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MANIEGO
TRANSFER TAX Transfer Tax – imposed on one’s right to make casual and gratuitous
transfer of one’s property to the other person, either by succession or
Origin of Transfer Tax in the Philippines?
donation.
Differences between Income Tax and Transfer Tax
- Privilege tax because it is imposed on the act of transmitting
Income Tax Transfer Tax one’s property to another for free
What is being taxed? -Income / Earnings -Transmission of - Direct tax because property left by the decedent or donor
property / rights transmitting the property, is the one being taxed
- National tax because it is collected by BIR
When payable? -while you are -taxable upon death - Progressive tax because the greater the valuation, the higher
earning, you are (estate tax) or upon the tax rate
paying lifetime of the donor - Ad valorem tax because valuation is based on the fair market
(donor’s tax) value of the property at the time of death or at the time of donation
Deductions -subject to deductions -subject to more Gratuitous transfer – mode of property transfer without
deductions consideration
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
Donation Inter Vivos Donation Mortis Causa Estate Tax Donor’s Tax
Effectivity of transfer -upon death of -during lifetime of the
-gratuitous transfer -gratuitous transfer of property decedent donor and donee
-takes effect during the lifetime of -takes effect upon the death of the Taxpayer -estate of the -donor
the donor donor by will or operation of law deceased person
-subject to donor’s tax -subject to estate tax Basis of Tax -net estate -net gift
-gratuitous transfer of rights and -transferor retains the ownership Exempt amount -net estate of -net gift of P100,000
properties (full or naked) and control of the P200,000 and below and below
property before his death
Filing of Return and -within 6 months from -within 30 days after
-if the donor intends that donation -transfer is revocable by the Payment the decedent’s death the gift is made
shall take effect while he is still transferor at will, or the donor
alive, the donee (or donee’s reserves the power to dispose of
representative) is also living to the properties conveyed ESTATE TAX
accept the gift - is important because there is succession
-transfer should be void if the
transferor should outlive the Succession is a mode to acquire the property, rights and obligations
transferee through the death of decedent by will or by operation of law.
Could there be transfer which is partially gratuitous and partially Testator – decedent who made the last will and testament
onerous? Will – document that determines the disposition and distribution of the
YES, disguised sale where the consideration is inadequate to consider it a inheritance, following the formalities prescribed by law
sale. Partly sale, partly gift. Partial onerous, partial gift. Legatee – one who is given personal property through a will
Classes of Transfer Tax: Devisee – one who is given real property in a will
1. Estate Tax Heirs – persons to whom the property or property rights is to be
2. Donor’s Tax transferred
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
Compulsory heirs – by law, persons who have the right to receive Gross Estate – all properties owned by the decedent at the time of his
death, whether real or personal property, tangible or intangible property.
Legitime – portion of the property reserved by law to the compulsory
heirs Resident Non- Resident Non-
Citizen Resident Alien Resident
Testate Succession – by will Citizen Alien
Intestate Succession – by operation of law
Gross All All All Properties
Estate – properties or property rights of the decedent which is the Estate propertie properties properties within the
subject matter of succession s within within within Philippines
and and and only at the
Estate Tax – tax imposed on the right to transmit the property upon the without without without time of
death of the decedent at the at the at the decedent’s
time of time of time of death
- NOT a property tax because the imposition is not based on the
decedent’ decedent’s decedent’s
property but on the act of transmitting the property
s death death death
Why do we imposed tax on the estate of the deceased?
The government protects and provides services in the accumulation of If there is RECIPROCITY, intangible properties of non-resident
properties transferred gratuitously. These services resulted to benefits alien, within the Philippines must be excluded.
received by the estate and the heirs. RECIPROCITY LAW: The laws of the foreign country of the alien allows
The properties are not concentrated in one person. They are distributed. similar exemption on transfer taxes on intangible personal
By law, redistribution is still part of the services of the government. property situated in that foreign country and owned by a Filipino citizen
There is a benefit received by the recipient. not residing in the said foreign country.
The government has a share on the accumulated properties of the Gross Estate includes:
decedent. Thus government has the right to collect estate tax. 1. Decedent’s Interest – Properties owned to the extent of his
Lifeblood doctrine and Bread and Butter doctrine. More properties equity or interest at the time of the death of the decedent
belonging to the estate, the presumption is that estate can share
more to the lifeblood of the State. *The best proof of interest in a property is a proof of
OWNERSHIP. (Certificate of Title)
Net Estate = Gross Estate – Deductions
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
- all properties include real, personal, tangible or intangible donor retains the option to relinquish such power in
properties owned by the decedent at the time of the decedent’s contemplation of death; (3) conditional transfers where
death EXCEPT: attached conditions are not completed by the done prior
to the donor’s death
a. Separate (exclusive) properties of the surviving spouse
b. Transfer in Contemplation of Death – the decedent
b. Properties, interests, rights and all income accruing
transferred the properties during his lifetime in
after the death of the decedent and
anticipation of his death.
