single set of income tax rates.
System employed where the tax systems views indifferently the tax base and generally
treats in common all categories of taxable income of the individual.
Schedular tax system
Different types of income are subjected to different set of graduated or flat rates
depending on the classification of income.
System employed where the income tax treatment varies and is made to depend on the
kind or category of taxable income of the taxpayer.

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Tax liability for income tax attaches only if there is a gain realized resulting from a
closed and completed transaction.
Income Tax
Income tax is a tax on all yearly profits arising from property, profession, trade or
business or a tax on person’s income, emoluments, profits and the like
It 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.
Business Tax vs. Income Tax
Business Tax Income tax

Imposed on the exercise of police power Tax on all yearly profits arising form
for regulatory purposes are paid for the property, professions, trade or offices or
privilege of carrying on a business in the as a tax on a person’s income,
year the tax was paid. It is paid at the emoluments, profits and the like. It is a
beginning of the year to allow the tax on income whether net or gross
business to operate for the rest of the realized in one taxable year. It is due on
year. It is deemed a prerequisite to the or before the 15th day of the 4th month
conduct of business following the close of the taxpayer’s
taxable year and is generally regarded as
an excise tax, levied upon the right of a
person or entity to receive income or
profits.
Definition of Income
Income refers to all wealth which flows into the taxpayer other than a mere return of
capital. It includes the flows of income specifically described as gains and profits
including gains derived from the sale or disposition or other capital assets.
Capital vs. Income
Capital Income
A fund of property existing at A flow of services rendered by the capital or any other
an instant time benefit rendered by the fund of capital in relation to
such fund through a period of time.
Capital is wealth Income is a service of wealth
Not subject to income tax Subject to income tax
Requisites for income to be taxable
1. There is an income, gain or profit

2. The income, gain or profit is not exempt from income tax.
3. The income, gain or profit must be realized (actually or constructively) or
received during the taxable year
What are the criteria in imposing Philippine Income Tax?

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1. Citizenship Principle
2. Residence Principle
3. Source Principle
What are the considerations in determining whether an income is taxable?
1. Existence of Income
2. Realization of Income
3. Recognition of Income
Test to determine whether income is earned for tax purposes
1. Realization Test
2. Claim of right doctrine (Doctrine of Ownership, command or control)
3. Economic Benefit Test or Doctrine of Proprietary Interest
4. Severance test
5. All events test
Realization Tests
Under the realization principle, revenue is generally recognized when the earning
process is complete or virtually complete and an exchange has taken place.
There is no taxable income until there is a separation from capital of something of

exchangeable value, thereby supplying the realization or transmutation which would
result in the receipt of income.
Claim of right doctrine or Doctrine of Ownership or Command or control Doctrine
Taxable gain is conditioned upon the presence of a claim of right to the alleged gain
AND the absence of a definite unconditional obligation to return or repay that which
would otherwise constitute a gain.
The recipient, even if he has the obligation to return the same, has a voidable title to the
money received through mistake, thus taxable.
Economic Benefit or Doctrine of Proprietary Interest
Any income benefit to the employee that increases his net worth, whatever may have
been the mode by which it is affected is taxable.
Taking into consideration the pertinent provisions of law, income realized is taxable only
to the extent that the taxpayer is economically benefited.
Severance Test
This theory dictates income is recognized where there is a separation of something

which is of exchange value.

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Income is not deemed realized until the fruit has been plucked from the tree. Income is
recognized when there is separation of something which is of exchangeable value.
All events test
For Income or expense to accrue, this test requires the fixing of a right to income or
liability to pay and the availability of the reasonable accurate determination of such
income or liability. The amount of liability does not have to be determined exactly; it
must be determined with reasonable accuracy.
Requisites of All events test
1. Fixing of a right to income or liability to pay

2. Availability of the reasonable accurate determination of such income or liability to
warrant the inclusion of the income or expense the gross income or deductions
during the taxable year.
The all-events test states that an expense is deductible in the year the amount of
liability is determinable with reasonable accuracy.
James Doctrine
This doctrine provides that even though the law imposes a legal obligation upon an
embezzler or thief to repay the funds, the embezzled or stolen money still forms part of
the gross income since the embezzler or thief has no intention of repaying the money.
Taxable Period
Taxable period is the calendar year or fiscal year ending during such calendar year,
upon the basis of which the net income is computed for income tax purposes.
Calendar Year vs. Fiscal Year vs. Short Period
Calendar year refers to the accounting period of 12 months ending December 31.
Fiscal year means an accounting period of 12 months ending on the last day of any
month other than December.
Short Period is a period of less than 12 months; Change in accounting period
a. From fiscal to calendar year – between the close of the last fiscal year and the
following December 31; or
b. From calendar to fiscal year – between the close of the last calendar year and
the date designated as the close of the fiscal year.
Grounds for termination of taxable period
a. He hides or conceals his property

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b. Taxpayer is retiring from business subject to tax

c. He intends to leave the Philippines or remove his property therefrom
d. He performs any act tending to obstruct the proceedings for the collection of the tax
for the past or current quarter or year or renders the same totally or partly ineffective
unless such proceedings are beginning immediately
Instances when a calendar year must be adopted as the taxable year other than a
fiscal year.
1. Taxpayer is an individual
2. Taxpayer is an estate or trust
3. Taxpayer does not kept books of accounts
4. Taxpayer has no annual accounting period
5. Taxpayer’s accounting period is other than a fiscal year.
Instances when a short period or a period of less than 12 months may be adopted
by the taxpayer
1. When the corporation is dissolved

2. When the corporation changes its accounting period
3. When the CIR by authority, terminate the taxable period of a taxpayer
4. In case of final return of the decedent and such period ends at the time of his
death.
5. When the corporation is newly organized and commenced operations on any day
within a year
General Principles of Income Taxation
1. RC and DC are taxable on their income derived from sources within and without
the Philippines.
2. All other kind of taxpayers are taxable only on their income derived from sources
within the Philippines.
3. An overseas contract worker is taxable only from income derived from sources
within the Philippines.
Non-Resident Citizen
1. A citizen of the Philippines who is physically present abroad with a definite

intention to reside therein.
2. A citizen of the Philippines who reside abroad, either as an immigrant or for
employment on a permanent basis
3. A citizen of the Philippines who works and derives income abroad and whose
employment requires him to be physically present abroad most of the time
during the taxable year
4. A NRC citizen who arrives at any time during the taxable year to reside
permanently in the Philippines with respect to his income derived from sources
abroad until the date of his arrival in the Philippines.
What does the phrase “most of the time” means?

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It means at least 183 days whether continuous or broken.
Resident alien
An alien who resides in the Philippines on a more or less permanent basis (must be
actually present in the Philippines for more than 12 months from his arrival to the
country)
An alien may be considered a resident of the Philippines for Income Tax purposes if:
1. He is not a mere transient or sojourner

2. He has no definite intention as to his stay in the Philippines; or
3. His purpose is of such a nature that an extended stay may be necessary for its
accomplishment and the alien makes his home temporarily in the Philippines.
Who is a non-resident alien?
It is an individual whose residence is not within the Philippines and who is not a citizen
thereof. It may be an NRA-ETB or NRA-not ETB)
Non-resident alien engaged in trade or business in the Philippines (NRA-ETB) is

an alien deriving income in the Philippines and who stays therein for an aggregate
period of more than 180 days during the calendar year. The stay need not be
continuous.
NRA – not ETB – is an alien deriving income in the Philippines and who stays therein
for an aggregate period of 180 days or less during any calendar year.
Special aliens are now subject to the regular income tax rate as the preferential income
tax rate is no longer applicable, without prejudice to preferential rates under existing tax
treaties.
Nonresident aliens not engaged in trade or business are subject to a flat rate of 25%
based on gross income and not based on schedular tax rate.
Indicators that the NRA is ETB in the Philippines
1. stayed in the Philippines for an aggregate period of more than 180 days
2. Principle of habituality – regularly engaged in commercial business in the
Philippines regardless of the period of stay
3. Establishment of a branch, appointment of an agent and hiring of an employee
Is an offline international air carrier selling passage tickets in the Philippines,

through a general sales agent, considered as a resident foreign corporation?
Yes. Doing business in the Philippines includes appointing representatives or

distributors operating under full control of the foreign corporation, domiciled in the
Philippines or who in any calendar year stay in the country for a period totaling 180 days
or more.

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Discuss tax liability of partnerships.
Partnerships, no matter how created or organized, except general professional

partnerships and joint venture or consortiums engaged in construction or energy related
operations are taxable as corporations.
GPP shall not be subject to Income Tax. Each partner shall report as GI his distributive
share, actually or constructively received in the NI of the partnership.
For purposes of computing the distributive share of the partners, the NI of the GPP shall
be computed in the same manner as a corporation. As such, a GPP may claim either
the itemized deductions or it can opt to avail of the OSD allowed to corporations in
claiming deductions in an amount not exceeding 40% of its GI. Once availed, individual
partner is not allowed to avail of the 8% income tax rate option since share from GPP is
already net of cost and expenses.
Is co-ownership subject to income tax?
GR: a co-ownership is exempt from income tax.
XPNs:
1. When the income of the co-ownership is invested by the co-owners in other

income-producing properties or income-producing activities; or
2. When there is no attempt to divide inherited property for more than 10 years and
the said property was not under any administration proceedings nor held in trust
an unregistered partnership is deemed to exist.
Definition of Gross Income
Gross Income means all income derived from whatever source.
Income derived from whatever source, concept
All income not expressly excluded or exempted from the class of taxable income,
irrespective of the voluntary or involuntary action of the taxpayer in producing the
income and regardless of the source of income is taxable.
Fringe Benefits
Any good, service or other benefits furnished or granted by an employer to an employee

except rank-and-file employee.
Employer is the one required to pay income tax on fringe benefit.
FBT covers only the taxable fringe benefits of managerial and supervisory employees.
Tax exempt fringe benefits
1. Fringe benefits which are authorized and exempted from tax under special laws.

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2. Contributions of the employer for the benefit of the employee retirement,

insurance and hospitalization benefit plans
3. benefits given to the rank-and-file employees, whether granted under a collective
bargaining agreement or not
4. De Minimis benefits
What are the taxable fringe benefits? (HEV-HIM-THEL)
1. Housing
2. Expense Account
3. Vehicle of any kind
4. Household personnel
5. Interest foregone
6. Membership fees, dues and other expenses
7. Travel expenses
8. Holiday and vacation expenses
9. Educational assistance to employees or his dependents
10. Life or health and other non-life insurance premiums
De Minimis Benefits
Facilities or privileges furnished by an employer to his employees that are of relatively

small value and are furnished by the employer merely as a means of promoting the
health, goodwill, contentment and efficiency of his employees.
1. Monetized unused vacation leave credits of private employees not exceeding

10 days
2. Monetized value of vacation AND sick leave credits paid to government
employees (no limit as to number of credits)
3. Rice subsidy not exceeding P2,000 per month or one sack of 50-kg rice
4. Uniforms and clothing allowance not exceeding P6,000.00.
5. Actual medical assistance not exceeding P10,000 per annum
6. Laundry allowance not exceeding P300 per month
7. Gifts given during Christmas and major anniversary celebrations not exceeding
P5,000 per employee per annum
8. Daily meal allowance for overtime work not exceeding 25% of the basic minimum
wage on a per region basis
9. Benefits received by virtue of CBA and productivity incentive scheme not
exceeding P10,000.00 per employee per annum.
10. Medical cash allowance to dependents of employees not exceeding P1,500
per employee per semester or P250 per month
11. Employee achievement awards under an established written plan which does
not discriminate in favor of highly paid employees not exceeding P10,000.00
The list is exclusive.
Even if the de minimis benefits exceed their respective limits but they are still within
P90k ceiling when added to the 13 th month pay, productivity incentives and Christmas
bonus, the same remain exempt from income tax.

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The RATA of government personnel constitutes reimbursement of expenses incurred in

the performance of duties and is therefore not subject to income tax.
Taxation of De Minimis Benefits
1. All other benefits given by the employer which are not included in the
enumeration shall not be considered as de minimis benefits.
2. The amount of the de minimis benefits conforming to the prescribed ceiling shall
not be considered in determining the P90,000 ceiling of other benefits excluded
from gross income.
3. The excess of the de minimis benefits over their respective ceiling shall be
considered as part of the other benefits and the employee receiving it will be
subject to tax only on the excess over the P90,000 ceiling.
4. De minimis benefits shall constitute as a deductible expense of the employer.
Convenience of the employer rule
If the meals and lodging are furnished to the employee for the convenience or
advantage of the employer, such benefit is not taxable on the part of the employee
receiving the same.
Board and lodging furnished employees in addition to their cash compensation is held to
be supplied for the convenience of the employer and the value thereof is required to be
reported in such employee’s income tax return.
Requisites:
1. they must be furnished within the premises of the employer

2. employee is required to accept the same as a condition of his employment
What is the yardstick for determining whether a property is capital asset or

ordinary asset?
It is the property’s actual use.
Type of properties from which income may be derived
Ordinary Assets – properties held by the taxpayer used in connection with his trade or
business. It includes SOUR
1. Stock in trade which would properly be included in the inventory of the taxpayer if
on hand at the close of the taxable year.
2. Property held primarily for sale to customers in the ordinary course of trade or
business
3. Property used in trade or business which is subject to the allowance for
depreciation
4. Real property uses in trade or business of the taxpayer

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Income realized from sale of ordinary assets is part of gross income, included in the
income tax return.
Capital assets – property held by the taxpayer whether or not connected with his
trade or business other than SOUR. Defined by exclusion of all ordinary assets.
When are share of stocks be treated as ordinary assets and when are they treated
as capital assets?
It would be ordinary assets only to a dealer in securities.
It would be a capital asset in the hand of another who holds the shares of stock by way
of an investment.
Tax treatment of gains or losses from the sale or disposition of capital assets.
Capital losses are deductible only to the extent of capital gains. A net capital gain is an
item of gross income subject to regular income tax except for certain cases. A net
capital loss is not an item of deduction against gross income.
Income realized from the sale of capital assets are not reported in the income tax return
as they are already subject to final taxes.
Capital Gains tax
It is a kind of income tax that is presumed to be realized on the sale, exchange or

disposition of lands and buildings which are not actually used in the business of a
corporation and are treated as capital assets.
A corporation is only subject to CGT for the sale of land and buildings.
In an expropriation sale to the government, the taxpayer is given the option to apply the
6% CGT or the regular graduated income tax rate.
Holding Period
Holding period applies only to individual taxpayers and it does not apply to capital
assets that are subject to final capital gains tax such as real property and shares of
stock that are not listed and traded at the stock exchange.
Capital assets has been held for more than 12 months – taxable gain is at 50%;
Capital assets has been held for less than 12 months – 100 percent
The rule on holding period does not apply to corporations.
Capital loss limitation rule

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Capital loss is deductible only up to the extent of capital gain. The taxpayer can only
deduct capital loss from capital gain. If there is no capital gain, then no deduction is
allowed because you cannot deduct capital loss from ordinary gain.
The net capital gain shall be reported in the taxpayer’s income tax return and shall be
subject to the graduated income tax rates in addition to the net income from other
sources.
The net capital loss cannot be deducted from the ordinary income because the loss can
be deducted only to the extent of capital gains.
In a foreclosure sale of REM, the CGT accrues only after the lapse of the redemption
period because it is only then that there exists a transfer of property.
Foreclosure sales
The tax shall accrue only upon the expiration of the redemption period.
1 year from the date of registration of Individual mortgagors OR non-bank

the sale mortgagee
3 months from date of approval by the Mortgagor is a juridical entity AND the
executive judge of the certificate of mortgagee is a banking institution.
sale
Net Capital loss carry over rule (applicable only to individuals)
If a taxpayer sustains in any taxable year a net loss, such loss shall be treated in the
succeeding taxable year as a loss from the sale or exchange of a capital asset held for
not more than 12 months.
This is an exception to the general rule that losses shall be deducted from the gross
income in the same taxable year in which the losses were incurred.
Ordinary gain vs. Capital gain
Basis Ordinary Gain Capital Gain

As to source Ordinary gain is derived from property It is derived from property not use
used in trade or business in trade or business
As to It is not adjusted by the holding Some types of capital gains are
adjustments period adjusted by the holding period
As to Ordinary losses can be offset from Capital losses can only be offset
deductibility both ordinary and capital gains from capital gains.
What are the limitations on the capital asset transactions of a corporations?
1. Holding period is not applicable and so capital gains and losses are accounted
for at 100%
2. Capital losses are allowed only to the extent of capital gains
3. Net capital loss carry-over is not applicable; and

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4. Only the sale of lands and buildings are subject to 6% CGT, while the gain from
the sale of machinery and equipment shall be subject to the corporate tax rate.
Is there any difference between individuals and corporations in so far as the sale
of their real properties classified as capital assets is concerned?
Yes, individuals and corporations are taxed differently in so far as the sale of their real
properties classified as capital assets is concerned.
For individuals, the sale of all their real properties located within the Philippines which
are properly classified as capital assets, without distinction shall be subject to the 6%
CGT.
For domestic corporations, a distinction must be made between lands and buildings
on one hand and machineries and equipment on the other. The sale of lands and
buildings which are classified as capital assets shall be subject to the 6% CGT, whereas
the gain from the sale of machineries and equipment (not used in operations) shall be
subject to the regular income tax rate.
Are all capital gains realized in case of sale of real property subject to 6% CGT?
No. Capital gains presumed to have been realized from the sale or disposition of
principal residence by natural persons may be exempted from 6% CGT subject o
conditions prescribed by law.
Requisites for a sale of principal residence of an individual to be exempt from

CGT
1. Sale or disposition of the old actual principal residence

2. By citizen or resident alien
3. Proceeds from the sale is fully utilized within 18 calendar months from the
date of sale or disposition
4. Notify the CIR within 30 days from the date of sale or disposition
5. Can be availed only once every 10 years
6. 6% CGT due shall be deposited with an escrow account
7. Historical cost or adjusted basis shall be carried over to the cost basis of his new
principal residence
8. If there is no full utilization, the portion of the gains presumed to have been
realized shall be subject to CGT
Sources rules in determining income from within and without
1. Interest – Residence of the debtor or obligor

2. Dividends – residence of the corporation paying the dividends subject to 50%
source in case of foreign corporation
3. Services – place of performance of services
4. Rentals and Royalties – location or use of the property or interest in such
property
5. Sale of Real Property – location of real property
6. Sale of personal property – place where the sales contract was consummated

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Dividends:
From domestic corporation – income within the Philippines
If received from foreign corporation
Income within if more than 50% of the GI of such foreign corp. for the 3-year period
ending with the close of the taxable year prior to the declaration of dividends (or for
such part of such period as the corporation has been in existence) was derived from
sources within the Philippines.
Income without if less than 50% of the gross income of such foreign corp. for 3-year
period ending with the close of the taxable year prior to the declaration of dividends was
derived from sources within the Philippines. Therefore, nothing of such dividends forms
part of income within.
Tax rate on Dividends from domestic corporation to:
1. Resident Citizen and Resident Aliens – 10%

2. Nonresident alien engaged in trade or business -20%
3. Nonresident alien not engaged in trade or business – 25%
4. Domestic Corporation and resident foreign corporation – exempt
5. Nonresident foreign corporation – 15% subject to tax sparing rule
Tax sparing rule
Dividends received by a NRFC from a DC shall be subject to 15% FWT, provided that
the country in which the corporation is domiciled either allows a tax credit of 15%
against the taxes due from the foreign corporation for taxes deemed paid or does not
impose income tax on such dividends otherwise, the dividend shall be subject to 30%.
If the country of the non-resident foreign corporation does not impose any income tax
on dividends, the conditions of the tax sparing principle are deemed satisfied and the
15% preferential rate shall also be applied.
Disguised Dividends
Disguised Dividends are those income payments made by a DC, which is a subsidiary
of a NRFC, to the latter ostensibly for services rendered by the latter to the former, but
which payments are disproportionately larger than the actual value of the services
rendered. In such a case the amount over and above the true value of the service
rendered shall be treated as a dividend and shall be subjected to the corresponding tax
on Philippine sourced gross income.
Redemption of Shares
GR: Redemption or cancellation of shares is not subject to income tax since it is a mere
return of capital.

