NOTES in TAXATION by TEP ABRENICA 1
Atty. Bonilla Discussion supplemented by Vitug Acosta book
TAXATION is the mode by which governments make
exactions for revenue in order to support their existence and
carry out their legitimate objectives.
Basis of Taxation: GOVERNMENTAL NECESSITY
Because without it, government can neither exist nor
endure. It is the source of the bulk of public funds.
PURPOSE: Revenues derived from taxes are intended
primarily to FINANCE the government and its activities
and are thus except from execution.
(support the government)
It is an INHERENT power of the State and the MOST
powerful power
Because such power is capable of destroying / taking
properties it has the power to destroy the government
can take property.
TAKING of the PROPERTY is in the lawful
exercise of the taxing power, when:
i. Tax is FOR a PUBLIC PURPOSE
ii. Rule on Uniformity of taxation is observed
iii. Either the person or property taxed is within the
jurisdiction of the government levying the tax; and
iv. In the Assessment and collection of certain kinds
of taxes, notice and opportunity for hearing are
provided.
SCOPE: Unlimited, Plenary, Comprehensive and
Supreme
- Everything is SUBJECT to tax except when the State
says so.
ATTRIBUTES or CHARACTERISITIC of TAXES
It is a FORCED charge, imposition or contribution
PECUNIARY it is payable in money or for value
It is an OBLIGATION created by law or delegated by
the law
Assessed in accordance with some reasonable rule of
apportionment
Imposed on persons, property or services within its
jurisdiction
Levied for the Public purpose.
REQUIREMENTS of an EFFECTIVE TAX SYSTEM
A. FISCAL ADEQUACY sources of tax revenue are enough
to support the government. Taxes must be able to generate
sufficient revenue for the government.
B. THEORETICAL JUSTICE - the tax system should be
FAIR to the taxpayer and based upon his ability to pay
C. ADMINISTRATIVE FEASIBILITY the system should
be capable of being properly and efficiently administered by
the government and enforced with the least inconvenience
to the taxpayer.
PROCEDURE in IMPOSING TAXES
*** referred also as Aspects / phases/ Processes/ Stages of/
Steps in Taxation
I. LEVY the act of imposition by the legislature of tax.
- it is to MANDATE on WHEN and HOW the tax is
imposed and whenever it may be APPROPRIATE,
the grant of tax exemptions, tax amnesties or tax
condonations.
II. ASSESSMENT and COLLECTION act of
administration and implementation of the tax law by the
executive through its administrative agencies.
Assessment means a notice and demand for
payment of a tax liability (definition ONLY used
here)
It is different FROM ASSESSMENT to real property
taxation, which refers to the listing and valuation of
taxable real property.
III. PAYMENT the act of compliance by the taxpayer,
including options, schemes or remedies as may be legally
open or available to him.
CLASSIFICATION OF TAXES (KINDS of TAXES)
According to SUBJECT MATTER or OBJECT
a. POLL TAXES (Personal or Capitation) taxes of
fixed amounts upon residents or persons of a certain
class without regard to their property or business (ex.
Community Tax)
b. PROPERTY TAXES - taxes assessed on things or
property of a certain class (ex. Real Estate Tax)
c. EXCISE or LICENSE TAXES taxes on privilege,
occupation or business not falling within the
classification of poll taxes or property taxes. (ex.
Custom duties)
According to BURDEN or INCIDENCE (to which imposed)
a. DIRECT TAXES - a tax for which a taxpayer is
directly liable on the transaction or business it engage
in (ex. Income Tax, Estate Tax and Donors Tax)
b. INDIRECT TAXES a tax primarily paid by persons
who can shift the burden upon someone else. (ex.
Value-Added Tax)
According to TAX RATES (Determination of Amount)
a. SPECIFIC TAXES a tax imposed per head, unit or
number or by weight or volume and which require no
assessment beyond the listing and classification of the
subjects or articles to be taxed.
b. AD VALOREM TAXES tax based upon the value of
the article subject to tax
 NOTES in TAXATION by TEP ABRENICA 2
Atty. Bonilla Discussion supplemented by Vitug Acosta book

According to PURPOSE
TOLL TAX
a. GENERAL or FISCAL taxes imposed for the
general purposes of the government (ex. Income tax) - a demand of ownership - Demand of sovereignty for
- imposition is generally the purpose of raising
b. SPECIAL, REGULATORY or SUMPTUARY contractual in nature and public revenue
taxes imposed for a particular legitimate object of may be demanded by - Imposed by the
government (ex. Educational fund Tax) private persons or entitied government through a
LAW and may only be
According to SCOPE or Authority Imposing the Tax demanded by the
Government.
a. NATIONAL taxes imposed by the national
government LICENSE TAX
b. MUNICIPAL or LOCAL taxes imposed by local
governments - Emanates from the police - Levied in the exercise of
power of the State the taxing power
According to GRADATION (Tax Base and Tax Rate)
- Impose for regulation of - Impose to generate
a. PROGRESSIVE tax rate increases as the tax base lawful business or revenue
increases (ex. Income tax) occupation
- amount of the exaction or - Amount of the exaction or
b. REGRESSIVE tax rate decreases as the tax base charge, must ONLY be of charge MUST be equitable
increases. a sufficient amount to
include expenses of (1)
c. MIXED tax rates are partly progressive and partly issuing the license; and
regressive. (2) cost of necessary
inspection or police
d. PROPORTIONATE tax rates are fixed on a flat tax surveillance.
base (in amounts or in percentage)
SPECIAL ASSESSMENT TAX
ELEMENTS of the STATE:
(1) People - Levied ONLY on land - Imposed on persons,
(2) Territory property and excises
(3) Government - Not a personal liability of - It is personal liability of
(4) Sovereignty the person assessed but 1 the tax payer.
(5) International Recognition assessable on the property
itself
*** Link of Taxation to People
- the people are the one who pays for taxes
- Law of tax is strictly construed against the government
TAXATION EMINENT
*** Link of Taxation to Territory DOMAIN
- Taxing power is ONLY within the territory to which the As to
Taking of private
power is vested. NATURE of In order to raise public
property for public
- nexus to situs territory connect to place of tax the Power revenue
use.
(residence, citizenship, where performed the activity) Exercised

*** Link of Taxation to Government Payment of taxes

As to A direct benefit
- it is to the LEGISLATIVE branch, who imposes law for results in the general
COMPENSA- results in the form of
tax. it cannot be delegated upon certain exception. benefits of all citizen
TION just compensation to
and inhabitants of a
RECEIVED the property owner.
*** Link of Taxation to Sovereignty state.
- Government is not subject to taxation As to NON-
- Any grant of exemption is strictly construed against the IMPAIR A contract may NOT A contract can be
tax payer. MENT of be impaired. impaired.
Contract
*** Link of Taxation to International Recognition
- Another State cannot TAX another State.
Applies to all persons,
As to Only a particular
DEBT TAX property and excises
PERSONS property is
that may be subject
- An obligation created by a - an obligation imposed by affected comprehended.
thereto.
contract, quasi-contract, law
delict and quasi-delict - it is NOT subject to Set-off
- It is subject to set-off or or Compensation
compensation (offsetting) (offsetting)
 NOTES in TAXATION by TEP ABRENICA 3
Atty. Bonilla Discussion supplemented by Vitug Acosta book

TAXATION POLICE POWER GEN. RULE : NON-DELEGABILITY of the Taxing

Power
To promote public
As to
Raising revenue welfare through - It is inherently a power sovereignty through
PURPOSE
regulation legislative and a legislative prerogative
Should ONLY be
such as to COVER - Legislative taxing power INCLUDES:
As to
the cost of
AMOUNT of There is NO LIMIT a. To determine the nature, object, coverage,
regulation, issuance
EXACTION extent and situs of the tax imposition
of license or
surveillance.
b. To grant tax exemptions or condonations
no specified or direct
benefit is received c. To specify or provide for the administrative
other than the fact that and judicial REMEDIES that either the
the Government only no direct benefits government or the taxpayer may avail
As to themselves of in the proper implementation of
secures to the citizen are received, damage
BENEFITS the tax measure.
that general benefit without injury is
RECEIVED
resulting from the attained.
protection of his EXCEPTION: As provided by the Constitution
person and property
and welfare of all. (1) President to FIX within the specified limits
TARIFF RATES for revenue purposes only.
It SUBSITS i.e. a
As to NON-
taxing act cannot Limitation does not (2) Local Taxing Power each local government can
IMPAIRMEN
impair the obligation apply create its own source of revenues and to levy taxes
T of Contracts
of contracts fees and charges subject to the Guidelines and
No transfer but limitation of the Congress.
As to
Taxes paid become ONLY restraint on
TRANSFER of
part of the public the exercise of **** Limitations to DELEGATION of Power to Tax
PROPERTY
funds property rights
Rights
exists. i. It shall NOT CONTRAVENE any constitutional
provisions or inherent limitation to taxation

ii. It shall be EFFECTED by the Constitution or by

LIMITATIONS on the TAXING POWER LAW enacted by legislative.

A. Inherent Limitations iii. Delegated levy power should ONLY be in favor to

B. Constitutional Limitations the Local legislative body of the local government,
unless provided by the Constitution

A. INHERENT LIMITATIONS
TERRITORIALITY or SITUS of TAXATION
1. Public Purpose of Taxes
2. Non-delegability of the taxing power - Tax MAY only be exercised within the territorial
jurisdiction of the taxing authority
3. Territoriality or Situs of Taxation
4. Tax Exemption of the Government
- It could be on RESIDENCE, property LOCATION
5. International Comity
and place where the activity was PERFORMED.
PUBLIC PURPOSE OF TAXES
INTERNATIONAL COMITY
- Proceeds of the tax must be used
- The state recognize the generally accepts the
i. For the support of the State
ii. For some recognized objects of principle of sovereign equality among states and
their freedom from suit without their consent
government;
iii. To promote the welfare of the
community

- Taxation may be USED to implement an object

of police power, being a legitimate aim of
government.

- TAX imposed are presumed to for public

purpose

B. CONSTITUTIONAL LIMITATIONS
I. Provisions DIRECTLY Affecting Taxation
a. Art. 3. Sec.11
- DUE PROCESS OF LAW:
(1) Substantial requires that the tax statute
must be within the constitutional
authority of Congress and that it must be
fair, just and reasonable.
(2) Procedural tax laws should require
notice and hearing or atleast an
opportunity to be heard.
- EQUAL PROTECTION of the LAW in tax
law, the power to Tax is reasonable and
natural classification is a valid exercises.
b. Art. 3 Sec. 202
- Any imposition of a FINE or
IMPRISONMENT for any violation of NON-
payment of any kind of tax would not be
UNCONSTITUTIONAL.
c. Art. 6 Sec. 28, par. 13
- UNIFORMITY requires that ALL subjects or
objects of taxation similarly situated are to be
treated alike or put on equal footing both in
privileges and liabilities.
A tax is considered UNIFORM when it
operates with the SAME FORCE and EFFECT
in every place where the subject may be
found.
- EQUALITY fair, just, reasonable and
proportionate to ones ability to pay.
A tax is EQUAL when it equally APPLIES to
ALL persons, firms and corporations placed in
similar situation.
- UNIFORM and EQUALITY all taxable
articles or kinds of property of the same class
shall be taxed at the same rate.
- progressive system of taxation when
the tax rates goes up depending on the
resources of the person affected.
- appurtenant thereto, mosques, non-profit cemeteries and all lands,
1 No person shall be deprived of life, liberty or property without Due
process of law nor shall any person be denied the equal protection of the
law.
2 No person shall be Imprisoned for Non-payment of a poll tax
3 (1) The Rule of Taxation shall be UNIFOR and EQUITABLE. The
Congress shall evolve a progressive system of taxation.
NOTES in TAXATION by TEP ABRENICA 4
Atty. Bonilla Discussion supplemented by Vitug Acosta book
- It is CONSTITUTIONAL when the tax law
SINGLES out 1 particular class, provided:
i. The Standards used are NOT
ARBITRARY but reasonable and
substantial;
ii. Classification is GERMANE to achieve
the purpose of the legislation
iii. Classification applies to BOTH present
and future conditions, other
circumstances being equal;
iv. Classification applies equally to all those
belonging to the same class.
d. Art. 6, Sec. 28, par. 24
- Delegation of taxing power to the
PRESIDENT by modifying FLEXIBLE
TARRIF RATES on import duties.
e. Art. 6, Sec. 28, par. 35 (Religious and Charitable
Institution)
- Tax exemptions ONLY covers REAL
PROPERTY TAXES which are ACTUALLY,
DIRECTLY and EXCLUSIVELY used for and
NOT on the INCOME incurred.
- THUS! Conveyance by such property to 3rd
persons, is subjected to TRANSFER TAXES.
f. Art. 6 Sec. 28 par. 46
- TAX exemptions LAWS need to be concurred
by MAJORITY of ALL members of the
Congress.
g. Art. 6 Sec. 29 par.37
- Tax collected for a SPECIAL purpose is
considered a SPECIAL FUND after it has
been fulfilled, BALANCE thereof is given to
the Government as general fund.
4
(2) The Congress may, by law, authorize the President to FIX within
specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the National
development program of the Government.
5 (3) Charitable Institutions, churches and parsonages or convents
buildings and improvements, actually, directly and exclusively used for
religious, charitable or educational purposes shall be exempt from
taxation.
6 (4) NO law granting any tax exemption shall be passed without the
concurrence of a majority of all the members of the Congress.
7All 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 of 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.

h. Art. 6 Sec. 27, par.28
- VETO power of President to REVENUE bills
(particular item or items) made by the
Congress
i. Art. 8 Sec. 5 par. 2b9
- Power to review, revise, modify or affirm cases
involving the legality of ANY tax, impost,
assessment or toll or any penalty imposed.
j. Art. 10 Sec. 510 and Sec. 611
- Delegation of taxing power to the local
government.
k. Art. 14 Sec. 4(3 and 4)12
- NON-Stock, NON-Profit EDUCATIONAL
INSTITUTIONS are exempted to the
following taxes:
i. Real property taxes
ii. Income Tax
iii. Donors Tax
iv. Custom Duties
- PROVIDED, it is used ACTUALLY,
DIRECTLY and EXCLUSIVELY for
educational purposes.
l. TAX AMNESTY requires CONCURRENCE of
ALL majority members of the Congress
m. TAX TREATIES requires 2/3 of all members of
the majority of the Senate.
8 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
9 The Supreme Court shall have the POWER to review, revise, reverse,
modify or affirm on appeal or certiorari, as the law or the Rules of Court
may provide, final judgments and orders of lower courts in x x x all cases
involving the legality of any tax, impost, assessment, or toll or any
penalty imposed in relation thereto.
10Each local government unit shall have the power to creates 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 government
11Local government units shall have a just share, as determined by law,
in the national taxes which shall be automatically released to them.
12 (3) All revenues and assets of non-stock, non-profit educational
institutions used ACTUALLY, DIRECTLY and EXCLUSIVELY for
educational purposes shall be exempt from taxes and duties. Upon the
dissolution or cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively-
owned, may likewise be entitled to such exemptions subject to the
limitations provided by law including restrictions on dividends and
provisions for reinvestment
(4) Subject to conditions prescribed by law, all grants, endowments,
donations or contributions used actually, directly and exclusively for
educational purposes shall be exempt from tax
NOTES in TAXATION by TEP ABRENICA 5
Atty. Bonilla Discussion supplemented by Vitug Acosta book
II. Provisions INDIRECTLY Affecting Taxation
a. Art. 3 Sec. 413
- Tax is VIOLATIVE of freedom of speech and
press, if it was DELIBERATE and
CALCULATED device in the guise of a tax to
limit the circulation of information to which
the public is entitled in virtue of the
Constitutional guarantee.
- No business license is required before a sale
or distribution of printed materials because in
doing so, it will curtail the constitutional
guarantee of freedom of speech and of the
press.
b. Art. 3 Sec. 5 14
- FREE EXERCISE CLAUSE the basis for
the tax exemption granted to the religious
institutions.
- Religious institutions are tax exempted to
REAL PROPERTY TAXES however, they are
not tax exempted to:
i. INCOME realized from the productive
use of their properties, real or personal
ii. INCOME realized form profitable
business pursuit
iii. Passive income investments subject to
20% final withholding tax.
c. Art. 3 Sec. 10 15
- NON-IMPAIRMENT of CONTRACT Clause
- It DOES not apply to PUBLIC utility franchise
because the Constitution allows the Congress
to amend, alter or repeal when the common
good requires.
13No law shall be passed abridging the freedom of speech, of expression
or the press, or the right of the people peaceably to assemble and
petition the government for redress of grievances.
14 No law shall be made respecting an establishment of 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.
15 No law impairing the obligation of contracts shall be passed.

INTERPRETATION and
CONSTRUCTION of Tax Statutes
Tax statutes being construed STRICTLY against the
government
GEN. RULE: Tax Exemptions, amnesty and condonations
are NOT presumed and when granted, are STRICTLY
construed against the one claiming.
Because the law disfavored tax exemptions thus, the one
who claim must be able to justify his claim or right.
EXCEPTIONS: Tax exemptions are CONSTRUED
liberally in favor of the one claiming when:
i. When the law so provides for such liberal construction
ii. Exemptions from certain taxes granted under special
circumstances to special classes of persons;
iii. Exemptions in favor of the government, its political
subdivisions or instrumentalities; and
iv. Exemptions to traditional exemptees, such as those in
favor of religious and charitable institutions.
CERTAIN DOCTRINES in TAXATION
PROSPECTIVITY of TAX LAWS
Gen. Rule: Tax law must ONLY be imposed prospectively.
Except: Retroactively imposed if expressed by law.
IMPRESCRIPTIBILITY of TAXES, unless the tax law
provided for its prescription.
DOUBLE TAXATION taxing for the same tax period the
same thing or activity twice, when it should be taxed but
once, for the same purpose and with the same kind of
character of tax. --- NOT ALLOWED by LAW.
Power to TAX involves the Power to Destroy
THUS!
i. The power to tax must be exercised with caution to
minimize injury to the proprietary rights of a taxpayer;
iii.
ii. If the tax is lawful and NOT violative of any of the
inherent and constitutional limitations, the FACT alone
that it may destroy an activity or object of taxation
WILL not entirely permit the courts to afford any relief;
and
iii. Subject or object that may be destroyed by the taxing
authority may not likewise be taxed.
**** Organization of BIR . See codal! :D
NOTES in TAXATION by TEP ABRENICA 6
Atty. Bonilla Discussion supplemented by Vitug Acosta book
TITLE 1: Sec. 1 6, 15, 20 and 21; Title 12;
Who supervise and control the BIR?
- Department of Finance (sec. 2)
Officials of BIR (Sec.3)
(1) Commissioner of Internal Revenue
(2) Deputy Commissioner
General Powers of BIR: (sec. 2)
a. Comprehend the assessment and collection of all national
revenue taxes, fees and charges (tax remedies)
b. Enforcement of ALL forfeitures, penalties and fines
c. Execution of judgments in all cases decided in its favor by
Court of Tax Appeals.
d. To give effect to and administer the supervisory and police
power:
i. Have authority to make arrests and seizure (sec.
15)
- Provided, it is a violation of any penal law or
regulation administered by the BIR.
NOTE: only the Commissioner and other
officials to do such authority is
authorized, NO other person
unauthorized may do so.
ii. To administer oaths and take testimony in any
official matter or investigation conducted by them
within their jurisdiction (Sec. 14)
Powers of the BIR Commissioner:
i. To INTERPRET the tax laws, exclusive and original
jurisdiction, but subject to review by the Secretary of
Finance (sec.4)
ii. To DECIDE dispute settlements, refunds, charges, penalties
and other matters or other laws administered by BIR
subject to the exclusive appellate jurisdiction of Court of
Tax Appeals (Sec.4)
To OBTAIN information, to EXAMINE, SUMMON and to
take TESTIMONY of persons in ascertaining: (sec.5)
i. Correctness of return
ii. Liability of any person for tax
iii. Evaluating tax compliance
HOWEVER, even granted such power, Commissioner
has NO authority to inquire into bank deposits , except:
1. A DECEDENT to determine his GROSS estate.
2. Any TAXPAYER who has filed an application for
compromise of his tax liability by reason of
financial incapacity to pay his tax liability,
provided, he signs a waiver of his privilege under
Foreign Currency Deposit Act.

iv. To MAKE ASSESSMENT and PRESCRIBE additional
requirements for tax administration and enforcement
(Sec. 6)
1. Has the right to EXAMINE the RETURN and ASSESS
the correct amount of tax
2. Has the right to ORDER inventory taking of goods as
basis for determination of tax liabilities
3. Has the AUTHORITY to TERMINATE taxable period
when the taxpayer is
i. Retiring from business
ii. Intending to leave the Phils.
iii. Remove his property or to hide or conceal the
property
iv. Performing an act to obstruct the proceeding
for collecting taxes
4. Has the AUTHORITY to PRESCRIBE real property
values
5. Has the AUTHORITY to INQUIRE into Bank Deposit
accounts and other related information held by
Financial Institutions.
6. Has the AUTHORITY to ACCREDIT and REGISTER
tax agents
7. Has the authority of the commissioner to PRESCRIBE
the additional procedural or documentary
requirements.
v. To DELEGATE his powers to any subordinate officials.
vi. Has the AUTHORITY to enter into COMPROMISE, ABATE
and REFUND or CREDIT TAXES (Sec. 204)
Except:
i. When the basic tax involved is MORE than 1M
or settlement is below the prescribed
minimum rate, the Compromise shall be
subject to the APPROVAL of the Evaluation
Board (Commissioner and 4 deputy
commissioners)
vii. G.R. Has the power To Amend, modify, reversal or
revocation of RULES and REGULATION, if FAVORABLE
to the taxpayer (Sec. 246)
IF, it such changes will PREJUDICE the taxpayer, the rules
and regulation modified, changed, reversed or revoked
hhall have NON-RETROACTIVE application.
Exceptions: Retroactive application is allowed, WHEN
(1) Taxpayer DELIBERATELY misstates or omits material
facts from his return or any document required to him.
(2) FACTS subsequently gathered by BIR are materially
different from the facts on which the ruling is based; or
(3) Taxpayer ACTED in BAD FAITH (misrepresentation)
NOTES in TAXATION by TEP ABRENICA 7
Atty. Bonilla Discussion supplemented by Vitug Acosta book
Obligation of BIR Commissioner to CONGRESS: (sec.
20)
A. Submission of Pertinent information UPON REQUEST of
Congress and IN AID of LEGISLATION
Following are Pertinent information but Not limited to:
i. Industry audits
ii. Collection performance data
iii. Status reports in criminal actions against the
taxpayers return
*** such obligation (submission of pertinent information)
can ONLY be furnished in the appropriate Committee of
Congress when SITTING in EXECUTIVE SESSION unless
the taxpayer otherwise gives consent in writing to such
disclosure
B. REPORT to the Congressional OVERSIGHT Committee 16
on the exercise of the Commissioners power to
compromise, abate and refund or credit taxes, every 6
months of each calendar year. (sec. 20 and Sec. 204 last
paragraph)
SOURCES of NATIONAL REVENUE TAXES: (sec. 21)
(a) Income tax;
(b) Estate and donor's taxes;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(f) Documentary stamp taxes; and
(g) Such other taxes as are or hereafter may be imposed
and collected by the Bureau of Internal Revenue.
16 Title 12: Sec. 290: Congressional Oversight Committee.
A Congressional Oversight Committeeis hereby constituted in accordance
with the provisions of this Code. The Committee shall be composed of the Chairmen of
the Committee on Ways and Means of the Senate and House Representatives and (4)
additional members from each house, to be designated by the Speaker of the House of
Representatives and the Senate President, respectively.
The Committee shall, among others, in aid of legislation:
1) Monitor and ensure the proper implementation of Republic Act No. 8240;
2) Determine that the power of the Commissioner to compromise and abate is
reasonably exercised;
3) Review the collection performance of the Bureau of Internal Revenue; and
4) Review the implementation of the programs of the Bureau of Internal
Revenue.
In furtherance of the hereinabove cited objectives, the Committee is empowered to
require of the Bureau of Internal Revenue, submission of all pertinent information,
including but not limited to: industry audits; collection performance data; status report on
criminal actions initiated against persons; and submission of taxpayer returns: Provided,
however, That any return or return information which can be associated with, or
otherwise identify, directly or indirectly, a particular taxpayer shall be furnished the
Committee only when sitting in Executive Session unless such taxpayer otherwise
consents in writing to such disclosure
 NOTES in TAXATION by TEP ABRENICA 8
Atty. Bonilla Discussion supplemented by Vitug Acosta book

INCOME TAXATION REQUISITES of INCOME to be taxable:

(1) There must be a GAIN or PROFIT
FEATURES of Income Tax Law (2) The gain or profit must be REALIZED or RECEIVED,
actually or constructively
(1) PROGRESSIVE in nature by providing for graduated rates (3) The gain or profit must NOT be EXCLUDED by law or
of income tax. treaty from tax.

(2) Self-Assessment tax because it is the taxpayer who files
the income tax and determine the amount of such in the
return. (Ex. WITHHOLDING TAX)
(3) It is much SCHEDULAR tax treatment than GLOBAL tax
treatment.
Realization Principle NO income is derived by the
owner from an increase in value of the property until after
the actual sale or other disposition of the property in excess
of its original act.
Classifications of INCOME TAXPAYERS:

(4) It must be realized on RETURN on CAPITAL (Return of A. Individuals

Investment or KITA ) not a Return of Capital (puhunan)
1. Citizens
(5) Income payments are SUBJECT to WITHHOLDING TAX
System of collecting. a. Resident

- The ONE who gives the payment is legally obligated to b. Non-Resident

withhold the tax called the SUBSTITUTE FILING
TA SYSTEM because, the 1 liable for the tax is NOT i. Residing abroad physical presence abroad
the one who pays for the tax. with a definite intention to reside therein

*** CAPITAL can either be: (1) Human/ Labor; (2) Cash ii. Has an intention to reside abroad the
person leaves during taxable year to reside
- REQUISITES for Capital to be INCOME: abroad
-
i. There must be an exchange of value iii. Comes back and forth works and derives
ii. The exchanged value must be REALIZED income from abroad and by reason of
iii. It must come from expenditure of either employment requires him to be physically
human capital or wealth capital present abroad most of the time during the
taxable year (atleast 180 days)
INCOME CAPITAL
iv. Resides abroad and has an intention to go
- It is the AMOUNT of - It is the fund or tool for back to the Philippines previously
money coming to a the production of wealth. considered a non-resident and during taxable
person/corporation year to reside permanently in the Philippines.
within a specified time
whether as payment of 2. Aliens
services, interests, or
profits from investments a. Resident Aliens

- It is the FRUIT of capital, - It is the TREE or source b. Non Resident Aliens

labor, or both capital and
labor
- It is subject to income tax
- It is flow of service
rendered by capital or
labor
- All wealth that flows into
the taxpayer other than
mere return of capital,
which includes the result
of wealth or as a
substitute for money
value for something
permanently lost.
of income as a fruit
- It is NOT subject to
income tax
- CAPITAL is WEALTH
B. Corporations
- It is the statement of the
money value of the
property actually used by
the enterprise,
irrespective of the
persons who may have
contributed it.
i. Engaged in trade or business - it denotes
habitaulity or sustained activity; and
DEEMED such if the aggregate stay in the
Philippines exceeds 180 days for each
calendar year.
ii. Not engaged in trade or business
1. Domestic Corporations organized and existing under
the Philippines laws
2. Foreign Corporations
a. Resident Foreign Corporations engaged in trade
or business in the Philippines always have a
branch in the Philippines.
b. Non-resident Foreign Corporations not engaged
in trade or business in the Philippines no branch
but earns in the Philippines.
 NOTES in TAXATION by TEP ABRENICA 9
Atty. Bonilla Discussion supplemented by Vitug Acosta book

MEASURES of INCOME FLOW SCHEDULAR income

GLOBAL income taxation
A. CASH BASIS - considers as income that which is actually
or constructively received and as deduction that which is - A System which taxes ALL
actually paid. categories of income
except certain passive
Constructive receipt availability of the income, income and capital gains.
deemed received even without accepting physically. It prescribes a unitary but
progressive rate for the
B. ACCRUAL BASIS - income treats as part is already taxable aggregate income
earned although not yet actually/constructively received, and flat rates for certain
have already been incurred by the tax payer passive income.
taxation
- A system employed where
the income tax treatment
varies and is made to
depend on the kind or
category of taxable
income of the taxable. It
have a different rates.

ALL EVENTS tests of all the events and conditions - The total allowable - Separate returns are file
that will make the taxpayer liable or earn, then such deductions, personal and by the recipient of the
taxpayer is liable or earned such at the time happening additional exemptions are passive income.
of the events and conditions fulfilled. deducted from the gross
income.
WHERE to IMPOSE INCOME TAX?
- It is based on the - Income from different
(1) GROSS INCOME income tax is fixed or computed aggregate income from all sources are NOT
without allowable deductions sources that are not globalized, they are
subject to final income treated separately and are
Applicable to: tax. subject to different sets of
i. Compensation income earners graduated or flat income
ii. Non-Resident alien NOT engaged in trade or business tax rates.
iii. Special Aliens income earned in the Philippines - The globalized income is - It itemizes the different
iv. Non-Resident Foreign corporations subject to a unitary but incomes and provides for
progressive and varied rate are applied
- The FINAL tax is imposed on the GROSS amount of graduated rate of 0% to thereto. It has different
specifies types of income (such as interest, royalties, 32%. rates.
prize, dividend and capital gains) - Corporate taxpayers - Individual taxpayers
adopt this system at 30% follow this system. Their
(2) TAXABLE INCOME gross income LESS the deductions income from different
and/or personal exemptions. sources are classified and
treated differently. 5% to
Applicable to: 32%

i. Self-employed taxpayers in business or exercise of

profession; Citizens (Resident and Non-resident)
and Aliens (resident and non-resident engaged in
trade or business)
ii. Domestic Corporation
iii. Foreign Resident Corporation
iv. Special Corporation
- Where certain deductions are allowed and substracted
from the aggregate of income NOT to final tax and the
tax is computed on the resulting net income therefrom.
(3) FINAL INCOME TAX where INCOME tax is imposed:
i. Certain passive income
ii. Cash and Property Dividends
iii. Capital gains from sale of domestic shares of stocks
iv. Capital gains from sale of real properties classified as
capital assets located in the Philippines.
- Only income tax applicable to al types of taxpayers without
distinctions, which DOES not allow deductions, personal
and additional exemptions
- Applicable only to passive income and income sources
within the Philippines. It does not apply to sources without
the Philippines because Final income tax is SUBJECT to
FINAL WITHHOLDING TAX since there is no withholding
agent outside the Philippines, final income tax cannot be
imposed.
HOW to ANALYZE an INCOME tax PROBLEM?
STEP 1: Is it AN INCOME? If not, then it must be a Return OF
Captial, not taxable.
STEP 2: Who EARNED the income?
Step 3: Is it within or without the Philippines?
Step 4: What kind of Income? Is it Under the exclusion?
GROSS INCOME all income derived from whatever source
(legal or illegal), including but not limited to the following
items: (Sec. 32)
1. COMPENSATION for SERVICES in whatever form (arising
from employer-employee relationship)
2. Conduct of Trade or business or Exercise of Profession.
3. Gains from dealings in property (when the property was
sold)
4. Interests
5. Rents
6. Royalties (earning from Intellectual Property)
7. Dividends (from a share in a profit can be cash, stock or
property)
8. Annuities ( earnings from pension)
9. Prizes and Winnings (award; gambling winnings)
10. Pensions; and
11. Partners distributive share from the net income of the
general professional partnership.
 NOTES in TAXATION by TEP ABRENICA 10
Atty. Bonilla Discussion supplemented by Vitug Acosta book

The FOLLOWING are EXCLUDED17 from GROSS INCOME 7. MISCELLANOUS items

and are NOT subject to taxable net income nor to gross
compensation income: (Sec. 32 B) a. Income derived in investment in the Philippines in
loans, stocks, bonds or other domestic securities or
1. PROCEEDS of LIFE INSURANCE, payable upon the interest deposit BY
death of the insured to the heirs or beneficiaries
i. FOREIGN GOVERNMENT
Because it is considered an indemnity and it is only a ii. FINANCING INSTITUTIONS owned, controlled
return of capital. or enjoying refinancing from Foreign government
iii. INTERNATIONAL or REGIONAL financial
EXCEPT: (considered as gross income) INTEREST institutions established by foreign governments.
PAYMENTS if such amount are held by the insurer under
an agreement to pay interest b. Income derived by the Government or Political
Subdivisions FROM any public utility or exercise of any
2. AMOUNTS received as a RETURN of PREMIUM essential governmental functions accruing to the
paid under (1) Life insurance, (2) Endowment or (3) government or political subdivisions.
Annuity Contracts. During (a) the term, (b) maturity or (c)
surrender thereof. c. Prizes and Awards primarily in recognition of (1)
religious, (2) charitable. (3) scientific, (4) Educational
3. Value of Property acquired through GIFTS, (5) Artistic (6) Literary, or (7) civic achievement,
BEQUESTS and DEVISE because it is subject to ONLY if.
Donors tax.
i. Recipient SELECTED without any ACTION on his
However, INCOME derived to such property are part to ENTER the contest or proceeding
considered as Gross Income.
ii. Recipient is NOT REQUIRED to render
4. COMPENSATION and AMOUNT of DAMAGES substantial future services as a condition in
received for PERSONAL INJURIES or SICKNESS receiving a prize or award
(whether by Suit or by agreement) through (a) Accident or
health insurance or under (b) Workmens Compensation d. Prizes and Award in SPORTS COMPETITION (non-
Acts. professional or amateur) local and international, held
in the Philippines or abroad and sanctioned by the
5. Income EXEMPT under treaty National Sports Association.

