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Far Eastern University

Institute of Law

TAXATION LAW COMMITTEE

TABLE OF CONTENTS
Trending Table

General Principles

Income Taxation

30

Transfer Taxes

55

Donor tax

66

Business Tax

ADVISER: ATTY. EDWIN

SUBJECT HEADS:

ABELLA

NOEMI ACAIN

&

ERWIN LABAY

74

Excise Tax, Percentage Tax &


Documentary Tax

81

Tax Remedies

88

Tariff & Customs Code

109

Local Taxation

122

MEMBERS:

CHRISTINA DE GUZMAN

MA. KAREN RIZA ULIBAS


MARY JOYCE SARANGAYA
PATRICK JOHN MALVEDA

CYD LIBUTAN
STRALENMER MORAN
SHEHERAZADEE

LABOR

1
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Power to tax and its


limitations
NIRC Taxes
Direct and Indirect
Taxes
Tax Avoidance and tax
evasion
Tax benefit rule
Rule of uniformity and
equality
Set-off or compensation
of taxes
Impairment of
obligations and
contracts
Tax amnesty v. tax
exemption
Double taxation
Stages or aspects of
taxation
Revenue bill originates
in House of
Representatives
Constitutional
exemption of charitable
institutions
Tax pyramiding
Taxation vs. eminent
domain
Due process
Taxable income

Personal exemptions

Capital gains tax

Deductibility of bad
debts
Proceeds of life
insurance policy

TRENDING FOR TAX 1997-2007


INCLUSIVE YEARS
GENERAL PRINCIPLES
2000
1
2003
1
2005
1
2007
1
2000
1
2001
1
2004
1
2000
1
2005
1
2003
1
2005
1
2003
1
2004
1
2001
1
2005
1
2007
1
2004
1

TOTAL

3
1
3
2
2
2
3
1

2001

2004
2006

1
1

1
1

1997

2006

2006
2006

1
1

1
1

2004
1997
1999
2000
2005
2007
1997
1998
2001
2004
2006
1997
1998
1999
2001
2005
2007
1999
2004
2005
1997
2003

1
INCOME TAXATION
2
2
1
1
2
1
1
1
1
1
1
1
1
1
1
2
2
1
1
1
1

7
4

2
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Exclusions from gross


income
Exclusions from gross
income - compensation
Exclusions from gross
income separation pay
Reasonable allowance
of depreciation
Income subject to final
tax
Prizes and winnings
Dividends received by a
domestic corporation
Stock dividends
Fringe benefit tax
Capital asset vs.
ordinary asset
Capital losses from
ordinary gains
Filing of ITR individual
Filing of ITR joint
venture agreement
Concept of withholding
tax
Non-resident alien doing
business in the
Philippines
Global and scheduler
systems of taxation
Requisites for the
exemption from income
tax of retirement
benefits under RA 4917
and RA 7641
Exclusions from gross
income monthly
pension from GSIS
13th month pay and de
minimis benefits
Deductions from gross
income
Deductibility of interest
expenses
Deductibility of losses
Deductibility of
insurance premiums
Deductions allowed to
compensation earners
Exemption from capital

2005
2007
2001
2005
2007
1997
2000
1997
2005
1998
1999
2001
2005
1998
2000
1997
2005

1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

1997
2003
2001
2003
2007
2003
2005
1998
2003
1998
2001
2007

1
1
1
1
1
1
1
1
1
1
1
1

2004
2005
2007
2000

1
1
1
1

3
1

1997

2000

2000

2005
2007
2001

1
1
1

2
1

1999

1998
2004
2007
2001

1
1
1
1

2000

4
3
2
2
2
2
2
2
2

3
2
2
2
1

2
1

3
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

gains tax
Interest received from
local/ foreign/ offshore
banks
Royalty income subject
to final tax
Final tax on cash
dividends
Minimum corporate
income tax (MCIT)
Procedures for the filing
of returns of domestic
corporation
Exemption from MCIT
Income from illegal
sources
Withholding agent
Income of an
international air carrier
Tax exemption given to
expatriates
Donors tax

Requisites for the


exemption of donations
and contributions to
non-stock, non-profit
private educational
institutions
Gross estate of a
resident alien decedent
Transfer in
contemplation of death
Proceeds of life
insurance policy gross
estate
VAT exempt vs. Zero
rated VAT
VAT on professionals
Donation to political
candidate
Exemption form donors
tax
Estate tax
Gross estate of a
resident citizen decedent
Deductions from gross
estate
Medical and funeral
expenses
Filing of estate tax
returns
Transactions deemed
sales

2005

2002

2001

2001

2001

2001
2005

1
1

1
1

1999
2005

1
1

1
1

2005

1997
1998
1999
2000
2007
2000
2002
2004
2007

TRANSFER AND BUSINESS TAXES


1
1
1
1
1
1
1
1
1

2000
2005
2001
2006
2003
2005

1
1
1
1
1
1

1997

2004
2003

1
1

1
1

2001

2007
2000
2007
2000

1
1
1
1

2001

2000

1997

2
2
2

2
1

4
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Tax credit or tax refund

Prima facie evidence of


a false or fraudulent
return
When criminal
violations may be
compromised
Prescriptive period for
collection of taxes
Collection of taxes
through judicial action
Filing of criminal
complaint
Compromise penalty
Compromise
Exhaustion of
administrative remedies
Notice of assessment
Preliminary assessment
notice/ final assessment
notice
Administrative and
judicial remedies of
taxpayer
Prescriptive period for
assessment of taxes
Prescriptive period for
assessment of taxes in
fraudulent returns
Prescriptive period for
refund
Tax credit or tax refund
taxes illegally or
erroneously received
Power of the CIR to
inquire into bank
deposits of taxpayer
Power of the CIR to
compromise payment
Power of the CIR to
abate or cancel tax
liability
Power of the CIR to
obtain information from
other persons
Power of the CIR to
grant credit or refund
without written claim
Power of the CIR to
extend payment of estate
tax
Requirement for
informers award

2003
2004
2005
2006
1998
2002
2005
1998
2002
2005
2001
2002
2002
2005
2005
2006
2000
2005
2000

TAX REMEDIES UNDER THE NIRC


1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1

4
3
3
2
2
2
1
1
1

2000
2003

1
1

1
1

2000

2002

2002

1997

2005

TAX ENFORCEMENT AND ADMINISTRATION


1997
1
1998
1
2000
1
2003
1
4
2000
1
2004
1
2
2000
1
1
1998

2002

2007

2002

5
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

BIR Rulings

2007

Different types of taxes


which may be imposed
by a city or province
govt
LGUs which may
impose ad valorem taxes
Power to tax of LGUs

2002
2007

Constitutionality of tax
ordinance appealable to
the Sec. of Finance
Professional tax
Exemption form real
property taxes
Constitutional provision
on revenues and assets
of non-stock, non-profit
educational institutions
Fundamental principles
governing real property
taxation which are
limitations on the taxing
power of LGUs
Definition of real
property subject to RPT
Constitutional provision
on RPTs
Properties exempt from
RPT under LGC
Classification of real
property for tax
purposes

1
LOCAL TAXATION
1
1

1
2

2000

2000
2007
2003

1
1
1

2
1

2005
2002
2005
2006
2000
2004

1
REAL PROPERTY TAXATION
1
1
1
1
1

3
2

1997
2000

1
1

2001
2003
2000

1
1
1

2
1

2002

2002

Marking duty,
discriminatory
countervailing duty,
dumping duty
Returning residents,
definition
Flexible tariff clause,
definition
Automatic review
procedure in BOC
Basis of dutiable value
Administrative remedy
of seizure
Exemption from custom
duties

1994
2005

Jurisdiction of CTA over


decisions of Collector of
Customs involving
seizures
Jurisdiction of CTA over
decisions of BIR

2000
2002

TARIFF AND CUSTOMS CODE


1
1

2003

2001

2002

2005
1997

1
1

1
1

2005

1999

COURT OF TAX APPEALS


1
1
2

2
2

6
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Commissioner
Jurisdiction of CTA on
deficiency tax
assessment
Jurisdiction of CTA over
decisions of City Board
of Assessment Appeals
Ancillary jurisdiction of
CTA to issue writ of
injunction or prohibition

2004
2005

1
1

1999

2002

GENERAL PRINCIPLES
7
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

TAXATION
The inherent power of the
sovereign, through the legislature,
to impose burdens upon subjects
and objects within its jurisdiction for
the purpose of raising revenues to
carry out the legitimate objects of
the government.

The process or means by which the


sovereign, through its law-making
body, raises income to defray the
necessary
expenses
of
the
government by apportioning the
cost among those who, in some
measure are privileged to enjoy its
benefits and, therefore, must bear
its burdens. (71 Am.Jur.2nd 342; 1
Cooley 72-73)

TAXES the enforced proportional


contributions from persons and
property, levied by the state by virtue
of its sovereignty for the support of the
government and for all its public
needs.
CHARACTERISTICS OF A TAX:
1. Forced charged, imposition or
contribution which is in no way
dependent
on
the
will
or
contractual assent, express or
implied, of the person taxed;
2. Pecuniary
burden
generally
payable in money;
3. Levied by the legislature;
4. Assessed with some reasonable
rule
of
apportionment
(proportionate in character);
5. Imposed by the State on persons,
property or excises within its
jurisdiction;
6. for public purpose.

THEORIES IN TAXATION

1. Lifeblood Theory
Taxes are the lifeblood of the
government and their prompt and
certain availability is an imperious
need (Bull vs. United States, 295 US
247). This implies that:
1) The BIR is justified in availing of
the most expedient remedy in
the collection of the tax (CIR
vs. Pineda)
2) The BIR is not bound by the
mistakes, errors, or omissions
of its agents (thus, the Doctrine
of Estoppel does not apply to
the collection of taxes) (Rivera
vs. Fernandez)
3) No court other than the CTA
may enjoin the collection of
taxes.
Taxes are the lifeblood of the
nation, without revenue raised from
taxation; 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 (CIR vs. Algue, 158 SCRA
9).
This ruling also gave rise to the
DOCTRINE
OF
SYMBIOTIC
RELATIONSHIP between the State
and its citizen.
DOCTRINE
OF
RELATIONSHIP

SYMBIOTIC

Taxes are what we pay for a


civilized society. Without taxes, the
government would be paralyzed for
lack of the motive power to activate
and operate it. Hence, despite the
natural reluctance to surrender part of
ones hard-earned income to the
taxing authorities, every person who is
able to must contribute his share in the
burden of running the government.

8
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

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.
Illustrations of the Lifeblood Theory:
1. Collection of taxes may not be
enjoined by injunction;
2. Taxes could not be the subject
of compensation and set-off;
3. A valid tax may result in
destruction of property;
4. Taxation is an unlimited and
plenary power.
2. Necessity Theory
Taxation is a power predicated
upon necessity. It is a necessary
burden to preserve the States
sovereignty. (Phil. Guaranty Co. vs.
Commissioner, 13 SCRA 775)
Taxation proceeds upon the theory
that:
* The
existence
of
the
government is a necessity;
* It cannot continue without
means to pay its expenses;
* This means it has the right to
compel all its citizens and property
within its limits to contribute. (71
Am. Jur. 2d 346)
Marshall Dictum: The power to tax is
the power to destroy. Due to the
inherent and unlimited nature of the
power to tax, it includes the power to
regulate even to the extent of
prohibition or destruction.
It applies when power to tax is
used validly as an implement of police
power in discouraging and prohibiting
certain things or enterprises inimical to
the public welfare.

Oliver Wendell Holmes Dictum: The


power to tax is not the power to
destroy while this Court sits.
The power to tax is unlimited
except when it runs counter the
constitutional provisions.
In such
case, the court may declare and hold
such act as unconstitutional.
Reconciliation of the Marshall and
Holmes Dicta
The power to tax, though unlimited,
must not be exercised in an arbitrary
manner. Taxpayers may seek redress
before the courts in case of illegal
imposition of taxes and irregularities.
3. Benefits-Protection Theory
In return for the taxes received, the
government only secures to the citizen
that general benefit which results from
protection to his person and property
and the promotion of those various
schemes which have for their object
the welfare of all. This theory spawned
the doctrine of symbiotic relationship.
(Relate with the Doctrine of Symbiotic
Relationship, CIR vs. Algue)
NATURE OF THE TAXING POWER
a. Inherent attribute of sovereignty
The power of taxation is an
incident of sovereignty as it is inherent
in the State, belonging as a matter of
right
to
every
independent
government. It does not need of
constitutional
conferment.
Constitutional provisions do not give
rise to the power to tax but merely
impose limitations on what would
otherwise be an invincible power.
No attribute of sovereignty is more
pervading and at no point does the
power of government affect more
constantly and intimately all the

9
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

relations of life than through the


exactions made under it.
(Churchill
and Tait vs. Concepcion, 34 Phil. 969)
Being an attribute of sovereignty,
its relinquishment is never presumed.
[Luzon Stevedoring Co. vs. CTA, L30232, July 29, 1988]
Tax is an attribute of sovereignty
which emanates from necessity upon
which the very existence of the
government is dependent.
b. Legislative in character
The power to tax is exclusively
vested in the legislature and it cannot
be delegated as a whole."
In short, only the legislature can
impose taxes. This is why a person,
activity, or property is subject to tax
because and only because the law
says so.
Further, about local government,
taxation
remains
exclusively
legislative. Meaning, only the local
legislative body thru an ordinance may
impose taxes.
Inherent limitations
1. Public Purpose
2. Inherently Legislative
3. Territorial
4. International Comity
5. Exemption from Taxation of
Government
agencies/Instrumentalities
Constitutional Limitations
1. Due Process Clause (Art. III,
Sec. 1)
2. Equal Protection Clause (Art. III,
Sec. 1)
3. Uniformity (Art. VI, Sec. 28[1])
4. Progressive system of taxation
(Art. VI, Sec. 28[1])
5. Non-impairment of contracts
(Art. III, Sec. 10)

6. Non-imprisonment for Nonpayment of Poll Tax (Art. III,


Sec. 20)
7. Appropriation, revenue and tariff
bills must originate exclusively
in the House of Representatives
(Art. III, Sec. 24)
8. Presidential veto (Art. VI, Sec.
27[2])
9. Presidential power to tax tariff
rates (Art. VIII, Sec. 28[2])
10. Freedom of the press (Art. III,
Sec. 4)
11. Freedom of religion ((Art. III,
Sec. 5)
12. Exemption from property tax of
properties
of
religious,
educational,
charitable
institutions (Art. VI, Sec. 28[3])
13. Tax exemptions granted to nonstock, non-profit educational
institutions (Art. XIV, Sec. [4,5])
14. No public money or property
used for a particular sect, priest,
religious minister, etc. (Art. VI,
Sec. 29[1])
15. Grant of tax exemptions (Art. VI,
Sec. 28[4])
16. Grant of power of taxation to
local government units (Art. X,
Sec. 5)
17. Money collected for special
purposes shall be considered a
special fund (Art. VI, 29[3])
18. Exclusive appellate jurisdiction
of the SC over judgments of
lower courts involving the
legality of taxes, imports,
assessments, fees, penalty.
(Art. VIII, Sec. 5)
ASPECTS, PROCESS, PHASES OF
TAXATION.
(LAP

Levying,
Assessment, Payment)
a. Levying/Imposition of the tax.
This is essentially legislative. It
refers to the enactment of tax laws
or statutes.

10
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Note: Courts have no power to


interfere in the wisdom, objective,
motive or expediency in the
passage of a tax law, as this is
purely legislative in character. To
do so would be tantamount to a
violation of both the letter and spirit
of the organic laws by which the
Philippine
Government
was
brought into existence to invade a
coordinate
and
independent
department of the Government and
to interfere with the legitimate
powers and functions of the
Legislature. (Tolentino, et al. vs.
Secretary of Finance, 235 SCRA
630)
b. Assessment and Collection. This
is essentially administrative. It is
the act of administration and
implementation of tax law by the
executive branch through its
administrative
agencies.
Nonetheless, the delegation must
pass the completeness and
sufficient standard test in order to
prevent the abuse of its exercise.
c. Payment. This signifies an act of
compliance by the taxpayer.
SCOPE

OF THE LEGISLATIVE
POWER TO TAX (SPASM)
a. Subjects or Objects of Taxation Refers to the Coverage and the
kind or nature of the tax.
They may be persons (natural or
juridical),
property
(real
or
personal); tangible or intangible),
businesses, transactions, rights or
privileges.
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. (Walter
Lutz vs. J. Antonio Araneta, 98
Phil. 148)
b. Public Purpose.
The
legislature
primarily
determines the public purpose of
taxation although the courts can
inquire as to whether the purpose
is really public or private. However,
judicial action is limited to the
determination of the validity of
the tax in relation to constitutional
precepts or provisions or the
determination in an appropriate
case of the application of a tax law.
c. Amount or Tax Rate.
The legislature is free to levy a
tax on any amount, provided, it is
exercised within the bounds of
constitutional limitations.
Note: Not only is the power to
tax unlimited in its reach as to
subjects, but in its very nature, it
acknowledges no limits and may be
carried even to the extent of
exhaustion and destruction, thus
becoming in its exercise a power to
destroy.
d. Situs of taxation.
Taxation shall only be exercised
on persons, properties and excises
within the taxing power.

e. Manner, means and agencies of


collection of the tax.
Corollary to the sole power to
tax is the sole power to prescribe
the mode or method by which the
tax shall be collected and to

11
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

designate the officers through


whom its will shall be enforced.
Q. Is the power to tax the power to
destroy?
IT DEPENDS. The power to tax
includes the power to destroy if it is
used validly as an implement of police
power in discouraging and in effect,
ultimately prohibiting certain things or
enterprises inimical
to the public
welfare.
But where the power to tax is used
solely for the purpose of raising
revenues, the modern view is that it
cannot be allowed to confiscate or
destroy.
Note: While taxation is said to be the
power to destroy, it is no means
unlimited. If so great an abuse is
manifested as to destroy natural and
fundamental rights which no free
governmental
could
consistently
violate, it is the duty of the judiciary to
hold such an act unconstitutional.
Hence, the modification: the power
to tax is not the power to destroy
while the Supreme Court sits.
PRINCIPLES OF A SOUND TAX
SYSTEM /CANONS OF TAXATION
(FAT)
a. Fiscal Adequacy.
The taxes
envisioned to be collected must be
sufficient
for
government
expenditures and other public
needs.
NOTE: Be careful as sometimes...
"an approximate estimate of
government
expenditures"
is
sufficient
to
satisfy
the
requirement.

Fiscal adequacy requires that the


sources of revenues must be

adequate to meet government


expenditures and their variations"
(Chavez v. Ongpin)
b. Administrative Feasibility. The
tax law must be capable of
convenient, just, effective and
efficient
enforcement
and
administration. Likewise, tax laws
should close-up the loopholes for
tax evasion and deter unscrupulous
officials from committing fraud.
This principle equally applies to
taxpayers. Meaning, they must not
have difficulty understanding what
the tax law is all about.
c. Theoretical Justice. The tax law
or system must be based on the
taxpayers ability to pay.
Rule of taxation must be
uniform and equitable. The State
must evolve a progressive system
of taxation.
Will a violation of these principles
invalidate a tax law?
IT DEPENDS. A tax law will retain
its validity even if it is not in
consonance with the principles of
fiscal adequacy and administrative
feasibility because the Constitution
does not expressly require so.
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. [Sec. 28(1), Art. VI,
1987 Constitution]
Rule that taxes are personal to the
taxpayer

12
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

GEN. RULE: Taxes are personal to


the taxpayer. A Corporations tax
delinquency cannot be enforced on the
stockholder nor transfer taxes on the
estate are assessed on the heirs.
EXCEPTIONS:
1. Stockholders may be held liable for
unpaid taxes of a dissolved

corporation if corporate assets


have passed into their hands;
2. Heirs may be held liable for the
transfer taxes on the estate if the
properties of the decedent have
been distributed to them prior to the
payment of the required transfer
taxes.

TAXATION DISTINGUISHED FROM OTHER INHERENT POWERS AND


IMPOSITIONS
A.
Purpose
Amt of Exaction
Benefits
Contracts
Transfer

B.
Purpose
Compensation
Persons Affected
C.
Power
Purpose
Amt. of exaction

Taxation
To levied for the purpose of raising
revenues
No limits
No special or direct benefit is received
by the taxpayer other than that the
government secures the general
welfare of the citizens.
Recognized the obligations imposed
by of
Taxes paid form part of the public
funds

Taxation
To raise public funds
General benefit of the citizens
Applies to all persons, property and
excises that may be subject thereto
Taxation
Exercise of the taxing power
To raise government fund
No limits

Police Power
To promote public welfare through regulation
Limited to the cost of regulation, issuance of
the license or surveillance
No direct benefited, yet a healthy economic
standard of society is maintained.
Does not apply to police power
Allows merely the restraint on the exercise of
property rights.

Eminent Domain
Taking of property for public use
Just compensation is given to the owner of
the expropriated property
Only particular property is comprehended.
License
Exercise of police power
Imposed for regulatory purposes
Limited to the cost of regulation, issuance of
the license or surveillance
EXCEPT: when the fees are imposed for the
purpose of regulating non-useful business,
occupation, or activity, the amount may now

13
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

exceed the cost of regulation.

Imposition
Scope
Effect of
payment

Non-

The primary purpose is to generate


funds and regulation is merely
incidental
covers legitimate and illegitimate
business, etc...
Non-payment of tax does not render
business illegal

D. Taxation
Not limited to land
As a rule, cannot be made a personal liability
of the persons assessed
Is based wholly on benefits
It is exceptional both as to time and locality. A
charge imposed only on the property owners
benefited is a special assessment rather than
a tax.
E.
Taxation
It is a demand of sovereignty for the purpose
of raising public revenues.
F.
Taxation
It is a civil liability. Person is criminally liable
only when he fails to satisfy his civil obligation
to pay taxes

The primary purpose is to regulate; to


generate funds merely incidental
only legitimate business
Non-payment of fee renders the business
illegal

Special Assessment
Can be levied only on land
Personal liability
The imposition of a charge on all property in a
prescribed area is a tax not an assessment
although the purpose is to make a local
improvement on street or highway.
Toll
It is a demand of proprietorship, an amount
charged for the cost and maintenance of the
property used
Penalty
It is a punishment for the commission of a crime.

TAX

TAX as distinguished from DEBT

DEBT

Basis

Law

Contract or judgment.

Effect of non-payment
Imprisonment (except in case of poll tax)
No imprisonment
Generally payable in money

Mode of Payment
Payable in money, property or services
Assignability

Not assignable

Assignable
Set off

May not be a subject of compensation or May be a subject of compensation or set-off


set-off
Interest
Does not draw interest unless delinquent 14 Draws interest if stipulated or delayed
Academics Heads: Philip & Berto
Authority
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Imposed by public authority
It is a private transaction
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

15
Academics Heads: Philip & Berto
Taxation Law Heads: Noemi Acain & Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

NOTE: Taxes are not debts because


a tax does not depend upon the
consent of the taxpayer and there is no
express or implied contract to pay
taxes.
Exceptions:
1. Tax collection being enforceable by
court action (Sambrano v. TA, 101
Phil.)
2. In the application of certain statutes
of limitation (Rep. Far Eastern
American, Co., 7 SCRA 399)
3. In the matter of deductible items
from gross income [ Commissioner
v. Prieto, 109 Phil. 592] ( Vitug
Book)
4. When it is secured by a bond, the
tax is considered as a bond.

The SC REJECTED this doctrine


in Collector vs. UST (104 Phil 1062),
since it may work to tempt both parties
to delay and neglect their respective
pursuits of legal action within the
period set by law.

SET-OFF

REQUISITES OF A VALID TAX.


(PUJAN)
a. It should be for public purpose
b. The rule of taxation should be
uniform
c. That either the person or property
taxed be within the jurisdiction of
the taxing authority
d. That
the
assessment
and
collection be in consonance with
the due process clause.
e.
The tax must not infringe on
the inherent and constitutional
limitations of the power of taxation.

General Rule: Taxes cannot be the


subject of compensation or set-off.

PURPOSES OF TAXATION
a. Primary to raise revenues

Reasons:
1. Lifeblood theory
2. Taxes
are
not
contractual
obligations but arise out of duty to
the government.
3. The government and the taxpayers
are not mutually creditors and
debtors of each other.

b. Secondary/non-revenue
purposes (RIPE)

Exception: When both the claim of the


Government for taxes and the claim of
the taxpayer for the services rendered
has already become overdue and
demandable as well as fully
liquidated, compensation therefore,
takes place by operation of law.
(Domingo vs. Garlitos, 8 SCRA 443)
Doctrine
of
EQUITABLE
RECOUPMENT - A claim for refund
barred by prescription may be allowed
to offset unsettled tax liabilities arising
from the same transaction.

1. To reduce social inequality


2. To implement the police
power of the State (regulatory
purpose)
3. To
protect
our
local
industries
against
unfair
competition
4. To encourage the growth of
local industries
EXTENT/SCOPE OF THE TAXING
POWER (CUPS)
a. It is comprehensive. It covers
persons, businesses, activities,
professions, rights and privileges.
b. It is unlimited. The power to
impose taxes is one so unlimited in
force and so searching in extent
that the courts scarcely venture to
declare that it is subject to any

16
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

restrictions whatever, except such


as rest in the discretion of the
authority which exercises it
c. It is plenary as it is complete.
d. It is supreme. Taxation, although
referred to as the strongest of all
the powers of the government,
cannot be interpreted to mean that
it is superior to the other inherent
powers of the government, only
that it is supreme insofar as the
selection of the subject is
concerned
LIMITATIONS
POWER

ON

THE

TAXING

A. Inherent limitations of the taxing


power
1. Public Purpose
2. International Comity
3. Non-delegation of taxing power
4. Territoriality or situs of taxation
5. Tax-exemption
of
the
Government
1. Public purpose

A. This is a legislative prerogative. The


power to determine whether the
purpose of taxation is public or private
resides in Congress. However, this
will not prevent the court from
questioning the propriety of such a
statute on the ground that the law
enacted is not for public purpose; but
once it is settled that the law is for a
public purpose, the court may no
longer inquire into the wisdom,
expediency or necessity of such tax
measure.
It is the purpose which determines
the public character of the tax law, not
the number of persons benefited. As
long as the ultimate result favors the
welfare of the public in general, the
appropriation of public revenue is
deemed done for the public purpose.
Q. When
exist?

must

public

purpose

A. It must exist at the time the tax


proceeds are being used or a tax law
is being passed for a certain purpose,
whichever comes first. (Pascual vs.
Sec. of Public Works)

Taxation is for public purpose when:


a. The thing to be furthered by the
appropriation of public revenue is
something which is the duty of the
government to provide; or
b. When the proceeds of the tax will
directly promote the welfare of the
community in equal measure
NOTE:
Incidental advantage to the
public or to the State, which results
from the promotion of private
enterprise or business, does not justify
their aid by the use of public money.

Requisites of a Taxpayers Suit


1. That the tax money is being
extracted and spent in violation
of
specific
constitutional
protection against abuses of
legislative power.
2. That public money is being
deflected to any improper
purpose.
3. That the petitioner seeks to
restrain the respondents from
wasting public funds through
enforcement of an invalid or
unconstitutional law.

Q. Who may determine public


purpose?
17
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

However, the SC has discretion as


to whether or not to entertain a
taxpayers suit and could brush
aside the lack of locus standi where
the issues are of transcendental
importance in keeping with the
courts duty to determine that public
offices have not abused the
discretion
given
to
them.
(Kilosbayan vs. Guingona, 232
SCRA 110)
2.

International Comity principle of sovereign equality


among states and of their freedom
from suit without their consent limit
the authority of the government to
effectively impose taxes on a
sovereign
state
and
its
instrumentalities, as well as on its
property held, and activities taken
in that capacity.
Thus, if a tax law violates
certain international laws, it is not
only invalid but it is also
UNCONSTITUTIONAL
because
the
constitution
says
"the
Philippines adopts the generally
accepted principles of international
law as part of the law of the land."

3. Non-delegation of taxing power


GEN. RULE: Power of taxation is
vested in Congress and may not be
delegated.
EXCEPTIONS:
a. Local taxing power granted by
the Constitution (Art. X, Sec. 5);
Suppose this provision does not
exist, may LGU exercise the
power of taxation?
Yes, under the Doctrine of
Implied Necessity. Meaning, the
power
to
create
municipal

corporations carries with it by


necessary implication the power to
compel upon it the power to tax.
The importance of this provision
now is: in case of doubt as to
whether the LGU has the power to
tax or not, all doubts must be
resolved in favor of the existence of
such power. This is not the rule
without such provision in the
Constitution.
b. Authority of the President,
under the Constitution, to fix tariff
rates, import and export quotas (Art
6, Sec. 28[2])
c. When delegation relates merely
to administrative implementation
that may call for some degree of
discretionary powers under a set of
sufficient standards expressed by
law.
NOTE: Some authors often include
this because when you talk of
enforcement, it is no longer
legislative in character; thus, there
is nothing to delegate. In the
ordinary set-up of our bureaucracy,
Congress makes the law (impose
the tax), the Executive (BIR)
executes the law.
4. Territoriality or situs of taxation
persons or property must be
within the jurisdiction of the taxing
power.
The territoriality rule does not
merely relate to "geographical"
location, but to the jural concept or
nexus or bond between the taxing
authority and the taxpayers. And
this nexus depends on the type of
taxes imposed, the personal
circumstances of the taxpayers,
and also the location of the subject
of taxation.

18
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Rules Observed in Fixing Tax Situs


a. Poll/capitation/community tax
Poll or capitation, or community
taxes are based upon the
residence of the taxpayer,
regardless of the source of income
or location of the property of the
taxpayer.
b. Property Tax
b.1. Real Property- is subject to
taxation in the state or country
where it is located (lex rei sitae),
regardless of whether the owner is
a resident or a non-resident. [First
National Bank vs. Marine, 284 U.S.
321. 77 ALR 401]
b.2. Personal Property- the situs
is wherever it was actually kept or
located, was held to be the
domiciled of its owner, following
the age-old Doctrine of Mobilia
sequuntur personam (movables
follow the person).
MOBILIA SEQUUNTUR PERSONAM
Although a mere fiction of law,
without any constitutional foundation, it
is
nevertheless
applied
when
convenient, provided it is not
inconsistent with express provisions of
the law. To acquire a situs in a state
other than the domicile of the owner,
tangible property must have a definite
location there, accompanied by some
degree
of
permanency;
mere
temporary or transient presence in the
state is not sufficient.
Exception:
Actual or business situs (Wells
Fargo v. CIR) which has been codified
in Section 104, R.A. 8424 enumerates

certain properties which acquired


actual situs in the Philippines, viz:
1. Franchise exercised in the
Philippines;
2. Shares of stock, obligations,
bonds issued by domestic
corporations organized and
constituted in accordance with
Philippine laws;
3. Shares,
obligation,
bonds
issued by foreign corporation
where 85% of its business is
located in the Philippines. It is
subject to donors tax and
estate tax;
4. Shares/right in a partnership
business or industry established
in the Philippines;
5. Shares, obligations, bonds,
issued by foreign corporations
which acquired business situs,
when such have been used in
the furtherance of the business
of the foreign corporation.
Thus, the RULE: irrespective of the
owner, donors tax or estate tax can be
imposed upon these properties.
EXCEPT where the foreign corporation
grants exemption or does not impose
taxes on intangible properties of
Filipino citizen.
c. Business tax- place of business
d. Excise tax- Where the act is
performed or where occupation is
pursued
e. Sales tax- where the sale is
consummated
f. Income tax- consider citizenship,
residence and sources of income
(Sec. 42, R.A. 8424)

19
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

g. Transfer
taxresidence
citizenship of the taxpayer
location of property

or
or

public policy, properties of the State


or any of its political subdivisions
devoted to government use and
purposes are generally exempt
from taxation.
However, nothing can prevent
Congress from decreeing that even
instrumentalities or agencies of the
government performing functions
may be subject to tax. (MCIAA vs.
Marcos, 261 SCRA 667)

h. Franchise tax- state which granted


the franchise
i. Value added taxPrinciple is followed

Destination

5. Tax-exemption
of
the
Government as a matter of

Agencies performing governmental functions distinguished from Agencies


performing proprietary functions
Agencies
performing
Agencies performing proprietary functions
governmental
functions
Tax-exempt unless Subject to tax unless expressly exempted.
expressly taxed
Government-owned and controlled corporations perform proprietary
functions; hence, they are subject to taxation.
General Rule: government is taxable.
Exception: when there is a law which says that it is exempt from tax.
From these rules, you now make a distinction:
1) agencies performing governmental function as a rule are tax exempt
(by
reason of public policy) UNLESS expressly subject to tax; and,
2) agencies performing proprietary function are subject to tax UNLESS
expressly exempt. (Posadas vs. Standard Well)
Now, with respect to government properties, NDC vs. Cebu City,
enunciated these principles:
1. Properties owned by the Republic of the Philippines AND agencies
without separate and distinct personality are exempt from taxation. (In
other words, those agencies with charter are treated for tax purposes in
accordance with the provisions of their respective charters.)
2. The exemption of public properties from taxation does not extend to
the improvements introduced upon them by the present occupants at
their expense.

