ELEMENTS OF A VALID TAX (LP-PLUG)

Income Taxation
1. Must not violate the constitutional, inherent, and/or contractual limitation of the
power of taxation.
Definition – Tax 2. Must be for public purposes.
3. Must be proportionate in character.
➢ An enforced proportionate contribution imposed upon persons, properties, businesses, 4. Must be levied by the taxing power (legislature) having jurisdiction over the object
rights, interests, privileges, transactions, and acts within the territorial jurisdiction of of taxation.
the taxing authority exercised by the legislature for a public purpose and generally 5. Must be uniform and equitable, not unjust, excessive, oppressive, confiscatory, or
payable in money. discriminatory.
➢ It is a compulsory contribution to state revenue, levied by the government on workers’ 6. Generally payable in money.
income and business profits or added to the cost of some goods, services, and
transactions. PURPOSES OF TAXATION
➢ The enforced proportional contributions from persons and property levied by the
lawmaking body of the State by virtue of its sovereignty for the support of the 1. Primary (Revenue or Fiscal) – to raise revenue to promote the general welfare and
government and all public needs. protection of its citizens.
➢ It is a sum of money demanded by a government for its support or for specific facilities 2. Secondary –
or services, levied upon incomes, property, sales, etc. a) Regulatory:
➢ An involuntary fee levied on corporations or individuals that is enforced by the level ✓ Implement of police power
of government in order to finance government activities. ✓ Promotion of general welfare
➢ A contribution for the support of a government required of persons, groups, or ✓ Protect local industry
businesses within the domain of that government. b) Compensatory – to provide some sort of compensation to an activity.
➢ Is what we pay for a civilized society. c) Income Redistribution – to lessen inequalities in the distribution of
income and wealth (Reduction of Social Inequality).
Definition – Taxation d) Encourage economic growth thru grant of incentives or exemptions.
AS A POWER
▪ Is the power by which the sovereign raises revenue to defray the expenses of GENERAL PRINCIPLES IN TAXATION
government. Principles Behind the Power of Taxation
▪ Is the inherent power of the State to demand enforced contribution for public purposes
to support the government. 1. Lifeblood Theory
▪ Is a destructive power which interferes with the personal and property rights of the ➢ The existence of the government is a necessity; it cannot exist nor endure
people and takes from them a portion of their property for the support of the without means to pay its expenses; and for those means, the government
government. has the right to compel all its citizens and property within its limits to
contribute in the form of taxes.
AS A PRICE ➢ Taxes are indispensable to the existence of the State. Without taxation the
▪ Is the indispensable and inevitable price for civilized society. State cannot raise revenue to support its operations.
➢ Taxes are what we pay for civilized society. Without taxes, the government
AS AN ACT would be paralyzed for lack of the motive power to activate and operate it.
▪ Is the legislative act of levying/imposing a tax to raise income for the government to ➢ Principles of Necessity/Theory of Taxation
defray its necessary expenses.
▪ Refers to the act of a taxing authority actually levying tax. 2. Benefit-Received Theory of Benefits-Protection Theory of Reciprocity Theory
▪ Is the practice of collecting taxes (money) from citizens based on their earnings and ➢ The government and the people have the reciprocal and mutual duties of
property. support and protection.
➢ Basis of Taxation
AS A MODE OF COST ALLOCATION ➢ Doctrine of Symbiotic Relationship – every person who is able to must
▪ Is a way of apportioning the cost of government among those who in some measures contribute his share in the running of the government. The government, for
are privileged to enjoy its benefits and must bear its burden. its part, is expected to respond in the form of tangible and non-tangible
benefits intended to improve the lives of the people and enhance their
moral and material values.
INHERENT POWERS of the State Similarities of the Powers of the State
1. Power of Taxation – the power to take property for the support of the government 1. All are inherent powers of the State.
and for public purposes. 2. All are legislative in nature.
2. Police Power – the power to enact laws to promote the general welfare of the 3. All three powers are necessary attributes of sovereignty.
people. It is wider in application because it is the general power to make laws. 4. They are means by which the State interferes with the private rights of persons.
3. Power of Eminent Domain (Expropriation) – the power to take private property for 5. They exist independently with the Constitution although the condition for their