6. Certain RETIREMENT, BENEFITS, PENSION,
Gratuities, etc
a. RETIREMENT BENEFITS received by public and
private officials and employees, provided employee
i. Worked at least 10 years of service
ii. Not less than 50 years old at the time of retirement
iii. Availed by the employee once
iv. Approved retirement plan of the employer.
b. Separation pay due to (1) death, (2) sickness, (3)
physical disability, or (4) any cause beyond the control
of the employee or official
**Separation pay due to resignation it is subject to tax.
c. Social Security benefits, retirement gratuities, pensions
and other similar benefits, RECEIVED by Citizens
(Resident and non-resident), and Resident Aliens
FROM FOREIGN government agencies and other
institutions, private or public.
d. Benefits received by ANY person residing in the
Philippines from USA Veterans Adminsitration.
e. SSS and GSIS Benefits
e. GROSS Benefit received by employees and officials
(private and public), PROVIDED, total exclusion will
NOT EXCEED P30,000.00 which shall cover:
i. Annual Christmas bonus benefits for government
employees and officials(RA 6686)
ii. 13th Month pay, Private entities (PD 851)
iii. 13th Month pay, Public entities
iv. Other benefits ( Productivity Incentives and
Christmas Bonus) provided a Ceiling of
P30,000.00.
f. GSIS, SSS, Medicare, and OTHER contributions
(Union dues of individuals
g. GAINS realized from SALE or EXCHANGE or
RETIREMENT bond, DEBENTURES or other
certificate of indebtedness with maturity of more than
5 years.
h. GAINS from REDEMPTION of SHARES of STOCK in
MUTUAL FUND

17
Exclusions refer to items that are NOT included in the
determination of GROSS INCOME because either

i. They represent return of capital or are not income, gain or

profit
ii. They are subject to another kind of tax
iii. They are income, gain or profit that are expressly exempt from
income tax under any law.
 NOTES in TAXATION by TEP ABRENICA 11
Atty. Bonilla Discussion supplemented by Vitug Acosta book

ORDINARY ASSETS property held by the taxpayer in the

pursuit of his profession or trade or business.

HENCE! ANY GAINS (consideration received by the taxpayer

LESS his cost of acquisition or market value if gratuitously
acquired) is REPORTED as ORDINARY BUSINESS
INCOME.

CAPITAL ASSETS are property held by taxpayer whether or

not connected with his trade or business but NOT used
in trade or business.

Capital assets is NOT: (Sec. 39)

(1) Stock in trade or other property held by the taxpayer in the

inventory of the taxable year (Ex. Supplies of the business;)

(2) Property held by the taxpayer for sale to customers in the

ordinary course of his trade or business.

Requirements:
a. Property must be held for SALE
b. Property must be held for sale to CUSTOMERS
c. Property must be sold in the ORDINARY COURSE of
taxpayers trade or business

(3) Property used in the trade or business subject to

depreciation (Sec. 34 Subsec. F)
(4) Real Property used in trade or business of the taxpayer

** if the CAPITAL ASSET is sold.. it is a CAPITAL GAIN

income.

**** SALE or EXCHANGE of CAPITAL ASSETS

2 Conditions must CONCUR:

1. There must be a SALE or EXCHANGE

2. What is SOLD or exchanged is a Capital Asset.

INCOME TREE (refer to table 1 below)

PASSIVE
INCOME

ACTIVE
CAPITAL
INCOME
GAINS
INCOME

CAPITAL
 NOTES in TAXATION by TEP ABRENICA 12
Atty. Bonilla Discussion supplemented by Vitug Acosta book

TABLE 1: 3 types of Inc ome

3 TYPES OF INCOME ACTIVE INCOME PASSIVE INCOME CAPITAL GAINS
The income from the sale or exchange of the
DEFINITION Where the taxpayers get his livelihood NOT the main source of livelihood
taxpayers capital assets.

(1) Compensation Income - income arises (1) Interest (1) Capital gains on Real Property
from employer-employee relationship (2) Dividend (2) Stock transaction tax from shares of
(3) Royalties Stock
- CONTROL TEST control the means and (4) Prizes and Awards
TYPES of INCOME
the result of the Work
covered
- If does not qualify it is either no. 2 or 3

(2) Practice of profession

(3) Trade or business.

In CAPITAL GAIN TAX, there is NO

(a) Creditable Withholding tax (CWT)
withholding tax
used in Compensation income
How WITHHOLDING of
(a) Final Withholding Tax
Tax Made? In STOCK TRANSACTION TAX, there is
(b) Expanded Withholding tax (EWT) -
withholding, and the withholding agent is the
used in practice of profession or for
stock broker
trade or business.

Classification of Taxpayer is NEEDED due to
difference of tax imposition.
Tax is IMPOSED on?
***If INDIVIDUAL Gross Taxable Income
*** If CORPORATION Taxable Income
NO classification of taxpayer is needed No classification of taxpayer is needed because
because the income is taxed on GROSS the income is taxed on the GROSS INCOME.
INCOME.

Gen. Rule: Taxable Income on All Citizen

and Alien and Domestic and Foreign
Corporation

BASIS of INCOME TAX Except: Gross Income on

Gross Income Gross Income
a. NON-Resident Alien Not engaged in
business or trade;
b. Non- Resident Foreign Corporation NOT
engaged in business or trade.
 NOTES in TAXATION by TEP ABRENICA 13
Atty. Bonilla Discussion supplemented by Vitug Acosta book

TABLE 2: TABLE OF INCOME TAXPAYER

SYSTEM of Income
MEASURES OF INCOME FLOW
INCOME TAXPAYER SOURCES OF INCOME BASIS of Income Tax Taxation
(Time frame of income flows)
(Active Income)
A. INDIVIDUAL
1. CITIZENS
a. Resident Within and without
CASH BASIS TAXABLE INCOME
b. Non-resident within Measure of income is within 1 SCHEDULAR
basis
2. ALIEN calendar year TAXATION
a. Resident Within (Jan. 1 - Dec. 31) (5 32%)
b. Non-resident engaged in within
trade or business
c. Non-resident NOT engaged within
GROSS INCOME basis
in trade or business
B. CORPORATION
ACCRUAL METHOD
1. DOMESTIC Within and without measure of income is either
TAXABLE INCOME GLOBAL
2. FOREIGN Calendar year (Jan Dec) or
basis TAXATION (30%)
Fiscal Year ( period of 12 months
a. Resident Foreign within
not ending December)
b. Non-resident Foreign within GROSS INCOME basis

When is a NON-Resident Alien DEEMED engaged in trade or business?

- The NON-resident alien shall come to the Philippines and STAY for an aggregate period of more than 180 days during any calendar.
 NOTES in TAXATION by TEP ABRENICA 14
Atty. Bonilla Discussion supplemented by Vitug Acosta book

PASSIVE INCOME(P.I) B. P.I. For CORPORATION except

GENERAL RULE: In both Individual and Corporation, a tax i. Non-Resident Foreign Corporation NOT
rate of 20% on final tax imposed on Passive income. engaged in trade or business (NRFCnot)
Gen. Rule 30% of the gross income of all income
For INDIVIDUAL For CORPORATION from within the Philippine except capital gains from
(sec. 24 B 1) (Sec.27 D 1) sale of shares of stock not traded.
(1) Interest (1) Interest on Currency deposit
(2) Royalties bank EXCEPT: (sec. 28 B 5)
(3) Prizes (2) Interest on any other
(4) Other Winnings monetary benefit from deposit a. Interest on Foreign Loans - 20%
(5) Dividends received substitutes and trust funds
by Non-resident (3) Other similar arrangements b. Inter - corporate Dividends from Domestic
alien engaged in (4) Royalties Corporations 15% , PROVIDED, The country
trade or business (5) Inter- corporate dividends in which NRFCnot, is domiciled allow a tax
credit against tax due from the NonRes.Foreign
EXCEPTION: Corp. to have been paid in the Philippines for
15% (Tax Sparring Rule)
A. P.I. For INDIVIDUALS except to
1. DOMESTIC CORPORATION (Sec. 27 D)
i. NON-resident Alien Not engaged in Trade or
business. 25% of Gross income (sec. 25 B) a. INTEREST income derived from DEPOSIT tax
rate of 7 %
i. INTEREST income received by an INDIVIDUAL from a
FOREIGN CURRENCY DEPOSIT UNIT (FCDU) 7.5 % b. Interest income derived by DOMESTIC Bank from
FCDU with (sec. 27 D 3)
ii. Interest income received from LONG-TERM deposit for i. NON-Resident Foreign Bank Tax
5yrs. or more Tax exempt ii. Off-Shore Banking Unit /OBU exempt
iii. INTEREST income received from LONG-term deposit c. Interest income from FOREIGN currency loan
or investment for 5 yrs but PRE TERMINATES the granted by the DOMESTIC depository bank to
deposit or investment before the 5th year RESIDENT FOREIGN Corp. tax rate of 10%

4 yrs to less than 5yrs. 5% d. Inter-corporate DIVIDENDS - dividends received

3 yrs. to less than 4yrs. 12% by a domestic corporation from another domestic
less than 3 yrs. 20% corporation Tax exempt

iv. DIVIDENDS received by INDIVIDUAL from 2. RESIDENT FOREIGN CORPORATION

(Sec. 28 A 7)
i. DOMESTIC corporations a
ii. RESIDENT FOREIGN a. Interest income derived from local depository bank
corporations under FCDU -- tax rate of 7 %
Tax rate of
iii. Distributable NET income after
tax of a partnership, association, 10% b. Interest income from DEPOSIT under FCDU or
joint account or joint venture or OBU with NON-Resident Foreign transaction tax
consortium exempt

v. ROYALTIES on: c. Interest income from Foreign currency to

RForeign and Domestic transaxtion with OBU
i. Books tax rate of 10%
ii. Other Literary works Tax rate of
iii. Musical composition 10% d. Intercorporate DIVIDENDS received by the
RForeign Corporation from a Domestic corporation
vi. Prizes amounting to TAX EXEMPT

P10,000 or less tax rate of 5% C. Any INCOME of NON-RESIDENTS (whether

MORE than 10K, 20%. Individual or Corporation) from transactions with
DEPOSITARY BANK under the expanded system shall
vii. WINNINGS in PCSO and LOTTO TAX Exempt. be TAX EXEMPT from income tax. ( Sec. 28 A 7 last
Paragraph)

CAPITAL GAINS
2 ASSETS subjected to CAPITAL GAINS TAX:
1. Real Estate Property
2. Shares of Stock (DIVIDENDS18)
RULE:
Cash dividends and Property Dividends are TAXABLE
income
As a GEN.RULE: Stock dividends are NOT taxable
because it is NOT an income but enrichment through
increase in value of capital investment
EXCEPT: Share of Stock --- Stock Dividends are
TAXABLE when they are SOLD or exchanged, thus
making it a CASH DIVIDEND, which is taxable (Sec. 73
b of NIRC)
GENERAL RULE: (sec. 24 C and D; Sec. 27 D 2 and5)
A. Sale or Exchange of REAL PROPERTY - FINAL
tax of 6% on EITHER, whichever is higher (regardless
of gains or loss)
i. GROSS SELLING PRICE
ii. FAIR MARKET VALUE to be determined
by either: (a) BIR; (b) City Assessor
B. Sale or Exchange of SHARES OF STOCKS in
domestic corporations (Stock dividends cancelled or
redeemed and distributed Sec. 73B)
(1) LISTED and TRADED (sold) in the Stock Exchange
- final tax of .05% stock transfer tax on the selling
price or fair market value. (to be withhold by the
Stock broker)
(2) NOT listed and traded in the Stock exchange final
tax of
5% - if not over P100,000
10% -in excess of P100,000
ex. P 150,000 capital gain
(5% of 100,000) = is P5, 000 +
(10% of 50,000) = is 5,000
= total capital gains tax to be paid is 10K
C. Other Capital Gains (Holding Period Rule)
50% - Capital asset has been held for more than 12
months (more than 1 yr)
100% - if capital asset has been held for less than
12months (less than 1 yr)
18 DIVIDENDS a distribution made by a corporation to its
shareholders out of its earnings or profits and payable to its shareholders,
whether in money or in other property.
NOTES in TAXATION by TEP ABRENICA 15
Atty. Bonilla Discussion supplemented by Vitug Acosta book
EXCEPTIONS: TAX exempt ( Sec. 24 D 2; Sec.40 C 2)
A. SALE of PRINCIPAL RESIDENCE property
- Capital Gains are PRESUMED to have been
realized. THUS! No Capital Gains tax is imposed.
REQUISITES:
i. Certification from the Barangay that it is the
RESIDENCE of the taxpayer.
ii. PROCEEDS of the sale are USED for acquiring
a NEW principal residence within 18 months (1
year ) from the date of the sale or
disposition
iii. NOTICE to the Commissioner within 30 days
from the date of the Sale or disposition
iv. Availed ONLY of once every 10 years.
B. MERGER or CONSOLIDATION of Corporations
(Sec. 40 C2) NO capital GAIN or LOSS.
1. Statutory Merger the acquiring corporation
acquires ALL the Stocks of target corporation the
acquiring gets all the assets and liabilities SEC
registered and creates a new corporation.
2. Quasi-merger/De Facto - the acquiring corporation
acquires only 80% of the assets no SEC
registration is required and NO new corporation is
made BUT in effect the target corporation is
dissolved. The acquiring corporation only acquires
the assets Not the liabilities.
3. GAINS CONTROL of 51% of VOTING stocks by
more than 5 voting stocks OBTAINED by not more
4 persons buying the voting shares.
C. BUILDINGS as CAPITAL ASSETS of a Resident
Foreign Corporation, IF SOLD are subject to
ACTIVE INCOME tax at 30% NOT capital gain tax
because foreigners cannot OWN land.
 NOTES in TAXATION by TEP ABRENICA 16
Atty. Bonilla Discussion supplemented by Vitug Acosta book

ACTIVE INCOME (3) Fringe Benefit (Sec. 33 C NIRC)

For INDIVIDUAL a. Authorized and exempted from tax under special

laws;
GEN. RULE: (WAGE19)All remuneration for SERVICES b. CONTRIBUTIONS of the employer FOR the benefit
performed in cash or in kind are taxable income of the employee to RETIREMENT, INSURANCE
at the FOLLOWING RATES: (Sec 78A) and HOSPITALIZATION benefit plans;
AMOUNT of Income TAX rate c. Given to RANK and FILE employee and
Less than 10,000 5%
500 + 10% of the excess over d. Fringe Benefit given to MANAGERIAL
10,000 to 30,000
10K Employees that is FOR the CONVENIENCE or
more than 30,000 to 2,500 + 15% of the excess over ADVANTAGE of the EMPLOYER
70,000 30K
More than 70,000 to 8,500 + 20% of the excess over e. Tax exempt FOR THE EMPLOYEE because it is the
140,000 70K EMPLOYER who PAYS (*BUT taxable to the
More than 140,000 to 22,500 + 25% of the excess over employer*) Fringe benefits given to managerial
250,000 140K employee NOT for the convenience or advantage of
More than 250,000 to 50K+ 30% of the excess over the employer.
500,000 250K
125K + 32% of the excess over B. 32% gross monetary value22 of the FRINGE Benefit
Over 500,000
500K for the MANAGERIAL employee PAYABLE by the
EMPLOYER. and NOT for the CONVENIENCE of the
EXCEPTIONS: employer

A. Tax EXEMPTED *** the 32% tax payable by EMPLOYER

(1) FOLLOWING are not considered as Remuneration
paid (Sec. 78 A NIRC Sec, 33 A & C, Labor Law ):
a. AGRICULTURAL LABOR paid entirely in products
of the farm where the labor is performed;
b. DOMESTIC SERVICE in a private home; (katulong)
c. CASUAL LABOR NOT in the COURSE of the
employers trade or business
d. SERVICES by a citizen or resident of the
Philippines for a foreign government or an
international organization
e. MINIMUM WAGE EARNERS20
(2) DE MINIMIS Benefits21 NOT exceeding 30,000
given to ALL employees for productivity and good will;
19Sec. 78 A: Wages means all remuneration for services performed by
an employee for his employer, including the cash value of all
remuneration paid in any medium other than cash
*** TAX exempt Managerial employee benefitting
Fringe Benefits any good, services or other benefit
furnished or granted in cash or in kind by an
employer to its managerial employees BUT not
limited to the FOLLOWING:
(1) Housing
(2) Expenses Account
(3) Vehicle of any kind
(4) Household personnel (maid, driver & 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 fee, dues and other expenses borne
by employer for the employee in social and
athletic clubs or other similar organizations.
(7) Expenses for foreign travel
(8) Holiday and Vacation expenses
(9) Education Assistance to the employee or his
dependents; and
(10) Life or Health insurance and other non-life
insurance premiums or similar amounts in excess
of what the law allows.

20 Sec. 23 HH: shall refer to a worker in the private sector paid the C. 25% gross income Non-Resident Alien Individual NOT
statutory minimum wage, or to an employee in the public sector with engaged in Trade or Business within the Philippines
compensation income of not more than the statutory minimum wage in (Sec.25B)
the non-agricultural sector where he/she is assigned.

21 De Minimis Benefits includes:

(a) MONETIZED unused VACATION LEAVE credits NOT exceeding 10
days during the year (govt or private employees)
(b) MEDICAL CASH allowance to dependents of employees
(c) RICE SUBSIDY of 1,500 or 1 sack of 50kg rice per month
amounting not more than 1,500
(d) UNIFORMS and CLOTHING allowance not exceeding 4K per
annum
(e) MEDICAL BENEFITS not exceeding 10K per month
(f) LAUNDRY allowance not exceeding 300 per month
(g) Employees Achievement Awards
(h) GIFTS given during Christmas and major ANNIVERSARY
celebrations NOT exceeding 5K per annum and per employee
(i) Flowers, fruits, books or similar items given to employees under
special circumstance (ex. Baby, illness, marriage)
(j) Daily MEAL ALLOWANCE for overtime work not exceeding 25% of
the basic minimum wage.
If the EMPLOYER pays more than the ceiling imposed, ANY EXCESS
shall be TAXABLE to the employees receiving the benefits.

D. 15% income tax on ALIEN and CITIZEN employed BY:
i. by Multinational Companies in their
a. Regional or Area Headquarters and
b. Regional Operating Headquarters
ii. by Offshore Banking Units
iii. by Petroleum Service Contractor and Subcontractor
SPECIAL CIRCUMSTANCES:
MARRIED individuals (Sec. 24 A 2 par. 2)
Gen. Rule: Compute SEPARATELY their individual
income tax based on their respective income
Except: If ANY of their income cannot be
definitely attributed to or cannot be identified as
income exclusively earned or realized by either spouse,
the same shall be DIVIDED EQUALLY between the
spouses for the purposes of determining their
respective taxable income.
MEMBERS of General Professional Partnership (sec.
26)
Business partners are LIABLE only for their income tax
ONLY in their SEPARATE and INDIVIDUAL capacities.
Each partner must REPORT as his GROSS INCOME his
distributive share, actually or constructively received, in
the NET income of the partnership.
HOW to DETERMINE the GROSSED-UP VALUE of the
FRINGE BENEFIT?
1st: Determine the Grossed-up Market Value (GMV)
GMV = Actual Monetary Value
.68
2nd: Determine the Grossed-up value of the Fringe Benefit
(GVFB)
GVFB = GMV
(100% - applicable income tax rate)
NOTES in TAXATION by TEP ABRENICA 17
Atty. Bonilla Discussion supplemented by Vitug Acosta book
For CORPORATION
NOTE: Services rendered IN THE PHILIPPINES are taxable
subject to withholding tax BUT services rendered
OUTSIDE in the Philippines (email email lang) NOT
taxable.
The 1M services payment to Tangy company ARE
TAXABLE because the services are rendered and
performed in the Philippines.
CHARLEZ is the withholding agent, so he is LIABLE to
WITHHOLD 30% tax rate of the services payment to
TANGY corpo. FAILURE to do so:
i. Charlez CANNOT deduct the 1M as tax expense
ii. BIR will still collect 300K withholding tax to
Charlez corp.
=//=//=//=//=//=//=//=
FOLLOWING are the ACTIVE Income Taxable
under Corporation:
A. Regular Corporation Income Tax (RCIT) - 30%
B. Minimum Corporate Income Tax (MCIT) 2% on gross
value
C. Improperly Accumulated Earning Tax (IAET) 10%
D. Branch Profit Remittance Income Tax (BPRIT) 15% -
ONLY applicable to NResForCorp.
=//=//=//=//=//=//=//=
A. REGULAR CORPORATION INCOME TAX (RCIT)
GEN. RULE: All income received by the Corporations are
taxable at 30%
i. Domestic Corp. all sources of income within and
without the Philippines
ii. RES.Foreign Corp. all income ONLY within the
Philippines.
EXCEPTION:
for NON-RESIDENT CORPORATION
a. 7.5% of gross income on NON-RESIDENT Owner
or Lessor of Aircraft, Machineries and other equipment
(Sec.28B4)
b. 25% of gross income on NON-RESIDENT
Cinematographic Film owner, lessor or distributors
(Sec. 28B2)
c. 4.5% of gross income on NON-RESIDENT owner or
lessor of vessels chartered by Philippine National (Sec.
28B3)
d. INTER-CORPORATE DIVIDENDS from
DOMESTIC corporations 15% subject to the
condition: That the country in which the
NonRes.For.Corp. is DOMICILED ALLOWS a TAX
CREDIT from the NRFnot domiciled in the Philippines
equivalent to 30% reduced in the corporate income tax
(TAX SPARRING RULE)

for DOMESTIC Corp. or RESDIDENT For. Corp.
a. TAX EXEMPT :
(1) ALL GOCCs, Government Agencies or
Instrumentalities (Sec. 27 C)
Exceptions: taxable at 30% tax rate (gen.rule)
i. GSIS iv. Pag-ibig
ii. SS v. MWSS
iii. PHILHEALTH vi. PCSO
(2) Regional or Area Headquarters23 of
Multinational Companies (Res. For. Corp. )
Sec. 28 A 6a
(3) Income derived by OBU from foreign currency
transactions with Non-Resident Foreign
Corp., other OBU, Domestic Bank (Sec. 28 4)
(4) Income of NON-RESIDENT foreign
corporation from transactions with OBU
(Sec. 28 A 4 2nd par.)
(5) Organizations that are tax exempt, UNLESS,
the income of whatever kind and character of the
foregoing organizations from any of their
properties, or from any of their activities conducted
for profit regardless of the disposition made of such
income, shall to tax imposed under this Code. (sec.
30)
a. Labor, agricultural or horticultural
organization NOT organized for profit;
b. Mutual Savings bank NOT having a capital
stock represented by shares
c. Cooperative bank without capital stock
organized and operated for mutual purposes
and without profit
d. Beneficiary society, order or association,
operating for the exclusive benefit of the
members (ex. Non-stock corp. organized by
employees providing for the payment of life,
sickness, accident or other benefit exclusively
to the member)
e. Cemetery company owned and operated
exclusively for the benefit of its members.
f. NON-STOCK corporation or association
organized and operated exclusively for
RELIGIOUS, CHARITABLE, SCIENTIFIC,
ATHLETIC or CULTURAL PURPOSES or
Rehabilitation of veterans where NO net
income or asset inure to the benefit of any
member, organizer, officer or any specific
person.
23 Sec. 22 DD: Regional or Area Headquarters shall mean a
BRANCH established in the Philippines by multinational companies and
which headquarters DO NOT EARN or DERIVE INCOME from the
Philippines and which acts as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches in the
Asia-Pacific Region and other foreign market.
NOTES in TAXATION by TEP ABRENICA 18
Atty. Bonilla Discussion supplemented by Vitug Acosta book
g. Business league, chamber of commerce or
board of trade NOT organized for profit and
NO part of the net income inures to the benefit
of any private stockholder or individual.
h. Civic league or organization NOT organized for
profit BUT operated exclusively for the
promotion of social welfare.
i. Non-Stock and Non-profit educational
institution
j. Government Educational Institution
k. Farmers or other mutual typhoon or fire
insurance company, mutual ditch or irrigation
company, mutual or cooperative telephone
company or the likes which income consists
solely of assessments, dues, and fees collected
from members for the sole purpose of meeting
its expenses.
l. Farmers, fruit growers or like association
organized and operated as a sales agent for the
purpose of marketing the products of its
members and turning back to them the
proceeds of sale, less the necessary selling
expenses on the basis of quantity of produce
finished by them.
HOWEVER numbers a t0 l ANY INCOME for
whatever character and kind from their properties
or any activity conducted for profit is SUBJECT
to INCOME TAX at 30%.
b. 10% tax rate
(1) NON- PROFIT Proprietary Educational
Institutions24 and Hospitals, provided, the
gross income from UNRELATED trade, business or
other activity25 DOES NOT EXCEED 50% of the
total gross income of ALL sources. (Sec. 27 B)
However, if the UNRELATED trade, business or
other activity EXCEED 50% of the total gross
income of all sources the NON-profit proprietary
educational institutions and hospitals be subjected
to GEN. RULE tax rate 30%
(2) Regional Operating Headquarters26 of
Multinational Companies (Res. Foreign Corp)
Sec. 28 A 6b
24 Proprietary Educational Institution any private school
maintained and administered by private individuals or groups with an
issued permit to operate from CHED.
25Unrelated trade, business or other activity- any trade, business
or other activity conduct of which is not subsidiarily related to the
exercise of performance by such educational institution or hospital of its
primary purpose and function.
26 Sec. 22 EE: Regional Operating Headquarters shall mean a
branch ESTABLISHED in the Philippines by multinational companies
which are engaged in any of the following services: general administration
and planning; business planning and coordination; sourcing and
 NOTES in TAXATION by TEP ABRENICA 19
Atty. Bonilla Discussion supplemented by Vitug Acosta book

Carry-over of EXCESS Minimum Tax ANY excess of the

(3) 2.5% tax rate on the Gross Philippine Billings
International Carrier (Res. Foreign Corp)
a. International Air Carrier (Sec. 28 A 3a)
Gross Philippine Billings for international Air
Carrier refers to the AMOUNT of gross revenue
derived from carriage of persons, excess baggage,
cargo and mail
MCIT over the RCIT shall be CARRIED forward and
credited against the RCIT for the 3 immediately
succeeding taxable years (staggered or in bulk)
*** if NO RCIT occurred within 3 immediate succeeding, the
carry-over EXCESS will be waived.
EXAMPLE:

i. ORIGINATING from the Phils. in a continuous

and uninterrupted flight, irrespective of the
place of sale or issue and place of payment of
the ticket or passage document, provided,
tickets revalidated, exchanged and/or indorsed
to another international airline, if the
passenger boards a plane in a PORT or POINT
in the PHILIPPINES.

ii. In cases of STOP OVER to ANOTHER

COUNTRY --- a flight ORIGINATES from the
PHILIPPINES but TRANSHIPMENT of
passenger takes place at any port outside the
Philippines on another airline ONLY the
ALIQUOT PORTION of the COST of the
TICKET corresponding to the leg flown form
the Philippines to the point of transshipment.
b. International Shipping(Sec. 28 A 3a)
Gross Philippine Billings for International
SHIPPING means gross revenue whether for
passenger, cargo or mail ORGINATING from the
Philippines up to the FINAL DESTINATION,
regardless of the place of sale or payments of the
passage or freight documents.
B. MINIMUM CORPORATE INCOME TAX (MCIT)
WHEN can MCIT be SUSPENDED?
- When Corporation SUFFERS LOSSES due to:
1. Prolonged labor dispute
2. Force Majeure
3. Legitimate Business Reverses.
WHO are the Corporations EXEMPTED for MCIT: are the
CORPORATION who are EXEMPTED from MCIT are
also the Corporation exempted fro RCIT (at 30% tax
rate)
HOW is MCIT computed? 2% of the Gross income of the
corporation is the MCIT.
Gross Income mean gross sales LESS sales returns,
discounts and allowances and Cost of Goods/Services sold27

Applicability: Domestic Corp. and Resident Foreign Corp.

TAX IMPOSED 2% of the gross income AT of the end of the

taxable year WHEN(Sec.27 E & Sec. 28 A 2)

REQUISITES:

i. Imposed on a Corporation BEGINNING on the 4th

taxable year immediately following the year in which
such corporation commenced its business operations.
ii. MCIT is GREATER than RCIT computed of the
preceding year. (MCIT > RCIT)
NOTE: Ordinary income tax is based on taxable
income wherein from the Gross sales less direct
cost, indirect cost of goods and allowable
deductions
WHEN MCIT be IMPOSED to a Corporation?
- When the Corporation has ZERO or NEGATIVE taxable
income (MCIT>RCIT)
*** According to Atty. Bonilla, MCIT is imposed when the
corporation is PALUGI or at LOSS because even in such
condition, BIR can still collect income taxes.
EFFECT of MCIT>RCIT: taxpayer will ONLY pay the MCIT tax

procurement of raw materials and components; corporate finance

advisory services; marketing control and sales promotion; training and
personnel management; logistic services; research and development 27Cost of Goods/Services ALL direct costs all business expenses
services and product development; technical support and maintenance; DIRECTLY incurred to produce the merchandise to bring them to their
data processing and communication; and business development. present location and use.