B. Constitutional limitations of the


taxing power:

1. DUE PROCESS OF LAW


20

Academics Committee Heads: Philip and Berto


Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

No person shall be deprived of


life, liberty or property without due
process of law (Art 3, Sec.1 of the
Constitution)

5. If the law is imposed for a purpose


other than public purpose
2. EQUAL PROTECTION OF THE
LAW

Requisites of Due Process:


Substantive Limitation- The interests
of the public generally as distinguished
from those of a particular class require
the intervention of the State; and
Procedural Limitation- The means
employed
must
be
reasonably
necessary to the accomplishment of
the
purpose
and
not
unduly
oppressive.
The requirement of due process
whether taken from the substantive to
the procedural aspect simply means
one thing -- reasonableness of the
legislation.
Substantive means that it should
not be harsh, confiscatory, unjust and
oppressive. Procedural means that it
must provide notice and opportunity to
be heard. Thus, they simply mean that
the law must be reasonable.
There must be evidence to support
a claim of violation of this
constitutional provision. Without
proof,
the
presumption
of
constitutionality of law applies.

nor shall any person be denied


the equal protection of the laws.
(Art. 3, sec.1 of the Constitution)
Note: it merely requires that all
persons subjected to such legislation
shall be treated alike, under like
circumstances and conditions, both in
the privileges conferred and in the
obligations imposed.
Requisites for a valid Classification:
a.

It must be based on
SUBSTANTIAL distinctions
b.
It must APPLY to both
present and future conditions
c.
It must be GERMANE to the
purposes of the law
d.
It must apply EQUALLY to
all members of the same class
Substantial distinction - it must be
real, material and not superficial
distinction (See cases of Punzalan,
Association of Customs Brokers, Hiu
Tsong Pao, Ormoc Sugar)
3. UNIFORMITY OF TAXATION
The rule of taxation shall be
uniform and equitable. (Art. 6, Sec.
28(1) of the Constitution)

However, due process is violated by


any of these situations: (VCORP)
1. Where the law is in violation of
inherent limitations
2. If
the
tax
amounts
confiscation of property

to

3. If the subject of confiscation is


outside the jurisdiction of the taxing
authority

UNIFORMITY
AND
DISTINGUISHED
EQUALITY IN
TAXATION

EQUALITY

UNIFORMITY IN
TAXATION

4. If the law which is applied


retroactively imposes unjust and
oppressive taxes
21
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

accomplished when
the burden of the
tax falls equally and
impartially upon all
the persons and
property subject to it

A tax is considered
uniform when it
operates with the same
force/effect in every
place where the subject
may be found.

Equitability is
achieved when the
burden of taxation
falls to those better
able to pay.

All property belonging


to the same class shall
e taxed alike.

Constitutional Equality in Taxation


Means that all persons who are
similarly situated should be treated
alike both in the privilege conferred
and burdens imposed.
the application of the concept of
equal protection of the laws which
prohibits discrimination other than
those instances where there is
valid classification.
Thus, persons who are similarly
situated, or who belong to the same
class, should be given by law the
same protection and privileges as well
as imposed the same burdens and
obligations.
Uniformity of taxation NOT the
same as equality in taxation
Uniformity of taxation means that
all articles or properties of the same
class shall be taxed at the same rate.
Different articles or other subjects like
transactions, business, rights, may be
taxed at different rates provided that
the rate (not necessarily the amount) is
uniform in the same class everywhere.
4. PROGRESSIVE
TAXATION

SYSTEM

OF

Congress shall evolve a


progressive system of taxation (Art.6,
Sec.28 (1) of the Constitution)

Tax rate increases


as tax base increases.

NOTE: The Constitution provides that


the
Congress
shall
evolve
a
progressive system of taxation.
However, this provision is merely a
directive to Congress, NOT a right
enforceable before the courts.
Is a tax adopting a regressive
system of taxation is valid?
Yes. The Constitution does not
really prohibit the imposition of indirect
tax is which, like the VAT, are
regressive.
The
Constitutional
provision simply means that indirect
taxes shall be minimized. The
mandate to Congress is not to
prescribe but to evolve a progressive
tax
system.
(EVAT En
Banc
Resolution,
Tolentino,
et.al
vs.
Secretary of Finance, Oct. 30, 1995)
5. NON-IMPAIRMENT CLAUSE
No law impairing the obligation of
contracts shall be passed.(Art. 3,
Sec.10 of the Constitution)
Non-impairment clause of the
Constitution constitutes a limitation
on the power of taxation
The obligation or contract is
impaired when its terms or conditions
are changed by law or by a party
without consent of the other thereby
weakening the position of the latter.
Thus, there is impairment by law
when a tax exemption based on a
contract is revoked by a later taxing
statute.
It may be well to point out that the
non-impairment clause will only be
violated if and when the taxing

22
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

authority was a party to the contract in


question.
Note: The rule, however, does not
apply to public utility franchises or
rights since they are subject to
amendment, alteration or repeal by the
Congress when the public interest so
requires. (Cagayan Electric and Light
Co., Inc. vs. Commissioner, G.R. no.
60216, September 25, 1985)
NOTE: This provision was NOT
REALLY thought of as a limitation on
the power of taxation EXCEPT in case
where tax exemption was granted for a
valuable
consideration.
So
the
question now should be are tax
exemptions falling under the subject
constitutional provision revocable? You
have to qualify, if the exemption is
granted via a franchise, it can be
revoked because of Section 11 Article
12 of the Constitution. However, if the
exemption is via a contract, it cannot
be revoked. Why the distinction?
Because in the grant of franchise, the
government
is
exercising
a
governmental function, while in
contract, the government merely
exercises a proprietary function.

7.
BILLS
TO
ORIGINATE
EXCUSIVELY FROM THE HOUSE OF
REPRESENTATIVES
All appropriation, revenue or tariff
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.
(Art. 3, Sec. 24, of the Constitution)
NOTE: It is the BILL and not the LAW
that should originate from the lower
house. In other words, if the final
version is substantially that bill passed
by the Senate, for as long as the
initiatory bill was commenced by the
lower house, it is valid.
8.

THE
VETO
POWER OF THE PRESIDENT

The president shall have the


power to veto any particular item or
items in an appropriation, revenue or
tariff bill but the veto shall not affect
the item or items to which he does not
object. (Art. 6, Sec. 27(2) of the
Constitution)

6. NON-IMPRISONMENT FOR NONPAYMENT OF POLL TAX

9.

No person shall be imprisoned for


non-payment of a debt or poll tax. (Art
3, Sec.20 of the constitution)

The Congress may, by law,


authorize the President to fix within
specified limits and subject to such
limitations and restrictions 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.(Art. 8,
Sec.28 (2) of the Constitution)

NOTE: But if acts, violative of laws


were committed in the issuance and
payment of the cedula, imprisonment
is allowed. For instance, if a taxpayer
was
issued
a
cedula
thru
misrepresentation or falsification, the
taxpayer could be imprisoned for
falsification of public document.

PRESIDENTS
DERIVATIVE POWER TO TAX

The term FLEXIBLE TARIFF


CLAUSE refers to the authority given
to the President to adjust tariff rates
under Section 401 of the Tariff and

23
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Customs Code, which is the enabling


law that made effective the delegation
of the taxing power to the President
under the Constitution.
10.

TAXATION
AND THE FREEDOM OF THE
PRESS

No law shall be passed abridging


the freedom of speech, of expression
or of the press.(Art.3, Sec. 4 of the
Constitution)
There is curtailment of press
freedom and freedom of thought and
expression if a tax is levied in order to
suppress this basic right and impose a
prior restraint. (Tolentino, et.al vs.
secretary of Finance, 235 SCRA 630)
11.

TAXATION AND
FREEDOM OF RELIGION

No law shall be made respecting


an establishment of a religion or
prohibiting the free exercise thereof.
The free exercise and enjoyment of
religious profession and worship
without discrimination or preference
shall forever be allowed. No religious
test shall be required for the exercise
of civil or political rights. (Art.3, Sec. 5,
of the Constitution)
The income of such organizations
from any activity conducted for
profit or from any of their property,
real or personal, regardless of the
disposition made of such income, is
taxable.
12.
TAX
EXEMPTION
OF
PROPERTIES
ACTUALLY,
DIRECTLY
AND
EXCLUSIVELY
USED
FOR
RELIGIOUS, CHARITABLE AND
EDUCATIONAL PURPOSES (Art.
6,sec.28(3) of the Constitution)

REASON FOR THE RULE:


Cemeteries are exempt from the
payment of taxes because of the
difficulty of collecting a tax thereon and
the obvious impropriety of selling the
graves of the dead to defray the
expenses
of
carrying
on
the
government of the living.
Churches and parsonages or
convents appurtenant thereto, are
exempt from taxation because such
institutions perform work which would
otherwise have to be carried on by the
public at the expense of the taxpayers
and that the expenses of such
institutions from taxation lessens
rather than increases the burden upon
other taxpayers.
CONTROLLING
DOCTRINE
ON
EXEMPTION FROM TAXATION OF
REAL PROPERTY OF RELIGIOUS,
CHARITABLE AND EDUCATIONAL
INSTITYUTIONS
In the recent case of Lung Center
of the Philippines vs. Q.C and
Constantino p. Roxas, City Assessor
of Q.C., G.R. no. 144104, June 29,
2004, 433 SCRA 119, the prevailing
rule on the application of tax
exemption to properties incidentally
used for religious, charitable and
educational purposes, as enunciated
in the case of Herrera vs. QC-BAA, 3
SCRA
187,
has
now
been
ABANDONED. In resolving the issue
of whether or not the portions of the
real property of Lung Center that are
leased to private entities are exempt
from real property taxes, the SC
reexamined
the
intent of
the
Constitutional provision granting tax
exemption of properties ACTUALLY,
DIRECTLY AND EXCLUSIVELY USED
FOR RELIGIOUS, CHARITABLE AND
EDUCATIONAL PURPOSES.

24
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

Thus,
the
records
of
the
Constitutional Commission reveal that
what is exempted is not the institution
itself; those exempted from real estate
taxes are lands, buildings and
improvements actually, directly and
exclusively
used
for
religious,
charitable or educational purposes.

1. For PURPOSES OF income


taxation, the income of non-stock
corporations operating exclusively
for
charitable
and
religious
purposes, no part of which inures
to the benefit of any member,
organizer or officer or any specific
person, shall be exempt from tax.

Exclusive
is
defined
as
possessed and enjoyed to the
exclusion of others; debarred from
participation or enjoyment; and
exclusively is defined, in a manner
to exclude; as enjoying a privilege
exclusively. If real property is used for
one or more commercial purposes, it is
not exclusively used for the exempted
purposes but is subject to taxation.
The words dominant use or principal
use cannot be substituted for the
words used exclusively without doing
violence to the Constitution and the
law.
Solely is synonymous with
exclusively.

However,
the
income
of
whatever kind and nature from any
of their properties, real of personal
or from any of their activities for
profit regardless of the disposition
made of such income shall be
subject to tax. (Sec. 30, par. E and
last par., NIRC).

What is meant by actual, direct and


exclusive use of property for
charitable, religious and educational
institutions 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 the income from the real
property that is determinative of
whether the property is used for taxexempt purposes. (St. Louis Mens
Christian Association vs. Genher, 47
S.W.2d77)
NOTE: The rule remains that it is the
USE and not ownership that
determines the exempt character of
the property. What is meant by "use"
remains a litigious issue, but should
always be measured under the
constitutional prescription of ActuallyDirectly-Exclusively purposes.
SUMMARY OF RULES:

2. For purposes of income taxation,


donations received by religious,
charitable
and
educational
institutions are considered as
income but not taxable income as
they are items of exclusion.
On the part of the donor, such
donations are deductible expense
provided that no part of the income
of which inures to the benefit of
any
private
stockholder
or
individual in an amount not
exceeding 10% in case of
individual, and 5% in case of a
corporation, of the taxpayers
taxable income derived from trade
or business or profession. (Sec. 34
(H), NIRC).
3. For purposes of donors and estate
taxation, donations in favor of
religious and charitable institutions
are generally not subject to tax
provided, however, that not more
than 30% of the said bequest,
devise or legacy or transfer shall be
used for administration purposes
(Sec. 87 and 101, NIRC).
13.
TAX
EXEMPTIONS GRANTED TO NON-

25
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

STOCK,
NON-PROFIT
EDUCATIONAL INSTITUTIONS
All revenues and assets of nonstock, non-profit educational institution
used actually, directly and exclusively
for educational purposes shall be
exempt from taxes and duties. Upon
the dissolution and cessation of the
corporate existence of such institution,
their assets shall be disposed of in the
manner provided by law. (Art. 14,
Sec.4 (3) of the Constitution)

indirectly for the use, benefit or support


of any sect, church, denomination,
sectarian institution, or system of
religious or of any priest, preacher,
minister, or other religious teacher, or
dignitary.
EXCEPT: when such priest, preacher,
minister or dignitary is assigned to the
armed forces or to any penal institution
or
government
orphanage
or
leprosarium
15.

Subject
to
the
conditions
prescribed by law, all grants,
endowments, donation or contributions
used actually, directly and exclusively
for educational purposes shall be
exempt from tax. (Art. 14, Sec.4 (4) of
the Constitution)
ART. 14 DISTINGUISHED FROM
ART. 6 OF THE 1987 CONSTITUTION
ART
14,
SEC. 4(3)
GRANTEE Non-stock,
non-profit
educational
institution
TAXES
Income tax
COVERED Custom
duties
Property
tax ( DECS
Order No.
137-87)

ART
6,
SEC. 28(3)
Religious,
educational,
charitable
institutions
Property tax

14.
NO
PUBLIC
MONEY OR PROPERTY USED FOR
A PARTICULAR SECT, PRIEST,
RELIGIOUS MINISTER, OR OTHER
RELIGIOUS
TEACHER
OR
DIGNITARY
(Art.
6,Sec.29(1)
Constitution)
GEN. RULE: No public money or
property
shall
be
appropriated,
applied, paid or employed directly or

GRANT OF TAX
EXEMPTIONS
No law granting any tax
exemption shall be passed without
the concurrence of a majority of all
the members of Congress. (Art. 6,
Sec.28 (4) of the Constitution)

GENERAL RULE: NO EXEMPTION


EXCEPT: When a statute provides that
certain persons or property is immune
from taxation.
Rule on Construction of Exemption:
1.
Exemptions
from taxation are not presumed.
2.

He who claims
as exemption must be able to
justify his claim by the clearest
grant of organic or statute law by
words too plain to be mistaken. If
ambiguous, there is no exemption.

3.

He who claims
should
prove
by
proof that he is

exemption
convincing
exempted.
4.
rule; tax
exception.
5.

Taxation is the
exemption is the

Tax exemption
must be strictly construed against

26
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

the taxpayer and liberally in favor of


the taxing authority.
6.

Constitutional
exemption is self-executing.

7.

Tax
exemptions are personal.

STRICT CONSTRUCTION RULE- It


simply means that if, after the
application of all rules of interpretation
for the purpose of ascertaining the
intention of the legislature, a well
founded doubt exists, then the
ambiguity that occurs may be settled
by the rule of strict construction.
EXCEPTIONS
to
Construction Rule:

the

Strict

a. The rule on strict construction rule


does not apply where the statute
granting the exemption expressly
provides for liberal interpretation;
b. The rule does not apply to special
taxes relating to special cases and
affecting only special classes of
persons;
c. In case of property owned by the
state an express exemption should
not be construed with the same
degree of strictness that applies to
exemptions contrary to public
policy of the state, since as to such
property, exemption is the rule and
taxation the exemption
d. Exemptions
to
traditional
exemptees, such as religious and
charitable institution;
e. The rule does not apply in the case
of
exemptions in
favor
of
governmental political subdivision
or instrumentality [Maceda vs.
Macaraig, jr., 197 SCRA 771]
f. If the taxpayer falls within the
purview of exemption by clear
legislative intent. [CIR vs. Arnoldus
Carpentry Shop, G.R. no. 71122,
March 25, 1988]

TAX AMNESTY

TAX EXEMPTION

Immunity from all


criminal and civil
obligations arising
from nonpayment of taxes.

Immunity from the


civil liability only.

It is a general
pardon given to
all taxpayers
16.
GRANT OF
POWER OF TAXATION TO LOCAL
GOVERNMENT UNITS
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. (Art. 10, Sec. 5,
Constitution)
Congress cannot abolish the local
governments power to tax as it
cannot abrogate what is expressly
granted by the fundamental law.
17. SPECIAL FUND
All money collected on any tax
levied for a special purpose shall be
treated as a special fund and paid out
for such purpose only. If the purpose
for which a special fund was created
has been fulfilled or abandoned, the
balance, if any, shall be transferred to
the general funds of the government.
(Art. 6, Sec.29 (3), Constitution)
18.
SUPREME
COURTS
JURISDICTION OVER TAX CASES
(Art. VIII, Sec. 5)

27
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

The Supreme Court may review,


revise, reverse, modify or affirm on
appeal or certiorari as the law or the
Rules of Court may provide all cases

involving the legality of any tax,


impost, assessment or toll, or any
penalty imposed in relation thereto.

DIRECT

INDIRECT

Tax for which a taxpayer is directly liable on the


transaction or business it engages in
SPECIFIC

Tax primarily paid by persons who can shift the


burden upon someone else
AD VALOREM

Imposed and based on weight or volume capacity


or any other physical unit of measurement

Based on selling price or other specified value of


goods

GENERAL

SPECIAL

Imposed solely
government

to

raise

revenue

for

the

Imposed and collected to achieve a particular


legitimate object of government

NATIONAL

LOCAL

Imposed by the national government

Levied and collected by the local government

PERSONAL

PROPERTY

Is of fixed amount imposed on individuals, whether


citizens or not, residing within a specified territory,
without regard to their property or occupation

Imposed on property, real or personal, in


proportion to its value.

PROGRESSIVE

REGRESSIVE

Tax rate increases as the tax base increases

Tax rate decreases as the tax base increases

DOUBLE TAXATION
Double taxation- strictly, taxing twice
the same object/subject, same taxing
jurisdiction, same purpose, same tax,
same year ("direct duplicate");
should one of these is not the same,
i.e., say not same year, then it is called
("indirect duplicate")
In either case, there is no law
which prohibits the same. There is not
even a prohibition by the constitution
as you say it.
However, in case of direct
duplicate, if it amounts to confiscation
of property for being unjust,
oppressive, or unfair, then it is
unconstitutional not on the ground of

double taxation but for being violative


of the due process clause.
Note: there is no constitutional
prohibition against double taxation. It is
not favored but permissible. [Pepsi
Cola Bottling Co. vs. City of Butuan,
24 SCRA 789]
Kinds of Double Taxation
1. DIRECT

2. INDIRECT

-Occurs when the same


property is taxed twice
when it should be taxed
once
-objectionable or
prohibited sense
Allowed it the taxes are
of different nature or
character, imposed by
different taxing authority
-permissible double

28
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

3. DOMESTIC
4. INTERNATIONAL

taxation
Arises when the taxes
are Imposed by the local
or national government
Refers to 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.

TREATY
AS
A
MODE
OF
ELIMINATING DOUBLE TAXATION
1. EXEMPTION METHOD - 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 the
credit itself.
2. CREDIT METHOD the tax paid in
the state of source is credited against
the tax levied in the state of residence.
It focuses upon the tax.
FORMS
OF
ESCAPE
TAXATION (ESCATE)
1. Shifting
2. Capitalization
3. Transformation
4. Avoidance
5. Exemption
6. Evasion-unlawful

FROM

A. Shifting
Process by which tax burden is
transferred from statutory taxpayer
(impact of taxation) to another
(incident of taxation) without violating
the law.
Illustration: Value added tax. The
seller is required by law to pay the
tax, but the burden is actually
shifted or passed on to the buyer.
Impact of taxation point on which
tax is originally imposed.

Incidents of taxation point on which


the tax burden finally rests or settles
down.
B. Capitalization
Reduction in the price of the taxed
object equal to the capitalized value of
future taxes which the purchaser
expects to be called upon to pay.
C. Transformation
The manufacturer or producer upon
whom the tax has been imposed,
fearing the loss of his market if he
should add the tax to the price, pays
the tax and endeavors to recoup
himself by improving his process of
production, thereby turning out his
units at a lower cost.
D. Tax Avoidance
Use by the taxpayer of legally
permissible alternative tax rates or
methods of assessing taxable property
or income in order to avoid or reduce
tax liability.
E. Tax Evasion
Use by the taxpayer of illegal or
fraudulent means to defeat or lessen
the payment of the tax.
Indicia of Fraud in Tax Evasion
1. Failure to declare for taxation
purposes true and actual
income derived from business
for two consecutive years; or
2. Substantial underdeclaration of
income tax returns of the
taxpayer for four consecutive
years coupled with intentional
overstatement of deductions.
F.
Tax Exemption - A grant of
immunity, express or implied, to

29
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

particular persons or corporations from


the obligation to pay taxes.
Kinds of Tax Exemptions
As to basis:
1. Constitutional: Immunities from
taxation which originate from the
constitution
2. Statutory: Those which emanate
from legislation

its agents; erroneous application and


enforcement of law by public officers
do not block the subsequent correct
application of statutes.
Exception: In the interest of justice
and fair play, as where
injustice will result to the
taxpayer.

As to form:
1. Express: Expressly granted by
organic or statute law
2. Implied: When particular persons,
properties, or excises are deemed
exempt as they fall outside the
scope of the taxing provision itself.

DOCTRINE
IMPRESCRIPTIBILITY

As to extent:
1. Total: Connotes absolute immunity.
2. Partial: One where a collection of a
part of the tax is dispensed with.

The rules that have been adopted


are as follows:

As to object:
1. Personal: granted directly in favor
of certain persons
2. Impersonal: granted directly in
favor of a certain class of property
TAX EVASION vs. TAX AVOIDANCE
TAX EVASION
Connotes fraud
through the use of
pretenses and
forbidden devices
to lessen or
defeat taxes
Scheme used
outside of those
lawful means

TAX AVOIDANCE
Legal means used
by the taxpayer to
reduce taxes

Tax saving device


within the means
sanctioned by law

Rule of No Estoppel against the


Government
General Rule: The Government is not
estopped by the mistakes or errors of

OF

As a rule, taxes are imprescriptible


as they are the lifeblood of the
government. However, tax statutes
may provide for statute of limitations.

a. National Internal Revenue Codethe statute of limitation for


assessment of tax if a return is filed
is within three (3) years from the
last day prescribed by law for the
filing of the return or if filed after the
last day, within three years from
date of actual filling. If no return is
filled or the return is false or
fraudulent, the period to assess is
within ten (10) years from discovery
of the omission, fraud or falsity.
b. Tariff and Customs Code- it does
not express any general statute of
limitation; it provides, however, that
when articles have been entered
and passed free of duty of final
adjustments of duties made, with
subsequent delivery, such entry
and passage free of duty or
settlements of duties will, after the
expiration of three (3) years from
the date of the final payment of
duties, in the absence of fraud or
protest
or
compliance
audit
pursuant to the provisions of this
code be final and conclusive upon

30
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

all parties, unless the liquidation of


the import entry was merely
tentative.

2. Income all wealth which flows


into the taxpayer other than as a
mere return of capital.

c. Local Government Code- Local


taxes, fees, or charges shall be
assessed within five (5) years from
the date they become due. In case
of fraud, or intent to evade the
payment of taxes, fees, or charges,
the same may be assessed within
ten (10) years from discovery of
such. They shall also be collected
either by administrative or judicial
action within five (5) years from the
date of assessment.

3. Capital resource of person which


can be used in producing goods
and services.

PRINCIPLE OF PROSPECTIVITY OF
TAX LAWS
The general rule under the Civil
Code that laws shall have prospective
application applies to tax laws.
Retroactive application of
revenue laws may be allowed if it will
not amount to denial of due process.
TAXPAYERS SUIT - Requires illegal
expenditure of public money.

NATIONAL TAXATION

A. INCOME TAXATION
Definitions
1. Income Tax tax on all yearly
profits arising from property,
possessions, trade or business, or
as a tax on a persons income,
emoluments, profits and the like
(61 CJS 1559)
tax on income, whether
gross or net. (27 Am. Jur. 308)

Income
All wealth which
flows into the
taxpayer other
than as a mere
return of capital.
Flow of Wealth
Source of wealth

Capital
Fund or property
which can be used
in producing goods
or services
Fund or property
Wealth

Requisites for Income to be Taxable


1. There must be a gain or profit.
2. The gain must be realized or
received.
3. The gain must not be excluded
by law or treaty from taxation.
Tests on Taxability of Income
1. Flow of Wealth Test The
determining
factor
for
the
imposition of income tax is whether
any gain was derived from the
transaction. (CIR vs. Administratrix
of the Estate of Echerri)
2. Realization Test - unless the
income is deemed "realized," there
is no taxable income.
Revenue is generally recognized
when both of the ff. conditions are
met:
(a) The
earning
process
is
complete or virtually complete,
and
(b) An exchange has taken place.
3. Economic-Benefit Principle - flow
of wealth realized is taxable only to
the extent that the taxpayer is
economically benefited.

31
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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4. Net Effect Test The substance of


the whole transaction, not the form,
usually
controls
the
tax
consequences.
Taxable Income the pertinent items
of gross income specified in the Tax
Code, less the deductions and/or
personal and additional exemptions, if
any, authorized for such types of
income by the Tax Code or other
special laws.
Nature of Income Tax
It is generally regarded as an
excise (privilege) tax. It is not levied
upon persons, property, funds or
profits as such but upon the right of
the person to receive income or profits.
Income Tax Base
Income tax is based on income,
either gross or net, realized in one
taxable year.
Sources of Income
The property, activity or services
that produced the income, if the
income is derived from:
Labor source is the place
where the labor is performed;
Use of capital source is the
place where the capital is
employed;
Sale or exchange of capital
assets source is the place
where the sale or transaction
occurs.
Comprehensive Tax Situs
All possible rules of tax situs are
practically applied.
Criteria used:
1. Citizenship as basis
a. Resident Citizen taxed on
income from within and without.

b. Domestic Corporation taxed


on income from within and
without.
c. Non-resident Citizen taxed on
income from within.
2. Residence as basis
a. Resident Alien taxed on
income from within.
b. Resident Foreign Corporation
taxed on income from within.
3. Source of Income as basis
a. Non-Resident Alien taxed on
income from within.
b. Resident taxed on income
from within and without
Schedular vs. Global System of
Taxation
Schedular system of taxation
income tax treatment varies depending
on the kind of taxable income of the
taxpayer. It provides for different tax
treatment for different types of income
so that a separate return is required to
be filed for each type of income and
tax is computed on a per return or per
schedule basis. This is applicable to
individual taxpayers.
Global system of taxation the tax
treatment views indifferently the tax
base and generally treats in common
all categories of taxable income of the
taxpayer. The taxpayer is required to
lump all items of income earned during
a taxable period and pay under a
single set of income tax rules. This is
applicable to corporate taxpayers.
(Tan vs. del Rosario)
Classification of Taxpayers
a. Individuals
1) citizens
1 1.1 resident citizens (RC)
2 1.2 non-resident citizens (NRC)
2) aliens
2.1 resident aliens (RA)

32
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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2.2 non-resident aliens (NRA)


2.2.1 engaged in trade or
business within the
Philippines.
(NRAETB)
2.2.2 Not engaged in trade
or business within the
Philippines
(NRANETB)
b. Corporations
1) Domestic (DC)
2) Foreign
2.1 resident foreign corporation
(RFC)
2.2 non-resident
foreign
corporations (NRFC)
c. Estates

permanently shall be considered


non-resident 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 [Sec.22 (E)]
3. Resident alien - means an
individual whose residence is within
the Philippines and who is not a
citizen thereof. [Sec.22 (F)]
4. Non-resident alien engaged in
trade or business within the
Philippines. (Key: NRAETB)
A non-resident alien means an
individual whose residence is not
within the Philippines and who is
not a citizen thereof. [Sec.22 (G)]

d. Trusts
e. Partnerships
INDIVIDUALS
Situs of Taxation (Who are taxable?)
1. Resident Citizen
2. Non-resident Citizen
A non-resident citizen means, a
Filipino citizen:
a. who establishes to the satisfaction
of the Commissioner the fact of
their physical presence abroad with
a definite intention to reside
therein;
b. who leaves the Philippines during
the taxable year to reside abroad,
either as an immigrant or for
employment on a permanent basis;
c. who works and derives income
from
abroad
and
whose
employment thereat requires him to
be physically present abroad most
of the time during the taxable year;
d. who is previously considered as a
non-resident and who arrives in the
Philippines at anytime during the
taxable year to reside thereat

The term trade or business


includes the performance of the
functions of a public office. [Sec.
22 (S)]
The term trade, business or
profession shall not include
performance of services by the
taxpayer as an employee. [Sec. 22
(CC)]
A non-resident alien individual
who shall come to the Philippines
and stay therein for an aggregate
period of more than 180 days
during any calendar year shall be
deemed a non-resident alien doing
business in the Philippines Section
22(G) notwithstanding [Sec. 25(A)
(1)]
5. Non-resident aliens not engaged
in trade or business within the
Philippines. (NRANETB)
Note: ONLY RESIDENT CITIZENS
are taxable for income derived from
sources within and without the
Philippines. All other individual income

33
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

taxpayers are taxable only for income


derived from sources within the
Philippines.
Note: An overseas contract worker
(OCW) is taxable only on income
derived from sources within the
Philippines. [Sec. 23 (B)(C)]

undertaking construction projects


or engaging in petroleum, coal,
geothermal and other energy
operations pursuant to an
operating
or
consortium
agreement under a service
contract with the Government;
3. Co-ownership.

A seaman is considered as an
OCW
provided
the
following
requirements are met:
1. Receives compensation for
services rendered abroad as a
member of the complement of a
vessel; and
2. Such
vessel
is
engaged
exclusively
in
international
trade.
CORPORATIONS
Jurisdiction to Taxation (who are
taxable?)
1. Domestic Corporation created
or organized in the Philippines. or
under its law [Sec. 22(C)]
2. Resident Foreign Corporation
engaged in trade or business within
the Philippines [Sec. 22(H)]
3. Non-resident
Foreign
Corporation not engaged in
trade or business within the
Philippines [Sec. 22(I)]
Corporation
Includes:
1. Partnerships, no matter how
created or organized;
2. Joint-stock companies;
3. Joint accounts (cuentas en
participacion)
4. Associations; or
5. Insurance companies [Sec. 22
(B)].
Excludes:
1. General
professional
partnerships;
2. Joint venture or consortium
formed for the purpose of

Corporations exempt from income


taxation (for income realized as
such) under RA 8424
1. Those enumerated under Sec. 30.
Exempt
corporations
are
subject to income tax on their
income from any of their properties,
real or personal, or from any other
activities conducted for profit,
regardless of the disposition made
of such income.
2. With respect to GOCCs, the
general rule is that these
corporations are taxable as any
other corporation except:
a. GSIS
b. SSS
c. PHIC
d. PCSO [Sec. 27 (C)]
NOTE: Sec. 27 (c) of the NIRC is
amended by RA 9337, therefore,
PAGCOR is not included in the
GOCC exception and subject to tax.
3. Regional or Area Headquarters
under Sec. 22 (DD)
Regional
operating
headquarters (ROH) under Sec.
22(EE) shall pay a tax of 10% of
their taxable income.
Note:
ONLY
DOMESTIC
CORPORATIONS are taxable for
income derived from sources within
and without the Philippines. All other
corporate income taxpayers are

34
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

taxable from income derived from


sources within the Philippines.
ESTATES AND TRUSTS
Estate refers to the mass of
properties left by a deceased person.
Rules on Taxability of Estate:
1. An estate under administration or
judicial settlement is a taxable
entity.
2. An estate, the settlement of which
is not the object of judicial
testamentary
or
intestate
proceedings is not a taxable entity.
The income there of is taxable
directly to the heir or beneficiary.
Estates under Judicial Settlement
General Rule: An estate under judicial
settlement is subject to income tax in
the same manner as individuals. Its
status is the same as the status of the
decedent prior to his death.
Exceptions:
1. The
entitlement
to
personal
exemption is limited only to P20,
000.
2. No additional exemption is allowed.
3. The distribution to the heirs during
the taxable year of estate income is
deductible from the taxable income
of the estate. Such distributed
income shall form part of the
respective heirs taxable income.
Where no such distribution to
the heirs is made during the
taxable year that the income is
earned, and such income is
subjected to income tax payment
by the estate, the subsequent
distribution thereof is no longer
taxable on the part of the recipient.
Estates
NOT
under
judicial
settlement subject to income tax as
co-ownership.