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XPN: Dividend Equivalence (taxable)
Dividend Equivalence
1. there is redemption or cancellation

2. the transaction involves stock dividends
3. the time and manner of transaction makes it essentially equivalent to a
distribution of taxable dividends.
The proceeds of the redemption of stock dividends are essentially equivalent to the
distribution of taxable dividends, making the proceeds thereof, “taxable income” to the
extent it represents profits.
Gain from sale of shares of stock in a domestic corporation shall be treated as derived
entirely from sources within the Philippines regardless of where the said shares are
sold.
No gain or loss shall be recognized if property is transferred to a corporation by a

person in exchange for stocks in such corporation wherein as a result of such
exchange, such person, alone or together with others, not exceeding four, gains control
of the corporation.
Is a stock Dividend Taxable?
A stock dividend representing the transfer of surplus to capital account is not subject to
tax. However, if a corporation cancels or redeems stock issued as 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 taxable dividend, the amount so
distributed in redemption or cancellation of the stock shall be considered taxable income
to the extent that it represents a distribution of earnings or profits.
RA 10963 imposed a final tax at the rate of 15% upon the net capital gains realized from
the sale, barter, exchange or other disposition of shares of stock in a DC.
Branch Profit Remittance Tax
Any profit remitted by a branch to its head office shall be subject to a tax of 15% which
shall be based on the total profits applied or earmarked for remittance without any
deduction for the tax component thereof (except those activities which are registered
with the PEZA).
The tax is imposed when:
1. It is imposed on actual remittance.

2. The corporation is a resident foreign corporation
3. The corporation does not enjoy tax exemption under a tax treaty
4. Profits were not derived from qualified activities remitted by a branch registered
with the PEZA. These profits are exempt from branch profit remittance tax.

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It is not proper to impose BPRT on the entire accumulated profits of the branch as a
constructive remittance of profits.
What is a holding company and an investment company?
Holding company is a corporation having practically no activities except holding property

and collecting the income therefrom or investing therein.
Investment company is a corporation holding activities of a holding company and further

engages itself in buying and selling of stocks, securities, real estates or other
investment property so that income is derived not only from the investment yield but
also from profits upon market fluctuations.
Prizes and Winnings
All prizes and awards granted to athletes in local and international sports tournaments
and competitions held in the Philippines or abroad and sanctioned by their respective
national sports associations shall be exempt from income tax. The donor of said prizes
and awards shall be exempt from payment of the donor’s tax.
Requisites in order for prizes and awards to be exempted from tax
1. Primarily in recognition of SCAR-CEL (scientific, civic, artistic, religious,

charitable, educational and literary) achievement
2. Recipient was selected without any action on his part to enter the contest or
proceeding
3. He is not required to render substantial future services as condition to
receiving the price or award.
Requisites for the exclusion of prizes and awards in sports competition from
gross income (PATS)
1. all Prizes and awards

2. Granted to Athletes
3. In local and international sports Tournaments and competitions; and
4. Sanctioned by their national sports associations.
Tax Benefit Rule or Equitable Doctrine of Tax Benefit
It refers to the principle that if a taxpayer recovers a loss or expense that was deducted
in a previous year, the recovery must be included in the current year’s gross income to
the extent that it was previously deducted. (i.e., recovery of bad debts, receipt of tax
refund or credit).
The recovery of bad debts previously allowed as a deduction in the preceding year or
years shall be included as part of the taxpayer’s GI in the year of such recovery to the
extent of the income tax benefit of said deduction.
Is the amount received as recovery for damages taxable?

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It depends. If it represents compensation for loss of income or profit, the award of

damages is taxable. However, if it represents compensation for injury suffered, damage
to property or return of capital, the award of damages is not taxable.
Damages recovered from a breach of contract are taxable income. Moral damages,
being purely compensatory in nature are excludible from gross income while exemplary
damages not being a return of capital is taxable.
When does amount received as recovery for damages taxable or not?
1. compensation for loss of income or profit, – taxable

2. Compensation for injury suffered, damage to property, return of capital,
compensation for breach of contract, exemplary and moral damages – not
taxable
Tax exclusions
It means income received or earned but is not taxable as income because it is

exempted by law or treaty.
What is rationale for tax exclusions?
1. They are not income, gain or profit

2. They represent return of capital
3. They are subject to another kind of internal revenue tax
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
Distinction tax exclusions and tax deductions
Tax exclusions pertain to the computation of gross income while tax deductions
pertain to computation of net income.
Tax exclusions are something received or earned by the taxpayer which do not form
part of gross income while tax deductions are something spent or paid in earning the
gross income.
Tax exclusions are flow of wealth to the taxpayer which are not treated as part of the
gross income for purposes of computing the taxpayer’s taxable income because it is
exempted by the fundamental law, it is exempted by a statute and it does not fall within
the definition of income.
Tax deductions are the amounts which the law allows to be subtracted form GI in order
to arrive at net income.
Tax exclusions refer to receipts or items of income received or earned which are not
included in the computation of gross income because they are exempted by law or
treaty. In contrast, tax deductions are amounts which are subtracted from gross
income to arrive at the taxable income.
Exclusions under the Constitution

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Income derived by the government or its political subdivisions from the exercise of any
essential governmental function.
What are exclusions from GI under the NIRC?
1. Return of premium paid

2. Proceeds of life insurance policies
3. 13th month pay and other benefits
4. Compensation for injuries or sickness
5. Income exempts under the tax treaty
6. Income derived by foreign government
7. Retirement benefits, pensions and gratuities.
8. Gains from redemption of shares from mutual funds
9. Winnings, prizes, and awards, including those in sports
10. Income derived by the government or its political subdivisions
11. Amounts received under life insurance, endowment or annuity
12. Value of property acquired by gift, bequests, device or descent
13. GSIS, SSS, Medicare, Pag-big contributions and dues from individuals
14. Gains from the sale of bonds, debentures and other certificates of indebtedness.
Proceeds of Life Insurance
Proceeds of life insurance whether with revocable or irrevocable beneficiary are not
taxable income.
Life insurance proceeds are always excluded from gross income of the recipient
whether the designation of the beneficiary is revocable or irrevocable.
The designation of the beneficiary is not essential for purposes of exclusion of life
insurance proceeds from the gross income of the recipient. The concept of revocability
or irrevocability of designation of the beneficiary is material only in determining whether
the insurance proceeds are to form part of the gross estate of the decedent or not.
Proceeds of life insurance received by a child as irrevocable beneficiary are not to be

reported in the annual income tax returns because they are excluded from gross
income.
Dividend in life insurance is actually a return of premiums paid by the insured and is
therefore not an income and not subject to tax.
What are retirement benefits excluded from gross income?
1. Retirement benefits received under RA 4917 or 7641

2. Terminal leave Benefits
3. Separation pays due to death, sickness or other disability
4. Foreign social security retirement gratuities, pensions and others
5. SSS Benefits
6. GSIS benefits

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Benefits received by an employee/s on account of separation due to causes BEYOND

the employee’s control are specifically excluded from gross income.
Conditions in order to avail the exemption under a Reasonable Private Benefit

Plan (RPBP) (Approved-once-50-10)
1. RPBP must be approved by the BIR

2. Benefits under the RPBP must have been availed of only once
3. Private employee must be at least 50 years old at the time of his retirement
4. Retiree must have been in the service of the same employer for at least 10 years
at the time of retirement.
Rules on retirement pay of qualified employees under RA 7641
1. When the retirement plan is established in the CBA or other applicable

employment contract – any employee may be retired upon reaching retirement
age established in the CBA or other applicable employment contract.
Requisites in order to avail optional or mandatory retirement benefits under Art.

302, as amended by RA 7641
2. Employee has reached the age of 60 for optional retirement or 65 for

compulsory retirement
3. Employee has served at least 5 years in the establishment
4. No retirement plan or other applicable agreement providing for retirement
benefits of employees in the establishment.
5. Shall be entitled to retirement pay equivalent to ½ month salary for every year of
service, a fraction of at least 6 months being considered as one whole year
As long as the requirements are met, the retirement proceeds are excluded from gross
income. However, if the retirement is compulsory, there is no need to comply with the
above requirements before the retirement benefits would be excluded because the
same would be excluded as separation pay beyond the control of the employee.
The rule that the retirement benefit may be availed only once, applies only to retirement
benefit from a subsequent private employer and not to subsequent public employer as
the benefits are still exempt under RA 8291.
Allowable Deductions:
Optional Standard Deduction
OSD is an amount not exceeding 40% of gross sales or gross receipts of a qualified
individual taxpayer or 40% of the gross income of a qualified partnership or
corporation.
In Case of a GPP, OSD may be availed only once by either the GPP or the partners
comprising such partnership.

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There is no limit to the amount that may be claimed. Such election when made in the
income tax return shall be irrevocable for the taxable year for which the return is
made. Furthermore, there is no need to substantiate the expenses by means of financial
statements and other documents.
The following taxpayers may avail of the OSD:
1. Resident citizens;
2. Non-resident citizens;
3. Overseas contract workers
4. Resident aliens
5. Estates and trusts;
6. Partnerships; and
7. Domestic and resident foreign corporations
The following taxpayers may not avail of the OSD:
1. non-resident aliens whether or not engaged in trade or business in the

Philippines; and
2. Non-resident foreign corporations
In the event of failure on the part of the taxpayer to indicate the type of deduction
(optional or itemized) in his income tax return, the itemized deduction is deemed
applicable for the particular taxable year.
What are the rules when a GPP avails of itemized deduction?
1. The individual partners may still claim itemized deductions from said share
provided
2. That in claiming itemized deductions, the partner is precluded from claiming the
same expenses already claimed by the GPP.
What is the rule when a GPP avails of OSD?
If the GPP avails of OSD in computing its NI, the partners comprising it can no longer
claim further deduction form their share in the said NI for the following reasons:
1. The partner’s distributive share in the GPP is treated as GI not his gross
sales/receipts and the 40% OSD allowed to individuals is specifically mandated
to be deducted not from his GI from his gross sales/receipts; and
2. The OSD being in lieu of itemized deductions allowed in computing taxable
income will answer for BOTH the items of deduction allowed to the GPP and its
partners.
Summary of Rules for GPP
Type of Deduction claimed by the Maybe claimed by the partner in

partnership in computing net income computing his taxable income
Itemized deductions Itemized deductions ONLY
Optional Standard Deduction Neither itemized nor OSD

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What are itemized deductions allowed under the NIRC (BITE DeDe Loss CPR)
1. Bad Debts
2. Interest
3. Taxes
4. Expenses in general
5. Depreciation
6. Depletion
7. Losses
8. Charitable and other Contributions
9. Pension trusts
10. Research and development
Non-resident aliens and non-resident foreign corporations not engaged in trade or

business in the Philippines are not allowed itemized deductions because they are taxed
on their GI derived from sources within the Philippines.
Requisites for Deductibility of Expenses in general
1. Expenses must be reasonable

2. Expenses must be ordinary and necessary
3. It is not contrary to law, public policy or morals.
4. They must have been paid or incurred during the taxable year
5. They must be supported by receipts, records or other pertinent papers.
6. They must have been paid or incurred in connection with the taxpayer’s trade or
business
7. If subject to withholding taxes, the taxes have been properly withheld and
remitted to the BIR
Cohan Rule
Taxpayers may use estimates when they can show that there is some factual foundation
on which to base a reasonable approximation of the expense, they can prove that they
had made a deductible expenditure but just cannot prove how much that expenditure
was.
Where it is certain from the evidence adduced that the taxpayer did incur expenses but
the actual amount thereof has not been established the Commissioner should make a
close approximate thereof and his determination thereof shall bear heavily on the
taxpayer for his own inexactitude.
If there is showing that expenses have been incurred but the exact amount thereof
cannot be ascertained due to the absence of documentary evidence, it is the duty of the
BIR to make an estimate of deduction that may be allowed in computing the taxpayer’s
taxable income bearing heavily against the taxpayer whose inexactitude is of his own
making. The disallowance of the 50% of the taxpayer’s claimed deduction is valid.
Limitations on the expenses for Entertainment/Amusement/Representation

Expenses

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1. For taxpayers engaged in sale of goods/properties – it must not exceed .50%

of net sales
2. For taxpayers engaged in sale of services – it must not exceed 1% of net
revenues.
3. For taxpayers engaged in both sale of goods/properties and services –
determined using an apportionment formula based on 1 and 2 percentage.
Campaign contributions requirements – political donations
1. for campaign purposes

2. within the official campaign period
3. subjected to creditable withholding tax at 5%
4. must have filed a SOCE
5. in excess of P250,000
Only contributions spent and utilized during the campaign period are exempt from tax.
Any political contributions or donations spent before or after the campaign period set by
the COMELEC are subject to both donor’s tax and income tax. Any unspent political
contributions form part of the taxable income is subject to income tax.
Gifts made by a resident to any political subdivision of the national government shall be
exempt from donor’s tax.
Requisites for deductibility of interest expense
1. The indebtedness must be that of the taxpayer

2. Interest must be legally due
3. It is subject to interest arbitrage rule.
4. Interest must be stipulated in writing
5. Interest must not be between related taxpayers
6. Interest must not be incurred to finance petroleum operations
7. It must be connected with the taxpayer’s trade, business or profession
8. Interest expense must have been paid or incurred during the taxable year
9. Indebtedness was incurred by the taxpayer based on a bona fide debtor-creditor
relationship
10. In case of interest incurred to acquire property use in trade, business or
profession same was not treated as capital expenditure.
Interest arbitrage rule
The taxpayer’s otherwise allowable deduction for interest expense shall be reduced by
33% of the interest income which have been subjected to final withholding tax. Thus,
the amount of interest expense equivalent to 33% of interest income subjected to final
tax will be non-deductible and only the remaining portion of the interest expense can be
claimed as expense in the income computation.
The limitation on the allowable interest expense shall apply, regardless of whether or
not a tax arbitrage scheme was entered into by the taxpayer or regardless of the date
when the interest-bearing loan and the date when the investment was made for as long

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as during the taxable year, there is an interest expense incurred on one side and an
interest income earned on the other side which interest income had been subjected to
final withholding tax.
The interest income from a dollar deposit is subject to 7.5% if the earner is a resident
individual.
What are taxes which are not allowed as deduction from gross income?
1. Final taxes
2. Estate and donor’s tax
3. Income tax provided for under the NIRC
4. Taxes paid on capital assets that are subjected to final tax.
5. Foreign income tax provided the taxpayer avails of the foreign tax credit
6. Taxes on Sale of barter or exchange of shares of stocks listed and traded in the
local stock exchange or through IPO
7. Special assessments and taxes assessed against local benefits of a kind that
tends to increase the value of the property assessed.
Tax credit vs. Tax Deduction
Tax Credit Tax Deduction

It is a peso-for-peso reduction from a Tax deduction is a subtraction from GI
taxpayer’s tax liability. It is a direct resulting to a lower taxable income
subtraction from the tax payable to the
government
A tax credit is used by private A tax deduction is used before the tax is
establishment only after the tax has been computed
computed
Are surcharges, interest and fines for delinquency deductible?
No. To allow them to be deducted defeats the prescribed punishment.
Requisites for deductibility of losses
1. Loss must be that of the taxpayer

2. Loss actually sustained and charged off during the taxable year
3. Evidenced by a closed and completed transaction
4. Not claimed as a deduction for estate tax purposes
5. Not compensated by insurance or other forms of indemnity
6. Loss must be connected with the taxpayer’s trade, business or profession
Casualty Losses
Must arise from TRE CUSO
Theft, Robbery, Embezzlement, Casual, Unusual and Sudden Occurrences.

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Notice to the Commission within 45 days from the occurrence of the loss.
A loss from sale or exchange of property between members of the same family are not
deductible. Members of the family include the taxpayer’s spouse, brothers, sisters,
ancestors and lineal descendants.
What is a short sale?
A short sale is a sale of security or commodity which the seller does not own at the time
of the sale, which security or commodity sold he borrowed from another in an
anticipation that the market price thereof would drop in order to make a profit from such
sale.
What is a wash sale?
It is a sale of stock or securities where substantially identical securities are acquired or

purchased within 61-day period, beginning 30 days before the sale and ending 30
days after the sale.
It is a sale in which no change in beneficial ownership of the security is effected, the

purpose of which is to create a false or misleading appearance of active trading or
market for such security.
Losses from wash sale are not deductible since these are considered as artificial loss
except when the taxpayer is a dealer in securities.
A wash sale is a sale of stocks or securities at a loss whereby the seller acquired by
purchase or exchange substantially identical stocks or securities within 30 days before
or 30 days after such sale (known as the 61-day period). The seller must not be a
dealer in stocks or securities or even if he is, the transaction was not made in the
ordinary course of business of such dealer.
Net operating Loss Carry Over (NOLCO)
NOLCO shall be carried as a deduction for the next 3 consecutive taxable years
immediately following the year of such loss. However, in cases of oil and gas well,
losses incurred in any of the first 10 years of operation may be carried as a deduction
from the gross income for the next 5 years.
Requisites for deductibility of NOLCO
1. It is from the Net operating loss of the business for any taxable year immediately
preceding the current taxable year.
2. It has not been previously offset as deduction from GI
3. It shall be carried over as a deduction from GI for the next 3 consecutive taxable
years immediately following the year of such loss only
4. Taxpayer was not exempt from income tax in the year of the loss was incurred
5. There has been no substantial change in ownership of the business.
Marcelo Doctrine

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A loss in one line of business is not permitted as a deduction from gain in another line of
business.
NCLCO vs NOLCO
Basis Net Capital Loss Cary Over Net Operating Loss carry over
Taxpayer Taxpayer must be individual Taxpayer may be an individual or
Corporation
Kind of Loss Involves Net Capital Loss Losses incurred or connected with
trade or business
Period of Cary Carry-over as loss from sale of Business losses not previously
Over capital asset in the next offset as a deduction form GI carried
succeeding year over as such for the next 3
consecutive years.
Requisites od deductibility of bad debts
1. There must be a valid and subsisting debt

2. The obligation is connected with the taxpayer’s trade or business and is not
between related parties
3. There must be an actual ascertainment that the debt is worthless
4. The debt is charged-off during the taxable year. A partial write-off is not
allowed.
5. The taxpayer must also show that it is indeed uncollectible even in the future.
Steps to be undertaken by the taxpayer to prove that diligent efforts to collect the
debts
1. Sending of Statement of accounts

2. Sending of Collection letters
3. Giving the account to a lawyer for collection
4. Filing of a collection case in court
Requisites for deductibility of depreciation
1. Property subject to depreciation must be a property with a life of more than 1

year
2. Property depreciated must be used in trade, business or exercise of a
profession
3. Depreciation must have been charged off during the taxable year.
4. Depreciation method used must be reasonable and consistent
5. Depreciation schedule should be attached to the income tax return.
Requisites for deductibility of charitable and other contributions
1. Contributions or gift must be Actually paid

2. It must be made within the taxable year
3. It must be evidenced by adequate receipts or records
4. It must be given to organization specified by law.