C. IMPROPERLY ACCUMULATED EARNINGS TAX
(IAET) Sec. 29
IAET is APPLICABLE: to every CORPORATIONS formed or
availed for the purpose of avoiding the income tax with
respect to its shareholders or the shareholders of ANY
other corporations, by PERMITTING EARNINGS and
PROFITS to accumulate instead of being divided or
distributed. (in short, profits are undistributed.)
Tax RATE IMPOSED: 10% of the improperly accumulated
taxable income.
WHEN is it DEEMED improperly accumulated
earnings? It is an UNREASONABLE accumulated
earning and NOT necessary for the purpose of the
business.
WHEN is it DEEMED reasonable needs for the
business? TEST to determine if IAET applicable
- Immediacy test - reasonable needs of the business
meant as the immediate needs of the business, including
anticipated needs, to prove the accumulation of the
earning and profits.
- If NO PROOF the accumulation is deemed improper
and be subject to 10% of the IAET.
HENCE!!!! For a Corporation be NOT subjected to IAET, it
should justify an accumulation of earnings and profits
for the reasonably anticipated future needs, such
accumulation must have been used within a reasonable
time after the close of the taxable period.
FOLLOWING constitute a REASONABLE accumulation of
Earnings for the NEEDS of the business:
a. Allowance for the increase in the accumulation of earnings
up to 100% of the paid-up capital of the corporation.
b. Reserved for corporate expansion projects or programs
requiring considerable capital expenditures
c. Reserved for the building, plants or equipment acquisition
d. Reserved for the compliance of any loan or pre-existing
obligation under legitimate business agreement
e. Earning required by law to be retained.
FOLLOWING Corporations are EXEMPTED to IAET:
i. Publicly-held corporations;
ii. Banks and other Non-bank financial intermediaries;
iii. Insurance Companies
iv. Taxable Partnership
v. General Professional Partnership
vi. Non-Taxable Joint Venture
vii. Enterprises Registered in PEZA
*** imposition of IAET is in the NATURE OF PENALTY
because it is a form of deterrent to the avoidance of tax
upon shareholders who are supposed to pay dividends tax
on the earnings distributed to them by the corporation but
avoid such tax, they decided not to distribute the shares.
NOTES in TAXATION by TEP ABRENICA 20
Atty. Bonilla Discussion supplemented by Vitug Acosta book
DETERMINING Factors if a Corporation it to be covered by
IAET:
A) Prima Facie Evidence any corporation is a mere holding
company or investment company
B) Evidence determinative of Purpose earnings or profits
of a corporations are PERMITTED to accumulate beyond
the REASONABLE NEEDS of the BUSINESS28 unless
proven to the contrary of preponderance of evidence.
Improperly Accumulated taxable income (Sec. 29D) IS taxable
income adjusted by:
i. Income exempted from tax;
ii. Income excluded from gross income;
iii. Income subject to final tax; and
iv. Amount of net operating loss carry-over deducted;
And REDUCED by the sum of:
i. DIVIDENDS actually or constructively paid; and
ii. Income tax paid for the taxable year.
D. BRANCH PROFIT REMITTANCES INCOME TAX
(BPRIT)
WHO is liable: ONLY applicable to RESIDENT FOREIGN
Corporations WITH Branch in the Philippines.
WHEN is it Applicable? When the BRANCH in the
Philippines REMITS any PROFIT to its head office.
Tax IMPOSED: 15% on the TOTAL profits applied for
earmarked for remittance without any deductions for
the tax component thereof SENT abroad.
WHAT kind of PROFITS subjected theret? PROFITS connected
with the conduct of its TRADE or BUSINESS in the
Philippines REMITTED ABROAD by a local branch to
its mother company, it includes the FOLLOWING:
1. Interests
2. Dividends (received from Domestic Corporation)
3. Rents
4. Royalties.
WHO are EXEMPTED for BPRT?
- RESIDENT Foreign Corporaiton registered with
Philippine Economic Zone Authority (PEZA)
Example:
28Sec. 29 E: Reasonable Needs of the Business these are the
reasonably anticipated needs of the business.
 NOTES in TAXATION by TEP ABRENICA 21
Atty. Bonilla Discussion supplemented by Vitug Acosta book

DEDUCTION FROM GROSS INCOME PERSONAL EXEMPTIONS and

ADDITIONAL EXEMPTIONS (Sec.35 NIRC)
GEN.RULE: Deductions are STRICTLY construed against the
tax payer Applicability: ONLY applicable to INDIVIDUALS earning income
from compensation, trade or business or practice
THUS!!! The one who claims MUST point the specific of profession.
provision and PROVE that he is entitled to such.
WHO are ENTITLED to Personal and Additional
EXCEPTIONS: LIBERAL construction, if the tax laws expressly Exemptions?
mention the deductions
a. CITIZENS
TYPES of DEDUCTIONS:
b. RESIDENT ALIENS
a. Personal Exemptions and Additional Exemptions
c. NON-RESIDENT Aliens engaged in trade or business,
b. Allowable Deductions provided:
1. Itemized Deductions
2. Optional Standard Deductions i. The COUNTRY of the NonResAlien allows personal
3. Special Deduction exemptions to the citizen of the Philippines
(Reciprocity Rule)
ITEMS not DEDUCTIBLE (Sec. 36)
ii. There is a CLAIM for the exemptions
1. Personal, living or family expenses
As a RULE: SAME amount of the exemption
2. Any AMOUNT PAID out for NEW buildings or for granted by the other country
permanent improvements, or betterments made to increase
the value of any property or estate (Capital EXCEPT: LESSER amount of the exemption
Expenditures) granted either by the other country or by
the Philippines.
3. Amount expended in restoring property or in making good
the exhaustion thereof for which an allowance is or has been ** Other COUNTRY AMOUNT when the
made (capital Interest) Philippine offers a greater amount of the
exemption.
4. PREMIUM PAID on any life insurance policy covering the
life of any employee or officer or any person, where in the ** Philippine Amount- when the other countrys
taxpayer is directly or indirectly a beneficiary unde such amount of exemption is higher.
policy.
A. BASIC PERSONAL EXEMPTIONS Php 50,000 for
5. LOSSES from SALES or EXCHANGED directly or indirectly each individual taxpayer
between:
*** It is intended to substitute a personal and living
a. Between Members of the FAMILY, these include the FF: expense. It is roughly equivalent of the taxpayers
i. Brother minimum subsistence and those of his dependents.
ii. Sister
iii. Spouse APPLICABLE to:
iv. Ancestors
v. Lineal Descendants i. SINGLE individual

b. Between INDIVIDUAL and CORPORATION more than ii. MARRIED but LEGALLY Separated
50% in value of the outstanding stock is owned directly
or indirectly EXCEPT in stock distribution in liquidation iii. EACH married individuals, if only 1 spouse
derives income, then such 1 spouse is entitled to
c. BETWEEN 2 Corporation is more than 50% in value of personal exemption.
the outstanding stock which is owned, directly or
indirectly EXCEPT in stock distribution in liquidation

d. Between GRANTOR and FIDUCIARY of any trust

e. Between FIDUCIARY of any trust and the Fiduciary of

another trust if the same GRANTOR to each trust; or

f. Between FIDUCIARY of a TRUST and BENEFICIARY of

such trust
 NOTES in TAXATION by TEP ABRENICA 22
Atty. Bonilla Discussion supplemented by Vitug Acosta book

B. ADDITIONAL EXEMPTION for DEPENDENTS - Php ALLOWABLE DEDUCTIONS

25,000.00 for EACH dependent not exceeding 4.
What is DEPENDENT? REQUIREMENTS:
(1) Any STATUS of the CHILD
(2) UNMARRIED but not more than 21 yrs.old
Except: more than 21 yrs. old may be a dependent if
has MENTAL or PHYSICAL defect, or
INCAPABLE of Self-Support
(3) LIVING WITH the tax payer
(4) Chiefly DEPENDENT upon the tax payer and NOT
gainfully employed.
However, the child may be EMPLOYED, provided,
50% of his living is dependent to his parents.
WHO can CLAIM?
a. Any SINGLE parent, who lives with the dependent
b. MARRIED COUPLE, but only 1 spouse can claim
exemption:
o As a RULE: the HUSBAND are the proper claimant
UNLESS he explicitly waives his right in favor of his
wife.
o IF only 1 spouse is employed or earning income, the
1 who is employed or earning can claim such
exemption
o If the other spouse is a NON-Resident Citizen, the
spouse earning income in the Philippines can claim.
Applicability: (1) Corporation
(2) Individual engaged in trade, business or
Profession
NOTE:
Individual and Corporation MAY ELECT what KIND of
SYSTEM of deduction it will apply.
Election of 1 waives the other to use the system for the
taxable year it was elected.
A. OPTIONAL STANDARD DEDUCTIONS (OSD)
- Standard deduction in an amount NOT exceeding 40%
of the Gross Sales or Receipts (Individual) or Gross
Income (Corporation)
WHO is ENTITLED to OSD?
(1) INDIVIDUAL except Non-Resident Alien
(2) CORPORATE subject to RCIT except Non-Resident
Foreign
EFFECT of the OSD:
The ONE who opted for OSD cannot avail the
itemized deductions, it deemed waived it rights to
OSD
OSD application is irrevocable for the year it was
made
Amount of deduction is LIMITED only to 40% of the
taxpayers gross sales or receipt or gross income.
B. ITEMIZED DEDUCTIONS (sec. 34A1)

CIRCUMSTANCE: CHANGE OF STATUS a. Business or Professional Expense

b. Allowable Deductible expense for PRIVATE
STATUS AT-THE-END-OF-THE-YEAR Rule - whenever EDUCATIONAL INSTITUTION
c. INTEREST as deductible
is the status of the taxpayer at the end of the calendar
d. TAXES
year shall be used for the purpose of determining his e. BAD DEBTS
personal and additional exemptions. The change of f. LOSSES
status that benefits that tax payer, but does not g. CHARITABLE and other CONTRIBUTIONS
prejudice will be followed for the exemption claim h. PREMIUM PAYMENTS on Health and/or
Hospitalization INSURANCE of an Individual Tax payer
EXAMPLE: i. DEPRECIATION
j. DEPLETION of Oil and Gas Wells and Mines
o If A marries within 2012, he can still claim his personal k. Research and Development
exemptions as single for Php 50,000.00 l. Pension Trusts.

o If As wife bore a child within 2012, A can claim the

additional exemption for dependent (25K) for the year 2012

o If As dependent died within 2012 A can still claim the

25K BIR will treat the death of the dependent happened the
following taxable year 2013.
 NOTES in TAXATION by TEP ABRENICA 23
Atty. Bonilla Discussion supplemented by Vitug Acosta book

1.) BUSINESS OR PROFESSIONAL EXPENSE 2.) ALLOWABLE DEDUCTIBLE EXPENSE FOR

PRIVATE EDUCATIONAL INSTITUTION
Conditions for Deductions:
(1) Business Expense ordinary and necessary; AND
a. Must be ORDINARY29 and NECESSARY30 expenses
(2) OPTION to deduct either:
b. Paid or incurred during the taxable year
a. Deduct EXPENDITURES as capital outlays of
c. Directly attributable to the development, management depreciable assets incurred during the taxable year
or operation and/or conduct of trade or business or for EXPANSION of the school facilities; or
profession of the tax payer
b. Deduct ALLOWANCE for DEPRECIATION
d. Supported by adequate invoice or receipts
3.) INTEREST Expense AS DEDUCTIBLE
e. Not contrary to law, public policy or morals.
CONDITIONS for DEDUCTIONS:
The FOLLOWING are Ordinary and Necessary Expenses:
a. There must be INDEBTEDNESS31
i. SALARY, Wages and other FORMS of
COMPENSATION, includes Fringe benefit NOT for b. There is an INTEREST expense paid or incurred upon
the convenience of the employer. such indebtedness

ii. Travel Expenses c. Indebtedness MUST be that of the TAXPAYER

iii. Rentals and other payment as required as a d. Such was DUE IN CONNECTION with the taxpayers
condition for the continued use or possession of trade or business or profession.
property
e. Interest expense must have been INCURRED or PAID
iv. Entertainment, Amusement and Recreation
during the taxable year.
expenses DURING TAXABLE year that are directly
connected to the development, management or
operation of the trade or business or profession f. It must have been in WRITING, if NOT it is VOID. (aRt.
1956 NIRC)
FOLLOWING are not Ordinary and Necessary Expenses:
g. It must be LEGALLY DUE
i. Expenses incurred for Entertainment, Amusement
or Recreation that is CONTRARY to law, morals, WHAT is the AMOUNT of INTEREST EXPENSE to be
public policy or public order. deductible?

ii. Bribes, Kickbacks or other similar payments made
directly or indirectly to an official or employee.
SUBSTANTIVE REQUIREMENTS for the deductions be
allowed, the claiming taxpayer MUST SUFFICIENTLY
provide for EVIDENCE of receipt or records for the
a. AMOUNT of expenses being deducted
- Interest amount to be deductible MUST BE REDUCED
by an amount equal to 33% of the interest income
earned which had been subjected to FWT on the YEAR
when the interest income was earned.
NOTE: this also SERVES as LIMITATION to interest
expense deductible

b. DIRECT connection of the expense deducted to the INTEREST EXPENSES to ACQUIRE property
development, management, operation and/or conduct Optional Treatment, either as:
of trade or business or profession.
(a) Interest expense DEDUCTION; or
(b) CAPITAL expenditures

29 Ordinary Expenses connotes a payment which is normal in

relation to business of the taxpayer and surrounding
circumstances.

30 Necessary Expenses expenditure is appropriate or helpful in the

development of the taxpayers business or that the same is 31 Indebtedness something owned by the taxpayer who is obligated or
proper for the purpose of realizing a profit or minimizing loss. bound to pay.
 NOTES in TAXATION by TEP ABRENICA 24
Atty. Bonilla Discussion supplemented by Vitug Acosta book

FOLLOWING are NOT considered INTEREST expense 4.) TAXES

DEDUCTIBLE:
Gen. Rule: ALL taxes, national or local, PAID or ACCRUED
i. IF within the taxable year the taxpayer INCURRED
indebtedness reported in the Income on cash basis
such incurred interest paid is considered ADVANCE
--- such interest expenses will be credited as
deductible on the YEAR the INDEBTEDNESS was Exception: Tax paid that Cannot be DEDUCTED
paid.
a.
ii. If the Interest was AMORTIZED, the principal
amortized amount PAID is allowed to be deducted b.
on the year the principal amount was paid.
c.
iii. If the taxpayer and the person whom Interest was
paid are RELATED as: d.
Between MEMBERS of the family, there
include the ff. (a) brother/sister; (b) spouse; (c)
e.
Ancestors; (d) Lineal Descendants
f.
Between INDIVIDUAL and CORPORATION
more than 50% of the value of the outstanding
stock is owned directly or indirectly EXCEPT in
STOCK DISTRIBUTION in liquidation
Between 2 Corporations more than 50% in
value of the outstanding capital stock which is
owned, directly or indirectly
Between GRANTOR and FIDUCIARY of any
trust
during the TAXABLE YEAR in connection with
trade or business or profession are deductible
from gross income.
Philippine Income Tax
Estate Tax
Donors tax
Taxes assessed against local benefits of a kind tending to
increase the value of the property assessed (special
assessments)
Consumption Tax (ex. Electric energy)
FOREIGN INCOME TAX unless the tax payer
(individual or corporation) DOES NOT make use of the
TAX CREDIT privilege
TAX CREDIT Privilege - to credit the foreign income
tax against the Philippine income tax to an
AMOUNT NOT EXCEEDING:
i. The PROPORTION of the Phil. Income Tax
DUE to which the taxpayers net income in th
foreign country beats to his entire taxable
income.

Between FIDUCIARY of any trust and the
FIDUCIARY of another trust if the same person
is a GRANTOR to each trust; or
APPLICABILITY of TAX PAID deduction:
Between FIDUCIARY of a Trust and
BENEFICIARY of such trust.
iv. Indebtedness incurred to FINANCE Petroleum
Exploration
v. Interest on Indebtedness incurred or continued to
purchase or carry obligations the interest in which
tax exempt.
vi. Interest incurred to acquire property USED in trade
or business or profession and was TREATED
CAPITAL EXPENDITURE
ii. The SAME PROPORTION which the taxpayers
taxable net income from sources without the
Philippine bears to his entire net income.
GEN. RULE: ALL taxes incurred by an Individual and
Domestic Corporation within and without Sources of
tax.
Exception: Taxes are deductible ONLY up to the extent
that is CONNECTED with the income from SOURCES
within the Philippines
a. NON-RESIDENT ALIEN engaged in Trade or
Business in the Philippines; and
b. RESIDENT FOREIGN Corporation

5.) BAD DEBTS32
Requisites:
1. There is a VALID and SUBSISTING DEBT
2. It is CONNECTGED with the taxpayers Trade or
Business
3. Debt incurred is NOT BETWEEN the following
parties:
a. Between INDIVIDUAL and CORPORATION
more than 50% in value of the outstanding stock
is owned directly or indirectly
b. Between 2 Corporation more than 50% in value
of the outstanding stock which is owned, directly
or indirectly
c. Between GRANTOR and FIDUCIARY
trust
d. Between FIDUCIARY of any trust and the
FIDUCIARY of another trust if the SAME person
is a GRANTOR to each trust; or
e. Between FIDUCIARY of a trust
BENEFICIARY of such trust.
4. ACTUAL ascertainment that the Debt is worthless.
5. The DEBT is CHARGED-OFF within the taxable year
NOTE: UNCOLLECTED INCOME can ONLY BE COLLECTED
as a BAD DEBT when the AMOUNT was earlier been
reported as INCOME in the taxable year it was
incurred on accrual basis.
*** TAX BENEFIT RULE recovery of BAD DEBTS/TAXES
previously allowed as deduction in the
preceding year(s) shall be INCLUDED as a
part of the taxpayers gross income in the year
of such recovery to the extent of the income
tax benefit of said deduction
32 Bad Debts refer to those debts resulting from the worthlessness or
uncollectibility, in whole or in part of amounts due the
taxpayer by others, arising from money lent or from
uncollectible amounts of income from good s sold or
services rendered.
NOTES in TAXATION by TEP ABRENICA 25
Atty. Bonilla Discussion supplemented by Vitug Acosta book
6.) LOSSES
KINDS of Losses:
(a) ORDINARY losses33
(b) CAPITAL losses deductible only in CAPITAL assets
(c) Loses from WASH SALES of Stock or Securities (sec. 38
NIRC)
(d) WAGERING losses deduction only allowed UP to the
extent of the gains to such transactions
(e) ABANDONMENT losses deduction to ALL
accumulated expenses for exploration and development
expenditures to the contract of petroleum operations
where abandoned, ONLY to the contract income; same
to Contract of producing wells.
of any NET OPERATION LOSS CARRY-OVER (NOLCO) - The
NET OPERATING LOSS34 of the business or
enterprise for ANY taxable year shall be CARRIED
over as a DEDUCTION from gross income for the
NEXT 3 CONSECUTAIVE taxable years immediately
following the year of such loss.
HOWEVER, any NET LOSS incurred in a taxable year
and
during which the taxpayer was EXEMPT from income
tax shall NOT BE ALLOWED as a DEDUCTION
ALSO, No NOLCO when the next succeeding year
also incurred Net Operating Loss.
33CLASSIFICATION of ORDINARY LOSSES:
a. Incurred in a TRADE or BUSINESS;
b. Incurred in ANY transactions entered into for PROFIT, although
NOT connected with trade or business;
c. CASUALTY LOSES that arises from fire, storm, shipwreck or
other casualty or from theft or robbery even though not connected
with the trade or business of the taxpayer.
REQUISITES for ordinary losses be deductible:
(1) Must be ACTUAL LOSS
(2) Must be SUSTAINED in a closed and completed transaction
(3) Must NOT BE COMPENSATED for by INSURANCE or otherwise
(4) Must be LIQUIDATED and CHARGED-OFF during the taxable
year
(5) Must have been INCURRED
a. In the business, trade or profession
b. If NOT in the course of business, trade or profession LOSS
was DUE to
i. Casualty (fire or storm or the like)
ii. Robbery or Theft or Embezzlement
NOTE: PROOF of LOSS in cases of CASUALTY or ROBBERY or THEFT
or EMBEXXLEMENT: Submission of declaration of loss
WITHIN 30 90 days from the date of discovery of the loss
arising to such.
34 Net Operating Loss means the excess of allowable deduction over
gross income of the business in a taxable year.

APPLICABILITY OF NOLCO:
(1) INDIVIDUAL engaged in TRADE or BUSINESS or
PROFESSION
(2) CORPORATION provided, NO SUBSTANTIAL CHANGE
in the ownership of the business or enterprise
What are CONSIDERED NO SUBSTANTIAL CHANGE
in the ownership?
a. NOT less than 70% of nominal outstanding issued
shares held in the name of the corporation is held by
the SAME PERSON, by or in behalf
b. NOT less than 75% of the paid up capital of the
corporation, held in the name of the corporation, is held
by or on behalf of the same person.
NOTE:
NOLCO cannot be assigned or transferred to another person,
UNLESS otherwise provide by BIR Regulations.
If there are ALLOWABLE CHANGES to the ownership,
NOLCO can still be applied.
FOR CORPORATION: there are 2 carried over amount to
be DEDUCTED to the tax amount to be paid, these
are: MCIT & NOLCO
7.) CHARITABLE AND OTHER CONTRIBUTIONS
Gen. Rule: Amount DEDUCTIBLE as charitable and other
contribution expense are limited ONLY to:
10% of the taxable income by INDIVIDUAL
derived in trade or business or profession.
5% of the taxable income by CORPORATION
derived in trade or business.
Allowed CHARITABLE CONTRIBUTION to be deducted are
the FOLLOWING:
a. Philippine GOVERNMENT or POLITICAL Subdivision
for PUBLIC PURPOSE
b. Accredited DOMESTIC Corporations or Associations
organized and operated, where NO PART of the NET
INCOME INURES to the benefit of any private
stockholder or individual (non-stock, non-profit
corporation or organization), the FOLLOWING are:
i. Religious
ii. Charitable
iii. Scientific
iv. Youth and Sports Development
v. Cultural or Educational Purposes
vi. Rehabilitation of Veterans
vii. Social Welfare Institution
viii. NGOs
NOTES in TAXATION by TEP ABRENICA 26
Atty. Bonilla Discussion supplemented by Vitug Acosta book
Exception: Contribution DEDUCTIBLE in FULL are
DONATIONS given to
(a) Government or any of its Agencies, Political
Subdivisions, GOCCs. Provided, contributions made
EXCLUSIVELY to FINANCE or to be USED in
undertaking PRIORITY activity according to NEDAs
annual priority plan.
IF the CONTRIBUTION is NOT for the priority
plan of NEDA Gen. RULE will apply.
(b) Foreign Institutions or International
Organizations Provided, contributions is in
PURSUANCE to COMPLIANCE of agreements, treaties
or commitments entered into by the Government and
the foreign or international Organizations or in special
law
IF not in accordance to the agreements entered
- Gen. RULE will apply.
(c) Accredited NGOs provided
(1) the level of administratively expense, annual
basis DOES not exceed 30% of the total
expense
(2) they are NON-PROFIT Domestic corporation,
organized and operated exclusively for
scientific research, educational, character
building, youth and sports development,
health, social welfare, cultural or charitable
purposes. And
(3) NO part of the NET INCOME inures to the
benefit of any PRIVATE individual.
8.) PREMIUM PAYMENTS ON HEALTH AND/OR
HOSPITALIZATION INSURANCE OF AN
INDIVIDUAL TAX PAYER amount of premiums NOT
exceeding Php 2, 400.00 per family or Php 200.00 a
month paid during a taxable year, provided, the family has a
gross income of Php 250,000.00 for the taxable year.
*** In case of MARRIED TAXPAYERS, such deductions can
ONLY be claimed by the SPOUSE who claims additional
exemption for dependents.
9.) DEPRECIATION35 as deductible expense, reasonable
allowance for the exhaustion, wear and tear and
obsolescence of property used in the trade or business or
profession.
10.) DEPLETION OF OIL AND GAS WELLS AND MINES
11.) RESEARCH AND DEVELOPMENT incurred within the
taxable year connected to with the taxpayers trade or
business or profession.
12.) PENSION TRUSTS maintained by the taxpayer for the
payment of reasonable pensions to his employees.
35 Depreciation the gradual diminution in the useful value of tangible
property resulting from wear and tear and normal
obsolescence.
 NOTES in TAXATION by TEP ABRENICA 27
Atty. Bonilla Discussion supplemented by Vitug Acosta book

TAX REMEDIES I. GOVERNMENT TAX REMEDIES

I. GOVERNMENT ASSESSMENT

A. ADMINISTRATIVE REMEDIES Power of BIR to ASSESS

1. ASSESSMENT FAILURE to FILE RETURN will NOT prevent the

Commissioner from authorizing the examination of
2. COLLECTION any Taxpayer for tax deficiency

Ways/MEANS to Collection: Return, Statement or Declaration filed in BIR

cannot be WITHDRAWN but can be MODIFIED,
a. Tax Lien CHANGED or AMENDED within 3 years from
b. Distraint on Personal Property the date of filing, provided the taxpayer had NOT
c. Levy on Real Property received NOTICE for AUDIT or INVESTIGATION.
d. Garnishment on Bank Deposits
e. Sale of Propery IF, taxpayer was able to RECEIVE notice
f. Forfeiture for audit or investigation, the taxpayer has
g. Compromise NO right to modify, amend or change the
h. Abatement filed Return.
i. Penalties and Fines
j. Suspension of Business Operations Purpose of PRE-ASSESSMENT Notice:
to give the taxpayer a CHANCE to submit
B. JUDICIAL REMEDIES position paper and documents TO PROVE
that assessment is UNWARRANTED.
1. CIVIL ACTION
When TERMINATION LETTER be
a. Collection of Sum of Money (RTC or CTA) ISSUED?
i. When TAX deficiency is PAID
b. Filing of ANSWER to the Petition for Review immediately after investigation
filed by the taxpayer in CTA ii. Deficiency assessment is paid
AFTER issuance of the pre-assessment but
2. CRIMINAL ACTION filing of Estafa cases and before issuance of final assessment notice
other offenses as provided by NIRC iii. Deficiency assessment is paid
within 30 days from issuance of assessment
II. TAXPAYER notice and letter of demand.

A. ADMINISTRATIVE REMEDIES ASSESS means TO CHARGE with a tax, TO DECLARA a tax

to be payable, TO FIX or SETTLE a sum to be paid by
1. PROTEST way of tax.
2. CLAIM for TAX REFUND
3. CLAIM for TAX CREDIT Assessment (Assessment of Tax) a written notice to a
4. PRESCRIPTION (to be raised through Protest) taxpayer to the effect that the amount stated
therein is due as a tax and containing a demand
B. JUDICIAL REMEDIES for the payment within a prescribed period and
delivered and received by the taxpayer.
1. Appeal in CTA and S.C.
NOTE:
C. SUBSTANTIVE REMEDIES Assessment is the PRELIMINARY step and ESSENTIAL to
destraint or levy and to establish a cause for judicial action.
1. Questioning the Validity of Tax Ordinance
2. Non-Retroactivity of Ruling If there is NO assessment there is NO obligation on the
3. Examination of Books of Accounts made ONLY part of the taxpayer enforceable to an action to pay tax
once every taxable year deficiency.
4. Notice of Did not institute the legal and factual
bases of assessment Assessment DETERMINES the tax liability of a taxpayer ---
as soon as the assessment is sent and received by the
taxpayer, the obligation arises on the taxpayer to pay the
amount assessed and demanded.

Assessment of tax should NOT be based on MERE

presumptions.
 NOTES in TAXATION by TEP ABRENICA 28
Atty. Bonilla Discussion supplemented by Vitug Acosta book

What CONSTITUTE a VALID ASSESSMENT?(contents) When ASSESSMENT is NOT REQUIRED, in cases of

FILING a criminal action for tax evasion within 10 years after
1. Details of TAX LIABILITY with computation discovery of falsity, fraud or omission.
2. It must state DEMAND to pay within a prescribe period
3. ADDRESSED to the Taxpayer . Because, the criminal offense of tax evasion is grounded on the
4. It must state Amount tax Due KNOWLEDGE of the taxpayer that he has made an inaccurate
5. Date of ISSUANCE return. (Ungab vs. Cusi)
6. It must be RELEASED, MAILED or SENT to the
taxpayer within 3 years prescriptive period. COLLECTION
7. It must be RECEIVED by the tax payer.
A. ADMINISTRATIVE REMEDIES
RATIONALE for importance of the details above
o Delivery and Receipt of the Assessment Notice: Ways/MEANS to Collection OF taxes:
- because of DUE PROCESS, such requirement will
ENABLE the tax payer determine his remedies. a. Tax Lien
b. Distraint on Personal Property CANNOT be availed if
o Demand to Pay within a PRESCRIBE period c. Levy on Real Property the tax amount is less
- Because, it determines when Penalties, Fines and than 100php (sec. 205)
d. Garnishment on Bank Deposits
Surcharges to be imposed. e. Sale of Propery
f. Forfeiture
o Date of Issuance g. Compromise
- Because, it determines the PERIOD of prescription h. Abatement
i. Penalties and Fines
HOW to DISPUTE a TAX ASSESSMENT? j. Suspension of Business Operations

a. FILE a REQUEST for RECONISDERATION or
REINVESTIGATION within 30 days from receipt;
b. File a FORMAL PROTEST; and
c. Within 60 days from filing of the Protest, ALL relevant
supporting documents shall have been submitted,
otherwise the assessment becomes final and executory.
TAX LIEN (Sec 219) is a legal claim as security in default
of the payment of tax, charge, interest and cost on ALL
LEVIABLE property and rights to property of the taxpayer.
*** rights to property - includes products of the
property (such as insurance proceeds of property)

***Assessment made is PRESUMED to be CORRECT WHEN LIEN attaches?

(Presumption of Correctness) that the basis of the assessment
are all true and actual facts and made in good faith by the BIR
Assessor.
*** BURDEN of PROOF is upon the Taxpayer who claims
assessment is erroneous and claiming of relief.
JEOPARDY ASSESSMENT (sec. 6 B) when the BIR can
assess a taxpayer based on OTHER tax payers records.
*** HOW to DETERMINE the proper Tax Liability?
Best Evidence rule
When is Best evidence Rule Applicable:
a. When the report or record requested to the
taxpayer is LOST;
b. When the taxpayer REFUSES to submit
the report or record requested;
c. When the record or report submitted by
the taxpayer are FALSE, INCOMPLETE or
ERRONEOUS.
*** Assessment is NECESSARY for proper pursuit of judicial and
extrajudicial remedies to enforce taxpayers liabilities and the
application of statutes of limitations and in the establishment of
tax liens.
From the TIME the Commissioner made
ASSESSMENT, service of warrant of distrait
and levy until PAID with interest, penalties and
costs
WHEN is LIEN binding or valid?
In cases against Mortgagee, purchaser or
judgment creditor, Until NOTICE of LIEN be
filed by the Commissioner in the office of Register
of Deeds of the province or city where the property
of the taxpayer is situated or located.
EXTINGUISHMENT OF TAX LIEN:
a. By PAYMENT or remission of the tax
b. By PRESCRIPTION of the right of the government to
assess or collect tax
c. By FAILURE to FILE NOTICE of Lien in the Register of
Deeds as against mortgagee, purchaser or judgment
creditor
d. By DESTRUCTION of the property subject of the lien.

Assessment is REQUIRED in the FOLLOWING cases:

i. DEFICIENCY taxes for failure to file a Return or filing a
false or fraudulent return
ii. When Tax Period (when taxes to be paid) is
TERMINATED
 NOTES in TAXATION by TEP ABRENICA 29
Atty. Bonilla Discussion supplemented by Vitug Acosta book

DISTRAINT on PERSONAL PROPERTY- is the seizure 5. Taxpayer to PERFORM any act tending to
by the government of personal property, tangible or OBSTRUCT the proceedings for collecting of tax
intangible, to enforce the payment of taxes, to be followed by due or may be due to him.
its public sale, if the taxes are not voluntarily paid.
HOW constructive distraint be effected?
2 Kinds of Distraint:
The BIR to send a NOTICE or WARRANT of
a. ACTUAL Distraint there is a taking of possession Constructive distraint to the delinquent OR not
of personal property out of taxpayer into that of the delinquent taxpayer.
government. (sec. 207 208)
Contents of the Notice or Warrant:
b. CONSTRUCTIVE Distraint the owner is merely i. Property to be distrained
prohibited from disposing of his property (sec. 206) ii. Obligating the taxpayer to preserve the
property, intact and unaltered AND NOT
Actual Distraint Constructive Distraint to dispose the same in any manner without
the express authority of the Commissioner.
Made on the property of Made on the property of
Delinquent tax payer Delinquent taxpayer or REMEDY of the Revenue officer WHEN the taxpayer
NOT delinquent tax REFUSES or FAILS to SIGN the receipt of Constructive
payer. Distraint:

Taking of possession
Effected by leaving a list
of the property or by
service of warrant of
distraint
Taxpayer is merely Revenue officer shall PREPARE a LIST of such
prohibited from disposing property, in the presence of 2 witnesses, leave a
of his property copy in the premises where the property distrained
is located. after such the property is deemed
It is effected by requiring under constructive distraint.
the taxpayer to sign a
receipt of the property or
by revenue officer
preparing and leaving a
list of such property.

ACTUAL Distraint (sec. 207-208)

Requisites:
1. Taxpayer must be delinquent in payment of tax
2. There must be subsequent demand for its
payment
3. Taxpayer FAILS to pay the delinquent tax at
the tax time required
4. The period to collect tax has not yet prescribed.
WHO has the AUTHORITY to issue WARRANT of
Distraint?
Commissioner or his duly authorized
representative - amount involving is > 1M
Revenue District Officer - amount involves <1M
NOTE: the authority of the Commissioner or his duly
authorized representative and Revenue District Officer
is SUBJECTED to the rules and regulation promulgated
by the Sec. of Finance.
CONSTRUCTIVE Distraint (sec. 206)
CASES when NOTICE or WARRANT of Constructive
distraint be ISSUED to a delinquent or not delinquent
taxpayer: (Sec. 206)
1. RETIRING from any business subject to tax
2. Intending to LEAVE the Philippines
3. Taxpayer intends to REMOVE his property
4. Taxpayer intends to HIDE or CONCEAL his
property
LEVY on REAL PROPERTY a summary administrative
remedy, refers to the act of seizure of real property in order
to enforce the payment of taxes.
*** Same as DISTRAINT, the property may be sold at public
auction after seizure when the tax are not voluntarily paid.
HOW Levy of Real Property be EFFECTED?
1. Expiration of Time required to pay the delinquent
tax, and the tax payer refuses or failed to pay the tax
due. (sec. 207)
2. Commissioner or duly authorized, real property of
the delinquent tax payer may be LEVIED upon,
before, simultaneously or after the distraint of
personal property. (sec. 207)
3. The Authorized officer to PREPARE a duly
AUTHENTICATED CERTIFICATE showing the
name of the taxpayer and amounts of tax and
penalty due and the description of the property to
be levied upon. (sec. 207)
4. WRITTEN NOTICE of LEVY shall be MAILED to or
SERVED upon the (1) Register of Deed of the
province or city where the property is located and

upon (2) Delinquent taxpayer or his agent or
manager of the business in respect to which liability
arose or if none, the occupant of the property in
question. (sec. 207)
5. Within 10 days after receipt of the warrant of the
taxpayer, the levying officer SHALL submit a
REPORT on the LEVY to the Commissioner or his
duly authorized representative. (sec. 207)
**** the COMMISSIONER has the AUTHORITY to
LIFT Warrant of Levy issued. (sec. 207)
NOTE: Remedy of Distraint and levy may be REPEATED if
necessary UNTIL the full amount tax due and expenses is
collected. (Sec. 217)
Distraint Levy
Refers to personal Refers to real property
property FORFEITURE of
NO-forfeiture of government is authorized
government allowed There is a right of
NO right of redemption to redemption granted to the
the tax payer taxpayer.
***Gen. Rule: Warrant of Distraint and/or Levy as
proof of finality of Assessment it renders hopeless a
request for reconsideration of the tax assessment and being
tantamount to a denial or rejection of such reconsideration.
GARNISHMENT on BANK DEPOSITS BIR to freeze
the bank account for deposit
SALE of PROPERTY (levied or Distrained)
SALE OF PROPERTY DISTRAINED (Sec. 209)
PROCEDURE of SALE of Property Distrained:
1. Commissioner to RECOMMEND for the SALE of
the Property Distrained.
2. Revenue District Officer will exhibit NOTICE of
SALE and ARTICLES Distrained in 2 public places
in the municipality or city where the distraint was
made.
NOTES in TAXATION by TEP ABRENICA 30
Atty. Bonilla Discussion supplemented by Vitug Acosta book
**** one place of posting should be made at the
Office of the Mayor of the City or municipality in
which the property was distrained
Contents of Notice:
i. Property Distrained and to be subjected to
Sale
ii. Time and Place of Sale
**** TIME of SALE is after 20 days after (1) notice
to the owner or possessor of the property and (2)
publication or posting of such notice.
3. PUBLIC AUCTION -- Officer will SELL the goods,
chattel, effect or other personal property including
stocks and other securities to the HIGHEST bidder
for CASH or LICENSED COMMODITY or STOCK
EXCHANGE with approval of the Commissioner.
**** In cases of Stocks and other Securities the
Officer will issue BILL of SALE to be delivered to
the buyer, and copy to furnish the corporation or
company or association issuing the stocks or other
securities. --- in turn will issue the required
certificates to the buyer.
CAN the GOVERNMENT Purchase the Distraint
Property subjected to Sale? (Sec. 212)
YES, the Commissioner or his deputy may purchase
the property in BEHALF of the National
Government for the amount of tax, penalties and
cost due WHEN the amount of bid is
i. NOT equal to the amount of the tax; or
ii. Amount bid is vey much less than the
actual market value of the articles offered
for sale.
**** Property purchased may be resold by the
Commissioner or his deputy, the net proceeds shall
be remitted to the National Treasury and accounted
for as internal revenue.
DISPOSITION OF PROCEEDS (Sec. 209)
Residue shall be returned to the owner of the
property sold.
Expenses Chargeable upon seizure and sale only
covers the ACTUAL expenses of seizure and
preservation of the property pending the sale, and
NO charge shall be imposed for the services of the
local internal revenue officer or his deputy
WHAT is the other REMEDY of the BIR, if the Distraint
property is INSUFFICIENT to satisfy the tax
delinquency?
(Sec. 207) The Commissioner or duly
authorized representative shall WITHIN 30
days, proceed with the LEVY of the
taxpayers real property.