The tax treatment of co-ownership


is similar to general professional
partnership. Hence, the tax liability on
income is levied directly on the coowners. The co-ownership income and
deductions are simply apportioned to
the co-owners to the extent of their
respective interests therein, regardless
of whether such income is distributed
or not.
Irrevocable Trusts (irrevocable both
as to corpus and as to income) taxed
exactly in the same way as estates
under judicial settlement and its status
as an individual is that of the trustor. It
is entitled to the minimum personal
exemption (P20, 000) and distribution
of trust income during the taxable year
to the beneficiaries and is deductible
from the trusts taxable income.
Revocable Trusts the trustor, not
the trust itself, is subject to the
payment of income tax on the trust
income.
PARTNERSHIPS
General Rule: Partnerships, no matter
how created, are subject to corporate
income tax.
General co-partnerships (GCP)
are partnerships which are by law
assimilated to be within the context of,
and so legally contemplated as,
corporations. The partnership itself is
subject to corporate taxation. The
individual partners are considered
stockholders and, therefore, profits
distributed to them by the partnership
are taxable as dividends.
Exception: General Professional
Partnerships (GPPs) as such are not
subject to income tax. GPP means:
1. a partnership formed by persons
for the sole purpose of exercising
their common profession; and

35
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

2. no part of the income of which is


derived from engaging in any trade
or business [Sec. 22(B)].
GPPs, however, are required to file
returns of their income for the purpose
of furnishing information as to the
share in the net income of the
partnership which the partners shall
include in their individual returns
Members of the GPP are liable
for income tax only in their separate
and individual capacity. Each partner
shall report as gross income his
distributive
share,
actually
or
constructively received, in the net
income of the partnership.
KINDS OF INCOME TAXES
UNDER R.A. 8424
(1) Net Income Tax
(2) Gross Income Tax
(3) Final Income Tax
(4) Preferential Rates or Special
Rates of Income Tax
(5) Improperly
Accumulated
Earnings Tax
(6) Minimum Corporate Income Tax
(7) Fringe Benefits Tax
(8) Optional corporate Income tax
(1) NET INCOME TAX
Definition: Means gross income less
deductions and/or personal and
additional exemptions (Sec. 31, RA
8424)
Net Income Tax Formula
Entire Income
Less: Exclusions and Income subject
to Final
Tax(e.g. Passive Income)
Gross Income
Less:
Deductions (Personal and/or
Additional Exemptions)
Net Taxable Income
X
Tax Rates
Net Income Tax Due

Less: Tax Credit, if any


Tax Still due, if any/ Tax Payable
GROSS INCOME
Means all income derived from
whatever source, including but not
limited to the following (Sec. 32);
(TRIP CARD GPP)
1. Gross income derived from the
conduct of Trade or business or
the exercise of a profession.
2. Rents
3. Interests
4. Prizes and winnings
5. Compensation for services in
whatever form paid, including,
but not limited to fees, salaries,
wages,
commissions,
and
similar items.
6. Annuities
7. Royalties
8. Dividends
9. Gains derived from dealings in
property
10. Pensions
11. Partners distributive share from
the net income of the general
professional partnership (GPP)
ALL INCOME DERIVED
WHATEVER SOURCE

FROM

Embraces all income not expressly


exempted within the class of taxable
income under the law, irrespective of
the voluntary or involuntary action of
the taxpayer in producing the gains,
and whether derived from legal or
illegal sources, such as:
1. Gains arising from expropriation
of property which constitute
income
from
dealings
in
property;
2. Income derived from illegal
sources, such as gambling,
theft,
embezzlement,
and
smuggling;
3. Compensation for damages if it
represents payment for loss of
expected profits;

36
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

4. Bad debts previously chargedoff but afterwards recovered;


5. Contest awards and prizes for
commercial or non-commercial
contests; and
6. Taxes previously deducted as
an expense and subsequently
refunded.
Exclusions from Gross Income
1. proceeds of life insurance
NOTE: if the proceeds are retained
by the insurer, the interest thereon
is taxable;
2. Return of insurance premium;
3. Gift, bequest or devise
NOTE:
income therefrom is
taxable;
4. Compensation for personal injuries
or sickness, whether by suit or
agreement
NOTE: The phrase personal
injuries should be given a
restrictive meaning to refer only to
physical injuries;
5. Income exempt under Treaty;
6. Retirement
benefits,
pension,
gratuities, etc.
7. Miscellaneous items
Retirement
Benefits,
Pension,
Gratuities, Etc.
1. those derived under R.A. 7641
(pertains to private firms without
retirement trust fund);
2. those received by officials and
employees of private employers in
accordance with a reasonable
private benefit plan;
Requisites:
a) in the service of the same
employer for at least 10
years;
b) at least 50 years old;
c) must be availed of only once
d) plan approved by the BIR
(R.R.2-98);

3. separation pay because of death,


sickness,
or
other
physical
disability or for any cause beyond
the control of the official or
employee (e.g. retrenchment);
4. social security benefits, retirement
gratuities, pensions and other
similar benefits received by citizens
and aliens who come to reside
permanently here from foreign
sources private or public;
5. benefits due to residents under the
laws of the U.S. administered by
the U.S. Veterans Administration
6. SSS benefits; and
7. GSIS benefits.
Miscellaneous Items
1. Passive income derived by foreign
government in the Philippines;
2. Income derived from any public
utility or from the exercise of any
governmental function;
3. Prizes and awards made primarily
in recognition of charitable, civic
achievement,
literary,
artistic,
religious,
educational,
and
scientific. (C CLARES)
Requisites:
a. recipient selected without
any action on his part; and
b. recipient not required to
render
substantial
future
services.
4. Prizes and awards granted to
athletes in sports competitions and
sanctioned by their national sports
association ;
5. 13th month pay and other benefits
up to P30,000.00;
6. GSIS,SSS, Medicare and union
dues of individuals;

37
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

7. Gains derived from debt securities


with a maturity of more than 5
years;
8. Gains from redemption of shares in
Mutual Fund.
DEDUCTIONS
Definition: Items or amounts which
the law allows to be deducted from
gross income in order to arrive at the
taxable income.
Basic
Principles
Deductions

governing

The taxpayer seeking a deduction


must point to some specific provisions
of the statute authorizing the
deduction; and
He must be able to prove that he is
entitled to the deduction authorized or
allowed. (Atlas Consolidated Mining &
Dev. Corp. vs. Comm.)
Any amount paid or payable which
is otherwise deductible from, or taken
into account in computing gross
income or for which depreciation or
amortization may be allowed, shall be
allowed as deduction only if it is shown
that the tax required to be deducted
and withheld therefrom has been paid
to the BIR. (Sec. 34[K])
Note:
Deductions for income tax
purposes partake of the nature of tax
exemptions; hence, if tax exemptions
are to be strictly construed, then it
follows that deductions must also be
strictly construed.
Taxpayers who cannot avail of
deductions from gross income
1. Citizens and resident aliens whose
income is purely compensation
income (except for premium
payments
on
health
and/or
hospitalization insurance);

2. Non-resident aliens not engaged in


trade or business in the Philippines;
and
3. Non-resident foreign corporation
Kinds of Deductions
1. Optional standard deductions
(OSD) 10% of the gross income.
NOTE: The OSD may be availed
of only by individuals (except
nonresident alien) who are not
purely
compensation
income
earners.
2. Itemized deductions
(a) ordinary
AND
necessary
expenses
(b) interests
(c) taxes
(d) losses
(e) bad debts
(f) depreciation of property;
(g) depletion of oil and gas wells
and mines;
(h) charitable
and
other
contributions;
(i) research and development;
(j) pension trust contributions of
employees; and
(k) premium payments on health
and/or
hospitalization
insurance. (This is the only
deduction
which
a
compensation income earner
may claim as a deduction.)
3. Personal
and
additional
exemptions
It is available only to individuals
(business
income
and
compensation income earners).
NRAETB may be entitled to
personal exemptions (only) subject
to reciprocity, i.e.,
(a) the country of which he is a
subject or citizen has an
income tax law; and

38
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

(b)

the income tax law of his


country allows personal
exemption to citizens of the
Philippines
not
residing
therein, but deriving income
there from and not to
exceed the amount allowed
in CTRP.

The personal exemption shall


be equal to that allowed by the
income tax law of his country to a
citizen of the Philippines not
residing therein, or the amount
provided in the CTRP, whichever is
lower.
4. Special deductions applicable
only to Insurance companies,
whether domestic or foreign. (Sec.
37, CTRP).
ITEMIZED DEDUCTIONS
a. ORDINARY
EXPENSE

AND

NECESSARY

Necessary
Expense

those
expenses appropriate and helpful in
the
development
of
taxpayer's
business.
Ordinary Expense those expenses
in the normal or usual in the line of
business.
Requisites for Business Expenses
to be deductible
1. ordinary and necessary;
2. paid or incurred w/in the taxable
year;
3. paid or incurred in carrying on a
trade or business;
4. Substantiated with official receipts
or other adequate records.
5. If subject to withholding taxes,
proof of payment to the BIR must
be shown.
6. Must be reasonable under the
circumstances.

Capital Expenditure - An expenditure


that benefits not only the current
period but also future periods. It is not
deductible but depreciable, EXCEPT, if
the taxpayer is a non-profit proprietary
educational institution which may elect
either to deduct the capital expense or
depreciate it.
b. INTERESTS
INTEREST payment for the use of
forbearance or detention of money,
regardless of the name it is called or
denominated.
Requisites for deductibility:
1. there must be an indebtedness;
2. an interest expense paid or
incurred on such indebtedness;
3. indebtedness is that of the
taxpayer;
4. indebtedness connected with the
taxpayers trade, business or
exercise of profession;
5. interest expense paid or incurred
during the taxable year;
6. interest stipulated in writing;
7. interest legally due;
8. interest arrangement not between
related taxpayers;
9. interest not incurred to finance
petroleum operations, and
10. interest incurred to acquire property
used in trade, business or exercise
of profession, the same was not
treated as capital expenditure.
Rules on Deductibility of Interest
Expense
General Rule the amount of interest
expense paid/ incurred within a taxable
year of indebtedness in connection
with the taxpayers trade, business or
exercise of profession (TBE) shall be
allowed as a deduction from the
taxpayers gross income.

39
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Limitation the amount of interest (in


connection with TBE) shall be reduced
by an amount equal to the following
percentages of interest income
earned w/c had been subjected to final
withholding depending on the year
when the interest income earned, viz:

4. excess electric consumption tax;


5. foreign income tax, war profits and
excess profits tax, if the taxpayer
makes use of tax credit; and
6. final taxes, being in the nature of
income tax.
TAX BENEFIT RULE

41% - beginning January 1, 1998


39% - beginning January 1, 1999
38%- beginning January 1, 2000
and thereafter
Optional Treatment of Interest
Expense
At the option of the taxpayer,
interest incurred to acquire property
used in trade or business may be
allowed as a deduction or treated as
capital expenditure. [Sec 34 (B)(3)]
Interest Payments not Deductible
1. interest paid on indebtedness to
finance petroleum explorations;
2. interest on transactions by related
parties [Sec. 34 (B)(2)]
3. interest to purchase or carry taxexempt obligations;
4. dividend payments cannot be
deducted as interest; and
5. interest paid in advance thru
discount or otherwise, HOWEVER
it is deductible in the year
indebtedness is paid.
c. TAXES
Requisites for deductibility
1. Must be in connection with
taxpayers business;
2. Tax must be imposed by law on,
and payable by, taxpayer (direct
tax); and
3. Paid or incurred during the taxable
year.
Taxes not deductible
1. income tax;
2. estate and donors tax;
3. special assessments;

Taxes allowed as deductions, when


refunded or credited, shall be included
as part of gross income in the year of
receipt to the extent of the income tax
benefit of said deduction.
For NRAETB and RFC, taxes paid
or incurred are allowed as deductions
only if and to the extent that they are
connected from income within the
Philippines.
d. LOSSES
Requisites for deductibility
1. actually sustained during the
taxable year;
2. connected with the business, trade
or exercise of profession;
3. evidenced by a close and
completed transaction;
4. not compensated by insurance or
otherwise.
5. not have been claimed as
deduction for estate tax purposes;
and
6. Notice of loss must be filed with
the BIR w/in 45 days form the date
of discovery of the casualty/
robbery/ theft/ embezzlement.
Note: The taxpayers failure to record
in his books the alleged loss proves
that the loss had not been suffered,
hence, not deductible. (City Lumber
vs. Commissioner)
CATEGORIES AND
LOSSES

TYPES

OF

40
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

1. Ordinary Losses- incurred


trade.
Business
exercise/practice of profession

in
or

2. Net operating loss carry-over


(NOLCO)
It refers to the excess of
allowable deductions over gross
income of the business for any
taxable year which had not been
previously offset as deduction from
gross income.
It can be carried over as a
deduction from gross income for
the next 3 consecutive years
immediately following the year of
such loss.
For mines, other that oil and
gas well, net operating loss
incurred in any of the first ten years
of operation may be carried over
for the next 5 years.
Requirements:
1. The taxpayer was not exempt
from income tax in the year of
such net operating loss;
2. There has been no substantial
change in the ownership of the
business or enterprise.
There is no substantial
change in the ownership of the
business when:
a. not less than 75% in
nominal value of the
outstanding
issued
shares is held by or on
behalf of the same
persons; or
b. not less than 75% of the
paid up capital is held by
or on behalf of the same
person.
3. Of property connected with the
trade, business or profession, if

the loss arises from


storms, other casualties.

fires,

Total Destruction total book


value (cost less accumulated
depression) less any amount of
Insurance
or
compensation
received
Partial
Destruction

the
replacement cost to restore the
property to its normal operating
condition, but in no case shall the
deductible loss be more than the
net book value of the property
before the casualty.
The excess over the net book
value immediately before the
casualty should be capitalized,
subject to depreciation over the
remaining useful life of the
property.
3. Capital losses deductible only to
the extent of capital gains
a. Losses from sale/ exchange of
capital assets.
b. Losses resulting from securities
becoming worthless and which
are capital assets.
c. Losses from short sale of
properties.
d. Losses due to failure to
exercise privilege or option to
buy/ sell property.
Special Kinds of Losses
1. Wagering Losses deductible
only to the extent of gain/ winnings.
[Sec. 34(D)(6)]
2. Losses on Wash Sales of Stocks
not deductible because these are
artificial loss
Wash sales a sale or other
disposition of stock or securities
where
substantially
identical
securities
are
acquired
or

41
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

purchased within 61-day period,


beginning 30 days before the sale
and ending 30 days after the sale.
[Sec. 38]
General rule: Losses from wash
sales are not deductible.
Exception: When the sale is made
by a dealer in stock or securities
and with respect to a transaction
made in the ordinary course of the
business of such dealer, losses
from such sale is deductible.
Elements of Wash Sales
a. The sale or other disposition of
stock resulted to a loss;
b. There was an acquisition or
contract or option for acquisition
of stock or securities within 30
days before the sale or 30 days
after the sale; and
c. The stock or securities sold
were substantially the same as
those acquired within the 61day period.
3. Abandonment
losses
in
petroleum
operation
and
producing wells. [Sec. 34 (D) (7)]
In case a contract area where
petroleum
operations
are
undertaken is partially or wholly
abandoned,
all
accumulated
exploration
and
development
expenditures pertaining thereto
shall be allowed as a deduction.
In case a producing well is
abandoned, the unamortized cost
thereof,
as
well
as
the
undepreciated cost of equipment
directly used therein, shall be
allowed as deduction in the year
the well, equipment or facility is
abandoned.

4. Losses of mines other than oil


and gas wells
5. Losses due to voluntary removal
of building incident to renewal/
replacements

deductible
expense from gross income.
6. Loss of useful value of capital
assets due to changes in
business conditions deductible
up to the extent of actual loss
sustained (after adjustment for
improvement, depreciation and
salvage value).
7. Losses from sales or exchanges
of property between related
taxpayers losses of this nature
are not deductible but gains are
taxable.
8. Losses of farmers if incurred in
the operation of farm business, it is
deductible.
e. BAD DEBTS
Requisites to be deductible
1. Valid, subsisting and legally
demandable
(NOTE:
the
taxpayer is the CREDITOR);
2. Debt
must
be
actually
ascertained to be worthless and
uncollectible as of the end of
the taxable year;
3. Obligation is not between
related parties [Sec. 36(B)];
4. Debt is expensed within the
year (actually charged off from
the books of accounts of the
taxpayer) and
5. Debt
is
connected
with
taxpayers profession, trade or
business.
EQUITABLE
BENEFIT

DOCTRINE

OF

TAX

42
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

A recovery of bad debts previously


deducted
from
gross
income
constitutes taxable income if in the
year the account was written off, the
deduction resulted in a tax benefit.
f.

Economic Interest interest in


minerals in, placed investment
therein or secured by operating or
contract agreement for which
income is derived, and return of
capital
expected
from
the
extraction of mineral.

DEPRECIATION
Includes:
1. The gradual diminution in the
service or useful value of
tangible property due from
exhaustion, wear and tear and
normal obsolescence.
2. Amortization of the value of
intangible assets with definitely
limited duration.

Note: Mere economic/ pecuniary


advantage to be derived when
there is no capital investment is
involved, does not amount to
economic interest.
h. CHARITABLE
CONTRIBUTIONS

AND

OTHER

Requisites to be deductible
1. Must be reasonable;
2. Must be on property used in the
conduct of the business;
3. Must be expensed (charged off)
during the taxable year; and
4. Schedule of allowance must be
attached to the return.

Requisites to be deductible
1. The contribution/ gift must be
actually paid.
2. Given to the organizations
specified in the code.
3. The Net Income of the
organization must not inure to
the benefit of any private
stockholder/ individual.

g. DEPLETION OF OIL AND GAS


WELLS AND MINES

Valuation acquisition cost of


property contributed

- same requisites as depreciation


Depletion exhaustion of natural
resources as mines, oil and gas
wells. The natural resources are
called wasting assets. As the
physical units representing such
resources are extracted and sold,
such
assets
move
towards
exhaustion.
Known as cost of depletion
allowance for mines, oil gas wells
and other natural deposits.
To whom allowed only mining
entities owning economic interest
in mineral deposits.

Partial Deduction

Donations to the following shall be


allowed LIMITED deductibility:
1.

Phil. Government or any of its


agencies
or
any
political
subdivision thereof exclusively for
public purposes;
2.
accredited
domestic
corporation
or
associations
organized and operated exclusively
for religious, charitable, scientific,
youth and sports development,
cultural or educational purposes or
for the rehabilitation of veterans,
3.
social welfare institutions, or
4.
non-government organizations
(Sec 34[H])

43
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

The aforementioned donations


shall be deductible only to the extent:

not in excess of 5% of taxable


income in case of a corporation
not in excess of 10% of the taxable
income in case of an individual
Deductible in Full

Donations to the following shall be


allowed FULL deductibility:
1. Philippine government or to any of
its
agencies,
or
political
subdivisions, including fully-owned
government
corporations
undertaking priority activities;
2. Foreign institutions or international
organizations,
pursuant
to
agreements,
treaties
or
commitments entered into by the
Phil. Government or special laws;
3. Donations to certain accredited
NGOs.
i. RESEARCH AND DEVELOPMENT
(R&D)
Requisites to be deductible
1. if incurred in connection with the
trade, business or profession of the
taxpayer; and
2. if not charged to capital account
Treatment of the R&D Expenditures
At the option of the taxpayer, the
R&D expenditures may be treated as
deferred expenses:
1. if incurred in connection with the
trade, business or profession of the
taxpayer;
2. if not treated as expense; and
3. if chargeable to capital account not
subject to depreciation.

If treated as deferred expense, the


R&D shall be amortized over a period
of not less than 60 months.
Expenses not considered as R&D
1. Expenditures for the acquisition or
improvement of land, or for the
improvement of property to be used
in connection with R&D of a
character which is subject to
depreciation and depletion; and
2. Expenditures paid or incurred for
the purpose of ascertaining the
existence, location, extent, or
quantity of any deposit or ore or
other mineral including oil or gas.
j. PENSION TRUST CONTRIBUTION
It is a deduction applicable only to
the employer on account of its
contribution to a private pension plan
for the benefit of its employees. This
deduction is purely business in
character.
Requisites to be deductible
1. The
employer
must
have
established a pension or retirement
plan to provide for the payment of
reasonable
pensions
to
his
employees;
2. The pension plan is reasonable
and actuarially sound;
3. It must be funded by the employer;
4. The amount contributed must be no
longer subject to the control and
disposition of the employer;
5. The payment has not yet been
allowed as a deduction; and
6. The deduction is apportioned in
equal parts over a period of 10
consecutive years beginning with
the year in which the transfer or
payment is made.
k.
PREMIUM
PAYMENTS
ON
HEALTH
AND/
OR
HOSPITALIZATION INSURANCE

44
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Requisites to be deductible
1. The taxpayer must be an individual;
2. The amount of premiums shall not
exceed P2,400 per family;
3. Such family must have a gross
income of not more than P250,000
for the taxable year; and
4. In the case of married taxpayers,
only the spouse claiming the
additional
exemption
for
dependents shall be entitled to this
deduction.
Who may avail of the deduction
a. individual taxpayers earning purely
compensation income during the
year.
b. individual
taxpayer
earning
business income or in the practice
of his profession whether availing
of itemized or optional standard
deductions during the year.
c. individual
taxpayer
earning
compensation
and
business/
practice of profession during the
year
PERSONAL EXEMPTIONS
Amounts of Personal Exemptions
[Sec. 35]
1. Single
individual
or
married
individual judicially decreed as
legally separated with no qualified
dependents: P20,000
2. Head of the family: P25,000
3. Each married person: P32,000
Head of the Family
1. Unmarried or legally separated
person with one or both parents, or
one or more brothers or sisters, or
one or more legitimate, recognized
natural or legally adopted children
living with and dependent upon the
taxpayer for their chief support; and
2. Where such brother / sister or
children are not more than 21 years
of age, unmarried and not gainfully
employed,
or
where
such

dependents regardless of age, are


incapable of self support because
of mental or physical defect.
Note:
Additional Exemption for
Dependents - P8, 000 for each
dependent not to exceed four (4).
Qualifications of a dependent
1. legitimate, illegitimate or legally
adopted child of the taxpayer
2. chiefly dependent upon and living
with the taxpayer
3. Not more than 21 years old,
unmarried AND not gainfully
employed
or
where
such
dependents, regardless of age are
incapable of self-support because
of mental of physical defect.
Note:
The P8, 000 additional
exemption is given only for dependent
children. It cannot be claimed for
dependent parents, brothers, or
sisters. The taxpayer must be either
married or head of the family.
Furthermore, according to the Senior
Citizens Law, it may include an
individual above 60 years old as
dependent, provided all the requisites
provided by the said law are present.
Illustrations:
1. If only 19 years old but married, not
qualified as a dependent.
2. Even if 25 years old but physically
incapacitated, qualified as a
dependent.
3. If there is any change of status at
any time during the taxable year,
the law expressly favors the
taxpayer.
Note: NRAETB may deduct personal
exemption (not additional exemption),
but only to the extent allowed by his
country to Filipinos not residing
therein, and shall not exceed the
aforementioned amounts.

45
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

ITEMS NOT DEDUCTIBLE FROM


GROSS INCOME
Reasons for non-deductibility:
1. Personal Expenses
2. Capital Expenditures
3. Items not normally subject
income tax and therefore
deductible
4. Items taken advantage of by
taxpayer to avoid payment
income tax.

to
not
the
of

The following are NOT deductible


from gross income:
1. Personal, living or family expenses;
2. Amount paid out for new buildings
or for permanent improvements, or
betterment made to increase the
value of any property or estate,
EXCEPT that intangible drilling and
development cost incurred in
petroleum
operations
are
deductible;
3. Amount expended in restoring
property or in making good the
exhaustion thereof for which an
allowance has been made;
4. Premiums paid on any life
insurance policy covering the life of
any officer or employee, or of any
person financially interested in any
trade or business carried on by the
taxpayer, individual or corporate,
when the taxpayer is directly or
indirectly a beneficiary under such
policy. [Sec. 36]
5. Losses from sales or exchanges of
property
between
related
taxpayers. [Sec. 36]
Transactions
between
related
parties/taxpayers
1. Between members of the family;

Family includes only the


brothers, sisters (whether by the
whole or half blood), spouse,
ancestors, and lineal descendants
of the taxpayer.
2. Except in the case of distributions
in liquidation:
a. between an individual and a
corporation more than 50% in
value of the outstanding stock
of which is owned, directly or
indirectly, by or for such
individual;
b. between two corporations more
than 50% in value of the
outstanding stock of each of
which is owned, directly or
indirectly, by or for the same
individual, if either one of such
corporations, with respect to the
taxable year of the corporation
preceding the date of the sale of
exchange was a personal
holding company or a foreign
personal holding company; or
3. Between the grantor and a fiduciary
of any trust;
4. Between the fiduciary of a trust and
the fiduciary of another trust if the
same person is a grantor with
respect to each trust;
5. Between a fiduciary of a trust and a
beneficiary of such trust.
Consequences
1. Interest expense is not allowed as
a deduction if both the taxpayer
and the person to whom the
payment was made are one of the
persons specified above. [Sec. 34
(B)(2)]
2. Bad debts sustained in a
transaction entered into between
parties mentioned above are not
deductible. [Sec. 34 (E)(1)]

46
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

3. Losses from sales or exchanges of


property between persons specified
above are not deductible. [Sec 36
(B)]

4.

The payee is not required to file


an income tax return for the
particular income subjected to
FWT.

(2) GROSS INCOME TAX

5.

The rate of the final tax is


multiplied to the gross income.
Thus, deductions and/or personal
and additional exemptions are not
allowed.

Gross Income Tax (GIT) Formula


Entire Income
Less: Exclusions and Income subject
to Final
Tax (e.g. Passive Income)
Gross Income
X

Tax Rates

Net Income Tax Due


GIT applies to
1. Non-resident alien not engaged
in trade or business; and
2. Non-resident
foreign
corporation.
(3) FINAL INCOME TAX
General Principles
1.

It is constituted as a full and


final payment of the income tax due
from the payee on a particular type
of income subject to final
withholding tax (FWT).
The finality of the withholding
tax is limited only to the payees
income tax liability and does not
extend to other taxes that may be
imposed on said income.

2.

3.

The income subjected to final


income tax is no longer subject to
the net income tax; otherwise,
there would be a violation of
prohibited double taxation.
The liability for the payment of
the tax rests primarily on the payor
as withholding agent.

(4)
INCOME
PREFERENTIAL
RATES

SUBJECT
TO
OR
SPECIAL

Pertains to income derived by a


particular individual or corporation
belonging to a class of income
taxpayer that is subject to either a
preferential or special rate.
(5) IMPROPERLY ACCUMULATED
EARNINGS (IAE) TAX
Definition: Improperly accumulated
earnings (IAE) are the profits of a
corporation that are permitted to
accumulate
instead
of
being
distributed by a corporation to its
shareholders for the purpose of
avoiding the income tax with respect to
its shareholders or the shareholders of
another corporation.
Rate: 10% of the Improperly
Accumulated Taxable Income (in
addition to other taxes).
Improperly
Taxable Income
income

Accumulated
means taxable

Adjusted by:
1. Income exempt from tax
2. Income excluded from gross
income
3. Income subject to final tax
4. The amount of net operating loss
carry-over deducted.

47
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

And reduced by the sum of:


1. Dividends actually or constructively
paid; and
2. Income tax paid for the taxable
year
Exclusions:

For corporations using the calendar


basis the accumulated earnings tax
shall not apply on IAE as of Dec.
31, 1997.
For fiscal year basis, the tax shall
not apply to the 12-month period of
fiscal year 1997-1998.

IAE as of the end of a calendar or


fiscal year period on or after Dec. 31,
1998 shall be subject to the 10% tax
on such IAE
Who are covered?
General Rule: The IAE tax shall apply
to every corporation formed or availed
for the purpose of avoiding the income
tax with respect to its shareholders or
the shareholders of any other
corporation, by permitting earnings
and profits to accumulate instead of
being divided or distributed.
Exception: The said tax shall not
apply to:
a. Publicly held corporations
b. Banks and other non-banks
Financial intermediaries
c. Insurance companies
Evidence of purpose to avoid
income tax
1. The fact that any corporation is a
mere
holding
company
or
investment company shall be prima
facie evidence of a purpose to
avoid the tax upon its shareholders
or members

2. The fact that the earnings or profits


of a corporation are permitted to
accumulate beyond the reasonable
needs of the business shall be
determinative of the purpose to
avoid the tax upon its shareholders
or members unless the corporation,
by the clear preponderance of
evidence, shall prove the contrary.
Reasonable needs of the
business includes the reasonably
anticipated needs of the business;
such as:
a. For
working
capital
requirement;
b. Reserve
for
future
expansion;
c. Reserve for employees
retirement benefit;
d. Investment
in
affiliates
customers business and
other related enterprise; and
e. Earnings retained for sinking
fund.
(6) MINIMUM CORPORATE INCOME
TAX (MCIT)
Who are covered?
MCIT is imposed on domestic and
resident foreign corporations
a. Whenever such corporation has
zero or negative taxable income; or
b. Whenever the amount of MCIT is
greater than the normal income tax
due
from
such
corporation
determined under Section 27[A] of
the CTRP.
Limitations
a. The MCIT shall apply only to
domestic and resident foreign
corporations subject to the normal
corporate income tax (income tax
rates under Sec 27[A] of the
CTRP).

48
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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b. In the case of a domestic


corporation whose operations or
activities are partly covered by the
regular income tax system and
partly covered under a special
income tax system, the MCIT shall
apply on operations covered by the
regular corporate income tax
system.
c. In computing for the MCIT due from
a resident foreign corporation, only
the gross income from sources
within the Philippines shall be
considered for such purpose.
When does a corporation become
liable under the MCIT?
MCIT is imposed beginning on the
fourth taxable year immediately
following the year in which such
corporation commenced its business.
The taxable year in which the business
operations commenced shall be the
year when the corporation registers
with the BIR.
Relief from MCIT
The Secretary of Finance is
authorized to suspend the imposition
of the MCIT on any corporation which
suffers losses because of:
a. prolonged labor dispute;
b. force majeure; or
c. legitimate business reverses.
Tax Rate: 2% of gross income or
taxable
base
pertinent
to
a
trading/merchandising concern or a
service entity
Tax Base: GROSS INCOME
Trading or Merchandising
Gross Income =
Cost of Sales = Invoice
gross sales/
cost of the goods sold,
receipts less sales plus import duties, freight
returns, discounts
in transporting the goods
and allowances
to the place where the

and cost of goods


sold

goods are actually sold,


including insurance while
the goods are in transit.
Manufacturing
Gross
Income Cost of Sales = All cost
(Same)
of production of finished
goods, such as raw
materials used, direct
labor and manufacturing
overhead, freight cost,
insurance premiums and
other costs incurred to
bring the raw materials
to the factory or
warehouse.
Services
Gross Income =
Cost of Services = All
Gross receipts
direct costs and
less sales returns,
expenses
allowances,
necessarily
discounts and
incurred to
costs of services
provide the
services required
by the customers
and clients
including:
a. Salaries and
employee benefits of
personnel,
consultants and
specialists directly
rendering the service;
b. Cost of facilities
directly utilized in
providing the service.
It shall not include
interest expense except
for banks and other
financial institutions.

NOTE: Gross income excludes


passive income subject to final tax.
Other income and Extraordinary
Income are included since RR 9-98
provides that gross sales include sales
contributory to income taxable under
the regular corporate tax.
Carry Forward of the Excess
Minimum Tax

Any excess of MCIT over the


normal income tax can be carried
forward on an annual basis.

The excess can be credited


against the normal income tax due

49
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

in the next 3 immediately


succeeding taxable years.
Any amount of the excess MCIT
which cannot be credited against
the normal income tax due in the
next 3-year period shall be
forfeited.

(7) FRINGE BENEFIT TAX (FBT)


Fringe Benefit Tax is a final income
tax on the employee which shall be
withheld and paid by the employer on
a quarterly basis.
Fringe benefit means any good,
service, or other benefit furnished or
granted by an employer, in cash or in
kind, in addition to basic salaries, to an
individual employee (except rank and
file employees) such as, but not limited
to the following:
1. Housing
2. Expense Account
3. Vehicle of any kind
4. Household personnel, such as
maid, driver and others
5. Interest on loan at less than
market rate to the extent of the
difference between the market
rate and actual rate granted.
6. Membership fees, dues and
other expenses borne by the
employer for the employee in
social and athletic clubs and
similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the
employee or his dependents;
and
10. Life or health insurance and
other
non-life
insurance
premiums or similar amounts on
excess of what the law allows.
Person liable: The EMPLOYER (as a
withholding agent), whether individual,
professional
partnership
or
a
corporation, regardless of whether the

corporation is taxable or not, or the


government and its instrumentalities
Tax rate: 32% (from January 1, 2000
onwards) of the Grossed up Monetary
Value (GMV) of fringe benefits.
In the case of aliens, the tax rates
to be applied on fringe benefit shall be
as follows:
1. NRANEBT 25%
2. Aliens employed by regional HO
15 %
3. Aliens employed by OBU 15%
4. Aliens employed by Petroleum
Service
5. Contractors and Subcontractors
GMV of
represents

the

fringe

benefit

1. the whole amount of


income
realized by the employee which
includes the net amount of money
or net monetary value of property
which has been received; plus
2. the amount of fringe benefit tax
thereon otherwise due from the
employee but paid by the employer
for and in behalf of the employee.
GMV of the fringe benefit shall be
determined by dividing the monetary
value of the fringe benefit by the
Grossed up divisor. The Grossed up
divisor is the difference between 100%
and the applicable rates.
YEAR

GROSSED
UP DIVISOR
66%
67%
68%

RATE

1998
34% FWT
1999
33% FWT
2000
32% FWT
onwards
Fringe Benefits not subject to FBT
A. Fringe benefits not considered as
gross income 1. if it is required or necessary to
the business of employer
2. if it is for the convenience or
advantage of employer

50
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


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B. Fringe Benefit that is not taxable


under Sec. 32 (B) Exclusions
from Gross Income
C. Fringe benefits not taxable under
Sec. 33 Fringe Benefit Tax:
1. Fringe Benefits which are
authorized and exempted under
special laws, such as the 13th
month Pay and Other Benefits
with the ceiling of P30, 000.
2. Contributions of the employer
for the benefit of the employee
to retirement, insurance and
hospitalization benefit plans;
3. Benefits given to the Rank and
File
Employees,
whether
granted under a collective
bargaining agreement or not;
and
4. The De minimis benefits
benefits which are relatively
small in value offered by the
employer as a means of
promoting
goodwill,
contentment,
efficiency
of
Employees
The term Rank and File
Employees
shall
mean
all
employees who are holding neither
managerial nor supervisory position
as defined in the Labor Code
In the case of rank and file
employees, fringe benefits other
than those excluded from gross
income under the Tax Code and
other special laws, are taxable
under the individual normal tax
rate.
Deductibility to the Taxable income
of the EMPLOYER
General Rule: The amount of taxable
fringe benefit and the fringe benefits
tax
shall
constitute
allowable
deductions from gross income of the
employer.