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Irrespective of the accounting method used by the donor, donation is recognized as a

deduction only when it was actually paid or made, not in the year the deed of donation
was perfected. The deductibility of donation is not governed by ordinary rules on
deductibility of the expense. Donation must be BOTH perfected and consummated
before it can be allowed as a deduction.
Limitation on the amount of deduction for donations
1. Individual – 10% of taxable income before contributions; and

2. Corporation – 5% of taxable income before contributions
What are the options granted to taxpayer on the treatment of R&D expenditures?
1. as an ordinary and necessary expenses, provided that:

a. R&D expenditures are paid or incurred by him during the taxable year
b. R&D expenditures were incurred in connection with his trade, business or
profession
c. Not chargeable to capital account
2. As to deferred expenses: Provided that the deduction may be ratably distributed
over a period not less than 60 months or 5 years beginning in the year in which
the taxpayer first realizes benefit from such expenditures.
The method elected shall be irrevocable and changing to a different method may be
allowed only with authorization from the CIR.
What deductions are allowed under the Expanded SC’s act?
1. Deduction from GI of private establishments for 20% sales discounts granted to

SC’s on the sale of goods and/or services; and
2. Additional deduction from GI for compensation paid to SC’s actually employed
by the taxpayer equivalent to 15% of total amount paid as salaries and
wages to SC’s.
Tax treatment of 20% discount to SC’s.
Discount should be considered as a deductible expense from GI and no longer as tax

credit.
What is the effect of converting the 20% discount given to Senior Citizens from a
tax credit to tax deduction?
The effect of converting the 20% discount from a tax credit to a tax deduction is that the
tax benefit enjoyed by the sellers of goods and services to senior citizens is effectively
reduced. A tax credit reduces the tax liability while a tax deduction merely reduces the
tax base.
What items are not deductible in computing NI?
1. Capital Expenditures

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2. Non-deductible taxes
3. Nondeductible losses
4. Non-deductible interest
5. Expenses for Major Repairs
6. Losses from wash sales of stocks
7. Personal, living or family expenses
8. Interest expense, bad debts and losses from sale of property between related
parties
9. Premium paid on any life insurance policy covering the life of any officer or of any
person financially interested in any trade or business by the taxpayer when the
taxpayer is a beneficiary of such policy.
Income Tax on Individuals
NRA-not ETB are taxed at 25% of GI, all other individual taxpayers are taxed at taxable
income applying 0-35% graduated rate.
When may a taxpayer elect to apply the 8% income tax rate instead of the
graduated income tax rates
Purely self-employed individuals and or professionals whose gross sales or gross

receipts and other operating income do not exceed the VAT threshold of P3,000,000.00
may elect to avail the 8% tax on their gross sales (net of sales returns and allowances
and sales discounts) or gross receipts and other non-operating income in excess of
P250k in lieu of the graduated rate and the percentage tax on vat exempt persons.
As to mixed income earner, his compensation income shall be subject to the

graduated income tax rates while his gross income may avail of the 8% tax rate
provided his gross sales or gross receipts and other non-operating income do not
exceed the VAT threshold of P3M. The 250k mentioned in the preceding paragraph is
no longer considered because the said amount is already incorporated in the first tier of
the graduated income tax rates applicable to compensation income.
A self-employed individual and/or professional may choose to be taxed at 8% of his

gross income without the benefit of deductions in lieu of the graduated income tax rates
if his annual gross sales/receipts do not exceed P3,000,000. If he elects this approach,
he will be exempt from VAT and the 3% percentage tax on VAT-Exempt persons.
Unless the taxpayer signifies his intention to elect the 8% Income tax rate in the 1 st
quarter percentage and/or ITR on the initial quarter return of the taxable year after the
commencement of new business or practice of profession, the taxpayer shall be
considered to have availed of the graduated rates. Such election shall be
irrevocable and no amendment of option shall be made for the said taxable year.
Taxpayers who cannot avail of the 8% tax rate
1. VAT-registered taxpayers, regardless of the amount of gross sales/receipts

2. Taxpayers who are not VAT-registered but with gross sales/receipts and non-
operating income in excess of VAT threshold of P3,000,000.00

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3. Taxpayers who are subject to other percentage taxes, except those who are
subject to percentage tax on VAT-exempt persons; and
4. Partners of GPP by virtue of their distributive share from the GPPs which is
already net of cost and expenses.
Who are individual taxpayers exempt from income tax?
1. Senior citizens who are MWE

2. Minimum Wage Earners
3. Those exempted under international agreements
Minimum Wage earners
MWEs receiving other income from other sources in addition to compensation income
except income subject to final tax are subject to income tax only to the extent of income
OTHER THAN SMW, holiday pay, OT pay, NSD pay, and hazard pay earned during the
taxable year.
RA 9504 is explicit as to the coverage of exemption; the wages that are not in excess of
the SMW including the corresponding holiday, overtime, night differential and hazard
pays. In other words what the legislature is exempting is the MWE’s minimum wage and
other forms of statutory compensation like holiday, overtime, night differentials and
hazards pays. These are not bonuses or other benefits, these are wages.
In Soriano vs Sec of Finance, the court ruled that the proper interpretation of RA 9504 is
that it imposes taxes only on the taxable income received in excess of the minimum
wage, but MWE’s will not lose their exemption as such. They remain MWEs entitled to
exemption as such, but the taxable income they receive other than as MEWs may be
subjected to appropriate taxes.
Married Individuals
Compute separately their individual income tax based on their respective total taxable
income; provided that if any income cannot be definitely attributed to or identified as
income exclusively earned or realized by either of the spouses, the same shall be
divided equally between the spouses.
How shall spouses report their income and expenses in the ITR?
Income and expenses are to be computed separately by the husband the wife in the
case of married individuals, but they are required to file only one (1) joint ITR.
Exception: where it is impracticable for the spouses to file one return, in which case
each spouse may file a separate return. These returns will then be consolidated by the
BIR for verification purposes.
How are inter-corporate dividends taxed?
Dividends received by a resident foreign corporation from a domestic corporation is

exempt from tax; while those received from a foreign corporation is subject to 30%
NCIT (if considered as derived from sources within the Philippines) or exempt from tax

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Dividends received from a foreign corporation are considered as derived from sources
within the Philippines if at least 50% of the GI of such foreign corporation for the 3-year
period ending with the close of its taxable year preceding the declaration of such
dividends or for such part of such period as corporation has been in existence) was
derived from sources within the Philippines.
Minimum Corporate Income Tax (MCIT)
It is applicable to domestic and resident foreign corporations which are subject to

normal corporate income tax.
What are the instances when the MCIT is imposed?
1. Zero or negative taxable income; or

2. Whenever the amount of MCIT is greater than NCIT tax rate of 30% due on
taxable income from the corporation.
MCIT covers domestic and resident foreign corporations which are subject to 30%
NCIT, hence corporations which are subject so special corporate taxes do not fall within
the coverage of MCIT.
MCIT is imposed on beginning on the 4th taxable year immediately following the year
in which the corporation commenced its business operations.
MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income
tax, and only if the normal income tax is suspiciously low.
MCIT shall likewise apply to the quarterly corporate income tax but the final comparison
between the NCIT due and the MCIT shall be made at the end of the taxable year taking
into consideration quarterly tax payment made.
The year in which a corporation commenced its business operations is the year when
that corporation registers with the BIR and not when the corporation started commercial
operation.
Any excess MCIT over NCIT may be carried forward on an annual basis and be credited
against the NCIT for the 3 immediately succeeding years.
Distinction of MCIT and Regular Corporate Income Tax
Regular income tax applies to all corporations while MCIT applies to domestic
corporation and resident foreign corporation.
Regular income tax is at 30% while MCIT is at 2%
Regular income tax is based on net taxable income while MCIT is based on gross
income.

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Regular income tax is applicable once the corporation commences its operation
while MCIT is applicable on the 4th taxable year following the commencement of
business operations.
MCIT is imposed whenever it is greater than the regular corporate income tax on the
corporation.
Predominance Test
If the gross income from unrelated trade/business/other activity exceeds 50% of the
total gross income from all sources, the entire taxable income of the proprietary
educational institution shall be subject to the regular corporate tax rate of 30%
50% from related activities (educational or hospital) = tax is 10% of NI

More than 50% from related activities = 10% of NI
Less than 50% from related activities = 30% of NI
How are non-resident foreign corporations taxed on their income?
A foreign corporation not engaged in trade or business in the Philippines shall pay a tax
equal to 30% of the GI.
The tax imposed is a final tax on GI. A NRFC may not avail of the benefit of deduction.
What are the requisites for the applicability of the 10% tax rate?
1. Stock and non-profit institution.

2. Private Educational institution and hospital
3. GI from unrelated trade, business or activity does not exceed 50% of GI from all
sources
4. With issued permit to operate.
Sales of tickets in the Philippines by an Offline International Air carrier
The source of the income is the property, activity or service that produced the income,
thus the sale of ticket is the activity that produces the income.
It is a hornbook doctrine that the income from sale of tickets is considered an income
derived from the Philippines. Since the flow of wealth, sale and payment of airplane
tickets enjoyed the protection of the Philippine Government, the income derived
therefrom is subject to Philippine income tax.
How are international carrier taxed?
An international carrier doing business in the Philippines shall pay a tax of 2.5% of its
gross Philippine billings.
Applicable for airline carrier with landing rights in the Philippines.
Gross Philippine Billings

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Its refers to the amount of gross revenue realized from carriage of persons, excess
baggage, cargo and mail originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the place of payment
of the ticket or passage document.
Gross Philippine Billings is only imposed on carrier with landing rights in the Philippines
or “on-line carrier.”
An international air carrier with no landing rights in the Philippines is a resident foreign
corporation if its local sales agent sells and issues tickets in its behalf. An offline
international air carrier selling passage tickets in the Philippines through a local general
sales agent, is considered a resident foreign corporation doing business in the
Philippines. As such, it is taxable on income derived from sources within the Philippines
and not on Gross Philippine Billings subject to any applicable tax treaty.
Requisites for the imposition of IAET or surtax
1. Taxpayer is a closely held domestic corporation

2. Amount of retained earnings is more than 100% of the corporation’s paid-up
capital
3. There is no reasonable need that would justify the accumulation of profit.
The term reasonable needs are hereby construed as the immediate needs of the
business including reasonably anticipated needs. (Immediacy test)
Rationale for imposition of the 10% Improperly accumulated earnings tax
A tax is imposed in the nature of a penalty to the corporation for the improper
accumulation of earnings and as a form of deterrent to the avoidance of tax upon
shareholders who are supposed to pay dividends tax on the earnings distributed to
them by the corporation.
Publicly held corporations, banks and other non-bank financial intermediaries and
insurance companies are not covered by the provision on IAET.
IAET applies only to domestic corporations which allow their profits to accumulate
beyond its reasonable business needs, instead of being distributed as dividends.
No gain or loss shall be recognized in a transfer of property to a corporation by a person
in exchange for stock or interest in such corporation resulting in a corporate control.
Immediacy Test
This is applied to determine whether the accumulation of after-tax profits by a domestic

or resident foreign corporation is really for a reasonable needs of the business. The
reasonable needs of the business are construed to mean the immediate needs. The
corporation should be able to prove an immediate need for the accumulation of earnings
and profits, or the direct correlation of anticipated needs to such accumulation of profits
to justify the said accumulation.

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What are the entities exempted from IAET?
1. Publicly held corporations

2. Banks and other non-bank financial administrators
3. Insurance company
4. Taxable partnerships
5. General Professional Partnership
6. Non-taxable joint ventures
7. Enterprise duly registered with PEZA
What is the net worth method or inventory method of income tax verification?
It is resorted to by the BIR in cases where the financial records and information
regarding the taxpayer’s income appears to be inadequate or incomplete. This is based
on the theory that an unexplained increase in the net worth of the taxpayer is presumed
to be derived from taxable sources.
Filing of income tax returns
What is a tax return?
A sworn declaration where the taxpayer inputs all data necessary for him or her to
compute his tax and for the government to validate the same.
GR: Income tax returns are confidential
XPNs;
1. When the production or inspection thereof is authorized by the taxpayer himself

2. When the inspection of the return is authorized upon written order of the
President of the Philippines
3. When inspection is authorized under Finance Regulations No. 33 of the
Secretary of Finance
4. When the production of the tax return is material evidence in a criminal case
wherein the Government is interested in the result
What individuals are required to file an ITR?
1. Every Filipino citizen residing in the Philippines (RC) on his income from sources
within and without the Philippines;
2. Every Filipino citizen residing outside the Philippines (NRC) on his income from
sources within the Philippines
3. Every Filipino citizen working outside the Philippines as an overseas contract
worker (OCW) on his income from sources within the Philippines
4. Every alien residing in the Philippines (RA) on income from sources within the
Philippines
5. Every non-resident alien engaged in trade or business in the Philippines (NRA-
ETB) on hi income from sources within the Philippines.
Who are individuals not required to file ITR?

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1. MWE
2. An individual whose sole income has been subjected to FWT
3. An individual earning purely compensation income whose taxable income does
not exceed 250k.
4. An individual whose income tax has been correctly withheld by his ER provided
that such individual has only one employer during the year
In all cases, all individuals deriving compensation income regardless of the amount from
2 or more concurrent or successive employers at any time during the taxable year are
not qualified for substituted filing.
Requisites of Substituted filing for employees earning purely compensation

income
1. employee receives purely compensation income

2. from only one employer
3. income tax due equals income tax withheld
If the compensation income is received concurrently from two employers during the
taxable year, the employee is not qualified for substituted filing.
When is the deadline for the filing of the corporation’s final adjustment return for
the calendar year? Fiscal year?
For a calendar year, the final adjustment return should be filed on or before the 15 th
day of April following the close of the taxable year. For a fiscal year, the final
adjustment return is filed on or before the 15th day of the 4th month following the close
of the taxable year.
The due date for the filing of the corporation’s final adjusted return for calendar year is
15th day of April of the succeeding year. When a corporation uses fiscal year, the due
date is the 15th day of the 4th month following the close of the fiscal year.
The prescriptive period of 2 years should commence to run only from the time that the
refund is ascertained which can only be determined after a final adjustment return is
accomplished.
Installment payment of Income Tax
RA 10963 provides that individual taxpayers may pay a tax due in excess of P2,000 in
two (2) equal installments the first installment shall be paid at the time the return is filed
and the second installment on or before October 15 following the close of the taxable
year.
What is an estate tax?
It is an excise tax imposed on the privilege of transferring a property upon the death of
the owner. It is a tax based on the value of the net estate of the decedent.

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It accrues upon the death of the decedent.
Estate taxation is governed by the statute in force at the time of the death of the
decedent.
No judge shall authorize the executor or judicial administrator to deliver a distributive

share to any party interested in the estate unless a certification from the Commissioner
that the estate tax has been paid is shown.
How is gross estate determined?
1. Residents and citizens – all properties wherever situated plus items includible
in gross estate
2. Non-resident aliens – only properties situated in the Philippines provided that
with respect to intangible personal property, its inclusion in the gross state is
subject to the rule of reciprocity.
Definition of Gross Estate
Gross Estate refers to all property, wherever situated that is left behind by the decedent
for transmission to the legal heirs or beneficiaries.
Gross estate is defined as the value of all properties, real or personal, tangible or
intangible, wherever situated, provided that in the case of a non-resident alien
decedent, only those properties located within the Philippines shall be included in
the gross estate.
Items to be included in the Gross Estate (DIGRI-PLS)
1. Transfer in contemplation of death

2. Decedent’s interest
3. Property under general power of appointment
4. Revocable transfer
5. Transfer for insufficient consideration.
6. Prior interests
7. Proceeds of Life insurance
8. Share of the Surviving Spouse
Transfers made during the lifetime of the decedent which shall form part of the
Gross Estate and subject to estate tax
1. Revocable transfer
2. Transfer in contemplation of death
3. Transfer for insufficient consideration
4. Property passing under the general power of appointment
5. Transfer where the donor reserves the right to the fruits and income of the
property
A bona fide sale for an adequate and full consideration in money or in money’s worth is
a transfer not considered in contemplation of death and not part of the gross estate.

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The value of the gross estate of a resident alien shall be determined by including the
value at the time of his death of all property, real or personal, tangible or intangible,
wherever situated.
The capital or paraphernal property of the surviving spouse is not included in the
computation of the gross estate; it is actually a deduction from the decedent’s gross
estate in order to arrive at the net estate.
Transfer for insufficient consideration
Transfer that is not a bona fide sale of property for an adequate and full consideration in
money or money’s worth. The excess of the FMV at the time of death over the value of
the consideration received by the decedent shall form part of the gross estate
Valuation of the gross estate
The valuation of properties comprising the estate of the decedent is the FMV as of the
time of death. No other valuation date is allowed by law.
Under the date-of-death valuation rule, claims existing at the time of death should be
made the basis of the determination of allowable deductions.
What is a general power of appointment?
It is the right to designate the person who will succeed to the decedent’s property which
may be exercised in favor of any person.
Property passing under a general power of appointment means transfer where the
donor of the power of appointment authorizes the donee of such power to designate any
person he chooses to be given the right over the appointed property. Under a general
power of appointment, title to the property is legally transferred to the donee of the
power. Therefore, the appointed property shall form part of the gross estate of the
donee.
It gives the donee the power to appoint any person he pleases, including himself, his
spouse, his estate, executor or administrator and his creditor thus having as full
dominion over the property as though he owned it.
Under a special power of appointment, the donee of the power is restricted by the
donor as to whom he shall transfer the property upon his death. Therefore, he holds the
property merely in the concept of a trustee, and the same shall not form part of his
gross estate.
The donee can appoint only among a restricted or designated class of persons other
than himself.

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GR: Property over which the decedent held a power of appointment is not includible in
his gross estate unless such power is general.
Exception: Bona fide sale for an adequate and full consideration in money or money’s
worth.
When may transfer in contemplation of death, revocable transfer or property

passing under a GPA be excluded from gross estate?
It may be excluded from gross estate only when they are in the nature of bona fide sale
for an adequate and full consideration in money or money’s worth.
When do proceeds of life insurance form part of the GE of the decedent?
Proceeds of life insurance shall form part of the gross estate when:
1. Insurance policy is taken out by the decedent upon his own life; and
2. Proceeds are receivable by:
a. Estate of the deceased, his executor or administrator, irrespective of
designation, or
b. Any beneficiary designated in the policy of insurance as revocable
beneficiary.
A designation of beneficiary is generally revocable, unless stated expressly in the policy

that the designation is irrevocable.
Proceeds of life insurance shall form part of the gross estate of the decedent to the
extent of the amount receivable by the beneficiary designated in the policy of the
insurance except when it is expressly stipulated that the designation of the beneficiary is
irrevocable.
Deductions to the gross estate
1. Family Home
2. Unpaid Taxes
3. Unpaid Mortgage
4. Retirement benefits
5. Standard Deduction
6. Vanishing deduction
7. Transfer for public use
8. Claims against the estate
9. Claims against insolvent person
10. Conjugal share of the surviving spouse
11. Casualty Loss arising from theft, robbery embezzlement, fire or other calamities
What is meant by standard deduction?
It is a deduction without need of substantiation in the amount of:
1. Citizens and residents – P5M or

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2. Nonresident aliens – P500k
Claims against the Estate
It means debts or demands of pecuniary nature which could have been enforced
against the deceased in his lifetime and could have been reduced to a simple money
judgment.
It may arise out of contract, tort or operation of law.
Claims against the estate may be allowed as deduction from the gross estate of a
citizen or resident alien upon the concurrence of the following conditions:
1. debt instrument must be duly notarized;

2. the executor or administrator shall submit a statement showing the disposition of
the loan proceeds if the loan was contracted within 3 years before the death of
the decedent
Requisites for the claims against the estate to be allowed as a deduction
1. It represents a personal obligation of the deceased existing at the time of his

death.
2. Claim must be contracted in GF and for adequate and full consideration in money
or money’s worth.
3. Claims must be a debt or claim which is valid in law and enforceable in court
4. Indebtedness must not have been condoned by the creditor or the action to
collect form the decedent must not have prescribed.
At the time the indebtedness was incurred, the debt instrument was duly notarized and
if the loan was contracted within 3 years before the death of the decedent, the
administrator or executor shall submit a statement showing the disposition of the
proceeds of the loan.
Requisites for unpaid mortgages to be deductible
1. value of the decedents interest undiminished by the mortgage is included in the

value of the gross estate.
2. Limited to the amount that they were contracted bona fide and for adequate
consideration in money or money’s worth.
Unpaid mortgages upon or any indebtedness with respect to property are deductible
from the gross estate only if the decedent’s interest in said property, undiminished by
such mortgage or indebtedness is included in the gross estate.
Vanishing deduction
It is the deduction allowed on the property left behind by the decedent which was
previously subject to donor’s or estate taxes.
Requisites for deductibility (DIPIN))

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1. Death - present decedent died within 5 years from receipt of property from a
prior decedent or donor.
2. Identity - the property must be identified as the one received or acquired.
3. Previously determined and paid - The estate tax on the prior succession or
donor’s tax must have been paid
4. Inclusion - Property formed part of the gross estate situated in the Philippines of
the prior decedent or was a taxable gift of the donor
5. No previous deduction - No Vanishing deduction was allowed on the same
property on the prior decedent’s estate.
Requisites for deductibility of a Family Home
1. Family Home must be the actual residential home of the decedent and his family
at the time of his death, as certified by the Barangay captain of the locality where
the family home is situated.
2. The total value of the family home must be included as part of the gross estate of
the decedent
3. Allowable deduction must be an amount equivalent to the current fair market
value of the decedent’s family home as declared or included in the gross estate;
or the extent of the decedent’s interest (whether conjugal/community or exclusive
property, whichever is lower but not exceeding P10 million pesos)
In what case is estate tax return required?
1. In all cases of transfers subject to estate tax; or

2. Regardless of the value of the gross estate where the estate consists of
registered or registrable property for which a clearance from BIR is required as a
condition precedent for the transfer of ownership in the name of the transferee.
Notice of death is no longer required
Payment of estate tax is 1 year from death; there is no longer a need for notice of death.
When estate tax return is filed:
It is filed within 1 year from the decedent’s death. Extension to file an estate tax return
is allowed in meritorious cases but not to exceed 30 days.
The taxpayer must pay the estate tax upon filing under the “pay as you file system.”
Extension to pay estate tax may be granted if the Commissioner finds that such
payment would impose undue hardships upon the estate or any heir and shall:
1. not exceed 5 years in case of judicial settlement

2. not exceed 2 years in case of extrajudicial settlement
3. payment by installment if and only if the available cash of the estate is
insufficient.
Estate tax changes under RA 10963 (took effect January 1, 2018)

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1. Funeral, judicial and medical expenses are no longer deductible.