Procedure of SALE of LEVIED Real Property
(Sec. 213)
1. Within 20 days after levy, the levying officer shall
cause to ADVERTISE the Property or a usable
portion as necessary to satisfy the claim and cost of
sale;
2. ADVERTISEMENT shall be for a period of
ATLEAST 30 days.
Through:
a. POSTING a notice at the MAIN entrance of the
municipal building or city hall
b. POSTING a notice in a PUBLIC conspicuous
place in the barrio or district in which the real
property is located; and
c. PUBLICATION once a week for 3 weeks in a
newspaper of general circulation in the
municipality or city where the property is
located.
FORFEITURE (under Sec. 224) a divestiture of property
Contents of Advertisement:
i. Statement of the amount of taxes and
penalties due
ii. Time and place of sale
iii. Name of the taxpayer
iv. Description of the property sold.
PLACE of Sale:
i. At the main entrance of the municipal building
or city hall where the property is locared; or
ii. On the Premises to be sold.
NOTE: At Anytime of the BEFORE the day of
the sale, the taxpayer may pay the tax due,
penalties and interest to DISCONTINUE the
sale. If he fails to do so, the PUBLIC AUCTION
will be held.
**** Failure to comply with the requirements
for advertisement will make the PUBLIC SALE
VOID. (Serfino vs. CA)
3. PUBLIC AUCTION - SALE at least 30 days after the
advertisement.
DISPOSITION OF PROCEEDS (Sec. 213) residue
will be given to the owner of the property.
EXPENSES of Costs of collection, preservation,
advertisement and improvements MAY be collected in
ADVANCE AMOUNT. (sec. 213)
NOTES in TAXATION by TEP ABRENICA 31
Atty. Bonilla Discussion supplemented by Vitug Acosta book
RIGHT of REDEMPTION by Delinquent tax
payer - within 1 year from the date of sale (registration
of deed of sale) to pay the Revenue District officer the
following: (sec. 214)
i. Amount of tax due
ii. Penalties and interest from the date of
delinquency to the date of sale
iii. Interest on purchase price at 15% per annum
from the date of purchase to the date of
redemption
*** After redemption, the delinquent taxpayer is
ENTITLED to the delivery of CERTIFICATE issued to
the buyer and CERTIFICATE from the Revenue District
Office that he has redeemed the property
Effect of Redemption: The property is free from the lien
of taxes and penalties.
RIGHT of the Delinquent taxpayer Owner of the
property over RENTS and other income in the
levied property -- the owner is ENTITLED to receive
the income to the property until the expiration of the
time allowed for its redemption. (Sec. 214)
without compensation in consequence of a default or offense.
EFFECT of Forfeiture: is to transfer the title to the specific
thing from the owner to the government. in a sense it
is a penalty.
Forfeiture of Chattel and Removable Fixtures (Personal
Property) Sec 224
Enforced through: (Sec. 224)
(a) SEIZURE and SALE
How SALE of Forfeited chattel and removable fixtures
be EFFECTED? (Sec. 225)
1. Through a PUBLIC NOTICE in 2 public places
one should be in the Office of the Mayor
where the property is located.
2. PUBLIC SALE at least after 20 days from
notice of the owner taxpayer and from posting.
(b) SEIZURE and DESTRUCTION upon order of the
Commissioner for at least 20 days after seizure. (sec.
225)
GROUNDS for Destruction of property forfeit when
sold and used: (Sec. 225)
i. injurious to the public health; or
ii. prejudicial to the enforcement of law
iii. Articles subject to excise tax which have been:
a. Manufactured or removed in violation
of the NIRC
b. Imitation of or purport to be lawful
stamps or labels

Can a Owner or Possessor of the Forfeited Chattel
CONTEST such Forfeiture? (Sec. 231)
YES! The owner or possessor may BRING an ACTION
against the person seizing the property or having
possessing to RECOVER upon filing a BOND.
When? At ANY TIME...
(a) BEFORE the Sale or Destruction of the property
(b) AFTER Sale and within 6 months.
Forfeiture of Real Property (Sec. 224)
Enforced through:
(a) JUDICIAL intervention by a JUDGMENT of
CONDEMNATION; and
(b) Judicial SALE in a legal action or proceeding
Disposition of Fund recovered in legal proceedings or
obtained from forfeitures SHALL be PAID to the
Commissioner or his authorized deputies. (sec. 226)
FORFEITURE of the LEVIED Real Property by
the Government (Sec. 215)
WHEN forfeiture will take place?
a. There is NO BIDDER to the real property
b. There is a higher bidder but the amount bid is
INSUFFICIENT to pay the taxes, penalties and
costs.
HOW FORFEITURE be EFFECTED?
Upon the presence of the scenario above, the
Internal Revenue Officer shall DECLARE the
property FORFEITED to the Government in
satisfaction of the claim in question, and within 2
day after, shall make a return of his proceedings.
*** The Register of Deeds, upon registration in his
office declaration of forfeiture, to transfer the title
of the property to the Government without any
necessity of an order from a competent court.
Is there a RIGHT of REDEMPTION in FORFEITURE?
YES, (Sec. 215) right of redemption is within 1
year from the date of such forfeiture, BY paying the
following:
i. Amount of taxes and penalties
ii. Interest
iii. Cost of Sale
***If the PROPERTY was NOT REDEMEED the
forfeiture will be absolute.
Right of the Government to RESALE the real
estate forfeited. (Sec. 216)
HOW RESALE be Effected? Posting of NOTICE for
atleast 20 days, stating the sell and dispose of the
property at public auction or private sale only upon
approval of the Sec. of Finance.
NOTES in TAXATION by TEP ABRENICA 32
Atty. Bonilla Discussion supplemented by Vitug Acosta book
*** The PROCEEDS from the resale will be DEPOSITED
with the NATIONAL TREASURY and an accounting of
the same rendered to COA.
COMPROMISE36 the payment of any tax (sec. 204)
GROUNDS:
a. When there is a REASONABLE DOUBT as to the
VALIDITY of the claim against the taxpayer; or
b. When the FINANCIAL position of the taxpayer
demonstrates a clear inability to pay the assessed tax.
** this is an exception to the rule, BIR can inquire into
Bank deposit of a tax payer, PROVIDED, the taxpayer in
WRITING WAIVES his privilege under Foreign
Currency Deposit [Sec. 6 (F) last par.]
LIMITATIONS to Compromise AMOUNT tax liability
1. For financial incapacity, minimum compromise rate is
10% of the basic assessed tax;
2. For other cases, minimum compromise rate is 40% of
the basic assessed tax.
ABATEMENT37 or CANCELLATION38 of tax liability
(Sec. 204)
GROUNDS:
a. Tax or any portion thereof appears to be unjustly or
excessively assessed; or
b. Administration and collection costs involved do not
justify the collection of the amount due.
SUSPENSION OF BUSINESS OPERATIONS
PENALTIES and FINES
RULES for Imposition of Penalty and Interest
(Sec. 247)
Penalties and Interest shall apply to all taxes, fees
and charges imposed
Penalties and Interest shall be COLLECTED at the
same time, in the same manner and as part of the
tax.
EMPLOYEE (of the Government, Agency, Political
Subd., Instrumentalities or GOCCs) responsible for
the withholding and remittance of the tax shall be
PERSONALLY LIABLE for the Penalties to the tax
prescribed.
36 Compromise is a contract whereby the parties by reciprocal concessions avoid a
litigation or put an end to one already commenced. (NCC Art. 2026, 2037, 2038, 2041)
37 Abatement is the act of diminution or decrease in the amount of tax imposed
38 Cancellation is the act to obliterate, invalidate, to strike out, delete or erase.
 NOTES in TAXATION by TEP ABRENICA 33
Atty. Bonilla Discussion supplemented by Vitug Acosta book

A. CIVIL PENALTIES (Sec. 248)- 25%/50% Delinquency interest imposed on the amount
due in case of FAILURE to pay:
Imposed when:
i. The amount of the tax due on ANY RETURN
i. There is failure to PAY on the date prescribed required to be filed

ii. When there is payment but fraudulently paid. ii. The amount of the tax due for which NO
RETURN is required.
25 %of the amount due , in the following cases:
iii. Deficiency tax, or any surcharge or interest on
a. Failure to FILE RETURN and PAY the tax due the due date appearing in the notice and
on the date prescribed demand of BIR, shall be assessed and collected
on the unpaid amount until fully paid, the
b. Failure to PAY the DEFICIENCY TAX within interest will form part of the tax.
the time prescribed for its payment in the
notice of assessment; or Interest on Extended Payment 20% per
annum from the date of notice and demand until it
c. Failure to PAY the FULL or PART of the is paid.
amount of tax due shown on return OR no
return, ON or BEFORE the date prescribed for a. when the taxpayer ELECTED to pay the tax on
its payment. INSTALLMENT, BUT FAILS to pay the tax or
any installment or any part of installment ON
50% of the tax or deficiency tax, in the or BEFORE the date prescribed for its payment
following cases:
b. When the Commissioner has AUTHORIZED an
a. Willful NEGLECT to file the return within the EXTENSION of time within which to pay ta or
period prescribed deficiency of tax or any part thereof.

b. FALSE or FRAUDULENT return is willfully DELINQUENCY DEFICIENCY

made
Is the failure of the The amount still due
Prima facie evidence of a false or taxpayer to PAY the and collectible from
fraudulent return: tax due on the date a taxpayer upon
fixed by law or audit or
a. Substantial UNDERDECLARATION of taxable indicated in the investigation.
sales, receipt or income assessment notice or
letter of demand.
b. Substantial OVERSTATEMENT of deductions
When 20% per annumn Interest is
What is considered SUBSTANTIAL AMOUNT for it Computed?
to deemed a false or fraudulent return
In CASES of Delinquency Tax and
Exceeding amount 30% per return. Deficiency tax: FROM the date prescribed
for payment UNTIL the amount is fully
For UNDERDECLARATION: failure to paid.
report sales, receipt or income in the
amount exceeding 30% per return In case of Interest on Extended payment:
FROM the date of NOTICE and DEMAND
For OVERSTATEMENT: claim of until it is fully paid.
deduction in the amount exceeding 30% of
actual deduction Failure to FILE information REQUIRED by
NIRC or BIR on the date prescribed (sec. 250)
B. INTEREST of 20% per annum (Sec. 249) i. Return
ii. Statement
Imposed on: iii. List
iv. Keep any Record
In General: imposed on ANY UNPAID amount v. Supply Information
of tax
Due to REASONABLE CAUSE not willful neglect, upon
Deficiency interest imposed on the AMOUNT notice and demand by the Commissioner, PERSON who
due and collectible from a taxpayer upon audit or
FAILED, be charged of 1,000 Php for each
investigation.
FAILURE
However, such aggregate amount to be
imposed for all such failure during a calendar
year shall NOT EXCEED 25,000php.

Withholding Agent to Collect and Remit Tax
who (sec. 251)
i. WILLFULLY fails to withhold tax,
ii. AIDS or ABETS in any manner to evade any such
tax or the payment
Shall be LIABLE to:
a. PENALTIES provided in the Code; and
b. AMOUNT of all tax withheld or not accounted for
and remitted
FAILURE of a Withholding Agent to REFUND
excess withholding tax shall be liable to (Sec.252)
i. PENALTY imposed in the Code; and
ii. AMOUNT of all refund which was not refunded to
the employee resulting from excess of the amount
withheld over the tax actually due on their return.
SATISFACTION of JUDGMENT RECOVERD against any
Internal Revenue Officer (Sec. 227)
Judgment, damages or costs shall be SATISIFIED by the
Commissoiner upon approval of the Sec. of Finance; or
The PERSON sued shall pay for such judgment, damages
and cost AND shall be REPAID or REIMBURSED to him by
the Commissioner.
B. JUDICIAL REMEDIES
a. Civil Action
b. Criminal Action
*** All actions (civil or criminal) can only be enforced by the
BIR in the name of the Republic of the Philippines and be
conducted by the legal officers of the BIR, provided, it is with
approval of the Commissioner. (sec. 220)
The judgment in this action shall IMPOSE the (1)
Penalty and (2) order of payment of the taxes subject as
decided by the Commissioner. (sec. 205)
ASSESSMENT is NOT necessary to a criminal action for
tax evasion --- because the crime is complete when the
violator knowingly and willfully filed a fraudulent return
with intent to invade and defeat the tax.
What is involved is the violation of NIRC and NOT c
ollection of taxes in which assessment is necessary.
All REMEDIES can be SIMULTANEOUSLY pursued in the
discretion of the authorities charged with the collection of
taxes. (Sec. 205)
NOTES in TAXATION by TEP ABRENICA 34
Atty. Bonilla Discussion supplemented by Vitug Acosta book
BIR shall ADVANCE THE AMOUNT needed to DEFRAY
COSTS of COLLECTION by means of civil or criminal action,
including : (Sec. 205)
i. Preservation or transportation of personal property
distrained
ii. Advertisement and sale of personal and real property
iii. Improvements to the real property
**** GEN. RULE: RELIEF of INJUNCTION in COURT to
RESTRAIN Collection of Taxes NO Court has the
AUTHORITY to grant or order an injunction to restrain the
collection of taxes of any tax, fee or charge imposed in the NIRC.
(sec. 218) only applicable to ORDINARY COURTS.
However, the COURT of TAX APPEALS under RA 1125 Sec. 11 is
EMPOWERED to SUSPEND the Collection of internal revenue
taxes and customs duties in cases pending appeal subject to
certain conditions that the collection may jeopardize the
interest of the government and the taxpayer.
**** EXCEPTION: The Court has the AUTHORITY to issue or
grant INJUNCTION:
i. To afford adequate protection to the constitutional
rights of the accused.
ii. When necessary for the orderly administration of justice
or to avoid oppression or multiplicity of actions;
iii. When there is a prejudicial question which is subjudice
iv. When the acts of the officer are without or in excess of
authority
v. Where the prosecution is under an invalid law,
ordinance or regulation
vi. When DOUBLE jeopardy is clearly apparent
vii. Where it is a case of persecution
viii. Where charges are manifestly false and motivated
vengeance
ix. When there is clearly no prima facie case against the
accused and a motion to quash on that ground has been
denied.
Crimes, Other Offenses and Forfeitures
LIABILITY of PERSON convicted of crime penalized
by NIRC:
A. PAY the TAX; and
B. PENALTIES imposed
(Effect of) PAYMENT of TAX DUE after apprehension
WILL NOT constitute a valid defense
i. In any PROSECTION for violation of any provisions of
NIRC
ii. In any ACTION for the FORFEITURE of untaxed
articles
Who are considered PRINCIPAL for the crime
penalized in NIRC?
a. The person who ACTUALLY committed the crime
b. The person who WILLFULLY aids or abets in the
commission of a crime
c. The person who CAUSES the commission of any offense
by another.
 NOTES in TAXATION by TEP ABRENICA 35
Atty. Bonilla Discussion supplemented by Vitug Acosta book

4. Making FALSE entries, 50K 100K 2 6 years

The FOLLOWING are the LIABILITY in conviction records or reports or
of crime penalized in NIRC: using falsified or fake
accountable forms by:
a. Foreigner or Non-resident (sec. 257)
(1) Serve the Sentence imposed; and
(2) DEPORTATION after serving the sentence without a. Financial Officer or
proceeding for deportation. Independent CPA,
or any person under
b. Public officer or Public employee such
(1) Maximum penalty be imposed b. Any person
(2) Dismissed from public service; and
5. Pursuit of business for an
(3) Perpetually Disqualified from holding any public
annual registration fee
office, to vote & to participate in any election.
imposed without paying
tax: (sec. 258)
c. Certified Public Accountant
(1) Sentence Penalty; and
In General: 5K 20K 6 months 2 yrs
(2) Automatic revocation or Cancellation of the license
In case of distilling, 30K 50K 2 4 yrs.
rectifying,
d. Corporations, Association or General Partnership
repacking,
(1) Penalty imposed on the following:
compounding or
i. Partner,
manufacturing ANY
ii. President
article subject to
iii. General Manager
Excise tax
iv. Branch manager
v. Treasurer 6. Collection of Foreign 20K 50K 1 2 years
vi. Officer-in-charge Payments without having
vii. Employee responsible for violation first obtained a license
7. Unlawful possession of 20K 100K 6 yrs and 1 day
(2) Fined 50,000 100,000 only Cigarette Paper in 12 yrs.
Bobbins or rolls,
PRESCRIPTIVE PERIOD for Crimes penalized under NIRC: cigarette tipping papper
5 years after commission of the crime OR from discovery of in cigarette filter tips
the violation. WITHOUT authority, by
ANY person, importer or
*** 5 yr prescription will not run when the offender is ABSENT manufacturer
or OUTSIDE the Philippines 8. Unlawful use of 20k 100K 6 yrs and 1 day
Denatured alcohol 12 yrs.
*** 5 yr. prescription will be INTERRUPTED when a 9. Shipment or Removal of 20k 100K 6 yrs and 1 day
proceeding was instituted against the person and shall begin to liquor or tobacco 12 yrs.
run again if the proceeding are dismissed for reasons not products under false
constituting jeopardy same or brand or as an
imitation of any existing
CRIMINAL OFFENSES subject to FINES and/or or otherwise known
Imprisonment ADDITIONAL to penalties provided by product name or brand
law. (sec. 262)
10. UNLAWFUL
Criminal Offense Fines Imprisonment POSSESSION or Mere
1. Willful Attempt to Evade 30K 100K 2 4 years UNEXPLAINED
or defeat tax (Sec. 254) possession of articles
subject to excise tax
2. Willful failure to file 10,000 and 1 10 years
return, supply above Imported if appraised
information, pay tax, valued:
withhold and remit tax a. Less than 1,000 1k 2k 60 100 days
(sec. 255 par. 1) b. 1K 50K 10k 20K 2 4 yrs.
c. 50K 150K 30K -60K 4 6 yrs,
3. Making it appear that he 10K 20K 1 3 years d. 150K and more 50K 100K 10 12 yrs.
FILED a return or
actually filed AND Locally articles Not less than 2 4 yrs.
subsequently withdraws 10x the
after securing the official amount of
receiving seal or stamp of the excise
receipt tax due but
not less than
500Php
 NOTES in TAXATION by TEP ABRENICA 36
Atty. Bonilla Discussion supplemented by Vitug Acosta book

Criminal Offense Fines Imprisonment II. TAXPAYER

11. Any person who
REMOVES or allows or
causes the removal of
articles from place of
production or bonded
warehouse (sec. 263)
12. Failure or Refuses to
issue receipts or invoices
13. Issuance of Receipts or
Invoices with a FALSE
information
14. Uses DOUBLE receipts
or invoices
15. Printing of receipt or
invoices without
authority from BIR
16. Printing of double or
multiple receipts or
invoices
17. Printing of UNnumbered
receipts, not bearing
name of business,
business style, TIN and
business address
18. Offenses relating to
Stamp (sec. 265)
19. Failure to Obey
Summons (sec. 266)
20. Willful
MISDECLARATION of
return or statement
which are not true
(Sec. 267 268)
Not less than 1 2 years
10x the A. ADMINISTRATIVE REMEDIES
amount of
excise tax 1. PROTEST
due BUT not 2. CLAIM for TAX REFUND
less than 3. CLAIM for TAX CREDIT
500php 4. PRESCRIPTION (to be raised through Protest)
B. JUDICIAL REMEDIES
1k 50K 2 4yrs. 1. Appeal in CTA and S.C.
C. SUBSTANTIVE REMEDIES
1. Questioning the Validity of Tax Ordinance
2. Non-Retroactivity of Ruling
3. Examination of Books of Accounts made ONLY
once every taxable year
4. Notice of Did not institute the legal and factual
bases of assessment
TAX CREDIT or REFUND when erroneously or illegally
received or penalties imposed without authority, within 2 years
after payment of the tax or penalty FILING in writing with the
Commissioner for such claim. (Sec. 204)
*** The RETURN stating overpayment is CONSIDERED as a
written claim for credit or refund
20k 50K 4 8 yrs.
5K 10K 1 2 yrs
PENALTIES under the crime of
PERJURY as prescribed in RPC.
 NOTES in TAXATION by TEP ABRENICA 37
Atty. Bonilla Discussion supplemented by Vitug Acosta book

========== 1. Gen. Rule: Pre-Assessment notice is REQUIRED

PROTESTING AN ASSESSMENT, REFUND, ETC.
==========
DIAGRAM 1: (SEC. 228) PROTESTING AN ASSESSMENT
Exception: When NO Pre-assessment is required.
(2) FINDINGS for any deficiency tax is the RESULT of mathematical error
in the computation of tax as appearing on the face of the return
(3) DICREPANCY has been determined between the tax withheld and the
amount actually remitted by the withholding agent; or

(4) TAXPAYER who opted to claim a refund or tax credit of excess creditable
withholding 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(s) of the succeeding
taxable year; or

(5) EXCISE tax due on excisable articles has NOT been PAID.

(6) ARTICLE locally purchased or imported by an EXEMPT person, has

been sold, traded or transferred to NON exempt person, such as but not
limited to:
i. Vehicles
ii. Capital equipment
iii. Machineries, and
iv. Spare parts

2. MANDATORY Requirement for Pre-Assessment Notice failure to

contain all, makes the Assessment VOID, the following statements are:
1. FACTS on which the assessment was made.
2. LAW, RULE or REGULATION on which the assessment is based
***other contents but NOT mandatory
3. Computation of the Tax deficiency
4. Demand for payment

3. CTA can ONLY entertain an appeal from a Decision or Assessment of the

Commissioner or in cases of in action. BUT not the Preliminary Assessment
Notice.

4. 30 day period of Appeal to CTA is Jurisdictional failure to comply

would BAR the appeal and deprive the CTA of it jurisdiction to entertain an
determine the correctness of the assessments

5. REQUIREMENT for a VALID ASSESSMENT:

(1) Notice of informal Conference and Report of Investigation to the
Taxpayer
(2) Pre-assessment Notice (PAN)
 NOTES in TAXATION by TEP ABRENICA 38
Atty. Bonilla Discussion supplemented by Vitug Acosta book

(3) REPLY of the Taxpayer within 15 days from receipt 2 KINDS of Tax Refund/ Credit Remedy:
(4) Assessment Notice and Letter of Demand to pay
A. WRITTEN CLAIM by the taxpayer to the BIR
TAX REFUND and TAX CREDIT (Sec. 204, 229 and 230) B. COMMISSIONERs ORDER of Tax Refund/Credit, upon the face
of the return, it was clear of erroneous payment of tax or penalty.
PROCEDURE OF TAX REFUND and CREDIT REMEDY And Tax Credit Certificate Use.
2 Ways to FILE REMEDY of Tax REFUND /CREDIT:

(1) Administrative Action through FILING of a CLAIM in the BIR

(2) Judicial Action through an APPEAL in CTA, provided a CLAIM of refund

was made in the BIR and NO action or decision was rendered in which the 2
year prescriptive period is about to end.

6. A CLAIM for refund partakes of the NATURE of an EXEMPTION which

cannot be allowed UNLESS granted in the most categorical language.
HENCE, a claim for refund MUST be STRICTLY construed against the
claimant and such claimant has the burden of proving the FOLLOWING
REQUIREMENTS:

i. There MUST be a WRITTEN CLAIM for refund filed by the taxpayer with
the Commissioner

*** A Return FILED stating OVERPAYMENT is considered a

WRITTEN CLAIM for credit or refund. (Sec. 204 C)

ii. The CLAIM for refund MUST be a CATEGORICAL DEMAND for

reimbursement of the overpaid amount.

iii. The Claim for refund MUST be filed within 2 years from date of payment
of the tax or penalty regardless of any supervening cause.

PRESCRIPTIVE PERIOD for Filing Tax Refund/Credit: Within 2 YEARS

from payment of tax penalty regardless of any supervening cause.

Tax Refund and Credit as a REMEDY is a remedy by a taxpayer in cases of: a.
i. Erroneously or illegally assessed and collected taxes
ii. Penality claimed and collected without authority b.
iii. Any SUM alleged to have been excessive or wrongfully collected.
In cases of INSTALLMENT payment, 2 years counted from the DATE of
FINAL PAYMENT
In case of Taxpayer MAKING merely a DEPOSIT, period is counted
from the conversion of deposit to payment

Tax REFUND Tax CREDIT c. If the tax was withheld from source, the period is counted from the date
it the conversion of the deposit to payment of tax or penalty.
There is ACTUAL Involves the application of
reimbursement of the tax the reimbursable amount **** The 2 Year prescriptive period is NOT SUSPENDED in filing a WRITTEN
or penalty erroneously against any sum that may CLAIM of REFUND, it is continuous. Hence, the decision of BIR may or may
paid. be due and collectible from not be wait by the taxpayer in filing a judicial claim in CTA if the prescriptive
the taxpayer. period is about to end. Also, the 2 year period is NOT a JURISDICTIONAL
requirement

NOTE: Tax Refund/Credit NOT based on erroneous or
wrongfully tax or penalty payment, prescriptive period is 6 years
on the ground that such claim is tantamount to an action of
quasi-contract of solution indebiti [Art. 1145(2) NCC]
DOCTRINE of EQUITABLE RECOUPMENT when the
refund of a tax illegally or erroneously collected or overpaid by a
taxpayer is barred by the Statute of Limitations and a tax is being
presently assessed against said taxpayer, such present tax may be
recouped or set-off against the tax, the refund in which has been
barred. (NOT APPLICABLE in the PHILIPPINES because it
goes against the law on prescription of action)
TAX CREDIT CERTIFICATE a certificate duly ISSUED by
the Commissioner or his authorized representative,
ACKNOWLEDGING that the grantee taxpayer named, is
LEGALLY entitled a tax credit, the money value may be USED
i. in PAYMENT or in satisfaction of any of his internal
revenue tax liability (except those excluded) or
ii. may CONVERTED into as CASH REFUND; or
iii. may be DISPOSED OF in the manner and in
accordance with the limitations prescribed by BIR.
When to APPLY/USE Tax Credit Certificate?
Within 5 years from the delivery or mail of the TCC to the
grantee taxpayer, he may such to
(1) PAY his DIRECT Internal Revenue tax LIABILITY;
or
(2) To CONVERT it into a CASH REFUND;
(Example of Direct tax Liability: Income tax,
Documentary Stamp tax, Excise tax, VAT,
Percentage tax and other internal revenue tax)
LIMITATIONS for the USE of Tax Credit Certificate?
It cannot be used to the FOLLOWING:
(1) payment of withholding taxes
(2) payment arising from availment of incentives.
(3) Payment of taxes not administered or collected by
the BIR
(4) Payment of Compromise penalty.
EFFECT of FAILURE to Use (utilize) TCC within 5 years?
The Tax Refund granted as stated in the TCC will be
FORFEITED in favor of the Government and the AMOUNT
thereof will be surrendered to the general fund of the
Government.
HOWEVER, if the grantee taxpayer submit the TCC for RE-
VALIDATION of the TCC within 5 years, such will not be
FORFEITED, but it can be used for refunding or crediting a
direct tax liability. (Sec. 230)
NOTES in TAXATION by TEP ABRENICA 39
Atty. Bonilla Discussion supplemented by Vitug Acosta book
TITLE 9: CHAPTER 1, 2 and 3
(COMPLIANCE REQUIREMENTS)
Chapter 1: Keeping of Books of Accounts and Records
REQUIREMENTS: KEEPING OF BOOKS OF ACCOUNTS
1. ALL taxpayers are REQUIRED to keep books of account
(JOURNAL39 and a LEDGER40 or their equivalents)- Sec.
232
Not more than 50,000 php gross quarterly sales,
earnings, receipts or output of a taxpayer shall keep
ONLY a SIMPLIEFIED SET OF BOOKKEEPING
RECORDS41 duly authorized by the Sec. of Finance.
CONTENTS of Bookkeeping records: ALL
transactions and results of operations are
shown and from which All taxes due the
Government may readily and accurately be
ascertained and determined any time of the
year.
More than 50,000 150,000 php gross quarterly sales,
earnings, receipts or output of a taxpayer shall USE
the JOURNAL and LEDGER or their equivalent
Exceeding 150,000 php gross quarterly sales, earnings,
receipts or output of a taxpayer book of accounts
MUST be:
i. AUDITED and EXAMINED YEARLY
ii. By an Independent Certified Public
ACCOUNTANT42
iii. Accompanied with a duly accomplished Account
Information Form (AIF)
Contents of AIF:
(a) information lifted from certified balance
sheets, profit and loss statements
(b) Schedules listing income-producing
properties; and
(c) Corresponding income therefrom and other
relevant statements
2. Taxpayers have the OPTION to keep SUBSIDIARY BOOKS,
as the needs of the business may require. (Sec. 233)
39Journal a book of original entry in which the happenings or transactions affecting the
business of a taxpayer are recorded consecutively day by day as they occur.
40 Ledger is a book of final entry to which are posted the classified accounts or items of
all transactions entered in the journal on its equivalent, so as to show the assets,
liabilities, capital and the operation accounts this is the basis for the preparation of the
balance sheet and the profit and loss statements covering the operation of the business;
41 Simplified Bookkeeping Records CONSISTS OF:
(1) The record of DAILY SALES and CASH RECEIPTS
(2) The record of DAILY PURCHASES, EXPENSES and Cash DISBURSEMENTS
(3) The record of the SUMMARY of TRANSACTION; and
(4) The YEARLY statements of net worth and operations, which may be in
combined form or in separate booklets.
42 Independent Certified Public Accountant- an accountant who possesses the
independence as defined in Revised Accountancy Law (Sec. 232 B)

Subsidiary Books will FORM part of the
accounting system and be subjected to the
same rules and regulations as to their keeping,
translation, production, and inspection as
applicable.
3. Books are in the NATIVE language, English or Spanish.
Books in different language are PROHIBTIED. (sec. 234).
HOWEVER, the taxpayer may KEEP books of record in
a different (additional) language provided, the
Bookkeeper or manager, state TRANSLATION thereof
UNDER OATH as to its correctness and form an
integral part of the book of accounts.
4. Preserve the Books of Accounts and other Accounting
Records within 3 years from the last entry in each book
until the last day. (Sec. 235)
RULE on AUDITING:
Gen. Rule: Books and Records are SUBJECT to
EXAMINATION and INSPECTION by Internal revenue
officers, ONLY ONCE in a taxable year (Sec. 235)
Except: where the internal revenue officer may examine
MORE than once in a taxable year.
(1) Fraud, irregularity or mistakes as determined by the
Commissioner
(2) Taxpayer REQUEST of RE-INVESTIGATION
(3) Verification or Compliance with withholding tax laws
and regulations;
(4) Verification of Capital gains tax liabilities; and
(5) Commissioners exercise of power to obtain information
in cases:
(a) To examine books and records from another
person for the investigation of another person
subject to audit or investigation
Provided, Examination and Inspection of Books of
Account and other records shall be DONE in:
i. Taxpayers office or place of business
ii. In the office of BIR
(b) Taxpayer RETIRING from business within 10 days
from date of retirement or within such period
submit their books of accounts, subsidiary books
and other accounting records.
(c) Corporations and Partnership contemplating a
DISSOLUTION, notify the Commissioner, and
before dissolution must be cleared of any tax
liability.
(6) Examination of BIR for compliance to TAX
EXEMPTIONS and TAX CREDIT/REFUND
NOTES in TAXATION by TEP ABRENICA 40
Atty. Bonilla Discussion supplemented by Vitug Acosta book
Chapter 2: Administrative Provisions
As a Rule: ALL taxpayers shall REGISTER ONCE with the
appropriate Revenue District Officer
REGISTRATION REQUIREMENTS
(1) The taxpayer shall REGISTER once with the appropriate
Revenue District officer within 10 days from
i. date of employment; or
ii. On or before the commencement of business; or
iii. Before payment of any tax due; or
iv. Upon filing of a return, statement or declaration as
required by NIRC.
**Registration shall be made with the Revenue
District Officer having jurisdiction over the head
office, branch or facility of the taxpayer.
(2) Gen. Rule: Annual Registration Fee, paid upon
registration and every year thereafter on or before the last
day of January
Except: The Following taxpayers are NOT liable for Annual
Registration Fee:
a. Cooperatives
b. Individuals purely earning compensation
income (locally or abroad)
c. Overseas Workers
*** Each type of Internal Revenue Tax that a taxpayer is
obliged to pay SHALL be REGISTERED, FILE a RETURN
thereof, and PAY the tax due, and UPDATE the
REGISTRATION of any changes in tax type or other taxing
details.
*** In cases of taxpayers TRANSFER of Place of business or
his head office or branches, he shall UPDATE the
registration status by filing an application for registration
information update.
CANCELLATION of REGISTRATION any person who
ceases to be liable to a tax type (sec. 236 F)
When effective: from the 1st day of the following month.
REQUIRMENTS for Cancellation
Gen. Rule: Registration can be cancelled upon filing with
the RDO an APPLICATION for REGISTRATION
INFORMATION UPDATE.
Exception: For Value-added Tax Registration, the
taxpayer registered may ONLY cancel such registration for
VAT if:
a. He makes WRITTEN APPLICATION and
DEMONSTRATE that his GROSS sales or receipts
for the next 12 months, will NOT exceed 1.5M. ; OR
b. He has CEASED to carry on his trade or business
and does not expect to recommence any trade or
business within the next 12 months.