Exception:
If the basis for computation of the
fringe benefits tax is the depreciation
value, the zonal value or the fair
market value, only the actual fringe
benefits tax paid shall constitute a
deductible expense for the employer.
The value of the fringe benefit shall not
be deductible and shall be presumed
to have been tacked on or actually
claimed as depreciation expense by
the employer. Provided, however, that
if the aforesaid zonal value or fair
market value of the said property is
greater than its cost subject to
depreciation, the excess amount shall
be allowed as a deduction from the
employer's gross income as fringe
benefit expense. (Sec. 2.33[D], Rev.
Reg. No. 3-98)
(8) OPTIONAL CORPORATE
INCOME TAX
Optional Rate: 15% of Gross income
Requisites
A. Authorized by the President
(effective January 1, 2000),
upon recommendation of the
Secretary of Finance.
B. Conditions precedent to grant of
Presidents authority
1. A tax effort ratio of 20% of
GNP;
2. A ratio of 40% of income tax
to total tax revenue;
3. A VAT tax effort of 4% of
GNP
4. A 0.9% ratio of Consolidated
Public
Sector
Financial
Position to GNP.
C. Option
available
only
to
corporations with the following
ratio:
Cost of sales

51
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

Gross
receipts
sources

sales
from

or =55%
all

D. Once
elected,
option
is
irrevocable for 3 consecutive
years
INCOME TAX INCIDENCE
ON SALES OR EXCHANGES OF
PROPERTY
Sale on Exchange of Ordinary
Assets
General rules of income taxation
apply to both as to the gain and as to
the loss.
Transaction Resulting in Taxable
Gains but Non-Recognition of
Losses
a. Sale or exchange between
related parties;
b. Wash sales by non-dealers of
securities and when not subject
to the stock transfer tax;
c. Exchanges not solely in kind in
merger and consolidation; and
d. Sales or exchanges that are not
at arms length.
Sale or Exchange of Real Property,
and Shares of Stocks of Domestic
Corporation Held as Capital Assets
Subject to Capital Gains Tax
1. On
real
property

each
independent transaction is subject
to the final tax of 6% on the gross
selling price or the fair market value
at the time of sale, whichever is
higher, regardless of gain or loss
2. Shares of stock of Domestic
Corporation not traded thru a local
exchange taxed at the rate of 5%
for net capital gains not over
P100T, and 10% in excess of
P100T.

a. Stock in trade of the taxpayer or


other properties of a kind which
would properly be included in
the inventory of the taxpayer;
b. Property held by the taxpayer
primarily for sale to customers
in the ordinary course of
business;
c. Property used in trade or
business
and
subject
to
depreciation; and
d. Real property used in trade or
business.
2. Capital
Assets
include
all
properties held by the taxpayer
whether or not connected in trade
or business but not including those
enumerated above (#1) as ordinary
assets.
Capital Gain
The gain derived
from the sale or
exchange of
capital assets.

Capital Loss
The loss incurred
from the sale or
exchange of
capital assets.

Requisites for recognition of Capital


Gain/Loss
1. The transaction must involve
property classified as capital asset;
and
2. The transaction must be a sale or
exchange or one considered as
equivalent to a sale or exchange.
Net Capital Gain Net Capital Loss
The excess of the The excess of the
gains from
losses from sales
sales/exchanges
or exchanges of
of capital assets
capital assets
over the gains
over the gains
from such
from such sales or
sales/exchanges. exchanges.
Rules on the recognition of capital
gains or losses

Capital Gains and Losses


1. Ordinary assets
52
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

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Individual
Corporation
Non-deductibility of Net Capital
losses
Capital losses shall be deducted
only to the extent of the capital gains;
hence, the net capital loss is not
deductible.
Ordinary losses are deductible
from capital gains but net capital loss
cannot be deducted from ordinary gain
or income;
Holding Period
The percentages
Capital gains and
of gain or loss to
losses are
be taken into
recognized to the
account shall be
extent of 100%.
the ff.:
(There is no
holding period)
a. 100% if the
capital assets has
been held for 12
mos. or less; and
b. 50% if the
capital asset has
been held for
more than 12
mos.
Net Capital Loss Carry-Over
There is a net
The net capital
capital loss carry
loss carry-over is
over, i.e., a net
not applicable
capital loss
sustained in a
taxable year in an
amount not in
excess of the net
income (before
exemptions) for
such year may be
deducted as a
short-term capital
loss (at 100%)
from the net
capital gains of
the next or
succeeding
taxable year but
not beyond such
period.

Tax Exempt Exchanges


Sales or exchanges resulting in
non-recognition of gains or losses:
1. Exchange solely in kind in
legitimate
mergers
and
consolidations; includes:
a. Between the corporations which
are parties to the merger or
consolidation
(property
for
stocks);
b. Between a stockholder of a
corporation party to a merger or
consolidation and the other
party corporation (stock for
stock);
c. Between a security holder of a
corporation party to a merger or
consolidation and the other
party corporation (securities for
securities)
2. Exchange of property for stocks
resulting in acquisition of corporate
control by a person, alone or
together with others not exceeding
four.
Control means ownership of
stocks in a corporation amounting
to at least 51% of the total voting
power of all classes of stocks
entitled to vote.
FILING OF TAX RETURN
PAYMENT OF THE TAX

AND

Tax Return A report prepared by the


taxpayer showing to internal revenue
officers an enumeration of taxable
amounts and description of taxable
transactions, allowable deductions,
amounts subject to tax and the tax
payable by the taxpayer to the
government correct self-assessment.
There is pain of perjury if the return is
not.
Persons Required to File Income
Tax Returns

53
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

A. Individual
1. Resident citizen;
2. Non-resident citizen on income
from within the Phil.;
3. Resident alien on income from
within the Phil.;
4. NRAETB on income from within
the Phil.
5. An individual (citizen / alien)
engaged in business or practice
of a profession within the Phil.
regardless of the amount of
gross income;
6. Individual
deriving
compensation
income
concurrently from two or more
employers at any time during
the taxable year;
7. Individual
whose
pure
compensation income derived
from sources within the Phil.
exceeds P60, 000.
B. Taxable Estate and Trust
C. General
Partnership

Professional

D. Corporations
1. Not exempt from income tax;
2. Exempt from income tax under
Sec. 30 of NIRC but has not
shown proof of exemption.
Individuals Exempt From Filing
Income Tax Return
1. Individual whose gross income
does not exceed total personal and
additional exemptions;
2. Individual with respect to pure
compensation income derived from
sources within the Philippines, the
income tax on which has been
correctly withheld;
3. Individual whose sole income has
been subjected to final withholding
income tax;
4. Individual who is exempt from
income tax.

Substituted filing of Income tax


Returns by Employees Receiving
Purely
Compensation
Income.
(Section 4, RR 3-2002)
Individuals
receiving
purely
compensation income, regardless of
amount, from only one employer,
the income tax of which has been
withheld correctly by the said
employer (tax due equals tax
withheld), shall not be required to
file an income tax return.
In lieu of the ITR, the Annual
Information Return of Income Taxes
Withheld on Compensation and Final
Withholding Taxes filed by their
respective employers, duly stamped
received by the BIR, shall tantamount
to the substituted filing of income tax
returns by said employees.
Individuals
not
qualified
for
substituted filing (still required to
file)
1. Individuals deriving compensation
from 2 or more employers
concurrently or successively during
the taxable year.
2. Employees deriving compensation
income, regardless of the amount,
whether from a single or several
employers during the calendar
year, the income tax of which has
not been withheld correctly (i.e. tax
due is not equal to the tax withheld)
resulting to collectible or refundable
return.
3. Employees whose monthly gross
compensation income does not
exceed P5, 000 or the statutory
minimum wage, whichever is
higher, and opted for nonwithholding of tax on said income.

54
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

4. Individuals deriving other nonbusiness,


non-profession-related
income in addition to compensation
income not otherwise subject to
final tax.
5. Individuals
receiving
purely
compensation income from a single
employer although the income tax
of which has been correctly
withheld, but whose spouse falls
under 1 to 4 above.
6. Non-resident aliens engaged in
trade or business in the Philippines
deriving
purely
compensation
income, or compensation income
and other non-business, nonprofession-related income.
Note: Non-filing of ITR, for employees
who are qualified for the substituted
filing shall be OPTIONAL for the
taxable year 2001, the returns for
which shall be filed on or before April
15, 2002. Thereafter, substituted filing
where
applicable
shall
be
MANDATORY. [Sec 5 RR 3-2002
INCOME TAX vs. TRANSFER TAXES
TRANSFER TAX
INCOME TAX
Tax on transfer of Tax on income
property.
Rates are lower
Rates are higher
--5% to 20% -- 5% to 32%
estate tax
-- 2% to 15 % donors tax
Lesser exemptions More exemptions

TRANSFER TAXES
ESTATE TAX
Tax which the state exacts where
the property left by the decedent,

considered as a unit, departs from


the dead on its way to the living

It is also the tax on the right to


transmit property at death and on
certain transfers which are made
by law equivalent of testamentary
disposition.

Accrues as of the death of the


decedent and the accrual of the tax
is distinct from the obligation to pay
the same.
The statute in force at the time of
death governs the estate taxation.
ESTATE TAX FORMULA
Gross
Less:
Equals:
Equals:
Less:
Equals:

Estate (Sec. 85)


Deductions (Sec. 86)
Net share of the surviving
spouse
Net taxable Estate
X
Tax rate (Sec.84)
Estate Tax Due
Tax credit, if any (Sec.86 [E]
or 110 [B]
Estate Tax Due

Rate: first 200,000 pesos exempt


Over 200,000 graduated rate
of 5% - 20%
THE LAW THAT GOVERNS THE
IMPOSITION OF ESTATE TAX:
The statute in force at the time of
death of the decedent shall govern
estate taxation
Nature of Estate Tax:
1. Tax on the right to transfer property
at death and on certain transfers
which are made by law equivalent
to testamentary dispositions and is
measured by the value of the
property;
2. It is imposed on the basis of the net
estate considered as a unit. The

55
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

first Php200,000 of the net estate is


exempt
3. Estate tax is not a property tax but
rather an excise tax.
4. It is an excise tax and its object is
to the shifting of economic benefits
and enjoyment of property from the
dead to the living.
Reasons justifying the imposition of
estate tax
1. Benefit-Received
Theory
-considers the service rendered by
the government in the distribution
of the estate of the decedent, either
by law or in accordance with his
wishes. For the performance of
these services and other benefits
that accrue to the estate and the
heirs, the State collects the tax.
2. Privilege
Theory/State
Partnership Theory inheritance
is not a right but a privilege granted
by the state, and large estates
have been acquired only with the
protection
of
the
State.
Consequently, the State as a
passive and silent partner in the
accumulation of property has the
right to collect the share which is
properly due to it.
3. Ability to Pay Theory receipt of
inheritance which is in the nature of
an unearned wealth or windfall,
place assets into the hands of the
heirs and beneficiaries thereby
creating an ability to pay the tax
and thus contributes to government
income.
4. Redistribution of Wealth Theory the receipt of inheritance is a
contributing
factor
to
the
inequalities in wealth and incomes.
The imposition of death tax
reduces the property received by

the successor, thus helping bring


about a more equitable distribution
of wealth in society. The tax base
is the value of the property and the
progressive scheme of taxation is
precisely motivated by the desire to
mitigate the evils of inheritance in
the present form.
I. GROSS ESTATE (GE):
A. Resident alien and Filipino
decedent:

All properties, real or


personal, tangible or intangible,
wherever situated.
B. Non-resident alien:
Only properties situated in the
Philippines
With respect to intangible
personal property, its inclusion
is subject to the rule of
reciprocity
RULE OF RECIPROCITY
Note: this rule applies
intangible personal property

only

to

No tax shall be collected in respect


of intangible personal property:
a. if the decedent at the time of his
death was a citizen and resident of
a foreign country which at the time
of his death did not impose a
transfer tax in respect of intangible
personal property of citizens of the
Philippines not residing in that
foreign country, (Total Exemption)
OR
b. if the laws of the foreign country of
which the decedent was a citizen
and resident at the time of is death
allows a similar exemption from
transfer taxes in respect of
intangible personal property owned
by Filipino citizens not residing in

56
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

that foreign
Exemption)

country.

(Partial

2. TRANSFER IN CONTEMPLATION
OF DEATH

Intangible personal property having


situs in the Philippines:

it is the thought of death as the


controlling motive which induces
the disposition of the property for
the purpose of avoiding the tax.

a. Franchise which must be exercised


in the Philippines;
b. Shares, obligations, or bonds
issued by any corporation or
sociedad anonima organized or
constituted in the Philippines in
accordance with its laws;
c. Shares, obligations, or bonds
issued by any foreign corporation,
85% of the business is located in
the Philippines;
d. Shares, obligations, or bonds
issued by any foreign corporation if
such shares, obligations or bonds
have acquired business situs (i.e.,
they are used in furtherance of its
business in the Philippines. by any
foreign
corporation)
in
the
Philippines.

Includes:
1. transfer by trust or otherwise, in
contemplation of, or intended to
take effect in possession or
enjoyment at or after his death; or
2. transfer by trust or otherwise, with
retention or reservation of
a. the possession or enjoyment of
or the right to the income from
the property, or
b. the right, either alone or in
conjunction with any person, to
designate the person who shall
possess or enjoy the property or
the income there from.
Exception: in case of bona fide sale
for an adequate and full consideration
in money or money's worth

e. Shares or rights in any partnership,


business or industry established
within the Philippines.

Amount included in the GE: interest


therein

INCLUSIONS
IN
THE
GROSS
ESTATE
1. Decedents Interests
2. Transfer in Contemplation of Death
3. Revocable Transfer
4. Transfer under General Power of
Appointment
5. Proceeds of life insurance
6. Transfer
for
Insufficient
Consideration
7. Prior Interests

Circumstances taken into account


1.
Age and state
of health of the decedent at the
time of gift, especially where he
was aware of a serious illness;
2.
Length of time
between the gift and the date of
death;
3.
Concurrent
making of a will or making a will
within a short time after the
transfer.

1. DECEDENTS INTEREST
It is to the extent of the interest in
property of the decedent at the time of
his death.

3. REVOCABLE TRANSFER
1. With reserved power to alter,
amend, revoke or terminate transfer, by trust or otherwise,

57
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

where the enjoyment thereof


was subject to any change
through the exercise of a power
(in
whatever
capacity
exercisable) by the decedent
alone or by the decedent in
conjunction with any other
person (without regard to when
or from what source the
decedent acquired such power),
to alter, amend, revoke or
terminate;
2. Or where any such power is
relinquished in contemplation of
the decedent's death.
Except: in case of bona fide sale
for
an
adequate
and
full
consideration in money or moneys
worth
Amount included in the GE:
interest therein
4. TRANSFER UNDER GENERAL
POWER OF APPOINTMENT
A power of appointment is the right
to designate the person or persons
who will succeed to the property of the
prior decedent.

(2) The right, either alone or in


conjunction with any person,
to designate the persons
who shall possess or enjoy
the property or the income
therefrom; except in case of
a bona fide sale for an
adequate
and
full
consideration in money or
money's worth.
Exception: in case of bona fide sale
for an adequate and full consideration
in money and moneys worth
Amount included in the GE: interest
therein
General power of appointment
when it authorizes the donee to
appoint any person he pleases,
including himself, his spouse, his
estate, his executor or administrator,
and his creditor thus having full
dominion over the property as though
he owned it.
Special power of appointment
when the donee can appoint only
among a restricted or a designated
class or persons other than himself.
5. PROCEEDS OF LIFE INSURANCE

It may be exercised by the


decedent:
(a) By will; or
(b) By a deed executed in
contemplation of, or intended to
take effect in possession or
enjoyment at, or after his death;
(c) By deed under which he has
retained for his life or any period
not
ascertainable
without
reference to his death or for any
period which does not in fact
end before his death:
(1) The
possession
or
enjoyment of, or the right to
the income from, the
property; or

Beneficiary is the estate of the


deceased,
his
executor
or
administrator,
irrespective
of
whether or not the insured retained
the power of revocation; or
Beneficiary is other than the
decedents estate, executor or
administrator, when designation of
beneficiary is revocable, that is,
when the designation of the
beneficiary is not expressly made
irrevocable.
The proceeds of life insurance are
NOT taxable in the following cases:

58
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

1. Proceeds of a group insurance


policy taken out by the company for
its employees;
2. Accident insurance proceeds;
3. Amount
receivable
by
any
beneficiary irrevocably designated
in the policy of insurance by the
insured;
4. Proceeds of insurance policies
issued by the GSIS to the
government official and employees;
5. Benefits accruing under the SSS
law;
6. Proceeds of life insurance payable
to heirs of deceased members of
military personnel
6. TRANSFER FOR INSUFFICIENT
CONSIDERATION
Applies when the decedents
property is transferred
a. in contemplation of death,
b. revocable transfers, or
c. passed under a general power
of
appointment
for
a
consideration in money or
money's worth
Exception: bona fide sale
Amount to be included in the GE:
the excess of the fair market value
(FMV), at the time of death, of the
property otherwise to be included on
account of such transaction, over the
value of the consideration received
therefore by the decedent.
Formula: FMV (at the time of
death) less value received
7. PRIOR INTEREST

All transfers, trusts, estates,


interests,
rights,
powers
and
relinquishment of powers made,
created, arising, existing, exercised or
relinquished before or after the
effectivity of the Tax Code.
EXEMPT
Acquisitions
and
transmissions: (Sec. 87)
1. the merger of usufruct of the owner
of the naked title;
2. the transmission or delivery of the
inheritance or legacy of the
fiduciary heir or legatee to the
fideicommissary;
3. the transmission from the first heir,
legatee or donee in favor of
another beneficiary, in accordance
with the will of the predecessor;
4. all bequests, devises, legacies, or
transfers to social welfare, cultural
and charitable institutions no part of
the net income of which inures to
the benefit of any individual;
provided that not more that 30% of
said bequests, legacies or transfers
shall be used by such institutions
for administration purposes.
DEDUCTIONS FROM THE GROSS
INCOME
A. For resident aliens and citizens:
1. expenses,losses, indebtedness,
taxes, etc. (E-L-I-T)
a. funeral expenses;
b. judicial expenses;
c. claims against estate;
d. claims against insolvent
persons;
e. unpaid mortgages;
f. taxes;
g. losses
2. transfers for public use;
3. vanishing deduction;
4. family home;
5. standard deduction of P1
million;

59
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

6. medical expenses;
7. amounts received by heirs
under RA 4917 (Retirement
Benefits)
8. Share of surviving spouse in
conjugal or community property.
B. For non-resident alien-decedent:
1. expenses,losses, indebtedness,
taxes, etc. (E-L-I-T)
2. transfers for public use;
3. vanishing deduction;
4. Share of surviving spouse in
conjugal or community property.
Funeral Expenses:
Actual funeral expenses or 5% of
the gross estate; or P200, 000,
WHICHEVER IS LOWEST
Note: Must be duly supported by
receipts or other evidence to show that
they were actually incurred.
Actual
funeral
expenses
not
confined to its ordinary or usual
meaning. They include:
a.
mourning
apparel of the surviving spouse and
unmarried minor children of the
deceases bought and used on
occasion of the burial;
b.
expenses
for the deceaseds wake, including
food and drinks;
c.
publication
charges for death notices;
d.
telecommu
nication expenses incurred in
informing relatives of the deceased;
e.
cost
of
burial plot, tombstones, monument
or mausoleum but not their upkeep.
In case the deceased own a family
estate or several burial lots, only
the value corresponding to the plot
where he is buried is deductible;
f.
interment
and/or cremation fees and charges;
and

g.

all
other
expenses
incurred
for
the
performance of the rites and
ceremonies incident to interment.

Note: Expenses incurred after the


interment, such as for prayers,
masses, entertainment, or the like are
not deductible.
Note: Any portion of the funeral and
burial expenses borne or defrayed by
relatives and friends of the deceased
are not deductible.
Judicial Expenses:
Includes those incurred during the
settlement of the estate but not beyond
the last day prescribed by law, or the
extension thereof, for the filing of the
estate tax return (6 months after
death)
Those incurred in the:
a. inventory taking of assets
comprising
the
GROSS
ESTATE,
b. their administration,
c. the payment of debts of the
estate
d. The distribution of the estate
among the heirs.
Any unpaid amount should be
supported by a sworn statement of
account issued and signed by the
creditor.
Judicial expenses may include the
following:
1. Fees of executor or administrator
2. Attorneys fees
3. Court Fees
4. Appraisers fee
5. Clerk hire
6. Costs of preserving and distributing
the estate
7. Costs of storing or maintaining
property of the estate; and

60
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

8. Brokerage fees for selling property


of the estate.
Claims against the estate:
Debts or demands of a pecuniary
nature which could have been
enforced against the deceased in
his lifetime and could have been
reduced
to
simple
money
judgments.
Requisites for deductibility:
1. the liability represents a personal
obligation of the deceased existing
at the time of his death except
unpaid obligations incurred incident
to his death;
2. it was contracted in good faith and
for adequate and full consideration
in money or moneys worth;
3. the claim must be valid in law and
enforceable in court;
4. the indebtedness must not have
been condoned by the creditor or
the action to collect must not have
been prescribed.
5. the debt
notarized;

instrument

must

be

6. if the loan was contracted within


three (3) years before the death of
the decedent, the administrator or
executor shall submit a statement
under oath showing the disposition
of the proceeds of the loan.
Claims against insolvent persons:
The amount of said claims has
been initially included as part of the
GE;
The incapacity of the debtors to
pay their obligations is proven, not
merely alleged.

Unpaid mortgages:
1. The value of the property
mortgaged to the extent of the
decedents
interest
therein,
undiminished by such mortgage or
indebtedness, is included in the
GE;
2. The indebtedness must have been
contracted bona fide and for an
adequate and full consideration in
money or moneys worth;
3. Verification must be made as to
who was the beneficiary of the loan
proceeds.
4. If found to be merely an
accommodation loan, the value of
the unpaid loan must be included
as a receivable of the estate.
5. If there is a legal impediment to
recognize the same as receivable,
said unpaid mortgage shall not be
allowed as a deduction.
Taxes:
Includes those taxes that accrued
as of the death of the decedent AND
unpaid as of the time of death
The following are not deductible:
1. income tax on income received
after the death of the decedent;
2. property taxes not accrued after
death;
3. estate tax.
Losses
Requisites for deductibility:
1. arose from fire, storm, shipwreck or
other casualty, robbery, theft or
embezzlement;
2. not compensated by insurance or
otherwise;

61
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

3. not claimed as deduction in an


income tax return of the taxable
estate;
4. incurred during the settlement of
the estate
5. incurred before the last day for the
payment of the estate tax (6
months after the decedents death)
Vanishing deductions/Property
previously taxed: (VD/PPT)

Operates to ease the harshness


of successive taxation of the same
property within a relatively short
period of time (up to 5 years)
occasioned by the untimely death
of the transferee

REQUISITES (DIPINdot)
1. Death - the present decedent died
within five years from transfer of
the property from a prior decedent;
2. Inclusion of the property - the
property formed part of the GE
located in the Philippines of the
prior decedent, or of the taxable gift
of the donor within 5 years prior to
the present decedents death;
3. Previous taxation of the property
- the estate tax or donors tax on
the gift must have been finally
determined and paid;
4. Identity of the property - the
property must be identified as the
one received from the prior
decedent, or something acquired in
exchange therefore; and
5. No previous vanishing deduction
on the property was allowed to the
estate of the prior decedent.
Limitations as to
deduction allowable:

amount

of

a. Value of property limited by the


value of the property previously
taxed as finally determined for the
purpose of the prior transfer tax or
the value of the property in the
present
decedents
GE,
WHICHEVER IS LOWER.
b. Deduction for mortgage or other
lien the initial value in #1 above
shall be reduced by the total
amount paid, if any, by the present
decedent on any mortgage or other
lien on the property
c. Deduction for E-L-I-T and T.P.U
the value as reduced in #2 above
shall be further reduced by an
amount which bears the ratio to the
amounts allowed as deductions for
E-L-I-T and T.P.U as the amount
otherwise deductible for property
previously taxed bears to the value
of the decedents GE.
d. Percentage of deductions the
vanishing deduction shall be the
value in #3 multiplied by the
following percentage of deduction:
100% -

80% 60% 40% 20% -

if the 1st transfer is


within 1 year prior to
the death of the
present decedent;
more than 1 year but
not more than 2
years;
more than 2 years but
not more than 3
years;
more than 3 years but
not more than 4
years;
more than 4 years but
not more than 5
years.

Note: In outline form, the computation


of vanishing deduction is:

62
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

1. Value taken (value of property at


the time of the first transfer or at
the time of the present decedents
death, whichever is lower)
Less: Mortgage debt paid, if any
Equals: Initial Basis
2. Initial basis x (ELIT+TPU) = 2nd
deduction
Gross Estate
3. Initial Basis
Less: 2nd deduction
Equals: Final Basis
X Percentage
Equals: Vanishing deduction
Transfer for Public Use (TPU):
Requisites
1. the disposition is in a last will and
testament;
2. to take effect after death;
3. in favor of the government of the
Philippines
or
any
political
subdivision thereof; and
4. for exclusively public purpose.
Note: This should also include
bequests, devices, or transfers to
social welfare, cultural and charitable
institutions.
Family Home:
The dwelling house including the
land on which it is situated, where
the husband and wife, or head of
the family, and members of their
family reside, as certified to by the
Barangay Captain of the locality.
Characterized by permanency, that
is, the place to which, whenever
absent for business or pleasure,
one
still
intends to
return
(Domicile).

Note: A person may constitute only


one family home
Requisites
1. said family home must be the
actual residential home of the
decedent and his family at the time
of his death;
2. said fact must be certified to by the
barangay captain of the locality
where it is located;
3. the total value of the family home
must be included as part of the GE
of the decedent; and
4. the amount deductible is the
current FMV but not to exceed 1
million pesos.
Standard Deduction:
1 million pesos
Without need of substantiation
Medical Expenses:
Requisites:
1. incurred within one year prior to
his death;
2. substantiated with receipts; and
3. for a maximum amount of
Php500,000
Note: Approval of the court where a
probate/intestate
proceeding
is
pending
is
not
a
mandatory
requirement in the collection of estate
taxes.
On the contrary, the
probate/intestate court is prohibited
from delivering any distributive share
to any party unless there is certification
from the Commissioner that the estate
taxes are already paid.
AMOUNT RECEIVED BY HEIRS
UNDER REPUBLIC ACT NO. 4917
Any amount received by the heirs
from the decedents employer as a
consequence of the death of the

63
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Taxation Law Head: Noemi Acain, Erwin Labay
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Libutan, Stralenmer Moran, Sheherazadee Labor

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Institute of Law

decedent employee in accordance with


R.A. 4917 is allowed as a deduction
provided that the amount of the
separation benefit is included as part
of the gross estate of the decedent.
NET SHARE OF THE SURVIVING
SPOUSE IN THE CONJUGAL
PARTNERSHIP OR COMMUNITY
PROPERTY.
After deducting the allowable
deductions
appertaining
to
the
conjugal or community properties
included in the gross estate, the share
of the surviving spouse must be
removed to ensure that only the
decedents interest in the estate is
taxed.
SETTLEMENT OF THE ESTATE TAX
NOTICE OF DEATH
Notice of death should be filed in
all cases where the gross value of the
estate exceeds twenty thousand pesos
(P20,000),
The executor, administrator or any
of the legal heirs, as the case may be,
within two (2) months after the
decedent's death, or within a like
period after qualifying as such
executor or administrator, shall give a
written
notice
thereof
to
the
Commissioner.
ESTATE TAX RETURN
Filed within six (6) months from the
decedent's death.
Extension of time to file: The
Commissioner or any Revenue Officer
shall have authority to grant, in
meritorious cases, a reasonable
extension not exceeding thirty (30)
days for filing the return.

An estate tax return is required to


be filed:
1. When the estate is subject to
estate tax;
2. When the estate is not subject to
estate tax but the gross estate
exceeds P200,000; or
3. Regardless of the amount of the
gross estate, where the gross
estate consists of registered or
registrable property such as motor
vehicle or shares of stock or other
similar property for which a
clearance from the BIR is required
as a condition precedent for the
transfer of ownership thereof in the
name of the transferee.
Note: When the gross estate
exceeds P2M, the estate tax return
shall be accompanied by a statement
which
is
CERTIFIED
by
an
INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANT stating:
1. The itemized assets of the
decedent with its corresponding
gross value at the time of his
death, or in the case of a nonresident, not citizen of the
Philippines, that part of his
gross estate situated in the
Philippines;
2. The itemized deductions from
the gross estate;
3. The amount of tax due, whether
paid
or
still
due
and
outstanding.
Where to file:
a. Resident decedent: accredited
agent bank, or Revenue District
Officer, Collection Officer, or
duly authorized Treasurer of the
city or municipality in which the
decedent was domiciled at the
time of his death or if there be
no legal residence in the

64
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

Philippines, with the Office of


the Commissioner.
b. Non-resident decedent: the
Revenue District Office (RDO)
where
the
executor
or
administrator is registered
if not registered, with the RDO
having jurisdiction over the
executor or administrators legal
residence
if there is no executor or
administrator, with the Office
of the Commissioner
PAYMENT OF THE ESTATE TAX
General Rule: at the time the return is
filed.
Exception: When the Commissioner
finds that the payment on the due date
of the estate tax or of any part thereof
would impose undue hardship upon
the estate or any of the heirs he may
extend the time for payment of such
tax or any part thereof

Liability for payment


1. Primarily liable: the executor or
administrator before distributing the
net estate to the heirs
2. Subsidiarily liable: the heir or
beneficiary to the extent of his
share in the inheritance
3. The liability of 2 or more executors
of administrators shall be several.
Tax credit for estate taxes paid to a
foreign country:
General Rule: the estate tax shall be
credited with the amounts of any
estate tax imposed by the foreign
country
Limitations
a. For estate taxes paid to one
foreign country

not to exceed five (5) years, in


case the estate is settled
through the courts,
Or two (2) years in case the
estate is settled extrajudicially.
Note: The CIR shall deny the
application for extension where the
request for extension is by reason of:
negligence,
intentional disregard of rules
and regulations,
or fraud on the part of the
taxpayer,

The amount of the credit in


respect to the tax paid to
any country shall not exceed
the same proportion of the
tax against which such credit
is
taken,
which
the
decedents
net
estate
situated within such country
taxable under the NIRC
bears his entire net estate.

Net estate from Foreign country


x Philippine Net Estate
=Tax credit
Entire net estate, estate tax limit
b. For estate taxes paid to two or
more foreign countries

The total amount of the


credit shall not exceed the
same proportion of the tax
against which such credit is
taken, which the decedents
net estate situated outside
the
Philippines
taxable

65
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

under the NIRC bears to his


entire net estate.
Net
estate
outside
the
Philippines x Philippine Net
Estate
=Tax credit
Entire net estate, estate tax
limit

DONORS TAX
Principles:
Donors tax is not a property tax,
but is a tax imposed on the transfer of
property by way of gift inter vivos
It does not apply unless and until
there is a completed gift
The transfer is perfected from the
moment the donor knows of the
acceptance of the donee
It is completed by the delivery of
the donated property, either actual or
constructive
Renunciation by the surviving
spouse of his/her share in the conjugal
partnership or absolute community
after the dissolution of the marriage is
subject to donors tax
General renunciation by an heir,
including the surviving spouse, of
his/her share in the hereditary estate is
not subject to 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.

gratuitously of a thing or right in favor


of another who accepts it.
Requisites: (ADIC!)
1. capacity of the donor to make
donation;
2. donative intent or intent to make a
gift on the part of the donor;
3. delivery,
whether
actual
or
constructive; and
4. acceptance of the gift by the
donee
TAX RATE:
General: 2-15%;
exempt

Php100,000

is

Special rate: 30% - in case of donation


to a stranger
STRANGER - A person who is not a:
1. brother, sister (whether by
whole or half blood), spouse,
ancestor,
and
lineal
descendant; or
2. a relative by consanguinity in
the collateral within the 4th civil
degree
Note: A legally adopted child is entitled
to all the rights and obligations
provided by law to legitimate children,
and therefore, donation to him shall
not be considered as donation made to
stranger.
Note: Donations made between
business organizations and those
made between an individual and a
business
organization
shall
be
considered as donation made to a
stranger.

