Tax 2 Prefinals Final

TAXATION 2 | ATTY.
KIM ARANAS | 2017-2018 | PRE-FINALS
BUSINESS TAXES f. Sale of goods, supplies, equipment and fuel to those

engaged in international shipping or international air
ZERO RATED SALES transport operations.
2. Foreign Currency Denominated Sale;
3. Sales to persons or entities whose exemption under special laws
Relevant provision or international agreements to which the Philippines is a
signatory effectively subjects such sales to 0% rate.
Section 106 (A) (ii) (2). The following sales by VAT-registered persons
shall be subject to zero percent (0%) rate: A. ACTUAL EXPORT - SEC. 106 A.2.A.(1)
1. Pertains to actual shipment abroad;
(a) Export Sales. - The term "export sales" means: a. (NOTE: Not just Raw materials/packaging materials
only. ANY item)
(1) The sale and actual shipment of goods from the 2. Paid in acceptance foreign currency or its equivalent;
Philippines to a foreign country, irrespective of any 3. Accounted in accordance with rules and regulations of BSP
shipping arrangement that may be agreed upon (need not go through BSP);
which may influence or determine the transfer of
ownership of the goods so exported and paid for in Do not take into consideration the shipping arrangement i.e. FOB shipping
acceptable foreign currency or its equivalent in goods point/destination.
or services, and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng FOB Shipping point, ownership is transferred to the buyer upon shipment.
Pilipinas (BSP); If FOB destination, Ownership is transferred to the buyer upon reaching
the destination.
(2) Sale of raw materials or packaging materials to a
nonresident buyer for delivery to a resident local What if the goods were exported not because they were sold but just for
export-oriented enterprise to be used in consignment?
manufacturing, processing, packing or repacking in Avail ZERO rated transaction if there is already sale. In
the Philippines of the said buyer's goods and paid for consignment, there is no sale yet of the goods. So if there is still
in acceptable foreign currency and accounted for in no sale, no zero rating.
accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
B.SALE OF RAW MATERIALS - SEC. 106 A.2.A.(2)
(3) Sale of raw materials or packaging materials to
export-oriented enterprise whose export sales exceed Sale of raw or packaging materials to non-resident buyer. Shipment is in
seventy percent (70%) of total annual production; the Philippines only to the resident local export-oriented (REO)
enterprise. This REO enterprise converts/uses it in manufacturing, packing
(4) Sale of gold to the Bangko Sentral ng Pilipinas or repacking.
(BSP); and
Same requisite as in actual export (1) – foreign currency payment in
(5) Those considered export sales under Executive accord with BSP rules.
Order NO. 226, otherwise known as the "Omnibus
Investment Code of 1987", and other special laws; Distinction between the first and second types:
and
1st type 2nd type
(6) The sale of goods, supplies, equipment and fuel Ø There’s ACTUAL Ø NO ACTUAL shipment
to persons engaged in international shipping or shipment; (constructive export)
international air transport operations. [46]
Ø pertains to ANY Ø Limited to RAW or
(b) Foreign Currency Denominated Sale. - The phrase "foreign goods; PACKAGING
currency denominated sale" means sale to a nonresident of materials;
goods, except those mentioned in Sections 149 and 150,
assembled or manufactured in the Philippines for delivery to a Ø We don’t care if the Ø Buyer must be non-
resident in the Philippines, paid for in acceptable foreign buyer is resident or resident.
currency and accounted for in accordance with the rules and not as long as it
regulations of the Bangko Sentral ng Pilipinas (BSP). goes outside the
country.
(c) Sales to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate. Basis for saying there’s no actual shipment in the 2nd type: Because it is
to be delivered to resident export-oriented enterprise.
In summary
1. Export Sales (refer to SEC. 106, Tax Code); Is it a requirement that it must be paid in foreign currency?
a. Actual Export YES. Refer to the provisions.
b. Sale of Raw Materials or Packaging to a Non-resident
buyer for delivery in the Philippines When are you considered to be a resident export-oriented
c. Sale of Raw Materials or Packaging to a Export enterprise?
Oriented Business When your export sales exceed 70% of your total annual
d. Sale of Gold to BSP production.
e. Sales under the Omnibus Investment Code and other
special laws
CEPEDOZA | CESANTE | CONTRERAS | CORONEL | LIM | MORENO | TANGGOR USCLAW LLB 3 | 1

TAXATION 2 | ATTY. KIM ARANAS | 2017-2018 | PRE-FINALS
When we talk of export-oriented enterprise, is it a requirement that you

should be located in an economic zone? RR-5-2013: Advance Payment of Business Tax. You can
NO. claim the advance payment of 3% business tax as tax credit as
far as your tax liability is concerned. This is to encourage these
Take note: When you start your business during the registration process people mining these precious metals to declare correct gross
at SEC, you should already declare that you are an export-oriented sales.
enterprise (Form F-100)
E.EXPORT SALES UNDER THE OMNIBUS - SEC. 106 A.2.A. (5)
C.SALE TO EXPORT ORIENTED ENTERPRISE - SEC. 106 A.2.A.(3) Investments Code of 1987 & other special laws. (constructive exports)
• Sale of RM or packaging materials to export-oriented enterprise; 1. Sales to Bonded Manufacturing Warehouses of Export Oriented
• Export sales exceed (not equal!) 70% of total annual Manufacturers
production; 2. Sale to export processing zones
3. Export traders operating bonded manufacturing warehouse
The sale is deemed as constructive export (RM/PM forms part of the 4. Sales to diplomatic missions and other agencies including sales
product to be exported by the buyer) to embassies and consulate
5. Sec. 106 A.2.a. (6) – Sale of goods, supplies, equipment and
Need not be in the economic zone; may be anywhere fuel to those engaged in INTERNATIONAL sipping or
Need not be paid in foreign currency INTERNATIONAL air transport operations. (RA 9337)
6. The sale covers GSEF transporting goods or passengers from
Distinctions: Philippine Port directly to a foreign port without any stoppage
1st type 2nd type 3rd type in the Phil.
7. Pertains to sale for outbound transport. What if
As to All Sale of raw or Sale of raw
purchase/importation?
goods or encompassin packaging or
property g materials packaging
F. SALE OF GOODS, SUPPLIES, EQUIPMENT AND FUEL TO THOSE
sold materials
ENGAGED IN INTERNATIONAL SHIPPING OR INTERNATIONAL
AIR TRANSPORT OPERATIONS.
As to the No Sold to non- Sold to an
buyer specification resident export-
The exportation covers GOODS, SUPPLIES, EQUIPMENT and FUEL (G-
oriented
S-E-F) to international shipping or international air transport – deemed
enterprise
Constructive Export.
As to the Must be in an Must be in an No
Ø Transports goods or passenger from Philippine port directly to a
mode of acceptable acceptable requireme
foreign port without any stoppage in the Philippines.
payment foreign foreign nt.
currency duly currency duly
Take note: importation made by an international shipping or
accounted accounted Reason:
international air transport are exempt from VAT (not zero-rated). But this
for in for in because it
only covers GOODS, SUPPLIES AND FUEL (G-S-F). Equipment is not
accordance accordance is sold to
included. Sec. 109 (U)
with the rules with the rules local
of the BSP of the BSP resident
Reason: Equipments are very expensive.
export-
oriented
enterprise
TRANSACTIONS EXEMPT FROM TAX
Similarity to the 2nd:
- Deemed export sale because the raw material or packaging SECTION 109
material forms part of the finished output and there’s a
presumption that these finished outputs will have to shipped out
A. Sale or importation of agricultural and marine food products in
or exported outside the country.
their original state, livestock and poultry of or king generally
- It is also need not be located in an economic zone.
used as, or yielding or producing foods for human consumption;
and breeding stock and genetic materials therefor.
D.SALE OF GOLD TO BSP - SEC. 106 A.2.A.(4) VAT EXEMPT
1. Products classified under this paragraph shall be considered in
Zero rated only if the sale is to BSP.
their original state even if they have undergone the simple processes
of preparation or preservation for the market, such as FDBR S3
Purpose: to encourage people to sell it to BSP to augment the countries
[Freezing, Drying, Broiling, Roasting, Salting, Smoking, Stripping]
reserves
Polished and/or husked rice, corn grits, raw cane sugar and molasses,
For the sale of silver, diamonds and other precious materials are not zero-
ordinary salt and copra shall be considered in their original state;
rated. it may be subject to VAT.
Includes vacuum packing/tetra packing.
“may be” because it is still subject to threshold. If the gross sales/receipts
do not exceed the threshold, then no VAT but subject to OPT (3% business
However, if a restaurant sells these products then they may not be
tax). If it exceeds, then it is already subject to VAT.
exempted because it becomes a sale of service. In which case,
determine if the ₱1,919,500-threshold had been exceeded or if the
What if initially, you paid the 3% business tax (as when in a mining
seller voluntarily registered.
business) because you didn’t expect that you will be mandatorily covered
under the VAT law, what will happen if your gross sales exceed ₱1, 919,
Q: Is the sale of Andok’s chicken subject to VAT?
500? Of course, you will pay the 12 % VAT. But what will happen to the
3% you already paid? Note: it pertains to precious metals other than Gold.

A: No. The sale of Andok’s chicken is exempt from VAT. Poultry supply imports potassium nitrate or fertilizers from
However, should Andok’s maintain a facility by which the China. They sell the imported fertilizers to local dealers in the
roasted chicken will be offered as a menu to customers who market. Are the importation subject to VAT?
would dine-in, then it will be subject to VAT on sale of service NO, because fertilizers are exempted from VAT.
which is similarly imposed on restaurants and other eateries.
(VAT Ruling No. 009-07 dated June 21, 2007) How about if it is importing raw materials for use in the
production of fertilizers in the Philippines?
2. Livestock and poultry for human consumption and breeding
YES. The imported raw materials are subject to VAT
B. Sale or importation of fertilizers; seeds, seedlings and because it is not covered under the 2nd exception
fingerlings; fish, prawn, livestock and poultry feeds, including (Section 109 par B). The exempted items there
ingredients, whether locally produced or imported, used in the pertains only to the ingredients for feeds and not for
manufacture of finished feeds (except specialty feeds for race fertilizers.
horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets); Take note: Under the 4th exemption, there must be the
intention to resettle here in the Philippines. There must be a
TN: the ingredients here pertains only to the ingredients of the proper declaration and must have the proper VISA. The items
feeds and not that of the fertilizers. must arrive 90 days before or after the arrival or together with
the person coming to settle in the Philippines except vehicle,
C. Importation of personal and household effects belonging to the
vessel, aircraft, machinery, and other goods for commercial
residents of the Philippines returning from abroad and
purposes.
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; Example: After her divorce in New York, Anne went home to
stay permanently in the Philippines. She brought home with her
TN: This applies only to the citizens of the Philippines, both 2 units of VAIO laptop, several law books which she used in her
residents and non-residents. There is a condition that the US law practice. She also imported her latest model Mercedes-
household or the personal belongings must be exempt from Benz car.
Customs Duties.
Is the importation of the laptops and the books
D. Importation of professional instruments and implements, subject to VAT?
wearing apparel, domestic animals, and personal household NO. These items fall under the exemption
effects (except any vehicle, vessel, aircraft, machinery other in D (professional instruments and
goods for use in the manufacture and merchandise of any kind implements).
in commercial quantity) belonging to persons coming to settle
in the Philippines, for their own use and not for sale, barter or How about the Mercedes-Benz car?
exchange, accompanying such persons, or arriving within ninety Not exempted. The car already falls under
(90) days before or after their arrival, upon the production of
the exception to the exempt provision
evidence satisfactory to the Commissioner, that such persons
under Section 109.
are actually coming to settle in the Philippines and that the
change of residence is bona fide;
If she wants it to be exempted she can, perhaps, avail of the
TN: This includes professional instruments and implements as provisions under the special law (if the items are brought in by
well as even domestic animals and applicable to all persons Consuls, Ambassadors, Officers of International Organizations);
provided that they came here to resettle. Must comply with the there might be provisions exempting that from VAT.
condition that these properties will arrive within a period of 90
days before or after the date of arrival (of the person).
train: must arrive within reasonable time E. Services subject to percentage tax under Title V;
There are items that are exempted under this provision
(meaning not exempted from VAT): vehicles, vessels, aircraft Services that are already subject to OPT are not subject to
machinery and other goods for commercial purposes. VAT.
The 3rd type of importation is available only to citizens F. Services by agricultural contract growers and milling for others
(residents and non-residents). of palay into rice, corn into grits and sugar cane into raw sugar;
The 4th type of exempt transaction may be availed of by either This still has to do with the 1st exemption (par A), palay and rice
a citizen or an alien; but subject to the following conditions: are exempted in whatever form so consequently, the
a. They must come here to resettle in the Philippines. labor/service aspect has to be exempted also.
b. The items must be for their own use and not for
commercial purposes. G. Medical, dental, hospital and veterinary services except those
rendered by professionals.
c. The items must arrive within a period of 90 days
before or within 90 days after the arrival of the
If you notice in Section 109, what are exempted are the basic
person. within reasonable time
needs. In Letter G, we are actually referring to the services -
hospital, medical, dental and veterinary. They are not subject to
Exceptions: Any vehicle, vessel, aircraft, machinery, other
VAT.
goods for use in the manufacture and merchandise of any kind
in commercial quantity. whether or not in commercial
Examples:
quantity
- Diagnostic Test like X-Ray

- Medicines from a pharmacy operated by the hospital K. Transactions which are exempt under international agreements
as long as you are considered as an in-patient of that to which the Philippines is a signatory or under special laws,
hospital (it will be different if you are an out-patient) except those under Presidential Decree No. 529;
Take Note: Those doctors having clinics of their own are subject PD No. 529 – Granting to Petroleum Exploration
to VAT. Concessionaires under the Petroleum Act of 1949 Exemption
from Customs Duty and Compensating Tax on Importations of
If the doctor is an employee to the hospital, then he may not Machinery and Equipment, Spare Parts and Materials Required
be subject to VAT because employee-employer relationship is for their Exploration Operations
also exempt from VAT.
Under the E-VAT law, the petroleum is now subject to VAT but
H. Educational services rendered by private educational the provisions under the PD No.529 are exempt.
institutions, duly accredited by the Department of
Education(DepEd), the Commission on Higher Education L. Sales by agricultural cooperatives duly registered with the
(CHED), the Technical Education and Skills Development Cooperative Development Authority to their members as well as
Authority (TESDA)and those rendered by government sale of their produce, whether in its original state or processed
educational institutions; form, to non-members; their importation of direct farm inputs,
machineries and equipment, including spare parts thereof, to be
There must be a proper accreditation or registration. This covers used directly and exclusively in the production and/or
both private educational institutions and government processing of their produce;
educational institutions.
Take Note: As far as the BIR is concerned, the registration with
I. Services rendered by individuals pursuant to an employer- the CDA is not enough. It is necessary also that the agricultural
employee relationship; cooperative must be in good standing with the CDA.
Employer-employee relationship is not for business. In good standing – must be compliant with the rules of the CDA.
J. Services rendered by regional or area headquarters established

Exempted:
in the Philippines by multinational corporations which act as
1. Sales to their members – it maybe their own produce or
does not derive supervisory, communications and coordinating centers for their
affiliates, subsidiaries or branches in the Asia-Pacific Region and maybe not their own produce.
income
do not earn or derive income from the Philippines; 2. Sales of their produce, whether in its original state or
processed form, to non-members.
This refers to RAHQ (Regional Area Headquarters) for
supervisory, communications and coordinating centers. It does As to the non-produce of the agricultural cooperative, if it is
not derive any income so not subject to income tax being sold to non-members of the cooperative and it became its
consequently not also subject to VAT main line of business and the sales exceeds P1,919,500 then it
may be subject to VAT. Though this is very unlikely.
The ROHQ derives income thus may be subject to VAT.
Their importation of direct farm inputs, machineries and
Some multinational corporations instead of establishing RAHQ, equipment, including spare parts are exempted subject to the
they establish a representative office. This is different from a condition that it must be used directly and exclusively in the
branch. production and processing of their produce.
A branch is more or less similar to an ROHQ – this operates on M. Gross receipts from lending activities by credit or multi-purpose
its own, it earns income, it is taxable on its own but its cooperatives duly registered with the Cooperative Development
personality is extension of the personality of its head office. Authority;
The representative office – it is still an extension from the main Again, not only registration but must also be in good standing
office. But it does not earn any income. Its activity is limited with the CDA.
only to liaise between clients, managing clients located in the
Philippines, marketing of the products, quality control of the Lending cooperative – basically for loan transactions, the
products. They are not subject to income tax and VAT. proceeds are the interests.
If RAHQ, can it be registered for PEZA purposes? Multi-purpose cooperative – they can make investments,
NO. engage in micro insurance, lease, marketing.
Basic Rule: If an entity is not subject to the usual tax applicable

N. Sales by non-agricultural, non- electric and non-credit
to corporations, they cannot avail of the fiscal incentives either
cooperatives duly registered with the Cooperative Development
under the PEZA law or under the BOI (Board of Investments). Authority: Provided, That the share capital contribution of each
member does not exceed Fifteen thousand pesos (₱15, 000)
RAHQ or Rep Office are not earning any income and not subject and regardless of the aggregate capital and net surplus ratably
to income tax. So they are not allowed also to be registered distributed among the members;
under the PEZA law or other special economic zone act.
Non-agricultural, non-electric and non-credit cooperatives –
their sales are exempted, provided the contribution of each
member does not exceed ₱15,000.

VAT. But, if it is classified as a capital asset – it is subject

Electric cooperatives are not exempted from VAT. to 6% CGT on the gross selling price or fair market value,
whichever is higher so there will be no VAT.
In both instances, they will be subject to Documentary

O. Export sales by persons who are not VAT-registered; Stamp Tax. To convert a private document into a public
document (for it to be recognized by the government
authority), such document will be notarized. But for BIR, it
There is no qualification whether it is an actual export or
is not enough that it is notarized. For BIR to recognize the
constructive export.
document, which basically evidences the change in the
ownership or the change in the relationship between the
If the transaction will fall under any of the Zero-Rated parties executing that document, payment of Documentary
transactions but you failed to register for VAT purposes then Stamp Tax is required. Payment of DST does not take into
you can claim your exemption under Letter O if you cannot claim consideration the classification of the assets whether
your exemption under the last provision of Section 109. ordinary or capital so long as there is a change in
ownership and you want transfer the ownership.
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 [Nos. 2 – 5 are sales of real property made in the ordinary course of
real property utilized for low-cost and socialized housing as business but are not subject to VAT.]
defined by Republic Act No. 7279, otherwise known as the
Urban Development and Housing Act of 1992, and other related 2. Sale of real property utilized for low-cost housing.
laws, residential lot valued at One million pesos
(₱1,919,500) and below, house and lot, and other residential 3. Sale of real property utilized as socialized housing.
dwellings valued at Two million five hundred thousand pesos
(P3, 199, 200) and below: Provided, That not later than January TN: Low-cost housing and socialized housing are not
31, 2012 and every three (3) years thereafter, the amount the same. They differ in threshold. Low-cost housing
herein stated shall be adjusted to their present values using the is intended for homeless low-income beneficiaries
Consumer Price Index, as published by the National Statistics and this covers either a subdivision or a
Office (NSO); condominium.
How many transactions – sale of real property transactions are exempted a. Low-cost housing: if unit selling price does not exceed
from VAT here? 3 million pesos.
1. Sale of real properties not primarily held for sale to *During the time of Former Pres. Binay
customers or held for lease in the ordinary course of trade a.1. Level 1: unit selling price is above P450,000 up
or business. to P1,250,000
a.2. Level 2: unit selling price is from P1,250,000 up
This is referring to sale of real properties classified as to P3,000,000
oTier 1 Low-cost housing: above P450,000 to P1,700,000
capital assets and thus not subject to VAT because it has oTier 2 Low-cost housing: above P1,700,000 to P3,000,000
already been subjected to Capital Gains Tax. Aside from the selling price, what is also important is
the proper registration with the HLURB that you are
TN: CGT and VAT cannot be imposed together because a low-cost housing developer or a socialized housing
CGT usually pertains to one-time sale transaction only developer.
while VAT requires regularity of business.
b. Socialized housing: if the value of the property does
If the real properties are classified as ordinary assets then not exceed P450,000.
it may be subject to VAT. Real properties are classified as
ordinary assets when it falls under the definition of 4. Sale of residential (not commercial) lot not exceeding
ordinary asset or when the entity is classified as a real ₱1,919,500.P1,500,000 pesos
estate dealer, real estate lessor, real estate developer or
those which are usually engaged in the sale of real The primary purpose is for dwelling. The threshold may be
properties. revised for a period of every 3 years. No revision in 2015
and 2016.
Under Section 39 of the NIRC, ordinary asset if it is
included in the stock in trade of the taxpayer or other 5. Sale of residential house and lot, and other residential
property of a kind which would properly be included in the dwellings not exceeding ₱3,199,200. P2,500,000
inventory of the taxpayer if on hand at the close of the
taxable year or property held by the taxpayer primarily for a. Residential house and lot
sale to customers in the ordinary course of his trade or b. Other residential dwellings
business, or property used in the trade or business, of a
character which is subject to the allowance for TN: For condominiums, the threshold to be exempt from
depreciation, or real property used in trade or business of VAT is ₱3,199,200 because it is considered as other
the taxpayer. residential dwelling. But take note of the Revenue
Regulation on the Adjacent Condominiums and Adjacent
If capital asset – exempt. Lots where the threshold will only be applied once.
If ordinary asset – subject to VAT.
TN: For residential house and lot, it should be based on
TN: VAT is applicable only if the asset sold is classified as the deed of sale but usually the BIR will not just rely on
an ordinary asset, which is subject to the usual or the the deed of sale but also the tax declaration.
normal tax rate of 30% for corporations or 5-32% for
individual taxpayers based on the profit so apply the 12% NOTE:

Low cost developer/socialized housing developer – should be registered (?) – YES.

first with the HLURB. 3% Title
V. Sec.
Other than VAT, there are many exemptions. e.g. Income tax, fiscal 116
incentives. Bed Space ₱10,000 20 (bed 10k*20*12 = YES. Sec.
spacers) ₱2,400,000 109 (q)
Exempt Transactions under Sec. 109 (P):
1) sale or held for lease NOT primarily in the course of business Relevant provision
- Capital Asset (Exempt); Ordinary Asset (12%) SEC. 116. Tax on Persons Exempt from Value-
2) Real property utilized for low-cost housing - SP ₱3,000,000; Added Tax (VAT). - Any person whose sales or
duly registered with HLURB receipts are exempt under Section 109(V) of this
Code from the payment of value-added tax and
3) real property utilized for socialized housing - value not who is not a VAT-registered person shall pay a tax
exceeding ₱450,000 equivalent to three percent (3%) of his gross
quarterly sales or receipts: Provided, That
4) residential lot - below ₱1,919,500 cooperatives shall be exempt from the three
percent (3%) gross receipts tax herein imposed.
5) residential house and lot and other residential dwellings -
below ₱3,199,200 Take note: If part of the residential units does not exceed ₱12,800 P15,000
and other part exceeds the threshold, consider them separately. Do
Q. Lease of a residential unit with a monthly rental not exceeding not aggregate both.
Ten thousand pesos (₱12, 800): Provided, That not later than
P15,000
January 31, 2009 and every three (3) years thereafter, the Summary
amount herein stated shall be adjusted to its present value using To be VAT Taxable for the lease of residential unit:
the Consumer Price Index as published by the National Statistics 1. Monthly rental per unit exceeds ₱12,800.
Office (NSO); 2. Aggregate yearly amount exceeds ₱1,919,500
What is exempted is not the sale, but the LEASE. Recap
IT MUST BE A RESIDENTIAL UNIT. SALE OF REAL PROPERTIES