2. The filing and payment must be made within 1 year from the date of decedent’s
death.
Do funds deposit in a joint savings current account subject of survivorship

agreement form part of the gross estate of the decedent (husband)?
The funds are considered the exclusive property of the surviving spouse. The
survivorship agreement not having executed for unlawful purpose, its “winner-take-all
feature is permitted by the Civil Code which considers the same as a mere obligation
with a term. Being the separate property of the wife, they form no part of estate of the
deceased husband.
Donor’s Taxes
Donation
Donation is an act of liberality whereby a person disposes gratuitously of a thing or

right in favor of another who accepts it.
Donative Intent
Donative intent is necessary only in cases of direct gift. If the gift is indirectly taking
place by way of sale, exchange or other transfer of property as contemplated in cases
of transfer for less than adequate and full consideration, not always essential to
constitute a gift.
Acceptance of Donation
Acceptance is necessary because nobody is obliged to receive a gift against his will.
Donors Tax
Donor’s tax is an excise tax imposed on the privilege of transferring property by way of
a gift inter vivos based on pure act of liberality without any or less than adequate
consideration and without any legal compulsion to give.
The law in force at the time of the perfection/completion of the donation shall govern the
imposition of the donor’s tax.
Under RA 10963 dowry is no longer considered as exclusion.
What transfers are subject to donor’s tax?
The donor’s tax is imposed on donations inter vivos or those made between living
persons to take effect during the lifetime of the donor.
The donor’s tax shall not apply unless and until there is a completed gift.
In a donation made by the husband and wife, who pays the donor’s tax?

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The husband and the wife are considered separate and distinct taxpayer for purposes of
donor’s tax.
However, if what was donated is a conjugal or community property and only the
husband signed the deed of donation, there is only one donor for donor’s tax purposes,
without prejudice to the right of the wife to question the validity of the donation without
her consent.
What is the rate of donor’s tax?
Donor’s tax for each calendar year shall be 6% computed on the basis of total gifts
in excess of P250,000 exempt gifts during the year regardless of whether the
donation is made to a relative or to a stranger.
The basis shall be the total net gifts made during the calendar year.
Even if the sale, exchange or other transfer of property is for an insufficient

consideration, the same will be considered as made for an adequate and full
consideration in money or money’s worth if made in the ordinary course of business.
What is the situs of donor’s taxation?
The situs of donor’s taxation is where the transfer took place. Thus, only transfer that
take place within the Philippines are subject to donor’s taxes unless the donors are
Filipino citizens or resident alien.
Renunciation by the Surviving spouse
Renunciation by the surviving spouse of his/her share in the conjugal partnership or

absolute community after the dissolution of the marriage in favor of the heirs of the
decease spouse or any other person/s is subject to donor’s tax. However, general
renunciation by an heir including SS, of his/her share in the hereditary estate left by the
decedent is not subject to donor’s tax, unless specifically and categorically done in
favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the
hereditary estate.
Remuneratory Donation
If the debtor performs services for a creditor who cancels the debt in consideration for
such services, the debtor realizes income to that amount as compensation for his
services.
Instances under the Tax code where gifts made are exempt from Donor’s Tax
1. Total net gifts not in excess of 250k made during the taxable year;
2. Sale or exchange for insufficient consideration where said sale, exchange or
other transfer of property is made in the ordinary course trade or business, a
transaction which is bona fide, at arm’s length and free from any donative intent;

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3. Gifts made to or for the use of the national government or any entity created by
any of its agencies which is not conducted for profit or to any political subdivision
of the said government.
4. Gifts in favor of an educational and/or charitable, religious, cultural or social
welfare corporation, institution, accredited NGO, trust or philanthropic
organization or research institution or organization; provided, however, that not
more than thirty percent (30%) of the said gifts shall be sued by such donee for
administration purposes.
Filing of Donor’s tax return
Donor’s tax return is filed within 30 days after the date the donation or gift is made.
Where property, other than real property classified as capital asset subject to final
capital gains tax, is transferred for less than an adequate and full consideration in
money or money’s worth, then the amount by which the fair market value of the property
at the time of the execution of the contract to sell or deed of sale which is not preceded
by a contract to sell exceeded the value of the agreed or actual consideration or selling
price shall be deemed a gift.
But a sale, exchange or other transfer of property made in the ordinary course of
business (a transaction which is bona fide, at arms-length, and free from any donative
intent) will be considered as made for an adequate and full consideration in money and
in money’s worth. (Bad Bargain)
Business Taxes
Value Added Tax
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.
VAT is imposed and collected on every sale, barter or exchange or transactions

“deemed sale” of taxable goods or properties at a rate of 12% of the gross selling price
or gross value in money of goods or properties sold, bartered or exchanged or deemed
sold in the Philippines.
Characteristics of VAT
1. It is a regressive tax
2. It is consumption based
3. It is not a cascading tax or a tax on tax
4. It is a credit-invoice method value-added tax
5. It is an indirect tax where tax shifting is always presumed
6. It is imposed on the value added in each stage of distribution
Elements that must be present in order that a transaction to be subjected to 12%

VAT
1. It must be done in the ordinary course of trade or business

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2. There must be a sale, barter, exchange, lease of properties or rendering of

service in the Philippines;
3. It is not VAT-exempt or VAT zero-rated
What is meant by the phrase “in the course of his trade or business”?
In the course of trade or business means the regular conduct or pursuit of a

commercial or economic activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a nonstock, nonprofit
private organization (irrespective of the disposition of its net income and whether or not
it sells exclusively to members or their guests) or government entity.
Transactions that are undertaken incidental to the pursuit of a commercial or economic

activity are considered entered into in the course of trade or business.
Transactions done “in the course of trade or business” refer to the sale, barter,
exchange, lease of goods or properties, service by persons and the importation of
goods in the regular conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto.
Doing or engaging in or transacting business implies continuity of commercial dealings

and arrangements and contemplates to that extent the performance of acts or works or
the exercise of some functions normally incident to and in progressive prosecution of
commercial gain or for the purpose and object of business organization.
Two conditions in the “ordinary course of trade or business”
1. Commercial or economic activity

2. Regularity or habituality in the action
XPN’s to regularity
1. Non-resident alien who performs services in the Philippines are deemed to be

making sales in the course of trade or business, even if he the performance of
services is not regular
2. Importations are subject to VAT whether in the course of trade or business or not
3. Any business where the gross sales or receipts do not exceed P100,000 during
the 12-month period shall be considered principally for subsistence or livelihood
and not in the course of trade or business
Enumerate the VAT-taxable transactions
1. Sale, barter or exchange of goods or properties;

2. Transaction deemed sale
3. Importation of goods; and
4. Sale of service and use or lease of properties.
VAT exempt transactions (at least 5 only)
1. Agricultural and marine food products in their original state

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2. Fertilizers, seeds and feeds.

3. Services subject to percentage tax
4. VAT exempt transactions of cooperatives
5. Export sales which are exempt from VAT
6. Real property transactions which are exempt from VAT
7. Sale of Gold to the BSP
8. Sale of drugs and medicines prescribed for diabetes, high cholesterol and
hypertension
9. Services rendered by individuals pursuant to an EER
10. Lease of residential unit with a monthly rental not exceeding P15,000
11. Transport of passengers by international carriers
12. Sales or lease of goods and services to senior citizens and persons with
disability
13. Association dues, membership fees and other assessments and charges
collected on a purely reimbursement basis
14. Sale or lease of goods or properties or the performance of services whose gross
annual sales and/or receipts do not exceed P3M.
RA 10963 which took effect on January 1, 2018 exempts lease of residential units from
VAT where the gross receipts from rentals do not exceed P15,000 per month per
unit.
RA 10963 explicitly exempts association dues and membership fees collected by

condominium corporations from VAT.
What lease of residential units is classified as an exempt transaction for

purposes of the VAT?
Lease of residential units with a monthly rental per unit not exceeding P15,000,
regardless of the amount of aggregate rentals received by the lessor during the year, is
exempt from VAT as well as from the 3% percentage tax on VAT-exempt persons.
However, lease of residential units where the monthly rental per unit exceeds P15,000
but the aggregate of such rentals of the lessor during the year do not exceed P3m shall
likewise be exempt from VAT but the same shall be subject to the 3% percentage tax on
VAT-Exempt persons.
What is impact of taxation in relation to VAT?
Impact of taxation is the point where the tax is originally imposed or the one on whom
the tax is formally assessed.
In VAT, the seller is one directly and legally liable for payment of indirect tax.
What is incidence of taxation in relation to VAT?
Incidence of taxation is the point on which the tax burden finally settles down.
In VAT, it is the final purchaser or end-user of such goods or services who although not
directly and legally liable for the payment thereof, ultimately bears the burden of the tax.

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Impact is the imposition of the tax; shifting is the transfer of the tax while incidence is
the setting or coming to rest of the tax.
Destination Principle
It means goods and services are taxed only in the country in which they are consumed.
Exports are zero-rated because the consumption of such goods will be made outside
the Philippines, while imports of goods are subject to 12% VAT because they are for
consumption within the Philippines.
Exception to this principle is a foreign currency denominated transaction.
Cross Border Doctrine
NO VAT shall be imposed to form part of the cost of goods destined for consumption
OUTSIDE the territorial border of the taxing authority. Thus, exports are zero-rated and
imports are taxed.
What is meant by transactions deemed sale?
It means that certain transactions which are not actually sales because of the absence
of actual exchange between the buyer and seller are considered or included in the term
sale for VAT purposes.
In transaction deemed sale, the input VAT was already used by the seller as credit
against the output VAT. However, since there is no actual sale, no output vat is actually
charged to customers.
The following are “transactions deemed sale” and therefore subject to VAT
(CoTran ReD)
1. Consignment of goods if actual sale is not made within 60 days following the
date such goods were consigned.
2. Transfer, 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.
3. Retirement from or cessation of business with respect to all goods on hand
4. Distribution or transfer to shareholders or investors as share in the profits of the
VAT-registered person or creditors in payment of debt. (property dividends or
payment)
Goods given for free in the course of trade or business in order to promote sales efforts
are not considered deemed sale transactions.
Zero-rated and effectively zero-rated transactions
The phrase effectively zero-rated sales or services refers to the local sales or services
by a VAT-registered person to any person or entity who was granted indirect tax
exemption under special laws or international agreements to which the Philippines is a

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signatory. An application must be filed and approved by the RDO; otherwise, the
transactions shall be considered as exempt transactions without the benefit of input tax
credits.
It is jurisprudentially settled that all sales of goods, properties and services made by a
VAT-registered supplier from customs territory to an ecozone enterprise shall be subject
to VAT at zero percent rate, regardless of the latter’s type or class of PEZA registration.
A zero-rated sale of goods or properties by a VAT-registered person is a taxable

transaction for VAT purposes but the sale does not result in any output tax.
A zero-rated sale of goods or properties covering export sale and effectively zero-
rated sale is a taxable transaction for VAT purposes, although the VAT rate applied is
zero percent (0%). In other words, a sale by a VAT-registered taxpayer of goods and/or
services taxed at 0% shall not result in any output tax.
An effectively-zero rated transaction does not cover export sales. It includes local
sale of goods or supply of services by a VAT-registered person or persons or entities
who were granted tax exemption under special laws or international agreement to which
the Philippines is a signatory.
Export processing zones are to be managed as separate customs territory from the
rest of the Philippines and thus, for tax purposes, are effectively considered as foreign
territory. Sales by persons from the Philippine customs territory to those inside the
export processing zones are effectively zero-rated.
Zero-rated transactions generally refer to the export sale of good and supply of
services. The tax rate is set at zero. The seller of such transactions charges no output
tax but can claim a refund of or a tax credit certificate for the VAT previously charged to
supplier.
A zero-rated transaction benefits the seller, while an effectively zero-rated transaction

benefits the purchaser.
In an effectively zero-rated sale, the word “ZERO-RATED” must be stamped on the face
of the VAT invoice or receipt. The reason for this requirement is that the buyer of the
goods or services is located within the Philippines or he is located outside the
Philippines merely by fiction of law.
Sale of gold to BSP is removed from zero-rated transactions and transferred to VAT-
exempt transactions.
ADB is exempt from direct and indirect taxes under special laws. Sale is subject to 0%
VAT
Zero-rated sale of services includes services rendered to persons engaged in business

outside the Philippines and the consideration is paid in acceptable foreign currency duly
accounted for by the BSP.
Sale of agricultural non-food product in its original state is no longer exempt.

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What are types off zero-rated transactions
1. Automatic zero-rated sale -refers to export sale of goods, properties and supply
of services to a Freeport Zone registered enterprise by a VAT-registered person
2. Effectively zero-rated sale – refers to the local sale of goods and properties by
a VAT-registered person to a person or entity who was granted direct and indirect
tax exemption under special laws or international agreements.
Services other than processing manufacturing or repacking of goods requirement

for zero-rating
1. Service other than processing, manufacturing or repacking of goods must be

performed in the Philippines.
2. Payment for such services be in acceptable foreign currency accounted for in
accordance with BSP rules, and
3. Recipient of such services is doing business outside of the Philippines.
Beginning and end of importation
Importation begins when the carrying vessel or aircraft enters the Philippine territory
with the intention to unload therein.
Importation is deemed terminated when the duties, taxes and other charges due
upon the goods have been paid or secured to be paid at the port of entry or in case the
goods are deemed free of duties, taxes and other charges when the goods have legally
left the jurisdiction of the bureau.
Output Tax
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 under the VAT system. It may
either be the regular 12% VAT or 0% VAT
Input Tax
Input Tax means VAT due from or paid by VAT-registered person on importation of
goods or local purchase of goods, properties or services including lease or use of
properties, in the course of his trade or business. It shall include the transitional input
tax and the presumptive input tax. It may either be a regular 12% input VAT, 2%
transitional input VAT or 4% presumptive input VAT.
Transitional Input tax credit

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Transitional Input tax credit is the input tax to be credited against the output tax
equivalent to 2 percent of the value of the beginning inventory or the actual value-added
tax paid on such goods, materials, and supplies whichever is higher.
Presumptive input tax credit
Presumptive input tax credit is the input tax to be credited against the output tax
equivalent to four percent (4%) value of the purchases of primary agricultural
products used as inputs to production by persons or firms engaged in the
processing of sardines, mackerel and milk and in manufacturing refined sugar, cooking
oil and packed noodle-based instant meals.
Requisites of Foreign currency denominated sale
1. The buyer must be a non-resident

2. Goods sold must be assembled or manufactured in the Philippines
3. Goods sold are to be delivered to a resident of the Philippines
4. Paid for in an acceptable foreign currency and accounted for in accordance with
the rules and regulations of the BSP
Sale of agricultural products in their original state, of a kind generally used as or

producing foods for human consumption is exempt from VAT.
Requisites for claiming unutilized/excess input VAT
1. the taxpayer-claimant is VAT-registered

2. the taxpayer-claimant is engaged in zero-rated or effectively zero-rated sales
3. there are creditable input taxes due or paid attributable to the zero-rated or
effectively zero-rated sales
4. this input tax has not been applied against the output tax
5. the application and claim for a refund have been filed within the prescribed
period.
Commercial invoice vs Receipt
Sales or commercial invoice is a written account of goods sold or services rendered

indicating the prices charged therefor or a list by whatever name it is known which is
used in the ordinary course of business evidencing sale and transfer or agreement to
sell or transfer goods and services.
A receipt is a written acknowledgment of the fact of payment in money or other

settlement between seller and buyer of goods, debtor or creditor or person rendering
services and client or customer.
Only VAT invoice might be presented to substantiate a sale of goods or properties while
only a VAT receipt could substantiate a sale of services.
The absence or failure to print the word “zero-rated’ in the taxpayer’s invoices in relation
to zero-rated sales is fatal to its claim for refund or tax credit for unutilized input VAT.

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If the sale is subject to zero percent (0%) VAT, the term zero-rated sale shall be written
or printed prominently on the invoice or receipt. Failure to comply with this invoicing
requirement is fatal to a claim for refund of input taxes attributable to the zero-rated
sale.
Sale of real property exempt from VAT (only 2 most common)
1. Sale by real state dealers and/or lessors of residential lot valued at P1,500,000
and below; and
2. Sale of real state dealers and/or lessors of residential house and lot and other
residential dwellings valued at 2,500,000.00 and below
It two or more adjacent residential lots are sold or disposed in favor of one buyer for the
purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT
only if the aggregate value of lots does not exceed P1,500,000.00
Zero rated sales of goods and services which shall be subject to 12% VAT and no
longer considered as VAT zero-rated upon satisfaction of specified conditions
1. Sale of raw materials or packaging materials to a Non-resident buyer for delivery

to a resident local export-oriented enterprise
2. Sale of raw materials or packaging materials to Export-oriented enterprise whose
export sales exceed 70% of total annual production
3. Those that are considered export sales under the Omnibus Investment Code and
other special laws
4. Processing, manufacturing or repacking of goods
a. For other persons doing business outside the Philippines
b. Goods are subsequently exported
c. Services are paid for in acceptable foreign currency
5. Services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales exceed
70% of total annual production
Conditions to subject those sales to 12% VAT
1. Successful establishment and implementation of enhanced VAT refund system

that grants tax refunds within 90 days from filing;
2. All pending VAT refunds as of December 31, 2017 shall be fully paid in cash by
December 31, 2019; and
3. 5% of the total value of VAT collection of the BIR and BOC shall automatically be
appropriated for purposes of funding VAT claims
Requirements for a claim for VAT Refund
1. Taxpayer is VAT-registered
2. Taxpayer is engaged in zero-rated or effectively zero-rated sales
3. Input taxes are due or paid
4. Input taxes are not transitional input tax
5. Input taxes have not been applied against output taxes during and in the
succeeding quarters

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6. Input taxes claimed are attributable to zero-rated or effectively zero-rated sales

7. Claim is filed within 2 years after the close of the taxable quarter when such
sales were made.
When should the application for the issuance of TCC or refund made?
The written application for the issuance of a TCC or refund must be filed with the BIR
within 2 years after the close of the taxable quarter when the sales were made.
The 2-year prescriptive period to file a claim for refund refers to administrative claim
with the BIR and not the period to elevate the claim to the CTA. The proper reckoning
period date for the two-year prescriptive period is the close of the taxable quarter when
the relevant sales were made.
What is the period within which refund or TCC shall be made?
The CIR shall grant a refund for creditable input tax within 90 days from the date of
submission of the official receipts or invoices and other documents in support of the
application.
Failure on the part of any official or employee of the BIR to act on the application within
90-day period shall be punishable by a fine of P50k but not more than P100k and
imprisonment of 10 years but not more than 15 years
The 90-day period is mandatory and jurisdictional.
What is the recourse of the taxpayer in case of denial of refund by the BIR?
The taxpayer may within 30 days from the receipt of the decision denying the claim,
appeal the decision to the CTA.
The 30-day period to appeal is both mandatory and jurisdictional.
New rules according to Section 112 as amended by the TRAIN Law
1. The prescriptive period within which the CIR shall grant a refund for creditable
input tax is 90 days from the submission of the official receipts or invoices and
other documents in support of the application.
2. In case the CIR finds the refund improper, he must state in writing the legal and
factual basis for the denial
3. Taxpayer aggrieved may within 30 days from receipt of the CIR decision denying
the claim, appeal the decision to the CTA
4. Any official, agent, or employee of the BIR who fails to act on the application
within 90-day period shall be punishable under Section 269.
Describe the proper procedure and applicable time periods for administrative and
judicial claims for refund/credit of unutilized excess input VAT.
1. The administrative claim must be filed with the CIR within 2 years from the
close of the taxable quarter when the zero-rated sales were made.