c. Properties or transfers exempt by law from estate tax - the thought of death must be the impelling cause of
transfer
VALUATION: Examples: (1) donation made concurrently with the
Real Property Personal Property execution of a will; (2) donation was made due to the
-fair market value vs. zonal -fair market value at the time of decedent’s age and/or the decedent’s known serious
valuation whichever is HIGHER. decedent’s death illness at the time of the gift; (3) the time between the
making of a gift and the death of the donor was relatively
2. Decedent’s accrued interests – all interests, earnings and close
remaining valuable rights accruing to the decedent at the time of
his death even if received or collected after his death. *NOT in contemplation of death if the reason of transfer
is to reward services rendered or to have the family
3. Properties already transferred but still owned – other enjoy the property
properties still owned by the decedent at the time of his death but
were already transferred during his lifetime by virtue of taxable c. Transfer for insufficient consideration – property sold
transfer such as: (hindi talaga binigay yun, decedent pa rin may- or disposed for less than its prevailing market value
ari, jiojoke ka lang haha :D) *The reckoning amount na isasama sa gross estate:
a. Revocable Transfer – transfer of property with Excess = fair market value minus the insufficient
retention or reservation of rights over the property by consideration
the donor (decedent) while he still lives
-revocable means can be revoked, altered, amended, or d. Property passing under general power of
terminate the transfer appointment – the decedent must have had a power
Examples: (1) donation where the donor has reserved exercisable in favor of himself, his estate or creditors of
the power to alter, amend and revoke donation; (2) his estate.
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
*** The proceeds or benefits from SSS and *The owner of the naked title becomes an absolute owner (full ownership)
GSIS are EXCLUDED from gross estate. (maliit lang if he acquired the usufruct if the same property belonging to other.
naman kasi yan kaya wag ng isali ) *The transfer exempt from estate tax is the usufruct merging in the
naked title, NOT the naked title merging in the usufruct.
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
*Dapat unang mamatay yung usufructuary kesa sa owner of the naked c. Not more than 30% of the said bequests, devises, legacies
title para exempted. or transfers shall be used by such institutions for
administration purposes
*Both the usufructuary and owner of the naked title must be living at
the time of the 1st decedent’s death.
2. The transmission or delivery of the inheritance or legacy by the EXCLUSIONS FROM THE GROSS ESTATE
fiduciary heir or legatee to the fideicommissary
1. Capital or exclusive property of the surviving spouse – properties
*There are 2 transmissions: (1) from the decedent to fiduciary heir and before the celebration of marriage if there is a marriage settlement that
(2) from fiduciary heir to fideicommissary the property regime is conjugal partnership of gains
*The fiduciary heir is first heir who is trustee in relation to a beneficiary 2. Properties outside the Philippines owned by a non-resident
and his obligation is to preserve the property and transmit it to the alien decedent – The decendent must be a non-resident alien and the
fideicommissary. properties are situated outside the Philippines
*The fideicommissary is the second heir whose relationship to the 3. Intangible personal property with Philippine situs of a non-
fiduciary heir must be 1 degree only. resident alien under Reciprocity Law – the intangible personal
property has Philippine situs, owned by a non-resident alien and subject
*Fiduciary heir – entitled to rights of a usufructuary
to reciprocity law
*Fideicommissary – entitled to all the rights of a naked title
4. The proceeds or death benefits and other benefits from SSS and GSIS
*Both the fiduciary heir and fideicommissary must be living at the time are EXCLUDED from gross estate.
of the 1st decedent’s death.
5. Retirement benefits (individuals working in private firms) – at least
3. The transmission from the first heir, legatee or done in favor of 50 years old and at least 10 years in service
another beneficiary in accordance with the desire of the testator
6. War benefits – benefits received from US Veterans Administration or
(nakalagay sa will nya)
benefits received from Philippines and US government for damages during
4. Transfers to Social Welfare, Cultural and Charitable Institutions WW2
*Requirements to be exempted:
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
latest audited balance sheet with a detailed 3) There is adequate or full consideration of the
schedule of its receivable showing the unpaid mortgage contracted in good faith
balance of the debtor 4) If partially owned by the decedent, only a
8) A statement under oath executed by the proportionate amount is deductible
administrator or executor of the estate reflecting
the disposition of the proceeds of the loan if the c. Losses – losses incurred during the settlement of the estate
said loan was contracted within 3 years prior to arising from robbery, theft, embezzlement, fire, shipwreck,
the death of the decedent storms and / or other casualties.
*Money claims after the death? CANNOT BE CLAIMED
AS A DEDUCTION REQUIREMENTS:
ii. Claims against Insolvent Person 1) The amount of loss is not compensated for by any
*insolvent means that assets are inadequate to insurance or extra-judicial settlement and
discharge his liabilities 2) They have not been claimed as deduction from gross
income for income tax purposes at the time of the filing
REQUIREMENTS: of the estate tax return
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
- if the expenses are incurred after the -fair market value not exceeding P1,000,000 is
interment, expenses are not deductible. deductible. The excess shall be subject to estate tax.
(example: 9 days)
2) 5% of the gross estate; or REQUIREMENTS:
3) Statutory limit of P200,000 1) Certified by the Barangay Captain of the locality as the
actual residential house of the decedent and his family
ii. Judicial Expenses – allowed deductions incurred for the 2) Included in the gross estate of the deceased and
administration, inventory taking of assets and 3) The lower amount of the decedent’s interest in the
settlement of the estate and distribution of the estate family home of P1,000,000
among the heirs
*If the decedent is unmarried head of family, allowable
- includes fees of executor/administrator, attorney’s
deduction would be P1,000,000.
fees, court fees, accountant’s fees, appraiser’s fees,
clerk hire, costs of preserving and distributing the estate, *Head of the family is unmarried (single/legally separated)
costs of storing or maintaining property of the estate and man or woman with parent/s, siblings and/or children
brokerage fees for selling property of the estate depending upon him for chief financial support
*Judicial expenses should be supported by a sworn
statement of account. *The dependent parents of the head of the family must be
*Can you claim judicial expenses if the settlement senior citizens.