Residential unit: this refers to apartments, houses and lots use A. Ordinary Asset – subject to VAT, except:
for residential purposes. Buildings or units. 1. If it is utilized as low-cost housing;
2. If it is utilized for socialized housing;
Used solely as dwelling places. For example, dormitories, rooms 3. It is a sale of residential unit not exceeding
and bed spaces. P1,919,500; or
4. If it is a sale of house and lot and other residential
Except motels, motel rooms or hotels. This is because it is only dwellings not exceeding ₱3,1919,200
transient. You are actually referring to the purchase of service.
(Include also pension house) B. Capital Asset (not primarily held for sale/not used in trade or
business) – not subject to VAT, but CGT
Monthly rent per unit SHOULD NOT BE MORE THAN ₱12,800
P15,000 LEASE OF RESIDENTIAL UNITS
LEASED MONTHLY NO. OF AGGREGATE VAT
UNIT LEASE UNITS LEASE (12- EXEMPT? Exempt from VAT if the monthly lease does not exceed ₱12,800.
PER UNIT MONTHS)
(Not ₱5,000 20 5k*20*12 = YES. Sec. Definition of Residential Unit
Residential) ₱1,200,000 109 (w); An apartment, house and lot used for residential purposes, buildings or
Pension OPT parts of units thereof used for dwelling places, such as dormitories, rooms,
House Taxable and bed spaces.
Rooms (?) – YES.
3% Title Motels, hotels, pension houses, and rest houses do not fall under the
V. Sec. definition of residential unit. So even if you lease these for a monthly
116 amount below ₱12,800, it is still subject to VAT, provided it exceeds the
(Not ₱50,000 5 50k*5*12 = NO. 12% threshold.
Residential – ₱3,000,000 VAT
still purchase Take note: Monthly rent must NOT exceed ₱12,800. So, if the monthly
of service) rent does not exceed ₱12,800, even if the annual aggregate amount
Rest House exceeds ₱1,919,500, it will be exempted under Sec 109(Q).
YES. Sec.
(Residential) ₱15,000 10 15k*10*12 = 109 (w); Rules in order to be exempt:
Apartments ₱1,800,000 OPT 1. Must be residential unit;
Taxable 2. Monthly rent must not exceed P12,800;
(?) – YES.
3% Title However, if it is a residential unit and the monthly rent exceeds ₱12,800,
V. Sec. it is not automatically subject to VAT. The annual aggregate amount must
116 also exceed the threshold of ₱1,919,500, in order to be subject to VAT.
(Not ₱8,000 10 8k*10*12 = YES. Sec. Otherwise, it will be subject to OPT.
Residential) ₱960,000 109 (w);
Office OPT Take note: It is exempt under Sec. 109(Q) if the monthly rent does not
Space Taxable exceed ₱12,800. If it exceeds ₱12,800 but the annual aggregate amount

does not exceed ₱1,919,500, it is exempt under Sec. 109(W), but will be In a Revenue Regulation issued by the BIR, there are additional
subject to OPT. requirements (to be exempt):
1. For passenger and cargo vessels 150 tons and above, the
Monthly rent Aggregate Tax implication age limit is 15 years old;
amount 2. For tankers, the age limit is 10 years old;
Below ₱12,800 Below Exempt from VAT under 3. For high passenger crafts, the age limit is 5 years.
₱1,919,500 Sec 109(Q)
Above Below Exempt from VAT under U. Importation of fuel, goods and supplies by persons engaged in
₱12,800 ₱1,919,500 Sec 109(W), but subject to
international shipping or air transport operations;
OPT
Above Above Subject to VAT
Take note: No domestic.
₱12,800 ₱1,919,500
Compare with:
Registration for VAT purposes Section 106(2)(A)(6). The following sales by VAT-registered
persons shall be subject to zero percent (0%) rate:
Voluntary — if the taxpayer has not yet exceeded the threshold of
₱1,919,500. (a) Export Sales.
(6) The sale of goods, supplies, equipment and fuel to persons
Mandatory — if the taxpayer has already exceeded the threshold of engaged in international shipping or international air transport
₱1,919,500. operations.
To determine whether a taxpayer must register for tax purposes:

Under Section 106(2)(A)(6), it refers to the seller. Under Sec
1. Ascertain the aggregate amount to the same taxpayer,
109(U), it refers to the buyer/importer. So, the importer must
regardless of the nature of the business; and
be engaged in international shipping or air transport operations.
2. Both transactions which are considered taxable must be subject
to VAT. However, the exemption is limited only to fuel, goods and
supplies.
TN: To be exempt, it must be a residential unit. If commercial unit, it will
NOT be exempted under Sec 109(Q). Take note: Under Sec 106, the transaction that is subject to 0%
VAT is the sale of fuel, goods, supplies and equipment.
(Continuing with exempt transactions) However, under Sec 109, it does not include the importation of
equipment.
R. Sale, importation, printing or publication of books and any
newspaper, magazine review or bulletin which appears at V. Services of bank, non-bank financial intermediaries performing
regular intervals with fixed prices for subscription and sale and quasi-banking functions, and other non-bank financial
which is not devoted principally to the publication of paid intermediaries; and
advertisements;
These are exempt because these types of businesses are
The “books” referred hereto pertain only to books primarily used already subject to OPT, under Sec. 121 on gross receipts tax
for educational or religious purposes, i.e. Bibles. Further, the under the provision on percentage tax in the NIRC.
BIR clarified that these “books” refer to printed materials in
hardcopies and not the e-books. W. Sale or lease of goods or properties or the performance of
services other than the transactions mentioned in the preceding
The “magazines and newspapers” must be: paragraphs, the gross annual sales and/or receipts do not
1. Printed/published at regular intervals, i.e. daily, exceed the amount of ₱1,919,500 xxx
weekly, etc.;
2. At fixed prices for subscription and sale; This pertains to VATABLE transactions which do not exceed the
3. Not devoted principally for paid advertisements, threshold of ₱1,919,500. It is a fall back provision.
i.e. Sunstar, TIME magazine
However, it will be subject to OPT of 3% under Sec 116 of the
S. Transport of passengers by international carriers; OPT, which cross-refers to Sec 109(W).
“Passengers” refer to human beings by international carriers, TN: These are exempt from VAT but subject to 3% OPT.
from the Philippines going outside of the country, without any
stoppage. So, direct flight going outside of the country.
T. Sale, importation or lease of passenger or cargo vessels and

aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations;
Take note: For transport of passengers, it covers only

international carriers. However, for the sale, importation, or
lease of the passenger or cargo VESSEL, it covers international
and also domestic.

TRANSACTIONS DEEMED SALE No, since she is not primarily engaged in rendering service. (but
may still be subject to income tax)
Two Classifications of Sale: (3) Consignment of goods if actual sale is not made within sixty (60) days
1) Actual Sale – a VAT-registered person is the seller and another following the date such goods were consigned; and
VAT-registered person is the buyer. The seller’s output tax
becomes the buyer’s input tax, which may be credited by the When it comes to a consignment transaction, there is no transfer of
seller against the output tax. ownership. The consignor (owner of the property) remains to be the
owner.
2) Transactions deemed sale – the seller is also the buyer with no
valuable consideration. This is subject to VAT if falling under Sec Considered a transaction deemed sale if actual sale is not made
106(B). The purpose is to recapture the VAT claimed as “input within sixty (60) days following the date such goods were
tax” during the purchase. consigned.
Here, there is no actual sale, but the NIRC specifies that these should be Consignment, however, excludes the physical change to the
treated as a VATable transaction. product. For example, flour to bread if there is actual use.
Example: You are the seller of tsinelas. You purchase 10 tsinelas from your The reckoning point is the date of consignment whether it’s sold or not.
supplier, so you claimed input tax good for 10 tsinelas. But then you had
your 1st year anniversary, so you gave away 5 tsinelas for free to your The one liable for the payment of VAT is the owner of the goods. It is the
employees. So you were only able to sell the other remaining 5, thereby consignor’s primary liability. Consignee is a deemed buyer.
recognizing output tax good for 5 tsinelas. This would result to higher
input VAT (good for 10 tsinelas) than output VAT (good for 5 tsinelas), If you do not want this to happen, you can either:
resulting to a VAT refund and not VAT payable. So, if there is no provision 1.) Return the goods prior to the lapse of the 60-day period; or
on transactions deemed sale, the VAT law may easily be circumvented 2.) Withdraw and re-consign it prior to the lapse of 60 days
because you can just say you gave away your goods so you cannot pay (withdrawal does not have to be actual physical withdrawal. You
VAT. just have to show it in papers)
Purpose: To recapture the input tax that was previously claimed before (4) Retirement from or cessation of business, with respect to inventories
the deemed sale transaction. of taxable goods existing as of such retirement or cessation.
TN: Input tax must have been previously claimed. These goods are primarily intended for sale, it Is just that the business
will close and you were not able to sell the goods. Because of that, you
Section 106(B). Transactions Deemed Sale: deem it sold. Therefore, should be subjected to output VAT.
1) Transfer, use, consumption NOT in the course of business of Retirement or cessation encompasses:
goods or properties originally intended for sale or for use in
the course of business; 1.) Stoppage of business- no operation at all
See example above. 2.) Change in business form- from single proprietorship to partnership or
from partnership to corporation. Previous business type is deemed
2) Distribution or transfer to: dissolved once you enter into a new business type
a) Shareholders or investors as share in the profits of
the VAT-registered persons; or 3.) Merger or consolidation- there will be a new entity, either existing or
b) Creditors in payment of debt; new.
Merger: A + B = B; Consolidation: A + B = C
These must be primarily held for sale in the business or part of the
inventory or property used in business. 4.) Change in business activity: From VAT-registered to VAT-exempt
If you distribute or transfer to your shareholders or creditors, it comes in For five years, you’ve been subjected to OPT. On the sixth year, you
the form of property dividends. That that property is primarily held for sale exceeded the threshold so you amended your registration for VAT. So far
in your business (i.e. real estate). If such is issued as dividend to your as the VAT law is concerned, your first year would be on that period when
shareholder or transferred to your creditor in payment of debt, it would you amended your registration from percentage tax to value-added tax.
be considered as a transaction deemed sale, and output VAT will be And because of that, there is a Presumptive Input Tax and the
recognized. Transitional Input Tax.
Illustrative Problem: Reason for treating it as a VATable sale:

Maricris Colina is engaged in the business of dried mangos manufacturing Because the remaining inventories already formed part of the previous
or trading. She is indebted to Mr Largo for P100,000 at 6% interest per purchases to which input tax has been claimed
annum. For seeing that she would not be able to pay on time, she
proposed that she will pay with her dried mangos valued at 150,000 Whatever inventory that remains at the period when you become exempt
(payment in kind). The creditor gladly accepted it. will be considered a transaction deemed sale. You will be assessed with
output VAT.
1.) Will the transaction be subject to VAT?
(Presuming he is VAT-registered) YES, subject to VAT. There can be VOLUNTARY registration:
2.) How much is the tax base? SEC. 109. Exempt Transactions.
150,000 — value of the mango. Because it is DEEMED SALE. (2) A VAT-registered person may elect that Subsection (1) not apply to its
sale of goods or properties or services: Provided, that an election made
3.) What if she rendered service, is it VATable?

under this subsection shall be irrevocable for a period of three (3) years rate which is applied to the value of the goods existing at the date persons
from the quarter the election was made. commences business and/or becomes liable to VAT (Sec. 111-A)
Two possible grounds: 2% of value of beginning inventory, materials, supplies on hand OR Actual
1.) If optional VAT-registration only value of VAT paid, whichever is higher.
2.) If there are reasonable grounds to believe that for any 12-
month period, you cannot reach the threshold. If you were able to keep the receipts of these items, this is the only way
to ascertain the actual VAT paid and if it is higher than the actual 2 percent
value then you avail of the actual value of VAT paid. But if you do not have
RATES OF VAT that then it is as if you have no option automatic go to 2 percent of the
value of the beginning inventory, materials or supplies.
For Output VAT: Applies only to VATable purchases with substantiation for the 12%
1.) 0% (Sec 106) actual input tax. But if 2% transitional input tax is used, no proof is
2.) 12% necessary for actual payment of input VAT.
For Input VAT: May be applied when a VAT exempt taxpayer becomes VAT-registered
1.) 12% (mandatory) or voluntarily registered.
2.) 0%
3.) 2% Transitional Input tax (Sec 111A) If the question is how much is the transitional input tax, do not say that it
4.) 4% Presumptive Input Tax is only 2 percent of the value of the beginning inventory. Rather, it is 2
5.) 5% Final Withholding Tax percent of the value of the beginning inventory or actual value of VAT
paid, whichever is higher.
If first time to be covered under the VAT law, either this (transitional input
tax) or the 12% actual input tax rate if you have the proper substantiation 4% Presumptive Input Tax – of the value of amount paid applied to
of your purchases like official receipts; otherwise, apply the 2% purchases of VAT exempt goods used as inputs manufacturing or
transitional input tax. processing “certain” food products by a VAT registered taxpayer (Sec. 111-
B)
Applied to the value of goods existing at the date a person commences
business and/or becomes liable to VAT Here there is no input tax. It means no VAT is charged by the supplier to
you. But if you sell it then there is output vat.
The 2% should be multiplied to the beginning inventory.
Only if used in process Sardines, Mackerel, Milk, Noodle-based instant
(From Valencia undergraduate book) meals, Cooking Oil, Refined Sugar (SM2-NCR) [EXCLUSIVE LIST]
2% TRANSITIONAL INPUT TAX
Allowed on the inventory on hand (goods, materials of supplies) of a Processing is defined as pasteurization and canning activities which alters
person who, for the first time becomes liable to VAT or elects to be VAT- the physical form, texture or inner substance of a product due to physical
registered. or chemical process.
TIV is 2% of the value of such inventory or the actual input VAT paid on For a special purpose which it could not have been used in its original
such inventory, whichever is higher, which shall be creditable against the state.
output VAT. Goods exempt from VAT shall be excluded in the computation
of TIV. Presumptive input tax is limited to agricultural product. Marine products
are not included. Raw materials are without VAT because they are
4% PRESUMPTIVE INPUT TAX (SEC 111B) exempted.
Applied to purchases of VAT-exempt goods used as input by a VAT-
registered manufacturing or processing certain food products. Example The tuna sold by supplier is without VAT but once it goes through
chemical process there is already VATable.
Allowed by the Tax Code as input tax on purchases of a VAT-registered
person despite that there is no actual VAT payment made on VAT-exempt 5% Final Withholding Tax (FWT) rate vis-à-vis Creditable
transactions. Withholding VAT (WVAT) (Sec. 114)
These are to be withheld by the payor
PIV is four percent of the gross value in money of their purchases of
primary agricultural products which are used as inputs in the 5% Final Withholding VAT applies if the buyer is the Government,
productions of: agencies of the Government or GOCC for the reason of expediency of
a. Sardines; mackerel collection (lifeblood)
b. Milk
c. Refined sugar On payment to the government. In this case the payor is the government.
d. Cooking oil; and The one who availed the vatable service is the government. What will
e. Packed noodle-based instant meals happen is that the government will automatically withhold 5 percent.
Processing shall mean pasteurization, canning, and activities which Example I am the supplier of uniforms to the government. The business
through physical or chemical process alter the exterior texture, form, or is VAT registered. The cost is 1million pesos. The Government will
inner substance of a product in such manner as to prepare it for special automatically withhold 5% from the 1milion pesos, or 50thousand pesos.
use to which it could not have been put in its original form or condition. Thus, the government will just pay me 950,000 pesos. The 50thousand
pesos will not be used as tax credit for the input VAT.
----------------------------------
The reason why the government withholds is expediency of collection.
2% Transitional Input Tax or 12% actual input tax rate – if it is the
first time that you are covered under the VAT law you may avail of this

No more credit or deduction on the output tax of seller (7% is deemed as • If it does not, the taxpayer may carry it over to the next taxable
the standard input VAT) quarter (not time-bound).
Transaction must be VATable. The 5% is not declared as part of the seller’s “Not time-bound” – no deadline to recover the excess input tax, not
gross sales/receipts. required to be carried over the immediately succeeding quarter.
If actual input VAT is greater than standard input VAT, you may claim it REQUISITES TO CLAIM FOR REFUND/CREDIT:
as expense or cost. • VAT-registered person
• Claimed input taxes are directly attributable to zero-rated sale.
If actual input VAT is less than standard input VAT, you may claim it as a • Duly supported with VAT invoices or VAT Official receipt with proper
reduction of your expense or cost. content.
• The claimed input tax were not applied against output tax nor carried
Creditable Withholding VAT – payments for VATable purchase of over to succeeding months/quarters.
goods or services from Non-resident supplier/sellers. • Claim for refund/credit (administrative aspect) must be made within
2 years from the close of taxable quarter when the sales (0%) were
- Withheld at source by the payor (purchasers within the made and not when input tax was paid.
jurisdiction of the Philippines)
- Payor is either a domestic corporation or a resident person. WHERE TO CLAIM TAX CREDIT/REFUND:
- Seller is a non-resident supplier/seller. • BIR Head Office for large taxpayers.
- 12% is withheld even for isolated transaction • Revenue District Office where the business is registered for non-large
- To be remitted in 10 days to BIR taxpayers.
- If zero-rated, the withholding payor may still claim the • One-stop shop center at the Department of Finance
remittance as input tax and avail of tax credit/refund.
WHEN TO CLAIM TAX CREDIT/REFUND:
This will happen if the one buying is in the Philippines. The seller is outside Sec 112 (A) – Any VAT-registered person, whose sales are zero-rated or
the Philippines. It will be withheld at source by the payor. 12 percent will effectively zero-rated may, within two (2) years after the close of the
be withheld even if isolated transaction. taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable
Example Sale of real property exceeding 1,919,500 or at 2million. Let’s to such sales, except transitional input tax, to the extent that such input
say the seller is from outside the country. The purchaser will withhold the tax has not been applied against output tax.
12 percent VAT and remit it. When that nonresident will file his return, he
will credit that 12 percent that was withheld. Sec 112 (C) – In proper cases, the Commissioner shall grant a refund or
issue the tax credit certificate for creditable input taxes within one
Nonresident, vatable transaction, lot at 2 million under normal transaction hundred twenty (120) days from the date of submission of complete
the one who will remit is the seller but because he is not a resident then documents in support of the application filed in accordance with
the buyer is obliged to remit it within 10 days the 12 percent VAT. So Subsection (A) hereof.
instead of remitting 2 million, buyer will remit the net of the 2million to
seller or 1,760, 240 will be remitted to BIR. If you failed to withhold it or In case of full or partial denial of the claim for tax refund or tax credit,
remit it then that could be a ground for the BIR to disallow the claiming or the failure on the part of the Commissioner to act on the
of input vat in so far as that transaction is concerned application within the period prescribed above, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim
Note: If payor is non-resident while seller is domestic or resident, no or after the expiration of the one hundred twenty-day period, appeal the
creditable. The seller is liable for the payment of VAT. decision or the unacted claim with the Court of Tax Appeals.
For VAT liability of the seller, we follow the tax credit method. Note: In case of full or partial denial, appeal to the CTA within 30 days. In
case the CIR failed to act on the application within 120 days, appeal to the
VAT Payable = Output tax – Input tax CTA within 30 days. The 30-day period to appeal is mandatory and
jurisdictional.
WHEN TO RECOGNIZE:
Output VAT - immediately upon the sale of the goods or service. The 2-year period in Section 112 covers only the administrative aspect
Input VAT - upon consummation of the transaction when it involves while the 2-year period in Section 229 covers both administrative and
purchase of goods or properties supported by VAT invoice, or upon the judicial aspect. Keep in mind that Section 229 talks about ‘Recovery of Tax
payment of compensation when it involves purchase of services supported Erroneously or Illegally Collected’.
by VAT receipt, or upon payment of VAT prior to release in BOC as
supported by “import entry declaration” by BOC From previous year’s notes:
Aichi Forging Case v. San Roque
*Consummation – delivery of the thing purchased. Aichi clarified that it is only the administrative claim that must be filed
within the two-year prescriptive period. San Roque, on the other hand,
TREATMENT OF EXCESS INPUT TAX has ruled that the 30-day period always applies, whether there is a denial
Instances when Input VAT is greater than Output VAT: or inaction on the part of the CIR. (Rohm Appollo Semiconductor Phil. v.
• Zero-rated sale with 0% output tax; CIR)
• Development stage enterprise;
• Purchases are greater than the sales during the period. A claim for tax refund or credit, like a claim for tax exemption, is construed
strictly against the taxpayer. One of the conditions for a judicial claim of
Ascertain if the input tax pertains to a zero-rated transaction: refund or credit under the VAT System is with the 120+30 day mandatory
• If it does, the taxpayer may carry it over to the next taxable and jurisdictional periods. Thus, strict compliance with the 120+30 day
quarter (not time-bound), OR claim for refund or credit within 2 periods is necessary for such a claim to prosper, whether before, during,
years from the end of the taxable quarter when the sale was or after the effectivity of the Atlas doctrine, except for the period from the
made. issuance of BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October

2010 when the Aichi doctrine was adopted, which again reinstated the • Association dues and special assessments; guest fees and fees
120+30 day periods as mandatory and jurisdictional. for use of facilities are exempt from VAT.
• Income from operating restaurant, boutique or shop or for
ATLAS Doctrine – Even before the lapse of the 120-day period, the leasing facilities – Subject to VAT.
taxpayer may go directly to the CTA. This holds true only on December
10, 2003 to October 6, 2010. VAT RULINGS/ PRONOUNCEMENTS
1. Manila Mandarin Hotel vs CIR
REFUND OF INPUT VAT PRIOR TO VAT REGISTRATION
Input VAT attributable to Zero-rated sales prior to registration may not be Mandarin provides limousine services to its clients
the subject to refund because only a VAT-registered person whose sales Issue: Whether or not they should bay 3% common carriers tax or 12%
are zero-rated or effectively zero-rated may claim for input vat refund or VAT
credit. Held: 12% VAT
Reason: As a hotel, it is part of sales of services.
Section 112 (A) — “Any VAT-registered person, whose sales are zero-rated
or effectively zero-rated…” 2. SM Prime Holdings vs CIR
SUBSTANTIATION REQUIREMENTS TO CLAIM FOR INPUT VAT Gross receipts of theatre owner or operator from sales of tickets to
REFUND OR CREDIT: moviegoers are exempt from VAT. Theatre and movie houses are not
A. Importation - Import entry declaration. Tax Base is the Landed Cost. included in enumeration of taxable services in VAT law.
Landed Cost = invoice amount + freight + customs duties + Reason: It is already subject to AMUSEMENT TAX. However, the “leasing”
insurance + excise taxes, if any. of movies is Subject to VAT.
B. Sale of Goods or Properties - VAT invoice. PRESCRIPTIVE PERIOD – 2 YEARS

C. Sale of Service - VAT official receipt. Commences from the close of the taxable quarter when the sales were
D. Payment to non-resident - Monthly remittance return of VAT made and not from the time the input tax was paid nor from the time the
withheld. official receipt was issued.
E. Transitional Input Tax - Inventory of goods with detailed statement. Accumulated and unapplied input taxes that has not been claimed for
F. Presumptive Input Tax – VAT Invoices refund or credit within 2-year prescriptive period cannot be claimed as
outright expense.
Filing of VAT Return – Monthly, to be consolidated quarterly.
Monthly – not later than the 20th day following the close of the month.
Quarterly – not later than the 25th day following the close of each taxable
quarter.
SUSPENSION OF THE BUSINESS OPERATIONS; SEC 115

The Commissioner or his authorized representatives may suspend the
business operations for a period of at least 5 days due to:
1.Failure to issue VAT invoice or VAT official receipts;
2. Failure to file VAT return as required under Section 114;
3. Understatement of taxable sale for 30% or more of correct taxable sale/
receipt during the quarter;
4. Failure of any person to register, when mandatorily covered.
CONSEQUENCES OF ISSUING ERRONEOUS VAT INVOICE OR VAT

OFFICIAL RECEIPT DESPITE BEING EXEMPT; SECTION 113(D):
1. Continue to pay current tax due (OPT);
2. Liable to pay VAT;
3. Cannot claim input tax;
4. Liable for 50% surcharge.
MIXED BUSINESS
Input taxes on VAT exempt sale shall form part of the cost of asset or
operating expenses of taxpayer deductible only from his gross income;
Cost deduction method.
If the input tax cannot be directly attributed to transactions subject to or

exempt from VAT, taxpayer has to allocate the input taxes on these assets
based on Gross Selling Price or Gross Receipts for preceding taxable
quarter.
SPECIAL TYPES OF PERSONS

1. Husband and wife are considered separate taxpayers.
2. Joint venture undertaking construction or engaged in energy related
projects.
3. Government
• Government function: Exempt from VAT
• Proprietary Function: Subject to VAT
4. Non-stock, non-profit association

TAX ADMINISTRATION AND ENFORCEMENT Tax Enforcement and Administration

Agencies, Powers and Duties of BIR Officials
NOTE: Please read Sections 1-21 of the NIRC Agencies Involved in Tax Administration
1. Bureau of Internal Revenue (BIR)
AGENCIES INVOLVED IN TAX ADMINISTRATION 2. Bureau of Customs (BOC)
3. Provincial, city, and municipal assessors and treasurers
BUREAU OF INTERNAL REVENUE (BIR) Powers and Duties of the BIR (AGEE)
— in charge of the implementation of the National Internal Revenue Code 1. Assessment and collection of all national internal revenue
(NIRC) taxes, fees, and charges
BUREAU OF CUSTOMS (BOC) 2. Give effect to and administer the supervisory and police
— still part in implementing the NIRC, specifically in the implementation power conferred to it by the Tax Code or other laws.
of the VAT law involving importations.
— but the primary law being implemented by the BOC is the Customs 3. Enforcement of all forfeitures, penalties and fines in
Modernization and Tariff Act (CMTA) connection therewith.
PROVINCIAL, CITY AND MUNICIPAL ASSESSORS AND 4. Execution of judgments in all cases decided in its favor by
TREASURERS the Court of Tax Appeals and the ordinary courts
— implementation of local taxes, but they can still assist the BIR on the
implementation of the taxes, specifically in forfeitures, levy and Officials of the BIR
garnishment 1. CIR (1)
2. Deputy Commissioners (4)
Powers of the BIR 3. Assistant Commissioners
1. Assessment and collection of all national internal revenue taxes. 4. Head Revenue Executive Assistants (HREA)
2. Give effect to and administer police power conferred to it by the 5. Regional Directors (19)
tax code and other laws. 6. Revenue District Officers
3. Enforcement of all forfeitures, penalties, and fines. 7. Revenue enforcement officers or examiners
4. Execution of judgment in cases decided in its favor by the Court
of Tax Appeals. New Offices created EO 366
• Office of the planning and management
Primary function of the BIR
• Project and implementation management service
Assessment and collection
• Large Taxpayer’s service
Officials of the BIR
TN: Though these offices are new, no Deputy Commissioners were added.
Caesar R. Dulay Important: Cebu is under Revenue Region 13. Under Revenue Regions
Commissioner of Internal Revenue are the Revenue District Offices. In Cebu you have 4 revenue region
district offices. (RDO 80, 81, 82, and 83)
Nestor S. Valeroso
Deputy Commissioner Carlos G. Dominguez III
Secretary of Finance
Jesus Clint O. Aranas
Deputy Commissioner, Legal Group Caesar R. Dulay
Commissioner of Internal Revenue
Lanee C. David
Deputy Commissioner, Information Systems Group General Powers of the CIR
(Sec. 4 to 8, NIRC)
Celia C. King 1. Power to interpret the tax code and other tax laws (exclusive
Deputy Commissioner, Resource Management Group and original jurisdiction)
2. Power to decide disputed assessments, refunds, penalties &
Source: https://www.bir.gov.ph/index.php/transparency/transparency- other matters under the NIRC or other laws administered by the
seal/bir-officials.html BIR.
3. To obtain information, and to summon, examine and take
Regional Director – head of the revenue region testimony of persons;
Cebu City belongs to revenue region 13 4. To make assessments and prescribe additional requirements for
tax administration and enforcement;
Revenue District Officers 5. To conduct inventory – taking, surveillance and to prescribe
There are 4 revenue district offices in Cebu. presumptive gross sales and receipts;
80 – Mandaue 6. To terminate taxable period;
81 – Banilad 7. To prescribe real property values;
82 – Across CIT-U 8. To inquire into bank deposit accounts;
83 – Talisay 9. To accredit and register tax agents;
10. To prescribe additional procedural or documentary
For large taxpayers district office – 112 requirements; and
11. To delegate power to subordinates.