DONATION
Donation is an act of liberality
whereby
a
person
disposed
66
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

VALUATION
OF
PROPERTY

GIFTS

OF

The fair market value of the


property given at the time of
the gift shall be the value of
the gift.
INTANGIBLE
PERSONAL
PROPERTIES WITH SITUS IN THE
PHILIPPINES - Same in estate tax
subject to the reciprocity rule.
Transfers subject to donors tax:
1. Upon the transfer by any person,
resident or nonresident, of the
property by gift.
a. Whether the transfer is in trust
or otherwise,
b. Whether the gift is direct or
indirect,
c. Whether the property is real or
personal, tangible or intangible.
2. Transfer
for
insufficient
consideration
Where property is transferred for
less than an adequate and full
consideration
Exception:
transfer
of
real
property classified as capital assets
subjected to the capital gains tax
Amount included in the net gifts: the
excess of the FMV of the property over
the consideration received shall be
deemed a gift.
Exemptions:
1. Gifts made by a resident:
a. dowries
gifts on account of marriage
before its celebration or
within one year thereafter by
parents to each of their

legitimate,
illegitimate
adopted children
to the extent of the
Php10,000

or
first

b. gifts made 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 said
government;
c. gifts in favor of educational,
charitable, religious, cultural or
social
welfare
corporation,
institution, foundations, trust or
philanthropic
organization,
research
institutions
or
organizations, accredited NGO,
provided that not more than
30% of said gift shall be used
by
such
donee
for
administrative purposes.
2. Gifts made by a non-resident
alien
only gifts mentioned in letters
(b) and (c) are exempt
Tax Credit:
Rule: the donors tax imposed by the
Tax Code upon a donor who was a
citizen or a resident at the time of
donation shall be credited with the
amount of any donors taxes imposed
by the foreign country
Limitations
a. For donors tax paid to one
foreign country
The amount of the credit in
respect to the tax paid to any
country shall not exceed the
same proportion of the tax
against which such credit is
taken, which the net gifts
situated within such country

67
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

taxable under the NIRC bears


his entire net gift.
Net gifts in a
foreign country
=Tax credit
Entire net gifts
limit

Phil.

Donors tax

b. For donors taxes paid to two or


more foreign countries
The total amount to the credit
shall not exceed the same
proportion of the tax against
which such credit is taken,
which the net gifts situated
outside the Philippines taxable
under the NIRC bears to this
entire net gifts.
Net gifts outside
the Philippines x Phil.
=Tax
credit
Entire net gifts
Donors tax
limit

Filed and paid:


a. Resident Donor
To an accredited agent bank,
RDO, revenue Collection Officer
or duly authorized treasurer of
the city or municipality where
the donor is domiciled at the
time the transfer, or
If there be no legal residence in
the
Philippines,
with
the
Commissioner.
b. Non-resident donor
Philippine
Embassy
or
Consulate in the country where
he is domiciled at the time of
the transfer, or
Directly with the Office of the
Commissioner.

Donors Tax Return:


To be filed within thirty (30) days
after the gift is made.
The return shall be under oath in
duplicate setting forth:
a. Each gift made during the
calendar year which is to be
included in computing net gifts;
b. The deductions claimed and
allowable;
c. Any previous net gifts made
during the same calendar year;
d. The name of the donee;
e. Relationship of the donor to the
donee; and
f. Such further information as may
be required by rules and
regulations made pursuant to
law.
Note: The tax is paid at the time the
return is filed within said period.
68
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

Far Eastern University


Institute of Law

69
Academics Committee Heads: Philip and Berto
Taxation Law Head: Noemi Acain, Erwin Labay
Members: Chistina de Guzman, Ma. Karen Ulibas, Mary Joyce Sarangaya, Patrick John Malveda, Cyd
Libutan, Stralenmer Moran, Sheherazadee Labor

BUSINESS TAXES
VALUE ADDED TAX (VAT)
The VAT is a percentage tax
imposed at every stage of the
distribution process on the sale, barter,
exchange
(including
transactions
deemed by law as a sale), or lease of
goods, properties, or services in the
course of trade or business, or on the
importation of goods.
Nature of VAT
a) An indirect tax; hence, amount of
the tax may be shifted or passed
on to the buyer
b) A privilege tax; hence, the tax is
imposed not on the goods,
properties or services as such, but
on the sale, barter, exchange or
lease of goods or properties, or the
sale or performance of services for
a fee, remuneration, etc
c) A uniform tax computed at the rate
of 0% or 12% of the gross selling
price of goods or of gross receipts
realized from the sale of services
d) An ad valorem tax because it is
based on the gross selling price or
gross value in money, or gross
receipts
derived
from
the
transaction
e) A tax on the value added by every
seller as the goods, properties or
services pass along the distribution
chain, unless the seller is exempt.
Purposes of VAT system:
a. Realizing the system of taxing
goods and services;
b. Simplifying tax administration; and
c. Making the tax system more
equitable, to enable the country to
attain economic recovery.

Transactions subject to 10% VAT:


(you SITS down!)
1. Every sale, barter or exchange,
leases, goods or properties made in
the course of business or trade;
2. Importation of goods, whether or
not in the ordinary course of business;
and
3. Transactions deemed sale for VAT
purposes:
a. 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;
b. Distribution or transfer to:
i. Shareholders
or
investors as share in the
profit
of
the
VATregistered persons; or
ii. Creditors in payment of
debt;
c. Consignment of goods if actual
sale is not made within sixty
(60) days following the date
such goods were consigned;
and
d. Retirement from or cessation of
business, with respect to
inventories of taxable goods
existing as of such retirement or
cessation
4. Every sale of service made in the
course of trade or business other than
services rendered by persons subject
to other percentage taxes.
in the ordinary course of trade or
business - means the regular
conduct or pursuit of a commercial or
an
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.
Note: The rule of regularity, to the
contrary
notwithstanding,
those
services as defined in this Code
rendered in the Philippines by
nonresident foreign persons shall be
considered as being rendered in the
course of trade or business.
Note:
Businesses
where
the
aggregate sales or receipts do not
exceed Php1, 500, 000 during any 12month period shall be considered
principally for subsistence or livelihood
and not in the course of trade or
business, and shall be exempt from
VAT. They shall, however, be subject to
percentage tax equivalent to 3% of
their gross quarterly sales or receipts,
provided that the business is not VATregistered.
Transactions subject to 0% VAT:
Zero-rated sales:
a. EXPORT SALES
1. Direct importation - the sale and
actual shipment of goods from
the Philippines to a foreign
country, paid for in acceptable
foreign
currency
or
its
equivalent in goods or services
and
accounted
for
in
accordance with BSP rules;
2. Indirect importation - the sale of
raw materials to a non-resident
buyer for delivery to a resident
local export-oriented enterprise
to be used in manufacturing,
processing,
packing
or
repacking in the Philippines of
the said buyers goods, paid
for in acceptable foreign

currency and duly accounted


for in accordance with BSP
rules;
1. Sale of raw materials or
packaging materials (RM/PM)
to
an
export-oriented
enterprise whose export sales
exceed 70% of the total
annual production;
4. Sale of gold to the BSP;
5. Those considered export sales
under the Investment Code;
6. The sale of goods, supplies,
equipment and fuel (GSEF)
to persons engaged in
international
shipping
or
international
transport
operations.
Note: Importations of GSEF by such
persons are VAT-exempt.
b.
FOREIGN
CURRENCY
DENOMINATED SALES:
Sales to whom: non-resident
Of what: goods assembled or
manufactured in the Philippines.
Except: automobiles and nonessential
goods
(jewelries,
perfumes, yachts, etc.)
To whom delivered: resident of
the Philippines.
Paid for in acceptable foreign
currency
Duly
accounted
for
in
accordance with the BSP rules

c. EFFECTIVELY ZERO-RATED
TRANSACTIONS:
Sales to whom: persons or
entities exempted under special
laws or international agreements
to which the Philippines is a
signatory
2.) Zero-rated services:
a. Processing, manufacturing or
repacking of goods
For: persons doing business
outside the Philippines
When:
the goods
subsequently exported

e. Those
performed
for
an
enterprise whose export sales
exceed 70% of the annual
production, by subcontractors
and/or
contractors
duly
accredited by the Board of
Investments or the Export
Development
Council
in
processing,
converting
or
manufacturing goods;
f. Transport of passengers and
cargo by air or sea vessels from
the Philippines to a foreign
country;

are

Paid for in acceptable foreign


currency AND duly accounted
for in accordance with the BSP
rules;
b. Services other than those
provided in #2a rendered to:
1. Persons
engaged
in
business
outside
the
Philippines or;
2. Non-resident persons not
engaged in business
3. When the services were
rendered
4. Paid for in acceptable
foreign
currency
duly
accounted for in accordance
with BSP rules
c. Services rendered to exempt
entities under special laws and
international agreements to
which the Philippines is a
signatory;
d. Services rendered to persons
engaged
exclusively
in
international
shipping/
international
air
transport
operations;

g. Sale of power or fuel generated


through renewable sources of
energy.
ZERO-RATED
all VAT is removed
from the goods,
activity or
transaction
the taxpayer can
claim the refund or
input taxes passed
on to him by the
supplier, etc. or
credit such input
taxes on his nonzero-rated
transactions
generally, taxable
sales are taken
into account in
determining turnover sales or sale
for VAT
registration
purposes

EXEMPT
removes the VAT
only at the exempt
stage
the taxpayer is not
entitled to credit or
refund of the input
tax passed on to
him by the supplier,
etc.

it is not taken into


account in
determining turnover or VAT
registration
purposes

Rules in lease of residential units


for VAT purposes:
Lease of property situated in the
Philippine shall be subject to VAT
irrespective of the place where the

contract of lease or licensing


agreement was executed if the
property leased or used in the
Philippines.
Residential units shall refer to
apartments, houses, and/or lands on
which anothers dwelling is located,
used for residential purposes and shall
include not only buildings, but also the
parts or units thereof used solely as
dwelling places (e.g. dormitories,
rooms and bed spaces) except motels,
motel rooms, hotel and hotel rooms.
It likewise includes apartment,
houses, buildings, parts or units
thereof used for home industries, retail
stores or other business purposes if
the tenant thereof and his family
actually live therein and used them
principally for dwelling purposes.
The term unit shall mean an
apartment unit in the case of
apartments, house in case of
residential houses; per person in the
case of dormitories, boarding houses
and bed spaces; and per room in case
of room for rent.
Exempt Transactions:
1. Sale/ importation of agricultural
and marine food products in their
original state; livestock and poultry
generally
used
for
human
consumption;
Note: products are considered in
their original state even if they have
undergone simple processes of
preparation or preservation for the
market freezing, drying, salting,
broiling, roasting, smoking, and
stripping (FreDS BroSS)
Rice, corn grits, sugar cane,
molasses are always considered in
their original state (RiCo SuMo)

2. S/I of fertilizers; seeds, seedlings


and fingerlings; fish, prawn,
livestock and poultry feeds;
3. Importation of personal
household effects, provided:

and

a. the effects belong to residents


returning to/or non-residents
coming to resettle in the
Philippines.
b. The effects are exempt under
Tariff and Customs Code
4. Importation
of
professional
instruments
and
implements,
wearing apparel, domestic animals
except vehicle, vessel, aircraft and
machinery used to manufacture
any merchandise in commercial
quantity, provided:
a. the effects belong to persons
coming to settle in the
Philippines.
the effects are for their own use
and not for sale
evidence should be produced
before the Commissioner that
the change or
Residence is
bona fide
5. Services subject to percentage tax;
6. Services by agricultural contract
growers and milling for others of
RiCo Su (rice, corn grits, sugar
cane);
7. Medical, dental, hospital and
veterinary services except those
rendered by professionals;
8. Educational services rendered by
government
educational
institutions and private educational
institutions accredited by DepEd,
CHED, TESDA;

9. Services rendered pursuant to an


employer-employee relationship;
10. Services rendered by regional or
area headquarters established by
Multinational Corporations;
11. Transactions exempt under special
laws and international agreements
to which the Philippines is a
signatory except those under P.D.
529;
12. Sales by agricultural cooperatives
registered with CDA;
13. Gross receipts from lending
activities by credit of multi-purpose
cooperatives registered with the
CDA;
14. Sales by non-agricultural, nonelectric
and
non-credit
cooperatives registered with the
CDA;
15. Export sales by persons who are
not VAT-registered;
16. Sale of real property utilized for
low-cost and socialized housing;

persons
engaged
in
international shipping and air
transport operations;
21. Services of banks, non-bank
financial intermediaries performing
quasi-banking activities;
22. Sale or lease of goods, properties
or services where the gross annual
sales and/or receipts do not
exceed P1, 500,000.00;
Computation of the VAT:
1. for the Sale of Goods or Properties
12% of the gross selling
price or gross value in
money (effective February
1, 2006)
Gross selling price means the
total amount in money or its
equivalent which the purchaser
pays or is obligated to pay to the
seller in consideration of the
transaction, excluding the VAT
Note: such tax shall be paid by the
seller or the transferor

19. S/I or lease of passenger or cargo


vessels and aircraft including
engine, equipment and spare parts
thereof;

2. for the Importation of Goods


12% of the total value used
by the Bureau of Customs in
determining
tariff
and
customs duties, excise taxes
and other charges or;
12% of the landed cost plus
excise taxes where the
customs
duties
are
determined on the basis of
the quantity or volume of the
goods
such tax shall be paid by the
importer prior to the release
of the goods from Customs
custody

20. Importation of (GSEF) goods,


supplies, equipment and fuel by

3. for the Sale of Services and Use or


Lease of Properties

17. Lease of residential units with a


monthly rental less than P10, 000;
18. S/I, printing, publication of books
and any newspaper, magazine,
review or bulletin, which appear at
regular intervals with fixed price for
subscription and which are not
devoted
principally
for
paid
advertisements;

12% of the gross receipts


derived from the sale or
exchange of services
Gross receipts means the total
amount in money or its equivalent
representing the contract price,
compensation, service fee, rental or
royalty, including the amount
charged for materials supplied with
the services and deposits and
advanced payments actually or
constructively received during the
taxable quarter for the services
performed or to be performed for
another person, excluding VAT
Deductions or Exclusions from the
gross sales/receipts:
1. Discounts
Must be determined and
granted at the time of sale
Expressly indicated in the
invoice
The amount thereof forms part
of the gross sales duly recorded
in the books of the seller
The grant of which does not
depend upon the happening of
a future event
2. Sales returns and allowances
A proper credit or refund
was made
The
sales
previously
recorded as taxable sales
When may property dividends be
subject to VAT?
Property
dividends
which
constitute stocks in trade or properties
primarily held for sale or lease
declared as retained earnings on or
after January 1, 1996 and distributed
by the company to its shareholders
shall be subject to VAT based on the
zonal value or fair market value at the
time of distribution whichever is
applicable.

Tax Credits:
Output tax - the value-added tax due
on the sale or lease of taxable goods
or properties by any person required to
register
Input tax - the value-added tax due
from or paid by a VAT-registered
person in the course of his trade or
business on importation of goods or
local purchase of goods or services,
including lease or use of property, from
a VAT-registered person.
Creditable input tax: any input tax
evidenced by VAT invoice or official
receipt on the following transactions:
a. Purchase/Importation
1. for sale
2. for conversion into or intended
to form part of a finished
product for sale including
packaging materials
3. for use as supplies in the
course of business
4. for use as materials supplied in
the sale of services
5. for use in trade or business for
which
deduction
for
depreciation or amortization is
allowed
b. Purchase of services on which a
VAT has actually been paid
Creditable to:
1. the
purchaser
upon
consummation of the sale and
on importation of goods and
properties
2. The importer upon payment of
the VAT prior to the release of
the goods from Customs
custody
3. to the purchaser, lessee or
licensee upon payment of the
compensation, rental, royalty or
fee, in case of purchase of

services or lease or use of


properties
Rule on Input Tax on Capital Goods:
a. if the aggregate acquisition cost
of the capital goods, excluding
VAT, exceeds P1, 000,000.00;
and
b. where
such
goods
are
purchased or imported in a
calendar month for use in trade
or business for deduction for
depreciation is allowed;
c. then, the input tax shall be
spread evenly over a period of
60 months, commencing from
the month the acquisition was
made
d. provided, however, that if the
estimated useful life of such
goods is less than 5 years, then
the input VAT shall be spread
over such shorter period.
A VAT-Registered person
also engaged in non-vatable
transactions shall be allowed
tax credit as follows:
a. total input tax directly
attributable to vatable
transactions;
b. A ratable portion of any
input tax which cannot be
directly
attributed
to
either activity;
Excess Output or Input Tax
a. if, O > I ; then, the excess shall
be paid by the VAT-registered
person
b. if, I > O; then, the excess shall
be
carried
over
to
the
succeeding
quarters
or
quarters, provided:
1. the input tax carried over
from the previous quarter

shall not exceed 70% of the


output VAT
2. the input tax attributable to
zero-rated sales may, at the
option of the taxpayer, be
refunded
or
credited
against
other
internal
revenue taxes
3. The excess input tax to be
carried over from the
preceding month or quarter
shall be reduced by:
a. amount of claim for
refund or tax credit for
VAT
b. other adjustments, such
as
purchase
returns or allowances
c. input tax attributable to
exempt sales
Transitional input tax credits is the
input tax allowed to be credited against
the output tax of a person who
becomes liable to value-added tax or
any person who elects to be a VATregistered person, on his beginning
inventory of goods, materials and
supplies, equivalent to two percent
(2%) of the value of such inventory or
the actual value-added tax paid on
such goods, materials and supplies,
whichever is higher.
Presumptive Input tax credits is
the input tax credit allowed to persons
liable for VAT where their purchases
are not subject to input tax. The
following persons are entitled to
presumptive input tax credits:
a. Persons or firms engaged in the
processing
of
sardines,
mackerel and milk, and in
manufacturing refined sugar,
cooking oil and packed noodlebased instant meals, equivalent

to four percent (4%) of the


gross value in money of their
purchases
of
primary
agricultural products which are
used as inputs to their
production.
b. Public
works
contractors,
equivalent to one and one-half
percent (1 1/2%) of the contract
price
with
respect
to
government contracts only in
lieu of actual input taxes there
from.

complete documents in support of


the application
Rule where the taxpayer is engaged
in zero-rated or effectively zerorated transactions and also in
taxable or exempt sales:
a. the amount of the creditable input
tax due or paid which cannot be
directly and entirely attributed any
one of the transactions shall be
allocated proportionately on the
basis of the volume of sales

Refunds or Tax Credits for ZeroRated or Effectively Zero-Rated


Sales:
a. taxpayer must be VAT-registered;
otherwise, the transaction is
exempt which does not entitle him
to any refund or tax credit;

b. in case of a person making zerorated and non zero-rated sales, the


input tax shall be allocated ratably
between his zero-rated and non
zero-rated sales

b. application for a tax


certificate or refund must be
within 2 years after the close
taxable quarter when the
were made;

The Government or any of its


political subdivisions, instrumentalities
or agencies, including GOCCs shall,
before making payment on account
of purchase of goods and services
deduct and withhold a final VAT at
the rate of 5% of the gross payment
thereof

credit
made
of the
sales

c. to the extent that the input tax has


not been applied against output tax.
d. the transactions are paid for in an
acceptable foreign currency and
duly accounted for in accordance
with BSP rules.
e. in the case of a person whose
registration is cancelled due to
retirement from or cessation of
business, or due to changes in or
cessation of status, the application
may be made within 2 years from
the date of cancellation.
f. in other appropriate cases, the
Commissioner shall grant refund or
issue the tax credit certificate for
creditable input taxes within 120
days from the date of submission of

Withholding of VAT:

The payment for lease or use of


properties or property rights to
nonresident owners shall be subject
to 10% withholding tax at the time of
payment

EXCISE TAX, PERCENTAGE TAX,


AND DOCUMENTARY STAMP TAX
EXCISE TAX
Excise Tax Applies to articles
manufactured or produced in the
Philippines for domestic sale or
consumption or for any other
disposition and to things imported.

In case of importation, excise tax


shall be in addition to the value added
tax imposed by R.A. No. 8424.
a. Specific Tax - imposed on
weight or volume capacity or
any other physical unit of
measurement
b. Ad valorem Tax - an excise tax
imposed and based on selling
price or other specified value of
the article
PERCENTAGE TAX
Percentage Taxes are based on a
given ratio between the gross receipt
and the burden imposed upon the
taxpayer.
Note: If the taxpayers sale of services
is already subject to VAT, he is no
longer subject to other percentage
taxes, or vice versa.
Includes the following:
1. Tax on persons exempt from VAT
3% of gross sales/receipts
one whose sales/receipts
does not exceed 550,000,
and
who is not VAT-registered
cooperatives are exempt
2. Tax on domestic carriers and
keepers of garage
3% of gross receipts
for
the
transport
of
passengers
except on owners of bancas
and
animal-drawn
2wheeled vehicle
3. Tax on international carriers
3% of gross receipts from
outbound revenues only
applies to both international
air and shipping carriers

doing business
Philippines

in

the

4. Tax on franchises
a. franchises on radio and/or
television
broadcasting
companies whose annual gross
receipts of the preceding year
does not exceed 10 million
pesos 3%
b. franchises on electric, gas and
water utilities 2%
Note: the gross receipts must
be derived from the business
covered by the law granting the
franchise
Radio and TV broadcasting
companies shall have an option
to be registered as a VAT
taxpayer, provided that once the
option is exercised, it shall not
be revoked
5. Tax on overseas dispatch,
message and conversation
10% of gross receipts
transmitted
from
the
Philippines
payable by the person
paying for the services
rendered
paid to the person rendering
the services who is required
to collect and pay the tax
within 20 days after the end
of each quarter
Does not apply to:
a. the government
b. diplomatic services
c. public
international
organizations
enjoying
privileges and immunities
d. news services
6. Tax on banks and non-bank
financial
intermediaries
and
finance companies

a. on interest, commissions
and discounts from lending
activities as well as income
from financial leasing, based
on the remaining maturities
of instruments from which
the receipts are derived:
5 years or less
5%
More than 5 years 1%
b. on dividends and equity
shares in net income of
subsidiaries 0%
c. on royalties, rentals of
property and other items
treated as frosts income
5%
d. on net trading gains on
foreign
currency,
debt
securities, derivatives and
other similar instruments
5%
7. Amusement taxes
imposed on the proprietor,
lessee or operator of:
a. cockpits, cabarets, night or
day clubs 18%;
b. boxing exhibitions 10%;
exempt if the World or
Oriental Championships in
any division is at stake,
provided at least 1 of the
contenders is a Filipino
citizen and said exhibition is
promoted by a citizen or
corporation at least 60% of
the capital of which is owned
by such citizens;
c. professional basketball games
15%
d. jai-alai and racetracks 30%

8. Tax on winnings
a. from horse races 10%
Tax is based on the actual
amount paid to him after
deducting the cost of the ticket
b. from double, forecast/quiella
and trifecta bets 4%
c. on owners of winning race
horses 10% of the prizes
9. Tax on sale of shares of stock
listed and traded through the local
stock exchange or through initial
public offering (IPO)
sale made through the local
stock exchange, other than the
sale by a dealer in securities
of 1% of the gross selling price
through the IPO of shares of
stock in closely held corporations,
based on the gross selling price
sold in accordance with the
proportion of shares of stock sold
to the total outstanding shares
after the listing in the local stock
exchange:
-Up to 25% - 4%
-Over 25% but not over 33-1/3% 2%
-over 33-1/3 - 1%

the tax is paid by the issuing


corporation
in
primary
offering or by the seller in
secondary offering
DOCUMENTARY STAMP TAX
It is a tax on documents,
instruments & paper evidencing the
acceptance, assignment, sale or
transfer of an obligation, right, or
property incident thereto.
Nature of Documentary Stamp Tax
It is an excise tax because it is

really imposed on the transaction than


on the document. It is paid only once.
The liability to the tax and the amount
thereof are determined from the face
of the document itself.
Persons Liable: The persons
1. Making
2. Issuing
3. Signing
4. Accepting
5. Transferring
the document, instrument or
paper
DOCUMENTS SUBJECT TO TAX

1.
2.
3.
4.
5.
6.
7.
8.

Corporate documents
Commercial documents
Insurance policies
Deeds of sale
Special contracts
Maritime documents
Certificates Luxuries
Other
assignments
renewals

and

A. CORPORATE DOCUMENTS
1)
Original issue of shares of
stock (sec. 175)
a. Cost of imposition is borne
by the corporation originally
issuing the stock certificate
b. Revenue
Circular #47-97

Memorandum

The documentary stamp tax on


original issues of certificates of stock
as provided under Section 175 of the
Tax Code attaches upon acceptance of
the stockholders subscription in the
capital stock of a corporation
regardless of the physical issuance
and delivery to the stockholder of the
certificate of stock evidencing his
stockholding. Therefore, taxes accrue
at the time the shares are issued.
Meaning of the term original
issue- point at which the stockholder
acquires and may exercise attributes
of ownership over the stocks.
Note: Certificates of stock temporarily
subject to suspensive conditions shall
only be liable for DST only when
released from said conditions. For then
and only then shall they truly acquire
any practical value for their owners.
2)
On proxies (sec. 192)
Basis: each proxy document

Exemption: proxies issued at


affecting the affairs of association,
or corporation organized for
religious, charitable or literary
purposes.
B. COMMERCIAL DOCUMENTS
1) Debentures and Certificates of
indebtedness (sec. 174)
Basis: face value of document
2) Bonds, debentures, certificates
of stock or indebtedness issued
in foreign countries (sec. 177)
Basis: fixed tax as required by
law on similar instruments when
issued, sold, or transferred in
the Philippines.

Issued in any foreign


country but sold or transferred in
the Philippines
3) Certificates of profits or interest
in property or accumulations
(sec. 178)
Basis: face value of document
4) Bank Checks, drafts, certificates
of deposit not bearing interest,
and other instruments (sec.
179)
Basis: fixed on each instrument
the tax applies only to inland
bank
checks,
drafts,
or
certificates of deposit not drawing
interest
5) All bonds, loan agreements,
promissory notes, bills of
exchange, drafts, instruments
and securities issued by the
government or any of its
instrumentalities,
deposit
substitute debt instruments,
certificates of deposits bearing
interest and others not payable
on sight or demand (sec. 180)
Basis: face value of document

Exemptions:
a.) bank notes issued for
circulation
b.) loan agreements and
promissory notes the
aggregate of which does
not exceed P250.00
executed by an individual
for his purchase, on
installment, of a house,
lot,
motor,
vehicle,
appliance or furniture, for
his personal use or that
of his family
Note: Renewal is also subject to
documentary stamp tax.
Note: renewal postponement of the
maturity of the obligation dealt with;
an extension of the time in which that
obligation may be discharged.
Note: Tax on renewal shall be at the
same rate as the tax on the original
document.
6) Upon acceptance of bills of
exchange and others (sec. 181)
Basis: Face value
Document taxable: any bill or
exchange or order for the payment
of money purporting to be drawn in
the foreign country but payable in
the Philippines.
7) Foreign bills of exchange and
letters of credit (sec. 182)
Basis: face value
Document taxable: all foreign bills
of exchange and letters of credit
drawn in but made payable outside
the Philippines.
8) Warehouse Receipts (sec. 189)
Basis: each warehouse receipt

Exemption: warehouse receipt


issued to any one person in any
one calendar month covering
property the value of which does
not exceed P200.
9) Bills of lading or receipts (sec.
191)
Basis: Value of the goods
Exemptions: charter party, freight
tickets
covering
goods,
merchandise or effects carried as
accompanied
baggage
of
passengers on land and water
carriers primarily engaged in the
transportation of passengers.
C. INSURANCE POLICIES
1) Life insurance policies (sec.183)
Basis: Amount insured by such
policy
The tax is collectible not only on
the original policy but also upon
renewals. No DST is due on insurance
policies issued by a Phil. company to
persons in other countries. The tax is
imposed upon issuance of the policy
even if at that time premium had not
yet been paid. If the policy is
cancelled, no refund of the tax shall be
made.

5) Indemnity Bonds (sec. 187)


Basis: Premium charged
Exemption: such as may
required in legal proceedings.

be

6) Certificates (sec.188)
Certificate of damage or otherwise
issued by any public official in public
capacity for the purpose of giving info
or establishing proof of fact.
Basis: each document
D. DEEDS OF SALES
1) Sales, agreements to sell,
memoranda of sales, deliveries
or
transfer
of
due-bills,
certificates of obligation, or
shares or certificates of stock
(sec. 176).
Basis: Par value of due-bill,
certificate of obligation or stock
2) Deeds of sale and conveyances
of real property (sec. 196)
Basis: Tax rate based on amount
Property must be located in the
Philippines and deeds of partition &
deeds of redemption, taxable
E. SPECIAL CONTRACTS

2) Property insurance
(sec.184)
Basis: Premium charged

policies

3) Fidelity bonds and other


insurance policies (sec.185)
Basis: Premium charged
4) Policies of annuities and preneed plans (sec.186)

1. Powers of attorney (sec. 193)


Basis: Fixed tax rate
Exemption: Collection of claims
due from or accruing to the
government of the Philippines or
the government of any province,
city or municipality.

Annuity - Basis: Capital of the


annuity

2. Leases and other hiring agreement


(sec.194)
Basis: Fixed tax rate

Pre-need plans - Basis: Value or


amount of the plan

3. Mortgages, pledges and deeds of


trust (sec. 195)

Basis: Tax rate based on amount


Transactions must be effected
and consummated within the
Philippines
Tax is based on the amount
secured and not on the value of
property mortgaged and there must
be an existing debt
4. Jai-alai, horse race tickets, lotto or
other authorized numbers games
(sec. 190)
Basis: each ticket
F. MARITIME DOCUMENTS
Charter
parties
and
instrument (sec. 197)

similar

EXEMPTIONS:
a. Written Appearances- Written
appearances in any court by
any government official in his
official capacity
b. Fraternal
or
Beneficiary
Organization
Insurance
Policies of Annuities- Policies
of insurance of annuities made
by a fraternal or beneficiary
society, order, association or
cooperative company, operated
on the lodge system or local
cooperation plan and organized
and conducted solely by the
members thereof for the
exclusive benefit of each
member and not for profit
c. Government and Indigent
Documents filed in CourtPapers and documents filed in
courts by or for the national,
provincial, city or municipal
governments, affidavits of poor
persons for the purpose of
proving poverty

d. Certificates of the Assessed


Value
of
Lands
NOT
EXCEEDING P200- Certificates
of the assessed value of lands
not exceeding P200 in value
assessed, furnished by the
provincial, city or municipal
treasure to applicants for
registration of the title to land.
e. Solo use- Certified copies and
other certificates placed upon
documents, instruments, and
papers
by
the
national,
provincial, city or municipal
governments made in the
instance and for the sole use of
some other branch of the
national, provincial, city or
municipal governments.
f. Certificate
of
Oaths
administered
to
any
government official in his
official capacity- Certificates of
oaths administered to any
government official in his official
capacity or of acknowledgment
by any government official in
the performance of his official
duties, written appearance in
any court by any government
official in his official capacity.
g. Compulsory Information for
Statistical
PurposesStatements
and
other
compulsory information required
of persons or corporations by
the rules and regulations of the
national, provincial city or
municipality
government
exclusively
for
statistical
purposes and which are wholly
for the use of the bureau in
which they are filed, and not at
the instance or for the use or
benefit of the person filing them

h. Certificates
of
the
Administration of Oaths for
Paper Authenticity-Certificates
of the administration of oaths to
a person as to the authenticity
of a paper required to be filed in
court by any person, whether
the proceedings be civil or
criminal
DOCUMENTARY
PAYMENT

STAMP

TAX

WHEN to file RETURN


1. within 10 days after close of the
month when taxable document
was within 5 days after close of
each week for Revenue Collection
Officers
2. Each time documentary stamps are
purchased for reloading, for
documentary stamp tax metering
machine authorized persons
WHERE to FILE/PAY
1. Authorized agent bank within the
jurisdiction of the revenue district
office having jurisdiction over the
residence or principal place of
business of the taxpayer
2. Revenue district officer, collection
agent or his duly authorized
treasurer of the city or municipality
in which the taxpayer has his legal
residence or principal place of
business
WHO are required to accomplish
and file a documentary stamp tax
DECLARATION under BIR Form
2000
1. Any
person
liable
to
pay
documentary stamp tax on a
taxable document/transaction when
tax due is >P200.
2. Any Revenue Collection Officer,
duly authorized to sell loose debts

3. Any person authorized to use DST


Metering Machine
WHEN to PAY
General rule: simultaneous with filing
of return
Exception: purchase and actual
affixture
Actual Stamping System: loose
documentary stamps
Constructive Stamping System:
constructive
affixture
printing
through a DS metering machine
AFFIXTURE
In general: DS is affixed on the
original copy of the document
Exception: duplicate copy when the
same has been substituted and used
in place of the original
FAILURE TO
DOCUMENT

STAMP

TAXABLE

It will not render the document void


but document cannot be recorded in
government offices and cannot be
accepted in evidence in court
PENALTY: 25% surcharge plus 20%
interest per annum
DUTY OF NOTARY PUBLIC: Not to
add his jurat or acknowledgment to
any document subject to documentary
stamp
tax
unless
the
proper
documentary stamps are affixed
thereto and cancelled.
TAX REMEDIES
Agencies
Involved
Administration
1. BIR
2. Bureau of Customs

in

Tax

3. Provincial, city, and municipal


assessors and treasurers
Powers and Duties of the BIR (Sec.
2, CTRP) (AGEE)
1. Assessment and collection of all
national internal revenue taxes,
fees, and charges
2. Give effect to and administer the
supervisory and police power
conferred to it by the Tax Code or
other laws
3. Enforcement of all forfeitures,
penalties and fines in connection
therewith
4. Execution of judgments in all cases
decided in its favor by the Court of
Tax Appeals and the ordinary
courts
TAX REMEDIES UNDER THE NIRC
General Rule: Tax collection cannot
be enjoined by court injunction. The
tax Code provides that no court shall
have the authority to grant an
injunction to restrain the collection of
any national internal revenue tax, fee
or charge imposed by this Code. (Sec.
18, NIRC)
Exception: An injunction that may be
issued by the CTA in aid of its
appellate jurisdiction under RA 1125

3. Inventory taking, surveillance and


use of presumptive gross sales and
receipts
4. Termination of taxable period
5. Prescription of real property values
6. Examination of bank deposits to
determine the correct amount of
the gross estate
7. Accreditation and registration of tax
agents.
8. Prescription
of
additional
procedural
or
documentary
requirements.
The role of the government in
assessment process includes the
following:
1. Examination
of
books
of
accounts and other accounting
records of taxpayers by revenue
officers to determine the correct tax
liability (Letter of Authority- LOA)
Period:
Letter of Authority must be served
to the concerned taxpayer within thirty
(30) days from its date of issuance
otherwise it hall be null and void.
Revenue officer is allowed only 120
days from the date of receipt of a letter
of authority by the taxpayer to conduct
the audit and submit the required
report of investigation.