public use upon payment of just compensation. exercise may be prescribed or limited by the Constitution.
Elements: 6. The exercise of these powers by the local government units may be limited by the
a) Permanent taking of private property (not temporary) national legislature.
b) Payment of Just Compensations (Market Value / Zonal / Assessed)
c) Public use Nature or Characteristics of the Power of Taxation (PIGTALL)
Note: *Police power can be used to raise revenue for the government (e.g. License fee)
**Taxation power can be used as an implement of Police Power 1. It is an attribute of sovereignty
2. It is legislative in character
Distinctions of the Powers of the State 3. It is subject to international comity or treaty
4. It is subject to inherent and constitutional limitations
Taxation Police Power Eminent Domain 5. It is generally payable in money
Who exercises State State State or Private entities 6. It is territorial
authority? (quasi-public 7. It is for public purposes
corporations/public
utilities) Scope of the Power of Taxation (CUPS)
Necessity of Not necessary due Valid delegation Valid delegation thru
Delegation to its inherent thru legislative act legislative act (law) Taxation is:
nature. (law) e.g. franchise 1. Comprehensive – it covers all persons, activities, businesses, professions, rights, and
Purpose Raise revenue Protection or Property is taken for privileges
regulation for the public use. 2. Unlimited – in the absence of limitations, the power to tax is unlimited
general welfare 3. Plenary – it is complete
Persons affected Community or class Community or Owner of the property 4. Supreme – as to the selection of the subject/object of taxation
of individuals class of individuals
Effect of transfer Tax paid goes to There is no There is a transfer of Branches of Government and Functions
of property rights treasury (becomes transfer of title, at right or title 1. Legislative – enact laws
part of the public most there is a 2. Executive – executes/enforces/implements law
fund) restraint on the 3. Judiciary – interprets law
injurious use of
property Discretion of Taxing Power (Legislative)
Amount of Generally, Sufficient to cover No imposition, the 1. Determine the following: (NOPE-SCAM)
Imposition unlimited the costs of owner is paid the fair a) Nature or kind of tax (whether income tax, VAT, or documentary stamp
regulation market value of his tax, etc.)
property b) Object to be taxed (person, property, business, transaction, activity, and
Importance The most important Most superior excisable articles to be taxed)
of the three c) Purpose of taxation (e.g. imposition of sin tax to discourage use or
Relationship with Inferior to the Superior to the Superior and may consumption of sin products or use of collected tax for the purpose of
the Constitution “Non-Impairment “Non-Impairment override the “Non- augmenting hospital budget)
Clause” of the Clause” of the Impairment Clause” d) Extent (amount or rate of tax)
Constitution Constitution because the welfare of e) Situs or place of imposition
the state is superior to f) Coverage of those to be taxed
private contracts g) Apportionment of the tax (general or limited application or setting aside
Limitation Inherent and Public Purpose Public purpose and just portion for special use)
Constitutional compensation h) Method of collection (e.g. withholding tax system)
Limitation
 2. Grant tax exemptions or condonations or amnesty f) EONETT System is a web-based application that will enable taxpayers to transact
3. Specify or provide for the administrative as well as judicial remedies that either the their One-Time Transaction (ONETT) pertaining to taxable sale of real properties
government or the taxpayers may avail themselves in the proper implementation of classified as capital or ordinary (CGT-CIR Form 1706, CWT-BIR Form 1606 and
the tax measure (Petron v Pililla, 198 SCRA 82) DST-BIR Form 2000OT).
Note: Administrative matters (assessment and collection) are not part of legislative discretion. g) Electronic Tax Software Provider Certification (eTSPCert) System is a web-based
system that provides facility or Tax Software Providers (TSPs) for the application
Aspects/Phases/Stages/Process of Taxation (LAC) and processing of certification of tax solution for the electronic tax return filing
1. Levy or Imposition – legislative and/or payment. To ensure that the software being used by these TSPs are compliant
2. Assessment of tax – administrative (BIR) with BIR data structure requirements.
3. Collection of the tax – administrative (BIR) h) Online Registration and Update System (ORUS) is a web-based system that
Assessment and collection refer to tax administration. Payment refers to the act of compliance provides and end-to-end process for registration of taxpayers and updating of their
by the taxpayer. registration information.