(1) POWER TO INTERPRET THE TAX CODE AND OTHER TAX LAWS FINAL ASSESSMENT MUST BE CLEAR AND UNEQUIVOCAL
There must be clear and unequivocal indication whenever the CIR’s action
Exclusive and original jurisdiction on an assessment questioned by the taxpayer constitutes his final
It cannot be delegated to the subordinate of the CIR, unless you question decision/determination on the dispute.
the constitutionality you go now to the courts. The assessment we are referring here pertains to deficiency assessment.
You disputed the computation made by the BIR.
Revenue Regulation Revenue Ruling or Opinion
POWER OF CIR TO RESOLVE ADMINISTRATIVE CASE
General interpretations of the More specific in nature; The CIR has the power to resolve administrative cases within a period of
tax laws seeking to explain the addressing needs of a taxpayer 120 days. The lapse of the 120 days period without any action coming
provisions of the law but is applicable only to the from the CIR is considered a denial of the claim. Thus, within 30 days
requesting taxpayer therefrom, judicial action may be had with the Court of Appeals.
Issued by the Secretary of Issued by the CIR subject to TN: The proper remedy of a taxpayer to any dispute is to go first to the
Finance with recommending review by the Secretary of administrative level before going to the judicial level.
power from the CIR Finance
(3) OBTAIN INFORMATION AND TO SUMMON, EXAMINE AND TAKE

Q: How is it done? TESTIMONY OF PERSONS
A: When it comes to interpretation of the tax code, it maybe generic
interpretation or specific. Extent of power
Generic Interpretation (1) Canvass from time to time the revenue region or district office.
It usually comes in the form of a revenue regulation. When it comes to
revenue regulation, it is not the CIR who is authorized rather it is the (2) Obtain information on a regular basis – which information may be
Secretary of Finance. The CIR only has the recommending power or sourced from the taxpayer (self-assessment) or 3rd party information.
recommending approval.
(3) Take testimony of persons (under oath) as may be relevant or material
Specific Interpretation to the inquiry. The CIR has the power to issue subpoena duces tecum and
It usually comes in the form of revenue rulings or opinions but subpoena ad testificandum.
the revenue rulings or opinions, this is applicable only to a specific
situation and it is only applicable to specific taxpayer who requested for Q: In relation to taking of testimony of persons, can the CIR
the ruling or opinion. issue summons as well as subpoenas?
It doesn’t mean to say that if Mr. A and B situated are situated A: Yes and it is in accordance with its power to obtain
having the same operation of business and here comes a ruling stating information and to summon, examine and take testimony of
that Mr. A is exempt doesn’t follow that Mr. B is automatically exempted persons.
because there’s no such thing as stare decisis in Revenue rulings or
opinions. Only a guide. SUMMON V. SUBPEONA
SUMMON SUBPOENA
Q: When it comes to revenue rulings or opinions, can it be Issued in order to Issued in order to
delegated by the CIR? place the recipient compel the recipient
YES, except: thereof within the of the subpoena to
1. If it pertains to rulings of first impressions (no previous ruling – jurisdiction of the testify in ad
exclusively, it must be signed and issued by the CIR) issuing authority. testificandum or
2. If it involves reversion or modification of a previous opinion or ruling by submit documents if
the BIR then it exclusively belongs to the CIR subpoena duces
tecum.
TN: The rest may be delegated to regional directors or to the Deputy or
assistance commissioner.
(2) POWER TO DECIDE DISPUTED ASSESSMENTS, REFUNDS, (4) Examine any book, record, data which may be relevant or material to
PENALTIES AND OTHER MATTERS UNDER THE NIRC OR the inquiry.
OTHER LAWS ADMINISTERED BY THE BIR – this is an
administrative function Prescriptive Period
There is a certain number of years when a taxpayer is required to keep
Kinds of remedies: his books of account. The number of year is 10 years.
(1) Appeal to the Secretary of Finance – problems arising from
interpretation of tax laws Example: If BIR examines your book on accounts in year 2000 and its now
2015, they cannot anymore do that since it is already beyond the 10-year
(2) Appeal to the Court of Tax Appeals – problems arising from period.
assessments, refunds, penalties or other matters regarding tax
liabilities under the Tax Code. (5) To issue summons
(3) Regular courts – problems arising from constitutionality of tax Q: Is the BSP exempt from Internal Revenue taxes?
laws. A: No, only DST exemption.
(4) BIR – Administrative actions by taxpayers prior to judicial action

before the CTA

Q: May the CIR and/or his subordinate issue subpoena i.e. (1) Decedent to determine gross estate and
subpoena duces tecum?
A: Yes pursuant to the CIR’s power to obtain (2) Any taxpayer who enters into compromise with the BIR for
information and to summon under Section 5, NIRC. However, reason of financial incapacity to pay his tax liability
this is NOT a requisite before resorting to best evidence
obtainable. (3) A specific taxpayer or taxpayers subject of a request for the
supply of tax information from a foreign tax authority pursuant
Important: It is not a requisite for the BIR to first issue a subpoena to to an international convention or agreement on tax matters to
the taxpayer because the subpoena is only resorted into if there are no which the Philippines is a signatory or a party of: Provided, That
available documents. the information obtained from the banks and other financial
institutions may be used by the Bureau of Internal Revenue for
(4) MAKE ASSESSMENTS tax assessment, verification, audit and enforcement purposes.
The power to make assessment include: TN: Foreign tax authority is an authority equivalent to the BIR such as the
Internal Revenue Services (IRS) in the US.
• Examination of returns and determination of tax due – based
on best-evidence obtainable. SOURCES
1. Government offices/agencies
Best evidence obtainable – means that the CIR is not just limited on the 2. Corporations/employers
returns filed by the taxpayer because when it involves evasion which 3. Clients or patients
involves hiding of information, this may be taken by the Bureau from the 4. Tenants lessees, vendees and from all other sources
other party in the contract or from the other government agency involved.
Q: May returns, statement, or declaration filed with the BIR be
• Assess the proper tax – this involves issuance of deficiency withdrawn?
notice (errors in filing of returns which is through self- GR: No.
assessment) Exceptions:
1. Done within 3 years from filing of the returns
• Conduct of inventory-taking, surveillance, and to prescribe 2. No notice of audit or investigation of such return has been
presumptive gross sales and receipts. served upon the taxpayer.
• Issue jeopardy assessments. -discussion on BIR and Henares and suki and maru maru inside
the bureau
1. Examination of returns and determination of tax due based on best- Right of BIR to issue deficiency assessment
evidence obtainable Under Section 6 of the NIRC, the filing of an amended return during the
examination does not preclude nor diminish the right of the BIR to issue
GR: Confidentiality of Tax Returns deficiency assessment base on the previous tax return.
When transacting with the BIR and you are just a representative, you need
Exceptions: [PA-EFEC] to have a Special Power of Attorney (SPA), for the information to be
1. Upon written order of the President of the Philippines; transacted is deemed confidential.
2. In aid of legislation by Congressional Oversight Committee
3. Material evidence in criminal case where the government is interested 2. Assess the proper tax (notice to the effect with demand of payment)
in the result;
4. Inspection is authorized under of Finance Regulation 33 “Assess”
5. Request for exchange of information by foreign tax authority (R.A. No. Assess means to impose a tax; to charge with a tax; to declare a tax to
10021, FATCA) be payable; to apportion a tax to be paid or contributed, to fix a rate; to
6. Upon consent/authority of taxpayer. fix or settle a sum to be paid by way of tax; to set, fix or charge a certain
sum to each taxpayer; to settle determine or fix the amount of tax to be
Finance Regulation 33 paid.
Regulations Relating to Inspection of Income Tax Returns. This is an old
regulation which was passed in 1922 Take note: While tax is generally legislative, the BIR is granted the power
GR: Tax returns are confidential. to make proper tax assessment.
Important: An officer of the BIR becomes liable when there is unlawful Terms
divulgence of trade secrets, which offense is punishable by a fine in a sum Assessment - computing tax liability
of not more than P2,000 or an imprisonment for a term of not less than Self-Assessment – tax payer computes his own liability
six months nor more than five years, or both. Deficiency – difference of the tax liability computed by the
EXCEPTION: When it is to be used in legal proceedings. taxpayer and tax liability computed by BIR
Foreign Account Tax Compliance Act (FATCA) Assessment is the notice to the effect that the amount therein stated is
It is a form of information exchange system among countries. This law due to the taxpayer with a demand for payment within a stated period of
was enacted by the US in order to prevent their citizens in going abroad time.
and hide their income. It is a US law and applies only to US citizens.
Prior RA 10021, FATCA is implemented in the Philippines voluntarily but Important: The assessment we are referring here is not the assessment
an issue came because of the penal provisions under the law. made by the taxpayer rather, the assessment made by the BIR.
Exchange of Information on Tax Matters Act of 2009 (RA 10021) As a general rule, we have self-assessment. However, when the BIR
The Philippine version of the FATCA. This gives the BIR additional grounds ascertains that the assessment made by the person is erroneous, it will
to inquire into the bank deposits of their account holders (in addition to 1 make its own assessment. If more than that declared, the BIR will issue a
and 2 below):

deficiency assessment. That is why it is wise to have proper substantiation give or display it will be marked by them. RDOs have quota.
to question the deficiency assessment. They have to achieve a list. Before they have big white board
where they write their name and they write the budget and the
Preliminary Assessment numbers they marked so you will know.
It just informs the taxpayer that he is deficient so that he is given the
chance to rebut the assessment. Q: May the BIR also conduct Benchmarking aside from
surveillance?
Final Assessment A: Yes.
If the disputed preliminary assessment is still unresolved
Note: Benchmarking means evaluate or check (something) by comparison
REQUISITES FOR A VALID ASSESSMENT: with a standard.
1. The taxpayer shall be informed in writing of the law and the facts on
which the assessment is made Example: You are a same manufacturing firm located in the same locality,
2. An assessment contains not only a computation of tax liability but also having more or less the same customers. This manufacturing company A
a demand for payment within a prescribed period is reporting an income of 1M and here you are manufacturing company B,
3. An assessment must be served and received by the taxpayer only reporting a yearly income of 100K. There might be something wrong
there. You might be subjected to an audit.
HOW TO ASSESS THE TAX
1. Best evidence obtainable This is truly undertaken to determine the net VAT due and net income tax
2. Use of the Net Worth Method (an extension of the basic accounting due of a particular tax payer.
formula:
Asset (A) = Liabilities (L) + Equity (E) BENCHMARKING GUIDELINES (MEMORANDUM CIRCULAR)
a) Shall be separate for corporations and individuals (red apple vs
CONDITIONS WHEN TO - USE OF THE NET WORTH METHOD green apple)
1. Either there are: b) Per area, per line of industry and per tax type basis
(a) No books of accounts or c) Done per RDO by preparing taxpayer’s profile per taxable year
(b) The books do not reflect the correct income or d) Based on tax returns and data from other sources within and
(c) Refuses to produce the books or outside the Bureau, RDOs shall determine the specific industry
(d) Books were destroyed coverage
e) If LOA was issued, it will only be closed upon consideration of
2. There is evidence of possible sources of income causing an increase in the prescribe benchmarks
net worth.
You can do this. In benchmarking in academic performance just observe
3. There is fixed or opening net worth. those friends of yours who are always top in the exam. Unsay lifestyle nila.
Check it.
4. The method reflects taxpayer’s income with accuracy and certainty after
various adjustment. General Rule, Exception
GR: BIR assessment only upon full audit
NET WORTH METHOD XPN: Jeopardy Assessment
Net worth (end of taxable year xx Q. When will prescription of presumptive gross sales happen?
(Less) Net worth (beginning of taxable year) xx A: If the taxpayer does not maintain proper books of accounts. The
prescription of the presumptive gross sales and receipts is based somehow
Increase in net worth xx
on the benchmarking being done by the RDO with that particular taxpayer.
Add: Non-deductible disbursements xx
Correct net income xx
Prescribe additional procedure or documentary requirements
(Less) Exemptions xx
Q: Does the CIR have the power to prescribe penalties for violation of
Taxable Income xx revenue regulations?
Income tax on taxable income xx
(Less) Amount already paid on reported taxable xx A: No, it is the Secretary of Finance who can prescribe penalties because
income it is the Secretary of Finance who issues the revenue regulations. The CIR
Deficiency income tax xx may only recommend.
Add: Surcharge and interest xx
TOTAL AMOUNT DUE XX Authority of the Commissioner to delegate power
General rule: The Commissioner may delegate his power
3. Conduct of inventory-taking, surveillance, and to prescribe presumptive Exceptions: Non-delegable Powers (RICA)
gross sales and receipts 1. To recommend the promulgation of the rules and regulations to
the Secretary of Finance.
TYPES OF SURVEILLANCE:
1. Covert surveillance – surreptitious and undercover watch on 2. To issue rulings of first impression or to reverse, revoke, modify
business any existing ruling. (Ruling of first impression - first of its kind
or landmark)
2. Over surveillance – comments from inventory taking of the
business document, then actual business observation and close Note: If it is a reversion, revocation or modification of any
monitoring of activities existing ruling, then it cannot be delegated. However, if it is an
issuance of a ruling or opinion based on an existing ruling or
3. Short duration surveillance (Tax Compliance Check) or tax opinion, then it can be delegated.
mapping wherein an official from RDO having jurisdiction will go
to your Business and ask for your COR and receipt. If you fail to 3. To compromise or abate any tax liability.

Note: Compromise means that the taxpayer still pays the tax Officials of the BIR
but at a reduced amount. Compromise involving basic deficiency 1. CIR
taxes of more than P500,000 cannot be delegated. However, 2. Deputy Commissioners
compromise involving basic deficiency taxes of P500,000, or 3. Assistant Commissioners
less, and involving minor criminal violations can be delegated. 4. Head Revenue Executive Assistant
5. Regional Director
Abatement means that the BIR foregoes collection of the tax 6. Revenue District Officers
liability. Abatement is non-delegable. 7. Revenue Enforcement Officers or Examiners
4. Power to assign or reassign internal revenue officers to Important:

establishments where articles subject to excise tax are produced Regional Offices – headed by the Regional Director.
or kept.
There are 19 regional offices.
AUTHORITY TO MAKE ARREST AND SEIZURE Cebu is Region 13
Responsible officers Cebu Regional Office Director: Hermeno A. Palamine
1. CIR Field Service – Regional Offices as headed by the Regional Directors
2. Deputy commissioners
3. Regional directors
4. Revenue District Officers POWERS AND DUTIES OF THE REGIONAL DIRECTOR (SECTION 10,
Reason: Violation of penal laws and rules or regulations administered by NIRC)
the BIR.
1. Implements laws, policies, plans, programs, rules and
Proceedings: regulations of the department or agencies in the regional area.
Must be done before a competent court to be dealt with according to law. 2. Administer and enhance internal revenue laws and rules and
regulations, including the assessment and collection of all
Q: Is there a need for the issuance of a warrant of arrest? internal revenue taxes, charges and fees.
A: No, if the violation happens in the presence of the responsible officers. 3. Issues Letter of Authority (LOA) for the examination of
(e.g. Bribery) taxpayers within the regions.
Note: 1 LOA covers 1 taxable year.
AUTHORITY TO ASSIGN INTERNAL REVENUE OFFICERS 4. Provide economical, efficient and effective service to the people
A. Those involved in excise tax functions in the area.
Limitation: Up to two (2) years. After 2 years they will be reassigned. 5. Coordinate with the Local Government in the area.
6. Coordinate with other regional offices or other departments,
B. Assignment to other special duties bureaus and agencies in the area.
Limitations: 7. Exercise control and supervision over the officers and
1. Internal revenue officers assigned to perform assessment or employees within the region.
collection function shall not remain assignment for more than 3 8. Performs such other functions as may be provided under the
years. law and as may be delegated by CIR.
2. Assignment to special duties shall not exceed 1 year.
Revenue District Officers
Implements programs, methods and procedure necessary for the efficient,
AUTHORITY TO IMPOSE DUTIES ON CERTAIN OFFICERS effective and economical assessment and collection of internal revenue
A. Register of Deeds – Unless there is a Certificate Authorizing taxes in the revenue district
Registration, no registration of transfer in the Registry of
Property transferring real rights or any other mortgage. Composition of the RDOs
B. Debtor of the deceased shall not pay to the administrator, heirs, 1. Field men and examiners – assessment function.
legatee, executor, and administrator before the settlement of 2. Collection agents and clerks – collection function.
the estate tax.
C. Bank shall not allow any other withdrawal; other than the Duties and functions of RDOs
20,000 provided for in the NIRC, before the settlement of the 1. Examine taxpayers within the jurisdiction of the district in order to
estate tax. collect the correct amount of tax.
D. Lawyer, notary public, or any government officer must furnish 2. Recommend the assessment of any deficiency tax pursuant to a LOA
copies with BIR. issued by the Regional Director.
AUTHORITY TO SUSPEND BUSINESS OPERATION OF THE

TAXPAYER
RMO 3-2009: Oplan Kandado
The closure of the business shall last for a period of no less than 5 days
and shall be in force until the violation is rectified.
RATE: Run Against Tax Evaders
4 Deputy Commissioners plus 2

1. Operations Group
2. Legal and Inspection Group
3. Resource Management Group
4. Information Systems Group
5. Tax Reform Administration Group (new)
6. Special Concerns Group (new)

NIRC REMEDIES Section 6 (D) Authority to Terminate Taxable Period. - When it

shall come to the knowledge of the Commissioner that a
taxpayer is retiring from business subject to tax, or is intending
The remedies of the government when it comes to the imposition, to leave the Philippines or to remove his property therefrom or
collection, and assessment of taxes. to hide or conceal his property, or is performing any act tending
to obstruct the proceedings for the collection of the tax for the
When it comes to the computation of the correct amount of tax, it usually past or current quarter or year
starts with the LOA (Letter of Authority). If there is already a LOA, that’s
the time the government can look at your books and documents to 2. Deficiency tax liability arising from a tax audit by BIR (Section 56B)
ascertain the amount of tax that you should be paying. That’s the time the
government will conduct an assessment. 3. Tax lien (Section 219)
Can the BIR just assess anytime? 4. Dissolving corporations (Section 52C)
No. There is a prescriptive period for the BIR to assess the correct amount
of tax and for the BIR to collect the tax. The purpose of the prescriptive
period is for the benefit of both the taxpayer and the BIR because it will PRINCIPLES GOVERNING TAX ASSESSMENTS
promote timely collection of taxes. (3 years to assess, 5 years to collect) a. Presumed in favor of a tax assessment – Because taxation is the
rule, and exemption is the exception
SEC. 203. Period of Limitation
Upon Assessment and Collection. - Except as provided in Section 222, b. Must be based on actual facts not on presumptions – There has
internal revenue taxes shall be assessed within three (3) years after the to be supporting evidence or substantiation. It must be based
last day prescribed by law for the filing of the return, and no proceeding on facts and not mere presumptions (Please read the Sony case)
in court without assessment for the collection of such taxes shall be begun
after the expiration of such period: Provided, That in a case where a return c. Discretionary upon the commissioner
is filed beyond the period prescribed by law, the three (3)-year period shall
be counted from the day the return was filed. For purposes of this Section, d. The authority to assess may be delegated – There must be prior
a return filed before the last day prescribed by law for the filing thereof authority to assess. The commissioner generally has the power
shall be considered as filed on such last day. to assess but may delegate such to the appropriate BIR officer
The counting on when the 3-period will start depends on whether the e. Must be directed to the right party – It is very important to
taxpayer was able to timely file the tax return: ascertain who is statutorily liable. This is because the
assessment of the BIR will be directed to the person statutorily
If it is timely (on or before), the counting of the 3-year period will be after liable.
the last day prescribed by law for the filing of the return
Deficiency Assessment
If failed to timely file, the counting of the 3-year period will start on the That which is declared by the taxpayer if the return is deficient.
actual date when the return was filed.
After being communicated to the taxpayer, the deficiency can be
What if you weren’t able to file a tax return or what if such was challenged by the latter, then it becomes the Disputed Deficiency
false or fraudulent? Assessment. The usual defense is Erroneous Assessment.
The period to assess is 10 years from the date of the discovery of the
falsity, fraud, or omission, or failure to file tax return Disputed Assessment
The assessment issued by the BIR which is disputed by the taxpayer.
SEC. 222. Exceptions as to Period of Limitation of Assessment and
Collection of Taxes. - Erroneous Assessment
The BIR is wrong in its computation or the legal basis thereof.
(a) In the case of a false or fraudulent return with intent to evade tax or
of failure to file a return, the tax may be assessed, or a proceeding in court The BIR has to include in the assessment the legal bases of the things
for the collection of such tax may be filed without assessment, at any time declared therein; why is it considered as income, or why is something
within ten (10) years after the discovery of the falsity, fraud or omission considered expense. So the Taxpayer can challenge if he finds it
erroneous.
False return — mere mistake or negligence of the taxpayer
Jeopardy Assessment
Fraudulent — with intent to defraud. Intent being a state of mind, the A tax assessment issued without the benefit of a complete or partial audit
BIR has to check the manifestations of the taxpayer. Ex. The over- in light of the Revenue Officer’s belief that the assessment and collection
declarations of expenses and under-declarations of revenues or receipts. of the deficiency tax will be jeopardized by delay to taxpayer’s failure tax.
To be substantial, the over and/or under declarations should exceed 30%.
Quick Overview of the Assessment Process
If the prescriptive period is about to lapse, there is no reconciliation form It is the duty of both the BIR as well as the tax payer.
the taxpayer, there is no waiver from the taxpayer, the remedy of the BIR
is to issue the jeopardy assessment. The issuance of such, will stop the 1. Issuance of the Letter of Authority by the CIR or the Regional
running of the prescriptive period. Director
a. If it involves evasion and tax fraud, it is issued by the
GENERAL RULE: Taxes are self-assessing Tax Fraud Unit or Division of the BIR
b. Audit will be conducted by the Revenue District
EXCEPTIONS: Officer as representative of the CIR
Assessments are mandatory when: c. If it concerns national interest (ex. Napoles) then a
1. Tax period is terminated task force will be assigned
2. Audit on tax investigation
a. This will determine if there is a tax deficiency

b. Generally, Audited Financial Statements, Books of i. If asked about the remedy in the Bar examinations
Accounts and Ledgers are investigated and compared about the remedy of the taxpayer of failure of the CIR
against the Tax return that was filed to decide, just use the appeal within the 30 days after
3. Issuance of Preliminary Assessment Notice the 180-day period, because Section 228 mentions
a. Issued if there is a deficiency discovered in the that failure to appeal within said period will make the
process above, if there is no such deficiency, this will decision final, executory and demandable
not be issued. All is in order. 7. Motion for Reconsideration
b. Details the following: a. May be filed if the CIR has issued an adverse
i. Deficiency judgement against the taxpayer
ii. Factual and legal basis thereof b. It WILL NOT toll the 30 day period to appeal to the
iii. The period of Audit CTA. This rule only applies if the decision sought to
4. Response of the Taxpayer be reconsidered is the decision of the CIR. If the
a. Tax payer MAY or MAY NOT send this decision sought for reconsideration is lower than the
b. Highly advisable that the taxpayer does to challenge CIR (ex. RDO, RD, District Officer), the motion for
the assessment reconsideration WILL toll the running of the 30 day
c. The reasons cited therein should be legal basis and period to appeal the case to the CTA
not normal excuses why there was a mistake (ex. The 8. Appeal to the CTA within 30 days after the lapse of 180 days
accountant resigned, sickness) OR wait for BIR decision
d. Usually cited therein are Supreme Court Decisions or
the CTA (ex. Citing an international agreement that ASSESSMENT PROCESS
your dividends are not subject to tax)
e. If the response is meritorious, the process ends, if it
does not, we move on. 1. Issuance of LOA
5. Issuance of Formal Letter of Demand and Final Assessment 2. Audit or Tax Investigation
Notice 3. Taxpayer may or may not dispute
a. Filing of PAN and FLD-FAN are mandatory 4. Review by the BIR/Regional Office
b. Recent CTA decision (Palawan Case); PAN was issued 5. Response from the Taxpayer
so closely to FLD-FAN, CTA considered that PAN was 6. Issuance of Formal Letter of demand and Final assessment notice
not issued at all. BIR lost the case. (FLD/FAN)
6. Filing of Protest 7. Protest – must be filed w/in the period of 30 days from the receipt of
a. The taxpayer MAY or MAY NOT file a protest FLD/FAN; lapse of 30-day period = It becomes final and executory and
b. Must be filed within the period of 30 days from the can no longer be appealed to the CTA.
date of receipt of the FLD-FAN a. request for reconsideration
c. If there is no protest, FLD-FAN becomes final and Asking the government to reevaluate the assessment
executory without presenting any new evidence.
i. Effect: Taxpayer cannot question in the
CTA, the legality of the FLD-FAN. Collection Government has 180 days from the protest to resolve.
will take place.
ii. The finding of fraud is binding if there was b. request for reinvestigation
no protest to the FLD-FAN There is new additional evidence or documents
d. If there was a filing of protest, the taxpayer can wished to be presented; 60 days additional from
request for: protest to submit the additional evidence/documents
i. Reconsideration Government has 180 days from the actual submission
The CIR is requested to review the of the additional evidence/documents to resolve.
computation. The taxpayer gives only legal
basis to dispute the assessment.
Q. What if reinvestigation, but there was no submission of
documents? When will you count the 180-day period?
ii. Reinvestigation
A: You should count it from the date of filing of the protest despite the
Additional and evidence are considered to
fact it is reinvestigation.
determine the correctness of the
computation. The process usually takes Q. Is it deemed denial of your protest if the 180-day period
longer than reinvestigation where there are
lapsed without a resolution?
no additional evidence to be considered.
CIR v. Isabela Cultural Corp.
e. The Protest will be resolved within 180 days or 6
A final demand from the BIR reiterating the immediate payment of a tax
months deficiency previously made is tantamount to a denial of the taxpayer's
i. Reconsideration - period will start on the request for reconsideration. Such letter amounts to a final decision on a
filing of the protest
disputed assessment and is thus appealable to the Court of Tax Appeals.
ii. Reinvestigation – period will start on the
actual day of the filling of the supporting
8. Motion for Reconsideration
documents
General rule: A Motion for Reconsideration will not toll the 30-
f. If the CIR does not decide within 180 days of the filing
day period within which to appeal to the CTA.
of the protest, taxpayer may appeal to the CTA within
30 days after the lapse of the 180 day period for the
Upon denial of the MR, the appeal must be done within the
CIR to decide
remaining period. The Neypes doctrine does not apply. This
g. (2012 Lascona Case) Taxpayer may also wait for the
means that the filing of the motion for recon is not mandatory.
BIR decision, but it may result in losing the remedy of
appealing to the CIR (lapse of the 30 days after the
Important: The rule that the MR will not toll the period to
180 days; due to waiting)
appeal applies only if the MR filed with the CIR pertains to a
h. If you wait, you still have to file within 2 years from
decision of the CIR himself.
the day of payment