is extrajudicial? NO. You can claim only these expenses *The dependent siblings and/or children must not be more
if the settlement of the estate has been the object of a than 21 years old, not married or not gainfully
testamentary proceeding. employed, or regardless of age his dependent siblings
and/or children is incapable of self-support due to mental
2. Special Deductions or physical defect.
a. Standard Deduction – P1,000,000
*NO Requirements, NO Documentation, NO c. Medical Expenses
Substantiation
REQUIREMENTS:
b. Family Home -is the dwelling house, including the land on
which it is situated, where the husband and wife or a head of 1) Should be incurred (whether paid or unpaid) by the
the family and members of their family reside. decedent (Filipino or resident alien) within 1 year
prior to his death which shall be duly substantiated
with receipts
2) NOT EXCEEDING P500,000
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
d. Amounts received by heirs under R.A. 4917 VANISHING DEDUCTION – the shorter the period, the higher the
-Retirement Benefits (private firms) if: at least 10 years deduction.
service, not less than 50 years old at the time of retirement
Purpose: to lessen the heavy burden of paying estate tax due to the
and the benefits shall be availed of only once by the
short period of property transfers by reason of early deaths, the property
employee
previously subjected to estate or donor’s tax may be allowed to be
-Separation Benefits – due to death, sickness, physical
reduced by a certain determined amount called vanishing deduction.
disability or for any cause beyond the control of the
employee *There are 2 decedents. The 2nd decedent dies within 5 years from the
death of the 1st decedent.
3. Share of the Surviving Spouse
Procedure: Requirements
1. The property must be included in the gross estate.
a. Determine the Gross Conjugal or Community 2. The tax on the previous property must actually been paid
b. Determine the Obligations against the Conjugal or Community 3. The property must be situated in the Philippines
property 4. The 2nd decedent dies within 5 years from the death of the 1st
c. Subtract the obligations from the gross conjugal/community to decedent
arrive at a NET Conjugal/Community *Valuation: value of the property at the time of the death of the 1st
d. 50% of the NET Conjugal/Community is the SHARE of the decedent VS. value of the property at the time of the death of the 2nd
Surviving Spouse decedent, WHICHEVER IS LOWER.
*Justification of the Share of the Surviving Spouse: You only Amount of Vanishing Deduction to be Claimed
need to tax the estate of the decedent. (Hindi naman kasi sa Less than 1 year 100%
decedent yun. Ibigay mo yung nararapat sa asawa)
More than 1 year 80%
*Can the ordinary deductions, special deductions and share of the
to 2 years
surviving spouse be claimed if the decedent is a NON-RESIDENT
ALIEN? More than 2 60%
The non-resident alien decedent can claim ordinary deductions ONLY to years to 3 years
the part of the gross estate located in the Philippines. If properties
More than 3 40%
owned by the non-resident alien decedent are located outside of the
years to 4 years
Philippines and they are reported in the Philippines estate tax return,
pro-rata deductions can be claimed. More than 4 20%
years to 5 years
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
*The property is depreciating and fewer benefits if shorter period. 1. Failure to file any return and pay the amount of tax or installment
due on or before the due date;
2. Filing a return with a person or office other than those with whom
Administrative Requirements in Estate Tax
it is required to be filed;
1. Notice of Death – is required if the gross estate exceeds 3. Failure to pay the full or partial amount of tax shown on the
P200,000. return or the full amount of tax due for which no return is required
- It should be filed in the Revenue District Office (RDO) where to be filed on or before the due date;
the decedent is domiciled or if the decedent is a non-resident 4. Failure to pay the deficiency tax within the time prescribed for its
alien, to the BIR Commissioner. payment in the notice of assessment.
- It should be filed within 2 months from the decedent’s death.
50% surcharge is imposed in case of the following instances:
2. Estate Tax Return – must be filed within 6 months from the 1. Willful neglect to file the return within the period prescribed by
decedent’s death the Code or by rules and regulations;
- Can be extended by filing a request for extension for filing the 2. The return filed is false or fraudulent.
return, not exceeding 30 days, specifying the reason why - Over-declaration / under-declaration of exemptions / deductions
there should be an extension.
Interest at the rate of 20% per annum, in addition to surcharge,
- Payment should be done simultaneously with the filing of the
reckoning from the date that you are supposed to pay until the amount is
return. Payment should be done in the RDOs or authorized
paid.
banks.
- Payment can also be extended not to exceed 5 years in case
the estate is settled through the courts or 2 years in case the
estate is settled extra-judicially. The reckoning period of
assessment will start only after the extended period. If extended
assessment, extended collection also.
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
DONOR’S TAX
-if the donor intends that donation -transfer is revocable by the
DONATION – act of gratuitously transferring property or right from one shall take effect while he is still transferor at will, or the donor
person to another who accepts it. alive, the donee (or donee’s reserves the power to dispose of
- bilateral act because the donor gives a gift and the done receives it. representative) is also living to the properties conveyed
accept the gift
- unilateral contract because only the donor is obligated to deliver or
-transfer should be void if the
transfer ownership of a thing without a corresponding expectation
transferor should outlive the
of performance in return transferee
- gratuitous contract because only one party provides advantage
without receiving anything in return
- voluntary contract because giving is an exercise of the giver’s free
will Parties in Donation
- legal contract because the donor must be capacitated and the 1. Donor – person who gratuitously gives his property or rights
object of donation must be lawful, not contrary to law, moral and 2. Donee – person who accepts and receives the property or rights
public policy being donated
True or False: *Donor or donee may be natural or juridical person.