A. POWER TO ASSESS:
Starts with the self-assessment by
the taxpayer of his tax liability, filing of
the tax return, and payment of the
entire tax due shown on his return
Means Employed in the Assessment
of Taxes (Sec. 6, CTRP) (PEE BITS
PA)
1. Examination of tax returns
2. Use of the best evidence
obtainable

Who may issue letter of authority?


After a return has been filed, the
commissioner or his duly authorized
representative may authorize the
examination of the books of any
taxpayer and the assessment of the
correct amount tax. (Sec. 6, NIRC)
The revenue Regional Director
shall approve and sign all LAs for all
audit cases within his regional
jurisdiction, EXCEPT
a. cases involving civil or criminal
tax fraud under the jurisdiction

of the tax fraud division of the


enforcement service;
b. policy cases under audit by
Special Teams in the National
Office. (RAMO 36-99)
Note: If the taxpayer does not submit
the
documents
or
information
requested by the BIR, the person may
be required to testify or the document
may be summoned and required to be
presented to the BIR
Q. Can the BIR issue LOA more
than once within a taxable year?
A. No. BIR officer are allowed to issue
LOA only once. EXCEPT:
1. When BIR determines that there
is fraud or irregularities was
committed by taxpayer
2. Taxpayer itself requests for an
examination of his accounts
3. When there is a need to verify
the withholding taxes required
by the BIR.
4. When capital gains tax must be
verified.
Power of the Commissioner to
assess deficiency tax based on best
evidence obtainable Sec. 6B of
R.A.
8424
empowers
the
Commissioner to assess the proper
tax and make or amend the return
based on the best evidence obtainable
(from his own knowledge and from
such information as he can obtain
through testimony or otherwise) when:
1. 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; or
2. there is reason to believe that
any such report is
i. false
ii. incomplete

iii. erroneous.
The
return
made
by
the
Commissioner, in this instance, shall
be prima facie correct and sufficient for
all legal purposes.
2. Preparation of tentative findings
and holding of informal conference
(Notice of Informal Conference-NIC)
Soon after the completion of the
tax audit, the revenue officer will
render a written report stating:
a. the factual and legal basis of his
findings
b. whether the taxpayer agrees
with his findings
If the taxpayer is not amenable, the
taxpayer shall be informed in writing by
the Revenue District Officer or by the
Chief of the Division of the
discrepancies in the taxpayers liability
for the purpose of informal conference,
in order to afford the taxpayer with an
opportunity to present his side of the
case.
Note: If the taxpayer fails to respond
within 15 days from date of receipt of
the notice for informal conference, he
shall be considered in default
In such a case, the Revenue
District Officer of the Chief of the
Division shall endorse the case to the
Assessment Division for review and
issuance of deficiency tax assessment,
if warranted.
3.
Issuance
of
Preliminary
Assessment Notice (PAN)
It is a communication issued by the
Regional assessment Division, or any
other concerned BIR office, informing
a taxpayer who has been audited of
the findings of the BIR officer following
the review of these findings.

It must show in detail the facts and


law
on
which
the
proposed
assessment is based, otherwise its
fatal to BIR.
If the taxpayer disagrees with the
findings stated in the PAN, he shall
then have 15 days from his receipt of
the PAN to file a written reply
contesting the proposed assessment.
Instances wherein PAN is NO longer
required:
1. When the finding for any deficiency
tax is the result of mathematical
error in the computation of the tax
appearing on the face of the tax
return filed by the taxpayer;
2. when a taxpayer who opted to
claim a refund or tax credit of
excess creditable withholding tax
for
a
taxable
period
was
determined to have carried over
and automatically applied the same
amount claimed against the
estimated tax liabilities for the
taxable quarter or quarters of the
succeeding taxable year;
3. when a discrepancy has been
determined between the tax
withheld and the amount actually
remitted by the withholding agent;
4. when an excise tax due on
excisable articles has not been
paid; or
5. when an article locally purchased
or imported by an exempt person,
such as, but not limited to vehicles,
capital equipment, machineries,
and spare parts, has been sold,
treated or transferred to nonexempt persons.
4. Issuance of Formal Assessment
Notice (FAN) and letter of demand
If the taxpayer fails to respond
within 15 days from date of receipt, he
shall be considered in default

In such a case, a formal letter of


demand and FAN shall be issued,
calling for payment of the deficiency
tax liabilities, inclusive of penalties. It
shall be sent personally or through
registered mail
TAX ASSESSMENT- It is the official
action of an officer authorized by law in
ascertaining the amount of tax due
under the law from a taxpayer. This
action necessarily involves:
1. the computation of the sum due;
2. giving notice to that effect to the
taxpayer; and
3. the making, simultaneously with
or sometime after the giving of
notice, of a demand upon him
for the payment of the tax
deficiency stated.
Assessment contains not only
computation of tax liabilities but also a
demand for payment within a
prescribed period. (CIR vs. PASCOR,
309 SCRA 402)
Note: Notice of assessment is
presumed valid. If the taxpayer
contested such a determination, the
burden of proving the determination
wrong, together with the corresponding
burden of first going forward with
evidence
is on
the
taxpayer.
(Cyanamid Philippines, Inc. vs. CA,
322 SCRA 639)
Q. When is an assessment deemed
made?
A. An assessment is deemed made
only when the collector of internal
revenue releases, mails, or sends
such notice to the taxpayer regardless
whether or not the taxpayer received
the notice within the prescriptive
period. (Basilan Estates, Inc. vs. CIR,
21 SCRA 17)
B. POWER TO COLLECT:

Delinquent Taxpayer
When the self-assessed tax per
return filed on the prescribed date
was not paid at all or was only
partially paid, or

The deficiency tax assessed by the


BIR became final and executory.

Deficiency tax
The amount by which the income
tax as determined by the BIR
exceeds the amount shown as tax
per return, or

If no amount is shown or if no
return is made, then the amount by
which the tax as determined by the
BIR
exceeds
the
amounts
previously assessed (or collected
without
assessment)
as
a
deficiency

DELINQUENCY
Failure to pay the
tax due on the
date fixed by law
or indicated in
the assessment
notice or letter of
demand

DEFICIENCY
The amount still
due and
collectible from a
taxpayer upon
audit or
investigation.

Filing of administrative protest by


the
taxpayer
against
the
assessment
Within 30 days from receipt of
the FAN
Failure to make such protest
would render the assessment
final,
executory
and
demandable
The prescriptive period for
assessment or collection shall
be suspended.
Submission
of
documentary
evidence and argument
Within 60 days from date of
filing of protest

Failure to submit would render


the assessment final, executory
and demandable
Denial of protest
The taxpayer may appeal to the
Court of Tax Appeals (CTA)
within 30 days from date of
receipt of the decision
Otherwise, the assessment
shall become final, executory
and demandable
Inaction of the CIR
Failure to act on the protest
within 180 days from date of
submission of the required
documents would give rise to
the right of the taxpayer to
appeal
The appeal should be made
within 20 days from the lapse of
the said 180-day period
Otherwise, the assessment
shall become final, executory
and demandable.
Distinctions between remedies in
the collection of deficiency tax and
delinquency tax:
DEFICIENCY
TAX
Can immediately
be collected
administratively
through the
issuance of the
warrant of
distraint and levy,
and by judicial
action

The filing of a
civil action for its
collection in the

DELINQUENCY
TAX
Can be collected
also through
administrative
and judicial
remedies but has
to go through the
process of filing
the protest
against the
assessment by
the taxpayer and
denial of such
protest.
The filing of a
civil action at the
ordinary court for

ordinary court is
a proper remedy

collection may
be the subject of
a motion to
dismiss. In
addition, a
petition for
review must be
filed with the
CTA within the
30 days to toll
the running of
the prescriptive
period.

REMEDIES OF THE GOVERNMENT


FOR NON-PAYMENT OF TAXES
1. Administrative remedies
a. tax lien
b. distraint
(actual
and
constructive)
c. levy
d. sale of property of a delinquent
taxpayer
e. forfeiture of property
f. compromise and abatement
g. penalties and fines
h. suspension
of
business
operations.
2. Judicial Remedies
a. civil action
b. criminal action
Note: One or all of the remedies may
be pursued simultaneously in the
discretion of revenue authorities.
Note: Distraint or levy NOT availed of
where the amount of tax involved is
NOT MORE than P100
3. Enforcement of administrative fine
Tax lien
A legal claim or charge on property
of the taxpayer as security for the
payment of some debt or obligation.
Accrues

when

the

taxpayer

neglects or refuses to pay his tax


liability after demand with interests,
penalties, and costs that may accrue in
addition thereto.
Extent-upon all property and rights to
property belonging to the taxpayer
attaches not only from the time the
warrant was served BUT from the time
tax was due and demandable.
The lien is not valid against any
mortgagee, purchaser, or judgment
creditor until notice of such lien shall
have been filed in the register of deeds
of the province or city where the
property is located. But effective
against third persons only when notice
of such lien is filed by the
Commissioner in the Register of
Deeds in the province/city where the
property is situated (Sec. 219)
Note: Superior to judgment claim of
private property.
Distraint
The collection of taxes is enforced
on the goods, chattels or effects and
other personal property, including
stocks and other securities, debts,
credits and interest and rights to
personal property.
WHO may effect distraint?
a. Commissioner
or
his
duly
authorized representative if the
amount involved is more than
P1,000,000.00
b. Revenue District Officer if the
amount involved is P1,000,000.00
or less
Requisites of distraint:
1. the taxpayer must be delinquent
(except in constructive distraint) in
the payment of tax;

2. there must be
demand
for
(assessment);

a subsequent
its
payment

3. the taxpayer fails to pay the tax at


the time required; and
4. the period within which to assess or
collect the tax has not yet
prescribed.
Kinds:
1. Actual Distraint
2. Constructive Distraint
1. Actual Distraint
there is taking of possession of
the property from the taxpayer
by the government
resorted to when at the time
required for payment, a person
fails to pay his delinquent tax
obligation.
Effected by:
a. leaving a list of the distrained
property, or
b. by service of a warrant of distraint
or garnishment
Procedure
(a) Goods, effects, chattels and
other personal property
1. a copy of an account of the
property distrained, signed
by the officer, shall be left
either from the owner or the
person from whom the
property was taken or at the
dwelling or place of business
of such person and with
someone of suitable age
and discretion
2. statement of the sum
demanded
3. time and place of sale
(b) Stocks and other Securities
By serving a copy of the
warrant upon the taxpayer AND

upon the president, manager,


treasurer or other responsible
officer
of
the
issuing
corporation,
company,
association
(c) Debts and Credits
1. leaving a copy of the warrant
with the person owing the
debts or having in his
possession such credits or
his agent
2. warrant shall be sufficient
authority
to
pay
the
Commissioner the amount of
such debts or credits
(d) Bank accounts (garnishment)
1. serve
a
warrant
of
garnishment
upon
the
taxpayer AND upon the
president, manger, treasurer
or other responsible officer
of the bank
2. bank shall turn over to the
Commissioner so much of
the bank accounts as may
be sufficient (Sec. 208
NIRC)
Note: Report on the Distraint by the
distraining officer must be submitted
within 10 days from receipt of the
warrant to the Revenue District Officer
and to the Revenue Regional Director.
The order of Distraint may be lifted by
the
Commissioner
or
his
representative (Sec. 207 (a) NIRC)
2. Constructive Distraint
the owner is merely prohibited
from disposing of this property
issued even when there is no
actual tax delinquency
availed of when taxpayer is:
a. retiring
from
any
business subject to tax;

b. intending to
b.1.leave the Philippines;
or
b.2.remove his property
therefrom; or
b.3. hide or conceal his
property; or
c. he performs any act
tending to obstruct the
proceedings
for
collecting the tax due
Procedure
(a) Require the taxpayer or any
person having control of the
property to
1. sign a receipt covering
property distrained
2. obligate himself to preserve
the
same
intact
and
unaltered
3. not to dispose of the
property in any manner,
without the authority of the
Commissioner
(b) Where taxpayer or person in
possession refuses to sign:

of possession

Effected by
leaving a list of
distrained
property or by
service of a
warrant of
distraint or
garnishment
An immediate
step for
collection of
taxes

merely prohibited
from disposing of his
property
Effected by requiring
the taxpayer to sign a
receipt of the property
or by the revenue
officer preparing and
leaving a list of such
property
Not necessarily so.

LIEN
Directed against
the property
subject to the tax
Regardless of the
owner of the
property

DISTRAINT
Need not be
directed against
the property
subject to the tax
Property seized
must be owned
by the taxpayer

Levy

1. distraining
officer
shall
prepare a list of the property
distrained

It refers to the act of seizure of real


property in order to enforce the
payment of taxes.

2. in the presence of 2
witnesses, leave a copy in
the premises where the
property is located (Sec. 206
NIRC)

The requisites for the exercise of


the remedy of levy is the same as
in the remedy of distraint

ACTUAL
DISTRAINT
Made only on
the property of
a delinquent
taxpayer
There is taking

CONSTRUCTIVE
DISTRAINT
Made on the property
of any taxpayer
whether delinquent or
not
The taxpayer is

When: before, simultaneously or after


the distraint of personal property
belonging to the taxpayer
Effected by:
a. writing upon an authenticated
certificate showing:
1. the name of the taxpayer,
2. amounts of the tax and penalty
due
3. description of the property upon
which levy is made.

b. written notice of the levy shall be


mailed to or served upon:
1. the Register of Deeds of the
province or city where the
property is located, and
2. the delinquent taxpayer
3. if he is absent from the
Philippines, to his agent or the
manager of the business in
respect to which the liability
arose
4. if there be none, to the
occupant of the property in
question.
Note: Real property may be levied
upon before, simultaneously, or
after the distraint of personal property
belonging to the delinquent.
Note: The remedy by distraint and
levy may be repeated if necessary until
the full amount, including all expenses,
is collected.
Procedure:
(a) internal revenue officer shall
prepare a duly authenticated
certificate showing the name of
taxpayer, amounts of tax and
penalty
due.
Enforceable
throughout the Philippines
(b) officer shall write upon the
certificate a description of the
property upon which levy is
made
(c) written notice of levy shall be
mailed or served upon
1. the Register of Deeds where
the property is located and
2. the
taxpayer
or
agent/manager
of
the
business in respect to the
tax liability or to the
occupant of the property
(d) If personal property of taxpayer
is not sufficient to satisfy the tax

due, levy on real property shall


proceed within 30 days after
distraint
(e) Report on levy
1. by levying officer
i.
submitted within
10 days from receipt of
warrant
ii. submitted
to
the
Commissioner or his
representative
2. by the Revenue Regional
Director-consolidated
report, as may be required
by the Commissioner
(f) The warrant may be lifted by the
Commissioner
or
his
representative
Sale of property
1. In case of distrained property:
a. notification specifying the time
and place of sale and the
articles distrained shall be
exhibited
in not less than 2 public
places (one place shall
be at the office of the
Mayor)
in the municipality or city
where the distraint is
made
b. The time of sale shall not be
less than 20 days after notice to
the owner or possessor of the
property and the publication or
posting of such notice
c. Sale of the property at
public auction to the
highest bidder for cash, or
through duly licensed
commodity
or
stock
exchanges,
with
the
approval of the CIR

2. In case of levied Property:


a. advertisement of the time and
place of sale of the taxpayers
property or so much thereof as
may be necessary to satisfy the
claim within 20 days after the
levy, and it shall cover a period
of at least 30 days
posting a notice at the main
entrance of the municipal
building or city hall and in a
public and conspicuous place in
the barrio or district in which the
real estate lies and
by publication once a week
for 3 weeks in a newspaper of
general circulation in the
municipality or city where the
property is located.
b. sale at public auction to the
highest bidder
at the main entrance of the
municipal building or city hall, or
on the premises to be sols,
as the officer conducting the
proceedings shall determine
and as the notice shall specify
c. disposition of proceeds of sale
In case the proceeds of the
sale exceed the claim (taxes,
penalties, and interest) and cost
of the sale, the excess shall be
turned over to the owner of the
property.

Redemption by the taxpayer


Within 1 year from the date of sale,
that is, from the registration of the
registration of the deed of sale. By the
taxpayer or anyone for him by paying
the full amount of:

Taxes
Penalties
Interests, and
Costs of sale

Pending redemption of the property


sold, the owner shall:
1. not be deprived of the
possession of the property
2. be entitled to the rents and
other income thereof
Forfeiture
Effected when:
1. there is no bidder for the real
property in the public sale, or
2. if the amount of the highest bid
is insufficient to pay the taxes,
penalties and costs
The Register of Deeds concerned
shall:
1. Upon
registration
of
the
declaration
for
forfeiture,
transfer the title of the property
to the government
2. Without the necessity of an
order from a competent court
Enforced by:
1. in case of personal property
seizure and
sale or destruction of the
property
2. in case of real property
judgment of condemnation
and
sale in a legal action or
proceeding, civil or criminal,
as the case may require
Redemption by the taxpayer
Same as that of redemption in
case of sale
The 1 year period starts from
the date of registration of the
declaration of forfeiture

Compromise and Abatement


A. Compromise a contract whereby
the parties by reciprocal concessions,
avoid litigation or put an end to one
already commenced.
Requisites:
1. the taxpayer must have a tax
liability;
2. there must be acceptance (by the
Commissioner or taxpayer as the
case may be) of the offer in the
settlement of the original claim;
3. there must be an offer (by the
taxpayer of an amount to be paid
him)
Officers authorized to compromise:
1. Commissioner of Internal Revenue
is the only official vested with such
power and discretion;
2. Subordinate
officials
may
preliminarily enter into compromise.
The effects are:
a. acceptance of an offer of
compromise: not final and
may be reviewed by the
Commissioner;
b. rejection of an offer of
compromise: final and
binding unless revoked or
set
aside
by
the
Commissioner.
Compromise of civil cases:
Grounds (civil cases)
a. When a reasonable doubt as to
the validity of the claim against
the taxpayer exists;
b. When the financial position of
the taxpayer demonstrates a
clear inability to pay the
assessed tax.

Limitation as to amount:
1. In case of financial incapacity: 10%
of the basic assessed tax
2. Other cases: 40% of the basic
assessed tax
The approval of the Evaluation
Board (composed of the CIR and
the Deputy Commissioners) is
required when:
1. The basic tax involved exceeds
Php1,000,000; or
2. The settlement offered is less than
the MCR
Note: The MCR may be less than the
prescribed rates of 10% or 40%, as the
case may be, provided it is approved
by the Evaluation Board
Limitation as to coverage:
1. With respect to the liability of the
taxpayer for surcharges as their
imposition is mandatory
2. In cases finally decided by the
courts
Compromise in criminal violations
All criminal actions may
compromised, except:
a. those already filed in court
b. those involving fraud.

be

Extent of discretion:
1. before the complaint is filed with
the prosecutors office:
the Commissioner has full
discretion to compromise except
those involving fraud;
2. after the complaint is filed with the
prosecutors office but before the
information is filed with the court:
the Commissioner can still
compromise
provided
the
prosecutor consented;

3. after the information is filed with


the court:
the Commissioner is no longer
permitted to compromise with or
without the consent of the
prosecutor.
Remedies when taxpayer refuses or
fails to abide by a tax compromise:
1. enforce the compromise
a. judicial compromise can be
enforced by mere execution
b. extrajudicial can only be
enforced by court action
2. regard it as rescinded and insists
upon original demand (Art. 2041,
NCC)
Compromise Penalty
An amount which the taxpayer
pays to compromise a tax violation
Paid in lieu of criminal prosecution
A taxpayer cannot be compelled to
pay a compromise penalty
If he does not want to pay, the CIR
must institute a criminal action.
Abatement cancellation of the tax
liability
Grounds:
1. When the tax assessed or any
portion thereof appears to be
unjustly or excessively demanded,
or
2. When the administration and
collection costs involved do not
justify the collection of the amount
due

Penalties and fines


Refer to:
A. surcharges
B. deficiency and delinquency
interest
C. compromise penalty
A. Surcharges:
Not really a penalty as used in
criminal law but a civil administrative
sanction designed primarily to:
a. protect the State revenue, and
b. reimburse the government for
the expenses in investigating
and the loss resulting from the
taxpayers fraud.
Penalty of 25% of the amount
due for:
1. Failure to file any return and
pay the tax due thereon;
2. Filing a return with the
wrong agent of the BIR,
unless otherwise authorized
by the CIR
3. failure to pay the deficiency
tax
within
the
time
prescribed for its payment in
the notice of assessment;
4. Failure to pay the full or part
of the tax as shown on the
return on or before the due
date

GENERAL RULE: the power to


compromise and abate cannot be
delegated by the CIR

B. Interest:
a. Deficiency interest
20% per annum from the
date prescribed for its
payment until the full
payment thereof

EXCEPT:
a. assessments issued by regional
offices involving basic taxes of
Php500,000 or less; and
b. minor criminal violations.

b. Delinquency interest
Interest of 20% or the Manila
Reference rate, whichever is
higher, required to be paid in
case of failure to pay:

a. the amount of the tax


due on any return
required to be filed;
b. amount of the tax due for
which return is required;
c. the deficiency tax or any
surcharge or interest
thereon, on the date
appearing in the notice
and demand of the CIR.
C. Compromise:
Similarities of compromise and
compromise penalty:
1. They both imply mutual
agreement.
A compromise penalty
cannot be imposed in the
absence of a showing that
the taxpayer consented
thereto.
2. The CIR has no power to
impose and collect the
compromise penalties in the
absence of a compromise
agreement validly entered
into between the taxpayer
and the CIR
COMPROMISE
PENALTY
Definition
An amount of
An amount of
money paid by
money paid to
the taxpayer to
compromise a tax
settle his civil
violation that he
liability for tax
has committed,
assessed
which may be the
subject of criminal
prosecution
Basis of amount paid
Basic tax
Gross sales or
assessed
receipts during the
year of the tax due
Minimum amount
The limitation
Depends on the
depends on the
nature of the tax
legal grounds
violation and the
COMPROMISE

used by the
taxpayer

minimum amount
is generally not
less than
Php1,000

Civil Actions actions instituted by


the government to collect internal
revenue taxes. It includes filing by the
government with the probate court
claims against the deceased taxpayer.
Enforced by:
1. filing a civil case for the collection
of a sum of money with the proper
regular court (i.e. MTC or RTC); or
2. filing an answer to the petition for
review filed by the taxpayer with
the CTA
Civil actions filed with ordinary
courts
Resorted to only when tax
becomes:
1. delinquent
2. collectible
Collectability arises when:
a. Self-assessed tax shown in
the return was not paid
within the date prescribe by
law;
b. Final assessment is not
protested
administratively
within 30 days from date of
receipt;
c. Non-compliance with the
condition laid in the approval
of protest;
d. Failure to file a timely appeal
to the CTA on the final
decision of the CIR or his
authorized representative on
the disputed assessment.
Defenses precluded by final and
executory assessments:
1. Invalidity or illegality of the
assessment; and

2. Prescription
governments
assess.

of
right

the
to

B. Civil actions filed with the CTA


The fact that no civil action was
filed before the ordinary courts to
collect the tax liability is no ground for
claiming that the right to collect had
already prescribed.
The
answer
filed
by
the
government in the CTA is tantamount
to the filing of a civil action for
collection the regular court and has the
effect of tolling the prescriptive period.
(Hermanos, Inc. vs. CIR, 29 SCRA
552)
Criminal Action
2 Common crimes punishable under
the Tax Code:
1. Attempt to evade or defeat a tax
Any person who willfully attempts
in any manner to evade or defeat any
tax or the payment thereof shall, in
addition to other penalties provided by
law, upon conviction thereof, be
punished.
Note: The conviction or acquittal shall
not be a bar to the filing of a civil suit
for the collection of taxes.
2. Failure to file return, supply correct
and accurate information, pay tax,
withhold and remit tax and refund
excess
taxes
withheld
on
compensation
Any person required under the Tax
Code
a. to pay any tax
b. make a return
c. keep any record
d. supply correct and accurate
information
e. withhold or remit taxes withheld

f. refund excess taxes withheld on


compensation,
who willfully violates these duties
at the time or times required by law
shall be punished upon conviction in
addition to other penalties
Prima facie evidence of a false or
fraudulent return
1. substantial under-declaration of
taxable sales, receipts or
income
or
a
substantial
overstatement of deduction, as
determined
by
the
Commissioner pursuant to the
rules
an
regulations
promulgated by the Secretary of
Finance;
2. failure to report sales, receipts
or income in an amount
exceeding 30% of actual
deductions
constitutes
substantial overstatement of
deductions.
Note: No civil or criminal action for the
recovery of taxes or the enforcement
of any fine, penalty or forfeiture under
this Code shall be filed in court without
the approval of the Commissioner. The
approval of the Commissioner required
for the judicial enforcement of tax
liability is not jurisdictional; lack of such
approval merely affects the cause of
action or capacity to sue.
When the civil action arising out of
a tax delinquency is extinguished by
prescription, it is still possible for such
tax to be collected by criminal action
inasmuch as actions of this kind
prescribe only after the lapse of 5
years counted from the discovery of
the crime.
An assessment is not necessary
before a criminal charge can be filed
provided there is a prima facie

showing of a willful attempt to evade


taxes.
REMEDIES OF TAXPAYER
1. administrative
a. before payment
i. protest
ii. entering into a compromise.
b. after payment filing of claim
for refund or tax credit within two
years from date of payment
regardless of any supervening
cause.
2. judicial
a. civil action i. appeal to CTA within 30
days from receipt of decision
on the protest or from the
lapse of 180 days due to
inaction
of
the
Commissioner;
ii. Action to contest forfeiture
of chattel; and
iii. Action for damages
b. criminal action
i. Filing of criminal complaint
against erring BIR official
and employee; and
ii. Injunction when the CTA
in its opinion, considers that
the collection by the BIR
may jeopardize taxpayer.
Protest of Assessment:
1. File a request for reinvestigation or
reconsideration within 30 days from
receipt of the assessment
Request for reinvestigation
A plea for re-evaluation of an
assessment on the basis of newlydiscovered or additional evidence
that a taxpayer intends to present
in the reinvestigation. It involves a
question of fact or law or both.

Request for reconsideration


A plea for re-evaluation of the
assessment on the basis of existing
records without need of additional
evidence. Involves a question of
fact or law or both. (Revenue
Regulation No. 12-85)
2. Within 60
protest, all
documents
submitted,
assessment
(cannot be
NIRC)

days from filing of


relevant supporting
should have been
otherwise,
the
shall become FINAL
appealed). (Sec. 228

Appeal of Protest to the CTA (Sec.


228 NIRC)
1. Grounds:
a) if the protest is denied in whole
or in part or
b) is not acted upon within 180
days from submission of
documents
2. Appellate Court: Court of Tax
Appeals
3. Period to appeal:
a) within 30 days from receipt of
decision denying the protest or
b) 30 days from the lapse of 180
day period
Effect of failure to appeal: the decision
shall
be
final,
executory and
demandable
Taxpayers suit.
Requisites:
1. the tax money is being
extracted and spent in
violation
of
specific
Constitutional
protections
against abuses of legislative
power
2. that public money is being
deflected to any improper
purpose
3. that the petitioner seeks to
restrain the respondents from
wasting public funds through

enforcement of invalid
unconstitutional law

or

However, the Supreme Court has


discretion whether or not to entertain a
taxpayers suit and could brush aside
the lack of locus standi where the
issues
are
of
transcendental
importance in keeping with the courts
duty to determine that public officers
have not abused the discretion given
to them.
TAX REFUND OR TAX CREDIT
Grounds:
1. tax is collected erroneously or
illegally;
2. penalty is collected without
authority;
3. sum collected is excessive
Requisites:
1. claim must be in writing;
2. it must be filed with the
Commissioner within two years (2)
after the payment of the tax or
penalty; and
3. Show proof of payment.
Tax credit - a claim for issuance of a
tax credit certificate, showing an
amount owing from the government to
the taxpayer which the latter is legally
authorized to credit or offset against
national internal taxes payable by him,
except withholding taxes.
Starting date for counting the 2-year
period
GENERAL RULE: from the date of
payment,
regardless
of
any
supervening cause that may arise after
payment:
EXCEPTIONS:
1. Corporate Income tax
Where a corporation paid quarterly
income taxes in any of the first 3

quarters during the taxable year but


incurs a net loss during the taxable
year, the 2-year period for the filing of
the claim for refund or credit shall be
counted from the date of the filing of
the annual corporate ITR.
2. Income tax paid in installments
Where the tax paid had been paid
in installment, the taxes are deemed
paid, for purposes of determining the
commencement of the 2-year period
for filing a written claim for the refund
or credit therefore on the date the last
installment was paid.
Note: A return filed showing an
overpayment shall be considered as a
written claim for credit or refund.
REFUND
CREDIT
There is actual The reimbursable
reimbursement
amount is applied
of the tax
against the sum
that may be due
of collectible from
the taxpayer
PRESCRIPTION:
Purpose:
Prescriptive periods are designed
to secure the taxpayers against
unreasonable investigation after the
lapse of the period prescribed. They
are also beneficial to the government
because tax officers will be obliged to
act promptly.
General Rules:
1. when the tax law itself is silent on
prescription, tax is imprescriptible;
2. when no return is required, tax is
imprescriptible;
3. defense of prescription is waivable;
and
4. provisions on prescriptions, being
remedial in nature should be

liberally interpreted to carry out its


intent.
Prescriptive
period
for
the
ASSESSMENT of taxes:
GENERAL RULE: three years after
the date the return is due or filed,
whichever is later.
EXCEPTIONS:
1. failure to file a return: ten (10)
years from the date of the
discovery of the omission to file the
return;
2. false or fraudulent return with intent
to evade the tax: ten (10) years
from the date of the discovery of
the falsity or fraud;
3. agreement in writing: to the
extension (not reduction) of the
period to assess between the
Commissioner and the taxpayer
before the expiration of the three
year period.
Note: the extended period agreed
upon can further be extended by a
subsequent written agreement made
before the expiration of the extended
period previously agreed upon.
4. waiver or renunciation of the
original three (3) year limitation,
signed by the taxpayer.

Prescriptive
period
COLLECTION of taxes:

for

the

Five (5) years - from assessment or


within period for collection agreed
upon in writing before expiration of the
five-year period.
Ten (10) years - without assessment
in case of false or fraudulent return
with intern to evade or failure to file
return.
Grounds for suspension of the
running of prescriptive period for
assessment and collection:
1. when the Commissioner is
prohibited
from making the
assessment or beginning the
distraint or levy or proceeding in
court, and for sixty days thereafter;
2. when the taxpayer requests for a
reconsideration which is granted
by the Commissioner;
3. when the taxpayer cannot be
located in the address given by
him in the return, unless he informs
the Commissioner of any change in
his address;
4. when the warrant of distraint or levy
is duly served, and no property is
located; and
5. when the taxpayer is out of the
Philippines.
Requisites of a tax return for
purposes of starting the running of the
period of limitation:

FRAUDULENT
RETURN
it merely implies a It is intentional
decision from the and deceitful with
truth or fact
the aim of
whether
evading the
intentional or not
correct tax due.
FALSE RETURN

the return is valid - it has complied


substantially with the requirements
of the law; and
the return is appropriate it is a
return for the particular tax is
required by law.

Note: A defective tax return is the


same as if no return was filed at all.

General Rule: Prospective.


Exceptions:

Amended return
Allowed when:
1. the amendment is made within 3
years from the date of filing the
original return; and
2. no notice of audit or investigation of
such return has, in the meantime,
been actually served upon the
taxpayer.
Effect on prescription:
The prescriptive period starts to run
from the filing of the original return, if
the same is sufficiently complete to
enable the CIR to intelligently
determine the proper amount of tax to
be assessed.
However, where the amended
return is substantially different from the
original, the right to assess is counted
from the filing of the amended return.
Prescriptive period for the filing of
CRIMINAL ACTION: five (5) years
from the day of the commission of the
violation, and if not known, from the
discovery thereof and the institution of
judicial
proceedings
for
its
investigation and punishment.
Grounds for interruption of the
period:
1. When proceedings are instituted
against the guilty persons
It begins to run again if the
proceedings are dismissed for
reasons not constituting jeopardy
2. offender is
Philippines

absent

from

Retroactivity of BIR Rulings

the

1. Where the taxpayer deliberately


misstates or omits material facts
from his return or any document
required of him by the BIR;
2. Where the facts subsequently
gathered by the BIR are materially
different from the facts on which
the ruling is based; and
3. Where the taxpayer acted in bad
faith.