Exception: If the adverse decision is made by an authorized of Encumbrances and filed in the Register of Deeds of the
representative of the CIR (i.e. when the decision was rendered province or city where the property is located. But effective
by the Regional Director). In this case, the taxpayer is given a against third persons only when notice of such lien is filed by
fresh period of 30 days to appeal from the denial of the MR. the Commissioner in the Register of Deeds in the province or
city where the property is situated.
9. Appeal to the CTA – within 30 days after the lapse of the 180 days
provided in (7)
10. Appeal from the CTA T/N: Proof of lien – annotation on the title of the property. If property is
not titled yet - annotate in the tax declaration in the Office of the City or
Remedies of the BIR Municipal Assessor.
If there is no payment still despite collection or demand of the BIR, the
BIR may avail of administrative or judicial remedies, or enforcement of Extent of lien
administrative fines. It may be upon all properties belonging to the taxpayer, from the time
that tax become due & demandable, not only from the time that warrant
TN: These are how the government may collect the tax assessed. of lien was served. It cover any and all properties, unless otherwise
exempted by law.
A. ADMINISTRATIVE REMEDIES
Preference
(1) Tax lien Liability with regard to taxes to the gov’t is superior over judgment claim
(2) Distraint (actual and constructive) on private properties.
(3) Levy
(4) Sale of property of a delinquent taxpayer When valid
(5) Forfeiture of property Upon annotation under the Memorandum of Encumbrances and filed in
(6) Compromise and abatement the Register of Deeds in the province or city where the property is
(7) Penalties and fines located.
(8) Suspension of business operations
When effective against third persons
Important: Levy and Distraint cannot be availed of when the amount of The tax lien is effective against third persons only when notice of such
unpaid tax due is not more than P100. lien is filed by the Commissioner in the Register of Deeds in the province
or city where the property is situated.
B. JUDICIAL REMEDIES
DISTRAINT
(1) Civil action
(2) Criminal action
Distraint vs. Levy
T/N: presupposes that there is already a deficiency assessment, issuance
of FLD/FAN. More applicable to civil action. Distraint – involves personal property
In criminal action, generally there can be no deficiency Levy – involves real property
assessment, e.g. tax evasion (you cannot assess in the first place)
Lien v. Distraint
C. Enforcement of Administrative fine Lien Distraint
Directed against the property Need not be directed against
ADMINISTRATIVE REMEDIES subject to the tax the property subject to the
tax
TAX LIEN Regardless of the Property seized must be
owner of the property owned
- type of remedy that attaches to the property by the taxpayer
- more appropriate for property taxes
- it doesn’t matter who is the current owner of
the property, so long as the property tax has Distraint
not been paid, then the govt is considered to The collection of taxes is enforced on the goods, chattels, or
have a lien over the property. effects and other personal property, including stocks and other
securities, debts, credits and interest and rights to personal
Tax lien property.
A legal claim or charge on property of the taxpayer as security
for the payment of some debt or obligation. Important: This is already a manner of collecting, as opposed
to tax lien. Distraint pertains to collection of taxes and covers
Q. When does it accrue? only goods, chattels, effects or other personal properties, not
It accrues when the taxpayer neglects or refuses to real properties. Otherwise, when real properties are used to
pay his tax liability after demand with interests, penalties and collect the tax, the proper remedy is levy.
costs that may accrue in addition thereto.
Who may effect
Important: There is no taking of property but only an 1. Commissioner or his duly authorized representative if the
amount involved is more than 1M.
indication that the government has a lien over the property
2. Revenue District Officer if the amount involved is 1M or less.
(ex. noted in the title of property)
Requisites:
Section 219, NIRC. The lien is not valid against any
mortgagee, purchaser, or judgment creditor until notice of Sec. 205, 206, 207, NIRC (D2 – FN)
such lien shall have been annotated under the Memorandum

1. The taxpayer must be delinquent (except in constructive 2. By service of a warrant of distraint or garnishment
distraint) in the payment of tax
Presumption of actual distraint
Delinquent vs Deficient If everything is silent, presumption is it is actual distraint.
Delinquent – when already beyond the period to file & pay as
prescribed by law or beyond the period as demanded by BIR. Distraining officer
Deficient – inadequate payment of tax Officer who serves the warrant of distraint or garnishment of bank
account. He is mandated to submit a report from receipt of warrant
2. There must be a subsequent demand for its payment to the RDO and the Regional Director.
Assessment from the BIR specifying when you should settled Q. Is garnishment of bank accounts a violation of Bank
your deficiency/liability. Secrecy Law?
A: No, because in garnishment, there is no inquiry of the details of
3. The taxpayer fails to pay the tax at the time required. the bank account. They are merely placed under the control of the
government.
4. The period within which to assess or collect the tax has not
yet prescribed. Section 207 – Warrant may be lifted by the Commissioner or
duly authorized officer if collectible is satisfied. Within ten (10)
TWO TYPES OF DISTRAINT days after receipt of the warrant, a report on any levy shall be
submitted by the levying officer to the Commissioner or his duly
In actual distraint – there is actual taking of the personal property. authorized representative: Provided, however, That a
consolidated report by the Revenue Regional Director may be
In constructive distraint – the properties are just placed under the control required by the Commissioner as often as necessary: Provided,
of the BIR. The property cannot be sold or encumbered by the taxpayer further, That the Commissioner or his duly authorized
but is merely preserved. representative, subject to rules and regulations promulgated by
the Secretary of Finance, upon recommendation of the
1. Actual - This is resorted to when the person fails to pay his Commissioner, shall have the authority to lift warrants of levy
delinquent tax obligations. Effected by giving a list of distraint issued in accordance with the provisions hereof.
properties or by serving a warrant of distraint or garnishment.
Section 208. Procedure for Distraint and Garnishment – 2. Constructive - In constructive distraint, there is no actual taking. This
The officer serving the warrant of distraint shall make or is more on preservation. The owner is merely prohibited from disposing
cause to be made an account of the goods, chattels, his property without the permission from the BIR.
effects or other personal property distrained, a copy of
which, signed by himself, shall be left either with the owner Important: Issued even when there is no actual tax
or person from whose possession such goods, chattels, or delinquency.
effects or other personal property were taken, or at the
dwelling or place of business of such person and with Availed of when taxpayer is:
someone of suitable age and discretion, to which list shall 1. Retiring from any business subject to tax
be added a statement of the sum demanded and note of 2. Intending to either:
the time and place of sale. (a) Leave the Philippines
(b) Remove his property therefrom
Stocks and other securities shall be distrained by serving a copy (c) Hide or conceal his property
of the warrant of distraint upon the taxpayer and upon the president, (d) Performs any act tending to obstruct the proceedings for collective the
manager, treasurer or other responsible officer of the corporation, tax due
company or association, which issued the said stocks or securities.
ACTUAL DISTRAINT CONSTRUCTIVE
Debts and credits shall be distrained by leaving with the person DISTRAINT
owing the debts or having in his possession or under his control such Made only on the property of a Made on the property of
credits, or with his agent, a copy of the warrant of distraint. The delinquent taxpayer any taxpayer whether
warrant of distraint shall be sufficient authority to the person owning delinquent or not
the debts or having in his possession or under his control any credits
belonging to the taxpayer to pay to the Commissioner the amount of There is taking of possession The taxpayer is merely
such debts or credits. prohibited from disposing of
his property
Bank accounts shall be garnished by serving a warrant of
garnishment upon the taxpayer and upon the
Effected by leaving a list of Effected by requiring the
president, manager, treasurer or other responsible officer of the
distrained property or by taxpayer to sign a receipt of
bank. Upon receipt of the warrant of garnishment, the bank shall turn
service of warrant of distraint the property or by the revenue
over to the Commissioner so much of the bank accounts as may be
or garnishment officer preparing and leaving a
sufficient to satisfy the claim of the Government.
list of such property
*If TP refuses to sign, there
Important: Here, there is actual taking and possession of the
has to be a valid reason
taxpayer’s property by the government. This is resorted to when at
the time required for payment, a person fails to pay his delinquent
An immediate step for Not necessarily so
tax obligation. The government will then sell the property and use
collection of taxes
the proceeds to satisfy the tax liability.
Q. If there is a violation of the prohibition, may you be punished
Effected by:
under the law?
1. Leaving a list of the distrained property OR
A: Yes.

LEVY
Section 276. Penalty for Selling, Transferring, Encumbering or
in any way disposing of Property Placed under Constructive
Distraint. - Any taxpayer, whose property has been placed under It refers to the act of seizure of real property in order to enforce the
constructive distraint, who sells, transfers, encumbers or in any payment of taxes. The requisites for the exercise of the remedy of levy is
way disposes of said property, or any part thereof, without the
the same as in the remedy of distraint.
knowledge and consent of the Commissioner, shall, upon
conviction for each act or omission, be punished by a fine of not
less than twice the value of the property so sold, encumbered WHEN?
or disposed of but not less than Five Thousand pesos (P5,000), • Before/ Simultaneously / After the distraint of
or suffer imprisonment of not less than two (2) years and one personal property belonging to the taxpayer
(1) day but not more than four (4) years, or both.
Effected by:
Q. How is constructive distraint effected?
1. writing upon an authenticated certificate showing:
A: Service of a copy of the list of the properties placed under constructive
distraint with an indication of the prohibition on the disposal and ü the name of the taxpayer
preservation. ü amounts of the tax and penalty due
ü description of the property upon which levy is made
Q. May the owner refuse to sign?
A: Yes, but refusal must be grounded on a valid reason. 2. written notice of the levy shall be mailed to or served upon:
ü the Register of Deeds of the province or city where
Q. If there is distraint on your bank account, are you allowed to
the property is located, and (we are talking about real
deposit money?
A: Yes. More favorable to the govt. What is prohibited is to close the properties)
account or withdraw in order to escape liability. ü the delinquent taxpayer
ü If absent from the Philippines, to his agent or
Q: If owner refused, is there no more distraint? manager of the business in respect to which the
A: No. The distraining officer will leave a copy of the notice within the liability arose
premises where the property is located or in the place where that person
ü If there be none, to the occupant of the property in
is located in the presence of two witnesses who are not officers of the
BIR. He will just place this note that taxpayer refused to be distrained. question
There will still be considered constructive distraint.
Procedure:
Section 206. Constructive Distraint of the Property of a 1. Internal revenue officer shall prepare a duly authenticated
Taxpayer. - To safeguard the interest of the Government, the certificate showing the name of the taxpayer, amounts of tax
Commissioner may place under constructive distraint the and penalty due. Enforceable throughout the Philippines
property of a delinquent taxpayer or any taxpayer who, in his
2. officer shall write upon the certificate a description of the
opinion, is retiring from any business subject to tax, or is
intending to leave the Philippines or to remove his property property upon which levy is made
therefrom or to hide or conceal his property or to perform any 3. written notice of levy shall be mailed or served upon
act tending to obstruct the proceedings for collecting the tax ü the Register of Deeds where the property is located and
due or which may be due from him. ü the taxpayer or agent/manager of the business in respect
to the tax liability or to the occupant of the property
The constructive distraint of personal property shall be effected 4. If personal property of taxpayer is not sufficient to satisfy the
by requiring the taxpayer or any person having possession or
tax due, levy on real property shall proceed within 30 days
control of such property to sign a receipt covering the property
distrained and obligate himself to preserve the same intact and after distraint
unaltered and not to dispose of the same in any manner 5. Report on levy
whatever, without the express authority of the Commissioner. 1. By levying officer
ü submitted 10 days from receipt of warrant
In case the taxpayer or the person having the possession and ü submitted to the Commissioner or his representative
control of the property sought to be placed under constructive
2. By the Revenue Regional Director – consolidated report, as
distraint refuses or fails to sign the receipt herein referred to,
the revenue officer effecting the constructive distraint shall may be required by the Commissioner
proceed to prepare a list of such property and, in the presence Can levy be done repeatedly? Is there no double jeopardy?
of two (2) witnesses, leave a copy thereof in the premises where -the BIR can do this repeatedly. Double jeopardy does not apply
the property distrained is located, after which the said property
shall be deemed to have been placed under constructive Distraint and levy is dependent upon the BIR. It is discretionary on it.
distraint.
Important: As long as property exists and as long as the tax pertaining

to that property exists, even if owner changes, the annotated lien will be SALE OF PROPERTY OF DELINQUENT TAXPAYER
reflected in the title. In short, the lien will not be affected by change of
ownership. In case of distrained property
A) Notification specifying the time and place of sale & the articles
Distraint is a summary procedure distrained shall be exhibited:
There is no requirement to properly notify the parties.
ü in not less than 2 public places (one place shall be at the
office of the Mayor)
ü in the municipality or city where the distraint is made

DISTRAINT LEVY
Why do notify the owner? Because he may purchase the property before RIGHT OF PRE-EMPTION Available Available
the sale. This is the right of preemption. This avoids the actual selling Prevent selling of property by
of the property in the auction. If you will exercise this right, the tax payer paying all liabilities before date
will also have to pay the penalties and interest aside from the tax. of sale
B) The time of sale shall not be less than 20 days after notice to RIGHT OF REDEMPTION Not available Available
the owner or possessor of the property and the publication or Redeem property from *only for
posting of such notice registration of Certificate of the RPs
Sale
C) Sale of the property at
ü public auction to the highest bidder for cash, or
FORFEITURE OF PROPERTY
ü through duly licensed commodity or stock exchanges, with
the approval of the CIR. • Effected when:
o There is no bidder for the RP in the public sale OR
Not a mere competition. The highest bidder will answer for o If the amount of the highest bid is insufficient to pay
the tax assessed, cost of sale, the interest among others. the taxes, penalties and costs
This is the minimum. • The Register of Deeds concerned shall:
o Upon registration of the declaration of forfeiture,
transfer of the title of the property to the government
In case of levied property
A) real property:
• Enforced by:
Advertisement of the time and place of sale of the taxpayer's o IN CASE OF PERSONAL PROPERTY
property as may be necessary to satisfy the claim within 20 days § Seizure and
after the levy, and it shall cover a period of at least 30 days § Sale or destruction of the property
o IN CASE OF REAL PROPERTY
1. posting a notice at the main entrance of the municipal § Judgment and condemnation and
building or city hall and in a public and conspicuous place § Sale in a legal action or proceeding civil or
in the barrio or district in which the real estate lies and criminal, as the case may be
• Redemption by the Taxpayer
2. by publication once a week for 3 weeks in a o Same as that of redemption in case of sale
newspaper of general circulation in the municipality or city o The 1-year period starts from the date of registration
where the property is located of the declaration of forfeiture
B) Sale at
COMPROMISE AND ABATEMENT
1. at the main entrance of the municipal building or city hall
or
2. on the premises to be sold, as the officer conducting the 1. COMPROMISE
proceedings shall determine and as the notice shall specify. A contract whereby the parties by reciprocal concessions, avoid
litigation or put an end to one already commenced
C) Disposition of proceeds of sale – money will be applied to the A. Requisites
delinquency among others. NB: In case the proceeds of the sale i. The TP must have a tax liability
exceed the claims (taxes, penalties and interest) and cost of ii. There must be acceptance (by the
the sale, the excess shall be turned over to the owner of the commissioner or taxpayer as the case may
property. be) of the offer in the settlement of the
original claim
If the sale took place then: iii. There must be an offer (by the TP of an
Redemption by the taxpayer amount to be paid him)
Within 1 year from the date of sale, that is, from the date of the B. Officers authorized to compromise
registration of the deed of sale. By the taxpayer or anyone for him by i. CIR
paying the full amount of: ii. Subordinate officials
• Taxes 1. Preliminary enter in to
• Penalties compromise
• Interests, and • NB General Rule: the power to compromise and abate cannot
• Costs of Sale be delegated by the CIR
Pending redemption of the property sold, the owner shall: Except:

• not be deprived of the possession of the property 1. Assessments issued by regional offices involving
• be entitled to the rents and other income thereof basic taxes of Php500,000 or less and;
2. Minor criminal violations.

Note: …
• Acceptance is not yet final if made by subordinate (C) The power to compromise or abate, under Sec. 204(A) and
• But rejection, even if made by subordinate, is final. (B) of this Code, any tax liability: Provided, however, That
assessments issued by the regional offices involving basic
deficiency taxes of Five hundred thousand pesos
COMPROMISE IN CIVIL CASES COMPROMISE IN CRIMINAL (P500,000) or less, and minor criminal violations, as may
CASES be determined by rules and regulations to be promulgated by
• Grounds (civil case) All criminal actions may be the Secretary of Finance, upon recommendation of the
1. When a reasonable compromised, Commissioner, discovered by regional and district officials, may
doubt as to the validity be compromised by a regional evaluation board which shall be
composed of the Regional Director as Chairman, the Assistant
of the claim against the except:
Regional Director, the heads of the Legal, Assessment and
taxpayer exists 1. those already filed Collection Divisions and the Revenue District Officer having
2. When the financial in court jurisdiction over the taxpayer, as members;
position of the taxpayer 2. those involving …
demonstrates a clear fraud
inability to pay the COMPROMISE IN CRIMINAL CASES UNDER NIRC
assessed tax. Extent of Discretion Q: May a compromise agreement be entered into in Criminal Case
(Criminal action under NIRC)?
A) before the complaint is filed
A: Yes, except:
• Limitation as to amount: with the prosecutor's office • If a criminal case has already been filed in court;
1. In case of financial Ø The Commissioner has full • If it involves fraud; within the ambit of the RPC.
incapacity: 10% of the discretion to compromise Important: Criminal violations under the Revised Penal Code cannot be
basic assessed tax except those involving fraud. compromised.
2. Other cases: 40% of
the basic assessed tax B) after the complaint is filed
EXTENT OF DISCRETION
with the prosecutor's office
A. Criminal cases:
• The approval of the but before the information is 1) Before filing of complaint in the Prosecutor’s office – the CIR
Evaluation Board filed with the court has full discretion to compromise except those committed by
(composed of the CIR Ø The Commissioner can still fraud.
and the Deputy compromise provided the
Commissioners) is prosecutor consented. 2) After filing of complaint in the Prosecutor’s office but before the
filing of information with the court - The CIR can still
required when:
compromise provided the prosecutor consents.
1. The basic tax involved C) after the information is filed
exceeds P1,000,000 or with the court 3) After the information is filed with the court - The CIR is no longer
2. The settlement offered Ø The Commissioner is no allowed to compromise because it is now beyond his jurisdiction.
is less than the MCR longer permitted to
compromise with or without B. Civil cases – At any stage, the CIR may compromise.
the consent of the
prosecutor
REMEDIES WHEN THE TAXPAYER FAILS TO ABIDE TO THE
COMPROMISE AGREEMENT.
1) Enforce the compromise:
C. Remedies when TP refuses or fails to abide by i. If it is judicial compromise – the CIR may enforce the
a tax compromise compromise by mere execution.
i. Enforce the compromise ii. If it is extrajudicial compromise – then it can only be
enforced by court action (Specific performance).
1. Judicial compromise can be
enforced by mere execution 2) Rescind the compromise and insist upon the original demand.
2. Extrajudicial compromise
can only be enforced by court Cases that can be compromised:
action 1. Delinquent accounts
ii. Regard it as rescinded and insists upon 2. Cases under administrative protest; after issuance of the FAN to
original demand. the taxpayer, which are still pending
3. Civil tax cases in court
4. Collection cases in court
5. Criminal violations other than those already filed in court or
COMPROMISE – can be delegated by the CIR.
involving criminal tax fraud
ABATEMENT – cannot be delegated by the CIR.
Cases that cannot be compromised:
SECTION 7. Authority of the Commissioner to Delegate Power.
1. Withholding taxes
- The Commissioner may delegate the powers vested in him
• The CIR may not compromise the payment of withholding tax
under the pertinent provisions of this Code to any or such
where the financial position of the taxpayer demonstrates clear
subordinate officials with the rank equivalent to a division chief
inability to pay. A taxpayer who is a constituted withholding
or higher, subject to such limitations and restrictions as may be
agent merely holds the taxes in trust for the government. It is
imposed under rules and regulations to be promulgated by the
the burden of the employee because it is the employee that is
Secretary of Finance, upon recommendation of the
paying, not employer. Thus, the employer cannot compromise
Commissioner: Provided, however, That the following powers of
withholding tax on compensation.
the Commissioner shall not be delegated:

2. Criminal tax fraud confirmed by CIR or his duly authorized Delinquency Interest
representative Imposed for failure to pay on time.
• Need not be confirmed by the prosecutor nor filed in court. 20% per annum for failure to pay the amount of tax due on any return
3. Criminal violations filed in court required to be filed, amount of the tax due for which return is required,
4. Delinquent payments accounts with approved schedule of installment and the deficiency tax or any surcharge or interest thereon.
5. Final reports of reinvestigation or reconsideration resulting to
reduction in original amount and taxpayer consented by signing Taxpayer can be liable for both deficiency interest and delinquency
agreement form interest.
6. Final and executory after judgment of court on compromise on
ground of doubt on validity of assessment Compromise penalty
7. Estate tax cases where compromise is requested on ground of Cannot be imposed when:
financial incapacity a) There is no showing that the taxpayer consented to it.
b) The CIR has no power to impose and collect the compromise
COMPROMISE V. COMPROMISE PENALTY penalty in absence of a compromise agreement validly entered
COMPROMISE COMPROMISE PENALTY thereto between the taxpayer and the CIR.
Amount paid to settle civil Amount paid to compromise a tax
liabilities for tax assessed violation in order to avoid criminal Suspension of business operations
prosecution. May be suspended for at least 5 days.
Basic tax assessed Based Gross sales/receipts during

the year of the tax due. JUDICIAL REMEDIES OF THE GOVERNMENT
Minimum amount depends on the Depends upon the tax violation.

ground of compromise Minimum not less than P1,000.00 Judicial remedies of the government
1. Civil action
Requires mutual agreement on BIR already has a table of 2. Criminal action
amount between CIR and TP amounts. Automatically imposed.
Really just a penalty. CIVIL ACTIONS
Actions instituted by the government to collect internal revenue taxes
when the tax becomes delinquent and the tax is collectible.
Important: Payment of compromise penalty is voluntary. Hence, BIR
e.g.:
cannot force taxpayer to pay compromise penalty. However, if the
1. Filing by the government with the probate court claims against the
taxpayer refuses, the BIR will institute a criminal action.
deceased taxpayer.
2. Filing of a civil case for collection of sum of money. MTC or RTC
ABATEMENT depending on amount.
3. Filing an answer on the petition for review filed by the taxpayer with
This is cancellation of tax liability. Nothing is collected, unlike in
compromise where amount is merely decreased. the CTA.
Q. When is it considered collectible?