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2. The CIR has 90 days (based from RA 10963) from submission of complete
documents, in support of the claim to decide.
3. The taxpayer may appeal the decision or inaction of the CIR within 30 days
from receipt or lapse of the 90-day period. The 30-day period to appeal is both
mandatory and jurisdictional.
What is the nature of OPT?
The nature of OPT is essentially a tax on the transaction and not on the articles sold,
bartered or exchanged. It is an indirect tax which can be passed on to the buyer.
Excise Tax
It is a tax levied on a specific article rather than one upon the performance, carrying on,
of the exercise of an activity.
Excise tax refers to taxes applicable to certain specified or selected goods or articles
manufactured or procured in the Philippines for domestic sale or consumption or any
other disposition and to things imported in the Philippines, which tax shall be in
addition to VAT.
Taxes applied to goods manufactured or produced in the Philippines for domestic sale
or consumption or for any other disposition and to things imported.
Kinds of excise Taxes
Specific Tax – Imposed based on weight or volume capacity or any other physical unit
of measurement
Ad Valorem Tax – imposed based on selling price or other specified value of the goods
Documentary Stamp Tax
Documentary Stamp tax is an internal revenue tax imposed upon documents,

instruments, loan agreements and papers evidencing the acceptances, assignments,
sales and transfers of the obligation, right or property incident thereto and in respect of
the transaction so had or accomplished.
DST is a tax imposed on the transaction rather than on the document itself. It is,
therefore an excise tax levied upon the privilege granted to the taxpayer so that he may
enter into the transaction in the Philippines.
It becomes due at the same time the document or instrument evidencing the transaction
is notarized.
DST shall be filed within 5 days after the close of the month when the taxable document
was made, signed, issued, accepted or transferred and the tax thereon shall be paid at
the same time the return is filed.

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The failure to affixed or stamp a document or paper does not render the transaction or
contract invalid. However, the document or paper shall not be recorded nor shall any
copy thereof be admitted or used in evidence in any court until the requisite stamp/s
shall have been affixed thereto and cancelled.
Loan agreements are subject to DST whether the loan agreement was executed and
signed with-in or without the Philippines, provided, that the loan agreements or
promissory notes whose aggregate amount does not exceed P250,000 for the purchase
on installment of a house, lot, motor vehicle, appliance or furniture for personal use shall
be exempt from DST.
DST is not imposed on any insurance policy taken by an insured who resides abroad
from an insurance company in the Philippines. Furthermore, any reinsurance contract is
also not subject to the DST.
An agreement to sell property on installment basis is not subject to documentary stamp

tax, unless title is vested on the vendee. The DST shall be imposed only when the
parties will execute a Deed of absolute Sale vesting the title over the real property to the
vendee.
No notary public or other office authorized to administer oaths shall add this jurat or
acknowledgment to any document subject to documentary stamp tax unless the proper
documentary stamps are affixed thereto and cancelled.
What are the exemptions on the DST on bills of lading or receipts?
1. Bills of lading or tickets used by ferries across rivers;

2. Bills of lading or tickets covering goods, merchandise or effects carried as
accompanied baggage of passengers on land and water carriers primarily
engaged in the transportation of passengers; and
3. If the value of the goods, merchandise or effects shipped from one port or place
in the Philippines to any other port or place, domestic or foreign, does not exceed
P100.
Any agreement to sell real property on installment basis is not subject to DST. However,
if title to the real property is already vested in the vendee by the sale contract, the
agreement shall be subject to the DST. The deeds of sale will become subject to the
DST when title to the property is vested on the vendee.
Tax remedies under the NIRC
What is a tax assessment?
Assessment is a written notice and demand made by the BIR on the taxpayer for the
settlement of a due tax liability that is there, definitely set and fixed.
When is a tax assessment made or deemed made?
Assessment is deemed made if notice to that effect was released, mailed or sent by the
CIR within the prescriptive period.

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An assessment is deemed made only when the collector of internal revenue releases,
mails or sends such notice to the taxpayer.
An assessment is deemed made on time when notice to this effect is released,

mailed or sent by the Collector of Internal Revenue to the taxpayer, within 3-year or
10-year period as the case may be even though the same is actually received by
the taxpayer after the expiration of the prescriptive period.
Principles governing tax assessments
1. Should be based on actual facts

2. Must be directed to the right party
3. Discretionary on the part of the Commissioner
4. Prima facie presumed correct and made in good faith
5. The authority vested in the Commissioner to assess taxes may be Delegated
Requisites of a valid assessment
1. In writing and signed by the BIR

2. Contains the law and the facts on which the assessment is based
3. Contains a demand for payment within the prescribed period
4. It must be served on and duly received by the taxpayer
5. Assessment must be made within the prescriptive period.
The taxpayers shall be informed in writing of the law and the facts on which the
assessment is made, otherwise the assessment shall be void.
An assessment notice is a formal notice to the taxpayer stating that the amount
thereon is due as tax and containing a demand for the payment thereof.
An assessment is void when the officer who conducts the examination or assessment
has no authority to do so.
An assessment must contain not only the computation of tax liabilities but must also
contain the demand for payment within a prescriptive period.
Tax Audit
There must be a grant of authority from the CIR before any revenue officer can conduct
an examination or assessment. The revenue officer so authorized must not go beyond
the authority given. In the absence of such authority the assessment or examination is a
nullity.
What are the important principles governing tax assessments?
1. Assessments are prima facie presumed correct and made in GF.

2. Assessments should not be based on presumptions but actual facts
3. Assessment is discretionary on the part of the CIR
4. Authority vested in the CIR to assess taxes may be delegated

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5. Assessments must be directed to the right party.
Tax delinquency vs. Tax deficiency
Tax delinquency Tax deficiency

The self-assessed tax per return filed The amount of tax per audit exceeds the
by the taxpayer on the date prescribed amount of tax per return
was not paid at all or only partially
paid; or If no amount of tax per return or if no
return is made by the taxpayer, then the
Deficiency tax assessed by the BIR amount of tax per audit exceeds the
became final and executory amount previously assessed or collected
without assessment as deficiency.
BIR made the assessment.
Erroneous assessment vs. Illegal assessment
An erroneous assessment is one where the taxpayer is disputing the correctness of

the amount assessed while an illegal assessment is one where the taxpayer is
disputing the assessment as one made without the authority under the law.
Deficiency Assessment
It occurs upon discovery of the BIR that the self-assessment was either deficient or
when no return was made by the taxpayer.
Disputed Assessment or protested assessment
A protested assessment or disputed assessment is where a taxpayer questions an

assessment and asks the collector to reconsider or cancel the same because he
believes that he is not liable thereof.
It is when the taxpayer indicates its protest against the delinquent assessment of the
RO and requests for consideration through a letter. After the request is filed and
received by the BIR, the assessment becomes a disputed assessment.
Contents of a valid protest
1. Nature of the protest whether reconsideration or reinvestigation specifying

newly discovered or additional evidence he intends to present if it is a request for
reinvestigation;
2. Date of the assessment notice (i.e. establish timelines of the filing of the protest);
and
3. the basis of his protest – applicable law, rules and regulations, or jurisprudence
on which the protest is base. Otherwise, his protest shall be considered void and
without force and effect.
Requisites of an administrative protests

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1. It must be in writing
2. Filed within 30 days from receipt of FLD/FAN
3. State the nature of the protests whether reconsideration or reinvestigation and
specify newly discovered or additional evidence if it is a request for
reinvestigation
4. State the date of the assessment notice
5. State the applicable law, rules and regulations and jurisprudence on which the
protest is based.
Jeopardy Assessment
It refers to delinquent tax assessed without the benefit of a complete or partial audit by
an authorized revenue officer because of the taxpayer’s failure to comply with the audit
and investigation requirements to present his books of accounts and/or pertinent
records to substantiate all or any of the deductions, exemptions or credits claimed in his
return. (RFQ Simplified)
A valid ground to compromise a tax liability because of doubt as to the validity of the
assessment.
Instances when jeopardy assessment may be made
1. Taxpayer is retiring from business subject to tax

2. Taxpayer is intending to leave the Philippines, remove his property therefrom or
hide or conceal his property.
3. Performing any act tending to obstruct the proceedings for the collection of the
tax for the past or current quarter or year or to render the same ineffective.
When is the deadline for filing of a judicial claim for refund for any excess or
erroneous taxes paid in the case of FWT? Creditable withholding tax?
FWT – the judicial claim for refund should be filed within 2 years from the date of actual
remittance of the tax or from the last day of the month following the close o the quarter
during which withholding was made, whichever comes first.
CWT – the filing of the judicial claim is within 2 years from the filing of the final income
tax return of the payee or last day for its filing, whichever comes first. It is only upon
filing of the final income tax return can it be determined with certainty whether there is a
refundable amount.
Prescriptive period for BIR to assess
General Rule:
Within 3 years after the last day prescribed by law for the filing of the return; OR from
the date of actual filing of the return whichever comes later.
Exceptions:
Scenario Period

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In case of false OR fraudulent return Within 10 years after the DISCOVERY of

with intent to evade tax OR failure to file a the falsity, fraud or omission
return
3 different cases
a. False Return
b. Fraudulent return with intent to evade
tax
c. Failure to file a Return
In case there is a valid waiver of the Up to the extended period agreed upon
Statute of Limitations by the BIR and the taxpayer.
Notes on prescriptive periods
1. A return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day.
2. Before the expiration of the 3-year prescriptive period, both the CIR and the
taxpayer may agree in writing to extend the period of assessment. The period so
agreed upon may be further extended by subsequent written agreement made
before the expiration of the period previously agreed upon.
3. For the 10-year prescriptive period to apply based on fraud, such must be proved
as fact by the BIR
4. In determining if prescription to assess has indeed set in, the important date to
remember is date when the demand letter or notice is released, mailed or sent by
the CIR to the taxpayer and is not required that the notice be received by the
taxpayer.
5. If the taxpayer files a wrong return, it is as though he filed no return at all. In
situations like this, the 10-year prescriptive period will apply.
False return vs. Fraudulent return
False Return
False return contains deviations from the truth which may be due to mistakes,
carelessness or ignorance of the person preparing the return.
There is a prima facie evidence of a false return if there is a substantial under-

declaration of taxable sales, receipts or income. The failure to report sales, receipts or
income in an amount exceeding 30% of what is declared in the returns constitute
substantial under-declaration
.
When there is a showing that a taxpayer has substantially under-declared it sales,
receipts or income, there is a presumption that it has filed a false return.
The entry of wrong information due to mistake, carelessness or ignorance without intent
to evade tax, does not constitute a false return.
50% surcharge on tax or on deficiency tax is imposable in case a false or fraudulent

return is willfully made. Failure to report sales, receipts or income in an amount

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exceeding 30% of that declared per return constitutes substantial under-declaration of

sales and is prima facie evidence of a false or fraudulent return.
Fraudulent Return
Fraudulent return contains intentional wrongdoing with the sole object of avoiding the
tax and it may consist in the intentional under declaration of income, intentional over
declaration of deductions or the recurrence of both.
False return merely implies deviation from the truth or fact whether intentional or not,
whereas a fraudulent return implies intentional and deceitful entry with intent to evade
taxes due.
While the filing of a fraudulent return necessarily implies that the act of the taxpayer was
intentional and done with intent to evade the taxes due, the filing of a false return can be
intentional or due to honest mistake. The entry of wrong information due to a mistake,
carelessness, or ignorance, without intent to evade tax does not constitute false return.
Suspension of running of the period of statute of limitations
1. Taxpayer is out of the Philippines

2. Taxpayer request for reinvestigation which is granted by the CIR
3. A warrant of distraint or levy is duly served and no property could be found.
4. Taxpayer cannot be located unless there is a notice of change of address
5. CIR is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for 60 days thereafter. (COVID situation)
The prescriptive period for the collection of the deficiency tax assessment will be tolled if
the taxpayer files a request for reinvestigation that is approved by the CIR.
Requisite of a valid waiver
1. Waiver is executed before the expiration of the period to assess or collect

taxes
2. Waiver is signed by the taxpayer or his agent, or by any of responsible officers
in case of a corporation
3. Waiver must be executed by the taxpayer and accepted by the BIR.
4. Expiry date of the period agreed upon to asses/ collect the tax is indicated
5. Waiver need not specify the taxes to be assessed nor the amount thereof
except in cases of waiver of collection of taxes.
The requirements are mandatory and must strictly be followed. Defective or invalid
waivers do not extend the CIRs period to issue assessments. Thus, the right of the
government to asses or collect alleged deficiency tax is already barred by prescription.
Assessments issued by the BIR beyond the 3-year prescriptive period are void and of
no legal effect.
Two material dates that needs to be present on the waiver
1. The date of execution of the waiver by the taxpayer or his agent

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2. Expiry date of the period the taxpayer waives the statute of limitations
Notes on waiver
It is the derogation of taxpayers’ right to security against prolonged and unscrupulous

investigation.
It is not a waiver of the right to invoke the defense of prescription.
The taxpayer has the burden to ensure that the waiver is validly executed by its
authorized representative.
The doctrine of estoppel cannot be applied as an exception to the statute of limitations

on the assessment of taxes considering that there is a detailed procedure for the proper
execution of the waiver which the BIR must strictly follow.
Partial payment of the revised assessment issued within the extended period as
provided in the waiver is an implied admission of the validity of the waiver.
Notarization is now optional
The waiver can be accepted by the CIR’s authorized representative
The estoppel upheld in RCBC case arise from:
b. the benefit obtained by the taxpayer from its execution of the waiver in the form
of a drastic reduction of the deficiency taxes.
c. The taxpayer’s payment of a portion of the reduced tax assessment.
What is the effect of the execution by a taxpayer of a waiver of the statute of

limitations on his defense of prescription?
The waiver of the statute of limitation executed by a taxpayer is not a waiver of the right
to invoke the defense of prescription. The waiver of the statute of limitation is merely an
agreement in writing between the taxpayer and the BIR that the period to assess and
collect taxes is extended to a date certain.
If prescription has already set in at the time of execution of the waiver or if the said
waiver is invalid, the taxpayer can still raise prescription as defense.
The waiver of Statute of Limitations should not be construed as a waiver of the right to
invoke the defense of prescription but rather an agreement between the taxpayer and
the BIR to extend the period to a date certain which the latter could still assess or collect
taxes due. The waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally.
Waiver of statute of limitations must be in writing which must be made before the
expiration of the period of assessment of taxes: period agreed upon.

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Difference between the prescriptive period in the case of assessment and

collection of taxes and the prescriptive period in the case of claim for tax
refund/credit
In assessment and collection, the 3-year prescriptive period begins to run on the:
e. last date for payment of the tax – if payment is made on or before the last day
for payment of the tax, or
f. actual date of payment – if payment is made after the last day for payment of
the tax
in claims for tax refund/tax credit, the 2-year prescriptive period begins to run on the
date of actual payment of the tax.
The two-year period for filing refund is Mandatory. However, it may be suspended under
special circumstances as follows:
a. If the BIR made the taxpayer asking for refund believe that he would be credited
for the overpayment.
b. If there is an agreement between the taxpayer and the agent of the
Commissioner that they would wait for a decision of the SC to guide them in the
settlement of the issue/question involved in the refund.
Is the CIR authorized to prescribed penalties?
NO. CIR has no power to prescribe penalties since it is the SoF who issues rules and
regulations.
How many times can a taxpayer be subjected to examination and inspection for
the same taxable year?
GR: Inspection and examination of books and records shall be made once in a taxable
year:
XPNs:
1. In cases of fraud, irregularity or mistakes

2. When a taxpayer request for reinvestigation
3. To verify compliance with withholding tax laws and regulations
4. To verify CGT liabilities
5. Upon order of the commissioner
Deficiency Assessment Process
1. Issuance of the LOA

2. Issuance of Notice of Informal Conference
3. Informal Conference - shall in no case extend beyond 30 days from receipt of
notice
4. Issuance of Preliminary Assessment Notice (PAN) except on MEDTraT
5. Reply to PAN by the taxpayer within 15 days from date of receipt
6. Issuance of Formal Letter of Demand and Final Assessment Notice (FAN)
7. Protest against the FLD/FAN within 30 days from receipt thereof

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8. Issuance of Final Decision on Disputed Assessment (FDDA)
Outline the steps in protests cases involving internal revenue taxes.
a. a tax audit is conducted by the BIR

b. PAN is sent to the taxpayer
c. Taxpayer is given an opportunity to explain why the assessment should be
cancelled, amended or reduced
d. In case of failure in (c), a FAN is issued to the taxpayer
e. Taxpayer may file a written protest, either a request for reinvestigation or a
request for reconsideration within 30 days from receipt of the assessment notice
f. Taxpayer submits all relevant supporting documents within 60 days from the
filing of protest
g. Commissioner is given 180 days from submission of documents to decide the
protest;
h. In case of adverse decision or inaction of the CIR, the taxpayer may file a
petition for review before the CTA in division within 30 days from receipt of the
adverse decision or within 30 days from the lapse of the 180-day prescribed in
case of inaction of the Commissioner;
i. In case of adverse decision of the CTA in division, the taxpayer may file a
motion for reconsideration or new trial before the same division within 15 days
from receipt thereof;
j. In case of adverse resolution in (i) the taxpayer may file a petition for review
with the CTA en banc within 15 days from receipt thereof
k. In case of adverse decision of the CTA en banc, the taxpayer may file a MR or
MNT within 15 days from receipt thereof; and
l. The taxpayer adversely affected by the decision or resolution as the case may
be, of the CTA en banc may file a petition for review on certiorari before the SC
within 15 days from receipt thereof.
Letter of Authority
It is an authority given to a revenue officer to examine and scrutinize a taxpayer’s

books of accounts and other accounting records, in order to determine the taxpayers’,
correct internal revenue tax. It should cover a taxable period not exceeding 1 taxable
year.
The LOA must be served within 30 days from issuance; otherwise it will become null
and void.
It is a letter informing a taxpayer that a certain revenue officer is authorized to examine

the books of accounts and other accounting records of said taxpayer for the purpose of
verifying his tax liabilities during a taxable year.
In case of re-assignment or transfer of cases to another RO, it is mandatory that a

new LOA shall be issued with the corresponding notation thereto.
Letter Notice

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It is issued to person found to have underreported sales/receipts per data generated

under the RELIEF system. This system can detect tax leaks by matching the data
available under the BIR’s Integrated Tax system (ITS) with data gathered from third-
party sources.
LOA vs LN
LOA LN
It is required before an examination of the It is only for the purpose of notifying the
taxpayer may be had taxpayer that a discrepancy is found on
the BIR relief system
It is valid only for 30 days from date of No such limitation
issue
It gives the revenue officer only a period It does not contain such limitation
of 120 days from receipt of LOA to
conduct his examination of the taxpayer
Tax Verification Notice
1. Estate tax provided the taxpayer/decedent has no other tax liabilities.