GROUNDS for Cancellation of TIN (Taxpayer
Identification Number)
a. Death of the taxpayer
b. Dissolution, merger or consolidation of juridical person;
c. Discovery of a taxpayer having multiple TINs; and
d. (TIN of the ESTATE) Payment of Estate Tax by the
heirs, administrator or executor.
GROUNDS for Cancellation of Business Registration
a. Closure/Cessation of Buisness Operation
b. Dissolution of Corporation/Partnership
c. Merger/Consolidation
d. Death of An Individual
*** READ COdal for Sec. 236, 237, 238 245
RULE on RULES and REGULATIONS of BIR
Gen. Rule: any revocation, modification or reversal of any
Rules and Regulations promulgated SHALL NOT be given
RETROACTIVE APPLICATION, if it will PREJUDICE the
taxpayer.
Exception: Rules and Regulation WILL be given retroactive
application
a. If it will be FAVORABLE for the taxpayer
b. Taxpayer deliberately MISSTATES or OMITS material
facts from his return or any document
c. Facts subsequently gathered by BIR are materially
different from the facts on which the ruling is based
(mistake of BIR)
d. Taxpayer ACTED in BAD FAITH.
TAX RETURN
WHEN Return is Considered FILED?
When the Return is VALID and was filed within the
prescribed period of filing such return.
What constitute a Valid Return?
a. It is made in good faith and is not false or fraudulent.
b. Covers the entire period involved in the filing the return
c. It contains information as to the various items of
income, deduction and credit with such definiteness as
to permit the computation and assessment of tax.
43
44Fraudulent return there is an implied intentional or deceitful entry with intent to
evade the taxes due.
NOTES in TAXATION by TEP ABRENICA 41
Atty. Bonilla Discussion supplemented by Vitug Acosta book
PRESCRIPTIVE PERIOD
PRESCRIPTIVE PERIOD for ENFORCING TAX
COMPROMISE 10 years from the time the right of action
accrues (NCC Art. 1144)
PRESCRIPTIVE PERIOD for ASSESSMENT (Sec. 203)
Gen. Rule: Within 3 years after the last day prescribed by
law for FILING of the RETURN
*** If the RETURN was filed BEFORE the last day of
prescribed period for filing, the 3 years shall be counted
from the last day of the prescribed period by law.
Exception:
a. If the RETURN is filed BEYOND the period prescribed
by law: the 3 years shall be counted from the DAY the
return was filed.
b. If the RETURN was AMENDED, the 3 years period will
start from the filing of the amended return.
When Assessment is DEEMED made? (to give
effect)
i. When it is made within 3 years from the last
day prescribed for filing of return (as Gen.Rule)
ii. When the NOTICE of assessment is released,
mailed or sent to the taxpayer within the 3
years period.
PRESCRIPTIVE PERIOD for COLLECTION (Sec. 203)
Gen. Rule: Within 3 years from the date the tax
assessment has been released, mailed and sent
to the tax payer.
Exception:
a. If there was NO assessment made, return was filed
and NO false or fraudulent, the 3 year period will be
counted from the DAY the return was filed.
EXCEPTIONS to the 3 year Prescriptive period
applicable to BOTH assessment and collection
(Sec. 222)
a. Within 10 years after the discovery (for assessment
or without assessment)
i. of false return43 or fraudulent return44 with intent
to evade tax;
ii. Of Failure to file a Return
In such cases, a proceeding in court for collection of
tax may be filed without assessment, within the 10
years period from discovery.
False return due to a mistake, carelessness or ignorance, whether intention or not
 NOTES in TAXATION by TEP ABRENICA 42
Atty. Bonilla Discussion supplemented by Vitug Acosta book

b. When COURT cannot acquire Jurisdiction over the c. By a REQUEST of RECONSIDERATION46 (ex. merely
person AND no property of the person to be asking for re-computation of its tax liability)
garnished/levied/distrained d. PENDENCY of a CRIMINAL CASE against the taxpayer
in relation to tax evasion.
c. WAIVER OF PRESCRIPTION - Before the 3 yr
period prescribed for assessmen/collection, BOTH the e. EXTRA-JUDICIAL DEMAND for the payment of
Commissioner and Taxpayer entered into a written assessed taxes.
agreement to when the tax should be assessed for an
agreed period (may be extended) f. Filing of Motion for Reconsideration of the denial of
administrative protest does not toll the 30 day period to
Requisites OF Waiver: appeal to CTA
1. It is in WRITING
2. AGREED by BOTH CIR and Taxpayer
3. MADE before the expiration of the prescriptive
period for assessment or collection
4. For a DEFINITE PERIOD beyond the ordinary
prescriptive period for assessment and collection.

d. For collection of taxes, within 5 years after

assessment made due to...
i. false return or fraudulent return with intent to
evade tax
ii. Failure to file return

e. WHEN PRESCRIPTION is SUSPENDED

1. Pursuant to COURT order for 60 days, the

Commissioner is prohibited from making the
assessment or beginning distraint or levy -- such as
when there is a pending petition for review in the
CTA from the decision on the protested assessment.

*** filing of the criminal case, will NOT suspend the

prescriptive period because criminal action for tax
violation is entirely distinct and separate from the
civil action.

2. Tax payer REQUEST for

REINVESTIGATION45 of the assessment and
granted by the Commissioner (ex. Protest letter
may be treated as reinvestigation)

3. Taxpayer cannot be located in the address given by

him in the return filed upon which the tax is being
assessed or collected

4. When the WARRANT of distraint and levy is duly

served to the taxpayer

5. When the taxpayer is OUT of the Philippines.

CASES where running of the prescriptive period IS

NOT SUSPENDED:

a. Cases when the property is in CUSTODIA LEGIS

because such may still be subject to distraint

b. PARTIAL PAYMENT

45Request for Reinvestigation refers to a plea for re-evaluation of an assessment on

46Request for Reconsideration a plea for a re-evaluation of an assessment on the
the basis of newly-discovered evidence or additional evidence that a taxpayer intends to basis of existing records without need of additional evidence it may involve both
present in the investigation it may involve the question of fact and/or law. question of law and fact.
 NOTES in TAXATION by TEP ABRENICA 43
Atty. Bonilla Discussion supplemented by Vitug Acosta book

TRANSFER TAXES RULES regarding INTANGIBLE PROPERTY

Transfer taxes - taxes imposed upon the gratuitous disposition Gen. Rule: Decedents intangible property ARE
of private property taxable BOTH

2 Kinds: i. in his place of RESIDENCE (mobilia

sequuntur personam)
1. ESTATE tax tax levied on the
TRANSMISSION of properties from a decedent ii. in the place where such property has a
to his heirs. SITUS or LOCATED

the TAX on the privilege to transmit NOTE: exception was granted to prevent
property at death and on certain transfers multiplicity of taxation.
which are made the equivalent of
testamentary dispositions by the statute. Exception: RECIPROCAL exemption - NO tax
shall be collected in respect to intangible
2. DONORs tax tax levied on the transmission property, (Sec. 104), if:
of properties from a living person (donor) to
another living person (donee) a. if the DECEDENT is a resident and citizen of a
FOREIGN COUNTRY which DID NOT
ESTATE TAX IMPOSE transfer tax to the intangible
personal property of CITIZENS of the
Philippines not resident of the foreign country
NATURE and OBJECT: To TAX the shifting of economic benefit
and enjoyment of property from the dead to the living
b. if the DECEDENT is a resident and citizen of a
FOREIGN COUNTRY which allows SIMILAR
EXEMPTION from transfer taxes to the
DEATH is the GENERATING SOURCE of POWER
intangible personal property of CITIZENS of
the Philippines not resident of the foreign
Because!
country
i. upon death the power to tax arises and
ii. Upon death the transfer from the decedent to heirs
The FOLLOWING are INTANGIBLE PROPERTY
commences.
have SITUS in the Philippines (Sec. 104)
iii. LAW at the TIME of DEATH applicable
1. FRANCHISE exercised in the Philippines
ESTATE TAX RATES, if the NET ESTATE is
2. SHARES, OBLIGATIONS or BONDS issued by:
Net estate TAX shall Of the
PLUS
AMOUNT be excess over
i. any DOMESTIC corporation constituted
</ = 200,000 EXEMPT ----- ------
in the Philippines
200K 500K 0 5% 200K
500K 2M 15K 8% 500K ii. Any FOREIGN corporation, 85% of the
2M 5M 135K 11% 2M business is located in the philippines
5M 10M 465K 15% 5M
10M above 1.215M 20% 10M iii. Any FOREIGN Corp acquired for the
furtherance of business in the Philippines
GROSS ESTATE all PROPERTIES and INTERESTS in the
properties of the decedent AT the TIME of DEATH 3. SHARES or RIGHTS in PARTNERSHIP,
business or industry ESTABLISHED in the
What are the PROPERTIES included in Gross Estate? Philippines.

If CITIZEN (res/nonres) and RESIDENT ALIEN, ALL What CONSTITUTE GROSS ESTATE of a Decedent?
properties (around the world) are included: (Sec. 85)

a. Real Property WHEREVER situated 1. Decedents INTEREST

b. Tangible Personal Property WHEREVER situated 2. Transfers in CONTEMPLATION OF DEATH
c. Intangible Personal Property WHEREVER situated 3. REVOCABLE transfers
4. Property PASSING under the general power of Appointment
If NON-RESIDENT ALIEN properties ONLY in the 5. PROCEEDS of LIFE INSURANCE
Philippines 6. PRIOR interests
7. Transfers for INSUFFICIENT CONSIDERATION
a. Real property IN the PHILIPPINES 8. EXCLUSIVE property of the Deceased spouse
b. Tangible Personal Property IN the PHILIPPINES
c. Intangible Personal Property IN the PHILIPPINES
unless EXEMPTED on the BASIS of RECIPROCITY

Decedents Interest
Kinds of Property underDecedents interest:
a. Property OWNED possessing all attributes of
ownership
b. Property or Interest transferred.
c. INTEREST in the property possessed
Ex. Right of Uusfruactry; Dividends proceeds
of life insurance
Transfers in CONTEMPLATION of DEATH
Contemplation of death means the THOUGHT of
DEATH which INDUCES the disposition
of property for the purpose of avoiding the
tax
As a Rule: Transfers made by decedent Prior to
death are Not subject to estate tax
HOWEVER, if such TRANSFER was MADE in
CONTEMPLATION of DEATH, and
CERTAIN rights had been RETAINED for
his life or before death, to avoid transfer
tax, the property is INCLUDED as GROSS
ESTATE of the decedent
The FOLLOWING are the CERTAIN
RIGHTS RETAINED:
i. Right to Possess
ii. Right to ENJOY
iii. Right to the INCOME/FRUITS
iv. Right to DESIGNATE the person who
can possess or enjoy or get the income
EXCEPT: when the transfer made in
contemplation of death WAS DUE TO A
BONA FIDE SALE for an adequate and
full consideration in money or moneys
worth. such will not be included in gross
estate.
Exception to the exception:
BAD FAITH SALE made in
contemplation of death, where there is
an inadequate and insufficient
consideration for money or moneys
worth.
Circumstance to be considered as Contemplation of
Death:
a. Age and state of health
b. Length of time between the gift and the DATE
of Death --- SHORT INTERVAL suggest
conclusion of contemplation of death transfers
c. Concurrent making of a will within a short time
after the transfer.
NOTES in TAXATION by TEP ABRENICA 44
Atty. Bonilla Discussion supplemented by Vitug Acosta book
REVOCABLE transfers transfer with retention
or reservation of certain rights
It covers TRANSFERS (except Bona Fide Sale)
TRUST or otherwise where the ENJOYMENT
was SUBJET at DATE of DEATH to CHANGE
in the exercise of the decedents power alone or
with a designated person, TO alter, amend,
revoke or terminate or where any such power is
relinquished in contemplation of decedents
death.
EXAMPLE:
a. DECEDENT declared in her conveyance
forbidding the registration of the deed UNTIL
her death
b. In a DEED of transfer, the DECEDENT
reserved the power to terminate the deed at
ANY TIME in this case, it was meant the that
the transfer was not binding on the grantor
until his death.
(there is a condition imposed to happen after
death for full transfer of property)
Property Passing Under the general power
of Appointment
Power of Appointment refers to a right to
designate the person(s) who shall enjoy or
possess certain property from the estate of
a prior decent.
The PROPERTY transferred UNDER the General
Power of appointment COMES from the
DONOR and the DONEE (DECEDENT)
through a:
a. Will
b. DEED executed to take effect in possession
or enjoyment AT or AFTER death
c. DEED, which he RETAINED right for his
life
i. Possession
ii. Enjoyment
iii. Income or fruits
iv. Right to designate the person
who can possess or enjoy.

PROCEEDS of Life Insurance depend on the.. WHAT are NOT SUBJECT to ESTATE TAX? Meaning,
i. Designated Beneficiary
ii. Manner of Designation of Beneficiary
(irrevocable or revocable); AND
iii. Period and source of the fund used in
paying the premiums on the insurance
contract.
TAXABLE proceeds of Life Insurance if the
BENEFICIARY is the ff:
a. Estate
b. Executor or Administrator (whether or not
the insured retained the power of
revocation)
c. ANY person when designation as
beneficiary is revocable (can be cancelled)
d. Policy taken DURING Marriage
i. Beneficiary is ESTATE such is
conjugal so, only share is taxable
ii. Beneficiary is 3rd person if revocable
NOT TAXABLE proceeds of Life insurance if the
Beneficiary is:
a. Any person designation as BENEDICIARY was
expressly stipulated as IRREVOCABLE (cannot
be cancelled) Sec. 85 i.
ii.
b. Accident Insurance Proceeds (because under iii.
the code, only LIFE insurance) iv.
v.
c. Group insurance policy taken by the company vi.
for its employees (because the code expressly vii.
states, taken OUT by the DECEDENT)
viii.
d. Insurance policies issued by GSIS
e. Benefits under SSS
f. Proceeds of life insurance payable to heirs of
deceased members of military personnel
PRIOR INTERESTS
Transfers for INSUFFICIENT Consideration
bad faith sale or transfers.
When is it Insufficient consideration?
The Fair Market values at the time of
death is MORE than the VALUE of the
consideration received by the decedent.
Exclusive property of the Deceased spouse
1. Properties brought in marriage as his OWN
2. Property acquired by lucrative title
3. Purchased by the exclusive money of the
deceased spouse
4. Sum collected by installments during marriage
to whom the credit belongs to the deceased
spouse
NOTES in TAXATION by TEP ABRENICA 45
Atty. Bonilla Discussion supplemented by Vitug Acosta book
those are NOT included in the Gross Estate
(1) MERGER of USUFRUCT in the OWNER of the naked title
(2) Transmission or delivery of the inheritance or legacy by the
FIDUCIARY heir or legatee to the FIDEICOMMISSARY47
(contemplate a Fideicommissary substitution48 )
(3) Transmission from the 1st heir, legatee or done in favor of
another beneficiary in accordance with the desire of the
predecessor
(4) Bequests, devices, Legacies or TRANSFERS to
i. Social Welfare,
ii. Cultural Institutions
iii. Charitable institutions
Provided (in #4)
a. NO part of the NET income insures to the benefit of any
individual ; and
b. NOT more than 30% of the said bequests, devises,
legacies or transfers be USED for Administration
purposes
(means less than 30% of the net income may be
used for administration)
WHAT are ALLOWABLE DEDUCTIONS to the ESTATE
tax?
Expenses, Losses, Indebtedness and Taxes
Property Previously Taxed
Transfers for Public Use
Family Home
Standard Deduction
Medical Expenses
Amount Received by the Heir form the decedents employer
as consequence of the death due to employeement
Tax credit for Estate Tax Paid to a Foreign County
(applicable only to Estates outside the Philippines)
47 Fideicommissary must only be ONE DEGREE from fiduciary heir. ( meaning if the
fiduciary is father, fideicommissary mya either be the wife or child)
48 FIDEICOMMISSARY Substitution - When the testator institute a person as heir,
ENTRUSTING him with the obligation (1) to PRESERVE and (2) to TRANSMIT to a 2 nd
heir the whole or a part of the inheritance.
 NOTES in TAXATION by TEP ABRENICA 46
Atty. Bonilla Discussion supplemented by Vitug Acosta book

NOTE: For a NON-RESIDENT ALIEN to claim allowable EXPENSES, LOSSES, INDEBTEDNESS and
deductions in his gross estate situated in the Philippines, --- his TAXES
Estate Tax Return MUST include the VALUE at the time of his
death his all gross estate NOT SITUATED in the Philippines. FOLLOWING are Expenses, losses, indebtedness and
(Sec. 87 D) taxes that are DEDUCTIBLE:

STANDARD DEDUCTION equivalent to 1M a. Actual FUNERAL EXPENSES incurred

FAMILY HOME - dwelling house and land which it is
situated family residence.
As a RULE: VALUE of Family Home is deductible
Conditions for ALLOWANCE as DEDUCTION
1. Must be the ACTUAL Residential home
2. Certified by the BARANGAY CAPTAIN of the
locality where the home is situated.
b.
3. Total Value of the family home must be
included as part of the gross estate of the
decedent
4. AMOUNT to be deducted is whichever is lower,
a. Current fair market value as declared in
gross estate; or
b. Extent of the Decedents interest
5. AMOUNT shall NOT EXCEED 1M,
BEFORE burial
AMOUNT whichever is LOWER:
a. Actual funeral expenses; or
b. 5% of the gross estate; or
c. P200,000 (threshold limit)
What ARE not considered funeral expense?
i. Expenses incurred AFTER burial
ii. Expenses to commemorate the death
anniversary
Judicial Expense of the testamentary or
intestate proceeding (CIR vs. Pajonar & Codal)
These expenses are the ADMINISTRATIVE
EXPENSES of the Estate which are ALL
expenses essential to the collection of the
assets, payment of debts or the distribution of
the property to the person entitled to it.
Example: Notarial Fee and Attorneys fees for
extrajudicial settlement

HOWEVER, IF FAMILY HOME amount EXCEEDS 1M, HOWEVER, expenses incurred for the
the excess amount is subject to estate tax individual benefit of heirs, devisees or legatees
are NOT deductible.
MEDICAL EXPENSES
c. Claims AGAINST the ESTATE
Conditions for Allowance as deduction:
REQUIREMENTS to be deducted:
1. Medical expenses was incurred by the DECEDENT 1. Debt INSTRUMENT must be DULY Notarized
2. Contracted within 3 years BEFORE the death
2. Expenses was incurred WITHIN 1 year PRIOR to of the decedent (borrower)
DEATH 3. Contracted in Good faith
4. Existing against the estate
3. Substantiated WITH RECEIPTS 5. Enforced by the Claimants
6. Reasonably CERTAIN in amount; and
4. Not exceeding Php 500,000 7. Administrator or executor shall SUBMIT a
if exceeds, only P500,00 be deducted. statement showing the disposition of the
proceeds of the loan.
TRANSFERS FOR PUBLIC USE exclusively for
the Government or any political subdivision ***NOTE: # 2and #7 is APPLICABLE only
when it is LOAN.

Date of DEATH VALUATION the VALUE of

the claim of creditors to be deducted is AT the
TIME of Decedents death

Hence, POST DEATH DEVELOPMENT are

immaterial in determining the amount of claim
to be deducted. (Dizon Case)

NOTE:
Indebtedness that has been CONDONED or
PRESCRIBED cannot be Claimed as deduction.
UNPAID estate tax and income tax cannot be
deducted as they are chargeable to the income
of the estate.
 NOTES in TAXATION by TEP ABRENICA 47
Atty. Bonilla Discussion supplemented by Vitug Acosta book

d. Claims AGAINST INSOLVENT PERSONS by Vanishing Deduction (or property previously taxed
Decedent(creditor) in estate taxation) refers to the DIMINISHING
deductibility/exemption, at the rate of 20% over a
Conditions: period of 5 years until it is lost after the 5th year, of any
property situated in the Philippines forming part of the
1. AMOUNT to said claim has been initially gross estate, acquired by the decedent from a prior
included as part of his gross estate; and decedent who died within a period of 5 years from the
2. Incapacity of the DEBTOR to PAY their present decedents death.
obligation is proven
Requisites of Vanishing Deductions:
e. UNPAID mortgages and Indebtedness by
Decedent 1. DEATH the present decedent DIED within 5
years from the date of death of the prior decedent or
Conditions: date of gift

1. Value of decedents interest is included in the
gross estate
2. Contracted in Good faith, for an adequate and
full consideration in money or moneys worth.
NOTE:
If the decedent only owns a portion of the
mortgaged property, ONLY the portion of the
value of the mortgaged property be deductible
Indebtedness secured by a mortgaged of real
property OUTSIDE the Philippines of a Non-
resident alien, is NOT deductible.
2. IDENTITY OF PROPERTY the property received
from the prior decedent or from donor
3. INCLUSION OF PROPERTY property must have
been formed part of the gross estate situated in the
Philippines of the prior decedent within 5 years
prior to the death of the present decedent.
4. PREVIOUS TAXATION to the property transfer
tax was imposed and was fully paid by the prior
decedent or by the donor, as the case may be
5. NO PREVIOUS VANISHING DEDUCTIONS on the
property

f. LOSSES incurred during settlement of estate Limitations as to the AMOUNT of Deduction:

DUE to the following:
i. Fires
1. VALUE of PROPERTY the amount of deduction is
ii. Storms
iii. Shipwreck limited only to the VALUE of the property
iv. Other Casualties previously taxed or the aggregate value of all the
v. Robbery property
vi. Theft or embezzlement
2. DEDUCTION for MORTGAGE Or other Lien
PROVIDED, initial value of the property shall be REDUCED, if
1. not compensated by insurance
any, by present decedent on any Mortgage or lien
2. Not claimed as deduction for income tax
purposes on the property
3. Incurred not later than the LAST day of
payment of estate tax which is 6 months after 3. DEDUCTION for Expenses, Losses, Indebtedness,
time of death) and taxes (ELIT) and transfers for Public Use of the
present decedents gross estate
PROPERTY PREVIOUSLY TAXED
(VANISHING DEDUCTION)
4. PERCENTAGE DEDUCTION the vanishing
Applicable TO the Situation: deduction VALUE after all deduction is
When a PROPERTY of the DECEDENT was MULTIPLIED by the following percentage:
ALREADY subjected to a PRIOR Estate tax within 5
years prior to the decedents death WHICH he
(decedent) received from a prior dead person.

Example:
 NOTES in TAXATION by TEP ABRENICA 48
Atty. Bonilla Discussion supplemented by Vitug Acosta book

HOW to COMPUTE the YEAR to determine the
Percentage for the amount of vanishin deduction?
YEAR to determine the applicable RATE
= date of the present decedents death MINUS
date of prior decedents death
TAX CREDIT for ESTATE TAXES PAID to a
FOREIGN COUNTRY estate tax imposed on the
property situated in the authority by a foreign country
AND subjected to estate tax in the Philippines is
DEDUCTIBLE to the GROSS ESTATE.
Applicable Situation: When the DECEDENT have a
property ABROAD that was subjected to a foreign
country estate tax where it was situated.

LIMITIONS on such Tax credit:

a. Actual FOREIGN country imposed estate tax must

HENCE, in the case, the applicable RATE is
60% of the value of vanishing deduction be
allowed for deduction to the gross estate of the
present decedent.
COMPUTATION of VANISHIING
DEDUCTION
NOT exceed the Philippine Estate tax; and
b. TOTAL amount of ALL the actual foreign country
imposed estate tax must NOT exceed the TOTAL
net estate tax of ALL property situated in the
Philippines
If the TOTAL ESTATE taxes paid to a Foreign
EXCEEDS that of Estate tax in the Philippines OR
If the ESTATE tax paid to a foreing country Exceeds
that of Estate tax in the Philippines the FORMULA
is as follow for TAX CREDIT to be deductible in gross
estate

Example:

Estate Amount Actual Country

Estate Tax Limit
Phil ( 500M) 40M
USA (100M) 10M 4M
Singapore (200M) 20M 8M
CANADA (200M) 20M 8M
= 1,000,000,000 20M

20M -> TAX credit limit wherein amount deductible

to the gross estate of the decedent
EXAMPLE:
Computation:

Tax credit limit for USA =

Tax credit limit for Singapore =

Tax credit limit for Canada =


RULES for Estate Tax :
NOTICE of DEATH to be given to Commisioner to be
filed WITHIN 2 months after decedents death or after
qualifying an executor or administrator (Sec. 89)
Who shall FILE? Executor, Administrator or any Heir
ESTATE TAX RETURN
Time for Filing 6 months from decedents death
Extension of Time to file to estate tax return is ALLOWED
provided, such GRANTED by the Commissioner NOT
exceeding 30 days for the filing of return.
PAYMENT of Estate tax
WHEN: at the time estate tax return was filed
Extenstion of time to pay estate tax is ALLOWED provided
it shall NOT EXCEED.
o 5 years when the Estate settled in COURT
o 2 years when the estate is extrajudicially settled.
Estate tax shall be paid FIRST before delivery of any
beneficiary distributive share of the estate (Sec. 91)
Beneficiary are SUBISDIARILY LIABLE up to the extent
of their distributive share of the estate to the estate tax
liability (sec.91)
As a RULE: BANKs who has knowledge of DEATH of a
person who maintains an account with them ALONE or
JOINTLY with other person, SHALL not ALLOW
WITHDRAWAL of ANY DEPOSIT ACCOUNT.
Except: Withdrawal can be allowed by the bank ONLY
When:
a. Commissioner CERTIFY that taxes imposed
had been paid; and
b. Administrator or executor or any heir SHALL
not withdraw an amount exceeding P20,000
NOTES in TAXATION by TEP ABRENICA 49
Atty. Bonilla Discussion supplemented by Vitug Acosta book
DONORs TAX
NATURE and OBJECT: To TAX the privilege of the OWNER to
liberally give his property (to donate; Donation).
hence, it is an excise tax.
It is NOT a property tax because the imposition does not
rest upon general ownership.
What is Donation under Tax Code?
(Type of Taxable Donation)
a. an ACT OF LIBERALITY whereby a person (donor)
disposes gratuitously of a thing or right in favor of
another (done) who accepts it. (Art. 725 NCC)
b. A person gives to another a thing or right on account of
the latters merits or of the service rendered by him to
the donor (ACT OF GRATUITY) provided they do not
constitute a demandable debt or when the gift imposes
upon the donee a burden which is less than the value of
the thing given (art. 736 NCC)
c. Where property is transferred (sale or exchange only)
for LESS THAN ADEQUATE and full consideration in
money or moneys worth the AMOUNT by which fair
market value exceed the VALUE of the consideration, is
considered as a GIFT. (Sec.100)
PURPOSE of Donors tax:
i. To supplement estate tax
ii. To prevent avoidance of income tax through the device
of splitting income among numerous donee, who are
usually members of a family or into many trusts, with
the donor thereby escaping the effect of the progressive
rates of income tax.
WHEN Donors tax IMPOSED? (Sec. 98)
1. When there SHALL be a LEVIED, ASSESSED, COLLECTED
and PAID upon the transfer by ANY person (citizen/alien),
RESIDENT or NON-RESIDENT, of the property by a
GIFT49.
2. When there is TRANSFER in TRUST or OTHERWISE,
whether the gift is DIRECT or INDIRECT and whether
property is real or personal, tangible or intangible.
Property COVERED by Donors tax:
For CITIZEN or DOMESTIC Corporation
(resident or non-resident)
a. All Gifts of REAL and PERSONAL property
WHEREVER situated.
For ALIEN or FOREIGN Corporation
(resident or non-resident)
a. Gifts of REAL and TANGIBLE personal Property
SITUATED in the Philippines
b. INTANGIBLE personal property with a SITUS in
the Philippines UNLESS exempted on the basis of
reciprocity. (sec.104)
49Gift or Donation is a voluntary transfer of property from 1 person to another without
any consideration or compensation thereof.