Grounds:
A: Collectability arises when -
1. The tax assessed or any portion thereof appears to be
unjustly or excessively demanded; or 1. The self-assessed tax shown in the return was not paid within the
date prescribed by law;
2. The administration and collection costs involved do not justify
2. Final assessment is not protested administratively within 30 days
the collection of the amount due.
from date of receipt;
3. Non-compliance with the condition in the approval of protest, or
Penalties and fines
4. Failure to file a timely appeal to the CTA on the final decision of the
1) Surcharges
CIR or duly authorized representatives on the disputed assessment.
2) Deficiency interest
3) Delinquency interest
Defenses precluded by final and executory assessment:
4) Compromise penalty
1. Invalidity or illegality of assessment
2. Prescription of government’s right to assess
Surcharges
Civil and administrative sanction designed primarily to protect state
Civil actions filed with the CTA
revenue and reimburse the government for expenses in investigating the
loss resulting from the taxpayer’s fraud. The fact that no action was filed with the RTC or MTC does not mean that
there is no more ground to file for civil claim by the BIR. The answer filed
by the Government in the CTA in response to an appeal is tantamount to
If no fraud is involved, the surcharge amounts to 25%.
the filing of a civil action for collection in the regular court and has the
If there is fraud, the surcharge goes up to as much as 50%.
effect of tolling the prescriptive period.
e.g.:
CRIMINAL ACTIONS
1. Failure to file any return and pay tax in due time
Relevant provisions
2. Filing return with wrong agent of BIR
3. Failure to pay deficiency tax within time prescribed
Section 254. Attempt to Evade or Defeat Tax – Any person who
4. Failure to pay the tax as shown on the return before due date
willfully attempts in any manner to evade or defeat any tax
imposed under this Code or the payment thereof shall, in
Deficiency interest
addition to other penalties provided by law, upon conviction
Interest collected if the amount paid is deficient.
20% per annum from the date prescribed for its payment until its full thereof, be punished by a fine not less than Thirty thousand
(P30,000) but not more than One hundred thousand pesos
payment.
(P100,000) and suffer imprisonment of not less than two (2)

years but not more than four (4) years: Provided, That the If reinvestigation — there is need to file additional supporting
conviction or acquittal obtained under this Section shall not be a documents within 60 days. Otherwise assessment becomes
bar to the filing of a civil suit for the collection of taxes. final.
Section 255. Failure to File Return, Supply Correct and Accurate CIR has 180 days to decide.
Information, Pay Tax Withhold and Remit Tax and Refund
Excess Taxes Withheld on Compensation. - Any person required Appeal to CTA
under this Code or by rules and regulations promulgated Grounds:
thereunder to pay any tax make a return, keep any record, or 1. Denied in whole or in part
supply correct the accurate information, who willfully fails to pay 2. Not acted upon 180 days from filing of protest if
such tax, make such return, keep such record, or supply correct reconsideration or if reinvestigation, upon filing of documents
and accurate information, or withhold or remit taxes withheld, or lapse of 60 days.
or refund excess taxes withheld on compensation, at the time or
times required by law or rules and regulations shall, in addition 30 days from denial or lapse of 180 days.
to other penalties provided by law, upon conviction thereof, be Failure to appeal becomes final.
punished by a fine of not less than Ten thousand pesos
(P10,000) and suffer imprisonment of not less than one (1) year Take note: Different from discussion on zero rated VAT (Sec112).
but not more than ten (10) years. 120+30 day rule where 2 years only includes administrative action.
Any person who attempts to make it appear for any reason that Here, Sec 228 and 229 involves assessment and erroneously or illegally
he or another has in fact filed a return or statement, or actually collected taxes. Thus, the 180+30 days. Also, as stated in Sec. 229, 2
files a return or statement and subsequently withdraws the same years is for both administrative and judicial action.
return or statement after securing the official receiving seal or
stamp of receipt of internal revenue office wherein the same was SEC. 228. Protesting of Assessment. - When the Commissioner
actually filed shall, upon conviction therefor, be punished by a or his duly authorized representative finds that proper taxes
fine of not less than Ten thousand pesos (P10,000) but not more should be assessed, he shall first notify the taxpayer of his
than Twenty thousand pesos (P20,000) and suffer imprisonment findings: Provided, however, That a pre-assessment notice shall
of not less than one (1) year but not more than three (3) years. not be required in the following cases:
Q: Who can be the subject of a criminal action by the BIR? (a) When the finding for any deficiency tax is the result of
A: Those persons required to pay the tax, to receive a return, to keep any mathematical error in the computation of the tax as appearing
record, to supply correct and accurate information, to withhold or remit on the face of the return; or
taxes withheld, to refund excess taxes withheld.
(b) When a discrepancy has been determined between the tax
Q. Is the approval of the CIR required in the filing of criminal or withheld and the amount actually remitted by the withholding
civil cases? agent; or
A: Yes. However, this is not jurisdictional. Lack of approval does not
automatically result in dismissal of the case. It merely affects the cause of (c) When a taxpayer who opted to claim a refund or tax credit
action or lack of capacity to sue which may be remedied by amendment. of excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for the
In one case, the SC said that the approval is required however, the taxable quarter or quarters of the succeeding taxable year; or
approval of the commissioner required for the judicial enforcement of tax
liability is NOT jurisdictional, so it does not call for immediate dismissal. (d) When the excise tax due on exciseable articles has not been
Lack of such approval merely affects the cause of action or the capacity paid; or
to sue as to whoever represents the BIR.
(e) When the article locally purchased or imported by an exempt
Q. Is assessment required before a criminal action may be person, such as, but not limited to, vehicles, capital equipment,
charged? machineries and spare parts, has been sold, traded or
A. No, because we are talking here of evasion or intent to defraud the transferred to non-exempt persons.
government. But of course, assessment is required in civil cases
The taxpayers shall be informed in writing of the law and the
facts on which the assessment is made; otherwise, the
REMEDIES OF THE TAXPAYER assessment shall be void.
ADMINISTRATIVE REMEDIES Within a period to be prescribed by implementing rules and

regulations, the taxpayer shall be required to respond to said
notice. If the taxpayer fails to respond, the Commissioner or his
BEFORE PAYMENT duly authorized representative shall issue an assessment based
Protest (reinvestigation and reconsideration) or compromise agreement; on his findings.
but you still have to pay.
Such assessment may be protested administratively by filing a
PROTEST request for reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment in such form and manner
as may be prescribed by implementing rules and regulations.
30 days from receipt of assessment
Within sixty (60) days from filing of the protest, all relevant
Take note: supporting documents shall have been submitted; otherwise, the
If reconsideration — based on existing records assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon 2. Within 60 days from filing of protest, all relevant supporting documents
within one hundred eighty (180) days from submission of should have been submitted, otherwise, the assessment shall become
documents, the taxpayer adversely affected by the decision or FINAL (cannot be appealed). (Sec. 228, NIRC)
inaction may appeal to the Court of Tax Appeals within thirty
(30) days from receipt of the said decision, or from the lapse of Appeal of Protest to the CTA (Sec. 228, NIRC)
one hundred eighty (180)-day period; otherwise, the decision 1. GROUNDS:
shall become final, executory and demandable. a. If the protest is denied in whole or in part or
b. Is not acted upon within 180 days from submission of
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - documents/filing of protest (reconsideration)
no suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged 2. APPELLATE COURT: COURT OF TAX APPEALS
to have been erroneously or illegally assessed or collected, or of Period to appeal:
any penalty claimed to have been collected without authority, of a. Within 30 days from receipt of decision denying the protest;
any sum alleged to have been excessively or in any manner or
wrongfully collected without authority, or of any sum alleged to b. 30 days from lapse of 180-day period
have been excessively or in any manner wrongfully collected, Effect of failure to appeal: decision shall be FINAL,
until a claim for refund or credit has been duly filed with the EXECUTORY, and DEMANDABLE.
Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under
protest or duress. TAXPAYER’S SUIT
In any case, no such suit or proceeding shall be filed after the Involves disposition of the general funds of the government
expiration of two (2) years from the date of payment of the tax
or penalty regardless of any supervening cause that may arise Requisites:
after payment: Provided, however, That the Commissioner may, 1.) The tax money is being extracted and spent in violation of
even without a written claim therefor, refund or credit any tax, constitutional protections against abuses of legislative powers
where on the face of the return upon which payment was made, 2.) It is for an improper purpose
such payment appears clearly to have been erroneously paid. 3.) That the petitioner seeks to restrain the respondents from wasting
public funds
AFTER PAYMENT Taxpayer’s suit is not proper if the source of the fund is from donation.
Tax Refund or Tax Credit within 2 years from payment regardless of any
supervening cause. File directly to Supreme court considering the requirements to file (e.g
locus standi, and others)
JUDICIAL REMEDY
TAX REFUND OR TAX CREDIT
a) Civil action through Appeal to the CTA For assessment, Filed

within 30 Days from receipt of the decision of the protest or Grounds:
lapse of the 180 days due to the inaction of the CIR 1. tax is collected erroneously or illegally;
2. penalty is collected without authority;
b) Action to contest forfeiture of chattel 3. sum collected is excessive
c) Action for damages Requisites:

1. claim must be in writing;
d) Criminal action against the erring BIR employee or officer 2. it must be filed with the commissioner within two years (2) after the
payment of the tax or penalty; and
e) Injunction- can only be exercised by the CTA and only if the 3. show proof of payment
CTA is of the opinion that the collection may jeopardize the
taxpayer Tax Credit vs Tax Refund
It should involve public interest In tax credit, issued in a tax credit certificate and credited to your taxes.
In a tax refund, taxpayer will receive actual cash. Furthermore, the
Effect of failure to protest or appeal remedies are mutually exclusive.
Decision becomes final and demandable
Starting date for counting the 2-year period
Protest of Assessment: GENERAL RULE: from the date of payment, regardless of any supervening
1. File a request for Reinvestigation or reconsideration within 30 days from cause that may arise after payment:
receipt of the assessment
EXCEPTIONS:
A. Request for reinvestigation 1. Corporate Income tax: Where a corporation paid quarterly income taxes
A plea for re-evaluation of an assessment on the basis of newly-discovered in any of the first 3 quarters during the taxable year but incurs a net loss
or additional evidence that a taxpayer intends to present in the during the taxable year, the 2-year period for the filing of the claim for
reinvestigation. It involves a question of fact or law or both refund or credit shall be counted from the date of filing of the annual
corporate ITR.
B. Request for reconsideration
A plea for re-evaluation of the assessment on the basis of existing records 2. Income tax paid in installments: taxes are deemed paid, for purposes
without need of additional evidence. Involves a question of fact or law or of determining the commencement of the 2-year period for filing a written
both. (RR No. 12-85) claim for the refund or credit therefore on the date the last installment
was paid.

TAX CREDIT PRESCRIPTION OR STATUTE OF LIMITATIONS
Grounds: To prevent harassment of the taxpayers. Beneficial as well to the

Erroneous, Illegal, or Excessive assessment and/or collection. government because the officers will act promptly.
Procedure: General rule, if prescription to tax is not provided under the law, it is
1. File a written claim for refund with the CIR within 2 years from the date imprescriptible.
of payment of the tax/penalty;
If no return is filed, tax is imprescriptible. It is waivable. Liberal
2. The claim filed must state a categorical demand for reimbursement; interpretation.
3. The suit of proceeding for recovery must be commenced in court within

two (2) years from date of payment of the tax or penalty regardless of PRESCRIPTIVE PERIOD FOR ASSESSMENT
any supervening event that will arise after payment (Sec. 229, NIRC) 3 years after the date of the return is due or is filed whichever comes later.
(Section 112 vis-a-vis Section 229)
Exception
(Please read the Sps. Pacquiao case) a) If there is failure to file a return; 10 years is the prescriptive period
from the discovery of the omission to file a return
Note: The CIR may grant a refund or credit even without written claim b) If false or fraudulent return which tends to avoid tax; 10 years
thereto if the taxpayer files a tax return which on its face shows also
OVERPAYMANT. A return filed showing an overpayment is itself considered
a written claim for credit or refund. (Section 76 and 204, NIRC) The prescriptive period of 3 years may be extended in writing between the
taxpayer and the CIR. This agreement must be entered within the 3 year
PRESCRIPTION period. The taxpayer can also have waiver or renunciation of the
prescription on the 3 year prescription.
TN: Difference between prescription for refund of input VAT vs Requisites for Valid Waiver.
Assessment vs Collection 1. Must be duly accepted and signed by the CIR or duly
authorized representative
Summary of Rules on Prescriptive Periods for Claiming Refund or Credit of 2. Must be duly signed by the taxpayer
Input VAT (Section 112, NIRC) (Silicon Philippines v. CIR. GR. No. 173241, 3. The waiver must indicate the period when it was accepted or
March 25, 2015) signed by the CIR to determine if the waiver was entered within
the 3-year period.
A. TWO – YEAR PRESCRIPTIVE PERIOD
1. It is only the administrative claim that must be filed within the two-
year prescriptive period. (Aichi) Prescriptive period for collection of taxes
If you look at the NIRC, there is no period to collect.
2. The proper reckoning date for the two-year prescriptive period is
the close of the taxable quarter when the relevant sales were made. 2 views:
(San Roque) 1.) 5 years because before the amendment it was for a period
of 5 years; or
3. The only other rule is the Atlas ruling, which applied only from 8
June 2007 to 12 September 2008. Atlas states that the two-year 2.) 3 years (standard charter bank case) based on Sec 203:
prescriptive period for filing a claim for tax refund or credit of
unutilized input VAT payments should be counted from the date of Section 203. Period of Limitation Upon Assessment and Collection. - Except
filing of the VAT return and payment of tax. (San Roque) as provided in Section 222, internal revenue taxes shall be assessed within
three (3) years after the last day prescribed by law for the filing of the
B. 120 + 30 DAY PERIOD return, and no proceeding in court without assessment for the collection
1. The taxpayer can file an appeal in one of two ways: 1. File the of such taxes shall be begun after the expiration of such period: Provided,
judicial claim within thirty days after the Commissioner denies the That in a case where a return is filed beyond the period prescribed by law,
claim within the 120-day period, or 2. File the judicial claim within the three (3)-year period shall be counted from the day the return was
thirty days from the expiration of the 120-day period if the filed. For purposes of this Section, a return filed before the last day
Commissioner does not act within the 120-day period prescribed by law for the filing thereof shall be considered as filed on such
last day.
2. The 30-day period always applies, whether there is a denial or
inaction on the part of the CIR. In the above provision, there is no period of limitation as to when the
collection is to be done. However, in the starting line- “Except as provided
3. As a general rule, the 30-day period to appeal is both mandatory in Section 222”
and jurisdictional. (Aichi and San Roque)
SEC. 222. Exceptions as to Period of Limitation of Assessment
4. As an exception to the general rule, premature filing is allowed and Collection of Taxes. –
only if filed between 10 December 2003 and 5 October 2010, when
BIR Ruling No. DA-489-03 was still in force. (San Roque) (a) In the case of a false or fraudulent return with intent to
evade tax or of failure to file a return, the tax may be assessed,
5. Late filing is absolutely prohibited, even during the time when BIR or a proceeding in court for the collection of such tax may be
Ruling No. DA-489-03 was in force. (San Roque) filed without assessment, at any time within ten (10) years after
the discovery of the falsity, fraud or omission: Provided, That in
a fraud assessment which has become final and executory, the

fact of fraud shall be judicially taken cognizance of in the civil or (c) Any internal revenue tax which has been assessed within the
criminal action for the collection thereof. period of limitation as prescribed in paragraph (a) hereof may
be collected by distraint or levy or by a proceeding in court
(b) If before the expiration of the time prescribed in Section 203 within five (5) years following the assessment of the tax. (Period
for the assessment of the tax, both the Commissioner and the of Collection)
taxpayer have agreed in writing to its assessment after such
time, the tax may be assessed within the period agreed upon. Q. What about the ten-year period?
The period so agreed upon may be extended by subsequent A. The ten-year period is if without assessment. [This is the period of
written agreement made before the expiration of the period limitation]
previously agreed upon. Remember: If false or fraudulent return or failure to file, the taxpayer may
be criminally prosecuted. [Tax evasion] In criminal prosecution, there is
(c) Any internal revenue tax which has been assessed within no need for assessment. So, if there is no assessment, the period to collect
the period of limitation as prescribed in paragraph (a) hereof is 10 years.
may be collected by distraint or levy or by a proceeding in court
within five (5) years following the assessment of the tax. Under 222a, when you discover the falsity, fraud or omission, there are
two options:
(d) Any internal revenue tax, which has been assessed within 1. Make an assessment
the period agreed upon as provided in paragraph (b) a. Within a period of ten years from the discovery of
hereinabove, may be collected by distraint or levy or by a falsity, fraud or omission
proceeding in court within the period agreed upon in writing b. When are you to collect? Five years following the
before the expiration of the five (5) -year period. The period so assessment of the tax (See Section 222c)
agreed upon may be extended by subsequent written 2. Proceeding with the court
agreements made before the expiration of the period previously a. Period of limitation is still ten years from the discovery
agreed upon. of the falsity, fraud or omission.
b. This presupposes that your purpose is to criminally
(e) Provided, however, That nothing in the immediately prosecute the taxpayer and collect the tax.
preceding and paragraph (a) hereof shall be construed to
authorize the examination and investigation or inquiry into any
tax return filed in accordance with the provisions of any tax Recap
amnesty law or decree Falsity, fraud, omission = evasion to pay taxes
Two options:
1. Government will assess tax
If you look at Sec 222, Exceptions as to Period of Limitation of Assessment 2. File case before the court
AND Collection of Taxes. Check out letters C and D, there is a mention of
a 5-year period. In both cases, it must be done within a period of ten years from the
date of discovery of the falsity, fraud or omission.
How do we reconcile? Par C only refers to A — applies only to false or
fraudulent returns with intent to evade tax. And paragraph D pertains only The difference is that if you assessed for tax (first option), the period
to B, when there is a period agreed upon or extended by subsequent to collect is five years from the date of assessment.
writing.
But if you filed a case with the court, it presupposed collection of the
What if it does not involve false or fraudulent return or there is tax.
no agreement in writing as to the extension? What is the period
of limitation to collect tax? Take note: The counting for the collection is when the assessment
GR: The period to collect is 3 years from the date of assessment. The lack became final. Thus, if a taxpayer made a timely protest, counting will
of provision under Section 203 was interpreted liberally in favor of the start from the date of the denial of the CIR.
taxpayer, provided there is no assessment for false or fraudulent return
or no assessment which is subject to agreement between CIR and
Taxpayer. (Standard Chartered Bank case) GROUNDS FOR SUSPENSION OF THE RUNNING OF THE
PRESCRIPTIVE PERIOD
Exceptions under Section 222.
1. 5 years if there is already an assessment for false or fraudulent return SEC. 223. Suspension of Running of Statute of Limitations. - The running
or an assessment which is subject to agreement between CIR and of the Statute of Limitations provided in Sections 203 and 222 on the
Taxpayer. making of assessment and the beginning of distraint or levy a proceeding
2. 10-year prescriptive period for collection, when due to fraud. Abnormal in court for collection, in respect of any deficiency, shall be suspended for
assessment also included in the 10-year prescriptive period. the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a proceeding in court and for
Section. 222. Exceptions as to Period of Limitation of Assessment and sixty (60) days thereafter; when the taxpayer requests for a
Collection of Taxes. – reinvestigation which is granted by the Commissioner; when the taxpayer
cannot be located in the address given by him in the return filed upon
(a) In the case of a false or fraudulent return with intent to which a tax is being assessed or collected: Provided, that, if the taxpayer
evade tax or of failure to file a return, the tax may be assessed, informs the Commissioner of any change in address, the running of the
or a proceeding in court for the collection of such tax may be Statute of Limitations will not be suspended; when the warrant of distraint
filed without assessment, at any time within ten (10) years after or levy is duly served upon the taxpayer, his authorized representative, or
the discovery of the falsity, fraud or omission: Provided, That in a member of his household with sufficient discretion, and no property
a fraud assessment which has become final and executory, the could be located; and when the taxpayer is out of the Philippines.
fact of fraud shall be judicially taken cognizance of in the civil
or criminal action for the collection thereof. (Abnormal 1. When the Commissioner is prohibited from making the
Assessment) assessment or beginning distraint or levy or a proceeding in
court and for sixty (60) days thereafter;

It begins to run again when the proceedings are dismissed for

2. When the taxpayer requests for a reinvestigation which is reasons not constituting jeopardy and if the taxpayer is absent
granted by the Commissioner; from the Philippines.
a. This includes a reconsideration that was granted.
[Protest that was granted]
RETROACTIVITY OF BIR RULINGS
3. When the taxpayer cannot be located in the address given by None. BIR rulings are prospective.
him in the return unless he informs the Commissioner of any
change in his address BIR Rulings applies specifically to a taxpayer asking for it.
a. Example: A taxpayer was issued a final demand to Thus, even if two of you are similarly situated, but the Ruling was issued
pay the tax. If the taxpayer goes out of the country, to another entity
it only suspends the prescriptive period. No avoidance
for the payment of the tax. Thus, if the taxpayer went Exceptions:
back to the Philippines after 15 years, the BIR The taxpayer deliberately misstates or omits material facts from the return
assessed and collected taxes from the taxpayer, the or any document required of him by the BIR. When the facts subsequently
latter cannot raise the defense that there was already gathered by the BIR are materially different from the facts in which the
a lapse of 3 years, or 5 years as the case may be. ruling was biased, and when acted in bad faith.
4. Rationale: The period when you were out of the county without
informing the CIR about the change in address was merely Additional info regarding prescription:
suspended.
5. When the warrant of distraint or levy is duly served upon the When the BIR and the taxpayer agree to extend the period to assess, the
taxpayer, his authorized representative, or a member of his agreement must be signed and completed before the lapse of the original
household with sufficient discretion, and no property could be 3-year period to assess.
located; and when the taxpayer is out of the Philippines.
Recap
AMENDMENT OF THE RETURN
GR: The prescriptive period for assessment is 3 years.
Section 6. (A). Power of the Commissioner to Make Assessments
and Prescribe Additional Requirements for Tax Administration Exc: If there is false return, fraudulent return, or omission or failure to file
and Enforcement. — a return, in which case, the prescriptive period shall be 10 years from the
date of discovery. However, the Government also has the option to file a
Any return, statement of declaration filed in any office case immediately in court within the period of 10 years. [Section 222(a)]
authorized to receive the same shall not be withdrawn:
Provided, That within three (3) years from the date of such Period to collect in the case of a false or fraudulent return or failure to file
filing, the same may be modified, changed, or amended: a return
Provided, further, That no notice for audit or investigation of
such return, statement or declaration has in the meantime been Section 222(c). Any internal revenue tax which has been assessed within
actually served upon the taxpayer. the period of limitation as prescribed in paragraph (a) hereof may be
collected by distraint or levy or by a proceeding in court within five (5)
Allowed only when it is within three years from the filing of the original years following the assessment of the tax.
return AND there is no notice of audit or investigation.
If there is a written agreement between the taxpayer and the government
Q. What is the effect on prescription? to extend the period of assessment, the tax may be assessed within the
A. The prescriptive period starts to run from the filing of the original return. period agreed upon. [Section 222(b)]
If the same is sufficient and complete to enable the CIR to intelligently
determine the proper amount of tax to be assessed. Period to collect if there is a written agreement to extend
Take note: If the amended return is substantially different from Section 222(d). Any internal revenue tax, which has been assessed within
the original return, the right to assess is counted from the filing the period agreed upon as provided in paragraph (b) hereinabove, may
of the amended return. be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (5)-year
Important: The amendment of the return is substantial if it period. The period so agreed upon may be extended by subsequent
amounts to a change in the tax liability of the taxpayer. written agreements made before the expiration of the period previously
[Reduction of tax liability] agreed upon.
In a case, the 0.01% change in the tax liability of the taxpayer

in the amended return was interpreted to be substantial
amendment.
PRESCRIPTIVE PERIOD FOR THE FILING OF CRIMINAL ACTION
Five years from the day of the commission of the violation; if not known,
from the discovery thereof and the institution of the judicial proceedings.
GROUND FOR INTERRUPTION OF THE PRESCRIPTIVE PERIOD

FOR THE FILING OF CRIMINAL ACTION
When proceedings are instituted against guilty person.