TARIFF AND CUSTOMS CODE


TARIFF custom duties, toll or tribute
payable upon merchandise to the
government.
CUSTOM
DUTIES
which
are
assessed at the prescribed tariff rates
which are likely imposed for both
revenue raising and for regulatory
purposes. It is the name given to taxes
on the importation and exportation of
commodities, the tariff or tax assessed
upon merchandise imported from, or
exported to, a foreign country.[ Garcia
vs. Executive Sec., G.R. no. 101273,
July 3, 1992]
Note: Customs duties and tariffs are
synonymous with one another. They
both refer to the taxes imposed on
imported or exported wares, articles,
or merchandise.
Purposes of tariffs:
1. Revenue tariffs those whose
rates are relatively low so that
goods may be readily imported and
duties may be easily collected.
2. Protective tariffs those whose
rates are relatively high to keep
certain imports out of the domestic
market or to raise domestic price
on certain imports so that they may
be manufactured profitably at
domestically;
3. Bargaining tariffs those whose
schedules include rates designed
primarily for bargaining purposes or
which contain some general
provision for the imposition of
higher duties upon products of
countries whose tariff policies are
considered unsatisfactory or unfair.

Scope of Tariff and Custom Laws

Includes not only the provisions of


the Tariff and Custom Code (TCC) and
regulations pursuant thereto, but all
other laws and regulations that are
subject to the Bureau of Customs
(BOC) or otherwise within its
jurisdiction. As to the scope, Tariff and
Custom laws extend not only to the
provisions of the TCC but to all other
laws as well the enforcement of which
is entrusted to the BOC.
BUREAU OF CUSTOMS (BOC)
DUTIES,
POWERS
AND
JURISDICTION OF THE BOC
1.
The assessment and collection
of the lawful revenues from
imported articles and all other
dues, fees, charges, fines, and
penalties accruing under the tariff
and customs laws.
2.

The
prevention
and
the
suspension of smuggling and other
frauds upon the customs

3.

The supervision and control


over the entrance and clearance of
vessels and aircraft engaged in
foreign commerce.

4.

The enforcement of tariff and


custom laws and all other laws,
rules and regulations relating to
tariff and custom administration.

5.

The supervision and control


over the handling of foreign mails
arriving in the Philippines, for the
purpose of the collection of the
lawful duty on the dutiable articles
thus imported and the prevention of
smuggling through the medium of
such mails.

6.

Supervision and control over all


import and export cargoes, landed
or stored in piers, airport, terminal
facilities, including container yards

and freight stations, for the


protection of government revenue.
7.
Exclusive original jurisdiction
over seizure and forfeiture cases
under the tariff and custom laws.
ARTICLES SUBJECT TO CUSTOM
DUTIES
Articles, when imported from any
foreign country into the Philippines,
shall be subject to duty upon each
importation, even though previously
exported
from
the
Philippines,
EXCEPT as otherwise specifically
provided for in this Code or in other
laws. [SEC. 100, TOC]
MERCHANDISEthe
Revised
Administrative
Code
defines
merchandise,
when
used
with
reference to importation or exportation,
to include goods, wares and in
general, anything that may be the
subject of exportation. Checks, money
orders and dollar bills properly within
the concept of merchandise as used in
Revised Administrative Code, are
merchandise. [Bastida vs. CIR]
Kinds of Goods/Merchandise
1.
Articles
subject
to
duty
( Dutiable Goods)
2.
Prohibited importation
3.
Conditionally-free importations
DUTIABLE GOODS (AFP-CPP-NPAVMH-FAT-WE-MAMO)
1. Animals and animals product
2. Animal or vegetable Fats; oil and
their cleavage products
3. Prepared foodstuffs; beverages,
spirits and vinegar; tobacco and
manufactured tobacco
4. Products of Chemical or allied
industries
5. Plastic and rubber articles
6. Pulp or wood;
7. Natural or cultural stones

8. Plaster, cements and other related


articles
9. Arms and ammunitions
10. Vegetable products
11. Mineral products
12. Hides ( skin, fur, leather)
13. Footwear, headgear, etc.
14. Aircraft, vessels, vehicles and all
other mode of transportation
15. Textile and textile products
16. Wood and related articles
17. Electrical
and
mechanical
machineries
18. Metals
19. Artworks, antique
20. Manufactured/miscellaneous
articles
21. Optical products, medical and
surgical products [SEC. 104, Title
1, TCC]
PROHIBITED IMPORTATIONS (HOTDOG-TAMAD)
1. Heroine, marijuana and other
dangerous drugs, narcotics and
pharmaceutical products EXCEPT
when made by the government
designed for medical purpose.
2. Opium pipes
and other drugs
paraphernalia
3.
Written or printed materials
containing any matter advocating of
inciting Treason, sedition, rebellion
materials.
4. Dynamite, ammunition and other
explosive weapons EXCEPT when
authorized by law
5. Written or printed articles involving
Obscene or immoral character
6. Gambling Devices
7. Lottery and sweepstakes Tickets
EXCEPT those authorized by the
Philippine Government
8. Articles, instruments, drugs and
substances designed and intended
to produce unlawful Abortion and
printed
materials
promoting
unlawful abortion

9. Articles made of precious Metal but


actual fineness of quality not
indicated
10. other Articles (P.D. 34)
11. Any Adulterated or misbranded
drug in violation of the Food and
Drugs Act.(SEC. 102,TCC)
Note:
All
the
above
merchandise/goods cannot be brought
in or out of the Philippines.
CONDITIONALLY-FREE
IMPORTATION
(PSST-BAR-FEWPERA-SAM-CPP-VICE)
1. Professional
instruments
and
implements
2. Sea store supplies to the vessel or
aircraft
3. Salvage articles recovered from an
abandoned vessel
4. Trailer chassis by a shipping
company
5. Books
6. Aquatic products
7. Relief organization and articles
used for relief operations
8. Film production by foreign media or
movie outfit
9. Equipment used in salvaging
vessels
10. Wearing apparels
11. Personal and household effects
12. importation for the use of foreign
Embassies
13. Receptacles, containers holders
and other similar boxes
14. Animals, EXCEPT race horse
15. Samples of any kind
16. Articles for repair, re-conditioning
for export
17. Mining equipment and tools
18. Cost of repair made abroad upon a
vessel registered in the Philippines
19. articles which are previously
exported but returned in the
Philippines

20. Prizes, medals, trophies, badges


and other thing bestowed as an
award
21. Vessels spare part of foreign
vessel and aircraft
22. articles
which
are
Imported
subsequently in the Philippines
23. Coffin, caskets
24. Exhibition, competition articles for
display
Note: These articles which are exempt
from import duties upon compliance
with the formalities prescribed in or
with regulations promulgated by the
Commissioner of Customs with the
approval of the Sec. of Finance.
Classifications of Custom Duties
1. Ordinary or Regular Custom dutyimposed and collected merely as a
source of revenue.
a. Ad Valorem- the duty is based
on the market value or price of
the imported article.
b. Specific- the duty is based on
the weight or volume of the
imported article.
2. Special Custom duties- imposed
and collected in addition to ordinary
customs duties usually to protect
local industries against foreign
competition.
Basis of Dutiable Value
The dutiable value of the imported
article subject to an ad valorem of duty
shall be transaction value.
TRANSACTION VALUE - the price
actually paid or payable for the goods
when sold for export to the Philippines.
It is adjusted by adding certain
expenses to the extent that they are
incurred by the buyer but are not
included in the price actually paid or
payable for the imported goods, the

value of the materials, components,


parts and items incorporated in the
imported goods; amount of royalties
and license fees; cost of transport;
loading, unloading and handling
charges; and the cost of the insurance.
Sequence in Determination of Value
1. transaction value
2. transaction value of identical goods
3. transaction value of similar goods
4. deductive value
5. computed value
6. other reasonable means or fallback
value
Basis for dutiable weight
specific custom duties
1. gross weight
2. legal weight
3. net weight

for

KINDS OF SPECIAL CUSTOM


DUTIES
1. Dumping Duty imposed upon
foreign products with value lower than
their fair market value to the detriment
of local products.
Rate: difference between the actual
price and the normal value of the
article.
Imposing
authority:
Special
Committee
on
Anti-Dumping
composed of the Sec. of Finance
as chairman; members: Sec. of
DTI, and either the Sec. of
Agriculture if the article in question
is agricultural product or the Sec. of
Labor if non-agricultural product.
2. Countervailing Duty imposed
upon foreign goods enjoying subsidy
thus allowing them to sell at lower
prices to the detriment of local
products similarly situated.
Rate: equivalent to the bounty,
subsidy or subvention

Imposing authority: Secretary Of


Finance
3. Marking Duty- imposed upon those
not properly marked as to place of
origin of the goods.
Rate: 5% ad valorem of articles
Imposing authority: Commissioner
of Customs
4. Discriminatory Duty- imposed
upon goods coming from countries that
discriminate
against
Philippine
products.
Rate: any amount not exceeding
100% ad valorem of the subject
articles
Imposing authority: President of the
Philippines
DRAWBACK
It is a device resorted to for
enabling a commodity affected by
taxes to be exported and sold in
foreign markets upon the same terms
as if it not been taxed at all. It may be
full or partial.
OTHER CUSTOMS FEES, DUES, OR
CHARGES PAYABLE
1. Harbor Fees- imposed on vessels
entering into or departing from a
port of entry of the Philippines.
2. Wharfage dues- are assessed
against the cargo of a vessel
engaged in foreign or coastwise
trade, based on the quantity weight
or measure received and/or
discharged by such vessel.
3. Berthing dues- are assessed
against a vessel for mooring or
berthing at a pier, wharf, or river at
any port in the Philippines.

4. Storage dues- assessed on articles


for storage in customs premises,
cargo shed.
5. Arrastre dues- imposed on all
imported and exported articles and
baggage of passenger for their
handling, receiving, and custody.
6. Tonnage dues- paid by the owner,
agent, operator or master of a
vessel engaged in foreign trade
based on the net tonnage of the
vessel or weight of the articles
discharged or laden.
7. Other fees- charged and collected
for
services
rendered
and
documents issued by the BOC.
IMPORTATION UNDER TCC
Who are authorized to make an
import entry?
1. The importer being holder of the
bill of lading;
2. A customs broker acting under
authority of the holder of the bill; or
A person duly empowered to act as
agent or attorney-in-fact.
Liability for Custom Duties
GENERAL RULE: All importations and
exportations of goods are subject to
custom duties. (Sec. 105, TCC)
EXCEPTIONS:
1. Exemption under the TCC
2. Exemptions granted to government
agencies or GOCCs with existing
contracts,
commitments,
agreements, or obligations with
foreign countries.
3. International
organizations
pursuant to agreement and special
law
4. Exemption
granted
by
the
President of the Philippines upon
recommendation of the NEDA.

Liability of importers for duties


The Code provides that all articles
imported into the Philippines shall be
held to be the property of the person to
whom the same are consigned: and
the holder of the bill of lading duly
endorse by the consignee thereof
therein named, or if consigned to order
by the consignor, shall be deemed the
consignee thereof. The underwriters of
abandoned articles and the salvors of
articles saved from a wreck at sea,
along a coast, or in any area of the
Philippines, maybe regarded as the
consignees (Section 1203, Tariff and
Custom Code)
Unless otherwise relieved by laws
or regulation, the liability for duties,
taxes, fees, and other charges
attaching on importation constitutes a
personal debt due to the importer of
the government which can be
discharged only by payment of said
duties and charge.
It also constitutes a lien upon the
articles
imported
which
maybe
enforced while such articles are in
custody or subject to the control of the
government.
Government importations
All importations by the government
for its own use or that of its own
subordinates
branches
or
instrumentalities
or
corporations,
agencies or instrumentalities owned or
controlled by the government shall be
subject to the duties, taxes , fees and
charges provided in the Tariff and
Customs Code.(Section 1205, Tariff
and Customs Code)

When importation
deemed terminated

begins

and

Importation begins when carrying


vessel or aircraft enters the jurisdiction
of the Philippines with intent to unload.
Importation
terminates
upon
payment of the duties and other
charges due upon the articles, or
secured to be paid, at the port of entry
ant the legal permit for withdrawal shall
have been granted.

Fraudulent
Practices
(Criminal
Offense) against Custom Revenues
under Sec. 3602
1. Entry of imported articles by means
of any false or fraudulent invoice.
2. Entry of goods at less than the true
weight or measure.
3. Filling of any false or fraudulent
entry for the payment of drawbacks
or refund of duties.
Returning residents

In the case of articles that are free


of duties, taxes and other charges,
importation is deemed terminated from
the time they have-legally left the
jurisdiction of the customs.

For the purpose of conditionally


free importation of personal and
household effects, they are nationals
who have stayed in a foreign country
for a period of at least six (6) months.

Import Entry

BALIKBAYAN

A declaration to the BOC showing


the
description,
value,
tariff
classification and other particulars of
the imported article to enable the
customs authorities to determine the
correct customs duties and internal
revenue taxes due on the importation.

For the purpose of tax-free


purchase at Philippine Duty-free
shops, he must be:
a. Filipino citizen who has been
continuously
out
of
the
Philippines for a period of at
least one (1) year; or
b. Filipino overseas worker; or
c. former Filipino citizen and his
family who had been naturalized
in a foreign country and comes
or returns to the Philippines

Abandonment
It is the renunciation by an importer
of all his interest in the property rights
in the imported article. It may be
express or implied.
Smuggling or Unlawful Importation
Any person who shall fraudulently
import or bring into the Philippines, or
assist In doing so, any article, contrary
to law, or shall receive, conceal, buy,
sell, or in any manner facilitate the
transportation, concealment, or sale of
such article after importations, knowing
the same to have been imported
contrary to law, shall be guilty of
smuggling. (sec. 3601 TCC)

Note: The term family shall mean the


spouse and children of the balikbayan
who are not balikbayan in their own
right traveling with the latter to the
Philippines.
FLEXIBLE TARIFF CLAUSE
Authority of the President to adjust
the tariff rates prescribed under the
Tariff and Customs Code, which is the
enabling law that made effective the
delegation of the taxing power to the
President under the Constitution.

The Congress may, by law,


authorize the President to fix within
specified limits and subject to such
limitations and restrictions as it may
impose:
a. tariff rates, import and export
quotas, tonnage and wharfage
dues; and
b. other duties or imports within
the framework of the national
development program of the
government (Art. VI, Sec. 28(2),
Constitution)
Sec. 401, TCC: In the interest of
national economy, general welfare
and/or national security, the President
upon recommendation of the NEDA, is
empowered:
a. to increase, reduce, or remove
existing protective rates of import
duties, provided that the increase
should not be higher than 100% ad
valorem;
b. to establish import quota or to ban
imports of any commodity; and
c. to impose additional duty on all
imports not exceeding 10% ad
valorem.
LIMITATIONS TO THE FLEXIBLE
TARIFF CLAUSE
1. Conduct by the Tariff Commission
of an investigation in a public
hearing.
The commission shall also hear
the views and recommendations of
any government office, agency or
instrumentality concerned.
The commission shall submit
their
findings
and
recommendations to the NEDA
within 30 days after the termination
of the public hearing. The NEDA
thereafter
submits
the
recommendation to the President.

2. The power of the President to


increase or decrease the rates of
import
duty
within
the
abovementioned limits fixed in the
Code shall include the modification
in the form of duty.
In such case the corresponding
ad valorem or specific equivalents
of the duty with respect to the
imports
from
the
principal
competing foreign country for the
most recent representative period
shall be used as bases. (Sec. 401,
TCC)
THE TARIFF COMMISIONS (TC)
FUNCTIONS
OF
COMMISSION

THE

TARIFF

A. The Commission shall investigate:


1. the administration of and the
fiscal and industrial effects of
the countrys tariff and customs
laws;
2. the relations between the rates
of duty on raw materials and
finished or partly finished
goods;
3. the effects of ad valorem and
specific duties and of compound
specific and ad valorem duties;
4. all questions relative to the
arrangement of schedules and
classifications of articles under
the tariff laws;
5. the tariff relations between the
Philippines
and
foreign
countries, commercial treaties,
etc.;
6. the volume of importation
compared
with
domestic
production and consumption;
7. conditions, causes, and effects
relating to competition of foreign
industries with those of the
Philippines;
8. in general, to investigate the
operation of customs and tariff

laws and to submit report of its


investigation; and
9. the nature, composition, and
classification of articles for
customs revenue and other
related purposes which shall be
furnished to NEDA, Board of
Investments, Central Bank, and
Sec. of Finance.
B. Administrative assistance to the
President and Congress (Sec. 506,
TCC)
TAX REMEDIES UNDER THE TARIFF
AND CUSTOMS CODE (TCC)
TAX
REMEDIES
GOVERNMENT

OF

THE

A. ADMINISTRATIVE
1. Tax Lien (sec. 1204 TCC)
attaches
on
the
goods,
regardless of ownership, while
still in the custody or control of
the Government
Availed of when the importation
is
neither
prohibited
nor
improperly made.
2.
Administrative
Fines
and
Forfeitures
applied when the importation is
unlawful and it may be
exercised even where the
articles are not or no longer in
customs custody .UNLESS the
importation is merely attempted
in which case it may be effected
only while the goods are still
within the Customs jurisdiction
or in the hands of a person who
is aware thereof. (sec. 2531 and
2530 TCC)
Under Sec. 2530 (a), TCC in
order to warrant forfeiture, it is
not necessary that the vessel or
aircraft must itself carry the
contraband.
The
complementary if collateral use

of there Cessna plane for


smuggling operation is sufficient
for it to be deemed to have
been used in smuggling.
[Llamado vs. Commissioner of
Customs, G.R. no. L-28809,
may 16, 1983]
3. Reduction of Custom Duties/
Compromise
Subject to approval of Sec. of
Finance (sec. 709, 2316 TCC)
4. Seizure, search, arrest (sec. 2205,
2210, 2211 TCC)
B. JUDICIAL
This remedy is normally availed of
when the tax lien is lost by the release
of the goods.
Civil action (se. 1204 TCC)
Criminal Action
TAX REMEDIES OF THE TAXPAYER
A. ADMINISTRATIVE
1. Protest
Any importer or interested party
if dissatisfied with published value
within 15 days from date of
publication or within 5 days from
the date of importer is entitled to
refund if payment is rendered
erroneous or illegal by events
occurring after the payment.
Taxpayer within 15 days from
assessment. (sec. 2308,2210
TCC)
Note: Payment under protest is
necessary.
2. Refund
A written claim for refund may
be submitted by the importer in
abatement cases on missing
packages, deficiencies in the
contents of packages or shortages
before arrival of the goods in the
Philippines,
articles,
lost
or

destroyed after such arrival, dead


or injured animals, and for manifest
clerical errors; and
Drawback cases where the
goods are re-exported (sec.
1701-1708 TCC)
3. Settlement of any seizure by
payment of fine or redemption
But this shall not be allowed in
any case where importation is
absolutely prohibited or the
release would contrary to law,
or when there is an actual and
intentional fraud (sec. 2307
TCC).
4. Appeal
Within
15
days
to
the
Commissioner after notification
by Collector of his decision
(sec. 2313 TCC).
B. JUDICIAL
1. Appeal
Within 30 days from receipt of
decision of the Commissioner or
Secretary of Finance to the
division of the CTA (sec. 2403
TCC, sec. 7 RA 1125, as
amended by sec. 9 RA 9282)
The CTA empowers to issue
injunction, it would appear that
an importer may appeal without
first paying the duties, such as
in seizure, but not in protest
cases.
2. Action to question the legality of
seizure
3. Abandonment
Failure to file an import entry
within 30 days from the discharge
of goods or having filed an entry
fails to claim within 15 days but it
shall not be so effective until so
declared by the collector. (sec.
1801 as amended by RA 7651)

REMEDIES IN THE BUREAU OF


CUSTOMS (BOC)
A. CUSTOM PROTEST CASES
These are cases which deal solely
with liability for custom duties, fees,
and other charges.
Note: Before filing a protest, there
must first be a payment under protest.
Requirements for making a Protest
1. must be in writing
2. must point out the particular
decision or ruling of the
Collector of Customs to which
exception is taken or objection
made
3. must state the grounds relied
upon for relief
4. must be limited to the subject
matter of a single adjustment
5. must be filed when the amount
claimed is paid or within 15
days after the payment
6. protest must furnish samples of
goods under protest when
required.

PROCEDURE FOR A CUSTOMS PROTEST


The collector acting within his jurisdiction
shall cause the imported goods to be
entered at the custom house.
Hearing
15 days
from may
receipt
The partywithin
adversely
affected
file of
a
the
duty
presented
protest.
Upon
written protest on his foregoing liability
The collectorofshall
assess, liquidate,
and
termination
the hearing,
Collector
with the Collector
within 15thedays
after
collect
the duties
thereon,
OR detain
the
shall
decide
on
the
same
within
30
days.
paying the liquidated amount.
said goods if the party liable does not
pay the same.

Decision is adverse to the


PROTESTANT

Decision is adverse to the


GOVERNMENT

Appeal with the


Commissioner within 15
days from notice

Automatic review by the


commissioner

Appeal with the CTA


division within 30 days
from notice

Appeal with
CTA En Banc

the

Appeal by certiorari
with
the
Supreme
Court within 15 days
from notice.

Automatic review by the Sec. of


Finance.
Note: if within 30 days from receipt of
the record of the case by the Comm.
or the Sec. of Finance and no decision
is rendered by either of them the
decision under review shall become
final and executory.

If
the
decision
of
the
Commissioner or Sec. of Finance
is adverse to the protestant, he
may appeal to the CTA and SC
under the same procedure on the
other side.

B. SEIZURE AND FORFEITURE


CASES
These refer to the matters
involving smuggling. It is administrative
and civil in nature and is directed
against the res or imported articles and
entails a determination of the legality
of importation.
Note: These are actions in rem.
Smuggling or Unlawful Importation
Any person who shall fraudulently
import or bring into the Philippines, or
assist in doing so, any article, contrary
to law, or shall receive, conceal, buy,
sell, or in any manner facilitate the
transportation, concealment, or sale of
such article after importations, knowing
the same to have been imported
contrary to law, shall be guilty of
smuggling (sec. 3601 TCC).
Note: anything that was used for
smuggling is subject to confiscation.
[Lladoc vs. Com of Custom, R.R. L28809, May 16, 1983]
EXCEPT: Common carriers that are
not privately chartered cannot be
confiscated.
Note: Mere possession of the articles
in question is liable UNLESS
defendant could explain that his
possession is lawful to the satisfaction
of the court (sec. 3601,TCC)
Note: Payment of the tax due after
apprehension is not a valid defense.
[Rodriguez vs. CA, G.R. no. 115218,
September 18, 1995]

All articles imported into the


Philippines whether subject to duty or
not shall be entered through a
customhouse at a port of entry.
Three meanings of term ENTRY
1. documents filed at the custom
house
2. submission and acceptance of the
documents
3. procedure of passing the goods
through
the
custom
house.
[Rodriguez vs. CA, G.R. no.
115218, September 18, 1995]
Right of Custom Officers to Effect
Seizure and Arrest
1. May seize any vessel, aircraft,
cargo, article, animal or other
movable property when the same is
subject to forfeiture or liable for any
time as imposed under TCC, rules
and regulation.
2. May exercise only in conformity
with the laws and the TCC.(sec.
2205 TCC)
Articles subject to Seizures and
Forfeitures (FEU-UE-UM-UP-BIR)
1.
2.
3.
4.

5.
6.
7.
8.
9.
10.

11.

Port of Entry
A domestic port open to both
foreign and coastwise trade including
airport of entry (sec. 3514, TCC).

12.

Fraudulent removal of cargoes


Excessive sea store
Undeclared cargoes
Unlawful use of aircraft or vessel
EXCEPT if there is Certificate of
Public Convenience and Necessity
Excessive cargoes
Unlawful transfer of cargoes
Money used to bribe
Unauthorized removal of goods
Prohibited articles
Beast, actually used for the
consequence that is subject of
forfeiture
Instruments used in the loading or
unloading of goods subject of
forfeiture
Receptacles, boxes used to
conceal goods subject of forfeiture
(sec. 2530,TCC)

Article NOT subject to Forfeiture or


Seizure
The forfeiture of vessel or aircraft
or seizure of articles shall not be
effected if it is established that the
owner thereof or his agent in charge of
the means of conveyance used as
aforesaid has no knowledge of a
participation in the unlawful act. In
other words, no forfeiture or seizure
in the absence of prima facie
evidence.
HOWEVER,
a
prima
facie
presumption shall exist against the
vessel, vehicle or aircraft under any of
the following circumstances:
1. if the conveyance has been used
for smuggling at least twice before;
2. if the owner is not in the business
for which the conveyance is
generally used; and
3. if the owner is financially not in a
position to own such conveyance.
DOCTRINE
OF
PRIMARY
JURISDICTION OVER SEIZURE AND
FORFEITURE CASES
The prevailing doctrine is that the
exclusive jurisdiction in seizure and
forfeiture cases vested in the collector
of customs precludes a regular court
from assuming cognizance of such
matter.
It is the settled rule that the BOC
acquires exclusive jurisdiction over
imported goods, for the purpose of
enforcement of the customs laws, form
the moment the goods actually in its
possession or control, even if no
warrant of seizure or detention had
previously been issued by the
Collector of Custom in connection with
seizure and forfeiture proceedings.
Thus, the RTC does not have
jurisdiction over seizure and forfeiture

proceedings conducted by the BOC.


Even if a Custom seizure is illegal,
exclusive jurisdiction still belongs to
the BOC. (Jao vs. CA, G.R. no.
104604, October 6, 1995)
DOCTRINE OF HOT PURSUIT
Requisites:
1. Over Vessels
a. an act is done in Philippine
water which constitutes a
violation of the TCC
b. a pursuit of such vessel began
within the jurisdictional waters
which may continue beyond the
maritime zone and the vessel
may be seized on the high
seas.
2. Over Imported Articles
a. there is a violation of TCC
b. they may be pursued in the
Philippines
c. with the jurisdiction over them at
any place therein for the
enforcement of the law. (2nd par.
Sec. 603, TCC).
Jurisdiction of the BOC
The BOC has the right of
supervision and police authority over
all seas within the jurisdiction of the
Philippines and over all coasts, ports,
harbors, bays, rivers and inland waters
whether navigable from the sea or not.
(sec. 603,TCC).
Note: In Assali vs. Commissioner,
27SCRA312, the SC held as a valid
the interception and seizure of a
vessel on the high seas, saying that
the authority of a nation within its
territory is absolute and exclusive. The
power to secure itself from injury may
certainly be exercised beyond the
limits of its territory.

Places where searches and seizures


may be conducted
1. Right of police officer to entered
enclosure WITHOUT a warrant,
EXCEPT a dwelling house
2. Search within a dwelling house
must be with proper warrant

3. right to search vehicles or


aircrafts and person or articles
conveyed therein
4. Right to search vehicles, beast
and person
5. Search of person arriving from
foreign countries

PROCEDURE IN SEIZURE AND FORFEITURE CASES

Warrant for detention of property


shall be issued by the collector.

Report of seizure to
Commissioner and Chairman,
Commission on Audit

Notification to owner or importer


or to unknown owner.

Note: If the owner or


importer desires to secure to
release of the property for
legitimate use, the collector
may surrender it upon the
filling of a sufficient BOND,
in an amount fixed by him,
conditioned for the payment
of the appraised value of the
article and or any fine,
expenses and cost which
may be adjudged in the
case. PROVIDED, articles
which are prohibited by law
shall NOT be released under
bond.

Formal Hearing

District collector renders


his decisions

If against the
importer he may
appeal

SETTLEMENT
CASES

OF

FORFEITURE

If against the
government it may
appeal

GENERAL RULE: Settlement of cases


by payment of fine or redemption of
forfeited property is allowed.

EXCEPTIONS:
1. the importation is absolutely
prohibited or
2. the surrender of the property to the
person offering to redeem would be
contrary to law or
3. when there is fraud. (sec.
2307,TCC)

1. Failure to pay Duties (sec.


2501,TCC)
2. Failure or refusal of a party to
submit evidence (sec. 2504,TCC)
3. Misclassification, misdeclaration or
under evaluation of article
4. Failure to submit or supply invoice
(sec.2502,TCC)

Note: Acquittal in a criminal charge is


not res judicata in seizure or forfeiture
proceedings.
Since
criminal
proceeding are actions in personam
while the latter is action in rem.

B. FINES

Note: Burden of proof in seizure or


forfeiture case is on the claimant. (sec.
2535, TCC)
MANIFEST
Manifest in coastwise trade for
cargo and passengers transported
from one place to another are required
when one or both of such places are a
port of entry (sec.906,TCC).
Manifest is not only required to
imported goods. It is also required for
articles found on vessels or aircraft
engaged in coastwise trade.
Whether the act of smuggling is
established or not under the principle
of res ipsa loquitur, it is enough that
the cargo was unmanifested and that
there was no showing that payment of
duties thereon had been made for it to
be subject to forfeiture. Thus,
unmanifested cargo is subject to
forfeiture.

To overcharge or to charge again


as in an accounting between parties.
Subject

1. Breach or a
2. Failure to supply or manifest
requirements provided by law (sec.
2521, TCC)
3. Unlawful loading and unloading of
cargoes (Secs. 2524, 2517,TCC)
4. Failure to produce all the crew
members
5. Failure to exhibit the documents
related to the vessel (Secs.
2519,2507,2508-2514, TCC)
LOCAL TAXATION
Power to
Revenue

Create

Sources

of

Each local government unit has the


power to:
1. create its own sources of revenue
and
2. levy taxes, fees, and charges
subject to the provisions herein,
consistent with the basic policy of
local autonomy. (Sec. 129)
Such taxes, fees, and charges shall
accrue exclusively to the local
government units.

A. SURCHARGE

Articles
(DEMI)

Subject to Fines (Code: BRUCE)

to

FUNDAMENTAL PRINCIPLES (SEC.


130, LGC)

Surcharge
The
fundamental
principles
governing the exercise of the taxing
and other revenue-raising powers of

LGUs are:

the LGC.

1. Taxation shall be Uniform in each


local government unit;

POWER
TO
GRANT
TAX
EXEMPTIONS (SEC. 192, LGC)

2. Taxes, fees, charges and other


impositions shall
a. be equitable and based as far
as practicable on the taxpayer's
ability to pay;
b. be levied and collected only for
public purposes;
c. not be unjust, excessive,
oppressive, or confiscatory;
d. not be contrary to Law, public
policy, national economic policy,
or in the restraint of trade;

LGU may, through ordinances duly


approved, grant tax exemptions,
incentives or reliefs under such terms
and conditions, as they may deem
necessary.

3. The collection of local taxes, fees,


charges and other impositions shall
in no case be let to any private
person;
4. The revenue collected shall inure
solely to the benefit of the local
government unit levying the tax,
fee, charge or other imposition
unless
otherwise
specifically
provided herein; and,
5. Each local government unit shall,
as far as practicable, evolve a
progressive system of taxation.
LOCAL TAXING AUTHORITY
The power to tax is exercised by
the Sanggunian of the LGU concerned
through an appropriate ordinance.
(Sec. 132, LGC)
POWER TO ADJUST LOCAL TAX
RATES (SEC. 191, LGC)
Adjustment of the tax rates as
prescribed herein should not be
oftener than once every five (5) years,
and in no case shall such adjustment
exceed 10% of the rates fixed under

RESIDUAL TAXING POWERS OF


THE LGU (SEC. 186, LGC)
To levy taxes, fees, or charges on
any base or subject NOT:
a. specifically enumerated in LGC
b. taxed under the provisions of the
NIRC
c. other applicable laws.
Limitations of the Residual Power:
a. constitutional limitations on taxing
power
b. common limitation prescribed in
Sec. 133, LGC
c. fundamental principles governing
the exercise of the taxing power of
the LGUs prescribed under Sec.
130 LGC
d. the ordinance levying such residual
taxes shall not be enacted without
any prior public hearing conducted
for the purpose and
e. the principle of preemption.
PRINCIPLE OF PREEMPTION OR
EXCLUSIONARY DOCTRINE
Where the National Government
elects to tax a particular area, it
impliedly withholds from the local
government the delegated power to
tax the same field. This doctrine rests
on the intention of the Congress.
Excluded imposition:
a. taxes which are levied under the
NIRC, unless otherwise provided
by LGC;

b. taxes which are imposed under the


Tariff and Customs code
c. taxes
imposition
of
which
contravenes existing governmental
policies or which violates the
fundamental principles of taxation
d. taxes and other charges imposed
under special law.
LIMITATIONS ON THE LOCAL
TAXING POWER (SEC. 133, LGC)
1. Taxes, fees or charges for the
registration of motor vehicles and
for the issuance of all kinds of
licenses or permits for the driving
thereof, except tricycles;
2. Taxes, fees or charges of any kind
on the National Government, its
agencies and Instrumentalities, and
local government units.
3. Taxes, fees, or charges, on
Countryside
and
Barangay
Business
Enterprises
and
cooperatives duly registered under
R.A. 6810 and R.A.
6938
(Cooperative
Code
of
the
Philippines);
4. Taxes, fees, or other charges on
Philippine
products
actually
exported, except as otherwise
provided;
5. Taxes on premiums paid by way or
reinsurance or retrocession;
6. 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, except as
provided in the Code;
7. Customs duties, registration fees of
vessel and wharfage on wharves,
tonnage dues, and all other kinds

of customs fees, charges and dues,


except wharfage on wharves
constructed and maintained by the
local government unit concerned;
8. Taxes, fees or charges on
agricultural and aquatic products
when sold by marginal farmers or
fishermen;
9. Documentary stamp tax;
10. Estate Tax, inheritance, gifts,
legacies and other acquisitions
mortis causa, except as otherwise
provided;
11. Taxes, fees, and charges and other
impositions upon goods carried into
or out of, or passing through, the
territorial jurisdictions of local
government units in the guise of
charges for wharfage, tolls for
bridges or otherwise,
12. Percentage or VAT on sales,
barters or exchanges or similar
transactions on goods or services
except as otherwise provided;
13. Income tax, except on banks and
other financial institutions;
14. Taxes on business enterprises
certified to by the Board of
Investments as pioneer or nonpioneer for a period of 6 and 4
years, respectively from the date of
registration;
15. Excise
taxes
on
articles
enumerated under the national
Internal
Revenue
Code,
as
amended, and taxes, fees or
charges on petroleum products.
OTHER IMPOSITIONS THAT AN LGU
MAY LEVY
PROVINCES

1. tax on transfer of real property


2. tax on business of printing and
publication
3. franchise tax
4. tax on sand gravel and other
quarry resources extracted from
public land
5. professional tax
6. amusement tax
7. annual fixed tax for delivery
truck or van manufacturers or
producers,
wholesalers
of,
dealer, or retailers in, certain
products.
1. Tax on Transfer of Real Property
Ownership.
The province may
impose a tax on the sale, donation,
barter, or on any other mode of
transferring ownership or title of
real property.
Rate: Not more than 50% of the
1% of the total consideration or of
the fair market value, whichever is
higher
Exception: Sale, transfer or other
disposition
of
real
property
pursuant to R.A. No. 6657 (CARL).
Note: It shall be the duty of the
seller,
donor,
transferor
or
administrator to pay the tax
imposed within 60 days from the
date of the execution of the deed or
from the date of the decedent's
death
2. Tax on Business of Printing and
Publication.
The province may
impose a tax on the business of
persons engaged in the printing
and/or publication of books, cards,
posters,
leaflets,
handbills,
certificates, receipts, pamphlets,
and others of similar nature.