All properties are qualified to be donated. FALSE. It should be properties *Both parties must be living at the time of donation.
by the donor that could be disposed by him at the time of donation.
Therefore future properties cannot be the subject of donation because the Classifications of Donors (to ascertain whether the property donated is
donor does not yet own the property. subject to tax in the Philippines
Citizen or Resident Alien Non-resident Alien
Donation Inter Vivos vs. Donation Mortis Causa
Donation Inter Vivos Donation Mortis Causa -at the time of donation, the donor -at the time of donation, the donor
is a citizen of the Philippines or an is a foreigner and not a resident of
-takes effect during the lifetime of -takes effect upon the death of the alien with residency in the the Philippines
the donor donor Philippines
-subject to donor’s tax -subject to estate tax -subject to donor’s tax regardless -subject to donor’s tax only on
of where the gift was made or their donations of property located
-gratuitous transfer of rights and -transferor retains the ownership where the property donated is in the Philippines
properties (full or naked) and control of the located, subject to the rule of tax
property before his death credit
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
*The juridical personality must be existing at the time of donation. Essentials of Donation:
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
*Donation required to be in public instrument – donation of real Renumerative Donation – thank you gift
property. The acceptance may be on the same instrument or in another
- No prior knowledge on the part of the donee that by such
instrument but both must be in public instrument.
act/performance, there is a consideration from the donor
-if donation was made on a private document, acceptance MAY - No expectation on the part of the donee
be made on a public instrument. - No prior pronouncement by the donor that a reward could be
-if donation was made on a public instrument, acceptance given
cannot be made on a private instrument, acceptance MUST also
Donor’s Tax vs. Gift Tax
be in public instrument
Why are we imposing donor’s tax or gift tax?
Acceptance must be communicated to the donor (notice to the
donor) that the thing or property has already been accepted by the - To supplement the estate tax for the loss of the government
donee, if the acceptance is made on another instrument. revenue when estates are split by donations.
- To prevent the non-payment of estate tax since properties are
Acceptance and Delivery should be simultaneous. (kaliwaan)
transferred without consideration while the property owner is still
*If the transfer is less than the full or adequate value of the property, the alive.
transfer is not really a sale.
Donor’s tax – NOT a property tax, but one which is imposed on the
VOID DONATIONS transfer of property by way of gift inter vivos.
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
Valuation of Donation Net Gift – net economic benefit from the transfer that accrues to the
Valuation done
Personal Property fair market value at the time of DEDUCTIONS FROM GROSS GIFTS:
donation 1. Dowries
- Donation of parents to children on account of marriage, not for
1. Brand new Current market price
any other purpose
2. Second-hand Value of the gift at the time of Reduced by P10,000 (each parent) provided that:
donation
a. The gift is on account of marriage
3. Loaned/Pawned Grossed-up loan value b. The donee must be their legitimate, recognized natural or
adopted children and
4. Interest-earning receivables c. The giving of the gift is made before the celebration of
and Bank Deposits Fair value plus accrued interest marriage or within 1 year thereafter
3. Diminution of gift provided by the donor – refers to the Donor’s Tax Credits
decrease in the value of property donated as a result of a condition
- Applies when there are donor’s tax paid not only in the Philippines
made by the donor to the donee to give portion of the donated
but also outside of the Philippines
property to another person.
- There are 2 donees in this case, 1st donee is assigned as a trustee 𝑵𝒆𝒕 𝑮𝒊𝒇𝒕𝒔 (𝑭𝒐𝒓𝒆𝒊𝒈𝒏 𝑪𝒐𝒖𝒏𝒕𝒓𝒚)
= × 𝑷𝒉𝒊𝒍𝒊𝒑𝒑𝒊𝒏𝒆 𝒅𝒐𝒏𝒐𝒓′ 𝒔 𝒕𝒂𝒙 𝒅𝒖𝒆
to deliver a portion of original gift to the other donee. 𝑻𝒐𝒕𝒂𝒍 𝑵𝒆𝒕 𝑮𝒊𝒇𝒕𝒔 𝑾𝒊𝒕𝒉𝒊𝒏 𝒂𝒏𝒅 𝑾𝒊𝒕𝒉𝒐𝒖𝒕
- In general, the diminution would still be taxable, exempt when
given to a tax-exempt donee. OR
= 𝑻𝒉𝒆 𝒂𝒄𝒕𝒖𝒂𝒍 𝒕𝒂𝒙 𝒑𝒂𝒊𝒅 𝒕𝒐 𝒇𝒐𝒓𝒆𝒊𝒈𝒏 𝒄𝒐𝒖𝒏𝒕𝒓𝒚
4. Donations to the National Government and the like – Gifts
made for the use of the National Government or any entity WHICHEVER IS LOWER.
created by any of its agencies which is not conducted for profit or
to any political subdivision thereof shall be exempt from donor’s
tax. ADMINISTRATIVE REQUIREMENTS IN DONOR’S TAX:
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
*The return must be filed with the Revenue District Office, or duly
authorized collection agent in which the donor resided at the time of
transfer.
1. Failure to file any return and pay the amount of tax or installment
due on or before the due date;
2. Filing a return with a person or office other than those with whom
it is required to be filed;
3. Failure to pay the full or partial amount of tax shown on the
return or the full amount of tax due for which no return is required
to be filed on or before the due date;
4. Failure to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment.
BUSINESS TAX -Marginal income earners with a yearly gross sales/receipts not
exceeding P100,000. Examples: sari-sari stores, carinderia, turo-
Business – trade or commercial activities which are regularly engaged in
turo, drivers/operators of a single unit tricycle, agricultural
as a means of livelihood or with a viewpoint of obtaining profit.
growers/producers (farmers/fishermen) selling directly to ultimate
Elements of Business: consumers
5. There is also the presence of INPUT VAT and OUTPUT VAT. VAT ON SALES OF GOODS OR PROPERTIES:
(You cannot dispense the documentation.)