TARIFF AND CUSTOMS CODE

(CUSTOMS MODERNIZATION AND TARIFF ACT) § Tariff – this is the more generic term, ang “listahan”
- refers to customs duties, toll or tribute payable upon
merchandise to the government.
Overview - List or schedule of articles on which a duty is imposed
Signed into law by President Noynoy Aquino on May 30, 2016 upon importation into the country, with the rates which
they are severally taxed.
It was passed because of intrigues in the Bureau of Customs like the - this is some sort of checklist percentage for the
Laglag Bala and Balikbayan Boxes (when the BOC issued the regulation to particular types of articles.
open the Balikbayan boxes and a lot of OFWs were complaining about
losing items) Take Note: ‘merchandise’ these are goods or articles coming in
or going out of the country. This term is all inclusive; this even
Customs Commissioner Nicanor Faeldon stepped down and then Isidro include the bills/money so long as that money is not the legal
Lapeña was appointed Customs Commissioner. tender of the country. You may notice that there is a prohibition
or a limit on the amount of Dollar bills which you are allowed to
Salient Provisions bring in or out of the Philippines.
1. Full electronic processing of shipments. In the old Tariff Code, no Tariff includes in the list the customs duties and also the toll.
electronic processing because that TCC was passed way back in the The toll is usually collected by the BOC when there are vessels
1940s. docking here in the country using our ports/wharfs.
2. Streamlining of export and import processes. A part of the
streamlining is having a Lane in the BOC (Green Lane, Yellow Lane,
Red Lane) such that if you belong to the Green Lane there is no TWO TYPES OF TARIFF
more inspection – it reduces the time to process the export and the
import.
3. Simplified processes for seizure and disposition of illegal goods. IMPORT TARIFF
4. Small items of minor or lacking importance from P10 to P10,000.
5. OFW duty-free balikbayan boxes of up to three P150,000 worth,
provided that it is not in commercial quantity and not intended for Import Tariff – this refers to customs duties, toll etc. collected on goods
sale or barter, not subject or is exempted from custom duties and imported to the country. It’s not limited only to goods originating from
tariff. (3 times in 1 year an OFW may send a balikbayan box worth foreign countries coming in to the country but it may also refer to returning
P150,000, there will be no duties or taxes) goods – it originated here in the Philippines and it was exported, eventually
6. Provisions on Tax exemption of personal and household effects it returned to the Philippines at a much higher price.
brought by Filipinos who stayed in foreign countries when they
return to the country. Provided that they will not exceed the amount EXPORT TARIFF
in order to be exempted from customs duties and tariff:
§ At least 10 years stay – not exceeding P350,000
§ At least 5 years stay – not exceeding P250,000 Export Tariff – collected on goods going out of the country. Tariff rate is
§ Less than 5 years stay – not exceeding P150,000 usually based on the freight-on-board (FOB) valuation of the particular
Atty A: If you recall on the discussion on VAT, Section 109 on goods.
Household effects belonging to Filipinos who came back to the
Philippines for the purpose of resettling here. One of the Atty A: There is not much of a problem with the export.
conditions there to be exempt from VAT is if it is exempted also The exported will declare the cost and it can be validated
from customs duties. So it is in reference to this particular by the BOC. The problem comes in on importation because
provision - if the amount will not exceed P350,000, it will be when it comes to imported goods the BOC will only rely on
exempted from customs duties and understandably, also the declaration of the consignee or of the broker. It would
exempted from VAT. But, of course, there are still other things be quite difficult for the BOC to check with the
to be complied with in order to have the exemption. manufacturer or the seller abroad because they are outside
of our jurisdiction.
Definitions
§ Customs Duties – refers to taxes on the importation and Later on with the discussion of Forfeiture, it is very basic
exportation of commodities, the tariff or tax assessed upon that if you are an importer you should not attempt to
merchandise imported from, or exported to a foreign country. undervalue the goods that you are trying to import. If you
undervalue it that’s the time the BOC will have its own
Atty A: In layman’s term, the nature of customs duties is similar valuation and that would be quite crucial on the part of the
to tax, it’s just that term Tax is more commonly use and importer.
associated under the NIRC and under the LGC. The Tariff and
Customs Code before instead of using the term Tax (because it Atty A: Same with BIR, there is also a presumption of fraud
might create a confusion, tax under the NIRC) it uses customs with the CMTA and that is if the undervaluation exceeds or
duties to make the distinction because primarily the agency reaches a particular percentage. The BOC will not care
responsible in the administration and implementation is the whether it is the fault of the seller or the consignee or the
Bureau of Customs. broker.
Atty A: Do not be confused with passengers and people coming Purposes of Tariff
in and going out of the country. For persons coming in and going a. Revenue Tariffs – those whose rates are relatively low so that
out of the Philippines – it is not within the jurisdiction of the goods may be readily imported and duties may be easily
Bureau of Customs but with the Bureau of Immigration. When collected.
it comes to goods, articles or products coming in and going out b. Protective Tariffs – those whose rates are relatively high to keep
of the country – it is within the jurisdiction of Bureau of certain imports out of the domestic market or to raise domestic
Customs. price on certain imports so that they may be manufactured
profitably here in the Philippines or domestically.

Atty A: The purpose of this is the ‘Filipino First Policy’ 3. District Collectors – their office is at the port of collection. For
Cebu, the port of collection is at Pier 5. Cebu Customs District
c. Bargaining Tariffs - those whose schedules include rates Collector is Atty. Elvira Cruz.
designed primarily for bargaining purposes or which contain
some general provision for the imposition of higher duties upon
products of countries whose tariff policies are considered POWERS, DUTIES AND JURISDICION OF THE BOC
unsatisfactory or unfair.
1. Assessment and collection of customs revenues from imported goods
Atty A: This is usually exercised by the President. This is some and other dues, fees, charges, fines and penalties accruing under this
sort of retaliation to countries which impose higher duties to Act;
Philippine goods coming in to their countries which result to a
higher selling price and thus the goods will not be sold. So if 2. Simplification and harmonization of customs procedures to facilitate
there are products coming in from that country, the Philippines movement of goods in international trade;
will also impose higher duties and the President will only lower
that if that particular country, which is presumably not our 3. Border control to prevent entry of smuggled goods;
friend, will also lower their duties for our products.
4. Prevention and suppression of smuggling and other customs fraud;
§ Authorized Economic Operator – this refers to the importer,
exporter, customs broker, forwarder, freight forwarder, 5. Facilitation and security of international trade and commerce through
transport provider, and any other entity duly accredited by the an informed compliance program;
Bureau (based on the World Customs Organization (WCO)
Framework of Standards to Secure and Facilitate Global Trade, 6. Supervision and control over the entrance and clearance of vessels
the Revised Kyoto Convention (RKC), the WCO Supply Chain and aircraft engaged in foreign commerce;
Management Guidelines and the various national best practices
7. Supervision and control over the handling of foreign mails arriving
to promote trade facilitation and to provide a seamless
the Philippines for the purpose of collecting revenues and preventing
movement of goods across borders through secure international the entry of contraband;
trade supply chains with the use of risk management and
modern technology – Sec 102 (g). 8. Supervision and control on all import and export cargoes landed or
stored in piers, airports, terminals facilities, including container yards
- This is more like a centralized registration that the and freight stations for the protection of government revenue and
BOC wants to implement to all entities or stakeholders prevention of entry of contraband;
of the BOC which has an effect to the import and
export industry. 9. Conduct a compensation study with the end view of developing and
- Customs broker must be accredited with the Bureau recommending to the President a competitive compensation and
of Customs, but for other stakeholders it is not remuneration system;
strongly implemented yet. Under the CMTA, everyone
10. Exercise of exclusive original jurisdiction over forfeiture cases under
whose business has something to do with import and
this Act;
export must be registered with the BOC.
• The exclusive jurisdiction of the Collector of Customs cannot be
Incentives for Authorized Economic Operator: interfered with by regular courts even upon the allegation of
a) Release of goods upon provision of the minimum ownership.
information necessary to identify the goods and permit
the subsequent completion of the final goods 11. Enforcement of this Act and all other laws, rules and regulations
declaration; related to customs administration.
b) Grant of clearance of the goods at the declarant's
premises or another place authorized by the Bureau; POLICE AUTHORITY OF THE BOC
and
c) Other special procedures as provided under RA 10863 The following persons are authorized to effect search, seizure, and arrest:
1. Officials of the BOC - District Collectors, Deputy District
(Sec 1227)
Collectors;
2. Police officers within the BOC;
SCOPE OF TARIFF AND CUSTOMS LAWS
3. Agents, inspectors, and guards of the BOC;
a. Provisions of the Tariff and Customs Code
4. Officers and members of the AFP, when authorized by the
b. RA 10863 or the Customs Modernization and Tariff Act (CMTA) commissioner;
c. Regulations pursuant thereto 5. Officials of the BIR within their regular performance of duty and
d. Regulations subject to BOC, or otherwise within its jurisdiction when payment of internal revenue taxes is involved.
* No IRR of RA 10863 yet.
POWERS OF THE BOC under R.A. 10863

BUREAU OF CUSTOMS
The agency primarily authorized in the implementation of the CMTA Sec. 216. Power of Seizure - Any person exercising police
authority under this Act has the power and duty to seize any
CHIEF OFFICIALS OF THE BOC vessel, aircraft, cargo, goods, animal or any other movable
1. Commissioner of Customs – head of BOC. The Commissioner is property when the same is subject to forfeiture or when they are
under the supervision of the Secretary of Finance. subject of a fine imposed under this Act.
2. Deputy Commissioner – at least 4 but not more than 6.
Sec. 218. Authority to Require Assistance and Information - Any
person exercising police authority may demand the assistance of

and request information from the Philippine National Police The proceeding herein authorized shall not give rise to any claim
(PNP), the AFP and other national law enforcement agencies, for damage caused to the goods, vessel or aircraft, unless there
when necessary, to effect any search, seizure or arrest. It shall is gross negligence or abuse of authority in the exercise thereof.
be the duty of any police officer and other national law enforcers
to give such lawful assistance. BOC official needs no search warrant so long as he is searching for goods
or articles which may be brought by particular passenger to ascertain if
Note: This is the authority given to the PNP of AFP. the goods is prohibited or dutiable.
Section 219. Authority to Enter Premises. — Any person

exercising police authority may, at any time, enter, pass This is different from MARINA. Jurisdiction of Marina is different. Can BOC
through, and search any land, enclosure, warehouse, store, open the goods on board? Is it limited to visual?
building or structure not principally used as a dwelling house.
Officers may open receptacles when there is reasonable cause.
When a security personnel or any other employee lives in the
warehouse, store, or any building, structure or enclosure that is SECTION 222. Authority to Search Vehicles, Other Carriers,
used for storage of goods, it shall not be considered as a Persons and Animals. — Upon reasonable cause, any person
dwelling house for purposes of this Act. exercising police authority may open and examine any box,
trunk, envelope, or other container for purposes of determining
Take note: May be done at any time. the presence of dutiable or prohibited goods. This authority
Note: A person exercising police authority may enter, pass through and includes the search of receptacles used for the transport of
search any land, enclosure, warehouse etc. provided NOT used as a human remains and dead animals. Such authority likewise
dwelling place. Otherwise, you need a warrant. includes the power to stop, search, and examine any vehicle or
carrier, person or animal suspected of holding or conveying
When do you need to get a search warrant? dutiable or prohibited goods.
You only need search warrant if you are searching a dwelling place. Other
than dwelling, bldgs., BOC officials can enter these types of premises Note: Animals can be inspected, such as dogs, cattle or pigs. Sometimes,
without warrant. there are drugs inside them.
Section 220. Authority to Search Dwelling House. — A dwelling For vehicles how can BOC possibly inspect it? Is it limited to BOC
house may be entered and searched only upon warrant issued territory? Let’s say your vehicle comes from Minglanilla and in route to
by a Judge of a competent court, the sworn application thereon Cebu can BOC stop you? When does BOC jurisdiction start and end. What
showing probable cause and particularly describing the place to if the vehicle came from the factory in Minglanilla and then transported to
be searched and the goods to be seized. Cebu City. Can the BOC inspect along the way for any prohibited or
dutiable goods or articles?
This is the usual search warrant requirement.
Yes. But take note of the qualification: There has to be a REASONABLE
What if it’s a warehouse and at the same time used as a dwelling? CAUSE, which presupposes you have jurisdiction on the items that you
Such as a 51% portion of the warehouse is subdivided for resting quarters want to see.
of the workers.
From Mingla, no jurisdiction yet because the BOC’s jurisdiction comes in
No need for search warrant because of Section 219 par 2. only when there is exportation or importation.
“When a security personnel or any other employee lives in the So what is a possible scenario when they are allowed to inspect?
warehouse, store, or any building, structure or enclosure that is Only if that vehicle carries with it imported goods or imported items (even
used for storage of goods, it shall not be considered as a if already outside the jurisdiction of the BOC)
dwelling house for purposes of this Act.”
Section 223. Authority to Search Persons Arriving From
Even if somebody is living there, so long as it is used primarily as storage, Foreign Countries. — Upon reasonable cause, travelers
then it should fall within the ambit of above mentioned law. If you store arriving from foreign countries may be subjected to search
goods and live at the same place you run the risk. and detention by the customs officers. The dignity of the
person under search and detention shall be respected at all
The point is the primary use is the storage of goods. No jurisprudence yet times. Female inspectors may be employed for the
if the person staying in the place is the owner. examination and search of persons of their own sex.
When in doubt lean on favor of enforcement which is needed to stop ON PERSONS AND PASSENGERS- Although the primary jurisdiction falls
smuggling. If you interpret it that if the owner lives there and is now a supposedly on the Bureau of Immigration (as to status of the person,
dwelling then anyone may circumvent the law just by saying it. blacklisting, etc), the focus here of the BOC is more on the goods or
articles brought by that particular passenger.
Section 221. Authority to Search Vessels or Aircrafts and Persons
or Goods Conveyed Therein. — Any person exercising police Visitorial Powers (Sec. 224) - Power to Inspect and Visit.— The
authority under this Act may board, inspect, search and examine Commissioner or any customs officer who is authorized in writing by the
a vessel or aircraft and any container, trunk, package, box or Commissioner, may demand evidence of payment of duties and taxes on
envelope found on board, and physically search and examine imported goods openly for sale or kept in storage. In the event that the
any person thereon. In case of any probable violation of this Act, interested party fails to produce such evidence within fifteen (15) days,
the person exercising police authority may seize the goods, the goods may be seized and subjected to forfeiture proceedings:
vessel, aircraft, or any part thereof. Such power to search Provided, That during the proceedings, the interested party shall be given
includes removal of any false bottom, partition, bulkhead, or any the opportunity to prove or show the source of the goods and the payment
other obstruction for the purpose of uncovering any concealed of duties and taxes thereon: Provided, Further, That when the warrant of
dutiable or forfeitable goods. seizure has been issued but subsequent documents presented evidencing
proper payment are found to be authentic and in order, the District

Collector shall, within fifteen (15) days from the receipt of the motion to RELIEF CONSIGNMENT
quash or recall the warrant, cause the immediate release of the goods SECTION 120. Relief Consignment.— Goods such as food, medicine,
seized, subject to clearance by the Commissioner: Provided, Finally, That equipment and materials for shelter, donated or leased to government
the release thereof shall not be contrary to law. institutions and accredited private entities for free distribution to or use of
victims of calamities shall be treated and entered as relief consignment.
This is more or less the same as the audit investigation done by the BIR.
In the BIR, before the investigation can be conducted, there has to be a Upon declaration of a state of calamity, clearance of relief consignment
LOA. shall be a matter of priority and subject to a simplified customs procedure.
The Bureau shall provide for:
Here, with the exercise of this visitorial power, even if the goods have
already been relesed by the BOC, it can still go after such goods by going (a) Lodging of a simplified goods declaration or of a provisional or
to the premises where they are being displayed, to ascertain if the correct incomplete goods declaration subject to completion of the declaration
taxes and duties have been paid. However, before doing that, Section 224 within a specified period;
requires that there has to be an Authority issued by the Commissioner.
(b) Lodging, registering and checking of the goods declaration and
Authority to Conduct Surveillance (Sec. 306) - Special Surveillance supporting documents prior to the arrival of the goods, and their release
for the Protection of Customs Revenue and Prevention of Smuggling.— upon arrival;
The Bureau shall conduct surveillance on vessels or aircrafts entering
Philippine territory and on imported goods entering the customs office: (c) Clearance beyond the designated hours of business or away from
Provided, That the function of the Philippine Coast Guard to prevent and customs offices and waiver of any corresponding charges; and
suppress the illegal entry of these goods, smuggling and other forms of
customs fraud and violations of maritime law and its proper surveillance (d) Examination and/or sampling of goods only in exceptional
of vessels entering anchor leaving Philippine territory as provided in circumstances.
Republic Act No. 9993, otherwise known as the “Philippine Coast Guard
Law of 2009”, shall continue to be in force. The Department of Finance (DOF) and the Department of Social Welfare
and Development (DSWD) shall jointly issue the rules and regulations for
This is a joint task between the BOC and the Philippine Coast Guard. the implementation of this provision.
Requirements:
JURISDICTION OF THE BOC 1. That the goods donated to victims of calamities be sent to either
1. Over all seas within Philippine territory and all coasts, ports, airports, (1) Government institutions; or (2) accredited private
harbors, bays, rivers, and inland waters; and institutions;
2. Over imported goods subject to seizure during its transport by land, air, If a private NGO is not accredited, it cannot claim under this
water. provision on relief consignment for simplified processing of the
imported articles to be released on time.
Example:
Authority to search vehicle – primarily pertains to imported goods when 2. National declaration of state of calamity;
they are being transported through a vehicle by land. 3. Clearance of relief of consignment issued by the BOC
Territory includes: SECTION 121. Duty and Tax Treatment.— Relief consignment, as
Ø All seas within the jurisdiction of the Philippines: Territorial seas defined in Section 120, imported during a state of calamity and intended
(12 nautical miles from the baseline) and Contiguous Zones (24 for a specific calamity area for the use of the calamity victims therein, shall
nautical miles from the baseline) be exempt from duties and taxes.
Ø Exclusive Economic Zone (EEZ)
Ø All coasts, ports, airports, harbors, bays, rivers, and inland CONDITIONALLY TAX AND/OR DUTY-EXEMPT IMPORTATION
waters, whether navigable or not from the sea. (See Section 800)
These are exempted provided they meet the requirement under the rules
Subject matter which the BOC is primarily concerned with: and regulations.
Merchandise Section 800 Paragraph F.

The Revised Administrative Code defines merchandise, when used with Personal and household effects belonging to returning residents including
reference to importation or exportation, to include goods, wares and household appliances, jewelry, precious stones, and other goods of luxury
in general, anything that may be the subject of exportation. which were formally declared and listed before departure and identified
Checks, money orders and dollar bills properly within the concept of under oath before the District Collector when exported from the
merchandise as used in Revised Administrative Code, are merchandise. Philippines by such returning residents upon their departure therefrom or
[Bastida v. CIR] during their stay abroad; personal and household effects including wearing
apparel, goods of personal adornment, toilet goods, instruments related
This covers properties, whether movable or immovable, that may be to one's profession and analogous personal or household effects,
exported. excluding luxury items, vehicles, watercrafts, aircrafts and animals
Kinds of Goods/Merchandise purchased in foreign countries by residents of the Philippines which were
1. Articles subject to duty or Dutiable Goods (Sec. 104, R.A. 10863) necessary, appropriate, and normally used for their comfort and
2. Duty free imports and exports (Sec. 116) convenience during their stay abroad, accompanying them on their return,
a. Relief Consignment (Sec. 120-121) or arriving within a reasonable time which, barring unforeseen and
b. Conditionally Tax and/or duty-free importation (Sec. 800) fortuitous events, in no case shall exceed sixty (60) days after the owner's
3. Regulated imports and exports (Sec. 117) return.
4. Prohibited imports and exports
a. Absolutely prohibited (Sec. 118) For purposes of this section, the phrase "returning residents" shall refer
b. Restricted/Qualifiedly prohibited (Sec. 119) to nationals who have stayed in a foreign country for a period of at least

six (6) months. Returning residents shall have tax and duty exemption on Employment Administration (POEA) for overseas employment purposes.
personal and household effects: Provided, That: They cover all Filipinos, working in a foreign country under employment
contracts, regardless of their professions, skills or employment status in a
(1) It shall not be in commercial quantities; foreign country; and
(2) It is not intended for barter, sale or for hire; and (2) Calendar Year refers to the period from January 1 to December 31.
(3) Limited to the FCA or FOB value of: Read the entire Section 800 for familiarization.
(i) Three hundred fifty thousand pesos (P350,000.00)
for those who have stayed in a foreign country for at
least ten (10) years and have not availed of this REGULATED IMPORTS AND EXPORTS
privilege within ten (10) years prior to returning SECTION 117. Regulated Importation and Exportation. — Goods which are
resident's arrival; subject to regulation shall be imported or exported only after securing the
necessary goods declaration or export declaration, clearances, licenses,
(ii) Two hundred fifty thousand pesos (P250,000.00) and any other requirements, prior to importation or exportation. In case
for those who have stayed in a foreign country for a of importation, submission of requirements after arrival of the goods but
period of at least five (5) but not more than ten (10) prior to release from customs custody shall be allowed but only in cases
years and have not availed of this privilege within five provided for by governing laws or regulations.
(5) years prior to returning resident's arrival; or
Take Note: Declaration is a sworn statement and whoever signed they
(iii) One hundred fifty thousand pesos (P150,000.00) are considered the importer or exporter even if in reality they are not the
for those who have stayed in a foreign country for a owner so they will be considered primarily liable by the government.
period of less than five (5) years and have not availed Importer’s concern if the goods are forfeited is the permit to import
of this privilege within six (6) months prior to because he can be blacklisted by the BOC.
returning resident's arrival.
ABSOLUTELY PROHIBITED ARTICLES
Any amount in excess of the above-stated threshold shall be SECTION 118. Prohibited Importation and Exportation. — The
subject to the corresponding duties and taxes under this Act. importation and exportation of the following goods are prohibited:
Every three (3) years after the effectivity of this Act, the Secretary of (a) Written or printed goods in any form containing any matter
Finance shall adjust the amount herein stated to its present value using advocating or inciting treason, rebellion, insurrection, sedition
the CPI as published by the PSA. against the government of the Philippines, or forcible resistance
to any law of the Philippines, or written or printed goods
In addition to the privileges granted under the immediately preceding containing any threat to take the life of, or inflict bodily harm
paragraph, returning Overseas Filipino Workers (OFWs) shall have the upon any person in the Philippines;
privilege to bring in, tax and duty-free, home appliances and other
durables, limited to one of every kind once in a given calendar year (b) Goods, instruments, drugs and substances designed,
accompanying them on their return, or arriving within a reasonable time intended or adapted for producing unlawful abortion, or any
which, barring unforeseen and fortuitous events, in no case shall exceed printed matter which advertises, describes or gives direct or
sixty (60) days after every returning OFW's return upon presentation of indirect information where, how or by whom unlawful abortion
their original passport at the port of entry: Provided, That any amount in is committed;
excess of FCA value of one hundred fifty thousand pesos (P150,000.00)
for personal and household effects or of the number of duty-free (c) Written or printed goods, negatives or cinematographic
appliances as provided for under this section, shall be subject to the films, photographs, engravings, lithographs, objects, paintings,
corresponding taxes and duties: drawings or other representation of an obscene or immoral
character;
Provided, further, That every three (3) years after the effectivity of this
Act, the Secretary of Finance shall adjust the amount herein stated to its (d) Any goods manufactured in whole or in part of gold, silver
present value using the CPI as published by the PSA; or other precious metals or alloys and the stamp, brand or mark
does not indicate the actual fineness of quality of the metals or
Section 800 Paragraph G. alloys;
Residents of the Philippines, OFWs or other Filipinos while residing abroad
or upon their return to the Philippines shall be allowed to bring in or send (e) Any adulterated or misbranded food or goods for human
to their families or relatives in the Philippines balikbayan boxes which shall consumption or any adulterated or misbranded drug in violation
be exempt from applicable duties and taxes imposed under the NIRC of of relevant laws and regulations;
1997, as amended: Provided, That balikbayan boxes shall contain personal
and household effects only and shall neither be in commercial quantities (f) Infringing goods as defined under the Intellectual Property
nor intended for barter, sale or for hire and that the FCA value of which Code and related laws; and
shall not exceed one hundred fifty thousand pesos
(P150,000.00): Provided, further, That every three (3) years after the (g) All other goods or parts thereof, which importation and
effectivity of this Act, the Secretary of Finance shall adjust the amount exportation are explicitly prohibited by law or rules and
herein stated to its present value using the CPI as published by the PSA: regulations issued by the competent authority.
Provided, finally, That residents of the Philippines, OFWs or other
Filipinos can only avail of this privilege up to three (3) times in a
calendar year. Any amount in excess of the allowable non-dutiable value RESTRICTED/QUALIFIEDLY PROHIBITED
shall be subject to the applicable duties and taxes; SECTION 119. Restricted Importation and Exportation. — Except
when authorized by law or regulation, the importation and exportation of
(1) For purposes of this Act, OFWs refer to holders of valid passports duly the following restricted goods are prohibited:
issued by the Department of Foreign Affairs (DFA) and certified by the
Department of Labor and Employment (DOLE) or the Philippine Overseas