Principles of Sound Tax System (FAT) SITUS OF TAXATION

➢ The place of taxation, or jurisdiction, or source of income.
1. Fiscal Adequacy – sources of revenue should be sufficient to meet the demand Factors that determine the situs of taxation:
for public expenditure. 1. Nature, kind, or classification of the tax
2. Administrative Feasibility – tax laws must be capable of convenient, just, and 2. Subject matter of the tax
effective administration. 3. Citizenship of the taxpayer (nationality)
3. Theoretical Justice – considers the taxpayers ability to pay (ability-to-pay 4. Residence of the taxpayer (domiciliary)
principle) 5. Sources of income
• Use of progressive tax scheme (schedular or graduated tax rates) 6. Place of exercise, business, or occupation being taxed (service)
• Equity in taxation 7. Place where income-producing activity was held or done.
8. Activity
Administrative Feasibility
a. Establishment or Revenue District Offices throughout the Philippines Criteria in Imposing Tax Under Philippine Setting
b. Accreditation of Authorized Agent Banks (AABs)
c. Substituted Filing of Qualified Purely Compensation Income Earners 1. Citizenship Principle (Nationality Theory) – considers the citizenship of taxpayer
d. Introduction of NewBizReg, a geteway in the electronic submission of application 2. Residence Principle (Domiciliary Theory) – considers the residence of taxpayer
for registration through email which is available to individual and non-individual 3. Source Principle (Source of the Income) – considers the source of the income
business taxpayers (Head Office and Branches) pursuant to Ease of Doing Business
Law
e. BIR’s e-Services Amnesty vs. Exemption (Condonation)
Tax Amnesty – is a limited time offer by the State to a specified group of taxpayers to pay a
BIR’s e-Services
defined amount (certain percentage) in exchange for forgiveness of a tax liability relating to a
a) eRegistration System is a web application of various taxpayer registration services
previous tax periods as well as freedom from criminal prosecution. It is general pardon or
including TIN issuance, Payment of Registration Fee and Generation of Certificate
intentional overlooking by the state of of its authority to impose penalties on persons.
of Registration.
b) Electronic Filing and Payment System (eFPS) is the electronic processing and
Tax Condonation – means to remit or to desist or refrain from exacting or imposing a tax.
transmission of tex return information including attachments, and taxes due thereon
Condonation of a tax liability is equivalent to and is in the nature of a tax exemption.
to the government made over to the internet through BIR website.
c) Electronic Bureau of Internal Revenue Forms (eBIRForms) was developed primarily
Tax Exemption (Condonation) Tax Amnesty
to provide taxpayers with an alternative mode of preparing and filing tax returns that
There is no tax liability at all but grant of Connotes condonation from payment of
is easier and more convenient.
incentive existing
d) Electronic Audited Financial Statements (eFAS) is a web-based application system
that enables the taxpayers to submit their filed Income Tax Returns (ITR), Audited The grantee generally do not pay The grantee pays a portion
Financial Statements (AFS), and other required attachments online in PDF file anything
format. Can be availed of by any qualified Not always available. Limited offer only.
e) E-pay – provides the link for ePayment Channels of AABs that taxpayers can access taxpayer
for the electronic payment of their tax dues and liabilities, ePayment Channels
accept tax payments through the use of either online, credit/debit/prepaid cards,
mobile payments.
Statutory Construction and Interpretation of Laws Marshall and Holmes
▪ Taxation Marshall Doctrine Holmes Doctrine
1. If the laws are clear, there’s no need for interpretation, only application. US Justice John Marshall US Justice Oliver Wendell Holmes
2. If tax laws are vague, it shall be interpreted strictly against the taxing authority “The power to tax includes the power to “Taxation power is the power to build”
and liberally in favor of the taxpayer. destroy” “The power to tax is not the power to
▪ Exemptions/Deductions destroy while this court sits”
1. Exemptions shall be interpreted strictly against the taxpayer and liberally in
favor of the taxing authority. Classification of Taxes
2. Deductions partake the nature of an exemption, hence strictly construed against
taxpayer. As to Kind and Authority
▪ Presumption or Regularity National Tax – imposed by the National Local tax – tax imposed by local
Tax assessments are presumed to be correct and done in good faith i.e., disputable Government (Tax Code). governments (ordinance)
presumption only which can be overcome by evidence. (provincial/city/municipal/barangay)
▪ Application National internal revenue taxes are: (DIVE Examples:
Tax laws are generally prospective in application. PESO) 1. Real property tax
Exception: If the law so provides (e.g. Tax Amnesty Law, CREATE Law) 1. Donor’s tax 2. Professional tax
▪ No compensation or set-off. 2. Income taxes 3. Business tax, fees, and charges
Tax is not subject to compensation or set-off 3. Value-added tax 4. Community tax
▪ Others 4. Estate tax
1. Construction of statute by predecessors is not binding on the successors. 5. Percentage taxes
2. Special laws prevail over general laws (e.g. Bayanihan Laws over Tax Code) 6. Excise tax
7. Documentary stamp tax
Income Tax Systems 8. Other taxes as may be imposed
1. Global Tax System – all incomes regardless of classification
2. Schedular Tax System – different types of income are subject to different sets of As to Purpose (P-FRS)
income tax rates (graduated or flat). The basis may be gross income (without 1. Fiscal – general, fiscal or revenue – tax imposed for the general purpose of the