1. Sales of goods or properties and rendition of services of VAT-
The taxable person should pay VAT. He should be registered. Registration
registered business, other than those zero-VAT rated, VAT-
remains until it is revoked or cancelled by the Bureau.
exempt or those under OPT
VAT registered person – one who registered 2. Deemed sales consumptions or transfers by VAT-registered
business
VAT registrable person – required to register but failed to register
Transactions Deemed Sales – business transactions which are not
If you are non-VAT registered because you are not required or subject to,
actual sales but by “legal fiction” they are assumed or considered sales
you are not going to pay the VAT but you will pay the OPT.
due to the consumption or irregular disposal of goods/properties by a
VAT Threshold effective January 2012: exceed P1,919,500 VAT-registered seller.
Consequence of non-registration of persons required to register: not 1. Transfer, use or consumption of goods or properties not in the
exempted on the 12% VAT and you cannot avail the benefits of output course of business;
VAT and input VAT. 2. Distribution or transfer of goods or properties as profit share or
payment to creditors;
Output VAT vs. Input VAT 3. Consigned goods not sold within 60 days after consignment
Output VAT Input VAT date;
-tax added to the value of -tax added to the value of goods 4. Retirement or cessation from business with respect to all
goods/services collected from the or services purchased by a VAT-
goods at hand. The retirement from business includes:
buyers registered person from a VAT-
a. Change of ownership of the business
registered supplier
b. Dissolution of partnership and creation of a new partnership
-is to be treated as a current -is to be treated as a current asset which takes over the business and
liability of the taxpayer-seller to of the taxpayer-seller because it is c. Incorporation of single proprietorship.
the BIR because he is only a an advance payment of VAT 5. Changes in business tax status of a VAT-registered taxpayer
collecting agent of the tax
Zero-rated VAT – seller not subject to output tax but entitled to tax
credit or refund for the input VAT
Advantage of Output VAT: The tax forms part of the purchase price.
Advantage of Input VAT: Tax credit or Refund Sales subject to Zero-rated VAT:
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TAXATION LAW 2 – ATTY. BARIBAL FIRST SEMESTER S.Y. 2017-2018 NOTES BY: MARY EDREEN A. MANIEGO
PRINCIPLE OF DESTINATION: The amount or consideration stated in the sales document or the
Goods and services are taxed only on the country where fair market value whichever is higher.
they are consumed. Therefore, NO VAT on goods and services
What is a fair market value?
destined for consumption outside the territorial border of the taxing
authority. Comparison between the zonal valuation and real property tax
declaration whichever is higher.
2. Foreign Currency Denominated Sales
3. Sale of Goods or Properties to Persons or Entities who are Zonal valuation is determined by the Bureau while the real property tax
tax exempt under international agreements declaration is determined by LGU.
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c. The amount should form part of the gross sales duly recorded in 2. Nonlife Insurance – subject to 12% VAT
the books - If life insurance, not subject to VAT, but subject to the new OPT
d. Granting of discount does not depend on the happening of a rate of 2%, except if the life insurance premium is refunded within
future event 6 months and premiums collected outside Philippines from non-
resident person
VAT ON RENDITION OF SERVICES
- Services must be performed in the Philippines in the course of 3. Lending Services - registered
trade or business 4. Construction Services
- Services performed for a valuable consideration (the 5. Service Contractors
consideration must be commensurate to the services rendered)
6. Transportation Services
*The consideration may be in cash or in kind. - Domestic common carriers by land to transport passengers is
Should the consideration be received by the performer? Yes, actual or subject to OPT of 3%
constructive receipt - Transport of passengers by air or sea is subject to 12% VAT
- Transport of goods and cargoes by land, air and water is subject to
Constructive Receipt – consideration is placed at the control of the 12% VAT.
person who rendered the service without restriction by the payor.
Examples: deposit in banks which are made available to the seller of Land Water Air
services without restrictions; issuance by the debtor of a notice to offset Goods and Cargoes 12% VAT 12% VAT 12% VAT
any debt or obligation and acceptance thereof by the seller as payment Passengers 3% OPT 12% VAT 12% VAT
for services rendered; transfer of amounts retained by the contractee to
the account of the contractor. 7. Media Advertising – broadcasting by television, radio
SERVICES SUBJECT TO VAT: 8. Telecommunication Services – telephone, telegraph, wireless
and other communication facilities services
1. Professional Services – earnings from practice of 9. Franchise Services – corporation engaged in the business of
profession including services rendered by doctors of medicine granting franchises are subject to 12% VAT
and lawyers will be subject to 12% VAT 10. Hotels, Restaurants and Caterers – cafes, refereshment
- Professional services rendered by a general professional parlors, clubs, resorts, inns
partnership is subject to VAT 11. Movie houses, cinemas, theaters
- Services by actors, talents, singers, broadcasters, directors 12. Brokers (Real estate, commercial)
including professional athletes 13. Warehousing Sevices
- Services rendered by Vans and Finance Companies 14. Processing and Manufacturing Services
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If Actual Input VAT > 7%, the difference shall form part of the cost of 8. Special Economic Zone Enterprises or Free Ports are exempted
sale of the seller. because PEZA-registered entity are intended for sale/consumption
abroad which are by nature exempted under destination
If Actual Input VAT < 7%, the difference is treated as income.
principle. Also, they are exempted because it creates
EXEMPTIONS FROM VAT – no output VAT to be paid employment.