2. Claims for tax refund
Is the assessment valid if it covers a period outside the scope of the LOA?
No. the taxable year covered by the assessment outside of the period specified in the
LOA is void. Under the NIRC, there must be a grant of authority before any RO can
conduct examination or assessment. Equally important is that the RO so authorized
must not go beyond the authority given. In the absence of such authority, the
assessment or examination is a nullity.
Preliminary Assessment Notice (PAN)
It is a communication issued by the Regional Assessment Division or by the

Commissioner or his representative informing the taxpayer of the findings of the
Revenue Officer following the review and evaluation of these findings.
It shall be in writing and shall show in detail the facts and the law, rules and regulations
or jurisprudence on which the proposed assessment is based, otherwise, the
assessment is void.
The sending of a PAN is a part of the due process requirement in the issuance of
deficiency tax assessment, the absence of which renders nugatory any assessment
made by the tax authorities.
Issuance of PAN
GR: There must be a PAN issued by the BIR before issuing a Formal Letter of Demand
(FLD)/Final Assessment Notice (FAN)
XPNs: (MEDTraT)

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1. Mathematical error in the computation of the tax appearing on the face of the tax
return filed by the taxpayer
2. Excise tax due on excisable articles has not been paid
3. Discrepancy between the tax withheld and the tax actually remitted.
4. Transfer by exempt person of tax-free articles to non-exempt persons.
5. Taxpayer opting for a refund or a TCC carried over and automatically applied
excess credits against tax liabilities of the succeeding taxable quarter/s or year/s.
Final Assessment Notice (FAN)
It is a declaration of deficiency taxes issued to a taxpayer who fails to respond to a PAN

within the prescribed period or whose reply is found to be without merit.
It shall be in writing and shall show in detail the facts and the law, rules and regulations
or jurisprudence on which the proposed assessment is based, otherwise, the
assessment is void.
There is no legal requirement that the FAN should await the protest to the PAN before it
is issued because protest to the PAN is not mandatory.
Requisites of a valid FAN
1. In writing, and
2. Shall state the facts, the law, rules and regulations or jurisprudence on which the
assessment is based, otherwise, the FAN shall be void
Distinction between PAN and FAN
PAN FAN
Must be replied within 15 days from Must be protested within 30 days from
receipt receipt
BIR’s rejection of the taxpayers reply to Denial of a protest against a FAN should
PAN needs no action be appealed by the taxpayer to the CTA
division
A notice of informal conference precedes PAN must precede the issuance of FAN
the issuance of PAN subject to certain exceptions.
Effect of failure to file a valid protest
1. The assessment shall become final, executory and demandable

2. There arises a presumption of the correctness of tax assessment.
Final Decision on Disputed Assessment (FDDA)
It indicates the decision of the CIR or his duly authorized representative and it shall
state the facts and the law, rules and regulations or jurisprudence on which the decision
is based; otherwise it is void.
A void FDDA does not ipso facto render the assessment void.

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Failure of the FDDA to reflect the facts and the law on which it is based will make the
decision void but does not extend to the nullification of the entire assessment.
There is substantial compliance when factual and legal basis can be found in a series of
correspondence between the taxpayer and the BIR and not in the FAN/FLD
Requisites of a valid FDDA
1. Facts, Applicable law, rules and regulations or jurisprudence on which such

decision is based, otherwise the decision shall be void.
2. That the same is a final decision
3. 180 days (a) from filing of request for reconsiderations or (b) from the submission
of relevant supporting documents within 60 days from filing of request for
reinvestigation.
Acts equivalent to denial of the protest
1. Filing of criminal action against the taxpayer;

2. Issuance of a warrant of distraint or levy to enforce collection of deficiency
assessment
3. Civil action
4. Referral by the CIR of the request for reinvestigation to the Solicitor general.
What is the effect of issuance of FAN without prior issuance of PAN?
As a general rule, the absence of a PAN is fatal in the assessment of a taxpayer. A PAN
is a due process requirement in the issuance of the deficiency tax assessment and
cannot be dispensed with.
What is the best evidence obtainable rule?
It refers to any data or any other evidence gathered by the internal revenue officers from
entities and all sources with whom the taxpayer had previous transactions or from
whom he received income. However, it does not include mere photocopies of records or
documents.
In case a person fails to file a return or other document at the time prescribed by law or
willfully or otherwise files a false or fraudulent return or other document the
Commissioner shall make or amend the return from his own knowledge and from such
information as he can obtain through testimony or otherwise which shall be prima facie
correct and sufficient for all legal purposes.
Instances when the BIR may resort to best evidence obtainable rule
1. When there is reason to believe that any such report is false

2. When there is reason to believe that any such report is erroneous
3. When there is reason to believe that any such report is incomplete

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4. When a report required by law as a basis for the assessment of any national
internal revenue tax shall not be forthcoming within the time fixed by laws or rules
and regulations.
When is the CIR authorized to conduct inventory-taking and surveillance?
If there is reason to believe that such person is not declaring his correct income, sales
or receipts for internal revenue tax purposes.
Deficiency interest vs. Delinquency interest
Basis Deficiency Interest Delinquency Interest

Nature Amount sill due and collectible Failure to pay the tax due on the
from a taxpayer upon audit or date fixed by law or indicated in
investigation the assessment notice or letter
of demand
Shortage of taxes paid Delay in payment of taxes

Tax base Basic tax Basic tax plus interest and
surcharges
Reckoning From the date prescribed for From due date appearing in
point/date its payment until the full the notice and demand of the
amount thereof, or upon CIR until the amount is fully paid
issuance of a notice and
demand by the CIR whichever
comes earlier
Collection of Taxes
When collection of taxes is allowed?
GR: Collection is only allowed when there is already a final assessment made for the
determination of the tax due.
XPN: Judicial action to collect the tax liability is permitted without an assessment when
the taxpayer:
1. Files a false or fraudulent return with intent to evade the tax, or

2. Fails to file a return.
Collection must be done within 10 years after the discovery of falsity, fraud or omission.
When assessments are deemed final?
1. Taxpayer fails to file a protest 30 day from receipt of the assessment

2. After the 180-day period and the CIR has not yet acted on the protest and the
taxpayer fails to file appeal and
3. After 30-days from the receipt of the decision of the CIR and the taxpayer fails to
appeal.
Prescriptive Period for collection of taxes

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GR: Prescriptive period to collect taxes due is 5 years from the date of assessment.
XPNs
1. False or fraudulent return with intent to evade the tax: within 10 years from
discovery without need of assessment
2. Failure or omission to file return: within 10 years from discovery without need
of assessment
3. Waiver in writing executed before the 5-year period expires: period agreed upon
The taxes that are subject to the Statute of Limitations are those that require the filing of
return for tax purposes, or even if not so required, a return has been filed by the
taxpayer. It does not apply to taxes, such as the IAET, where no return is required to be
filed.
Procedure to be followed in protesting an assessment
1. BIR issues assessment notice

2. Taxpayer files an administrative protest. It may either be a request for
reconsideration or reinvestigation. The protest must be filed within 30 days from
receipt of the assessment.
3. All relevant documents must be submitted within 60 days from filing of protest
only if taxpayer request for reinvestigation unless a waiver of prescriptive
period is executed otherwise the assessment shall become final and
unappealable.
4. In case the CIR decides adversely or if no decision yet at the lapse of 180 days,
the taxpayer may appeal to the CTA Division, 30 days from the receipt of the
decision or from the lapse of 180 days otherwise the decision shall become final,
executory and demandable.
5. If the decision is adverse to the taxpayer, he may file a MR or MNT before the
same division of the CTA within 15 days from notice thereof.
6. In case the resolution of a Division of the CTA on MR or MNT is adverse to the
taxpayer, he may file a petition for review with CTA en banc; The ruling of the
CTA en banc may be appealed with the SC through a verified petition for review
on certiorari under R45 of RoC
Request for Reinvestigation vs. Request for Reconsideration
Request for Reinvestigation Request for Reconsideration

Based on newly discovered and Based on exiting records without need
additional evidence that the taxpayer of additional evidence.
intends to present in the reinvestigation
It tolls the statute of limitation It does not toll the statute of limitations
Both is a plea for re-evaluation of an assessment
Both may involve a question of fact or law or both.
What supporting documents are required to be submitted?

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The term “relevant supporting documents” should be understood as those documents

necessary to support the legal basis in disputing a tax assessment as determined by the
taxpayer. The BIR cannot demand what type of supporting documents should be
submitted.
BIR cannot demand what type of supporting documents should be submitted.

Otherwise, a taxpayer will be at the mercy of the BIR which may require the production
of documents that the taxpayer cannot submit.
The submission of the required documents within 60 days from the filing of the protest
is available only where the taxpayer previously filed a request for reinvestigation with
the BIR official.
When should the taxpayer submit the relevant supporting documents after filing
of protest?
1. If it is a request for reinvestigation – taxpayer shall submit all relevant

supporting documents in support of his protest within 60 days from the date of
filing of his letter of protest.
2. If it is a request for reconsideration – the 60-day period shall not apply.
What is the remedy of the taxpayer in case of inaction of the protest or

administrative appeal within 180-day period from submission of documents/filing
of protest as the case may be?
1. file a petition for review with the CTA within 30 days from the lapse of the 180-
day period
2. Await the final decision of the CIR or his duly authorized representative on the
disputed assessments and appeal such final decision to the CTA within 30 days
after receipt of a copy of such decision.
Remedies are mutually exclusive.
Reckoning date of the 2-year prescriptive period of a claim for refund
1. From the date of payment; the date of payment is the date when the tax liability
falls due
2. From the filing of the final adjustment return in case of income tax returns filed on
a quarterly basis
3. From the date of final payment in case of tax paid by installments.
4. From the end of the taxable year in case of creditable withholding tax
5. Final withholding taxes are considered as full and final payment of the income tax
due and thus are not subject to any adjustments. Thus the 2-year prescriptive
period commences to run from the time the refund is ascertained i.e., the date
such tax was paid.
What is a tax compromise?
It involves the reduction of the taxpayer’s liability.

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A tax compromise is possible at any stage of the litigation, even during appeal
although legal propriety demands that prior leave of court should be obtained. 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.
What are the requisites for the compromise of taxes?
1. Taxpayer has a tax liability

2. There must be an offer (by the taxpayer or Commissioner) of an amount to be
paid by the taxpayer;
3. There must be an acceptance (by the taxpayer or Commissioner, as the case
may be) of an offer in settlement of the original claim; and
4. Based on:
a. A reasonable doubt as to the validity of the claim against the taxpayer
exists; or
b. The financial position of the taxpayer demonstrates a clear inability to pay
the assessed tax
Who may compromise tax liability?
The CIR is the only official vested with the power and discretion to compromise civil and
criminal cases arising from violations of the tax code.
Courts have no power to compel the CIR to exercise such discretion one way or the
other.
Compromise of a tax liability is available even during appeal, provided that prior leave
of court is obtained.
CIR has the sole power and authority to compromise and abate taxes; as a rule the
power shall not be allowed to be delegated.
The Regional Evaluation Board may enter into a compromise on:
1. Assessments issued by the regional office involving basic deficiency taxes of

P500k or less; and
2. Minor criminal violates, discovered by regional and district officials
Assessments issued by the Regional Offices involving basic deficiency tax of P500,000
or less and minor criminal violations may be compromised by regional evaluation board.
The compromise must be approved by the National Evaluation Board when:
1. The basic tax involved exceeds P1M; or

2. The settlement offered is less than the prescribed minimum rates.
Grounds for Civil Compromise
1. Doubtful validity of the assessment – 40% of the basic tax assessed

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2. Financial incapacity of the taxpayer – depends upon the condition of the

taxpayer, minimum of 10% of the basic tax assessed
Cases which may be compromise
1. Delinquent accounts
2. Collection cases filed in courts
3. Civil tax cases disputed before the courts
4. Cases under administrative protests after issuance of FAN
5. Criminal violations except those already filed in courts and those involving
criminal tax fraud.
6. Cases covered by pre-assessment notices but taxpayer is not agreeable to the
findings of the audit office as confirmed by the review office
May criminal violations be compromised?
Yes, except those already filed in court and those involving fraud.
All criminal violations may be compromised, except:
1. those already filed in court; or

2. those involving fraud.
Cases that may not be compromised
1. Criminal tax fraud cases

2. Criminal violations already filed in court
3. Final and executory judgment of a court
4. Delinquent accounts with duly approved schedule of installment payments
5. Estate tax cases where the ground for compromise is the financial incapacity of
the taxpayer
6. Withholding tax cases unless the applicant-taxpayer invokes provisions of law
that cast doubt on the taxpayer’s obligation to withhold.
What is tax abatement?
It is the cancellation of the entire tax liability of the taxpayer.
Grounds for abatement and cancellation of tax liability
1. Tax or any portion thereof appears to be unjustly or excessively assessed

2. Administrative and collection costs involved do not justify collection of the amount
due
Abatement of the tax is an available remedy when the tax or any portion thereof
appears to be unjustly or excessively assessed or when the administration and
collection costs involved do not justify the collection of the amount due.
What is a tax refund?

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A tax refund refers to actual reimbursement of the tax. It is a written claim for the
payment of cash for taxes erroneously or illegally paid by the taxpayer to the
government.
Tax refund is the money that a taxpayer overpaid and is returned by the taxing
authority.
What is a tax credit?
Tax credit is the amount subtracted directly from one’s total tax liability. It is the amount
given to the taxpayer as a subsidy, a refund or an incentive to encourage investment.
Receipt of tax refund or credit
If a taxpayer receives tax credit certificate or refund for erroneously paid tax which was
claimed as deduction from his gross income that resulted in a lower net taxable income
or a higher net operating loss that was carried over to the succeeding taxable year, he
realizes taxable income that must be included in his income tax return in the year of
receipt.
Requisites for a claim of tax refund or tax credit
1. There is a tax erroneously or illegally or a penalty collected without authority or a

sum excessively or wrongfully collected.
2. There must be a written claim for refund filed by the taxpayer with the CIR
3. Must be categorical claim for refund or credit
4. Must be filed within 2 years from date of payment of the tax or penalty
regardless of any supervening cause that may arise after payment. No suit or
proceeding shall be instituted after the expiration of such period
5. Taxpayer must present proof of payment of the tax.
Tax refund vs. Tax Credit
Basis Tax refund Tax credit

As to manner of Requires physical return of Involves the application of the
recovery the sum erroneously paid by reimbursable amount against
the taxpayer any sum that may be due and
collectible from the taxpayer
As to the manner The taxpayer on whom the Manner of disposal is restricted
of disposal of the tax is refunded would have to the application of the amount
amount the liberty as to the manner of reimbursed against any taxes
recovered disposal of the amount due;
refunded
As to when the 2- After the payment of the tax From the date such credit is
year period to file or penalty allowed
a claim with the
CIR starts
The options of tax refund or tax credit are alternative and the choice of one precludes
the other.

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However, failure to indicate a choice by the taxpayer will not bar a valid requires for a
refund, should this option be chosen later on.
The indication of the chosen option is only for the purpose of tax administration.
Who may claim a tax refund or tax credit?
The proper party to question or seek a refund of, an indirect tax is the statutory
taxpayer, the person on whom the tax is imposed by law and who paid the same even if
shifts the burden thereof to another.
Grounds for refund
1. Tax is erroneously collected

2. Tax is illegally collected
3. Sum collected is excessive or in any manner wrongfully collected
4. Penalty is collected without authority
Two-fold purpose of tax refund
1. To afford the collector an opportunity to correct the action of subordinate officers

2. To notify the government that such taxes have been questioned, and the notice
should then be borne in mind in estimating the revenue available for expenditure
What will be the prescriptive period for refund of FWT commence?
The claim for refund must be filed within 2 years from the date of payment of tax or
penalty regardless of any supervening cause.
If the CIR takes time in deciding the claim, and the period of 2 years is about to end, the
suit or proceeding for refund must be started in the CTA before the end of the 2-year
period without the decision of the CIR. The 30-day period to appealed to the CTA should
be within the 2-year prescriptive period.
Section 229 provides that no suit or proceeding shall be filed after the expiration of 2
years from the date of payment of the tax or penalty, regardless of any supervening
cause that may arise after payment.
The foregoing rule in reckoning the 2-year prescriptive period applies only to erroneous
payment of taxes. It does not apply in claims for refund/credit of input VAT where there
is no error committed in paying the tax.
Prior payment of taxes is not required to avail of the transitional input tax credit because
it is not a tax refund per se but a tax credit.
When a tax is paid in installments, the prescriptive period of two years should be
counted from the date of final payment.
Irrevocability Rule

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Once the option to carry-over and apply the excess quarterly income tax against income
tax due for the taxable quarters of the succeeding taxable years has been made, such
option shall be considered irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed therefor. The taxable period
referred to include the succeeding taxable years.
Once the option to carry-over and apply the excess quarterly income tax against income
tax due for the taxable quarter of the succeeding taxable year has been made, such
option shall be considered irrevocable for the taxable period and no application for
cash refund or issuance of tax credit certificate shall be allowed therefor.
Under the irrevocability rule a corporation entitled to a tax credit or refund of the excess
estimated quarterly income taxes paid has two options:
a. to carry over the excess credit;

b. to apply for the issuance of a TCC or to claim a tax refund
Carry-over option
If the option to carry over the excess credit is exercised, the same shall be “irrevocable
for the taxable period” i.e., it can no longer be revoked. Thus, the taxpayer can no
longer seek refund of the unutilized excess income tax payments.
The taxpayer however may apply the unutilized excess income tax payment as tax
credit to the succeeding taxable years until such has been fully applied.
The irrevocability rule applies only to the option of “carry-over” such that the taxpayer is
still free to change its choice after electing a refund of its excess tax credit.
But once it opted to carry over such excess creditable tax, after electing refund or
issuance of TCC the carry-over options become irrevocable. Thus, the previous choice
of a claim for refund even if subsequently pursued may no longer be granted.
The controlling factor for the operation of irrevocability rule is that the taxpayer chose an
option; and once it had already done so, it could no longer make another one.
Consequently, after the taxpayer opts to carry over its excess tax credit to the following
taxable period, the question of whether or not it actually gets to apply said tax credit is
irrelevant.
Doctrine of Equitable Recoupment
It allows the taxpayer whose claim for refund has prescribed to offset tax liabilities with
his claim of overpayment. It is not allowed in our jurisdiction because if 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.
Government Remedies (administrative)
1. Tax Lien
2. Distraint and Levy

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3. Forfeiture of real property

4. Further distraint and levy
5. Suspension of business operations
6. Non-availability of injunction to restrain collection of tax
Tax lien
It is a legal claim or charge on property, personal or real, established by law as a sort of

security for the payment of tax obligations.
Tax lien attaches where the taxpayer neglects or refuses to pay after demand but
relates back from the time when the assessment was made by the CIR or from the time
the tax became due and payable.
In tax lien, the excess, after satisfying the tax liability, will go to the taxpayer. In
forfeiture, all the proceeds of the sale will go to the coffers of the government.
Which is superior – a tax lien or a claim based on a judgment?
It is settled that the claim of the government predicated on a tax lien is superior to the
claim of private litigant predicated on a judgment. Execution sales affect the rights of the
judgment debtor only, and the purchaser in an auction sale acquires only such rights as
the judgment debtor has at the time of sale. It is also well-settled that the sheriff is not
authorized to attach or levy on property not belonging to the judgment debtor.
What is distraint?
Distraint is a summary remedy in which the collection of tax is enforced on the

taxpayer’s personal property. When enforced to taxpayer’s personal property not in his
possession it is called, garnishment.
It is the seizure by the government of personal property, tangible or intangible to

enforce the payment of taxes, to be followed by its public sale, if the taxes are not
voluntarily paid.
Even property exempt from attachment and execution under the RoC are not exempt
from distraint.
Kinds of Distraint
1. Actual distraint
2. Constructive distraint
Actual distraint
It is resorted to when at the time required for payment, a person fails to pay his
delinquent tax obligation. Distraint consists in the actual seizure and taking possession
of personal property of the taxpayer
Constructive Distraint

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The owner is merely prohibited from disposing of his personal property.
A preventive remedy which aims at forestalling a possible dissipation of the taxpayers’

assets when delinquency sets in. No actual tax delinquency of the taxpayer is
necessary before the same is resorted to by government.
It is effected by requiring the taxpayer or any person having possession or control of

such property to sign a receipt of the property distrained. If he refuses to sign the
receipt, the revenue officer shall proceed to prepare a list of such property and in the
presence of 2 witnesses, leave a copy thereof in the premises after which the said
property shall be deemed under constructive distraint.
Constructive distraint of personal property may be availed off even if the taxpayer is not
yet delinquent.
When can there be a constructive distraint?
1. Delinquent
2. Retiring from business subject to tax
3. Intending to leave the Philippines or to remove property therefrom
4. Hides or conceals his property
5. Performs any act tending to obstruct the proceeding for the collection of tax due.
Requisites for the exercise of distraint and levy
1. Taxpayer is delinquent in the payment of the tax

2. There must be a subsequent demand to pay
3. Taxpayer failed to pay the delinquent tax on time
4. Period within which to asses and collect the tax due has not yet prescribed.
5. Cannot be availed of where the amount involved does not exceed P100
Garnishment
It is the taking of personal properties, cash or sums of money owned by a delinquent

taxpayer which is in the possession of third party.
Bank account may be distrained notwithstanding the Bank Secrecy Act which prohibits
inquiry into bank accounts since in the case of distraint, no inquiry is made. The BIR
simply seizes so much of the deposit as is sufficient to discharge the obligation without
having to know how much the deposits are or where the money or any part of it came
from.
Levy
Levy is enforced on real property. It is the seizure of real property and interest in or
rights to such properties for the satisfaction of taxes due from the delinquent taxpayer.
Refers to the seizure of real properties and interest in or rights to such properties for
the satisfaction of taxes due from the delinquent taxpayer.