deductions) or net income (gross income less allowable deductions). government or to raise revenue for government needs, e.g. income tax
3. Semi-Schedular or Semi-Global Tax System – regular or ordinary income including 2. Regulatory – for purposes of regulation (exercise of police power), e.g. PRC and
passive income and capital gain not subjected to final tax are lumped or added driver’s license
together and after deducting allowable deductions, the taxable income is subjected to 3. Special or Sumptuary – tax imposed for a special purpose or to achieve some social
tax in accordance with tax rules. or economic ends, e.g. Road User’s Tax / Special Education Fund
*Philippines adopts the Semi-Schedular or Semi-Global System
As to Subject Matter (SM-PPPF)
Sources of Tax Laws 1. Personal, poll or Capitation – tax of a fixed amount imposed on individuals
1. Constitution residing within a specified territory without regard to their property or the
2. Statutes and Presidential Decrees occupation in which they be engaged in. e.g. community tax certificate/cedula
3. Executive Orders and Batas Pambansa 2. Property Tax – tax imposed on property, whether real or personal, in proportion,
4. Tax Treaties and conventions with foreign countries either to its value or in accordance with some other reasonable method of
5. Revenue Regulations issued by the Department of Finance apportionment. e.g. real property tax / factory machinery
6. Supreme Court Decisions 3. Excise tax – tax on commodities/excisable articles. e.g. sin products
7. Local Ordinances (Sangguniang Panlalawigan/Panglungsod/Bayan/Barangay) (alcohol/cigarettes/automobiles/minerals/jewelries/non-essential services)
Note: A tax law is any law that provides for the assessment and collection of taxes for the 4. Privilege tax – tax imposed upon the performance of an act, the enjoyment of a
support of the government and other public purposes. privilege or the engaging in an occupation, e.g. Professional tax (issued PTR)
Nature of Philippine Tax Laws As to incidence or who bears the burden of paying (I-DI)
1. Civil 1. Direct Tax
2. Not Penal - Is one which the taxpayer who pays the tax is directly liable, therefore.
3. Not Criminal - The burden of paying the tax falls directly on the person paying the tax
- The tax is demanded from one person who is intended to pay it.
Examples: income tax (taxpayer himself to pay), estate tax (estate to pay), donor’s
tax (donor to pay)
 2. Indirect Tax
- One paid by a person who is not directly liable therefor, and who may therefore
shift or pass on the tax to another person or entity, which ultimately assumes
the tax burden.
- The tax is demanded from one person who can shift the burden of paying the
tax to another person (Example: Value-Added Tax)
As to Amount (A-SA)
1. Specific Tax – a tax of a fixed amount imposed by the head or number e.g. excise
tax on wines and distilled spirits, cigars
2. Ad valorem Tax – tax is imposed for a fixed proportion of the amount or value of the
property to which the tax is assessed e.g. income tax, transfer taxes (estate and
donor’s), VAT
As to rate (MR-PP)
1. Proportional or Flat Rate – the tax is based on a fixed percentage of the amount of
the property, income, or other basis to be taxed.
Examples:
a. Preferential Income Tax of 8% for Self-Employed Professionals or Mixed
income earners on their business/professional income
b. VAT (12%) and percentage taxes.
c. Regular corporate income tax (25%)
d. Under TRAIN: Donor’s tax and Estate tax (6%)
e. Capital gains tax on the sale of real property 6% (capital asset) or 6%
creditable withholding tax (ordinary asset) or 15% on unlisted shares.
2. Progressive or Graduated Tax – the tax rate increases as the tax base increases.
Example: Income tax for individual taxpayers (retained under TRAIN)
3. Regressive tax – the tax rate of which decreases as the tax base increases. The
Philippines has no regressive tax.
4. Mixed Tax – a mixture of proportional, progressive, or regressive.
Example:
a. Income tax for individuals (progressive/graduated) and for corporations
(proportional/flat)
b. Income tax for Mixed Income Earners who opted 8% on his business
income while the compensation income is subject to a graduated tax rate
▪ Freedom to exercise religion
▪ Non-appropriation of public funds or property for the benefit of any church, sect, or
system of religion.
Exceptions to Non-Delegation
• Power to tax was delegated to the President under the Flexibility Clause of the Tariff
and Customs Code (amended by R.A. 10863 or the Customs Modernization and
Tariff Act)
*Note: Delegated power to executive department is called administrative regulation
or subordinate legislation
• Power tax was delegated to the local government units thru respective Sanggunian
under Local Government Code (R.A. 7160)
• Power to grant tax incentives delegated to the President in the interest of national
economic development (R.A. 11534 or Corporate Recovery and Tax Incentives for
Enterprises (CREATE) Act)
Constitutional Limitations
▪ Exemption of religious, charitable, or educational entities, non-profit cemeteries,
churches, and mosques from property taxes
▪ Exemption from taxes of the revenues and assets of non-profit, non-stock
educational institutions for educational purposes
▪ Concurrence of a majority of all members of Congress for the passage of law
granting tax exemption (voting separately)
▪ Non-impairment of the jurisdiction of the Supreme Court to review tax cases – final
arbiter.
▪ Appropriations, revenue, or tariff bills shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
▪ Each local government unit shall exercise the power to create its own sources of
revenue and shall have a share in the national taxes (Internal Revenue Allotments)
Double Taxation and Escapes from Taxation
Double Taxation
Taxing the object or subject within the territorial jurisdiction twice, for the same period,
involving the same kind of tax by the same taxing authority.