(a) Dynamite, gunpowder, ammunitions and other explosives, [IG] (f) Infringing goods as defined under the Intellectual
firearms and weapons of war, or parts thereof; Property Code and related laws; and
(b) Roulette wheels, gambling outfits, loaded dice, marked [O] (g) All other goods or parts thereof which importation and
cards, machines, apparatus or mechanical devices used in exportation are explicitly prohibited by law or rules and
gambling or the distribution of money, cigars, cigarettes or regulations issued by the competent authority.
other goods when such distribution is dependent on chance,
including jackpot and pinball machines or similar contrivances, RESTRICTED/QUALIFIEDLY RESTRICTED
or parts thereof; SECTION 119. Restricted Importation, and Exportation. — Except
when authorized by law or regulation, the importation and exportation of
(c) Lottery and sweepstakes tickets, except advertisements the following restricted goods are prohibited: [G-FLOOD]
thereof and lists of drawings therein;
(a) Dynamite, gunpowder, ammunitions and other explosives,
(d) Marijuana, opium, poppies, coca leaves, heroin or other firearms and weapons of war, or parts thereof;
narcotics or synthetic drugs which are or may hereafter be
declared habit forming by the President of the Philippines, or (b) Roulette wheels, gambling outfits, loaded dice, marked
any compound, manufactured salt, derivative, or preparation cards, machines, apparatus or mechanical devices used in
thereof, except when imported by the government of the gambling or the distribution of money, cigars, cigarettes or
Philippines or any person duly authorized by the Dangerous other goods when such distribution is dependent on chance,
Drugs Board, for medicinal purposes; including jackpot and pinball machines or similar contrivances,
or parts thereof;
(e) Opium pipes or parts thereof, of whatever material; and
(c) Lottery and sweepstakes tickets, except advertisements
(f) Any other goods whose importation and exportation are thereof and lists of drawings therein;
restricted.
(d) Marijuana, opium, poppies, coca leaves, heroin or other
The restriction to import or export the above stated goods shall include narcotics or synthetic drugs which are or may hereafter be
the restriction on their transit. declared habit forming by the President of the Philippines, or
any compound, manufactured salt, derivative, or preparation
Take Note: Familiarize with the provisions on Absolutely Prohibited, thereof, except when imported by the government of the
Restricted/Qualifiedly Prohibited and Relief Consignment because if the Philippines or any person duly authorized by the Dangerous
goods will not fall under any of those enumerated then they are articles Drugs Board, for medicinal purposes;
subject to duty or dutiable goods which means that they are allowed to
enter the Philippines but you have to pay duties and taxes, unless the (e) Opium pipes or parts thereof, of whatever material; and
entity importing it exempted duties and taxes.
(f) Any other goods whose importation and exportation are
ABSOLUTE PROHIBITION restricted.
SECTION 118. Prohibited Importation and Exportation. — The The restriction to import or export the above stated goods shall include
importation and exportation of the following goods are prohibited: the restriction on their transit.
AMOT2 AMIGO
[T] (a) Written or printed goods in any form containing any DUTIABLE GOODS
matter advocating or inciting treason, rebellion, insurrection, (AFP-CPP-NPA-VMH-FAT-WE-MAMO)
sedition against the government of the Philippines, or forcible 1. Animals and anima product
resistance to any law of the Philippines, or written or printed 2. Animal or vegetable Fats; oil and their cleavage products
goods containing any threat to take the life of, or inflict bodily 3. Prepared foodstuffs; beverages, spirits and vinegar; tobacco and
harm upon any person in the Philippines; manufactured tobacco
4. Products of Chemical or allied industries
[A] (b) Goods, instruments, drugs and substances designed, 5. Plastic and rubber articles
intended or adapted for producing unlawful abortion, or any 6. Pulp or wood;
printed matter which advertises, describes or gives direct or 7. Natural or cultural stones
indirect information where, how or by whom unlawful abortion 8. Plaster, cements and other related articles
is committed; 9. Arms and ammunitions
10. Vegetable products
[O] (c) Written or printed goods, negatives or cinematographic 11. Mineral products
films, photographs, engravings, lithographs, objects, paintings, 12. Hides (skin, fur, leather)
drawings or other representation of an obscene or immoral 13. Footwear, headgear, etc.
character; 14. Aircraft, vessels, vehicles and all other mode of transportation
15. Textile and textile products
[M] (d) Any goods manufactured in whole or in part of gold, 16. Wood and related articles
silver or other precious metals or alloys and the stamp, brand 17. Electrical and mechanical machineries
or mark does not Indicate the actual fineness of quality of the 18. Metals
metals or alloys; 19. Artworks, antique
20. Manufactured/Miscellaneous articles
[AM] (e) Any adulterated or misbranded food or goods for 21. Optical products, medical and surgical products
human consumption or any adulterated or misbranded drug in
violation of relevant laws and regulations;

Conditionally-Free Importation [PSST-BAR-FEW-PERA-SAM- -imposed and collected in addition to ordinary customs duties usually to
CPP-VICE] protect local industries against foreign competition.
1. Professional instruments and implements - Imposed on a case to case basis like when it is imposed for the protection
2. Sea store supplies to the vessel or aircraft of the domestic market or when there is no proper marking of the products
3. Salvage articles recovered from an abandoned vessel imported to the Philippines.
4. Trailer chassis by a shipping company
5. Books a. Anti- Dumping Duties
6. Aquatic products b. Countervailing duties
c. Marking Duties
7. Relief organization and articles used for relief operations
d. Discriminatory Duties
8. Film production by foreign media or movie outfit
e. Safeguard measures
9. Equipment used in salvaging vessels
10. Wearing apparels How to Compute Dutiable Value / Basis of Dutiable Value
11. Personal and household effects - Based primarily on the transaction value
12. Importation for the use of Foreign Embassies
13. Receptacles, containers holders and other similar boxes - Before, the basis was the HCV or Home Consumption Value which was
14. Animals, EXCEPT race horse based on how the product was being valued in the place where it came
15. Samples of any kind from or country of origin
16. Articles for repair, re-conditioning for export
17. Mining equipment and tools TRANSACTION VALUE – the price actually paid or payable for the goods
18. Cost of repair made abroad upon a vessel registered in the when sold for export to the Philippines.
▪ Value reflected in the Import Entry Declaration
Philippines
19. Articles which are previously exported but returned in the
Philippines ▪ It is adjusted by adding certain expenses to the extent that
20. Prizes, medals, trophies, badges, and other things bestowed as they are incurred by the buyer but are not included in the price
an award actually paid or payable for the imported goods, the value of
the materials, components, parts and items incorporated in the
21. Vessels spare parts of foreign vessel and aircraft
imported goods; amount of royalties and license fees; cost of
22. Articles which are Imported subsequently in the Philippines
transport; loading, unloading and handling charges; and the
23. Coffin, caskets
cost of the insurance.
24. Exhibition, competition articles for display
▪ Price actually paid or payable + expenses + insurance + cost

CLASSIFICATION OF CUSTOMS DUTIES of loading and unloading + handling fees + fees and licenses
I. REGULAR DUTIES (ASAC)
Ad valorem
Specific Sequence in Determination of Value – Sec 700
Alternating 1. Transaction value
Compound 2. Transaction value of identical goods
- Identical goods (sec 702) – similar in all respects and functions
a. Ad Valorem - the duty is based on the market value or price of the as the goods or items that one is trying to bring in the country. (ex:
imported article. iphone7 to iphone7)
- imposed and collected merely as a source
of revenue. 3. Transaction value of similar goods
- Similar goods – not entirely the same but can be used as
If Market price is not available: substitute (ex: iphone7 to other phones of more or less of
1. FMV or price in the principal market of the country of manufacture or equivalent level)
origin;
2. From reports of revenue or commercial attaches to be ascertained by 4. Deductive value (sec 704)
the COC (Commissioner of Customs; Reports would include the price of o Based on the unit price at which the imported goods are sold
the products) in the greatest aggregate quantity; meaning the price at which the
greatest number of units is sold; aggregate or total sale
3. Domestic wholesale market price + 25% of
expenses
Example: 1st sale – 1,000 units at P100 / unit
b. Specific – the duty is based on the weight or volume of the imported
2nd sale – 950 units at P110/unit
article.
Basis would then be P100/unit because the aggregate total units sold was
Weight
1. Gross weight – total weight including container the greatest here.
2. Legal weight – weight of the goods imported and immediate container
5. Computed value
3. Net weight – weight of the product itself
- CMTA (Customs Modernization and Tariff Act) (sec. 705)
c. Alternating- alternates between ad valorem and specific duties. Section 705. Computed Value — Method Five. — Where the dutiable value
cannot be determined under the preceding method, the dutiable value
shall be the computed value of the sum of:
d. Compound - consists of ad valorem and specific duties.
(1) The cost or the value of materials and fabrication or other
processing employed in producing the imported goods;
II. SPECIAL DUTIES (A-CoMADS)

(2) The amount for profit and general expenses equal to that Any assistance given by the government or non-government
usually reflected in the sale of goods of the same class or kind organization in that foreign country where the exporter or
as the goods being valued which are made byproducers in the manufacturer is located causing a reduction in the costing such that
country of exportation for export to the Philippines; it may be sold in the Philippines at a lower cost.
(3) The freight, insurance fees and other transportation Rate: Equivalent to the bounty, subsidy, or subvention.
expenses for the importation of the goods; Imposing Authority: Secretary of Finance
(4) Any assist, if its value is not included under paragraph (1) 3. Marking Duty - imposed upon those not properly marked as to
hereof; and place of origin of the goods
(5) The cost of containers and packing, if their values are not Rate: 5% ad valorem of articles
included under paragraph (1) hereof. Imposing authority: Commissioner of Customs
In short, it’s the Customs who computes the Cost of Sales as well as the 4. Discriminatory Duty - imposed upon goods coming from countries
Cost of the Manufacturing that discriminate against Philippine products
6. Other reasonable means or fallback value Rate: any amount not exceeding 100% ad valorem of the subject
– in real practice, this is where corruption in BOC normally articles
enters. Discretion on the part of the employees = temptation. Imposing authority: President of the Philippines
DRAWBACK
Basis for dutiable weight for specific custom duties: A device resorted to for enabling a commodity affected by taxes to be
1. Gross weight - weight of all, including the container vans exported and sold in foreign markets upon the same terms as if it had not
been taxed at all. It may be full or partial.
2. Legal weight - weight including the boxes (immediate
container), excluding the container van
OTHER CUSTOMS FEES, DUES, OR CHARGES PAYABLE TO BOC
3. Net weight - weight of the articles/goods, excluding all the
containers. 1. Harbor Fees - imposed on vessels entering into or departing from
a port of entry of the Philippines.
T/N: Primary obligation in declaration of value and weight of goods –
Importer; 2. Wharfage dues - assessed against the cargo of a vessel engaged
No declared valuation – BOC will assess goods for valuation. in foreign or coastwise trade, based on the quantity, weight, or
measure received and/or discharged by such vessel.
Kinds of Special Customs Duties: 3. Berthing dues - assessed against a vessel for mooring or berthing
at a pier, wharf, or river at any port in the Philippines.
1. Anti – Dumping Duty – imposed upon foreign products with value
lower than their fair market value to the detriment of local products. 4. Storage dues - assessed on the articles for storage in customs
premises, cargo shed.
Rate: Difference between the actual price or export price and the
normal value of the article. [Normal Value – Export Price] 5. Arrastre dues - imposed on all imported and exported articles and
baggage of passenger for their handling, receiving, and custody.
*Normal Value – valuation if it is being produced and sold here as a
local product. 6. Tonnage dues: paid by the owner, agent, operator or master of a
vessel engaged in foreign trade based on the net tonnage of the
Special Committee on Anti – Dumping: vessel or weight of the articles discharged or laden.
1. Chairman - Secretary of Finance;
2. Members: 7. Other fees charged and collected for services rendered and
a. Secretary of DTI; and documents issued by the BOC.
b. Either the Secretary of Agriculture if the article in question
is agricultural product or the Secretary of Labor if non –
agricultural product. IMPORTATION
2. Countervailing Duty - imposed upon foreign goods enjoying Liability for Customs Duties
subsidy thus allowing them to sell at lower prices to the detriment of General Rule: All importations and exportations of goods are subject to
local products similarly situated. customs duties. (Sec. 105, TCC)
Bounty Exceptions:
This refers to the cash reward given by the government to the 1. Expressly exempted under the TCC, now the CMTA;
exporter or manufacturer to export or manufacture a particular 2. Exemptions granted to government agencies or GOCCs with existing
product. contracts, commitments, agreements, or obligations with foreign
countries;
Subsidy
This pertains to financial or fiscal incentives other than cash reward; 3. International organizations pursuant to agreement and special law;
e.g. tax exemption.
4. Exemption granted by the President of the Philippines upon
Subvention recommendation of the NEDA.

When Importation Begins

Importation begins when carrying vessel or aircraft enters the B. All goods that are imported to the Philippines shall be
jurisdiction of the Philippines with intent to unload its cargo. entered through a customs house.
When Importation Terminates a. CUSTOM HOUSES- The house or office where commodities
§ For Dutiable Goods - Importation terminates upon payment of the are entered for importation or exportation where the
duties and other charges due upon the articles, or secured to be paid, duties, drawbacks, payables and receivables upon such
at the port of entry and the legal permit for withdrawal shall have importation or exportation are paid or received, and where
been granted. ships are cleared out.
Two conditions for termination: C. Ports of entry

1. Payment of the duties and other charges due; a. Port of Entry (POE) – a domestic port, open to both
foreign and coast-wise trade
TN: This presupposes that the amount paid is based on the correct
declaration and valuation, otherwise, termination is not yet b. Principal POE – is the chief port of entry of the of the
terminated and BOC can still go after the goods. Further, one can be collection district, wherein it is situated as a permanent
held liable for technical smuggling. station of the collector of customs of such port.
2. Granting of legal permit to withdraw the goods. c. Sub POE - All other ports, if it is allowed coast-wise
trading;
TN: Withdrawal of the goods without the legal permit,
notwithstanding payment, amounts to smuggling.
d. coast-wise trading – not same as coast-wise shipping;
§ For Duty-Free Goods - In the case of articles that are free of
it means that there is a coast to coast trading.
duties, taxes and other charges, importation is deemed terminated
from the time they have legally left the jurisdiction of the
e. FREE Port – area set aside for handling foreign goods
Bureau of Customs.
without having to enter the customs house; meaning it is
free of taxes
f. Collector of Customs – executive officer who is the boss
OWNER OF IMPORTED ARTICLES
in a customs district/collection district and is the extension
of personality of the commissioner of customs on matters
Section 404. Owner of Imported Goods.— All goods imported into the
affecting his/her district.
Philippines shall be deemed to be the property of the consignee or the
holder of the bill of lading, airway bill or other equivalent transport
document if duly endorsed by the consignee therein, or, if consigned to D. When the goods enter the importer must prepare an
order, duly endorsed by the consignor. The underwriters of abandoned IMPORT ENTRY REVENUE DECLARATION
goods and the salvors of goods saved from wreck at sea, coast, or in any
area of the Philippines, may be regarded as the consignees. a. Prepared by importer or customs broker.
Under the CMTA, the government presumes the following as owners: b. A complete declaration under oath within 15 days. Submit
1. Signing consignee of the Import Entry Declaration 15 days but can be extended by another 15 days.
2. Holder of the Bill of Lading duly endorsed by the consignee c. If you do not make one the goods will be counted as
abandoned goods.
3. Holder of the Bill of Lading, if consigned to order, as endorsed by the
consignor E. Two types of import entry
a. Formal entry - general rule use this
4. Underwriters of abandoned articles
a. They are the ones who basically salvage the abandoned b. Informal entry – articles of a commercial nature intended
things. Sila pasalig nga sila mudispose. Must be accredited for sale, barter or hire, the dutiable value of which is Two
by BOC, thousand pesos (P2,000.00) now its 50k or less, land
personal and household effects or articles, not in
commercial quantity, imported in passenger's baggage,
5. Salvors mail or otherwise, for personal use, shall be cleared on an
a. Pertains to vessels. Salvage of abandoned or shipwrecked informal entry whenever duty, tax or other charges are
vessels. collectible.
i. Goods are commercial in nature, dutiable value

A. Obligation of owner/ importer which does not exceed 50k.
a. Prepare cargo manifest also known as packing list –list of
contents, value and designation of the goods to be shipped F. Required attachments to Informal entry
a. Commercial invoice.
b. And also goods declaration – a declaration to the BOC the b. Packing list
description, rate and value to enable the customs c. Authority if exemption if exempted
authority to determine the proper tax on the items. d. Bill of lading or airway bill
e. Passport to passenger
c. Whatever has been declared must coincide with the
packing list and the goods declaration. This is basically a This must all coincide. If not then will trigger physical
sworn statement. If you under value it the one signing the examination.
declaration can be held criminally liable

G. Different between commercial invoice and packing list 3. Remedy if implied abandonment
a. Packing list is manifest, lists the goods shipped to PH. value a. Owner can reclaim by paying the duties, taxes and
of goods is in the commercial invoice. Here located are the other costs.
billings. Packing list is a mere listahan. Commercial invoice
mau na imu gisingil sa seller. Smuggling
H. Attachments to formal entry are much or less the same. 4. Smuggling – an act of any person who shall fraudulently import
or bring into the Philippines, or assist in so doing, any article
I. Goods are already here, declaration is done what will happen contrary to law, or shall receive, conceal, buy, sell or in any
next is physical examination manner facilitate the transportation, concealment, or sale of
such article after importation, knowing the same to be imported
a. Not really required. BOC will compare the declaration and contrary to law.
the result of physical examination. If there is a discrepancy a. FART
then BOC will make discrepancy report and of course make b. Fraudulently bringing into the Philippines goods which
another assessment. are prohibited
c. Assist in doing so
b. Protest may be conducted by the party if they do not agree d. Receive, conceal, buy or sell in any manner or
with the assessment. This is on civil matters. facilitate transportation
e. Commit technical smuggling
J. Payment of duties will happen, release na ang goods and post
audit will be conducted. Just to countercheck if saktu ba. If walay 5. It includes the exportation of articles in a manner contrary to
nakit.an nga sayup then there will be finality of liquidation. law.
a. If you don’t follow regulations on exports, you can be
K. Possible scenarios considered as engaged in smuggling.
b. Requisites for smuggling:
i. The merchandise must have fraudulently or
a. Abandonment
knowingly imported contrary to law.
b. smuggling
ii. The defendant, if he is not the importer
himself, must have received, concealed,
ABANDONMENT
bought, sold or in any manner facilitated
Renunciation of all of his interest over the importede article
transportation, concealment, or sale of the
merchandise.
Two Types of abandonment:
iii. The defendant must be shown to have
1. Express
knowledge that the merchandise had been
a. When there is a letter or any memorandum given to
illegally imported.
the collector stating the abandonment of the articles.
iv. Mala in se – requires intent.
b. The effect of abandonment is that all custom duties
c. Large-scale smuggling – if the determinable value of
are discharged.
the goods or contraband is at least P5M.
c. BUT DOES NOT discharge criminal liability because
d. Smale-scale smuggling – if less than P5M.
the liability attaches to the person not the goods. But
e. Smuggling by syndicate – carried out by a group of 3
this applies only when what is involved are prohibited
more persons conspiring or confederating with one
goods or smuggled goods.
another in carrying out the unlawful act of smuggling.
d. Once it is communicated to commission the goods
6. Two types of smuggling
directly owned by government.
a. Outright
i. Act of importing goods into the country
2. Implied
wihout complete customs documents or
a. Instances of Implied Abandonment:
without being cleared by customs.
ii. Imported goods are not registered in the
b. No filing of declaration
BOC
iii. Wa ni agi sa BOC
i.
When the owner, importer, consignee or b. Technical
interested party after due notice, fails to i. Niagi ka sa legala channel. There was
file an entry within thirty (30) days, declaration, payment and clearance its just
which shall not be extendible, from the that the declaration is falsified, fraduelent
date of discharge of the last package or erroneous in nature , kind or quality.
from the vessel or aircraft, or ii.
c. No payment of taxes
i. having filed such entry, fails to claim his (review)
importation within fifteen (15) days DEEMED OWNER OF THE IMPORTED GOODS:
which shall not likewise be extendible,
from the date of posting of the notice 1.) Consignee
to claim such importation à posted in 2.) Holder of the Bill of Lading
the corridors of the office of the bureau of 3.) Holder of the Bill of Lading, if consigned to order
customs per district. 4.) Underwriters of abandoned articles
5.) Salvors
d. Failure to mark the articles within 30 days from notice
e. The goods were not taken from the customs house OBLIGATIONS OF THE IMPORTER:
after due payment 1.) Prepare the Cargo Manifest or Packing List
2.) Submit a declaration before the BIR (could either be formal or informal)

3.) Goods will now have to be entered at the customs house which is the disposal for a specified period. After the lapse of the specified period, the
Port Of Entry (could either be a Port Of Entry in the district or a sub- Port balance shall be transferred to the forfeiture fund as provided in Section
Of Entry) 1151 of this Act.
To Summarize the Process: Sec. 1151. Forfeiture Fund. – All proceeds from public auction sales after
1. Lodgement of Goods Declaration (final or provisional) deduction of the charges as provided in Section 1143 of this Act and
2. Physical Examination, if required subject to the claim of the owner or importer of an impliedly abandoned
3. Preparation of discrepancy report, if any (prepared by BOC Official) goods as provided in Section 1130 of this Act, shall be deposited in an
4. Protest on civil matters (pay computed duties and taxes and protest on account to be known as Forfeiture Fund.
discrepancy report)
5. Payment of the computed duties and taxes and release of imported The Fund shall be in the name of and shall be managed by the Bureau
goods which is hereby authorized, subject to the usual government accounting
6. Customs compliance audit/post-audit (negligence and discrepancy can rules and regulations, to utilize it for the following purposes:
still be given here)
7. Finality of liquidation (a) To outsource, subject to the rules on government procurement
established by law, the management of the inventory, safekeeping,
maintenance and sale of goods enumerated in Section 1139 of this Act to
ABANDONMENT private service providers: Provided, That the Bureau shall retain
It is the renunciation by an importer of all his interest in the property rights jurisdictional control and supervision over these goods as well as the
in the imported article. It may be express or implied. operations of the service provider so contracted;
In short, the importer will not anymore claim the property. (b) To facilitate customs seizure, abandonment and forfeiture proceedings
and the disposition of goods under Section 1139 of this Act, particularly
So, will the property be automatically transferred to the government? those to be disposed of other than through public sale;
Not necessarily because we need to ascertain first what kind of
abandonment took place. (c) To enhance customs intelligence and enforcement capability to prevent
smuggling; and
If it is EXPRESSED ABANDONMENT, there is a written communication
addressed to the Commissioner saying that the importer do not want the (d) To support the modernization program and other operational efficiency
goods anymore. Here, the title shall pass ipso facto to the government. and trade facilitation initiatives of the Bureau.
If IMPLIED ABANDONMENT, it is not automatic that the title will go to The DOF and the Department of Budget and Management (DBM) shall,
the government. The importer is given the chance to reclaim the property upon the recommendation of the Bureau, issue a joint regulation to
if the goods have not yet been disposed by paying all the charges due. If implement the provisions of this section.
already sold, the proceeds have to be returned to the importer.
Instances of Implied Abandonment: SMUGGLING

1.) When the owner, importer, consignee, or interested party after due Any person who shall [FART]
notice, fails to file the goods declaration within 15 days (extendible for 1. Fraudulently import or bring into the Philippines;
another 15 days) 2. Assist in doing so, any article, contrary to law;
3. Receive, conceal, buy, sell, or in any manner facilitate the
2.) Having filed such goods declaration, the owner, importer, consignee transportation, concealment, or sale of such article after importations,
or interested party after due notice, fails to pay the assessed duties, taxes 4. Commit technical smuggling [Sec. 1401]
and other charges thereon within fifteen (15) days from the date of final
assessment Kinds:
Outright smuggling- in any case it did not pass through the legal
3.) Having paid the assessed duties, taxes and other charges, the owner, channel, did not go through the BIR, no declaration to speak of, no BOC
importer or consignee or interested party after due notice, fails to claim clearance
the goods within thirty (30) days from payment.
Technical smuggling- apparently the good went through the BOC, there
was declaration, BOC issued clearance, but the thing is, it involved
Sec. 1130. Treatment and Disposition of Abandoned Goods. – Expressly falsified, fraudulent, and/or erroneous declaration of goods
abandoned goods under paragraph (a) of Section 1129 of this Act shall
ipso facto be deemed the property of the government and shall be
disposed of in accordance with the provisions of this Act. Notes from several jurisprudence:
• Anything that was used for smuggling is subject to confiscation
If the Bureau has not disposed of the abandoned goods, the owner or including the vessel or carrier (exception- common carriers that
importer of goods impliedly abandoned may, at any time within thirty (30) are not previously chartered)
days after the lapse of the prescribed period to file the declaration, reclaim • Mere possessor of the articles in question is liable unless
the goods provided that all legal requirements have been complied with defendant could explain that his possession is lawful to the
and the corresponding duties, taxes and other charges, without prejudice satisfaction of the Court
to charges and fees due to the port or terminal operator, as well as • Payment of the taxes due after apprehension is NOT a valid
expenses incurred have been paid before the release of the goods from defense.
customs custody.
When the Bureau sells goods which have been impliedly abandoned, SEIZURE vs FOREITURE
although no offense has been discovered, the proceeds of the sale, after Seizure - goods are not yet within the custody of the BOC. BOC issues a
deduction of any duty and tax and all other charges and expenses incurred Warrant for Seizure and Detention (WSD)
as provided in Section 1143 of this Act, shall be turned over to those
persons entitled to receive them or, when this is not possible, held at their

Forfeiture- act of transferring the title from the importer to the you declare China as the country of origin. That is considered a
government so that the govt can do whatever it wants to the goods fraudulent transaction.
4. Overvaluation
This is more applicable on DRAWBACK. For drawback, it refers
Grounds: to goods which have previously been exported out of the
1.) Misdeclaration- discrepancy pertains to quantity, description, weight, country and imported back here then re-exported. When goods
or measurement of the imported goods are imported with the intention to re-export, the BOC may give
an allowance or some sort of credit or exemption from the
2.) Misclassification- exists when insufficient or wrong description of the duties. So if you overvalue the goods, then the credit or
goods or use of wrong tariff heading was declared resulting in a allowance to be claimed will be higher, when in fact it should be
discrepancy
lower.
3.) Under valuation- present when:
(a) the declared value fails to disclose in full the price actually
paid or payable or any dutiable adjustment to the price actually FAILURE TO PAY CORRECT TAXES AND DUTIES ON IMPORTED
paid or payable; or GOODS (SEC 1005)
(b) when an incorrect valuation method is used or the valuation Three Degrees of Culpability
rules are not properly observed, resulting in a discrepancy in 1. Negligence
duty and tax to be paid between what is legally determined as The deficiency resulting from an offender’s failure to exercise
the correct value against the declared value. reasonable care and competence to ensure that a statement
made is correct.
If no presumption of fraud - surcharge equivalent to two hundred fifty FINE: 50%-200% of the revenue loss.
percent (250%) of the duty and tax due
When the misdeclaration, misclassification or undervaluation is intentional 2. Gross Negligence

or fraudulent, such as when a false or altered document is submitted or
Ex: Misclassification; misdeclaration resulting to undervaluation
when false statements or information are knowingly made, a surcharge
shall be imposed equivalent to five hundred percent (500%) of the duty
and tax due and that the goods shall be subject to seizure regardless of FINE: 250%-400% of the revenue loss.
the amount of the discrepancy without prejudice to the application of fines
or penalties provided under Section 1401 of this Act against the importer 3. Fraud
and other person or persons who willfully participated in the fraudulent When the material false statement or act was committed or
act. omitted knowingly, voluntarily and intentionally, as established
by clear and convincing evidence.
TN: Presumption of fraud arises if the undervaluation will be more than
30% of the correct valuation.
FINE: 500%-800% of the revenue loss or imprisonment of 2-3
No surchange will be imposed when: years.
1. The discrepancy in duty is less than 10% of the importer’s

declared value and/or tariff classifications; FLEXIBLE TARIFF CLAUSE
2. If the importer relied on an official government ruling (from Grants the authority of the President to adjust the tariff rates prescribed
BOC); under the Tariff and Customs Code.
3. Rejected in the forman customs dispute settlement process
involving difficult or highly technical questions relating to the Atty: Specifically the special duties, i.e. anti-dumping duties;
application of custom valuation rules and/or tariff classifications discriminatory duties.
If the misdeclaration, misclassification or undervaluation is intentional or Basis: “The Congress may, by law, authorize the President to fix within
fraudulent, such as when a false or altered document is submitted or when specified limits, and subject to such limitations and restrictions as may
false statements or information are knowingly made, then a 500% impose, tariff rates, import and export quotas, tonnage and wharfage
surcharge of the duty and tax due will be imposed on the importer and dues, and other duties or imposts within the framework of the national
to those who willfully participated in the fraudulent act. development program of the Government.”
TYPES OF VALUATION FRAUD (UF2O) The purpose is urgency.