RULES regarding INTANGIBLE PROPERTY (this
rules are the SAME in ESTATE tax)
Gen Rule: Intangible property transferred
with donative intent are taxable for donors tax.
Exception: RECIPROCAL exemption -
NO donors tax shall be collected in respect
to intangible property, (Sec. 104), if:
a. if the DECEDENT is a resident and citizen
of a FOREIGN COUNTRY which DID
NOT IMPOSE transfer tax to the
intangible personal property of CITIZENS
of the Philippines not resident of the
foreign country
b. if the DECEDENT is a resident and citizen
of a FOREIGN COUNTRY which allows
SIMILAR EXEMPTION from
transfer taxes to the intangible personal
property of CITIZENS of the Philippines
not resident of the foreign country
The FOLLOWING are INTANGIBLE
PROPERTY have SITUS in the Philippines
(Sec. 104)
1. FRANCHISE exercised in the Philippines
2. SHARES, OBLIGATIONS or BONDS
issued by:
i. any DOMESTIC corporation
constituted in the Philippines
ii. Any FOREIGN corporation, 85% of
the business is located in the
Philippines
iii. Any FOREIGN Corp acquired for the
furtherance of business in the
Philippines
3. SHARES or RIGHTS in PARTNERSHIP,
business or industry ESTABLISHED in the
Philippines.
TRANSFER in TRUST or OTHERWISE mean, the
passage of CONTROL over the economic benefits of the
property, rather than mere technical changes in the title.
It includes transfer of OWNERSHIP and transfer of
RIGHT or INTEREST in property.
*** TRANSFER becomes COMPLETE and TAXABLE
only when the DONOR has DIVESTED himself of ALL
Beneficial interest in the property transferred and has
NO power to revest any such interest in himself or his
estate.
NOTES in TAXATION by TEP ABRENICA 50
Atty. Bonilla Discussion supplemented by Vitug Acosta book
ILLSUTRATION of whether the GIFT in DIRECT or
INDIRECT example,
NIKKI
ROMANO
(borrower and
JEN
(lender) (borrower)
lender)
Due to his personal interest for jen, Romano offered to
NIKKI a deal, that if Nikki will cancel the debt of Jen to him,
Romano will in turn cancel Nikkis debt to him. Nikki cancels
Jens debt and in turn, Romano cancelled Nikkis debts.
Who is liable to DONORs tax? ONLY ROMANO,
because he has the only one with donative intent,
indirectly for Jen. Nikki is not liable because between
cancellation of Jens debt, there was a consideration
Nikki had, and it was cancellation of his debts.
TIME to FILE DONORs TAX:
- Every CALENDAR YEAR, computing ALL the amount of
gifts made.
REQUISITES of a TAXABLE Donation:
(1) Legal CAPACITY of the Donor
(2) DONATIVE Intent50
(3) OFFER to transfer the property with a donative intent
(4) DELIVERY, actual or constructive of the subject matter
(5) ACCEPTANCE of the gift by the done
Discussion to the Requisites
If there is NO donative intent, such transfer will NOT
constitute to be subject to donors tax.
Example: When the property was SOLD at a lower
price than the fair market value (FMV.)
i. Emergency sale
ii. Bargaining
ACCEPTANCE, there MUST be a KNOWLEDGE of
ACCEPTANCE if no knowledge no perfection of
donation.
****DONATION between Spouses during marriage,
(generally) is VOID, except, MODERATE gifts which the spouses
may give each other on occasion of family rejoicing.
**** DONATION of Conjugal property of spouses (they
have an conjugal partnership property regime) spouses
ARE CO-OWNERS, gifts made by the spouses of their
conjugal property shall be DEEMED SEPARATE
DONATIONS by the husband and the wife in proportion to
their interests ---
- In effect, there was 2 donations made and 2 separate
computation of donors taxes.
- However, UNLESS the WIFE expressly JOINS in
making the donation of the conjugal property, it shall be
deemed to have been made by the husband alone. And,
the husband who solely signed is liable to donors tax.
50 Donative Intent an intent on the part of the donor to make a gift.
 NOTES in TAXATION by TEP ABRENICA 51
Atty. Bonilla Discussion supplemented by Vitug Acosta book

HOW to COMPUTE Donors tax? NOTE: ANY contributions in CASH or KIND to any candidate,
political party or coalition of parties for campaign purposes shall
DONORs tax = (total net gifts during the calendar year) be governed by the Election code, hence not covered by NIRC.
X (rate) (Sec. 99 C)

DONORs TAX RATES: ALLOWABLE DEDUCTIONS to the TOTAL of gross

(1) Schedular Rates51 ( Sec. 99 A) gifts.
(2) 30%
(3) Tax Exempt (1) TAX Credit for DONORs tax PAID to a Foreign
Country similar to the tax credit for estate tax.
HOW to DETERMINE which Donors tax rate applies? - Donors tax imposed on the property situated in the
- it DEPENDS on the relationship of the donor to the donee, authority by a foreign country AND subjected to
stranger or not stranger. donors tax in the Philippines is DEDUCTIBLE to
i. NOT Stranger Schedular rate the GROSS Gifts.
ii. Stranger 30% donors tax rate.
Applicable Situation: When the DONOR have a
FOLLOWING are considered NOT STRANGER: (Sec.99 B) property ABROAD that was subjected to a foreign
(1) Brother, Sister (whether whole blood or half-blood) country donors tax where it was situated.
(2) Spouse
(3) Ancestor LIMITIONS on such Tax credit:
(4) Lineal Descendant
(5) Relative by Consanguinity in the collateral line c. Actual FOREIGN country imposed donors tax must
within the 4th degree of relationship NOT exceed the Philippine donors tax; and
d. TOTAL amount of ALL the actual foreign country
NOTE: imposed donors tax must NOT exceed the TOTAL
IN-LAWS are considered Stranger under the law. net donors tax of ALL property situated in the
legally ADOPTED or Illegitimate are considered Philippines
NOT stranger
If the TOTAL DONORs taxes paid to a Foreign
The FOLLOWING are DONORs TAX EXEMPT: (Sec.101) EXCEEDS that of Estate tax in the Philippines OR

If the DONORS tax paid to a foreign country Exceeds

that of Donors tax in the Philippines the FORMULA
is as follow for TAX CREDIT to be deductible in gross
gift

Amount of NET gifts Abroad

Philippine
TAX credit
= x Estate
to be NET gifts of the
Tax
deducted donor world wide

** Example for the application of the formula see

discussion of tax credit in estate tax.

TIME to FILE and Pay Donors Tax RETURN: within 30

days after the date of the gift is made and PAYMENT be made at
the time of the filling

WHERE to file Donors tax return?

51
Schedular rates are as follows: RESIDENTS Domicile of the donor at the time of the
transfer
Of the EXCESS
Over But not over TAX shall be PLUS
over NON-RESIDENTS Office of the Commissioner or
100K EXEMPT Philppine Embassy or Consulate in the country where he is
100K 200K 0 2% 100K domiciled at the time of the transfer
200K 500K 2K 4% 200K
500K 1M 14K 6% 500K
1M 3M 44K 8% 1M
3M 5M 204K 10% 3M
5M 10M 404K 12% 5M
10M above 1,004,000 15% 10M
 NOTES in TAXATION by TEP ABRENICA 52
Atty. Bonilla Discussion supplemented by Vitug Acosta book

BUSINESS TAXES It is Cumulative through the chain of distribution of goods

and performance of services. BECAUSE every taxable sale or
FOLLOWING are BUSINESS TAXES: transaction is subject to VAT

i. Value- Added Tax (VAT) - Meaning, the SELLER is subject to Output vat and
ii. Percentage Tax the BUYER is entitled to Input vat. Such is repeated
iii. Excise Tax until the last sale to the final consumer. The input
iv. Documentary Stamp Tax vat of the final consumer becomes part of his
acquisition cost or operating expense.
VALUE ADDED TAX (VAT)
** TAX CREDIT METHOD VAT is applied on the total sale
price without any deduction and the VAT derived is
VAT is a percentage tax imposed at every stage of the
DEDUCTED to all previous tax payments on purchases
distribution process in the (a) sale, barter, exchange or
made (also called invoice method)
lease of goods or properties and on the performance of
service in the course of trade or business52 or (b) on the
ILLUSTRATION: (for value added and tax credit)
importation of goods.

- It is a TAX on spending or consumption on certain

transactions of goods, properties or service.

- It is a tax on the value added of a taxpayer arising from

taxable sales of goods, properties or services during the
quarter at a given rate.

Characteristics of VAT:

i. It is a TAX on VALUE-ADDED of a taxpayer

ii. It is COLLECTED through the TAX CREDIT METHOD

iii. No CASCADING EFFECT in the value added tax system

unlike Sales tax.

iv. Broad-based tax on consumption of good, properties or

services in the Philippines

v. It is an INDIRECT TAX

vi. It is a TAX INCLUSIVE METHOD.

*** it is a TAX on VALUE-ADDED of a Tax payer

*** No CASCADING EFFECT in the value added tax
Value Added the difference between the (a) total sales of system unlike Sales tax.
the taxpayer subject to VAT and his (b) total
purchases for the same period subject to VAT. Before, SALES TAX or Cost Deduction Method was used to
collect VAT, wherein the cost of goods sold is deducted from
Value Added = Output Vat Input Vat the sales price to get the Vat.

Output Vat VAT due on the sale or lease of the In the long run, Sales tax gives a CASCADING EFFECT or
taxable goods, properties or services by PYRAMIDING effect, where the goods tax are taxed on tax.
any person registered or required to
register (VAT imposed by the taxpayer - The sales tax on original sales paid by wholesalers
to the 3rd person) and retailers of good became part of the gross
selling price subject to the turnover tax.
Input Vat VAT due from or paid by a VAT registered
person in the course of trade or business ILLUSTRATION:
on importation or local purchase of goods/
service, or lease or use of property from a In the above illustration, there will be NO deduction of
VAT-registered person. previously paid VAT to the vat impose. The taxpayer will pay
the amount the output vat he charged in the selling of the
goods to which the consumer paid.
52 in the course of trade or business - the REGULAR CONDUCT or pursuit of a
commercial or an economic activity, including INCIDENTAL transaction, by JEN will pay to BIR P12
any person regardless of whether or not the person engaged therein is a Allan will pay to BIR P15.60
non-stock, nonprofit private organization (irrespective of the disposition of its Manel will pay to BIR P 19.20
net income and whether or not it sells exclusively to members or their guests)
or government entity
 NOTES in TAXATION by TEP ABRENICA 53
Atty. Bonilla Discussion supplemented by Vitug Acosta book

*** Broad based tax on Consumption in the Philippines SUBJECT MATTER of VAT:

Because every sale of goods, properties or services is subject to (a) Taxable SALE of GOODS or PROPERTIES (tangible or
VAT, the tax burden rests with the final consumer who consumes intangible)
the goods, properties or services.
Elements to be subjected to VAT:
Consumption TAKES place when the taxpayer DOES
NOT sell further the goods, properties or services either: 1. An ACTUAL or DEEMED Sale of goods or properties
i. He is the FINAL consumer or 2. For a VALUABLE Consideration
ii. He is NOT engaged in business subject to VAT 3. Undertaken in the COURSE of TRADE or business
4. For the USE or CONSUMPTION in the Philippines; and
DESTINATION PRINCIPLE or CROSS BORDER DOCTRINE 5. NOT exempted from VAT under the Code, special law or
destination of the goods DETERMINES taxation or exemption international agreement.
from VAT because the tax is attached on the goods and regarding
service where it was performed. (b) Taxable SALE or EXCHANGE of SERVICE means, the
performance of all kinds of service in the Philippines for
HENCE, export sales are subject to O% because made others for a fee, remuneration or consideration
outside the Philippines and import sales are subject to
12% because is within the Philippines. Elements to be subjected to VAT:

*** INDIRECT Tax - the taxpayer shifts the burden of paying 1.
the tax to another person (Sec. 105 par. 2) 2.
VAT is paid by the person NOT liable for VAT, who may 3.
SHIFT or pass on the tax to another person or entity
which assumes the tax burden. 4.
There is forward passing of tax when the
person who is engaged in trade or business subject to (c) Taxable USE or L EASE of Properties
VAT (registered or not) passes on the tax to his
customers.
Service must be performed or is to be performed
Service is in the course of trade or business or profession
in the Philippines.
For VALUABLE Consideration actively or constructively
received; and
It is NOT exempt under the tax code, special law or
international agreement

There is backward passing of tax when the

seller assumes the payment of tax, which happens when
there is a buyers market or supply is greater than
demand.

PERSON LIABLE for VAT? (Sec. 105 par.1)

(1) ANY PERSON

a. Who undertakes (taxable transactions) selling,

bartering, exchanging or leasing of goods or
properties or rending services WITHIN the
Philippines;

b. Such was ENTERED into in the COURSE of trade

or business; AND

c. AMOUNT of grass sales or receipts is over the

threshold fixed by law or regulation.

(2) IMPORTER of taxable goods, made in the course of trade or

business.

VAT tax RATES

i. 12%,
ii. 0%
iii. tax exempt
iv. Commissioner to determine the Appropriate tax base
 NOTES in TAXATION by TEP ABRENICA 54
Atty. Bonilla Discussion supplemented by Vitug Acosta book

To be Determined by
Subject Matter of VAT 12% VAT rate Zero (0) % VAT rate
Commissioner

a. SALE of GOODS or 1. on every sale, barter or exchange of GOODS OR PROPERTIES, a 1. EXPORT SALE (Sec. 106 A 2 a) are: DEEMED SALE transactions
PROPERTIES tax base on the gross selling price53 or gross value in money of (Sec. 106 B)
the goods or property sold, bartered or exchanged. (Sec. 106 A a. SALE and ACTUAL shipment of goods FROM
[1]) the Philippines to a Foreign Country, a. Transfer, use, consumption
irrespective of any shipping arrangement and NOT in the COURSE of trade
Goods or properties - mean ALL tangible and intangible PAID for in acceptable foreign currency or its or business of goods or
object which are capable of pecuniary estimation and shall include: equivalent in goods or services, in accordance to properties originally intended
BSP rules and regulations. for sale or for use in the
a. Real properties held primarily for sale to customers or held course of business
for lease in the ordinary course of trade or business;
b. Distribution or transfer to:
b. Right or the privilege to use patent, copyright, design or
model, plan, secret formula or processes, goodwill, trademark, i. Shareholders or
trade brand or other like property or right; investors as share in the
profits of the VAT-
c. Right or the privilege to use in the Philippine of any b. SALE of RAW MATERIALS or PACKAGING registered persons; or
industrial, commercial or scientific equipment; MATERIAL
ii. Creditors in payment of
d. Right or privilege to use motion picture films, films tapes and i. to a NON-RESIDENT buyer for delivery to debt (dation en pago)
discs; and a RESIDENT local export-oriented enterprise
to be used in Manufacturing, processing, c. CONSIGNMENT of GOODs if
e. Radio, television, satellite transmission and cable television packing or repacking in the Philippines of the actual sale is NOT MADE
time. said buyers goods and PAID for in within 60 days following the
acceptable foreign currency and accounted in date such goods were
2. Importation of Goods (Sec. 107), tax base on the total value accordance to BSP. consigned; and
used by Customs in determining tariff and custom dutoes, excise
taxes and other duties -- to be PAID by the IMPORTER prior to d. Retirement from or cessation
the release of goods from custom custody. of business, with respect to
inventories of taxable goods
existing as of such retirement
or cessation

*** Purpose of DEEMED sale as

c. To EXPORT ORIENTED enterprise whose subject to VAT: for the
export sales exceed 70% of the total annual government to CLAIM the output
production vat that a taxpayer could have
paid when the transaction (sale)
was consummated.

- In essence, it recapture
the input vat for the
unpaid output vat, in
effect there is an
d. SALE of GOLD TO the BSP offsetting.

e. EXPORT Sales UNDER Investment Code (Ex.

PEZA)

53 Gross Selling Price means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of sale, barter or exchange of the goods or properties, excluding the VAT. The Excise tax, if
any on such goods or properties shall form part of the gross selling price.
 NOTES in TAXATION by TEP ABRENICA 55
Atty. Bonilla Discussion supplemented by Vitug Acosta book

To be Determined by
Subject Matter of VAT 12% VAT rate Zero (0) % VAT rate
Commissioner

f. SALE of Goods, supplies, equipment and fuel to

persons ENGAGED in INTERNATIONAL
SHIPPING or AIR transports operation

2. FOREIGN CURRENCY DENOMINATED SALE

(Sec. 106 A 2 b) means SALE to a NON-RESIDENT of
goods, (except Sec. 149 and 150), ASSEMBLED or
a. SALE of GOODS or
Manufactered IN THE PHILIPPINES for DELIVERY to
PROPERTIES
a RESIDENT in the Philippines, PAID for in acceptable
foreign currency and accounted for in accordance with
BSP

3. Sales to persons or entities who are exempted

under special or international agreement to
which the Philippines is a SIGNATORY (Sec. 106 A 2c)

b. SALE or (1) All performance of ALL kinds of SERVICES in the Philippines (1) Processing, manufacturing or repacking of goods for
EXCHANGE of for FEE, remuneration or consideration other persons doing business OUTSIDE the
SERVICE PHILIPPINES which goods are subsequently exported,
This ALSO INCLUDES: where the services are PAID for in acceptable
FOREIGN CURRENCY and accounted by BSP
(2) Construction and Service CONTRACTORS
(2) OTHER SERVICES rendered to a person engaged in
(3) Stock, real estate, commercial, customs and immigration business conducted OUTSIDE the Philippines or to a
BROKERS NON-RESIDENT person NOT engaged in business
OUTSIDE the Philippines when the SERVICES are
(4) Lessor of Property performed, and PAID in acceptable foreign currency
and accounted by BSP
(5) Warehousing services
(3) Services rendered to a person or entities who are
(6) Persons engaged in MILLING processing EXEMPTED under special laws or international
agreements to which the Philippines is a signatory
(7) Manufacturing or repacking goods for others;
(4) Services rendered to persons engaged in
(8) Proprietors, operators or keepers of hotels, motels, resthouses, INTERNATIONAL SHIPPING or AIR TRANSPORT
pension houses, inns and resorts. operations including leases of property for use

(9) Proprietors or operators of restaurants, refreshment parlors, (5) Services performed by subcontractors and/or
cafes and other eating places, including clubs and caterers contractors in processing, converting or manufacturing
goods for an enterprise whose export sales exceed 70%
(10) Dealers in securities of total annual production

(11) Lending investors (6) Transport of passengers and cargo by air or sea vessels
from the Philippines TO a FOREIGN COUTNRY; and
(12) COMMON Carriers by AIR and SEA relative to their transport
of passengers, goods or cargoes FROM 1 place in the
Philippines to another place in the Philippines to ANOTHER
place in the Philippines.
 NOTES in TAXATION by TEP ABRENICA 56
Atty. Bonilla Discussion supplemented by Vitug Acosta book

To be Determined by
Subject Matter of VAT 12% VAT rate Zero (0) % VAT rate
Commissioner

b. SALE or (13) Transportation contractors on their transport of goods or (7) Sale of POWER or FUEL generated through renewable
EXCHANGE of cargoes, including sources of energy , such as but not limited to :
SERVICE i. Persons who transport goods or cargoes for hire; and i. Biomass,
ii. Other domestic common carriers by land relative to their ii. Solar
transport of goods or cargoes iii. wind
iv. hydropower
(14) Sales of Electricity by generation companies, transmission and v. geothermal
distribution companies vi. ocean energy
vii. other emerging energy sources using
(15) Services of franchise grantees of technologies such as fuel cells and hydrogen
i. electric utilities fuels.
ii. telephone and telegraph
iii. radio and television broadcasting exceeding P10M
iv. Crop insurance
v. Other franchise grantees

EXCEPT:
a. Under Sec. 119 3%percentage tax if radio and television
broadcasting sales is <10M
b. Non life insurance companies
c. Surety, fidelity, indemnity and bonding companies

(16) Similar services regardless of whether or not the performance

CALLS for the EXERCISE or USE of the physical or mental
faculties.

c. USE or LEASE of (1) Lease or Use of Property, whether personal or real

PROPERTIES, (2) Lessors or distributors of cinematographic films,
irrespective of place
the contract of lease (3) Lease or Use of or Right or privilege to use any copyright,
or licensing was patent, design or model, plan, secret formula or process,
executed goodwill, trademark, trade brand or other property rights;

(4) Industrial, Commercial or Scientific equipment

(5) Supply of Scientific, technical, industrial, commercial
knowledge or information

(6) Supply of services by a NON-RESIDENT person or his

employees in connection with the use of property or rights
belonging to or the installation or operation of any brand,
machinery or other apparatus purchased from such non
resident person

(7) Supply technical advice, assistance or services rendered in

connection with technical management or administration of
any scientific, industrial or commercial undertaking, venture,
project or scheme.

(8) Lease of MOTION picture films, films, tapes and discs; and
(9) Lease or use of or the right to use, radio, television, satellite
transmission and cable television time.
 NOTES in TAXATION by TEP ABRENICA 57
Atty. Bonilla Discussion supplemented by Vitug Acosta book

Value-Added Tax EXEMPTED are the following: (SEC. 109) F. Services by agricultural contract growers and milling for
others of
A. (MUST BE FOR HUMAN CONSUMPTION) Sale or i. palay into rice,
importation of agricultural and marine food products in their ii. corn into grits and
original state54 . iii. sugar cane into raw sugar;

i. livestock and poultry of a kind generally used as, or G. Medical, dental, hospital and veterinary services EXCEPT
yielding or producing foods for human consumption those rendered by professionals.
and;
H. Educational services rendered by private educational
ii. Breeding stock and genetic materials therefore. institutions, duly accredited by DepEd, CHED, and TESDA

B. Sale or importation of fertilizers, seeds, seedlings and
fingerlings, fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or imported,
USED in MANUFACTURE of FINISHED feeds
Except: SPECIALTY feeds for race horses, fighthing cocks,
aquarium fish, zoo animals and other animal generally
considered as pets.
C. Importation of personal and household effects belonging to
i. residents of the Philippines returning from abroad
and
ii. nonresident citizens coming to resettle in the
Philippines:
Provided, that such goods are exempt from customs duties
under the Tariff and Customs Code of the Philippines;
D. Importation of
I. Services rendered by individuals pursuant to an employer-
employee relationship;
J. Services rendered by regional or area headquarters
established in the Philippines by multinational corporations
which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the
Asia-Pacific Region and do not earn or derive income from
the Philippines;
K. Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws, except those under PD 529
L. FOR Agricultural cooperatives (duly registered with the
Cooperative Development Authority)
1. SALE OF THERE produce whether in original state or
processed to its members and NON-members

i. professional instruments and implements, 2. IMPORTATION of DIRECT FARM inputs, machineries

ii. wearing apparel, and equipment, including spare parts thereof, to be used
iii. domestic animals, and directly and exclusively in the production and/or
iv. personal household effects processing of their produce;

EXCEPT any vehicle, vessel, aircraft, machinery other M. Gross receipts from lending activities by credit or multi-
goods for use in the manufacture and merchandise of purpose cooperatives duly registered with the Cooperative
any kind in commercial quantity Development Authority;

Belonging to persons COMING TO SETTLE IN THE
PHILIPPINES, for their OWN USE and NOT FOR SALE,
barter or exchange,
Accompanying such persons, or arriving within ninety (90)
days before or after their arrival, upon the production of
evidence satisfactory to the Commissioner, that such persons
are actually coming to settle in the Philippines and that the
change of residence is bona fide;
E. Services subject to percentage tax under Title V; --
because such is subject to 3% percentage tax.
N. Sales by non-agricultural, non- electric and non-credit
cooperatives duly registered with the Cooperative
Development Authority: Provided, That the share capital
contribution of each member does not exceed P15,000 and
regardless of the aggregate capital and net surplus ratably
distributed among the members;
O. EXPORT SALES by persons who are not VAT-registered;
P. Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business or real property utilized for low-cost and socialized
housing as defined by RA. No. 7279 (Urban Development
and Housing Act of 1992), and other related laws,

i. RESIDENTIAL LOT: VALUED at P 1, 919,500.00 and

below
54 Original State - means ii. HOUSE and LOT: VALUED at P 3, 199, 200.00 and
i. UNPROCESSED and below.
ii. if undergone processing, it is a SIMPLE process of preparation or
preservation for the market, such as freezing, drying, salting, broiling,
Q. Lease of a residential unit with a monthly rental not
roasting, smoking or stripping.
iii. ALSO, polished and/or husked rice, corn grits, raw cane sugar and molasses, exceeding P 12,800; IF lease EXCEEDED 12,800 subject
ordinary salt, and copra to 12% vat.

R. Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at
regular intervals with fixed prices for subscription and sale
and which is not devoted principally to the publication of
paid advertisements; and
S. Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof
for domestic or international transport operations;
T. Importation of fuel, goods and supplies by persons engaged
in international shipping or air transport operations;
U. Services of banks, non-bank financial intermediaries
performing quasi-banking functions, and other non-bank
financial intermediaries; and
V. Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the
preceding paragraphs, the gross annual sales and/or receipts
do not exceed the amount of P 1, 919,000.00 --- subject to
PERCENTAGE TAX at 3%
NOTE: RULE: VAT Registered person may ELECT NOT to be
EXEMPTED from VAT, provided, it is IRREVOCABLE for a
period of 3 years from the quarter the election was made. (SEC.
109 [2])
========
Categories of INPUT Taxes THAT may be credited
against OUTPUT tax:
1. Transitional Input Tax Credit (Sec. 111 A) 2%
2. Presumption Input tax Credit (sec. 111 B) -4%
3. Final Withholding Tax Credit (sec. 114 C) 56/100%
4. Creditable Input Tax (Sec. 110 A)
TRANSITIONAL INPUT TAX CREDIT (Sec 111 B)
Applicable ONLY to:
i. FIRST time for the person to be LIABLE to VAT or
ii. Any person who elects to be a VAT registered
person for first time
ALLOWED input tax to be credited to output tax on his
BEGINNING inventory of goods, materials and supplies =
2% of WHICHEVER is HIGHER:
a. VALUE of Inventory
b. ACTUAL Vat paid on such goods, materials and supplies
NOTES in TAXATION by TEP ABRENICA 58
Atty. Bonilla Discussion supplemented by Vitug Acosta book
PRESUMPTION INPUT TAX CREDIT (Sec. 111 B)
Applicable ONLY to: persons or firms engaged in
1. PROCESSING55 of Sardines, Mackerel and Milk; and
2. MANUFACTURING refined Sugar, Cooking oil and
packed noodle-based instant meals
ALLOWED input tax to be credited to output tax = 4% of
the gross value in money of their purchase of
primary agricultural products which are used as inputs
to their production
FINAL WITHHOLDING TAX CREDIT (Sec. 114 C)
Gen. rule: Withholding tax does NOT apply on
transactions subject to VAT
Exceptions:
a. Gross payments by GOVERNMENT, instrumentality,
political subdivision, agencies or GOCCS of purchase of
goods and services = 5% FWT
b. Gross Payments by RESIDENT VAT taxpayers to NON-
resident foreign person for LEASE or USE of properties
or property RIGHTS t = 102% FWT.
Example:
GOCC will WITHHOLD 5% of its
payment of 1M to the services of
Allan hence, Allan will only
receive P950,000, and will not pay
any VAT for such transaction.
CREDITABLE INPUT TAX
SOURCES of Input tax credit: ANY input tax as
evidence by a VAT invoice or official receipt SHALL be
creditable against the output tax:
(1) PURCHASE or IMPORTATION of GOODS for:
i. Sale;
ii. Conversion into or intended to form part of a
finished product for sale and packaging materials
iii. Use as supplies in the COURSE of business
iv. Use as materials supplied for sale of service
v. Use in trade or business for which deduction for
depreciation or amortization is allowed.
(2) PURCHASE of SERVICES on which a VAT has been
actually paid.
55 Processing mean pasteurization, canning and activities which through physical or
chemical process alter the exterior texture or form or inner substance of a product in such
manner as to prepare it for special use to which it could not have been put in its original
form or condition (Sec. 111B)
 NOTES in TAXATION by TEP ABRENICA 59
Atty. Bonilla Discussion supplemented by Vitug Acosta book

TAX REMEDIES of VAT

Who CAN use CREDITABLE input tax?

- Any VAT registered person subject to VAT or exempted For VAT-REGISTERED Person, applicable When OUTPUT
to such. VAT is LESS THAN Input Vat

When INPUT TAX can be CREDITABLE to the
Output tax?
When CREDITABLE
SOURCE of Input Vat
to Output tax
CONSUMMATION of SALE
Purchase of Goods or (issuance of sale invoice
Properties regardless of payment/non-
payment)
Upon PAYMENT of VAT prior
IMPORTATION of Goods to the release of the goods from
customs custody
When PAID by the BUYER to
Purchase of SERVICE the seller and evidenced by
sellers official receipt.
A. For VAT-Registered person subject to 12%
(1) CARRY- OVER the excess input vat to the
succeeding quarter(s) (Sec. 110 B)
B. For VAT Registered that are..
i. Subject to 0% (Zero-Rated)
ii. Cancelled VAT Registration due to retirement
or cessation of business
iii. Cancelled Due to Changes in or Status
(2) CARRY- OVER the excess input vat to the
succeeding quarter(s); OR (option Sec. 110B)
(3) Claim for REFUND or Tax Credit (sec. 112)
For BIR ASSESSMENT and PROTEST (note: rules applied
are the same in income assessment and protest)

RULES on INPUT VAT on goods purchased of imported IN A =========

CALENDAR MONTH FOR USE in trade or business for which
deduction for depreciation or amortization is allowed. (Sec. 110 CLAIM for REFUND or TAX CREDIT
2b par. 2)
WHEN to be FILED?
Input tax SHALL be SPREAD EVENLY over the month of
acquisition. Within 2 years period from

IF the aggregate acquisition cost for such goods, (excluding i. DATE of SALE when made FOR the REFUND
the VAT component) EXCEED 1M, of CREDITABLE input tax for the sale except
transitional input vat (Sec. 112 A)
Gen Rule: Input vat spread evenly for 59 succeeding months
ii. DATE of Cancellation of the VAT-Registration,
a refund for any UNUSED input tax which may
EXCEPT: IF the estimated useful life is < 5 years as used for
be used in payment of his other internal
depreciation purposes, input vat spread evenly OVER such a
revenue taxes (Sec. 112 B)
shorter period

EFFECT of VAT CREDIT: if at the end of any taxable quarter.. REQUISITIES to VALIDLY Claim VAT REFUND for 0%:

(1) The CLAIMED input tax payments are duly supported

OUTPUT vat exceeds INPUT vat ( Output vat > Input vat)
- The EXCESS Output vat shall be PAID by the VAT-
registered person.
OUTPUT less than INPUT VAT (Output vat < Input Vat)
- The EXCESS Input vat shall be CARRIED over to the
succeeding quarter or quarters.
by VAT invoices or receipts
(2) Claimed Input tax payments are DIRECTLY attributable
to Zero-rated sales;
(3) Claimed input tax payments were NOT applied against
any output tax NOR carried over to the succeeding
months or quarters;
(4) Both the administrative and judicial claims for refund or
tax credit where filed within the 2 year prescriptive
period.
 NOTES in TAXATION by TEP ABRENICA 60
Atty. Bonilla Discussion supplemented by Vitug Acosta book

PROCEDURE COMPLIANCE REQUIRMENT for VAT

(1) REGISTRATION as a VAT and/or NON-VAT person

(2) ISSUANCE of Invoices and Receipts

The FOLLOWING must be the CONTENTS:

i. Statement that the SELLER is a VAT or NON-VAT regisrtered with TIN

ii. TOTAL amount which the purchaser pays or obligated to pay, indication
of amount of input vat.
iii. If the sale is VAT-EXEMPT, it must states such prominently on the
invoice or receipt
iv. If the sale is subject to VAT-EXEMPT and Zero-Rated, such must state
the breakdown of the sales subject to vat-exempt and subject to zero-
rated
v. Date of transaction, quantity, unit cost and description of the goods or
properties or nature of the service
vi. If the sale is 1,000o or MORE, name, business style and address of the
purchaser, customer or client must be stated.