9. Regional and Area Headquarters – established by multinational
*The burden of proof lies on the taxpayer. corporations which do not earn or derive income from the
VAT-EXEMPT PERSONS: Philippines are VAT-exempt
10. Inventors Sales of Invented Products – should be registered under
1. Those whose sales or receipt are exempt under Section 109 of the rules and regulations of DOF. They are exempted only for the
NIRC first 10 years from the date of the first sale.
2. Those whose annual gross sales/receipts do not exceed 11. Diplomatic agents are exempt from all dues and taxes, personal
P1,919,500 and registered as non-VAT or real, national, regional or municipal. But, they are subject to
3. Marginal Income Earners – those whose gross annual income do indirect taxes of a kind which are normally incorporated in the price
not exceed P100,000 of goods or services.
4. Not taxable entity – non-stock and non-profit organization which
has no income but collecting monthly dues from the members VAT-EXEMPT TRANSACTIONS:
*A non-stock, non-profit private organization becomes a taxable 1. Export Sales of non-VAT Registered Persons
person if it regularly conducts or pursues a commercial or an *export sales of VAT Registered are zero-rated, NOT VAT-exempt
economic activity.
5. Senior citizens – Filipino citizen who is a resident of the Philippines 2. Sale or Importation of Agricultural and Marine Food Products in
and 60 years old or above their ORIGINAL STATE. Original state means that the nature of
- Granted 20% discount and also VAT-exempt on their purchases of the food products does not change or if they undergone simple
goods and services as long as they can personally show a valid processes such as freezing, roasting, drying, broiling, roasting,
senior citizen ID card. salting, smoking, stripping (FoR D BSSS)
- Purchases for his/her personal consumption *Balut, penoy, salted egg – simple process so exempted
6. Persons with Disability – exempted from paying 12% VAT on *vacuum packing, packing, tetra-pak – hindi na simple process
certain goods and services aside from the 20% regular discount *DOES NOT INCLUDE IMPORTATION OF MEAT
granted to them. *DOES NOT INCLUDE Marinated Meat and Fish Products
- A person with disability who is at the same time a senior citizen can
only claim one 20% discount and VAT-exempt at the same time 3. Agricultural Contract Growers – persons producing for other’s
7. Sales of Duly Registered Cooperatives – registered with poultry, livestock or other agricultural and marine food products in
Cooperative Development Authority (CDA)
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their original state like toll hatching and toll processing or toll *It includes professional instruments and implements, wearing
dressing. apparel, domestic animals and personal household effects
4. Fertilizers, Seeds, Seedlings, Fingerlings, Fish Prawn, belonging to persons coming to settle in the Philippines for their
Livestock and Poultry Feeds except special feeds for race own use and NOT for sale. EXCEPT vehicle, vessel, aircraft,
horses, fighting cocks, aquarium fish, zoo animals and other machinery, other goods for use in manufacture and merchandise
animals generally considered as pets of any kind in commercial quantity.
5. International Air Carriers of Passengers 14. Sale, Importation, Printing or Publication of Books and any
*If transport of cargo from Philippines to another country – subject Newspaper, Magazine, Review or Bulletin which:
to tax equivalent to 3% of quarterly gross receipts a. appear at regular intervals
6. Medical, Dental, Hospital and Veterinary Services except b. with fixed prices for subscription and sale and
professional fees c. which is NOT devoted principally to the publication of
7. Employees’ Services because of employer-employee advertisements
relationship
ZERO-RATED Transactions EXEMPT Transactions
8. Private Educational Institutions duly accredited by DEPED,
CHED, TESDA
-It is still a taxable transaction -Totally NOT taxable
9. Sale of Low-Cost and Socialized Housing – offered by
government -Claiming of input VAT is -The claiming of input VAT
- Commonly offered to income earners for 20 years, 25 years, 30 allowed whether credit or refund is
years depending on the their age NOT allowed
- Commonly offered to SSS and GSIS members
- Subject to installment payment on
- Lot area is relatively small that could be afforded by Administrative Provisions:
10. Sale of Residential Lot not exceeding P1,919,500
If OUTPUT VAT > INPUT VAT, excess can be used as tax credit
11. Sale of Residential House and Lot not exceeding P3,199,200
12. Monthly Rentals not exceeding P12,800 If INPUT VAT > OUTPUT VAT, excess is Unutilized Input VAT.
13. Importation of Personal and Household effects
*Requisites: The unutilized input VAT can be applied as a Tax refund or apply with
a. importation of personal household effects the Bureau for a TAX CREDIT CERTIFICATE (TCC)
b. importation was made by residents of Philippines returning TCC can be used as payment for other Internal Revenue Taxes.
from abroad and non-resident citizens coming to settle in the
Philippines Requisite to claim INPUT VAT: Proper Documentation *Pag
installment, once lang pwede magclaim ng input VAT.