Limitations of Power of Taxation International Double Taxation – a double taxation caused by two different taxing authorities,
Inherent Limitations one domestic and one foreign.
1. Territoriality of taxation Note: Double taxation is not prohibited by the Constitution but is highly disfavored in law.
2. Subject to international comity or treaty
3. Exemption of the government from taxation Kinds of Double Taxation
4. Tax is for public purposes Direct Double Indirect Double
5. Non-delegation of the power of taxation Direct Duplicate Indirect Duplicate
Taxation in Strict Sense Taxation in Broad Sense
Constitutional Limitations Elements: Characteristics:
▪ Observance of due process of law – notice and hearing 1. Same object 1. Different object
▪ Equal protection of the law – equality among equals 2. Same type of tax 2. Different tax type
▪ Uniformity in taxation – taxation of same class 3. Same purpose 3. Different purpose
▪ Progressive system of taxation – graduated tax table 4. Same taxing authority 4. Different authority
▪ Non-imprisonment for non-payment debt or poll tax 5. Same period 5. Different period
▪ Non-impairment of obligation and contract
Elimination of Double Taxation
1. Tax Treaty by (1) allocating the right to tax between the contracting states; and (2)
where the state of source is assigned the right to tax, by requiring the state of
residence to grant a tax relief either through exemption or tax credit.
▪ Exemption Method/Principle – the income or capital which is taxable in
the state of source or situs is exempted in the state of residence; the focus
is on the income or capital itself (thru tax covenants or treaties)
▪ Credit Method/Principle – the income or capital which is taxed in the
state of source is still taxable in the state of residence, the tax paid in the
former is credited against the tax levied in the latter; the focus is upon the
tax (thru foreign tax credits but subject to limitation).
2. Tax Sparing – taxes exempted or reduced are considered fully paid e.g. a non-
resident may obtain a tax credit foe the taxes that have been “spared: under the
incentive program of the state if source”
3. Matching Credit – the state of residence agrees, as a counterpart to the reduced tax,
to allow a deduction against its own tax of amount fixed at a higher rate.
4. Application of the most favored nation clause:
▪ First, income derived from the Philippines by a resident of the other state
and of the third state must be of the same kind or class (e.g. royalty) in
order to avail of the lower tax enjoyed by the third state
▪ Second, the tax consequences of the income payment under the two
treaties must be under similar circumstances which requires a showing that
the method employed for eliminating or mitigating the effects of double
taxation under the treaty with the other state and the third state are the
same.
Escapes from Taxation (ESCATE)
1. Evasion – tax dodging – acts and devices that illegally reduces or totally evade the
payment of taxes.
2. Shifting – the process of transferring the tax burden from the statutory taxpayer to
another (e.g. VAT).
3. Capitalization – e.g. increase in capitalization to avoid payment of Improperly
Accumulated Earnings Tax (IAET is repealed)
4. Avoidance – tax minimization – the reduction or totally escaping payment of taxes
through legally permissible means
5. Transformation –
- The effective application of organizational design, process improvement,
and enabling technology to improve data integrity, tax function efficiency,
and performance – while driving value for the business (Deloitte)
- The manufacturer absorbs the additional taxes imposed by the government
without passing it to the buyers for fear of lost of his market. Instead, it
increases quantity of production, thereby turning their units of production
at a lower cost resulting to the transformation of the tax into a gain
through the medium of productions (Banggawan).
6. Exemption – an immunity, privilege, or freedom from payment of tax by virtue of
law (e.g. income tax holidays for pioneer/non-pioneer PEZA-enterprises; exemption
from tax of minimum wage earners)
The Bureau of Internal Revenue
Powers of the BIR
Section 2 of the Tax Code
The Bureau of Internal Revenue shall be under the supervision and control of the Department
of Finance and its powers and duties shall comprehend:
1. The assessment and collection of all national internal revenue taxes, fees, and
charges, and
2. The enforcement of all forfeitures, penalties, and fines connected therewith,
including the execution of judgements in all cases decided in its favor by the Court
of Tax Appeals and the ordinary courts.
3. The Bureau shall give effect to and administer the supervisory and police powers
conferred to it by the Code or other laws.
Officials of the Bureau of Internal Revenue
1. One (1) Chief Officer: The Commissioner of Internal Revenue
2. Four (4) Assistant Chiefs: LINE Deputy Commissioner
▪ Operations Group
▪ Legal Group
▪ Information Systems Group
▪ Resource Management Group
Note: The CIR and Line Deputy Commissioners are members of the National Evaluation
Board (NEB) which handles applications for compromise settlement.
Regional Offices – 19; RDOs – 124
BIR Issuances
1. Revenue Regulations (RRs) – specify, prescribe, or define rules and regulations for
the effective enforcement of the provisions of the National Internal Revenue Code
(NIRC) and related statutes. (signed by the Secretary of the Department of Finance)
2. Revenue Memorandum Orders (RMOs) – are issuances that provide directives or
instructions; prescribe guidelines; and outline processes, operations, activities,
workflows, methods, and procedures necessary in the implementation of stated
policies, goals, objectives, plans, and programs of the Bureau in all areas of
operations, except auditing (BIR internal rules; signed by the Commissioner)
3. Revenue Memorandum Circulars (RMCs) – are issuances that publish pertinent and
applicable portions, as well as amplifications of laws, rules, regulations, and
precedents issued by the BIR and other agencies/offices
4. Revenue Administrative Orders (RAOs) – are issuances that cover subject matters
dealing strictly with the permanent administrative set-up of the Bureau, more
specifically, the organizational structure, statements of functions and/or
responsibilities of BIR offices, definitions and delegations of authority, staffing, and
personnel requirements and standards of performance.
5. Revenue Delegation of Authority Orders (RDAOs) – refer to functions delegated by
the Commissioner to revenue officials in accordance with law.
6. Revenue Rulings (Rulings) – are requests of taxpayers on taxability of certain
matters of transactions.
Powers of the Commissioner
1. To interpret the provisions of the NIRC subject to review by the Secretary of Finance