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It may be effected before, simultaneously or after distraint of personal property or in

case the warrant of levy is:
1. Not issued before or simultaneously with the warrant of distraint; and

2. The personal property of the taxpayer is not sufficient to satisfy his tax
delinquency, the CIR or his authorized representative shall within 30 days after
the execution of the distraint, proceed with the levy on taxpayer’s real property
Exempt properties from distraint or levy
1. His necessary clothing and that of all his family

2. The professional libraries of doctors, engineers, lawyers and judges
3. Tools and implements necessarily used by the taxpayer in his trade or
employment.
4. One horse, cow, carabao or other Beast of burden, such as the delinquent
taxpayer may select and necessarily used by him in his ordinary occupation.
5. Household furniture and utensils necessary for housekeeping and used for that
purpose by the delinquent taxpayer, such as he may select, of a value not
exceeding P10k
6. Provisions including crops, actually provided for individual or family use sufficient
for 4 months.
7. One fishing boat and net, not exceeding the total value of P10k by the lawful use
of which a fisherman earns his livelihood; and
8. Any material or article forming part of a house or improvement of any real
property.
Forfeiture
Divestiture of property without compensation, in consequence of default or offense.
It includes not only the idea of losing but also of having the property transferred to
another without consent of the owner or the wrongdoer.
Grounds for suspension of business operations
1. Failure to file a VAT return

2. Failure of any person to register
3. Failure to issue VAT receipts or invoices
4. Understatement of taxable sales or receipts by 30% or more of his correct
taxable sales or receipts for the taxable quarter
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 CIR in the closure order.
Suspension of business operations
The CIR or his authorized representative may suspend the business operation and
temporarily close the business of a VAT-registered person for understatement of

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taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the
taxable quarter.
The duration of suspension of business operation is for a period of not less than 5
days and shall be lifted only upon compliance of whatever requirements imposed by the
CIR in the collection order.
Non-availability of injunction to restrain collection of tax
GR: No court shall have the authority to grant an injunction to restrain the collection of
any national internal revenue, tax, fee or charge.
XPNs
1. Filing of Injunction with the CTA as an incident of its appellate jurisdiction

a. Showing that collection of the tax may jeopardize the interest of the
government and/or the taxpayer
b. Deposit of the amount claimed or file a surety bond
c. Showing by taxpayer that appeal is not frivolous nor dilatory
2. SC, on exceptional cases of suits questioning the constitutionality of a tax law.

3. In case of local taxes, RTC’s may issue an injunction upon a suit questioning
their validity.
No court shall have the authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charged as imposed by the NIRC. However, when
in the opinion of the CTA the collection of the tax may jeopardize the interest of the
Government and/or the taxpayer, the CTA at any stage of the proceeding may suspend
the said collection and require the taxpayer either to deposit the amount claimed or to
file a surety bond for not more than double the amount with the CTA
Requisites for suspension of collection of tax
1. There is an appeal to the CTA from a decision of the CIR

2. In the opinion of the CTA, the collection may jeopardize the interest of the
government and/or the taxpayer
3. The taxpayer may be required to deposit the amount claimed or to file a surety
bond for not more than double the amount with the Court, and
4. That the appeal is not frivolous or dilatory
The prohibition on the issuance of writ of injunction to enjoin the collection of taxes is
applied only to national internal revenue taxes not to local taxes.
Rule on the institution of criminal action with civil action
Criminal action and the corresponding civil action for the recovery of civil liability for
taxes and penalties shall be deemed jointly instituted in the same proceeding.

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The filing of the criminal action and the corresponding civil action for the recovery of the
civil liability shall be deemed jointly instituted. No right to reserve the filing of such
civil action separately from the criminal action shall be recognized.
The filing of the criminal action shall necessarily carry with it the filing of the civil action.
No right to reserve the filing of such civil action separately from the criminal action shall
be allowed or recognized.
The prescriptive period to file a criminal action is 5 years from the commission of the
violation of the law, and if the same be not known at the time, from the discovery thereof
and the institution of judicial proceedings for its investigation and punishment.
Can the BIR file a civil action for collection pending decision of the administrative
protest?
Yes. It was held that the request for reinvestigation and reconsideration was in effect
considered denied by the Commissioner when the latter filed a civil suit for collection of
deficiency income.
Is assessment necessary before prosecution?
No. An assessment of a deficiency is not necessary to a criminal prosecution for willful

attempt to defeat and evade income tax. There is no requirement for the precise
computation and assessment of the tax before there can be a criminal prosecution
under the code. The crime is complete when the violator has knowingly and willfully filed
a fraudulent return with intent to evade and defeat apart from all of the tax.
An assessment is not necessary before a criminal charge can be filed. The crime is
complete when the violator has knowingly and willfully filed a fraudulent return with the
intent to evade and defeat the tax.
Prior assessment is not necessary before an information for violation of S225 of the
NIRC could be filed in Court. For one thing, a criminal complaint is instituted not to
demand payment but to penalize the taxpayer for violation of the NIRC. For another, the
crime is complete when the violator has knowingly and willfully filed a fraudulent return
with intent to evade and defeat a part or all of the tax.
Assessment is not necessary before the filing of a criminal complaint for tax evasion. In
cases where a fraudulent return is filed with the intent to evade a tax, a proceeding in
court for the collection of such tax may be filed without assessment.
What are crimes punishable under the NIRC?
1. Attempt to evade or defeat tax.

2. Failure to file return, supply correct and accurate information, pay tax, withhold
and remit tax and refund excess taxes on compensation.
The judgment in the criminal case shall not only impose the penalty but shall also order
the payment of taxes subject of the criminal case as finally decided by the CIR.

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It is well-settled that the taxpayer’s obligation to pay the tax is an obligation that is
created by law and does not arise from the offense of tax evasion, as such, the same is
not deemed instituted in the criminal case.
Prescriptive periods for violations of any provision of the tax code
1. Five years from the (a) day of the commission of the violation of law (b) if the
same is not known at the time, from the discovery of commission and the
institution of judicial proceedings for its investigation and punishment
2. Prescription shall be interrupted when the proceedings are instituted against the
guilty persons and shall began to run again if the proceedings are dismissed for
reasons not constituting jeopardy.
3. Prescription shall not run when the offender is absent from the Philippines.
Local government Taxation
It is the power of the LGU to impose and collect taxes on their constituents in order to
raise revenues to enable them to perform the functions for which they have been
organized.
The nature of the taxing power of the provinces, municipalities and cities is directly
conferred by the Constitution by giving them the authority to create their own sources
of revenue. The LGU’s do not exercise the power to tax as an inherent power or by a
valid delegation of the power by Congress but pursuant to a direct authority conferred
by the Constitution.
Sec 5, Article 10 of 1987 Constitution
Each local government unit shall have the power to create its own sources of revenues
and to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide consistent with the basic policy of local autonomy. Such taxes,
fees and charges shall accrue exclusively to the local governments.
Nature of Local Taxation
1. Direct grant by the constitution

2. Not unlimited
3. Legislative in nature
4. Territorial
Fundamental Principles underlying LGU Taxation (UE-LIP)
1. Taxation shall be uniform in each LGU

2. Taxes, fees, charges and other imposition shall be equitable and based on
taxpayer’s ability to pay, levied and collected only for public purpose and shall not
be unjust, excessive, oppressive or confiscatory, not contrary to law, public policy,
national economic policy or in restraint of trade
3. Collections of taxes and other impositions shall in no case be Let to any private
person

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4. Revenues collected shall Inure solely to the benefit of, and be subject of the
disposition by LGU levying the tax unless specifically provided in the LGC
5. Each LGU shall, as far as practicable, evolve a progressive system of taxation.
Reservation Rule or the exclusionary rule or Principle of Pre-emption
LGU cannot exercise taxing powers reserved to the National Government.
The exercise of the taxing powers of provinces, cities, municipalities and barangays
shall not extend to the levy of income tax except when levied on banks and other
financial institutions.
Pre-emption in taxation refers to an instance wherein the National Government elects to

tax a particular area, impliedly withholding from the local government the delegated
power to tax the same field. This doctrine principally rests on the intention of the
Congress. Conversely, should the Congress allowed municipal corporation to cover
fields of taxation it already occupies then the doctrine of pre-emption will not apply.
Who exercises the local taxing authority?
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.
Withdrawal of Exemptions:
GR: Tax exemptions or incentives granted to or enjoyed by all persons whether natural
or juridical, including GOCC are hereby withdrawn upon effectivity of the LGC
XPNs.
1. Local water districts

2. Cooperatives
3. Non-stock and not-profit hospitals and educational institutions
4. Business enterprises certified by BOI as pioneer or non-pioneer for a period of 6
and 4 years, respectively, from the date of registration.
5. Publisher and/or printer of books or other reading materials prescribed by DepEd
as school texts or references insofar as receipts form the printing and/or
publishing thereof are concerned.
Can a province impose a tax on transfer of real property within its territory?
Yes. The province may impose a tax on the sale, donation, barter or any other mode of
transferring ownership or title of real property.
May a province invoke the Regalian doctrine to extend the imposition of taxes on
sand, gravel and other quarry resources extracted from private lands?
No. the province may not invoke the Regalian Doctrine to extend the coverage of their
ordinance to quarry resources extracted from private lands for taxes being burdens are

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not to be presumed beyond what the applicable statue expressly and clearly declares,
tax statutes being construed strictissimi juris against the government.
Where should the professional tax be paid?
It is payable in the province where taxpayer practices his profession or where the
principal office is located in the case he practices his profession in several places.
The professional tax should be paid only once. A person who has paid the
corresponding professional tax shall be entitled to practice his profession in any part of
the Philippines without being subjected to any other national or local tax, license or fee
for the practice of such profession.
The situs of professional tax is the city where the professional practices his profession
or where he maintains his principal office in case he practices his profession in several
places.
The professional tax shall be paid only once every taxable year and the payment
shall be made either in the city where he practices his profession or where he maintains
his principal office.
Sec 139 of the LGC provides that the payment of the PTR entitles the professional to
practice his or her profession in any part of the Philippines.
Situs of the tax
1. For businesses maintaining or operating a branch or sales outlet – the

taxpayer shall record the sale in the branch or sales outlet making the sale or
transaction and the tax shall accrue and shall be paid to the municipality or city
where such branch or sales outlet is located. In the absence thereof, the taxes
shall pertain to the city or municipality where the principal office of such business
is located.
2. The following sales allocation shall apply to manufacturers, assemblers,
contractors, producers and exporters with factories, project offices, plants and
plantations in the pursuit of their business:
a. 30% of all sales recorded in the principal office shall be taxable by the city
or municipality where the principal office is located; and
b. 70% of all sales recorded in the principal office shall be taxable by the city
or municipality where the factory, project office, plant or plantation is
located
3. In case of a plantation located at a place other than the place where the factory is
located, said 70% shall be divided as follows:
a. 60% to the city or municipality where the factory is located; and
b. 40% to the city or municipality where the plantation is located.
4. In case where a manufacturer, assembler, producer, exporter or contractor has 2
or more factories, project offices, plants or plantations located in different
localities, the 70% shall be prorated among the localities where these offices are
located in proportion to their respective volume or production during the period
for which the tax is due.

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Manufacturers maintaining branch or sales outlet shall record the sale in the branch or
sales outlet making the sale and pay the tax in the city or municipality where the branch
or sales outlet is located. 30% of sales are taxable in the place where the principal office
is located while 70% is taxable in the place where the factory is located.
The LGC provides that in cases where there is a factory, project office, plant or
plantation in pursuit of business, 30% of all sales shall be taxed by the city/municipality
where the principal office is located, and 70% thereof shall be taxed by the
city/municipality where the factory, project office, plant or plantation is located.
Under Section 143h of the LGC, a municipality may impose a business tax at a range
not exceeding 2% of gross sales or receipts. The city is allowed to impose only a
maximum rate which is 50% higher than what a province of city may impose.
Are display areas of the product of the entities classified as branch or sales
offices?
No. Offices is a building utilized for the storage of products for sale and from which
goods or merchandise are withdrawn for delivery to customers or dealers by persons
acting in behalf of the business.
What is a franchise tax?
A franchise tax is a tax on the privilege of transacting business in the state and
exercising corporate franchises granted by the State. It is not levied on the corporation
simply for existing as a corporation, upon its property or its income, but on its exercise
of the rights or privileges granted to it by the government.
How are retiring businesses taxed under the LGC?
Retiring businesses under the LGC are taxed on their gross sales or gross receipts in
the current year. If the tax paid in the current year is less than the tax due on gross
sales or receipts of the current year, the difference shall be paid before the business is
considered officially retired.
Outline the steps involved in the protest of an assessment of a local tax.
a. local treasurer assesses the local tax within 5 years from the date it becomes
due or within 10 years in cases of fraud and intent to evade payment of the tax
b. local treasurer issues a notice of assessment to the taxpayer
c. taxpayer pays the tax under protests;
d. taxpayer files a written protest within 60 days from receipt of the assessment
notice
e. local treasurer has 60 days from date of filing of the protest to decide the same
f. in the event the local treasurer denies the protest or fails to act on the same
within 60-day period, the taxpayer may appeal to the court of competent
jurisdiction (regular court, not CTA) within 30 days from receipt of the adverse
decision if the protest is acted upon within 60-day period, or within 30 days from
the lapse of the 60-day period if the protest is not acted upon

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g. in case of adverse decision in f, the taxpayer may file a petition for review within
30 days from receipt thereof before the CTA
a. en banc – if the RTC exercised its appellate jurisdiction; or
b. in division – if the RTC exercised its original jurisdiction
h. in case of adverse decision in g-b, the taxpayer may file a MR or MNT before the
same Division within 15 days from receipt thereof
i. in case of adverse resolution in h, the taxpayer may file a petition for review
before the CTA en banc within 15 days from receipt thereof
j. in case of adverse decision in g-a, or resolution in h, as the case may be, the
taxpayer may file a MR or MNT within 15 days from receipt thereof; and
k. taxpayer adversely affected by the decision or resolution as the case may be, of
the CTA en bac ay file a petition for review on certiorari before the SC within 15
days from receipt thereof.
What will suspend the running of the prescriptive period for assessment and
collection of local taxes?
1. the treasurer is legally prevented from making the assessment or collection;

2. 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. taxpayer is out of the country or otherwise cannot be located.
Notes on Local Government Taxation
No public hearing is required before the enactment of a local tax ordinance levying the
basic real property tax.
The situs of taxation of a business transaction is the place where the act is
performed.
Taxes on gross receipts of transportation contractors and persons engaged in the

transportation of passengers or freight by hire and common carriers by air, and or water
is beyond the taxing powers of the local government unit.
One of the common limitations on the taxing powers of LGU is that provinces, cities,
municipalities and barangays shall not extend to the levy of taxes, fees or charges of
any kind on the National Government, its agencies and instrumentalities and LGU.
Local government unit cannot levy percentage and value added taxes on sales of
services
A local government unit may impose a tax on any business provided that any business
subject to the excise tax under the NIRC, the rate of tax shall not exceed 2% of gross
sales or receipts of the proceeding calendar year.
LGU’s are empowered to enact ordinances that will aid in their revenue generation,
which is in consonance with the principle of the fiscal autonomy of LGU’s
LGU are prohibited from levying taxes on gross receipts of transportation contractors
and person engaged in the transportation of passengers or freight by hire and common

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carriers by air, land or water except as provided in the LGC. But it may impose business
tax on operators of public utility vehicles maintaining booking office, terminal or waiting
station; provided that the tax shall be imposed on the basis of the number of units of
vehicles.
LGU may not impose taxes on the gross receipts of transportation contractors and
persons engaged in the transportation of passengers or freight by hire and common
carriers by air, land or water.
Cities may impose a local business tax on those businesses that are subject to excise
tax, value added tax or percentage tax under the NIRC. The tax to be imposed by the
City shall not exceed 2% of gross sales or gross receipts of the preceding calendar
year.
Business enterprises registered under the PEZA Law and operating within ECOZONE
are not liable to real property tax and local business taxes imposed by local government
units.
The power to levy amusement taxes belongs to the province. However, the tax
proceeds do not entirely accrue to it. The province and the municipality where the
amusement places are located will have to share equally the proceeds of the
amusement taxes.
It must be stressed that in the case of a city, it may impose local taxes that the province
and municipality are empowered to levy at a rate not exceeding 50% of the maximum
rates prescribed for such province and municipality, except professional tax and
amusement tax.
The subjects of national amusement tax are clearly and specifically enumerated under
S125 of the Tax Code as follows: cockpits, cabarets, day or night clubs, boxing
exhibitions, professional basketball games, jai-alai and racetracks. This
enumeration is exclusive. Carnivals are not among those enumerated therein.
What are the remedies available to a taxpayer in local taxation?
1. Administrative appeal to the Secretary of Justice to question the legality or

constitutionality of tax ordinance or revenue measure
2. Protest against an assessment
3. Claim for refund or tax credit.
Proper Procedural remedy and applicable time periods for challenging the
ordinance. (Mandatory Periods 30-60-30)
1. The constitutionality or legality of tax ordinance may be raised on appeal before

the Secretary of Justice within 30 days from its effectivity;
2. The Secretary of Justice shall render a decision within 60 days from the date
of receipt of the appeal
3. The aggrieved party may file the appropriate proceedings with the RTC within 30
days from receipt of the decision or the lapse of the 60-day period without
the secretary acting on appeal.