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Presumptive Input VAT (PIV) – amount allowed as input tax on WHERE to register? RDO where the principal place of business is
purchases of a VAT-Registered person despite that there is no actual VAT located.
payment made on VAT-exempt transactions
In the Registration, the following should be declared:
PIV is 4% of the gross value in money of their purchases of
1. Name of Seller
primary agricultural products which are used as inputs in the
2. Principal Place of Business
production of:
3. Head Office and Branches (if there is any)
1. Sardines, mackerel 4. What kind of business
2. Milk 5. TIN of Seller and TIN of business
3. Refined sugar 6. Registration Fee
4. Cooking oil
Consequence of Non-Registration: You are still liable to pay VAT, but,
5. Packed noodle based instant meals
you cannot impose the 12% output VAT and you cannot deduct input
Processing means pasteurization, canning and activities which through VAT.
physical or chemical process ALTER the exterior texture, form or inner
Compliance Requirements on Registration:
substance of a product in such manner as to prepare it for special use
to which it could not have been put in its original form or Mandatory VAT Registration
condition.
1. Gross sales/receipts – more than P1,919,500 a year
2. Expected annual gross sales/receipts – more than P1,919,500
3. There are reasonable grounds to believe that his gross
Transitional Input VAT (TIV) – allowed on inventory on hand (goods,
sales/receipts for the next 12 months – more than P1,919,500
materials of supplies) of a person who, for the first time becomes liable to
VAT or elects to be VAT-registered. Optional VAT Registration
TIV is equivalent to 2% of the value of such inventory or the 1. Taxable business transactions do not exceed P1,919,500 per year
actual input VAT paid on such inventory, whichever is higher, which but still chose to register
shall be creditable against the output VAT. 2. Mixed transactions who opted to register
3. Franchise grantees of radio/TV broadcasting whose annual gross
*Goods exempt from VAT shall be excluded in the computation of
receipts do not exceed P10M
TIV.
*Registration is irrevocable for 3 consecutive years.
TIV (also PIV) is NOT allowed for TCC or VAT refund, but allowed as
creditable input tax. The Certificate of Registration issued by the Bureau is required be
posted on conspicuous place of business.
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Filing of the Return: MONTHLY and QUARTERLY OTHER PERCENTAGE TAX (OPT)
Monthly Filing – first 2 months (file within 20 days after the month’s - Follows the Destination Principle: The place of sale is presumed
end) to be the place of consumption.
- Business tax on business transactions specifically identified by
Quarterly Filing – last month of the quarter (file within 25 days after
law.
the quarter’s end)
- Privilege tax because it is imposed on the privilege to sell or
Invoices and Receipts: purchase, exchange or barter goods or services
- Ad valorem tax because the basis of determining the amount of
The taxpayer shall apply for the AUTHORITY TO PRINT with the BIR tax is the value or sales price of the goods or services sold.
before printing the invoice and receipts. The invoices and receipts should
be registered with the BIR. *Marginalized income earners are subject to income taxes but
exempt from payment of business taxes (VAT, OPT)
Point of Sale – cash register machines should be registered with
appropriate RDO Marginalized Income Earners – are individuals whose business activities
are principally for livelihood or subsistence that do not realize gross
The cash register receipts must show: sales or receipts within a year exceeding P100,000.
1. Proprietor’s Business Name Scope of OPT Transactions:
2. Business Address
3. VAT or non-VAT number and 1. Below VAT Threshold – gross sales/receipts do not exceed
4. Date and Amount of Transaction – must show the separate P1,919,500 (small business enterprise)
computation of VAT 2. VAT Threshold Exception – gross receipts of non-VAT TV/Radio
franchise grantees whose annual gross receipts do not exceed
Invoice must show: P10M
1. Business Name 3. Specific OPT – The business is subject to applicable OPT (not
2. Nature of Business necessarily 3%) even if the annual gross sales/receipts of the
3. Business Address business exceed P1,919,500.
4. VAT Registration, TIN a. Domestic Carriers and Keepers of Garages
5. Date and Amount of Transaction – should show separately the *common carriers to transport property or person from one
computation of VAT place to another and the services are offered to the public.
6. Quantity, Unit Cost - cars for rent, transportation contractors that transport
7. Description of what has been purchased passengers for hire and other domestic carriers by land for
8. Name of the Buyer the transport of passengers and keepers of garages
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Quarterly Filing – last month of the quarter (file within 25 days after Administrative Provisions:
the quarter’s end)
Filing of the Return and Payment of Excise Tax: paid by
WHERE: If there are payments, go to accredited banks. If no payment manufacturer or producer before the removal of product from place
which is very remote, go to the District Office. If no district office, of production or place of extraction in case of minerals.
treasure of the city or municipality where the principal place of business is
located.
DOCUMENTARY STAMP TAX (DST)
EXCISE TAX – imposed on harmful or non-essential goods
manufactured or produced in the Philippines for domestic sale, Tax on documents, instruments, loan agreements and papers
consumption or for any other disposition including imported goods. evidencing the acceptance, assignment, sale or transfer of an obligation,
right or property incident thereto.
*Indirect tax because it is imposed on the producer but passed on to the
consumer. DSTs are necessary for valid recording of the instrument.
Goods subject to Excise Tax: *It is not the document that is being taxed, but the transaction.
1. Alcoholic Products – distilled spirits (tuba, lambanog), wine, *National tax
fermented liquor
*The excise tax is based on alcohol content. Without the stamp, the document remains valid, although it is not
2. Tobacco Products – cigars (rolls of tobacco wrapped in tobacco acceptable for recording. The document will not be admissible as
leaf), cigarettes evidence in any court.
3. Petroleum Products – include gasoline, oil, kerosene, LPG, diesel Administrative Provisions:
4. Automobiles and other Motor Vehicles – Based on the selling
price (Ad valorem) The tax return shall be filed within 10 days after the close of the
*Only applies to 4-wheeled motor vehicle fueled by gasoline, month when the taxable document was made, signed, issued or
diesel, electricity or any motive power. DOES NOT INCLUDE transferred.
buses, trucks, cargo van, jeeps and single cab chasse. The payment is always simultaneous with the filing.