1. Undervaluation
To achieve this, it starts with misclassification and/or
misdeclaration. Q: Is this not a violation of the general principle that the power of taxation
2. False invoice description through reporting lower must be exercised by the legislature or Congress?
qualities in the invoice, not identifying branded items as A: No, because in the first place, this is a voluntary delegation by Congress
to the President, and Congress has laid down the rules and limits for the
such
exercise of such power, such that it is not just based on the discretion of
3. False country of origin the President.
When the duty imposed on a country is discriminatory. This
happens because the dutiable basis is the transaction value. So Included in the Flexible Tariff Clause:
if the usual selling price in the country of origin is different in • To increase, reduce or remove existing protective rates (anti-
from the usual selling price in another country, for example, dumping; discriminatory duties); and/or
cheaper in China compared to U.S., instead of declaring U.S., • Impose import quotas or import ban

Finance, and thereafter If still dissatisfied, to the CTA as provided for in

Import quotas – limit the volume of importation in order not to prejudice Section 1136 of this Act.
local manufacturers or producers
Where no appeal is made by the importer, or upon reaffirmation of the
Import ban – prohibited from being imported in the Philippines in order to
protect the local industry. Commissioner's decision during the appeals process, the Bureau or its
agents shall sell the acquired goods pursuant to existing laws and
Remember: regulations.
1. The power is exercised for the general welfare of the people;
2. Only upon NEDA’s recommendation; and Nothing in this section limits or affects any other powers of the Bureau
3. After the Tariff Commission shall conduct public hearing. The with respect to the disposition of the goods or any liability of the importer
commission then sends the report to the NEDA then it or any other person with respect to an offense committed in the
communicates the findings to the president who has the final importation of the goods.
say on whether to increase, reduce or eliminate the protected
tariff rate. This is exercised by the Government in cases of UNDERVALUATION. For
example, the correct value is 1M, but you declared it at 100k. The
PENALTIES AND EFFECTS FOR VIOLATIONS OF RA 10863 (SEC Government may acquire it for the value which you declared. So if you are
1430) the importer, you would be discouraged to undervalue, because the
Government can at anytime purchase or acquire your goods based on the
Sec. 1430. Violations of this Act and Rules and Regulations in General. –
value declared.
Any person who violates any other provision of this Act or the rules and
regulations issued pursuant thereto, shall be penalized with imprisonment
of not less than thirty (30) days and one (1) day but not more than one 2. Reduction of Customs Duties/Compromise
(1) year, or be liable for a fine of not less than one hundred thousand
pesos (P100,000.00) but not more than three hundred thousand pesos Sec. 1131. Authority of the Commissioner to Make Compromise. – Subject
(P300,000.00), or both. If the offender is a foreigner, the offender shall to the approval of the Secretary of Finance, the Commissioner may
be deported after serving the sentence. If the offender is a public officer compromise any administrative case arising under this Act involving the
or employee, the offender shall be disqualified from holding public office,
imposition of fines and surcharges, including those arising from the
from exercising the right to vote and to participate in any public election
for ten (10) years. conduct of a post clearance audit, unless otherwise specified by law.
Here, this applies to other provisions under the CMTA. For example, on Cases involving forfeiture proceedings shall however not be subject to any
the requirement that you must file a declaration or requirement that you compromise.
must prepare and submit a cargo manifest. In such cases, the penalty
would be: The Commissioner of Customs will enter into compromise. However, the
Commissioner will not decide on the compromise without the approval of
1. Imprisonment of not less than 30 days and 1 day but not more the Secretary of Finance.
than 1 year; or
2. A fine of not less than Php 100,000 to Php 300,000;
3. or BOTH Note: Forfeiture cases cannot be subject to a compromise, i.e. substantial
undervaluation
Effects of violations
If you are a foreigner, then you will be deported after service of sentence. 3. Alert Orders
If you are a public officer or employee, then you will be disqualified to Cases involving forfeiture proceedings, most common example is if there
hold public office, and deprived of the right to vote and participate in any is substantial undervaluation.
public election for 10 years.
SECTION 1111. Alert Orders. — Alert orders are written orders issued
TAX REMEDIES UNDER THE TARIFF AND CUSTOMS CODE by customs officers as authorized by the Commissioner on the basis of
derogatory information regarding possible noncompliance with this Act.
I. REMEDIES OF THE GOVERNMENT An alert order will result in the suspension of the processing of the goods
A. Administrative declaration and the conduct of physical or nonintrusive inspection of the
1. Compulsory Acquisition goods within forty-eight (48) hours from issuance of the order. Within
forty-eight (48) hours or, in the case of perishable goods, within twenty-
Sec. 709. Government's Right of Compulsory Acquisition. – In order to four (24) hours from inspection, the alerting officer shall recommend the
protect government revenues against undervaluation of goods, the continuance of processing of goods in case of a negative finding, or
issuance of a warrant of seizure and detention if a discrepancy between
Commissioner may, motu proprio or upon the recommendation of the
the declaration and actual goods is found. The Bureau's information
District Collector, acquire imported goods under question for a price equal system shall immediately reflect the imposition or lifting of an alert order.
to their declared customs value plus any duties already paid on the goods, Derogatory information shall indicate the violations and other
payment for which shall be made within ten (10) working days from necessary specifics thereof. For this purpose, the following shall not be
issuance of a warrant signed by the Commissioner for the acquisition of considered derogatory information:
such goods. (a) General allegations of undervaluation;
(b) General allegations of misclassification without providing the
appropriate tariff heading and duty of the shipment to be alerted;
An importer who is dissatisfied with a decision of the Commissioner
(c) General allegations of over-quantity without indicating the source of
pertaining to this section may, within twenty (20) working days after the information supporting the allegation;
date on which notice of the decision is given, appeal to the Secretary of

(d) General allegations of misdeclaration in the entry without indicating (a) Any vehicle, vessel or aircraft, including cargo, which shall
the suspected actual contents thereof; and be used unlawfully in the importation or exportation of goods or in
(e) General allegations of importations contrary to law without indicating conveying or transporting smuggled goods in commercial quantities into
the specific law or rule to be violated. or from any Philippine port or place. The mere carrying or holding on board
No alert order shall be issued on account of allegations of of smuggled goods in commercial quantities shall subject such vehicle,
undervaluation unless said undervaluation is caused by the submission to vessel, aircraft, or any other craft to forfeiture: Provided, That the vehicle,
customs of forged or spurious invoice or other commercial documents. vessel, aircraft or any other craft is not used as a common carrier which
An alert order may be issued only after lodgement of the goods has been chartered or leased for purposes of conveying or transporting
declaration and prior to the release of goods from customs custody. Under persons or cargo;
no circumstances shall the suspension of the processing of goods (b) Any vessel engaging in the coastwise trade which shall have
declaration be allowed except through an alert order issued by an on board goods of foreign growth, produce, or manufacture in excess of
authorized customs officer. the amount necessary for sea stores, without such goods having been
The costs of the physical inspection shall be borne by the properly entered or legally imported;
Bureau: Provided, That such cost shall be reimbursed by the owner prior (c) Any vessel or aircraft into which shall be transferred cargo
to the release of the goods if the physical inspection results in the unloaded contrary to law prior to the arrival of the importing vessel or
assessment of additional duties or taxes or the issuance of a warrant of aircraft at the port of destination;
seizure. (d) Any part of the cargo, stores, or supplies of a vessel or
The Commissioner shall be notified of the recommendation by aircraft arriving from a foreign port which is unloaded before arrival at the
the alerting officer within twenty-four (24) hours from the issuance of the vessel's or aircraft's port of destination and without authority from the
alert order. Alert orders shall be dated and assigned a unique reference customs officer; but such cargo, ship, or aircraft stores and supplies shall
number in series which shall be the basis for reporting to and monitoring not be forfeited if such unloading was due to accident, stress of weather,
by the Commissioner and the Secretary of or other necessity and is subsequently approved by the District Collector;
Finance. (e) Goods which are fraudulently concealed in or removed
The Bureau shall create a central clearing house for alert orders contrary to law from any public or private warehouse, container yard, or
and shall submit reports quarterly on the status thereof. container freight station under customs supervision;
(f) Goods, the importation or exportation of which are effected
Take Note: For Alert Order to be issued it must be for specific allegations. or attempted contrary to law, or any goods of prohibited importation or
exportation, and all other goods which, in the opinion of the District
Q: Is an Alert Order the same as a warrant, say for example a warrant of Collector, have been used, are or were entered to be used as instruments
seizure and detention? in the importation or the exportation of the former;
A: No. (g) Unmanifested goods found on any vessel or aircraft if
manifest therefor is required;
Q: What is the reason why an alert order is issued by BOC? (h) Sea stores or aircraft stores adjudged by the District
Atty. A: For example, a warrant of arrest is issued by the judge if there is Collector to be excessive, when the duties and taxes assessed by the
probable cause. There is already an initial investigation. Even under the District Collector thereon are not paid or secured forthwith upon
BOC, before the BOC will issue the warrant of seizure and detention there assessment of the same;
has already been an investigation conducted on the alleged violations. (i) Any package of imported goods which is found upon
examination to contain goods not specified in the invoice or goods
But in Alert Order there is no such investigations being conducted, no declaration including all other packages purportedly containing imported
probable violation. The only requirement under the law is possible goods similar to those declared in the invoice or goods declaration to be
noncompliance which could result to correct liability or incorrect liability the contents of the misdeclared package;
after investigation. The issuance of an alert order is just based on j) Boxes, cases, trunks, envelopes, and other containers of
derogatory information on possible noncompliance with the CMTA. whatever character used as receptacle or as device to conceal goods which
are subject to forfeiture under this Act or which are so designed as to
Q: What are the instances when an alert order may be issued by conceal the character of such goods;
the BOC? (k) Any conveyance actually used for the transport of goods
A: An alert order may be issued only after lodgement of the goods subject to forfeiture under this Act, with its equipage or trappings, and
declaration and prior to the release of goods from customs custody. any vehicle similarly used, together with its equipment and appurtenances.
The mere conveyance of smuggled goods by such transport vehicle shall
Take Note: After lodgement – the goods are already there and there is be sufficient cause for the outright seizure and confiscation of such
already a declaration which is either formal or informal, and supposedly transport vehicle but the forfeiture shall not be effected if it is established
the processing for the issuance of clearance is already on-going. But in that the owner of the means of conveyance used as aforesaid, is engaged
the middle of the processing there is an intelligence report by the as common carrier and not chartered or leased, or that the agent in charge
Intelligence Unit of the BOC so an alert order will be issued by the BOC thereof at the time, has no knowledge of the unlawful act; and
Here, there is no finding yet of any undervaluation, misclassification etc – (l) Goods sought to be imported or exported:
it’s just that there is a derogatory information usually coming from 3rd (1) Without going through a customs office, whether the act
parties or the Intelligence Unit of the BOC. was consummated, frustrated, or attempted;
(2) Found in the baggage of a person arriving from abroad and
Q: What will happen once the alert order has been issued? What will undeclared by such person;
happen to the processing of the goods? (3) Through a false declaration or affidavit executed by the
A: It will result to the suspension of the processing of the goods. owner, importer, exporter, or consignee concerning the importation of
Atty. A: No clearance will be issued by the BOC unless that derogatory such goods;
information will be settled. If the derogatory information is proved correct (4) On the strength of a false invoice or other document
then definitely it will lead to the issuance of WSD (warrant of seizure and executed by the owner, importer, exporter, or consignee concerning the
detention). importation or exportation of such goods; or
(5) Through any other practice or device contrary to law by
4. Seizure and Forfeiture means of which such goods entered through a customs office to the
prejudice of the government.
SECTION 1113. Property Subject to Seizure and Forfeiture. —
Property that shall be subject to seizure and forfeiture include:

Take Note: These are the items that can be seized and subject to forfeited if such unloading was due to accident, stress of weather, or other
forfeiture. The enumerated items pertains to goods, properties or vessels necessity and is subsequently approved by the District Collector;
or appurtenances thereto. The forfeiture is basically a proceeding in rem,
you go after those particular goods. (e) Goods which are fraudulently concealed in or removed contrary to law
The nature of forfeiture proceeding is both administrative and civil. from any public or private warehouse, container yard, or container freight
Administrative in the sense that the investigation will be conducted station under customs supervision;
internally by the BOC.
(f) Goods, the importation or exportation of which are effected or
5. Distraint of Personal Property attempted contrary to law, or any goods of prohibited importation or
exportation, and all other goods which, in the opinion of the District
SECTION 1132. Remedies for the Collection of Duties, Taxes, Collector, have been used, are or were entered to be used as instruments
Fines, Surcharges, Interests, and Other Charges. — The civil in the importation or the exportation of the former;
remedies for the collection of import duties, taxes, fees, or charges
resulting from the conduct of a post clearance audit shall be obtained by: (g) Unmanifested goods found on any vessel or aircraft if manifest therefor
a) Distraint of goods, chattels, or effects, and other personal is required;
property of whatever character, including stocks and other securities,
debts, credits, bank accounts, and interest in and rights to personal (h) Sea stores or aircraft stores adjudged by the District Collector to be
property, and by levy upon real property and interest in rights to real excessive, when the duties and taxes assessed by the District Collector
property; and thereon are not paid or secured forthwith upon assessment of the same;
(b) Civil or criminal action.
Either or both of these remedies may be pursued at the discretion of the (i) Any package of imported goods which is found upon examination to
Bureau: contain goods not specified in the invoice or goods declaration including
Provided, That the remedies of distraint and levy shall not be allowed when all other packages purportedly containing imported goods similar to those
the amount of duties and taxes involved is not more than ten thousand declared in the invoice or goods declaration to be the contents of the
pesos (P10,000.00). misdeclared package;
The Bureau shall advance the amounts needed to defray costs of collection
by means of civil or criminal action, including the preservation or (j) Boxes, cases, trunks, envelopes, and other containers of whatever
transportation of personal property distrained and the advertisement and character used as receptacle or as device to conceal goods which are
sale thereof, as well as of real property and improvements thereon. subject to forfeiture under this Act or which are so designed as to conceal
the character of such goods;
6. Levy of Real Property
(k) Any conveyance actually used for the transport of goods subject to
Take Note: Distraint and Levy will come in place if the importer fails to forfeiture under this Act, with its equipage or trappings, and any vehicle
pay the duties and taxes. The BOC will now go after the other personal similarly used, together with its equipment and appurtenances. The mere
properties and real properties of the importer just to settle the duties and conveyance of smuggled goods by such transport vehicle shall be
taxes. sufficient cause for the outright seizure and confiscation of such transport
vehicle but the forfeiture shall not be effected if it is established that the
Q: Can you abandon if it is technical smuggling? owner of the means of conveyance used as aforesaid, is engaged as
A: YES. But the gov’t would still go after the smuggler. common carrier and not chartered or leased, or that the agent in charge
thereof at the time, has no knowledge of the unlawful act; and
Forfeiture – transfer the title or ownership of the goods from private
entity to the government. (l) Goods sought to be imported or exported:
(1) Without going through a customs office, whether the act
SUBJECT TO FORFEITURE was consummated, frustrated, or attempted;
Sec. 1113. Property Subject to Seizure and Forfeiture. — Property that
shall be subject to seizure and forfeiture include: (2) Found in the baggage of a person arriving from abroad and
undeclared by such person;
(a) Any vehicle, vessel or aircraft, including cargo, which shall be used
unlawfully in the importation or exportation of goods or in conveying or (3) Through a false declaration or affidavit executed by the
transporting smuggled goods in commercial quantities into or from any owner, importer, exporter, or consignee concerning the
Philippine port or place. The mere carrying or holding on board of importation of such goods;
smuggled goods in commercial quantities shall subject such vehicle,
vessel, aircraft, or any other craft to forfeiture: Provided, That the vehicle, (4) On the strength of a false invoice or other document
vessel, aircraft or any other craft is not used as a common carrier which executed by the owner, importer, exporter, or consignee
has been chartered or leased for purposes of conveying or transporting concerning the importation or exportation of such goods; or
persons or cargo;
(5) Through any other practice or device contrary to law by
(b) Any vessel engaging in the coastwise trade which shaft have on board means of which such goods entered through a customs office
goods of foreign growth, produce, or manufacture in excess of the amount to the prejudice of the government.
necessary for sea stores, without such goods having been properly
entered or legally imported;
GR: A common carrier cannot be forfeited.
(c) Any vessel or aircraft into which shall be transferred cargo unloaded XPT: Owner has knowledge to its use in smuggling and consented thereto;
contrary to law prior to the arrival of the importing vessel or aircraft at the or the common carrier is privately chartered
port of destination; Knowledge = state of mind
Manifestation of knowledge: Prima facie presumption of
(d) Any part of the cargo, stores, or supplies of a vessel or aircraft arriving knowledge
from a foreign port which is unloaded before arrival at the vessel’s or
aircraft’s port of destination and without authority from the customs Section 1114. Properties not Subject to Forfeiture in the Absence of Prima
officer; but such cargo, ship, or aircraft stores and supplies shall not be Facie Evidence. — The forfeiture of the vehicle, vessel, or aircraft shall

not be effected if it is established that the owner thereof or the agent in TN: There has to be payment. [Payment with protest]
charge of the meads of conveyance used as aforesaid has no knowledge
of or participation in the unlawful act: Provided, That a prima 2. Settlement – payment of fine or redemption
facie presumption shall exist against the vehicle, vessel, or aircraft under NOT ALLOWED:
any of the following circumstances: - absolutely prohibited importation; or
(a) If the conveyance has been used for smuggling before; - If there is actual intentional fraud; or
- If the release is contrary to law
(b) If the owner is not in the business for which the conveyance
is generally used; and
3. Abatement, refund, or drawback
(c) If the owner is not financially in a position to own such • Abatement – request to not pay the fees because the
conveyance. goods are destroyed or lost.
• Drawback – initially exported, and subsequently imported
back to the country with the intention of re-exporting it.
• Coastwise trade – vessel goes from one port to another within - Re-export, instead of paying the usual fees,
the same archipelago. exporter asks for the drawback (same as tax credit)
• Entry – not limited to actual, physical entry. Act of filing the
documents to the customshouse, or the submission and 4. Abandonment
acceptance of the BOC of documents
• Exclusive jurisdiction – collector of customs (Commissioner of
Customs), seizure and forfeiture cases
• Doctrine of Hot pursuit – when the act is done within the
Philippines’ jurisdictional waters which violate the CMTA
- Pursuit may continue beyond the
maritime zones and the arrest may
occur in the high seas
- TN: BOC is not necessarily the one
who pursue, coastguard can.
• Over-imported articles in violation of the CMTA – they may be
pursued within the Philippines, with the at any place for the
enforcement of the law
- Search of a moving vehicle conducted
by the BOC
JUDICIAL REMEDIES
1. Civil Action
2. Criminal Action
TN:
- Actions are instituted in the name of the government and shall be
conducted by the Bureau with DOJ’s assistance.
- The civil or criminal action for recovery of duties or enforcement of any
fine, penalty or forfeiture must be with approval of the Commissioner.
Process in Search and Seizure

1. Seizure of the articles – district collector (the one heading the
port) reports to the commissioner
2. Notify the importer – issuance of Warrant of Seizure and
Detention (WSD)
3. Hearing
15 days from the issuance of WSD; or 5 days from the
issuance of WSD if the goods are perishable
4. Decision
a. 30 days after the hearing; or 15 days after the hearing if
the goods are perishable
5. If decision is adverse, taxpayer may Appeal
a. Commissioner of Customs – within 15 days
b. CTA in division – within 30 days
c. Motion for Reconsideration – within 15 days
d. CTA en banc – within 15 days
e. SC – within 15 days
Remedies
1. Protest
- Taxpayer disagrees with the assessment, or computation

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TAXATION 2 | ATTY.

KIM ARANAS | 2017-2018 | PRE-FINALS

BUSINESS TAXES f. Sale of goods, supplies, equipment and fuel to those

CEPEDOZA | CESANTE | CONTRERAS | CORONEL | LIM | MORENO | TANGGOR USCLAW LLB 3 | 1

When we talk of export-oriented enterprise, is it a requirement that you

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J. Services rendered by regional or area headquarters established

Basic Rule: If an entity is not subject to the usual tax applicable

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VAT. But, if it is classified as a capital asset – it is subject

In both instances, they will be subject to Documentary

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Low cost developer/socialized housing developer – should be registered (?) – YES.

What is exempted is not the sale, but the LEASE. Recap

IT MUST BE A RESIDENTIAL UNIT. SALE OF REAL PROPERTIES

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To determine whether a taxpayer must register for tax purposes:

T. Sale, importation or lease of passenger or cargo vessels and

Take note: For transport of passengers, it covers only

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Illustrative Problem: Reason for treating it as a VATable sale:

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B. Sale of Goods or Properties - VAT invoice. PRESCRIPTIVE PERIOD – 2 YEARS

SUSPENSION OF THE BUSINESS OPERATIONS; SEC 115

CONSEQUENCES OF ISSUING ERRONEOUS VAT INVOICE OR VAT

If the input tax cannot be directly attributed to transactions subject to or

SPECIAL TYPES OF PERSONS

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TAX ADMINISTRATION AND ENFORCEMENT Tax Enforcement and Administration

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(3) OBTAIN INFORMATION AND TO SUMMON, EXAMINE AND TAKE

(4) BIR – Administrative actions by taxpayers prior to judicial action

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4. Power to assign or reassign internal revenue officers to Important:

AUTHORITY TO SUSPEND BUSINESS OPERATION OF THE

RATE: Run Against Tax Evaders

4 Deputy Commissioners plus 2

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NIRC REMEDIES Section 6 (D) Authority to Terminate Taxable Period. - When it

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Important: As long as property exists and as long as the tax pertaining

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Pending redemption of the property sold, the owner shall: Except:

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Basic tax assessed Based Gross sales/receipts during

Minimum amount depends on the Depends upon the tax violation.

Q. When is it considered collectible?

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ADMINISTRATIVE REMEDIES Within a period to be prescribed by implementing rules and

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a) Civil action through Appeal to the CTA For assessment, Filed

c) Action for damages Requisites:

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TAX CREDIT PRESCRIPTION OR STATUTE OF LIMITATIONS