Rate: Not exceeding 50% of 1% of


the gross annual receipts for the
preceding calendar year
Exceptions:
Newly
started
business, the tax shall not exceed
1/20 of 1% of the capital
investment.
School
texts
or
references, prescribed by the
DECS shall be exempt from the
tax.
3. Franchise Tax. Notwithstanding
any exemption granted by any law
or other special law, the province
may impose a tax on businesses
enjoying a franchise.
Rate: Not exceeding 50% of 1% of
the gross annual receipts for the
preceding calendar year, within its
territorial jurisdiction.
Exceptions:
Newly
started
business, the tax shall not exceed
1/20 of 1% of the capital
investment.
4. Tax on Sand, Gravel and Other
Quarry Resources. The province
may levy and collect taxes on
ordinary stones, sand, gravel,
earth, and other quarry resources
extracted from public lands or from
the beds of seas, lakes, rivers,
streams, creeks, and other public
waters
within
its
territorial
jurisdiction.
Rate: Not more than 10% of fair
market value in the locality
Note: The permit to extract
resources
shall
be
issued
exclusively by the provincial
governor, pursuant to the ordinance
of the sangguniang panlalawigan.
Proceeds distributed as follows:
Province -30%

Component City or Municipality


where the quarry resources are
extracted - 30%
Barangay where the quarry
resources are extracted - 40%.
5. Professional Tax. The province
may levy an annual professional
tax on each person engaged in the
exercise or practice of his
profession requiring government
examination. To be paid on or
before the 31st day of January. Any
person first beginning to practice a
profession after the month of
January must, however, pay the full
tax before engaging therein.
Rate: At such amount and
reasonable classification as the
sangguniang panlalawigan may
determine but shall in no case
exceed P300.00.
Exception:
Professionals
exclusively employed
in the
government shall be exempt from
the payment of this tax.
Note: To be paid to the province
where he/she practices his/her
profession
or
where
he/she
maintains principal office in case
the practice is in several places
provided, after payment, he/she
shall be entitled to practice his/her
profession in any part of the
Philippines.
Without
being
subjected to any other national or
local tax, license, or fee for the
practice of the profession.
6. Amusement Tax.
The province
may levy an amusement tax to be
collected from the proprietors,
lessees, or operators of theaters,
cinemas, concert halls, circuses,
boxing stadium, and other places of
amusement

Rate: Not more than 30% of the


gross receipts from admission fees.
Exception: The holding of operas,
concerts, dramas, recitals, painting
and art exhibitions, flower shows,
musical programs, literary and
oratorical presentations, except
pop, rock, or similar concerts shall
be exempt.
Note: Sangguniang panlalawigan
may prescribe the time, manner,
terms and conditions for the
payment of tax. In case of fraud or
failure to pay, the sangguniang
panlalawigan
may
impose
surcharges, interest and penalties.
The proceeds from the amusement
tax shall be shared equally by the
province and the municipality
where such amusement places are
located.
7. Annual Fixed Tax for Every
Delivery Truck or Van of
Manufacturers or Producers,
Wholesalers of, Dealers, or
Retailers in, Certain Products.
The province may levy an
annual fixed tax for every truck or
any vehicle used by manufacturers,
producers, wholesalers, dealers or
retailers in the delivery of distilled
spirits, soft drinks, cigars and
cigarettes, and other products as
may be determined by the
sanggunian, to sales outlets, or
consumers, whether directly or
indirectly, within the province.
Rate: Amount not exceeding
P500.00.
MUNICIPALITIES (SEC. 143 LGC)
The municipality may impose taxes
on the following business:
a. On

manufacturers,

assemblers,

repackers, processors, brewers,


distillers,
rectifiers,
and
compounders of liquors, distilled
spirits, and wines or manufacturers
of any article of commerce of
whatever kind or nature.
b. On wholesalers, distributors, or
dealers in any article of commerce
of whatever kind or nature.
c. On
exporters,
and
on
manufacturers, millers, producers,
wholesalers, distributors, dealers or
retailers
of
the
essential
commodities
d. On retailers
e. On
contractors
and
independent contractors
f. On banks
institutions,

and

other

other
financial

g. On peddlers engaged in the sale of


any merchandise or article of
commerce
h. On any business, which the
sanggunian concerned may deem
proper to tax.
For businesses
subject to the excise, value-added
or percentage tax, the tax rate shall
not exceed 2% of gross sales of
the preceding calendar year.
Note: Rates of Tax within the
Metropolitan Manila Area shall not
exceed by 50% the maximum rates
prescribed for a-h. (Sec. 144 LGC)
The tax is payable for every
separate or distinct establishment or
place where business is conducted.
(Sec. 146 LGC)
Municipal non-revenue fees and
charges- The municipality may
impose and collect such reasonable

fees and charges on business and


occupation except professional taxes
reserved for provinces. (Sec 147 LGC)
Municipalities shall have the
exclusive authority to grant fishery
privileges in the municipal waters. The
sanggunian may:
a. Grant fishery privileges to erect fish
corrals, oysters, or other aquatic
beds or bangus fry areas
1. Duly
registered
organizations
and
cooperatives of marginal
fishermen shall have the
preferential right;
2. The sanggunian may require
a public bidding pursuant to
an ordinance for the grant of
such privilege;
3. Absent of such orgs. and
coops or their failure to
exercise their preferential
right, other parties may
participate in the public
bidding
b. Grant the privilege to gather, take
or catch bangus fry, prawn fry or fry
of other species and fish from the
municipal waters by nets or other
fishing gears to marginal fishermen
free of rental or fee
c. Issue licenses for the operation of
fishing vessels of three (3) tons or
less. (Sec. 149)
CITIES (SEC. 151,LGC)
The city may levy the taxes and
other charges which the province or
municipalities may impose. The tax
rates that the city may levy may
exceed the maximum rates allowed for
the province or municipality by not
more than 50% except the rates of
professional and amusement taxes.

BARANGAYS (SEC. 152, LGC)


The barangay may levy the
following taxes:
a. taxes on stores or retailers with
fixed business establishments
with the gross sales for the
preceding calendar year of
P50,000 or less (for barangay in
the cities) and P30,000 or less
(barangays in municipalities)
b. services or charges
c. barangay clearance
d. other fees and charges.
SITUS OF LOCAL TAXATION (SEC.
150,LGC)
For purposes of collection of the
taxes under Section 143 (tax on
business), businesses maintaining or
operating branch or sales outlet
elsewhere shall record the sale in the
branch or sales outlet making the sale
or transaction, and the tax thereon
shall accrue and shall be paid to the
municipality where such branch or
sales outlet is located.
In case there is no branch or sales
outlet in the city or municipality where
the sale made, the sale shall be
recorded in the principal office and the
taxes due shall accrue and be paid to
such city or municipality.
The following sales allocation for
sales recorded in the principal office of
businesses with factories, project
offices, plants, and plantations:
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.
Where the plantation located at a
place other than the place where the
factory is located, the above
mentioned 70% shall be divided as
follows:
60% to the city or municipality
where the factory is located; and
40% to the city or municipality
where the plantation is located.
Where there are 2 or more
factories, project offices, plants, or
plantations
located
in
different
localities, the above-mentioned 70%
shall be prorated among the localities
where the factories, project offices,
plants, and plantations are located in
proportion to their respective volumes
of production during the period for
which the tax is due.
COMMUNITY TAX
Cities or municipalities may levy a
community tax (Sec. 156)
A. Individuals Liable to Community
Tax:
1. Inhabitants of the Philippines
2. Eighteen years of age or over
3. Regularly employed on a wage
or salary basis for at least 30
consecutive
working
days
during any calendar year,
4. or who is engaged in business
or occupation,
5. or who owns real property with
an aggregate assessed value of
P1, 000.00 or more,
6. or who is required by law to file
an income tax return
Tax rate:
P5.00 and an annual
additional tax of P1.00 for every P1,
000.00 of income regardless of
whether from business, exercise of
profession or from property which in no

case shall exceed P5, 000.00.


In the case of husband and wife,
the tax imposed shall be based upon
the total property owned by them and
the total gross receipts or earnings
derived by them. (Sec. 157)
B. Juridical Personalities (Sec. 158,
LGC)
Every corporation, no matter how
created
or
organized,
whether
domestic or resident foreign, engaged
in or doing business in the Philippines
is also liable to pay an annual
community tax.
Tax rate: P500.00 and an annual
additional tax, which shall exceed P10,
000.00 in accordance with the
following schedule:
a. For every P5,000.00 worth of real
property in the Philippines owned
by it during the preceding year
based on the valuation used for the
payment of real property tax P2.00; and
b. For every P5, 000.00 of gross
receipts derived by it from its
business in the Philippines during
the preceding year - P2.00.
EXEMPT FROM COMMUNITY TAX
1. Diplomatic
and
consular
representatives; and
2. Transient visitors when their stay
does not exceed 3 months.
Place of Payment - place of residence
of the individual, or in the place where
the principal office of the juridical entity
is located. (Sec. 160)
Time for Payment - accrues on the 1 st
day of Jan. of each year which shall be
paid not later than the last day of Feb.
of each year

Penalties for Delinquency - An


interest of 24% per annum from the
due date until it is paid shall be added
on the amount due.
A community tax certificate may
also be issued to any person or
corporation not subject to the
community tax upon payment of
P1.00. (Sec. 162,LGC)
Presentation of Community Tax
Certificate on Certain Occasions
(Sec. 163, LGC) Individual
a. When an individual subject to
the
community
tax
acknowledges any document
before a notary public,
b. takes the oath of office upon
election or appointment to any
position in the government
service;
c. receives any license, certificate
or permit from any public
authority; pays any tax or fee;
d. receives any money from any
public fund;
e. transacts other official business;
or
f. receives any salary or wage
from any person or corporation.
Note:
The
community
tax
certificate shall not be required in
the registration of a voter.
Corporation
a. receives any license, certificate,
or permit from any public
authority,
b. pays any tax or fee,
c. receives money from public
funds, or
d. transacts other official business.
The city or municipal treasurer
deputizes the barangay treasurer to
collect the community tax in their

respective jurisdictions.
The proceeds of the community tax
actually and directly collected by the
city or municipal treasurer shall accrue
entirely to the general fund of the city
or municipality concerned.
Proceeds of the community tax
collected through the barangay
treasurers shall be apportioned as
follows: (Sec. 164)
50% accrues to the general fund of
the city or municipality concerned;
and
50% accrues to the barangay
where the tax is collected.
TAX REMEDIES UNDER THE LOCAL
GOVERNMENT CODE
Tax Remedies of Local Government
Units
1. Impose penalties (surcharges
and penalty interest) in case of
delinquency;
2. Avail local governments liens;
3. Administrative action through
distraint of goods, chattels and
other personal property; and
4. By judicial action.
Civil remedies for collection
1. tax lien;
2.
distraint;
3.
levy;
4.
civil action;
5.
purchase
of
property by LGUs for want of
bidder; property distrained not
disposed within 120 days from
date of distraint considered
sold to the LGU.
Note: Either of these remedies or all
may be pursued concurrently or
simultaneously at the discretion of the
local government unit concerned.
Tax lien

Local taxes constitute a lien,


superior to all liens, charges or
encumbrances in favor of any person,
enforceable
by
appropriate
administrative of judicial action, not
only upon any property or rights
therein which may be the subject of
the lien but also upon property used in
business, occupation, practice of
profession or calling, or exercise of
privilege with respect to which the lien
is imposed
Judicial action
civil action only; it precludes a
criminal case as a proper
remedy
for
collection
of
delinquent local taxes.
The treasurer of the concerned
Local Government Unit shall
file the collection case.
The CTA has co jurisdiction
over the tax collection cases of
the LGU
Prescriptive Periods under the LGC:
1. Assessment of Local Taxes

General rule five years (5) from


the date they became due.
Exception: When there is fraud or
intent to evade the payment of
taxes, fees, or charges ten (10)
years from discovery of the fraud or
intent to evade the payment.
2. Collection of Local taxes:

Five (5) years from the date of


assessment by administrative or
judicial action.
Interruption of the period of
prescription
1. The
treasurer
is
legally
prevented from making the
assessment or collection of the
tax;

2. The 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. The taxpayer is out of the
country or otherwise cannot be
located.

within 30 days from receipt of


decision of LBAA to Central
Board of Assessment Appeals;
in case of denial of refund or
credit, appeal to the Board of
Assessment Appeals as in a
protest case

Remedies of the Taxpayer under the


LGC

b. Court action appeal of CBAAs


decision to the Supreme Court by
certiorari;

A. ADMINISTRATIVE
Prior to assessment:
1. Administrative appeal to the
Secretary of Justice; and
2. Action for declaratory relief
After an assessment:
1. Protest of the assessment
within 60 days from receipt
of assessment. Payment
under
protest
is
not
necessary; or
2. Action for refund within 2
years from payment of tax to
local revenue taxes the
supervening cause applies
in local taxation because the
period for the filling of claims
for refund is counted not
necessarily from the date of
payment but from the date
the taxpayer is entitled to a
refund or credit.
3. Right of redemption- 1 year
from the date of sale or
forfeiture. (SEC. 179, LGC)
B.JUDICIAL
a. Appeal
within 60 days from assessment
of provincial, city or municipal
assessor to Local Board of
Assessment Appeals;

c. suit assailing validity of tax,


recovery or refund of taxes paid;
d. suit to declare invalidity of tax due
to irregularity in assessment and
collection;
e. suit assailing the validity of tax sale
Appeal to the Secretary of Justice
Any
question
on
the
constitutionality or legality of tax
ordinances may be raised on appeal
within 30 days from the effectivity
thereof to the Secretary of Justice who
shall render a decision within 60 days
from date of receipt of appeal
Such appeal shall not suspend the
effectivity of the ordinance, as well as
the accrual and payment of the tax
In case of adverse decision or
inaction by the Secretary of Justice,
the
aggrieved
party
may
file
appropriate proceedings with a court of
competent jurisdiction.
Protest within 60 days from receipt
of assessment. Payment under protest
not necessary.
Payment and subsequent refund or
tax credit within two (2) years from
payment of tax to local treasurer.

Right of redemption one (1) year


from the date of sale or from the date
of forfeiture.
Action
for
declaratory
relief
injunction if irreparable damage
would be caused to the taxpayer and
no adequate remedy is available.
REAL PROPERTY TAXATION
CHARACTERISTICS
OF
REAL
PROPERTY TAX
1. Direct tax on the ownership of real
property
2. Ad Valorem tax. The value is
based on the tax base
3. Proportion - the tax is calculated
on the basis of a certain
percentage of the
value
assessed
4. Indivisible single obligation
5. Local Tax
PROPERTIES LIABLE UNDER REAL
PROPERTY TAX
According
to
the
Local
Government Code, Real Properties
liable for Real Prop tax are:
1. Lands,
2. Buildings
3. Machinery and
4. Other improvements not otherwise
exempted under said code (Sec 232,
LGC)
Note: Although the term real property
has not been expressly defined in the
LGC, early decisions of the Supreme
Court in Mindanao Bus Co. v City
Assessor of Cagayan de Oro, 6 SCRA
`97; Board of Assessment Appeals v
Meralco, 119 PHIL 328; Manila Electric
Co. v Board of Assessment Appeals,
10 SCRA 68 seem to suggest that
Article 415 of the Civil Code could also
be controlling.
CLASSIFICATION OF LANDS for

purposes of assessment Sec 218 (a)


1. Commercial
2. Agricultural
3. Residential
4. Mineral
5. Industrial
6. Timberland
7. Special
SPECIAL CLASSES OF REAL
PROPERTY (sec 216, LGC)
1. Hospitals
2. Those for cultural and scientific
purposes
3. Those owned and used by local
water districts
4. GOCCs rendering essential
public services in the supply
and distribution of water and/or
generation or transmission of
electric power.
PROPERTIES
EXEMPT
TAXES (Sec. 234)
1.

FROM

Those owned by the Republic of


the Philippines or its political
subdivisions
Except: when beneficial use has
been granted to a taxable person

2. Charitable institutions, churches,


parsonages, and convents thereto,
mosques, non-profit or religious
cemeteries,
buildings
and
improvements actually directly and
exclusively used for religious,
charitable or educational purposes.
3. Machinery and Equipment actually,
directly, and exclusively used by
local Water districts and GOCCs
engaged in the supply and
distribution
of
water
and/or
generation and transmission of
electric power
4. Real property owned by duly
registered Cooperatives under RA

6938
5. Machinery
&
equipment
for
pollution control and Environment
protection
Exemptions previously granted, (not
falling within the above enumeration)
are withdrawn.
FUNDAMENTAL PRINCIPLES IN
Assessment REAL PROP TAXES
(Art 198)
1. Current and fair market value is the
basis of appraisal
2. Uniformity in classification in each
local govt unit should be observed
3. Actual use of the property should
be the basis of classification
4. appraisal, assessment, levy and
collection should not be let to any
private person.
5. equitable
appraisal
and
assessment
PROCEDURE:
STEP 1 - DECLARATION OF REAL
PROPERTY
Declared by Owner or Administrator
(Sec 202-203)
If newly acquired property - filed
with assessor within 60 DAYS from
date of transfer a SWORN
statement containing FMV and
description of property
If improvement on real property filed
w/in
60
DAYS
upon
completion
or
occupation
(whichever is earlier) with a
SWORN statement containing FMV
and description of property
Declared by Provincial / City /
Municipal Assessor (Sec 204)
only when the person under
Sec 202 refuses or fails to make

the
declaration
within
the
prescribed time

No oath is required
IF FILING FOR EXEMPTION (Sec
206)
The person claiming exemptions
must file with assessor sufficient
documentary evidence to support
claim within 30 days from the date of
DECLARATION of property
If required evidence is not
submitted within 30 days, the property
will be listed as taxable in the roll.
If proven to be tax-exempt,
property will be dropped from the roll
Note: IF PROPERTY DECLARED
FOR THE FIRST TIME (Sec. 222)
If declared for 1st time, real
property shall be assessed for back
taxes for not more than 10 yrs prior to
the date of initial assessment taxes
shall be computed on the basis of
applicable schedule of values in force
during the corresponding periods
STEP 2: LISTING OF REAL
PROPERTY IN THE ASSESSMENT
ROLL
(Sec 205, 207)
All declarations shall be kept and
filed under a uniform classification
system to be established by the
provincial, city or municipal assessor.
STEP
3:
APPRAISAL
AND
VALUATION OF REAL PROPERTY
(Sec 212-214, 224-225)
Determining Fair Market Value
A. Land
1. Assessor of the province, city,
and
municipalities
gives

summons to owners of affected


properties
2. Assessor prepares a schedule
of FMV for different classes of
properties
3. Sanggunian
ordinance

enacts

4. the schedule of
published or posted

an

FMV

is

amount is paid, provided in no case


shall the total interest exceed thirty-six
(36) months
Note: FOR ADVANCE and PROMPT
PAYMENT
a) Advance payment -discount not
exceeding 20% of annual tax
(Sec 251, LGC)
b) Prompt payment -discount not
exceeding 10% of annual tax
due (Art 342 IRR)

B. Machinery
1. For Brand New machinery:
FMV is acquisition cost

WHO COLLECTS? The provincial,


city, municipal or barangay treasurer
(Sec 270).

2. In all other cases: FMV =


Remaining
eco.
Life
X
Replacement Estimated Eco.
Life Cost

PERIOD:
a. within five (5) yrs from the date
they become due
b. within ten (10) yrs. from discovery
of fraud, in case there is fraud or
intent to evade

STEP 4: DETERMINE ASSESSED


VALUE (Sec 218)
Procedure
1. Take the schedule of FMV
2. Assessed value = FMV
Assessment level
3. Tax = Assessed value X
rate
STEP
5:
PAYMENT
COLLECTION OF TAX

PRESCRIPTION
SHALL
BE
SUSPENDED when: (Sec 270, LGC)
X
Tax
AND

Period: January 1 of every year (Sec


246) tax shall constitute as superior
lien (Sec 246)
HOW?
a. basic real prop tax in 4 equal
installments (Mar 31, June
30,Sept. 30, Dec. 31)
b. special levy - governed by
ordinance
Note: INTEREST for LATE PAYMENT
is at two percent (2%) each month on
unpaid amount until the delinquent

1. Local treasurer is legally prevented


to collect tax
2. The owner of the property requests
for reinvestigation and writes a
waiver before expiration of period
to collect
3. The owner of the property is out of
the country or cannot be located
REMEDIES IN REAL PROPERTY
TAXATION
A. REMEDIES OF TAXPAYER
1. PAYMENT UNDER PROTEST (Sec
252)
- file protest with provincial, city,
or
municipal
treasurer
concerned
- indicate amount contested
- annotate on tax receipt paid
under protest

Within 30 days, confirm protest


in writing stating grounds
therefor
treasurer shall decide protest
within 60 days

Note: No protest shall be entertained


unless THE TAX IS FIRST PAID.
IF PROTEST DECIDED IN FAVOR
of taxpayer, amount may either be
a. refunded or
b. applied as tax credit
IF DENIED or NOT DECIDED
WITHIN 60 DAYS BY TREASURER,
a. taxpayer may appeal to board of
assessment appeal or
b. avail of remedies under Chapter
3 title 2 Book II (Local Board of
Assessment
Appeals
and
Central Board of Assessment
Appeals)
2. REFUND IN CASE OF EXCESSIVE
COLLECTION (Sec 253) - File a
written claim for refund within two (2)
years from date taxpayer is entitled
thereto
B. REMEDIES OF GOVERNMENT
Remedies may be enforced either
through administrative or judicial action
or both, alternative or simultaneously.
Use or non-use of one remedy shall
not be a bar against the other (Sec
258)
1. ADMINISTRATIVE
A. Levy on Real property (Sec 258
and 259)
B. Sale of Real Property (Sec 260)
C. Local Governments Lien (Sec
256)
D. Further Distraint or Levy (Sec
265)
2. JUDICIAL (Sec 266)-civil action
filed by the local treasurer within 5

yrs. from due date


C. CONDONATION and REMISSION
The PRESIDENT may remit or
reduce real property tax in any
province, city, municipalities if he
deems that PUBLIC INTEREST so
requires (Sec 277)
THE SANGGUNIAN concerned
may CONDONE or REDUCE the tax in
cases where
a. there is a general failure of
crops
b. substantial decrease in the
price of products
c. calamity
(Sec 276)
by an ordinance - passed before
Jan 1 of any year and upon
recommendation of the Local Disaster
Coordinating Council
APPEALS IN
TAXATION

REAL

PROPERTY

OWNER OR PERSON WITH LEGAL


INTEREST
Files within 60 days
1. Written Petition under Oath
2. With Supporting Documents
Within 60 days
LOCAL BOARD OF ASSESSMENT
APPEALS
(LBAA should decide within 120 DAYS
from receipt of petition)
Within 30 days
CENTRAL BOARD OF ASSESSMENT
APPEALS
Within 30 days
CTA EN BANC

Within 15 days
SUPREME COURT

COURT OF TAX APPEALS (R.A.


9282- approved March 30, 2004)
COMPOSITION
Presiding
Justice
and
5
Associate Justices
May sit en banc or in two
divisions,
each
division
consisting of 3 justices. He
presiding justice and the most
senior associate justice shall
serve as chairmen of the two
divisions.
POWERS of the Court of Tax Appeal
1.
2.
3.
4.

to administer oaths;
to receive evidence;
to summon witness by subpoena;
to inquire production of papers or
documents by subpoena duces
tecum;
5. to punish contempt;
6. to
promulgate
rules
and
regulations for the conduct of its
business;
7. to
assess
damage
against
appellant if appeal to CTA is found
to be frivolous or dilatory;
8. to suspend the collection of tax
pending appeal; and
9. to render decisions on cases
brought before it.
10. to issue order authorizing distrait
of personal property and levy of
real personal property.
DISTRAINT
OF
PERSONAL
PROPERTY AND LEVY OF REAL
PROPERTY
Upon the issuance of any ruling,
order or decision by the CTA favorable
to the national government, the CTA
shall issue an order authorizing the
BIR, through the commissioner:

1. to seize and distrait any goods,


chattels, or effects and personal
property, including stocks and other
securities, debts, credits, bank
accounts, and interest in and rights
to personal property and/or
2. levy the real property of such
persons in sufficient quantity to
satisfy the tax or charge together
with any increment thereto incident
to delinquency.
The remedy shall not be exclusive
and shall not preclude the court from
availing of other means under the
Rules of Court.
JURISDICTION OF THE CTA
A.
EXCLUSIVE
JURISDICTION TO
APPEAL

APPELLATE
REVIEW BY

1. decision or inaction of the


CIR ina) disputed
assessment;
refunds of internal revenue
taxes, fees and other
charges; penalties imposed
in relation thereto; and
b) other matters arising under
the NIRC; or other law or
part of law administered by
BIR.
2. Decisions, order or resolution
of the RTCs in local tax cases
originally decided or resolved by
them in the exercise of their
original or appellate jurisdiction.
3. decisions of Commissioner of
Customs in a. cases involving liability
from customs duties,
fees and other money
charges;
seizures,
detention or release of
property affected; fines,

forfeitures and other


penalties imposed in
relation thereto; and
b. Other matters arising
under the Customs Law
or other laws or part of
laws administered by the
BOC.
4. decisions of the CBAA in the
exercise
of
its
appellate
jurisdiction over cases involving
the assessment and taxation of
real property originally decided
by the LBAA;
5. decisions of the Secretary of
Finance on customs cases
elevated to him automatically
for review from decisions of the
Commissioner
of
Customs
which are adverse to the
government;
6. decisions of the Secretary of
Trade and Industry, in the
case
of
non-agricultural
products, and the Secretary of
Agriculture in the case of
agricultural products, involving
dumping ad countervailing
duties

B. JURISDICTION OVER CRIMINAL


CASES
1. Exclusive original jurisdiction
over all criminal offenses arising
from violations of the NIRC or
tariff and Customs Code and
other laws administered by the
BIR and BOC. HOWEVER,
offenses
a) where
the
principal
amount of taxes and
fees,
exclusive
of
charges and penalties,

claimed is less than 1


million pesos, or
b) where there is no
specified amount claimed
shall be tried by the regular
courts and the jurisdiction of
the CTA shall be appellate.
The criminal action and the
corresponding civil action for
the recovery of civil liability for
taxes and penalties shall at all
times
be
simultaneously
instituted with, and jointly
determined
in
the
same
proceeding by the CTA, the
filing of the criminal action being
deemed to 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
recognized.
2. Exclusive
appellate
jurisdiction
in
criminal
offenses:
a) over appeals from the
judgments, resolutions or
orders of the RTC in tax
cases
originally
decided by them;
b) over
petitions
for
review
of
the
judgments, resolutions
or orders of the RTC in
the exercise of their
appellate
jurisdiction
over tax cases originally
decided by the MTC.
C. JURISDICTION OVER TAX
COLLECTION CASES
1. Exclusive original jurisdiction
in tax collection cases involving

final
and
executory
assessments for taxes, fees,
charges
and
penalties.
Collection where the principal
amount of taxes and fees,
exclusive of charges and
penalties, claimed is less than
1 million pesos shall be tried
by the proper MTC and RTC;
2. Exclusive
appellate
jurisdiction in tax collection
cases -a) over appeals from the
judgments, resolutions or
orders of the RTC in tax
collection cases originally
decided by them;
b) over petitions for review
of
the
judgments,
resolutions or orders of
the RTC in the exercise
of
their
appellate
jurisdiction
over
tax
collection cases originally
decided by the MTC.
APPEAL
WHO MAY APPEAL?
Any party adversely affected by
a decision, ruling or inaction of the
CIR, Commissioner of Customs, Sec.
of Finance, Sec. of Trade and Industry
or Sec. of Agriculture or the RTC, may
file an appeal with the CTA:
1. within 30 days after receipt of
such decisions or
2. After the expiration of the period
fixed by law for action referred
to in Section 7(a) R.A. 9282, in
which case the inaction shall be
deemed a denial.

provided for under Rule 42 of


Rules on Civil Procedure
Note: Decision, ruling or inaction
of the CIR, Commissioner of
Customs, Sec. of Finance, Sec. of
Trade and Industry or Sec. of
Agriculture or the RTC - this
appeal shall be heard by a
DIVISION of the CTA.
Within 30 days from the receipt
of the decision or ruling from the
expiration of the period fixed by
law for the official concerned to
act, in case of inaction.
A party adversely affected by a
ruling or order of a division of the
CTA may file a motion for
reconsideration or new trial before
the same Division.
2. By filling a petition for review under
a procedure analogous to that
provided for under Rule 43 of Rules
on Civil Procedure
Note: appeals on Decisions,
rulings or inaction of the Central
Board of Assessment and the RTC
in the exercise of its appellate
jurisdiction shall be heard by a CTA
EN BANC.

MODES OF APPEAL

A party adversely affected by a


resolution of a Division of the CTA
on a motion for reconsideration or
new trial, may file a petition for
review with the CTA En Banc.
3. Petition for Review on Certiorari
may be filled by a party adverse
affected by a decision or ruling of
the CTA En Banc, through a
verified
petition
before
the
Supreme Court, pursuant to Rule
45 of the Rules on Civil Procedure.

1. By filing a petition for review under


a procedure analogous to that

GENERAL RULE: New issues cannot


be raised for the first time on appeal.

EXCEPTIONS:
1. defense of prescription
REASON: this is a statutory
right (Visayan Land Transport
vs. Collector)
2. errors of administrative officials
REASON: State can never be
in estoppel and Lifeblood
Theory (CIR vs. Procter and
Gamble
Philippines,
Manufacturing Corp.)
NOTE: However, this was reversed by
the SC in the case of Commissioner
vs. Procter and Gamble, G.R. no.
66838, Dec. 2, 1991 Resolution, held
that in the absence of explicit
statutory provisions to the contrary,
the government must follow the
same rules of procedure which bind
private parties.
Collection of taxes may be
SUSPENDED pending appeal to the
CTA
GENERAL RULE: No appeal taken to
the CTA shall suspend the payment,
levy or distrait, and/or sale of any
property of the taxpayer.
EXCEPTIONS:
1. there must be showing that
collection of the tax may
jeopardize the interest of the
government and/or taxpayer;
2. deposit of the amount claimed
or file a surety bond for not
more that double the amount of
tax with the Court when
required; and

3. showing by taxpayer that


appeal is not frivolous or
dilatory.

CAN
THE
CTA
COLLECTION OF TAXES?

ENJOIN

Sec. 11 of R.A. 1125 as amended by


Sec. 9 of R.A. 9282 grants the CTA the
power to suspend collection of tax if
such collection works to serious
prejudice of either taxpayer or
government.
HOWEVER, Sec. 218 of NIRC
provides no court may grant injunction
to restrain collection of any tax, fee,
charge imposed by the Tax code.
Note: The provision in Tax Code refers
to courts OTHER THAN the CTA.
[Blaquera vs. Rodriguez, G.R. no. L11295, March 29, 1958]
Note: Appeal to the CTA does not
automatically
suspend
collection
UNLESS CTA issues suspension order
at any stage of proceedings.
oOo
---end--Have fun and enjoy!