5. Miscellaneous Imported Articles and Non-Essential Goods
*Non-essential goods include jewelry, real or imitation, pearls, Where: RDO, accredited banks, city or municipal treasurer
precious, semi-precious stone, perfumes and toilet waters, yachts
Who should pay: Party to the document
and other vessels intended for pleasure or sports
*Imported goods shall either be sold, consumed or disposed locally. Failure to affix Documentary Stamps: Surcharge of 25% of the unpaid
6. Mineral Products – include coals, metallic minerals, non-metalic amount and interest of 20% per annum until the amount is fully paid.
minerals
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Delinquency Interest Deficiency Interest 1. Dispute the assessment – by motion for reconsideration or
-If there was a notice for you to -Failure to file the return and motion for re-investigation within 30 days from the date you
pay a certain amount after pay the tax on the date received the assessment.
investigation, examination and prescribed by the Tax Code (even *If assessed by Regional Office of the Bureau, appeal to the Central
audit, and still failed to pay the if unintentional or inadvertent) Office of the Bureau.
amount. *When the Bureau issued a decision, you can appeal to CTA within
30 days. If the case reaches the CTA, all procedures become
REMEDIES judicial. Thus, the Rules of Court applies.
*If the Bureau did not render a decision within 180 days from the
Assessment – official action from the agency of the State for purposes of disputed assessment, and, within 30 days from the expiration of
notifying the taxpayer that there are still taxes to be paid, indicating the 180 days, appeal to the CTA.
therein how much and when it is due. 2. Compromise – enter into a settlement or consensual agreement
Deficiency Assessment – issued by the Bureau which is presumed to *The taxpayer must prove his financial incapability. The State shall
be correct. *The Court CANNOT restraint the Bureau in issuing collect 10% of the basic assessed tax
assessment.
3. Taxpayer may prove that the tax collector is illegally
Basis of Assessment: Tax Returns disclosing the assessment
* If there are officers or personnel of the Bureau found to have
Best Evidence Obtainable (pag walang return) – any paper, document,
illegally disclosed the information in a tax return, they will be
record from the taxpayer that could be the basis of the assessment.
administratively liable. (except if the information is an evidence in a
Purpose of Assessment: To determine the correct amount of the tax case already filed in court)
payable
Remedies available to the Government:
*Withdrawal of Return is NOT ALLOWED. The remedy is to file an
1. Distraint of Personal Property– should be equivalent to the
amended return within 2 years from the date of the filing of the
unpaid taxes. Then, public auction to convert the property into
original return, as long as there is no notice of audit or examination
money.
yet.
*Constructive distraint – the possession will remain to the
*The taxpayer has the burden of proof that his self-assessment is the taxpayer but the property should be preserved, remained unaltered
correct assessment. and not to be disposed in any manner without the authority
of BIR.
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2. Levy of Real Property – If sold in public auction, there is a 6. Amusement Tax – concerts, cinemas, theaters
redemption period of 1 year wherein the taxpayer may redeem 7. Annual fixed tax of manufacturers of certain products such
his property. as distilled spirits and softdrinks
*If the taxpayer is alien, the remedy available to the State is 1. Business taxes of brewers, distillers, rectifiers and
deportation of the alien taxpayer. compounders of liquors, distilled spirits and wines
2. Dealers of Essential Commodities – such as rice, corn,
LOCAL TAXATION
agricultural and marine and fresh water products whether in
The Congress has the inherent power to tax and delegates such power to original state or not, cooking oil, cooking gas, laundry soap,
the LGUs. If what has been imposed by the LGUs is beyond its power and detergents and medicine, agricultural implements and farm inputs,
limitation, then the imposition is not valid. animal feeds, school supplies, cement
3. License fees for purposes of regulation to those who want to
The delegation of taxing powers to LGUs is for the purpose of self- engage in business or practice of profession
sufficiency of LGUs and to strengthen and make LGU more 4. Sealing and Licensing of weights and measures subject to
autonomous. the requirements by DOST
Allocated to LGUs: Powers, Responsibilities, Resources, and the Power to 5. Operation of Fishing Vessels – fishery rentals, fees and charges
Create their sources of revenue including the authority to grant fishery privileges within municipal
waters
Local taxes should be uniform, equitable, for public purpose, not contrary 6. To penalize the use of explosives – dynamite or any substance
to law, public policy, morals. illegally
TAX POWERS OF PROVINCES: TAX POWERS OF CITIES
1. Transfer of real property ownership – sale, donation, barter - Tax powers imposed by both the provinces and
*RD should not register any deed if the tax is not paid. Taxes municipalities can be imposed by the cities
should be paid within 30 days from the execution of the deed.
2. Business of printing and publication TAX POWERS OF BARANGAYS
3. Franchise Tax – basis of payment of tax is gross receipts 1. Taxes on small stores or retailers - whose gross sales/receipts
4. Sand, gravel and other quarry resources for the preceding year does not exceed P50,000 in cities and
5. Professional Tax – tax on the practice of profession (requires a P30,000 in municipalities.
government licensure exam for tax purposes), habitual and 2. Barangay Clearance
regular activity. *It only applies to natural persons. (Notary)
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3. Service fees – for the use of barangay-owned properties or necessary to manufacturing, mining, commercial, industrial or
services facilities agricultural purposes.
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