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The prohibition on the issuance of an order or writ enjoining the collection of taxes
applies only to national internal revenue taxes, and not to local taxes.
May the appeal made to SoJ suspend the effectivity of the Ordinance in question?
No. Such appeal does not suspend the effectivity of the ordinance and the accrual and
payment of the tax.
Prescriptive period for assessment of local taxes, fees or charges?
Local taxes shall be assessed within 5 years from the date they become due.
However, when there is fraud or intent to evade the payment of taxes, fees or charges,
the same may be assessed within 10 years from the discovery of fraud or intent to
evade the payment.
Prescriptive period for collection of local taxes
It may be collected within 5 years from the date of assessment bay administrative or
judicial action. No such action shall be instituted after the expiration of such period.
Grounds for the suspension of the running of prescriptive period
1. Treasurer is legally prevented from the assessment or collection of the tax

2. Taxpayer requests for a reinvestigation and executes a waiver in writing before
the expiration of the period within which to assess or collect; and
3. Taxpayer is out of the country or otherwise cannot be located.
Claim for refund of tax credit
1. administrative – written claim for refund with Local Treasurer

2. Judicial – made within 2 years from date of payment of erroneous or illegally
collected tax, fee or charge.
Period to avail remedies in the LGC
The taxpayer may protest an assessment within 60 days from receipt thereof. When the
assessment is protested, the treasurer has 60 days within which to decide. The
taxpayer has 30 days from receipt of the denial of the protest or from the lapse of the
60-day period to decide, whichever comes first, to appeal with the proper court,
otherwise the assessment becomes conclusive and unappealable.
Protest of Assessment
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 the assessment shall become final and executory.
2. The local treasurer shall decide the protest within 60 days from the time of its
filing. If the local treasurer finds the protest to be wholly or partly meritorious, he
shall issue a notice canceling wholly or partially the assessment. However, if the

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local treasurer finds the assessment to be wholly or partly correct, he shall deny
the protest wholly or partly with notice to the taxpayer.
3. The taxpayer shall have 30 days from the receipt of the denial of the protest or
from the lapse of 60-day period prescribed herein within which to appeal with the
court of competent jurisdiction, otherwise the assessment becomes conclusive
and unappealable.
Real Property Taxation
What are the kind of real property tax
1. Basic Real property tax

2. Special levies
a. For special education fund
b. On idle lands
c. By LGUs
RPT is a direct tax on the ownership of lands and buildings or other improvements
thereon.
Basis or test for real property taxation is use and not ownership.
Characteristics of RPT
1. Direct tax on the ownership of real property where the impact and incidence of
taxation devolves on the same person
2. It creates a single, indivisible obligation
3. It is ad valorem tax where the value of the property is the tax base
4. Local tax
5. It is a proportionate because the tax is calculated on the basis of a certain
percentage of the value assessed.
Fundamental Principles governing real property taxation (CAULE)
1. Real property shall be Appraised at its current and fair market value.
2. Real property shall be Classified for assessment purposes on the basis of its
actual use (Doctrine of Usage)
3. Real property shall be assessed on the basis of a Uniform classification within
each LGU.
4. Appraisal, assessment, levy and collection of real property tax shall not be Let to
any private person
5. Appraisal and assessment of real property shall be Equitable.
What properties are exempt from RPT?
1. Real property owned by RP or any of its political subdivisions except when the
beneficial use thereof has been granted for consideration to taxable person.
2. Charitable institutions, churches, parsonages or convents, mosques, non-profit or
religious cemeteries and all lands and improvements actually, directly and
exclusively used for REC purposes.

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3. All machineries and equipment that are ADE used by local water utilities and
GOCC engaged in the supply and distribution of water and/or generation and
transmission of electric power
4. All real property owned by duly registered cooperatives
5. Machinery and equipment use for pollution control and environmental protection.
Properties owned by the Republic of the Philippines are exempt from real property tax
except when the beneficial use thereof has been granted, for consideration or otherwise
to a taxable person.
Real property is tax exempt if it is actually, directly and exclusively used for religious
purposes. The test of exemptions is not ownership but the beneficial use of the property.
S234 of the LGC provides that properties owned by the government of the Philippines
and any of its instrumentalities shall be exempt from RPT except when the beneficial
use thereof pertains to a non-exempt entity for a consideration.
Special Assessment
It is a demand to the real property owner to contribute to the cost of improving the
locality shouldered by the government that resulted to his benefit.
The rate shall not exceed sixty percent (60%) of the cost of the improvement
financed by the LGU concerned, including any cost of real property acquired in relation
thereto.
Characteristics of a special assessment
1. special assessment can be levied only on land.

2. special assessment cannot, as a rule, be made a personal liability of the person
assessed.
3. a special assessment is based wholly on benefits.
4. a special assessment is exceptional both as to time and locality.
Zero assessment level refers to residential lots whose fair market value does not
exceed P175k. In effect, these lands are exempt from RPT for the obvious purpose of
excluding the poor landowner from the burden of real property tax on their residences.
Unpaid taxes attach to the property and is chargeable against the taxable person who
had actual or beneficial use and possession of it regardless of whether or not he is the
owner.
Machinery and equipment installed by the lessee of a leased land is not real property for
purposes of execution of a final judgment only. They are considered as real property for
real property tax purposes as other improvements to affixed or attached real property
under the Assessment Law and RPT Code.
Requisites of a valid assessment of Real property tax (KALMA)
1. Assessment must contain the kind of the property

lOMoARcPSD|29596630

2. It must set forth the assessed value of the real property

3. It must indicate the level of assessment
4. It must specify the fair market value of the property
5. It must clearly indicate the actual use of the property
Requisites for taxability of an improvement
1. Must enhance the value of the property

2. Must be separately assessable
3. Can be treated independently from the main property
Doctrine of Essentiality
Properties considered personal under the Civil Code may be considered as real
property for tax purposes where said property is essential to the conduct of business.
Property to be considered as immobilized for RPT must be “essential and a principal
element” of an industry without which such industry would be unable to carry on the
principal industrial purpose for which it was established.
Additional Ad valorem tax on idle lands
Provinces, cities and municipalities within Metro Manila Area may impose an ad valorem
tax not exceeding five percent (5%) of the assessed value of idle or vacant
residential lots in a subdivision, duly approved by proper authorities regardless of
area. A city, even outside Metro Manila may also impose this ad valorem tax.
Real property shall be classified, valued and assessed on the basis of its actual use
regardless of where located, whoever owns it and whoever uses it.
Actual use – refers to the purpose for which the property is principally or predominantly
utilized by the person in possession thereof.
Date of Accrual of RPT and s special levies
RPT for any year shall accrue on the first day of January. From that date, it shall
constitute a lien on the property superior to any other lien, mortgage, or encumbrance of
any kind whatsoever extinguished only upon the payment of the delinquent tax.
In auction sales of property for tax delinquency, notice to delinquent landowners and to
the public in general is an essential and indispensable requirement of law, the non-
fulfillment of which vitiates the same.
Rules as to the necessity of paying real property tax prior to protest
GR: taxpayer must pay the RPT assessed prior to protesting a RPT assessment
XPN: Payment of the tax prior to protest is not necessary where the taxpayer questions
the authority and power of the assessor to impose the assessment and of the treasurer
to collect the tax.

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If the taxpayer disputes the reasonableness of an increase in RPT assessment, he is

required to “first pay the tax” under protest. Otherwise the city or municipal treasurer will
not act on his protest.
A claim for tax exemption, whether full or partial, does not question the authority of local
assessor to assess real property tax, hence payment under protest is required.
Prior payment under protest is applicable only if the issue is anchored on the
correctness, reasonableness or excessiveness of assessment, all of which are
considered questions of fact.
Only provinces, cities and municipalities within the Metropolitan Manila area are
empowered to impose real property taxes.
The constitutional exemption on real property taxes granted to lands and buildings
actually, directly and exclusively used for educational purposes, has been interpreted to
include exemption from special levy or assessment.
A taxpayer who claims exemption from realty taxation is simply raising a question of the
correctness of the assessment. A claim for tax exemption, whether full or partial does
not question the authority of the local treasurer.
No protest shall be entertained unless the taxpayer first pays the real property tax.
Is payment under protest required before an appeal to the LBAA be made?
Not in all cases. The protest contemplated under S252 is required where there is a
question as to the reasonableness or correctness of the amount assessed. Hence, if a
taxpayer disputes the reasonableness of an increase in RPT assessment, he is required
to first pay the tax under protest. Otherwise, the city or municipal treasurer will not act
on his protest.
But it does not apply in cases where the legality of an assessment is put into issue,
such as questioning the very authority and power of the assessor, acting solely and
independently to impose the assessment and of the treasurer to collect the tax. Appeals
to the LBAA are, therefore, fruitful only where the questions of fact are involved.
Outline the steps in protest cases involving the assessment/collection of real

property tax
1. Local Assessor submits an assessment roll to the local Treasurer;

2. Local treasurer informs the public when the tax shall be paid (posting of notice at
a conspicuous place and publication in a newspaper of general circulation in the
locality once a week for 2 consecutive weeks)
3. Local treasurer assesses and collects real property tax starting January 1
4. The aggrieved taxpayer pays the tax under protest
5. The aggrieve taxpayer may file a written protest within 30 days from the date of
payment before the local Treasurer
6. Local treasurer decides the case within 60 days from filing of the protest;

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7. In the event the Local treasurer denies the protest or fails to act on the protest
within the 60-day period, the aggrieved taxpayer may appeal the denial within 60-
days from receipt thereof or from the lapse of the 60-day period in case or
inaction to the Local board of assessment appeals
8. LBAA decides the case within 120 days from the filing thereof;
9. If the LBAA decision is adverse, the taxpayer may appeal to the CBAA within 30
days from receipt of the adverse decision
10. If the CBAA decision is adverse, the taxpayer may file a petition for review before
the CTA en banc within 30 days from receipt thereof;
11. If the CTA en banc decision is adverse, the real property owner may file a MR or
MNT within 15 days from receipt thereof
12. The taxpayer adversely affected by the decision or resolution as the case may
be, of the CTA en banc may file a petition for review on certiorari before SC
within 15 days from receipt thereof.
Court of Tax Appeals
Cases within the jurisdiction of the Court in Divisions
1. Exclusive Original Jurisdiction
Tax Collection cases 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 P1 million pesos or more.
2. Exclusive Appellate Jurisdiction (DIRecTORSS)
2. Decisions of the CIR in cases involving (DRO)

a. Disputed assessments
b. Refund of internal revenue taxes, fees or other charges and penalties
imposed thereto
c. Other matters arising under the NIRC or other laws administered by the
BIR
3. Inaction by the CIR in cases involving (DROw)
a. Disputed assessments
b. Refund of internal revenue taxes, fees or other charges and penalties
imposed thereto
c. Other matters arising under the NIRC or other laws administered by the
BIR where the NIRC provides a specified period for action
4. Decisions, Orders or Resolutions of the RTC in the exercise of their original
jurisdiction over local tax cases and tax collection cases
5. Decisions of the CoC in cases involving (DSFO)
a. Liability for customs duties, fees or other money charges;
b. Seizure, detention or release of property affected
c. Fines, Forfeitures or other penalties in relation thereto
d. Other matters arising under the Customs law or other laws administered
by the BOC
6. Decisions of the Secretary of Finance on customs cases elevated for automatic
review from decisions of the COC which are adverse to the Government

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7. Decisions of the Secretary of Trade and Industry in cases of non-agricultural

product, commodity or article and the Secretary of Agriculture in the case of
agricultural product, commodity or article.
Expanded jurisdiction of the CTA
1. EOJ over criminal cases arising from violations of the NIRC or the tariff and
customs code and other laws administered by the BIR and BOC where the
principal amount of taxes and penalties involved is P1 million or more and
appellate jurisdiction in lieu of CA over decisions of the RTC where the amount is
less than 1 million.
2. EOJ over tax collection cases where principal amount of taxes and penalties
involved is P1 million or more and the appellate jurisdiction over decisions of the
RTC where the amount is less than P1 million
3. Appellate jurisdiction over decisions of the RTC in local tax cases;
4. Appellate jurisdiction over decision of the CBAA over cases involving the
assessment of taxation of real property.
Appellate Jurisdiction – CTA en banc
1. Decisions or resolutions on MRs or MNTs of the CTA division in the exercise of its
exclusive appellate jurisdiction;
2. Decisions or resolutions on MRs or MNTs of the CTA Division in the exercise of
its exclusive original jurisdiction;
3. Decisions or resolutions on MRs or MNTS of the RTC in the exercise of its
appellate jurisdiction
4. Decisions of the CBAA in the exercise of its appellate jurisdiction over cases
involving assessment and taxation of real property originally decided by the
provincial or city board of assessment appeals;
When may the government directly file criminal and civil actions before the CTA?
The government may directly file criminal and civil actions before the CTA where the
principal amount of taxes and fees, exclusive of charges and penalties claimed is P1M
or more. Where the amount is less than P1M, the cases shall be tried by the regular
courts and the jurisdiction of the CTA shall be appellate.
CTA shall not be governed by the technical rules of evidence.
As a court of record CTA is bound by the Rules on Documentary evidence.
A demand letter for tax deficiency assessments issued and signed by the Chief of the
BIR Accounts Receivable and Billing Division is deemed final and executory and subject
to an appeal to the CTA.
A formal letter of Demand with assessment Notices stating that it is the BIR’s final
decision based on investigation is appealable to the CTA.
The jurisdiction of the CTA has been expanded to include not only decisions or rulings
but inaction as well of the CIR.

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The CTA by constitutional mandate is vested with jurisdiction to issue writs of certiorari
in cases falling within its exclusive appellate jurisdiction.
The CTA en banc has no certiorari jurisdiction over interlocutory orders issued by its
Division.
The CTA en banc has no jurisdiction over petition for annulment of judgment of its
Division.
The CTA has no power motu proprio to review tax cases.
An information may be filed with the CTA directly where the principal amount of taxes
and fees, exclusive of charges and penalties is P1 million or more.
GR: All disputes/claims and controversies, solely between or among the departments,
bureaus, offices, agencies and instrumentalities of the National Government including
GOCCs such as those arising from the interpretation and application of statues,
contracts or agreements shall be administratively settled or adjudicated by the
Secretary of Justice or the Solicitor General.
As an exception, where the disputes/claims and controversies involving a tax

assessment, even when the parties to the dispute are departments, bureaus, offices,
agencies and instrumentalities of the National Government including GOCC’s the
exclusive appellate jurisdiction remains with the CTA.
Decisions of the RTC rendered in aid of their appellate jurisdiction shall be appealed to
the CTA en banc, by means of petition for review.
Adverse decisions of the CTA en bac shall be appealed to the SC by means of petition
for review.
Will the CTA acquire jurisdiction even in the absence of a decision of the CIR or
COC?
GR: CTA has jurisdiction only, if there is a decision of the CIR or COC
XPNs:
1. If COC has not rendered a decision and the suit is about to prescribe
2. Deemed denial/inaction of the CIR in refund of illegally or erroneously collected
tax and the 2-year prescriptive period is about to expire or after the lapse of 90
days to decide in case of refund of unutilized input VAT
3. Deemed denial/inaction where the CIR has not acted upon a protested
assessment within 180 days from submission of all relevant documents
supporting the protest, the taxpayer adversely affected by the inaction may
appeal to the CTA within 30 days from the lapse of 180-day period.
30-day prescriptive period for appeal with the CTA

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1. It runs from the date the taxpayer receives the appealable decision or 30 days
after the lapse of 180 days within which the BIR should act
2. It is jurisdictional and mandatory
3. It is non-extendible
Effect of Appeal
GR: An appeal to the CTA shall not suspend payment, levy, distrain and/or sale of any
property of taxpayer for the satisfaction of his tax liability.
XPN: When in the opinion of the CTA, the collection of tax may jeopardize the interest
of the government and/or the taxpayer, the court may suspend or restrain collection of
tax and require the taxpayer either to:
1. deposit the amount claimed; or
2. file a surety bond for not more than double the amount of tax due.
The CTA en banc has jurisdiction over final order or judgment but not over interlocutory
orders issued by the CTA division.
Jurisprudence provides that the CTA should first conduct a preliminary hearing to
determine whether posting of the surety bond is necessary or the amount thereof is
justified.
The power to review rulings issued by the Commissioner is lodged with the CTA and not
with the RTC. A ruling fall within the purview of other matters arising under the Tax Code
appealable only to the CTA
Doctrine of Imprescriptibly
GR: Taxes are imprescriptible as they are the lifeblood of the government
XPNs:
Based on the NIRC
1. The statute of limitations for assessment of tax if a return is filed is within 3 years
from the last day prescribed by law for filing of the return or if filed after the last
day, within 3 years from the date of actual filing.
2. If no return is filed or the return filed is false or fraudulent, the period to assess is
within 10 years from discovery of the omission, fraud or falsity.
3. Any internal revenue tax which has been assessed within the period of limitation
may be collected by distraint or levy or by a proceeding in court within 5 years
following the assessment of the tax.
Based on LGC
1. Local taxes, fees or charges shall be assessed within 5 years from the date they
become due.

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2. In the case of fraud or intent to evade the payment of taxes, fees or charges the
same may be assessed within 10 years from discovery of the fraud or intent to
evade payment
3. They shall also be collected either by administrative or judicial action within 5
years from date of assessment.
4. The basic real property tax and any other tax levied under RPT shall be collected
within 5 years from the date they become due.
What constitutes decision appealable to the CTA?
It is the decision of the Commissioner of the BIR on the protest against the assessment
but not the assessment itself.
What are the conditions that must be complied with before CTA may suspend the
collection of national internal revenue taxes?
1. A petition for review is pending before the CTA

2. The collection, in the opinion of the court will jeopardize the interest of the
government and/or the taxpayer; and
3. The taxpayer is willing to deposit in court the amount being collected or to file a
surety bond for not more than double the amount of the tax
The CTA may suspend the payment, levy, distraint and/or sale of any property of the
taxpayer for the satisfaction of his tax liability when, in the opinion of the court, the
collection may jeopardize the interest of the government and/or the taxpayer and
require the taxpayer either to deposit the amount claimed or to file a surety bond for not
more than double the amount with the court.
May a decision or order of a division of the CTA be directly appealed to the CTA
en banc in the exercise of its exclusive appellate jurisdiction?
No. The petition for review 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. The filing of
a motion for reconsideration or new trial before the CTA Division is an indispensable
requirement for filing an appeal before the CTA en Banc. Failure to file such motion for
reconsideration or new trial is cause for dismissal of the appeal before the CTA en
Banc.
Any party adversely affected by a decision or ruling of the CTA en Banc may file with the
SC a verified petition for review on certiorari within 15 days from receipt thereof
pursuant to R54 of RoC.
References
Ampongan, CPA, Omar Erasmo G. (2019). Income Taxation 18 th Edition
Banggawan, CPA, MBA, Rex B. (2019) Income Taxation, Laws, Principles and
Applications

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Tabag, Enrico D. & Garcia Earl Jimson R. (2020), Income taxation
Prepared by:
RYAN DAVES F. QUÑONES, CPA

Instructor I
Noted by:
MELISSA S. CARBONELL
Chairperson, Business Administratiom

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Professional Teaching (Camarines Norte State College)

Studocu is not sponsored or endorsed by any college or university

Republic of the Philippines

COLLEGE OF BUSINESS AND PUBLIC

Name of faculty: Ryan Daves F. Quiñones, CPA

Subject: Taxation – HRM 2A

Schedule for Instruction: MW 9:30-11:00

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Republic of the Philippines

COLLEGE OF BUSINESS AND PUBLIC

Police Power vs. Taxation vs. Eminent Domain

Basis Police Power Taxation Eminent Domain

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Republic of the Philippines

COLLEGE OF BUSINESS AND PUBLIC

The primary purpose of taxation is to raise revenue in order to satisfy government

Secondary or non-revenue purpose of Taxation (IRI-PREP)

1. Implement of Police power

Nature of the Power of taxation

Taxation is inherent attribute of sovereignty. It is a power that is purely legislative.

Characteristics of taxation (CUPS)

1. Comprehensive – covers all persons, property, business, rights and privileges

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Republic of the Philippines

COLLEGE OF BUSINESS AND PUBLIC

Benefits receive principle

No one is allowed to object to or resists the payment of taxes solely because no

Doctrine of symbiotic relationship

Rule on Jurisdiction over subjects and objects

1. Tax laws cannot operate beyond the State territorial limits.

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Republic of the Philippines

COLLEGE OF BUSINESS AND PUBLIC

Basic Principle of a sound Tax System (canons of Taxation (FAT)

1. Fiscal adequacy – sources of revenue must be sufficient to meet government

Stages/Aspects of a system of taxation (LAPR)

1. Levy or Imposition (Tax legislation) – technical term is impact of taxation; refers

Scope of the legislative power to tax

1. Discretion as to subjects of taxation

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Republic of the Philippines

COLLEGE OF BUSINESS AND PUBLIC

1. Public funds derived from taxation are disbursed by a political subdivision or

Inherent Limitations of Tax (PITIE)

Test in Determining Public Purpose

1. Duty Test – whether the thing to be furthered by the appropriation of public

Comity is respect accorded by nations to each other as co-equals. As taxation is an act

The rule of reciprocity applies only if the property is an intangible personal

Rules related to International Comity

1. Exemption from tax of foreign governments

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Republic of the Philippines

COLLEGE OF BUSINESS AND PUBLIC

4. Zero-rating of sale or exemption of importation of goods, supplies and fuel to

Exemption of Government Entities from Taxation

May the government tax itself?

Exceptions to the non-delegability of the taxing power

Flexible Tariff Clause

The power of the President upon recommendation of the NEDA to

Define Situs of Taxation

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