CONSEQUENCES of Issuing ERRONEOUS VAT invoice or Official Receipt

a. If a NON-REGISTERED person ISSUES an invoice or receipt showing his

TIN and the word VAT, the ISSUER is liable to the following,
(ALL):

1. PERCENTAGE taxes;
2. VAT Tax for sale of goods, properties or services shall be IMPOSED
and made liable without benefit of input tax credit; and
3. 50% surcharge to tax deficiency

b. If a VAT-Registered person issues a VAT invoice FOR an VAT-EXEMPT

transaction, but FAILS to display prominently the term vat-exempt, the
ISSUER is liable to account for the tax imposed in Sales of goods,
** Power of BIR Commissioner to SUSPEND the BUSINESS Operation of
properties or service, as if tax-exemption does not apply.
the taxpayer and TEMPORARLIY close the business establishment, if they
FOUND the taxpayer violated VAT law on the FOLLOWING:
(3) FILING of VAT Returns and Payment of Taxes
a. Failure to issue receipt/invoices
a. FILE quarterly VAT return of the amount of his gross sales or receipts within
b. Failure to file a VAT Return
25 days following the close of each taxable quarter
c. Understatement of taxable sales or receipts by 30% or more of his correct
taxable sales or receipts for the taxable quarter.
b. VAT-registered persion shall pay VAT on a MONTHLY BASIS
d. Failure to Register

**TEMPORARY closure shall be made NOT less than 5 days and lifted ONLY upon
compliance.

OTHER PERCENTAGE TAX (VAT) [Sec. 116 to 128]
Percentage Tax is ONLY imposed on the ITEMS enumerated
in the NIRC and that are NOT subject to VAT.
The FOLLOWING are SUBJECT to 3% Percentage tax
based on gross quarterly sales or receipts:
(1) Person NOT a VAT-Registered person Except cooperatives
(2) Sales or Lease of goods properties or the performance when
the GROSS annual sales and/or receipts DO NOT exceed 1,
919,500.00 php
(3) Domestic CARRIERS
i. Cars for RENT or HIRE driven by the lessee
ii. Transportation Contractors
iii. Persons who transport passengers for hire
iv. Other domestic carriers by land for the transports of
passengers
(4) Keepers of Garages
(5) International Carriers AIR or SHIPPING doing business in
the Philippines
(6) Franchises on radio and/or television BROADCASTING
companies whose annual gross receipts of the preceding year
DOES not exceed P10M
NOTE: they have the option either:
i. Register as a VAT taxpayer; or
ii. To be subjected to Percentage tax
Upon the exercise of the OPTION it is irrevocable
The FOLLOWING are subject to of 1 % (.50%)
percentage tax
(1) Sale, Barter or Exchange of Shares of Stock listed and traded
through the LOCAL STOCK EXCHANGE
The FOLLOWING are subject to 2% percentage tax
(1) Franchise on GAS and WATER utilities
(2) Life Insurance Premiums
The FOLLOWING are subject to 5% percentage tax
(1) Tax on other NON-Bank financial intermediaries DOING
business in the Philippines from interest commission,
discounts and all other items treated as gross income
The FOLLOWING are subject to 10% percentage tax
(1) Gen. Rule: On every overseas dispatch, message or
conversation transmitted from the Philippines by telephone,
telegraph, telewriter exchange, wireless and other
communication equipment services.
Except: Tax imposed shall not apply to Overseas dispatch,
message or conversation transmitted by:
NOTES in TAXATION by TEP ABRENICA 61
Atty. Bonilla Discussion supplemented by Vitug Acosta book
a. Government, political subdivision or
instrumentalities
b. Diplomatice Services (embassy and consular
offices)
c. Public international organization or any of its
agencies based in the Philippines enjoying
privileges, exemptions and immunities
d. Newspaper, press association, radio or television
newspaper, broadcasting agency, or newstickers
services.
Percentage tax rate on BANKS, and NON-BANK Financial
intermediaries Performing Quasi-Banking Functions -- gross
receipts from sources within the Philippines
(a) Interest, commissions and discounts from (1) Lending
activities anf (2) financial leasing:
i. Maturity period is 5 or less 5%
ii. Maturity period is more than 5 yrs. 1%
(b) Dividends and equity shares and net income of
subsidiary 0%
(c) Royalties, rentals of property, profits from exchange
and all other items 7%
(d) Net trading gains within the taxable year on foreign
currency, debt securities, derivatives and other similar
function instruments 7%
The following are PERCENTAGE taxes on AMUSEMENT TAXES
Cockpits 18%
Cabarets, Night or Day Clubs 18%
Boxing Exhibitions 10%
Boxing exhibitions for WORLD or ORIENTAL
championship where at least one contender is a citizen
and promoted by a Philippine citizen or corporation of
at least 60% citizen owned capital EXEMPT
Professional basketball games 15%
Jai-Alai and racetracks 30%
Winning in HORSE RACE 10% of the winnings
Winnings from double, forecast/quinella and trifecta
bets 4%
 NOTES in TAXATION by TEP ABRENICA 62
Atty. Bonilla Discussion supplemented by Vitug Acosta book

EXCISE TAX [Sec.129 - 172] DOCUMENTARY STAMP TAX [Sec.173 ]

Excise Tax is in the nature taxes on property as they are
imposed directly on certain specific goods
GOODS SUBJECT to EXCISE TAXES - apply to goods
manufactured or produced in the Philippines for
domestic sale or consumption or for any other
disposition and to things imported.
*** Excise tax is IMPOSED in ADDITION to VAT.
ARTICLES subject to EXCISE TAXES:
(1) ALCOHOL PRODUCTS
a. Distilled spirits and preparations of which distilled
spirits form the chief ingredient
b. Wines
c. Fermented liquors
(2) TOBACCO PRODUCTS
a. Products of Tobacco
b. Cigars
c. Cigarettes
(3) PETROLEUM PRODUCTS
a. Lubricating oils, greases;
b. Processed gas
c. Waxes and petrolatum
d. Denatured alcohol for motive power
e. Naptha, regular gasoline, and other similar
products of distillation
f. Premium gasoline
g. Aviation turbo jet fuel, diesel fuel oil
h. Kerosene
i. Diesel Fuel oil and similar fuel oils
j. Liquefied Petroleum Gas (LPG)
k. Asphalts
l. Bunker fuel oil and similar oils and
m. Naptha, when used as a raw material in the
production of petrochemical products.
(4) MISCELLANEOUS articles
a. Automobiles
b. Certain non-essential goods
(5) MINERAL PRODUCTS
a. Coal and Coke
b. Non-metallic minerals and quarry resources
c. Metallic Minerals
d. Indigenous petroleum
Documentary Stamp tax - a tax on documents, instruments
and papers evidencing the acceptance, assignment, sale
or transfer of an obligation, right or property incident
thereto.
The FOLLOWING are SUBJECT to DST:
(1) Loan Agreements
(2) Original Issue of Shares of Stock
(3) Sales, Agreements to Sell, Memoranda of Sales, Deliveries or
Transfer of Shares or Certificates of Stock
(4) Bonds, Debentures, Certificates of Stock or Indebtedness
Issued in Foreign Countries
(5) Certificates of Profits or interest in Property or
Accumulations
(6) Bank Checks, Certificates of Deposit not bearing interests
and other instruments
(7) All Debt instruments
(8) All Bills of Exchange or Drafts
(9) Upon Acceptance of Bills of Exchange and Others
(10) Foreign Bills of Exchange and Letters of Credit
(11) Life Insurance Policies
(12) Policies of Insurance Upon Property
(13) Fidelity Bonds and other insurance Policies
(14) Policies of Annuities and Pre-need plans
(15) Indemnity Bonds
(16) Tax on Certificates
(17) Warehouse Receipts
(18) Jai-alai, Horse Race tickets, lotto or other authorized
numbers games
(19) Bills of Lading or Receipts
(20) Tax on Proxies
(21) POwes of Attorney
(22) Leases and other Hiring agrements
(23) Mortgages, Pledges and Deeds of Trust
(24) Deed of Sale and Conveyances of Real Property
(25) Charter Parties and Similar Instruments
(26) Assignments and Renewals of Certain Instruments
The FOLLOWING are DST EXEMPT:
(a) Policies of insurance or annuities made or granted 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
(b) Certificates of oaths:

i. administered to any government official in his official

capacity or of acknowledgment by any government
official in the performance of his official duties,

ii. written appearance in any court by any government

official, in his official capacity;

iii. to any person as to the authenticity of any paper

required to be filed in court by any person or party
thereto, whether the proceedings be civil or criminal;

iv. papers and documents filed in courts by or for the

national, provincial, city or municipal governments;

v. affidavits of poor persons for the purpose of proving
poverty;
vi. statements and other compulsory information required
of persons or corporations by the rules and regulations
of the national, provincial, city or municipal
governments exclusively for statistical purposes and
which are wholly for the use of the bureau or office in
which they are filed, and not at the instance or for the
use or benefit of the person filing them;
vii. certified copies and other certificates placed upon
documents, instruments and papers for the national,
provincial, city, or municipal governments, made at the
instance and for the sole use of some other branch of the
national, provincial, city or municipal governments; and
certificates of the assessed value of lands, not exceeding
P200 in value assessed, furnished by the provincial, city
or municipal Treasurer to applicants for registration of
title to land.
(c) Borrowing and Lending of Securities executed under the
Securities Borrowing and Lending program of a registered
exchange
(d) Loan Agreements or Promissory notes, the aggregate of
which does NOT exceed P250,000 or any amount as
determined by DOF, executed by any individual for his
personal use or his family AND NOT for business or resale,
barter or hire of a house and lot, motor vehicle, appliance or
furniture
(e) Sale, Barter or exchange of shares of stock listed and traded
through the Local stock exchange
(f) Assignment or transfer of any mortgage, lease or policy of
insurance, or the renewal or continuance of any agreement,
contract, charter or any evidence of obligation or
indebtedness, if there is NO change in the maturity date or
remaining period of coverage from that of the original
instrument.
(g) Fixed income and other securities traded in the secondary
market or through an exchange
(h) Derivatives
(i) Interbranch or interdepartmental advances within the same
legal entity
(j) All forebearances arising from sales or service contracts
including credit card and trade receivables
(k) Bank deposit accounts without a fixed term or maturity
(l) All contracts, deeds, documents and transactions related oto
the conduct of business of the BSP
(m) Transfer of property pursuant to plan of merger or
consolidation (Sec. 40C2)
(n) Interbranch call loans with maturity of not more than 7 days
to cover deficiency in reserves against deposit liabilities,
including those between or among banks and quasi-banks
NOTES in TAXATION by TEP ABRENICA 63
Atty. Bonilla Discussion supplemented by Vitug Acosta book
LOCAL TAXATION
LOCAL GOVERNMENT UNIT (LGUs)
has the power to tax within its territorial jurisdiction
pursuant to Art. 10 Sec. 556 of 1987 Phil. Constitution
Such grant of POWER is PURSUANT to Constitutional
MANDATE of LGUs LOCAL AUTONOMY57 - system of
decentralization.
SOURCES of LGUs FUNDS:
(1) INTERNAL Revenue Allotment58
(2) LOCAL taxes59 exclusive accruing to the LGU except
Community taxes where the national government has a
share.
(3) Real Property Taxes as provided by LG Code taxes on the
usage of the land.
Why is LGU has the power for LOCAL Taxation? Because, of the
constitutional grant of local autonomy, that the LGU be
freed from National Government management and
administration. Local taxation is NOT an inherent
power but a power delegated by the Constitution to
LGUs and is subject to control and supervision of the
Legislature.
NATURE of LGUs Taxing power
(a) NOT confiscatory and oppressive;
(b) It cannot restrict trade and business
(c) It is granted to the LGU to exercise its local autonomy
(d) It is NOT inherent but delegated to the LGU by the
Constitution
(e) It is subject to CONTROL and SUPERVISION of the
CONGRESS provided, such must be consistent to the basic
policy of local autonomy.
56 Section 5. 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.
571987 Phil.Consti. Art. 2 Sec.25. The State shall ensure the autonomy of local
governments.
581987 Phil. Consti. Art. 10 Sec. 6. Local government units shall have a just share, as
determined by law, in the national taxes which shall be automatically released to them.
59 See footnote 22
 NOTES in TAXATION by TEP ABRENICA 64
Atty. Bonilla Discussion supplemented by Vitug Acosta book

SCOPE of LOCAL TAXATION

(1) LGU is granted GENERAL POWERS to levy TAXES,
FEES and CHARGES accruing exclusively to them
except CTC where national govt has a share (Sec. 186 of
LGC60)
(2) It must be IMPOSED with PUBLIC HEARING prior to
the enactment of the Ordinance 61
(3) There MUST be AN ORDINANCE imposing such taxes,
fees or charges 62
(4) The ORDINANCE must be PUBLISHED in accordance
to the LGC63
(5) LOCAL TAXING AUTHORITY is vested
SANGGUNIAN of the LGU concerned. 64
(8) LGU has the POWER to ADJUST tax rates but such
must be exercised NOT OFTENER than once every 5
years and not to exceed 10% of the previous rates. 67
Can City Mayor or CHIEF EXECUTIVE of an LGU ALONE order
collection of tax? NO, imposition of tax can be done
solely by the City Mayor BECAUSE taxing power is
inherently a legislative act in nature, hence, it should be
exercised by the SANGGUNIAN of LGU through an
appropriate ordinance pursuant to LGC.
FUNDAMENTAL PRINCIPLES of Taxing Power
(Sec. 130 LGC)
(a) Taxation shall be UNIFORM;
to the
(b) Taxes, fees, charges and other impositions shall:

(6) LGU has the POWER to prescribe PENALTIES (fine and (1) be EQUITABLE and based on the taxpayer's
imprisonment) for LOCAL TAX violations. 65 ABILITY to PAY;

(2) be levied and collected only for PUBLIC

(7) LGU can grant TAX EXEMPTIONS66
PURPOSES;

(3) NOT be unjust, excessive, oppressive, or

confiscatory;
60Section 186. Power To Levy Other Taxes, Fees or Charges. - Local government units
may exercise the power to levy taxes, fees or charges on any base or subject not (4) NOT be CONTRARY to law, public policy, national
otherwise specifically enumerated herein or taxed under the provisions of the National
Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes,
economic policy, or in the restraint of trade;
fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to
declared national policy: Provided, further, That the ordinance levying such taxes, fees or (c) The collection of local taxes, fees, charges and other
charges shall not be enacted without any prior public hearing conducted for the purpose. impositions shall in no case be let to any private person;
61 Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue (d) The revenue collected inure solely to the benefit of, and be
Measures; Mandatory Public Hearings. - The procedure for approval of local tax subject to the disposition by, the LGU levying the tax, fee,
ordinances and revenue measures shall be in accordance with the provisions of this charge or other imposition unless otherwise specifically
Code: Provided, That public hearings shall be conducted for the purpose prior to the
provided herein; and,
enactment thereof: Provided, further, That any question on the constitutionality or legality
of tax ordinances or revenue measures may be raised on appeal within thirty (30) days
from the effectivity thereof to the Secretary of Justice who shall render a decision within (e) Each LGU shall, as far as practicable, evolve a progressive
sixty (60) days from the date of receipt of the appeal: Provided, however, That such system of taxation.
appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within
thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the
Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate
proceedings with a court of competent jurisdiction.

62Section 132. Local Taxing Authority. - The power to impose a tax, fee, or charge or to
generate revenue under this Code shall be exercised by the sanggunian of the local
government unit concerned through an appropriate ordinance.

63Section 188. Publication of Tax Ordinances and Revenue Measures. - Within ten (10)
days after their approval, certified true copies of all provincial, city, and municipal tax
ordinances or revenue measures shall be published in full for three (3) consecutive days
in a newspaper of local circulation: Provided, however, That in provinces, cities and
municipalities where there are no newspapers of local circulation, the same may be
posted in at least two (2) conspicuous and publicly accessible places.

64 See footnote 28
65Section 516. Penalties for Violation of Tax Ordinances. - The sanggunian of a local
government unit is authorized to prescribe fines or other penalties for violation of tax
ordinances but in no case shall such fines be less than (P1,000.00) nor more than
(P5,000.00), nor shall imprisonment be less than (1) month nor more than (6) months.
Such fine or other penalty, or both, shall be imposed at the discretion of the court. The
sangguniang barangay may prescribe a fine of not less than (P100.00) nor more than
(P1,000.00).
66Section 192. Authority to Grant Tax Exemption Privileges. - Local government units
may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under
such terms and conditions as they may deem necessary.
67Section 191. Authority of Local Government Units to Adjust Rates of Tax Ordinances. -
Local government units shall have the authority to adjust the tax rates as prescribed
herein not oftener than once every five (5) years, but in no case shall such adjustment
exceed ten percent (10%) of the rates fixed under this Code.
 NOTES in TAXATION by TEP ABRENICA 65
Atty. Bonilla Discussion supplemented by Vitug Acosta book

COMMON to ALL LGUs for (j) PERCENTAGE or VAT on sales, barters or exchanges or
REVENUE RAISING POWERS similar transactions on goods or services except as otherwise
provided herein;
(1) SERVICE fees and charges rendered (Sec. 153 LGC)
(k) Taxes on the gross receipts of transportation contractors and
(2) OPERATION of PUBLIC UTILITIES, operated and persons engaged in the transportation of passengers or
maintained by them within their jurisdiction (Sec. 154 LGC) freight by hire and common carriers by air, land or water,
except as provided in this Code;
(3) TOLL fees or charges for use of any PUBLIC
i. Road (l) Taxes on premiums paid by way or reinsurance or
ii. Pier retrocession;
iii. Wharf
iv. Waterway (m) Taxes, fees or charges for the registration of motor vehicles
v. Bridge and for the issuance of all kinds of licenses or permits for the
vi. Ferry or driving thereof, except tricycles;
vii. Telecommunication system
(n) Taxes, fees, or other charges on Philippine products actually
THAT are FUNDED and CONSTRUCTED by the LGU exported, except as otherwise provided herein;
concerned. However, CANNOT collect from officers and
enlisted men of.. (o) Taxes, fees, or charges, on Countryside and Barangay
i. AFP Business Enterprises and cooperatives duly registered under
ii. PNP RA 6810 and RA 6938.
iii. Post Office personnel delivering mail
iv. Physically handicapped (p) Taxes, fees or charges of any kind on the National
v. Disabled citizens who are 65 years and older. Government, its agencies and instrumentalities, and local
government units.
COMMON to all LGUS LIMITATIONS on
LOCAL TAXING POWERS
TAXES IMPOSED by EACH LGUs
(a) INCOME TAX except when levied on banks and other
A. PROVINCE
financial institutions;
1. Transfer of Real Property
(b) Documentary stamp tax;
Ownership (Sec. 135)
(c) DONORS tax and ESTATE taxes except as Real Property Tax E. CITIES
2. Business of Printing and
under LGC by Provinces and Cities;
Publication (Sec. 136)
* highly urbanized
(d) CUSTOMS DUTIES and registration fees of vessel and independent
3. Franchise Tax (Sec. 137)
component cities
Except: FEES imposed on issuance of licenses for the taxes, fees and
4. Sand, gravel and other quarry
operation of fishing vessels of 3 tons gross or less by charges collected
resources (sec. 138)
MUNICIPALITIES (Sec. 149) and CITIES (Sec. 151) accrue to them
5. Professional Tax (Sec. 139) ONLY
(e) Wharfage on wharves, tonnage dues, and all other kinds of
CUSTOMS FEES, CHARGES and DUES * component cities
6. Amusement Tax (Sec. 140)
taxes, fees and
Except: wharfage on wharves constructed and maintained charges portion of
7. Annual Fixed tax for every
by LGU concerned; it is given to the
delivery truck or van of
manufacturers or producers, province and
(f) Taxes, fees, and charges and other impositions upon goods portion to the
wholesalers of, delaers or
carried into or out of, or passing through, the territorial component city.
retailers in certain products (Sec.
jurisdictions of local government units in the guise of
141)
charges for wharfage, tolls for bridges or otherwise, or other
taxes, fees, or charges in any form whatsoever upon such
B. MUNICIPALITIES
goods or merchandise;
1. Business Tax
(g) Taxes, fees or charges on agricultural and aquatic products
2. Fishery Privileges
when sold by marginal farmers or fishermen;
C. MUNICIPALITIES and CITIES only Community Tax
(h) Taxes on business enterprises certified to by the Board of
Investments as pioneer or non-pioneer for a period of (6)
and (4) years, respectively from the date of registration;

(i) EXCISE TAXES on articles enumerated under NIRC and

taxes, fees or charges on petroleum products;

D. BARANGAY
1. Taxes on STORES or RETAILERS with fixed
establishments with gross receipts preceding calendar
year of 50,000php or less (for cities) and 30,000php or
less (for municipalities) in a RATE of 1% on such gross
sales or receipts
<50K and < 3K if greater than Municipality
2. SERVICE FEES or CHARGES in connection with the
regulations or use of barangay owned properties or
service facilities
3. BARANGAY CLEARANCE
4. FEES and CHARGES to the following:
a. Commercial breeding of fighting cocks, cockfights
and cockpits
b. Places of recreation which charge admission fees;
c. Billboards, signboards, neon signs and outdoor
advertisements
======
TAXES that PROVINCE can IMPOSE:
1) Transfer of Real Property Ownership (Sec. 135)
Sale, Donation, Barter or any other mode of transferring
ownership or title of Real Property
EXCEPT: Real property subject to CARP (RA 6657)
TAX RATE: not exceeding 50% of 1% of, WHICH
EVER IS HIGHER,
i. the TOTAL CONSIDERATION involved in
ACQUISITION of the property
ii. FAIR MARKET VALUE, in case the monetary
consideration is NOT substantial
Who shall pay? SELLER, DONOR, TRANSFEREE,
Executor or Administrator
2) Business of Printing and Publication (Sec. 136)
TAX RATE: not exceeding 50% of 1% of gross annual
receipts for the preceding calendar year
Except: Newly started business = not exceeding 1/20
of 1% of capital investment, in succeeding years
regardless of business operation, regular rate of 50%
TAX EXEMPT: Printing and/or publishing of reading
materials PRESCRIBED by the DepED as SCHOOL texts
or references.
NOTES in TAXATION by TEP ABRENICA 66
Atty. Bonilla Discussion supplemented by Vitug Acosta book
3) Franchise Tax (Sec. 137)
Tax Rate: 50% of 1% of gross annual receipts of the
preceding calendar year based on the incoming receipt
within its territorial jurisdiction
Except: Newly started business = not exceeding 1/20
of 1% of capital investment, in succeeding years
regardless of business operation, regular rate of 50%
4) Sand, gravel and other quarry resources (sec. 138)
Tax Rate: not more than 10% of fair market value in
the locality PER cubic meter that are extracted from
public lands or from the beds of seas, lakes, rivers,
streams, creeks and other public waters within its
territorial jurisdiction
5) Professional Tax (Sec. 139)
IMPOSED on EACH person engaged in the exercise or
practice of profession REQUIRING government
examination
WHERE?
(a) Where he PRACTICES his PROFESSION
(b) Where he MAINTAINS his PRINCIPAL office in
case he practices his profession in several places.
AFTER payment of professional tax, he shall be entitled
to practice his profession in any part of the Philippines
without being subjected to any other national or local
tax for such practice of profession.
TAX EXEMPT: Professional EXCLUSIVELY
employed in the Government.
6) Amusement Tax (Sec. 140)
TAX RATE: not more than 30% of the gross receipts
from admission fees.
IMPOSED on PROPRIETORS, LESSES or
OPERATORS
Subjects:
i. Theaters
ii. Cinemas
iii. Concert halls for pop, rock or similar
iv. Circuses
v. Boxing stadia
vi. And other places of amusement
TAX EXEMPT: Operas, concerts, dramas and recitals,
painting and art exhibitions, flower shows, musical
programs, literary and oratorical presentation

7) Annual Fixed tax for every delivery truck or van of
manufacturers or producers, wholesalers of, delaers or
retailers in certain products (Sec. 141)
PRODUCTS:
i. Distilled spirits
ii. Fermented liquors
iii. Soft drinks
iv. Cigars and cigarettes
v. Other products as determined by the sangguniang
panlalawigan
TAX amount: not exceeding 500 php
TAXES that can be imposed by MUNICIPALITIES
1) Business Tax
(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 essential commodities:
(1.) Rice and corn;
(2.) Wheat or cassava flour, meat, dairy products,
locally manufactured, processed or preserved
food, sugar, salt and other agricultural, marine,
and fresh water products, whether in their
original state or not;
(3.) Cooking oil and cooking gas;
(4.) Laundry soap, detergents, and medicine;
(5.) Agricultural implements. equipment and post-
harvest facilities, fertilizers, pesticides,
insecticides, herbicides and other farm inputs;
(6.) Poultry feeds and other animal feeds;
(7.) School supplies; and
(8.) Cement.
(d) Retailers having gross sales or receipts above
50,000php (for cities) and above 30,000php (for
municipalities)
(e) Contractors and other independent contractors
(f) On banks and other financial institutions, at a rate not
exceeding (50%) of (1%) on the gross receipts of the
preceding calendar year derived from interest,
commissions and discounts from lending activities,
income from financial leasing, dividends, rentals on
property and profit from exchange or sale of property,
insurance premium.
NOTES in TAXATION by TEP ABRENICA 67
Atty. Bonilla Discussion supplemented by Vitug Acosta book
(g) On peddlers engaged in the sale of any merchandise or
article of commerce, at a rate not exceeding (P50.00)
per peddler annually.
(h) Any other business not specified which the sanggunian
concerned may deem proper to tax: Provided, That on
any business subject to the excise, value-added or
percentage tax under the NIRCthe rate of tax shall not
exceed (2%) of gross sales or receipts of the preceding
calendar year.
RULE on RETIREMENT OF BUSINESS (sec. 145 of
LGC).
Business SUBJECT to tax is COMING from its
retirement is OBLIGATED to PAY BUSINESS TAX
IF before the business is considered officially retired.
tax paid during the year < tax due on the current year
if, the tax paid during the years is GREATER THAN the
tax due on the current year such business for
retirement NEED NOT pay the business tax for that year
of retirement.
RULE on PAYMEN of BUSINESS TAX
a. PAYABLE for every separate or distinct establishment
or place where business subject to the tax is conducted
b. ONE line of business DOES not become exempt by being
conducted with some other business for which such tax
has been paid.
c. If a PERSON operates 2 or more businesses which are
i. SUBJECT to the SAME RATE of TAX shall be
COMPUTED on the combined TOTAL gross sales or
receipts of the said 2 or more related businesses
ii. SUBJECT to DIFFERETN RATE of TAX shall be
separately reported for the purpose of computing
the tax due from each business.
SITUS of BUSINESS Tax
GEN. RULE: ALL Sales recorded in the PRINCIPAL OFFICE
of the LGU considered at 100% tax base
EXCEPT:
(a) BRANCH where the BRANCH is located at 100% tax base
(b) FACTORY OR PLANTATION
i. Gross receipt in the principal office = 30% tax base
ii. Gross receipt in where the factory is located = 70%
(c) FACTORY AND PLANTATION
i. Gross receipt in the principal office =30% tax base
ii. Gross receipt where the FACTORY = 42% tax base
iii. Gross receipt where the PLANTATION = 28%
 NOTES in TAXATION by TEP ABRENICA 68
Atty. Bonilla Discussion supplemented by Vitug Acosta book

(d) 2 or more Factories or Plantation

REMEDIES for the LGU
i. Gross receipt in the principal office = 30% tax abse
ii. Gross receipt where each factory or plantation shall be A. Tax Lien
PRORATED tax base for 70% to RESPECTIVE
volumes of production. B. CIVIL REMEDIES

COMMUNITY TAX 1) ADMINISTRATIVE

PERSONS LIABLE i. distraint of personal property or

ii. levy real property and interest
a. INDIVIDUALS every inhabitants of the Philippines 18 iii. Imposition of Surcharges and interests
years and above who are: iv. Assessment

i. Regularly employed on a wage or salary basis 2) JUDICIAL ACTION ordinary civil action with the
for atleast 30 consecutive working days during regular courts of proper jurisdiction for collection of
any calendar year delinquent taxes, fees, chargers or revenues.
ii. Engaged in business or occupation
iii. Own real property with an aggregate assessed REMEDIES for the TAXPAYER
value of 1,000 or more
iv. Required by law to file an income tax PRIOR Assessment

a. JURIDICAL PERSON Corporation 1. Administrative Appeal to the Secretary of Justice

2. Action for DECLARATORY RELIEF
EXEMPTIONS who are exempted to pay Community tax
AFTER Assessment
(1) Diplomatice and Consular representatives
1. PROTEST of the Assessment
(2) Transient Visitors when their stay in the Philippines 2. Action for REFUND
DOES not EXCEED 3 months
APPEAL to the SECRETARY of JUSTICE
COLLECTION of LOCAL TAXES

Tax PERIOD calendar year and shall accrue on the

FIRST day of January.

PRESCRIPTIVE PERIOD

5 years from the date taxes became due for

ASSESSMENT

10 years from discovery of FRAUD assessment of

taxes in case of fraud or intent to evade payment thereof

Prescriptive Period shall be SUSPENDED:

a. Treasurer is legally prevented from making the

assessment or collection

b. Taxpayer requests for a re-investigation and

executes a waiver in writing before expiration of
the period within which to assess or collect

c. Taxpayer is OUT of the COUNTRY or otherwise

cannot be located.
 NOTES in TAXATION by TEP ABRENICA 69
Atty. Bonilla Discussion supplemented by Vitug Acosta book

PROCEDURE for PROTEST in LOCAL taxation PROCEDURE for CLAIM of REFUND in LOCAL taxation

PRESCRIPTIVE period of 2 years RUNS from:

a. From the DATE of the PAYMENT of the tax, fee or

charge ; OR

b. From the DATE the taxpayer is entitled to a refund or

credit.

FILE a CLAIM for REFUND or CREDIT to the LOCAL

TREASURER

DENIAL of the claim , the taxpayer may FILE an APPEAL in

COURT

In cases of INACTION, an APPEAL shall be filed in COURT

provided, such was made within the 2 year prescriptive
period.
 NOTES in TAXATION by TEP ABRENICA 70
Atty. Bonilla Discussion supplemented by Vitug Acosta book

REAL PROPERTY TAX Real Property SUBJECT to TAX

Real Property Tax - a tax on property, on the ownership of (1) Land

lands and buildings or other improvements thereon (2) Buildings
NOT specifically exempted and is payable regardless of (3) Machinery69
whether the property is used or not. (4) Other improvements70 (actually directly and exclusively
used to meet the needs of the particular industry,
- Such is ON the BASIS of ACTUAL USE business or activity and which by nature designed for.

NATURE Of Real Property Tax EXEMPTIONS to RPT:

1. It is a tax on property to it use (1) OWNED by Republic of the Philippines or political

2. It is a NATIONAL tax because it is imposed throughout subdivision, agency or instrumentalities
the Philippines but a local tax because it is imposed by
the LGUs where the realty is situated Except:
3. It is proportionate because such tax is calculated on the i. GOCCs
basis of a certain percentage of the value assessed. ii. When BENEFICIAL USE thereof has been granted,
4. It creates a single, indivisible obligation for consideration or otherwise to a taxable person

TYPES of Real Property Tax: (2) Charitable institutions, Churches, Parsonages or convents
appurtenant thereto, mosques, non-profit or religious
(A) Basic Real Property Tax (Ad Valorem Tax) cemeteries and ALL lands, buildings and improvements
ACTUALLY, DIRECTLY and EXCLUSIVELY USED for
1. PROVINCE not exceed 1% of assessed value religious, charitable or educational purposes.

2. CITY or MUNICIPALITY not exceed 2% of (3) ALL machineries and equipment that are ACTUALLY,
assessed value DIRECTLY and EXCLUSIVELY used by local water districts
and GOCCs engaged in the supply and distribution of water
(B) SPECIAL Levy and/or generation and transmission of electrical power.

1. Special Education Fund (SEF) 1% (4) Owned by Registered cooperatives

2. Tax on Idle Land68 - 5%
3. Reimburse for the improvements LGU project made (5) Used of Pollution Control and Environmental protection.
60% of the amount of the cost for 5 -10 years.
FUNDAMENTAL PRINCIPLES: Appraisal, assessment, levy
and collection of real property tax shall be guided by the
following:

a. Real property shall be APPRAISED71 at its current and fair

market value;

b. Real property shall be CLASSIFIED for assessment

purposes on the basis of its actual use;
68 Idle lands shall include the following:

(a) Agricultural lands, more than 1) hectare in area, suitable for cultivation,
dairying, inland fishery, and other agricultural uses, 1/2 of which remain
uncultivated or unimproved by the owner of the property or person having
legal interest therein.

Except: (NOT idle land)

i. Agricultural lands planted to permanent or perennial crops with at least 69Section 199 (o) of LGC: (o) "Machinery" embraces machines, equipment, mechanical
50 trees to a hectare contrivances, instruments, appliances or apparatus which may or may not be attached,
permanently or temporarily, to the real property. It includes the physical facilities for
ii. Lands actually used for grazing purposes shall likewise not be production, the installations and appurtenant service facilities, those which are mobile,
considered idle lands. self-powered or self-propelled, and those not permanently attached to the real property
which are actually, directly, and exclusively used to meet the needs of the particular
(b) Lands, not agricultural more than 1,000 square meters in area 1/2 of which industry, business or activity and which by their very nature and purpose are designed for,
remain unutilized or unimproved by the owner of the property or person or necessary to its manufacturing, mining, logging, commercial, industrial or agricultural
having legal interest therein. purposes;

Exempt from IDLE LAND Tax. by reason of owner of the property or person having 70 Sec. 199 (m) of LGC: (m) "Improvement" is a valuable addition made to a property or
legal interest therein from improving, utilizing or cultivating LIKE: an amelioration in its condition, amounting to more than a mere repair or replacement of
i. force majeure, parts involving capital expenditures and labor, which is intended to enhance its value,
ii. civil disturbance, beauty or utility or to adapt it for new or further purposes;
iii. natural calamity or any cause or circumstance which physically or 71 "Appraisal" is the act or process of determining the value of property as of a specified
legally prevents the date for a specific purpose
 NOTES in TAXATION by TEP ABRENICA 71
Atty. Bonilla Discussion supplemented by Vitug Acosta book

Classification of Real Property ACCORDING to its USE: and shall take EFFECT at the beginning of the
(1) Agricultural land 72 QUARTER next following the reassessment.
(2) Commercial land 73
(3) Industrial Land 74 The FOLLOWING are the CAUSES:
(4) Mineral Land 75 (1) Partial or total destruction
(5) Timberland (2) Major change to its actual use
(6) Special land76 (3) Great and sudden inflation or deflation of real
property values
c. Real property shall be ASSESSED77 on the basis of a (4) Gross illegality of the assessment when made
uniform classification within each local government unit; (5) Other Abnormal causes

d. The appraisal, assessment, levy and collection of real Assessment of Property subject to BACK TAXES when
property tax shall not be let to any private person; and the RP is assessed for the FIRST TIME or existing
assessment is INCREASED or DECREASED within 30
e. The appraisal and assessment of real property shall be days assessor to give new or revised assessment
EQUITABLE.
APPRAISAL and ASSESSMENT of MACHINERY
ASSESSMENT of RPT
Brand- New Machinery FAIR market value is the
BASIS for ASSESSMENT ACTUAL USE of the property ACQUISITION COST
regardless of where located, whoever owns it
and uses it. OLD Machinery FAIR MARKET VALUE is
determined by
Gen. Rule: Assessment of RP shall NOT be increased
OFTENER than ONCE every 3 years

EXCEPT: In cases of NEW improvements

iii. SUBSTANTIALLY increasing the value of the said
property or
iv. any change in its actual use.
Date of EFFECTIVITY of Assessment or Reassessment
COLLECTION of RPT
Gen Rule: Assessment or reassessments Made AFTER
JANUARY 1 shall TAKE EFFECT on the
JANUARY 1 of the succeeding year.
EXCEPTION: Reassessment should be made within 90
days from the date of any such cause occurred
IMPORTED Fair market values is the acquisition
cost including freight, insurance, bank and other
charges, brokerage, arrastre and handling duties and
taxes PLUS charges at the present site such foreign
currency must be converted into PESO.
DATE of ACCRUAL of RPT: for any year on the JANUARY 1
EFFECT of NON-PAYMENT: from January 1 it constitute a
lien on the property and extinguished only upon payment of
the delinquent tax.