(exercised through the issuance of Revenue Rulings or Revenue Memorandum
Circulars).
2. To decide disputed tax assessments (through the issuance of Final Decision of
Disputed Assessments (FDDA) / Denial on Requests for Reconsiderations)
3. To refund internal revenue taxes, fees or other charges, penalties imposed in relation
thereto.
4. To decide on other matters arising under the NIRC or other laws or positions thereof.
▪ Note: Items 2,3, and 4 are subject to the exclusive appellate jurisdiction of
the Court of Tax Appeals.
5. To obtain information from any person about an income/expense of another person,
etc.
▪ Note: CIR’s Power to Obtain Information/Accountant-Client Privilege
General Rule: Communication of Accountant (Lawyer)-Client is privileged.
Exceptions:
a) When required by law to reveal the confidence or secrets.
b) In contemplation of crime or perpetration of fraud.
c) If through a subpoena.
d) There is a legal right or duty to disclose information.
e) Lifeblood doctrine.
6. Power to Summon
a. Subpoena duces tecum (SDT) – compels the taxpayer to produce the
documents.
b. Subpoena ad testificandum – compel the taxpayer to produce documents
and provide testimony why there is a failure to comply with the request to
produce.
7. Power to investigate or examine tax returns (through issuance of notice of audit):
a. Electronic Letter of Authority (e-LOA) – formal document authorizing
Revenue Officers (Assessment) to examine taxpayer records.
b. Tax Verification Notice (TVN) – BIR authority audit taxpayer records but
is lower than e-LOA.
c. Letter Notice (LN) – third party information. Result of computerized
matching of income and expense. Not equivalent to e-LOA or TVN but has
the effect of barring taxpayer to amend return. If issued, the LN if protested
must be converted to e-LOA.
▪ Note: If taxpayer is served with notice of audit, taxpayer is barred from
amending returns.
8. Power to take testimony of persons concerned under oath as may be relevant and
material to such inquiry.
9. To cause revenue officers and employees to make a canvass from time to time of any
revenue district or region concerning taxpayers.
10. To make assessment and prescribe additional requirement.
a. To examine returns and determine the correct amount of tax due.
b. To assess based on best evidence obtainable.
▪ Note: The BIR can issue assessment
General Rule: 3 years from date of filing or deadline whichever is later.
Exception: 10 years if there is fraud reckoned from date of discovery.
Note: If already elapsed, the right of the BIR to assess has prescribed.
11. To make or amend a return for and on behalf of a taxpayer; or to disregard one filed
by the taxpayer.
12. To conduct inventory-stock taking (with Mission Order)
13. To conduct surveillance (with Mission Order)
a. Covert Surveillance – secret/posing as taxpayer/not known initially by
taxpayer.
b. Overt Surveillance – known to the taxpayer.
▪ Note: The BIR also issues MO during tax mapping or Tax Compliance
Verification Drive (TCVD)
14. To prescribe presumptive gross sales or receipts (Benchmarking).
15. To change tax accounting period.
16. To terminate taxable period
a. Taxpayer is retiring from business.
b. Taxpayer intends to leave the Philippines.
c. Taxpayer is removing, hiding, or concealing his property.
d. Taxpayer is performing any act tending to obstruct the proceedings from the
collection of the tax.
17. To prescribe real estate values (zonal valuation)
The CIR is authorized to divide the Philippines into zones or areas and determine the
fair market value of the real properties located in each zone or area.
In exercising this authority, the following shall be observed:
a. Mandatory consultation with both private and public competent
appraisers before division of the Philippines into zones.
b. Prior notice to affected taxpayers before the determination of fair
market values of the real properties.
c. Publication or posting of adjustments in zonal value in a
newspaper of general circulation in the province, city, or
municipality concerned.
d. The basis of valuation and records of consultation shall be public
records open to the inquiry of any taxpayer.
e. Zonal valuations shall be automatically adjusted once every three
years.
18. To inquire into bank deposits under the following cases:
a. Estate tax purposes to determine gross estate.
b. Application of compromise settlement based on financial incapacity.
c. Exchange of information pursuant to international convention or agreement.
19. To accredit tax agents.
20. To change the venue of filing of returns.
21. To extend filing of returns and payment of tax (i.e. estate tax)
22. To prescribe additional procedures or documentary requirements.
23. To enter a compromise of tax liabilities with taxpayers
a. Doubtful Validity – 40% of basic tax (the rate may be lower but with prior
approval by the CIR)
b. Financial Incapacity – 10% of basic tax (with required documentary
requirements)
24. To abate or cancel tax liabilities:
a. Unjustly or excessively assessed (arbitrary, capricious, and whimsical)
b. Cost of collection is higher than the amount to be collected (cost-benefit
principle)
25. To close business establishments:
▪ Oplan Kandado
▪ Run After Tax Evaders (RATE)
▪ Run After Fake Transactions (RAFT)
26. To allocate income and deductions (application of transfer pricing)
 ▪ In the case of two or more organizations, trades or businesses (whether or CLASSIFICATION OF TAXPAYERS
not incorporated and whether or not organized in the Philippines) owned or
controlled directly or indirectly by the same interests, the Commissioner is Taxation of Individuals
authorized to distribute, apportion or allocate gross income or deductions ▪ Individuals
between or among such organization, trade or business, if he determined ➢ Resident Citizens
that such distribution, apportionment or allocation is necessary in order to ➢ Non-Resident Citizens (NRC)
prevent evasion of taxes or clearly to reflect the income of any such ➢ Resident Alien (RA)
organization, trade or business. ➢ Non-Resident Alien Engaged in Trade (NRAETB)
27. To delegate his powers to any subordinate officer with rank equivalent to a division ➢ Non-Resident Alien Not Engaged in Trade (NRANETB)
chief of an office. ➢ Estate
28. To search for, test and seize taxable article – any internal revenue officer, may, in the ➢ Trust
discharge of his official duties, enter any house, building or place where excisable ▪ Non-Individuals
articles are produced or kept, or are believed by him upon reasonable grounds to be ➢ Domestic Corporation (DC)
produced or kept, so far as may be necessary to examine, test, discover or seize the ➢ Resident Foreign Corporation (NFC)
same. (Police Power) ➢ Non-Resident Foreign Corporation (NRFC)