COLLECTION of TAX: responsibility of City or Municipal

72 "Agricultural Land" is land devoted principally to the planting of trees, raising of crops, TREASURER
livestock and poultry, dairying, salt making, inland fishing and similar
aquacultural activities, and other agricultural activities, and is not classified as PRESCRIPTIVE Period for Collection of RPT:
mineral, timber, residential, commercial or industrial land;

73 Commercial Land" is land devoted principally for the object of profit and is not Gen. Rule: 5 years from the DATE they become due.
classified as agricultural, industrial, mineral, timber, or residential land;
Except: 10 years from the DISCOVERY of FRAUD or
74 "Industrial Land" is land devoted principally to industrial activity as capital investment INTENT to Evade payment.
and is not classified as agricultural, commercial, timber, mineral or residential
land; SUSPENSION of Prescriptive period
75 "Mineral Lands" are lands in which minerals, metallic or non-metallic, exist in sufficient
a. Local Treasurer is LEGALLY prevented from
quantity or grade to justify the necessary expenditures to extract and utilize
such materials; collecting the tax

76 Special Classes of Real Property. - All lands, buildings, and other improvements b. Owner or person with legal interest REQUESTS for
thereon actually, directly and exclusively used for hospitals, cultural, or scientific REINVESTIGATION and executes a WAIVER in
purposes, and those owned and used by local water districts, and GOCCs rendering WRITING before the expiration of the period within
essential public services in the supply and distribution of water and/or generation and which to collect; and
transmission of electric power shall be classified as special.
c. Owner or person with legal interest is OUT of the
77 "Assessment" is the act or process of determining the value of a property, or COUNTRY or CANNOT be LOCATED.
proportion thereof subject to tax, including the discovery, listing,
classification, and appraisal of properties;

TAX PAYERS REMEDIES
A. PROTEST
For ASSESSMENT of RPT
Situation: When the taxpayer is NOT satisfied to the
ASSESSMENT and APPRAISAL of the RP based on its
actual use.
For COLLECTION of RPT
Situation: When the taxpayer is NOT satisfied to the
ASSESSMENT and APPRAISAL of the RP based on its
actual use.
B. CLAIM for REFUND within 2 years from the DATE the
taxpayer is entitled to such reduction or adjustment
NOTES in TAXATION by TEP ABRENICA 72
Atty. Bonilla Discussion supplemented by Vitug Acosta book
CUSTOMS DUTIES
CUSTOMS DUTIES is the name given to taxes on the
importation and exportation of commodities, the tariff
or tax assessed upon merchandise from or exported to a
foreign country.
KINDS of GOODS:
(1) Articles Subject to Duty
(2) Prohibited Importations
(3) Conditionally-Free Importations (Regulated)
ARTICLES subject to Duty ALL 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 the Customs Code.
PROHIBITED IMPORTATIONS:
(a) Dynamite, gunpowder, ammunitions and other explosives,
firearms and weapons of war, and parts thereof, except when
authorized by law.
(b) Written or printed articles in any form containing any matter
advocating or inciting treason, or rebellion, or insurrection,
sedition or subversion against the Government of the
Philippines, or forcible resistance to any law of the
Philippines, or containing any threat to take the life of, or
inflict bodily harm upon any person in the Philippines.
(c) Written or printed articles, negatives or cinematographic
film, photographs, engravings, lithographs, objects,
paintings, drawings or other representation of an obscene or
immoral character.
(d) Articles, instruments, drugs and substances designed,
intended or adapted for producing unlawful abortion, or any
printed matter which advertises or describes or gives directly
or indirectly information where, how, or by whom unlawful
abortion is produced.
(e) Roulette wheels, gambling outfits, loaded dice, marked
cards, machines, apparatus or mechanical devices used in
gambling or the distribution of money, cigars, cigarettes or
other articles when such distribution is dependent on
chance, including jackpot and pinball machines or similar
contrivances, or parts thereof.
(f) Lottery and sweepstakes tickets except those authorized by
the Philippine Government, advertisements thereof, and lists
of drawings therein.
(g) Any article manufactured in whole or in part of gold, silver or
other precious metals or alloys thereof, the stamps, brands
or marks or which do not indicate the actual fineness of
quality of said metals or alloys.
(h) Any adulterated or misbranded articles of food or any
adulterated or misbranded drug in violation of the provisions
of the "Food and Drugs Act".
(i) Marijuana, opium, pipes, coca leaves, heroin or any other
narcotics or synthetic drugs which are or may hereafter be

declared habit forming by the President of the Philippines, or
any compound, manufactured salt, derivative, or preparation
thereof, except when imported by the Government of the
Philippines or any person duly authorized by the Dangerous
Drugs Board, for medicinal purposes only.
(j) Opium pipes and parts thereof, of whatever material.
(k) All other articles and parts thereof, the importation of which
prohibited by law or rules and regulations issued by
competent authority.
CONDITIONALLY-FREE IMPORTATIONS (Regulated)
EXEMPT from the payment of import duties UPON
COMPLIANCE with the formalities prescribed in, or with the
regulations which shall be promulgated by the Commissioner of
Customs with the approval of the department head:
(a) Animals and plants for scientific, experimental, propagation,
botanical, breeding, zoological and national defense
purposes: Provided, That no live trees, shoots, plants and
moss, and bulbs, tubers and seeds for propagation purposes
may be imported under this section, except by order of the
Government of the Philippines or other duly authorized
institutions: Provided, further, That the free entry of animals
for breeding purposes shall be restricted to animals of a
recognized breed, duly registered in the book of record
established for that breed: And provided, finally, That
certificate of such record, and pedigree of such animal duly
authenticated by the proper custodian of such book of
record, shall be produced and submitted to the Collector of
Customs, together with affidavit of the owner or importer,
that such animal is the identical animal described in said
certificate of record and pedigree.
(b) Aquatic products (e.g., fish, crustaceans, mollusks, marine
animals, seaweed, fish oil, roe), including preparations or
manufactures thereof, caught or gathered by vessels of
Philippine registry: Provided, That they are imported in such
vessels or in crafts attached thereto: And provided, further,
That they have not been landed in any foreign territory or, if
so landed, they have been landed solely for transhipment
without having been advanced in condition.
(c) Samples of the kind, in such quantity and of such dimensions
or construction as to render them unsalable or of no
appreciable commercial value, models not adapted for
practical use and samples of medicine properly marked
"physicians' samples not for sale".
Commercial samples, except those that are not readily and
easily identifiable (e.g., precious and semi-precious stones,
cut or uncut, and jewelry set with precious or semi-precious
stones), the value of any single importation of which does
not exceed ten thousand pesos, upon the giving of a bond in
an amount equal to one and one-half times the ascertained
duties, taxes and other charges thereon, conditioned for the
exportation of said samples within six months from the date
of the acceptance of the import entry, or in default thereof,
the payment of the corresponding duties, taxes and other
charges. If the value of any single consignment of such
commercial samples exceeds ten thousand pesos, the
importer thereof may select any portion of same not
exceeding in value ten thousand pesos for entry under the
NOTES in TAXATION by TEP ABRENICA 73
Atty. Bonilla Discussion supplemented by Vitug Acosta book
provisions of this subsection, and the excess of the
consignment may be entered in bond, or for consumption, as
the importer may elect.
(d) Articles, including binnacles, propellers, and the like, the
character of which, as imported, prevents their use for other
purposes than the construction, equipment, or repair of
vessels and aircraft, and life-preservers and life buoys,
related equipment and parts and accessories thereof, which
are necessary for the take-off and landing and for the safe
navigation of vessels and aircraft.
(e) Equipment for use in the salvage of vessels or aircraft, upon
identification and the giving of a bond in an amount equal to
one and one-half times the ascertained duties, taxes and
other charges thereon, conditioned for the exportation
thereof or payment of the corresponding duties, taxes and
other charges within six months from the date of acceptance
of the import entry: Provided, That the Collector of Customs
may extend the time for exportation or payment of duties,
taxes and other charges for a term not exceeding six months
from the expiration of the original period.
(f) Cost of repairs made in foreign countries upon vessels or
aircraft documented, registered or licensed in the
Philippines, upon proof satisfactory to the Collector of
Customs (1) that adequate facilities for such repairs are not
afforded in the Philippines, or (2) that such vessels or
aircraft, while in the regular course of her voyage or flight
was compelled by stress of weather or other casualty to put
into a foreign port to make such repairs in order to secure
the safety seaworthiness or airworthiness of the vessel or
aircraft to enable her to reach her port of destination.
(g) Articles brought into the Philippines for repair, processing
or reconditioning to be re-exported upon completion of the
repair, processing or reconditioning: Provided, That the
Collector of Customs may, in his discretion, require the
giving of a bond in an amount equal to one and one-half
times the ascertained duties, taxes and other charges
thereon, conditioned for the exportation thereof or payment
of the corresponding duties, taxes and other charges within
six months from the date of acceptance of the import entry.
(h) Medals, badges, cups and other small articles bestowed as
trophies or prizes, or those received or accepted as honorary
distinctions.
(i) Wearing apparel and household effects, including those
articles provided for under subsections "j" and "k", and
belonging to residents of the Philippines returning
from abroad, which were exported from the Philippines by
such returning residents upon their departure therefrom or
during their absence abroad, upon the identity of such
articles being established to the satisfaction of the Collector
of Customs; personal and household effects brought into the
Philippines by returning residents, the export value of
which does not exceed five hundred pesos, solely for
personal or household use but not imported for the
account of any other person nor intended for barter,
sale or hire: Provided, That such returning residents have
not received the benefit of any exemption hereunder within
180 days from and after the date of the last exemption
granted: And provided, further, That in the event the total
export value of the imported article or articles exceeds the
amount of 500 pesos, such article or articles shall be subject

to duty only on the amount in excess of 500 pesos; articles of
the same kind and class purchased in foreign countries by
residents of the Philippines during their absence abroad and
accompanying them upon their return to the Philippines, or
arriving within a reasonable time which in no case shall
exceed 90 days before or after the owner's return, upon proof
satisfactory to the Collector of Customs that same have been
in their use abroad for more than 1 year; articles in any single
shipment consigned to any single person when the total
export value of such shipment does not exceed one hundred
pesos: Provided, That when the export value exceeds the
amount of one hundred pesos, only the amount in excess of
one hundred pesos shall be subject to duty.
(j) Wearing apparel, articles of personal adornment, toilet
articles, portable tolls and instruments, theatrical costumes,
and similar personal effects, accompanying travelers or
tourists in their baggage or arriving within a
reasonable time, in the discretion of the Collector of
Customs, before or after the owners, in use of and necessary
and appropriate for the wear or use of such persons
according to their profession or position for the immediate
purposes of their journey and their present comfort and
convenience: Provided, That this exemption shall not be held
to apply to articles intended for other persons or for barter,
sale or hire: Provided, further, That the Collector of Customs
may, in his discretion, require a bond in an amount equal to
one and one-half times the ascertained duties, taxes and
other charges upon articles classified under this subsection,
conditioned for the exportation thereof or payment of the
corresponding duties, taxes and other charges, within six
months from the date of acceptance of the import entry: And
provided, finally, That the Collector of Customs may extend
the time for exportation or payment of duties, taxes and
other charges for a term not exceeding six months from the
expiration of the original period.
(k) Vehicles, horses, harness, bed and table linen, table service,
furniture, musical instruments and personal effects of like
character, owned and imported by travelers or tourists for
their convenience and comfort, upon identification and the
giving of a bond in an amount equal to one and one-half
times the ascertained duties, taxes and other charges
thereon, conditioned for the exportation thereof or payment
of the corresponding duties, taxes and other charges within
six months from the date of acceptance of the import entry:
Provided, That the Collector of Customs may extend the time
for exportation or payment of duties, taxes and other charges
for a term not exceeding six months from the expiration of
the original period.
(l) Professional instruments and implements, tools of trade,
occupation or employment, wearing apparel, domestic
animals, and personal and household effects, including those
of the kind and class provided for under subsections "j" and
"k" and belonging to persons coming to settle in the
Philippines, in quantities and of the class suitable to the
profession, rank or position of the person importing them,
for their own use and not for barter or sale, accompanying
such persons, or arriving within a reasonable time, in the
discretion of the Collector of Customs, before or after the
arrival of their owners, upon the production of evidence
satisfactory to the Collector of Customs that such persons are
actually coming to settle in the Philippines, that the articles
are brought from their former place of abode, that change of
residence is bona fide, and that the privilege of free entry
NOTES in TAXATION by TEP ABRENICA 74
Atty. Bonilla Discussion supplemented by Vitug Acosta book
under this subsection has never been previously granted to
them: Provided, That neither merchandise of any kind, nor
machinery or other articles for use in manufacture, shall be
classified under this subsection.
(m) Animals, vehicles, portable theaters, circus and theatrical
equipment, including musical instruments, sceneries,
panoramas, properties, saddlery, wax figures and similar
objects for public entertainment, and other articles for
display in public expositions, or for exhibition or competition
for prizes, and devices for projecting pictures and parts and
appurtenances therefor, upon identification and the giving of
a bond in an amount equal to one and one-half times the
ascertained duties, taxes and other charges thereon,
conditioned for exportation thereof or payment of the
corresponding duties, taxes and other charges within six
months from the date of acceptance of the import entry:
Provided, That the Collector of Customs may extend the time
for exportation or payment of duties, taxes and other charges
for a term not exceeding six months from the expiration of
the original period; and technical and scientific films when
imported by technical, cultural and scientific institutions,
and not to be exhibited for profit: Provided, That if any of the
said films is exhibited for profit, the proceeds therefrom shall
be subject to confiscation, in addition to the penalty provided
under section three thousand six hundred and ten of this
Code.
(n) Articles (e.g., photographic, sound recording, electrical and
other equipment, vehicles, animals, costumes, apparel,
properties, supplies, unexposed motion picture films)
brought by foreign producers for making or recording
motion pictures on location in the Philippines, upon
identification and the giving of a bond in an amount equal to
one and one-half times the ascertained duties, taxes and
other charges thereon, conditioned for exportation thereof or
payment of the corresponding duties, taxes and charges
within six months from the date of acceptance of the import
entry. Unexposed motion picture films allowed free entry
under bond for exportation falling within this subsection and
subsequently exposed, whether or not developed, may be
reexported free of import duties, taxes and other charges.
(o) Negative films, undeveloped, exposed outside the Philippines
by resident Filipino citizens or by producing companies of
Philippine registry where the principal actors and artists
employed for the production are Filipinos, upon affidavit by
the importer that such exposed films are the same films
previously exported from the Philippines. As used in this
paragraph, the terms "actors" and "artists" include the
persons working the photographic camera or other
photographic and sound recording apparatus by means of
which the film is made.
(p) Costumes, regalia and other articles, including office
supplies and equipment, imported for the official use of
members and attaches of foreign embassies, legations,
consular officers and other representatives of foreign
government: Provided, That the country which any such
person represents accords like privileges to corresponding
officials of the Philippines.
(q) Articles imported for the personal or family use of the
members and attaches of foreign embassies, legations,
consular officers and other representatives of foreign
governments: Provided, That such privilege shall be

accorded under special agreements between the Philippines
and the countries which they represent: And provided,
further, That the privilege may be granted only upon specific
instructions of the Department of Finance in each instance
which will be issued only upon request of the Department of
Foreign Affairs.
(r) Regalia, gems, statuary, specimens or casts of sculptures
imported for the bona fide use and by the order of any
society incorporated or established solely for religious,
philosophical, educational, scientific or literary purposes, or
for the encouragement of the fine arts, or for the use and by
the order of any institution of learning, public library,
museum, orphan asylum or hospital, and not for barter, sale
or hire: Provided, That the term "regalia" shall be held to
embrace only such insignia of rank or office or emblems as
may be worn upon the person or borne in the hand during
public exercises or ceremonies of the society or institution,
and shall not include articles of furniture or fixtures, or
ordinary wearing apparel, nor personal property of
individuals.
(s) Musical organs imported for the bona fide use and by the
owner of any society incorporated or established for religious
or educational purposes, or, expressly for presentation
thereto.
(t) Scientific apparatus, instruments and utensils specially
imported for the bona fide use and by the order of any
society or institution incorporated or established solely for
educational, scientific, or charitable purposes, or for the
encouragement of the fine arts, or for the bona fide use and
by the order of any institution of learning in the Philippines,
and not for barter, sale or hire.
(u) Philosophical, historical, economic, scientific, technical and
vocational books specially imported for the bona fide use and
by the order of any society or institution, incorporated or
established solely for philosophical, educational, scientific,
charitable or literary purposes, or for the encouragement of
the fine arts, or for the bona fide use of and by the order of
any institution of learning in the Philippines: Provided, That
the provisions of this subsection shall apply to books not
exceeding two copies of any one work when imported by any
individual for his own use, and not for barter, sale or hire.
Bibles, missals, prayerbooks, koran, ahadith and other
religious books of similar nature and extracts therefrom,
hymnal and hymns for religious uses, specially prepared
books, music and other instrumental aids for the deaf, mute
or blind, and textbooks prescribed for use in any school in
the Philippines: Provided, That complete books published in
parts in periodical form shall not be classified herein.
(v) Newsprint, whenever imported by or for publishers for the
exclusive use in the publication of newspapers.
(w) Articles donated to public or private institutions established
solely for educational, scientific, cultural, charitable, health,
relief, philanthropic or religious purposes, for free
distribution among, or exclusive use of, the needy.
(x) Food, clothing, house-building and sanitary-construction
materials, and medical, surgical and other supplies for use in
emergency relief work, when imported by or directly for the
account of any victim, sufferer, refugee, survivor or any other
NOTES in TAXATION by TEP ABRENICA 75
Atty. Bonilla Discussion supplemented by Vitug Acosta book
person affected thereby, or by or for the account of any relief
organization, not operated for profit, for distribution among
the distressed individuals, whenever the President shall, by
proclamation, declare an emergency to exist by reason of a
state of war, pestilence, cholera, plague, famine, drought,
typhoon, earthquake, fire, flood and similar conditions:
Provided, That the importation free of duty of articles
described in this herein subsection shall continue only
during the existence of such emergency, or within such limits
and subject to such conditions as the President may, by his
proclamation, deem necessary to meet the emergency.
(y) Philippine articles previously exported from the Philippines
and returned without having been advanced in value or
improved in condition by any process of manufacture or
other means, and upon which no drawback or bounty has
been allowed, and foreign articles when returned after
having been loaned and exported for use temporarily abroad
solely for exhibition, examination or experimentation, for
scientific or educational purposes, and foreign containers
packed with exported Philippine articles and returned empty
if imported by or for the account of the person or institution
who exported them from the Philippines and not for sale,
subject to identification: Provided, That any Philippine
article falling under this subsection upon which drawback or
bounty has been allowed shall, upon re-importation thereof,
be subject to a duty under this subsection equal to the
amount of such drawback or bounty.
(z) Large containers (e.g., demijohns, cylinders, drums, casks
and other similar receptacles of metal, glass or other
material) which are, in the opinion of the Collector of
Customs, of such a character as to be readily identifiable may
be delivered to the importer thereof upon identification and
the giving of a bond in an amount equal to one and one-half
times the ascertained duties, taxes and other charges
thereon, conditioned for the exportation thereof on payment
of the corresponding duties, taxes and other charges within
one year from the date of acceptance of the import entry.
(aa) Supplies or ship stores listed as such for the use of the vessel;
supplies which are intended for the reasonable requirements
of the vessel in her voyage outside the Philippines, including
such articles transferred from a bonded warehouse in any
collection district to any vessel engaged in foreign trade, for
use or consumption of the passengers or its crew on board
such vessel as sea stores; or articles purchased abroad for
sale on board a vessel as saloon stores or supplies: Provided,
That any surplus or excess of such ship, sea or saloon stores
arriving from foreign ports shall be dutiable according to the
corresponding heading or subheading.
(bb) Articles and salvage from vessels recovered after the period
of two years from the date of filing the marine protest or the
time when the vessel was wrecked or abandoned as
determined by the Collector of Customs, or such part of
Philippine vessel or her equipment, wrecked or abandoned
in Philippine waters or elsewhere: Provided, That articles
and salvage recovered within the said period of two years
shall be dutiable according to the corresponding heading or
subheading.
(cc) Articles of easy identification exported from the Philippines
for repairs abroad and subsequently reimported: Provided,
That the cost of the repairs made to any such article shall pay
a rate of duty of twenty-five per cent ad valorem.
 NOTES in TAXATION by TEP ABRENICA 76
Atty. Bonilla Discussion supplemented by Vitug Acosta book

(dd) Coffins or urns containing human remains, bones or ashes, MINUS

and all articles for ornamenting said coffins or urns and
accompanying same; used personal and household effects, ii. Import duty and other taxes
not merchandise, of deceased persons, upon identification as iii. COMMISSION not exceeding 6% if any has been paid or
such, satisfactory to the Collector of Customs. contracted
iv. PROFITS not exceeding 8%
WHEN IMPORTATION BEGINS? (Customs duties attaches) v. REASONABLE allowance for GENERAL EXPENSES not
to exceed 8% on purchased goods;
- Importation begins FROM the time the CARRYING vi. OTHER expenses incidental to the delivery from the
VESSEL or AIRCRAFT enters the Philippine Territorial port of importation to the principal market in the
Jurisdiction with the intention to UNLOAD therein. Philippines

When the GOODS had NOT been terminated, the imported BASIS for DUTIABLE VALUE of an imported articles
goods remain UNDER the jurisdiction of the BUREAU of SUBJET to an AD VALOREM TAX = Transaction value
CUSTOMS IMPORTATION
TRANSACTION VALUE that is ADDED to the assessment
*** ILLEGAL merchandise is subject to forfeiture and stated above:
ILLEGAL goods are subject to seizure and forfeiture
1. Commissions and brokerage fees
WHEN IMPORTATION ENDS or terminated? 2. Cost of Containers
3. Cost of packing whether for labor or materials
- Importation ends AT THE TIME the goods are released 4. Value of materials, components, parts and similar items
or withdrawn from the customhouse upon payment of incorporated in the imported goods
the customs duties or secured to be paid at the point of 5. Amount of royalties and license fees related to the goods
entry AND the legal permit to withdraw have been 6. Cost of transport of the imported goods from the port of
granted. Such payment must be in full. exportation to the port of entry in the pHilippines
7. Loading, unloading and handling charges associated
BASIS for ASSESSMENT of CUSTOM Duty - Dutiable with the transport of the imported goods from the
Value country of exportation to the port of entry in the
Philippines; and
DUTIABLE VALUE is the HOME consumption value 8. Cost of insurance.
9. 12% Vat
When Goods are subjected to AD VALOREM rate of
DUTY , assessment based ON: When the transaction value CANNOT be DETERMINED,
the FOLLOWING values cane be utilized:
i. MARKET VALUE(price) at the time of exportation, to
the same, like or similar article freely offered for Sale 1. Transaction value of IDENTICAL GOODS
in the principal markets of the exporting country, in 2. Transaction value of SIMILAR GOODS
the usual wholesale quantities and in the ordinary 3. DEDUCTIVE VALUE
course of trade (excludes internal excise taxes to be 4. COMPUTED VALUE and
remitted or rebated) 5. FALL BACK VALUE.

PLUS FLEXIBLE TARIFF CLAUSE the authority given to the

PRESIDENT to ADJUST tariff rates not more than 5
ii. ORDINARY EXPENSE prior and incidental to the times the rates of import duty expressly fixed by statute,
lading of such articles on board the vessel or aircraft when it is FOR the INTEREST of NATIONAL
at the port of export (including taxes or duties) ECONOMY, GENERAL WELFARE and/or NATIONAL
DEFENSE (Sec. 401 RA. 1937 or Tariff & Custom Code)
iii. FREIGHT Paid
CUSTOM DUTIES RATES:
iv. INSURANCE premium paid covering the
transportation of the articles to the port of entry in the A. REGULAR RATES - Most Favored Nation Clause,
Philippines. pursuant to the WORLD TRADE ORGANIZATION
agreement, prescribed RATES.
IF the VALUE of the GOODS cannot be ASCERTAINED to B. SPECIAL DUTies imposed by law or agreement
the above assessment, the assess VALUE shall be based on: a. 0% -- PEZA
b. Free Trade Agreement
i. DOMESTIC WHOLESALE MARKET VALUE or selling c. ASEAN Economic
price of the same, like or similar imported article in the d. Japan
principal market of the Philippines on the date of e. South Korea
exportation of the article under appraisement, in the f. China
usual wholesale quantities and in the ordinary course of
trade

C. SPECIAL Duties under Tariff and Custom Code
1. Anti-Dumping Duty special duties imosed by
the Sec. of Finance upon recommendation of the
Tariff Commission when it is FOUND that the price
of the imported articles are deliberately or
continually FIXED at LESS than the FMV or COST
of PRODUCTOIN and the importation would cause
or likely cause an injury to local industries engaged
in the manufacture or production of the same or
similar articles or prevent their establishment
2. Countervailing Duty- imposed by Sec. of Finance
upon prior investigation and report of the Tariff
Commission to OFFESET..
i. An EXCISE or INTERNAL Revenue Tax upon
articles of the same class manufactured at
home; or
ii. SUBSIDIES to Foreign producers or
manufacturers by their respective governments
3. Marking Duty special duty equivalent to 5% ad
valorem imposed on articles NOT PROPERLY
MARKED used to prevent possible deception to
the customers.
4. Retaliatory or Discriminatory Duty special
duties collected in an AMOUNT not exceeding
100% ad valorem tax imposed by the PRESIDENT
of the PHILIPPINES against goods of a foreign
country which discriminates against Philippine
commerce or against goods coming from the
Philippines and shipped to a foreign country.
POWERS and AUTHORITY of BUREAU of CUSTOMS
1. RIGIHT OF SUPERVISION and POLICE AUTHORITY over
all seas and coasts, ports, airports, harbor, bays, rivers and in
land waters navigable from the sea within the jurisdiction of
the Philippines. (Sec. 603 of TCC)
2. HOT PURSUIT78
3. Custom duty as a LIEN over the unpaid goods
4. FORFEIT, and SEIZE the goods
5. Right of INSPECTION
6. ACCREDITATION of importers if required
7. WARRANTLESS SEARCH and SEIZURE any place, except
DWELLING HOUSE, where a court order issued by an RTC
judge showing probable cause and particularity.
78 (TCC) Sec. 603 par. 2: When a vessel becomes subject to seizure by reason of an act
done in Philippine waters in violation of the tariff and customs laws, a pursuit of such
vessel begun within the jurisdictional waters may continue beyond the maritime zone, and
the vessel may be seized on the high sea. Imported articles which may be subject to
seizure for violation of the tariff and customs laws may be pursued in their transportation
in the Philippines by land, water or air and such jurisdiction exerted over it at any place
therein as may be necessary for the due enforcement of the law.
NOTES in TAXATION by TEP ABRENICA 77
Atty. Bonilla Discussion supplemented by Vitug Acosta book
8. POST-Entry for previous 3 years and to give a FINAL AUDIT
REPORT and RECOMMENDATION
9. AUTOMATIC REVIEW CLAUSE when the decision of the
Custom COLLECTOR is NOT in FAVOR of the
GOVERNMENT, such decision is subject to AUTOMATIC
REVIEW of Bureau of Custom COMMISSIONER and, if such
is still contrary to the Government, commissioners decision
is subject to the automatic review to DEPARTMENT of
FINANCE.
Purpose: It is to protect the interest of the government in
imposing taxes which are the lifeblood of the Government. If
no such grant, the power may be abused by the Custom
Collector.
ENTRANCE of VESSEL THROUGH NECESSITY
Situation contemplated: When a vessel from a foreign port is
compelled by stress of weather or other necessity to put into any
other port than that of her destination
Requirements: the master shall
within 24 hours after her arrival, shall make protest
under oath setting forth the causes or circumstances of
such necessity.
This protest, if not made before the Collector, must be
produced to him, and a copy thereof lodged with him.
make report to the Collector if any part of the cargo was
unladen from necessity or lost by casualty before arrival,
and such fact should be made to appear by sufficient
proof
Collector who shall give his approval thereto and the
unlading shall be deemed to have been lawfully effected.
IF UNLADING is NECESSARY
the Collector shall, upon sufficient proof of the
necessity, grant a permit therefor, and the articles
shall be unladen and stored under the supervision of the
customs authorities.
At the request of the master of the vessel or of the owner
thereof, the Collector may grant permission to enter and
pay the duties, taxes and other charges on, and dispose
of, such part of the cargo as may be of perishable
nature or as may be necessary to defray the
expenses attending the vessel.
Upon departure, the cargo, or a residue thereof, may be
reladen on board the vessel, and the vessel may proceed
with the same to her destination, subject only to the
charge for storing and safe-keeping of the articles and
the fees for entrance and clearance.
NOTE: No port charges shall be collected on vessels entering
through stress of weather or other causes above described.

PROCEDURE for CLAIM for REFUND or PROTEST
Property Subject to Forfeiture and SEIZURE
GEN RULE: Any vessel or aircraft, cargo, articles and other
objects shall, under the following conditions, be subject
to forfeiture:
a. Any vessel or aircraft and cargo, which used lawfully in
the importation or exportation of articles into or from
any Philippine port or place except a port of entry; and
any vessel which, being of less than thirty tons capacity
shall be used in the importation of articles into any
Philippine port or place except into a port of the Sulu
sea where importation in such vessel may be authorized
by the Commissioner, with the approval of the
department head.
b. Any vessel engaging in the coastwise trade which shall
have on board any article of foreign growth, product or
manufacture in excess of the amount necessary for sea
stores, without such article having been properly
entered or legally imported.
c. Any vessel or aircraft into which shall be transferred
cargo unladen contrary to law prior to the arrival of the
importing vessel or aircraft at her port of destination.
d. Any part of the cargo of a vessel or aircraft arriving from
a foreign port which is unladen before arrival at the
vessel's or aircraft's port of destination and without
authority from the proper customs official; but such
cargo shall not be forfeited if such unlading was due to
accident, stress of weather or other necessity and is
subsequently approved by the Collector.
e. Any article which is fraudulently concealed in or
removed from any public or private warehouse under
customs supervision.
f. Any article of prohibited importation or exportation, the
importation or exportation of which is effected or
attempted contrary to law, and all other articles which,
in the opinion of the Collector, have been used, are or
NOTES in TAXATION by TEP ABRENICA 78
Atty. Bonilla Discussion supplemented by Vitug Acosta book
were intended to be used as instrument in the
importation or exportation of the former.
g. Unmanifested article found on any vessel or aircraft, if
manifest therefor is required.
h. Sea stores or stores for aircraft adjudged by the
Collector to be excessive, when the duties assessed by
the Collector thereon are not paid or secured forthwith
upon assessment of the same.
i. Any package of imported article which is found by the
examining official to contain any article not specified in
the invoice or entry, including all other packages
purportedly containing imported articles similar to
those declared in the invoice or entry to be the contents
of the misdeclared package, provided the Collector is of
the opinion that the misdeclaration was caused with
fraudulent intent.
j. Boxes, cases, trunks, envelopes and other containers of
whatever character used as receptacles or as devices to
conceal article which is itself subject to forfeiture under
the customs and tariff laws or which is so designed as to
conceal the character of such article.
k. Any beast actually being used for the conveyance of
article subject to forfeiture under the customs and tariff
laws with its equipage or trappings, and any vehicles
similarly used, together with its equipage and
appurtenances, including the beast, team or other
motive power drawing or propelling the same; but the
forfeiture shall not be effected if it is established
that the owner of the means of conveyance used as
aforesaid or his agent in charge thereof at the time, has
no knowledge of the unlawful act.
l. Any money or thing of value offered as a bribe or for the
purpose of exerting improper influence over a customs
official or employee.
m. Any article sought to be imported or exported:
(1) Without going through a customhouse, whether the
act was consummated, frustrated or attempted;
(2) By failure to mention to a customs official, articles
found in the baggage of a person arriving from
abroad.
(3) On the strength of a false declaration or affidavit
executed by the owner, importer, exporter or
consignee concerning the importation or
exportation of such article.
(4) On the strength of a false invoice or other document
executed by the owner, importer, exporter or
consignee concerning the importation or
exportation of such article.
(5) Through any other fraudulent practice or device by
means of which such articles was entered through a
customhouse to the prejudice of the government.
EXCEPTION: Common Carriers UNLESS, such common
carriers had been chartered or leased and that the owner
had NO knowledge of the use of the carrier for
smuggling EXCEPT when the vessel had been caught
twice for smuggling and the owner is NOT in financial
condition to have such goods.
 NOTES in TAXATION by TEP ABRENICA 79
Atty. Bonilla Discussion supplemented by Vitug Acosta book

Dlfjf
F
F
F

Ff

F
F
F
;f
Vfflnv
Vf
Vf;v
F;v
fvfvnfv
 NOTES in TAXATION by TEP ABRENICA 80
Atty. Bonilla Discussion supplemented by Vitug Acosta book

hec