Non-Delegable Powers Citizens of the Philippines for Taxation Purposes

1. The power to recommend the promulgation of rules and regulations to the Secretary
of Finance. Resident Citizen (RC) A citizen of the Philippines, residing therein.
2. The power to issue rulings of first impression or to reverse, revoke or modify any Non-Resident Citizen 1. A citizen of the Philippines who establishes to the
existing rulings of the Bureau. (NRC) (Section 22 E) satisfaction of the Commissioner the fact that of his
3. The power to compromise or abate any tax liability except those cases falling under physical presence abroad with a definite intention to
Regional Evaluation Boards under the following requisites: reside therein.
a. Assessments involving basic deficiency tax of P500,000.00, and 2. A citizen of the Philippines who leaves the
b. Involves minor criminal violations. Philippines during the taxable year to reside abroad,
4. The power to assign and reassign internal revenue officers to establishment where either as an immigrant or for employment on a
articles subject to excise tax are produced or kept. Revenue officers assigned to any permanent basis.
such establishments shall in no case stay in his assignment for more than 2 years. 3. A citizen of the Philippines who works and derives
income from abroad and whose employment thereat
Rules in Assignments to Other Duties requires him to be physically present abroad most of
Revenue officers assigned to perform assessment and collection function shall not remain in the the time during taxable year.
same assignment for more than three (3) years. Assignment of internal revenue officers and a) Overseas Contract Workers – OCW is not
employees of the Bureau to special duties shall not exceed 1 year. synonymous with OFW. If an OFW has a
contract, he is an OCW.
Agents and Deputies for Collection of National Internal Revenue Taxes b) Seaman – requisites:
1. The Commissioner of Customs and his subordinates with respect to collection of i. Member of Complement
national internal revenue taxed on imported goods. ii. Vessel is engaged in international
2. The head of appropriate government offices and his subordinates with respect to the shipping.
collection of energy tax. 4. A citizen who has been previously considered as non-
3. Banks duly accredited by the Commissioner with respect to receipts of payments of resident citizen and who arrives in the Philippines at
internal revenue taxes authorized to the made thru banks. any time during the taxable year to reside
permanently in the Philippines shall likewise be
treated as a non-resident citizen for the taxable year in
which he arrives in the Philippines with respect to his
income derived from sources abroad until the date of
his arrival in the Philippines.
Note: The taxpayer shall submit proof to the Commissioner to
show his intention of leaving the Philippines to reside
permanently abroad or to return to and reside in the Philippines
as the case may be.
ALIENS Classification of Individual Taxpayers
Individuals who are not Filipino citizens.
1. Resident Alien (Section 22 F) 1. Compensation Income Earner – Individuals whose source of income is purely
2. Non-Resident Alien Engaged in Trade or Business in the Philippines (Section 22 derived from an employer-employee relationship.
G and 25 A) 2. Self-employed – a sole proprietor or independent contractor who reports income
3. Non-Resident Alien Not Engaged in Trade or Business in the Philippines (Section earned from self-employment.
22 G and 25 B) ▪ Contract of Service
▪ Job Order
Resident Aliens (RA) ▪ Professionals –
An individual whose residence is within the Philippines and who is not a citizen thereof.
1. An alien who lives in the Philippines with no definite intention as to his stay. 3. Mixed Income Earner – earning both from employment and from business (other
2. One who comes to the Philippines for a definite purpose which in its nature would sources aside from employment)
require an extended stay and to that end makes his home temporarily in the
Philippines, although it may be his intention at all times to return to his domicile Compensation Income Earner Graduated Tax
abroad.
3. An alien who has acquired residence in the Philippines retains his status as such until 8% Option*
he abandons the same and actually departs from the Philippines. Self-Employed
4. Not merely transient or sojourners (temporary traveler). Graduated Tax + Percentage Tax
Notes:
▪ To become a resident alien, presence of at least two (2) years is required. Compensation Graduated
▪ RA 11055 (Philippine Identification System Act) has been defined as an Mixed Income Earner
individual who is not a citizen of the Philippines but whas established Business Income 8% Option*
residence in the Philippines for an aggregate period of more than one Graduated + PT
hundred eighty (180) days.

Non-Resident Alien Taxation of Estates and Trusts

Non-Resident Alien Engaged in Trade Non-Resident Alien Not Engaged in Trade
(NRAETB) (NRANETB) Estates – refers to the mass of all property, rights and obligations of a person which are not
NRA who is engaged in trade or business in NRA who is not engaged in trade or extinguished by his death.
the Philippines. business in the Philippines
NRA who has practiced his profession in NRA who has not practiced his profession Trust – is a right on property, real or personal, held by one party for the benefit of another.
the Philippines in the Philippines
NRA who shall come to the Philippines and NRA who shall come to the Philippines and General Rule: Estates and Trust are taxable.
stay therein for an aggregate period of more stay therein for an aggregate period of NOT Exception:
than 180 days during any calendar year more than 180 days during any calendar Employee’s trust which forms part of a pension, stock bonus or profit-sharing plan of an
shall be deemed a “non-resident alien doing year. employer for the benefit of some or all of his employees
business in the Philippines” 1. If contributions are made to the trust by such employer, or employees, or both for the
purpose of distributing to such employees the earnings and principal of the fund
Summary of Taxpayer, Base, and Rate accumulated by the trust in accordance with such plan, and
Classification of Taxpayer Tax Base and SOURCE Tax Rate 2. If under the trust instrument it is impossible, at any time prior to the satisfaction of all
Resident Citizen Taxable income within and Graduated or 8% option* liabilities with respect to employees under the trust, for any part of the corpus or
without income to be (within the taxable year or thereafter) used for, or diverted to, purposes
Non-Resident Citizen Taxable income within Graduated or 8% option* other than for the exclusive benefit of his employees.
Resident Alien Taxable income within Graduated or 8% option*
Note: Any amount actually distributed to any employee or distribute shall be taxable to him
Non-resident alien engaged Taxable income within Graduated or 8% option*
in the year in which so distributed to the extent that it exceeds the amount contributed by
in trade or business
such employee or distribute.
Non-resident alien not Gross Income within Final tax (%)
engaged in trade or business
Examples of Taxable Estates and Trusts
Estate and Trust Taxable income within and Graduated tax 1. Income accumulated in trust for the benefit of unborn or unascertained person or
without persons with contingent interests, and income accumulated or held for future
distribution under the terms of the will or trust.
 2. Income which is to be distributed currently by the fiduciary to the beneficiaries, and b) Engaging petroleum, coal, geothermal, and other energy operation pursuant
income collected by a guardian of an infant which is to be held or distributed as the to an operating or consortium agreement under a service contract with the
court may direct. Government.
3. Income received by estates of deceased persons during the period of administration or
settlement of the estate; and Note: Co-ownership can be taxable as a corporation (partnership) or exempted from taxation
4. Income which, in the discretion of the fiduciary, may be either distributed to the depending on the situation.
beneficiaries or accumulated.

Taxation of Non-Individual Taxpayers Types of Corporations

Corporation includes: 1. Domestic Corporation – organized and established under the laws of the Philippines
1. One-person Corporation and is taxable on all income derived from sources within and outside the Philippines.
2. Ordinary Partnerships no matter how created or organized.
3. Joint Stock Companies 2. Resident Foreign Corporation – corporation organized and established under the laws
4. Joint Accounts (Cuertas en Participacion) of a foreign country and in engaged in trade or business within the Philippines (taxable
5. Associations only on income derived from sources within the Philippines)
6. Insurance Companies
3. Non-Resident Foreign Corporation – corporation organized and established under
One Person Corporation the laws of foreign country and is not engaged in trade or business within the
- single stockholder – a natural person, trust, estate Philippines (taxable only on income derived from sources within the Philippines)
Ordinary Partnerships
- No matter how created or organized. SOURCES OF INCOME
- Two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among Classification of Income as to Sources
themselves. 1. Income derived from sources within
Joint Stock Companies 2. Income derived from sources without
- A business owned by investors, with each investor owning a share based on 3. Income derived from sources partly within and partly without
the amount of stock purchased.
Joint Accounts (Cuertas en Participacion) Rules in Determining Source of Income
- A partnership constituted is such a manner that its existence was only known Types of Income Rules to Determine Sources of Income
to those who had an interest in the same, there being no mutual agreement Interest Income Residence of the Debtor:
between the partners, and without a corporate name indicating to the public 1. Within – if debtor is a resident of the
in some way that there were other people besides the one who ostensibly Philippines.
managed and conducted the business (G.R. No. 2800 dated December 4, 2. Without – if debtor is non-resident.
1906). Dividends
- Is one that is held jointly by two or more natural persons, or by two or more 1. From domestic Within
juridical persons or entities. Under such setup, the depositors are joint corporation
owners or co-owners of the said account, and their share in the deposits shall 2. From foreign Predominant test is applied:
be presumed equal, unless the contrary is proved. corporation (based on 1. Within – if predominant income is from the
Insurance Company the ratio of the gross Philippines, i.e. more than 50%.
- Any organization or group engaged in insurance business. income of the foreign 2. Without – if predominant income is from
Association corporation for the without the Philippines, i.e. more than 50%.
- Any organization or group of persons other than those mentioned. preceding 3 years prior
to declaration of
Exceptions to the definition of Corporation: dividends)
1. General Professional Partnership (GPP) – a partnership formed by persons for the Income from Services Place where service is rendered:
sole purpose of exercising their common profession, no part of the income of which (Service Income) 1. Within – if rendered within.
is derived from engaging in any trade or business. 2. Without – if rendered without.
2. Joint Venture:
Rent Location of property:
a) Undertaking construction projects under a service contract with the
1. Within – if property is located within.
Government
2. Without – if property is located without.
Royalties (brand, mark, Where employes or place of use:
trademark, copyright, patent, 1. Within – if royalty is used within.
secret formula) 2. Without – if royalty is use without.
Gains on Sale of Real Property Location of property:
1. Within – if property is located within.
2. Without – if property is located without.
Gain on Sale of Personal G.R – Place of Sale
Property 1. Within – if property is sold within.
2. Without – if property is sold without.
Exceptions to the Rule on Gain If taxpayer is PRODUCER/MANUFACTURER, the
on Sale of Personal Property sources is partly within, partly without

Applicable to Producer and 1. Partly Within, Partly Without – if

Manufacturer manufactured/produced within, but sold
without.
(Produced/Manufactured – 2. Partly Within, Partly Without – if
purchased in one country and sold manufactured/produced without but sold
in another) within.

Applicable on Gain on Sale of 1. Within – if the ISSUER of the Shares of

Shares of Stocks in a Domestic Stock is a Domestic Corporation.
Corporation 2. Without – If the Issuer of shares is a foreign
corporation
NOTE: The “Source of Income” relates not to the physical sourcing of a flow of money or
the physical situs of payment but rather to the “property, activity, or service” which produced
the income. Hence, the list above is NOT exclusive. The source can be based on “activity”.

Graduated Tax Table (January 1, 2023 and onwards)

Over But not over The tax shall be Plus Of excess over
0 250,000 0 0 -
P 250,000 400,00 0 15% P 250,000
400,000 800,000 22,500 20% 400,000
800,000 2,000,000 102,500 25% 800,000
2,000,000 8,000,000 402,500 30% 2,000,000
8,000,000 - 2,202,500 35% 8,000,000