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SAN BEDA COLLEGE OF

LAW

CRIMSON
NOTES
TAXATION
LAW
Q&A

I. GENERAL PROVISIONS or occupation. Did this constitute a


denial of due process?
1. Is the non-profit sale of Bibles taxable? Yes. The SC pointed out that aliens
No. Taxing non-profit sale of Bibles is a once admitted in the Philippines cannot be
violation of freedom of religious worship. deprived of life w/o due process of law and
Furthermore, RA 8047, which amended the this guarantee includes the means of
EVAT Law (RA 7716) exempted Bibles (and livelihood (Villegas vs. Hsiu Chiong Tsai
newspapers) from VAT coverage. Pao).

2. What is the extent of the legislature’s 4. Does the non-impairment of contracts


power to choose the subject to be taxed? clause in the Constitution apply to a
The legislature can choose anyone who public utility franchise?
can be taxed, not anything that can be The non-impairment rule does not apply
taxed. To illustrate, the manufacturer of the to a public utility franchise since a it is
Bible can be taxed on his income but the act subject to amendment, alteration or repeal
of manufacturing and selling the Bible by Congress when the public interest so
cannot be taxed. requires (Art. XII, Sec. 11, 1987
Constitution).
3. An ordinance was passed by the City of
Manila which imposed a permit fee of 5. Does the tax exemption in the Constitution
P50.00 on aliens as a condition for of properties used for religious, charitable
employment or engaging in any business and educational purposes [Art. VI, Sec.
28(3)] apply to gifts?
1
In the case of Lladoc vs.
Commissioner, the SC ruled that the 9. A manufacturer has a factory in Pasig. It
Constitutional exemption applies only to has a sales broker who transacts
property tax. Gifts are subject to donor’s tax. business in Manila. Is the manufacturer
HOWEVER, at present under Sec. 101 of subject to business tax imposed by the
the CTRP, gifts made in favor of religious, City of Manila?
charitable or educational organizations would Yes. The power to levy a business
nevertheless qualify for donor’s gift tax (excise) tax upon the performance of an act
exemption. does not depend upon the domicile of the
person subject to the excise tax, nor upon
6. Is proof of actual use for religious, the physical location of the property taxed,
charitable and educational purposes but depends upon the place where the act is
necessary in order to avail of the performed. (See Allied Thread Co., Inc. v
constitutional tax exemption? City of Manila, 133 SCRA 338)
In the case of Prov. of Abra vs.
Hernando (107 SCRA104), the SC ruled 10. A German Airline has a ticket office in the
that actual use is necessary. To be exempt, Philippines but without any landing right
the lands, buildings, and improvements must therein. a.) Is it subject to income tax?
not only be exclusively but also actually and b.) How about percentage (excise) tax?
directly used for religious and charitable a. Yes. It is subject to income tax. The
purposes. absence of flight operations to and from the
In the case of Apostolic Prefect vs. Philippines is not determinative of situs of
City Treasurer of Baguio (71 Phil 547), the income taxation. The test of taxability is the
SC held that “use” overrides “ownership”. place of source of income or where the
Hence, even if a property is owned by a activity which produces the income.
religious, charitable, or educational b. No. It is not subject to percentage
institution but is actually used for a non- (excise) tax. Its situs is the place where the
exempt purpose, the exemption from tax of act or privilege is done or performed. See
said property vanishes. CIR v BOAC, 149 SCRA 395

7. Is incidental use covered by the 11. Resume of Situs of Taxation


exemption? Income tax-situs is the place of source
Yes. This is called the doctrine of of income.
incidental use. This doctrine was discussed Excise tax-situs is the place where the
in Abra Valley College vs. Aquino (162 act or privilege is done or preformed.
SCRA 106). In this case, the SC held that Place of domicile of taxpayer is
incidental use of school building for immaterial.
director’s residence will not deprive property
of its tax-exempt character. The term 12. As to its taxability, what will be your
exclusive use includes incidental use as advice if you are consulted by San Beda
long as it is reasonably necessary for the on the following matters:
accomplishment of the taxpayer’s main (1) income tax on amount received from
purpose. students as tuition fee;
(2) income tax on interest on as:
8. What is the situs of intangible property  bank deposit
for tax purposes?  loan
An intangible property may have (3) real property tax on the football field;
different situs for tax purposes. Thus the (4) real property tax on the new basketball
following may impose a tax thereon: court simply lent by an alumnus;
1. The country where the intangible (5) income tax on income from the rock
property receives protection ( see Sec. concert held at the football field;
104 CTRP); (6) income tax on income from the
2. The place of domicile of the decedent at operation of the cafeteria;
the time of his death (Mobilia Sequuntur (7) income tax on money received as
Personam) donation;
See Wells Fargo Bank v CIR, 70 Phil 325
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(8) income tax on money received as than 30% of such amount shall be used
legacy; by San Beda for administration
(9) donor’s tax on its donations and tax purposes. Any income that may be
treatment thereof for income tax purposes; subsequently received therefrom is
(10)VAT on subject to income tax(Sec. 32B3,
 supplies purchased to be used in the CTRP).
school’s operations (8) The legacy is not subject to income tax.
 books purchased to be used at the Same as (7). See Secs. 32B3, 84, 87
library CTRP;
 educational services (9) The donation is subject to donor’s tax
unless San Beda can claim exemption
A: San Beda being a non-stock, non-profit under Sec. 101 CTRP. For income tax
educational institution, I will consider the purposes, San Beda can claim the
following: amount donated as deduction from its
gross income, in full or in part, under
(1) The tuition fee is not a taxable income Sec. 34H, CTRP.
pursuant to Sec. 30(H)CTRP; (10)The VAT is imposable on the supplies
(2) The interest on bank deposit is subject purchased to be used in the school’s
to 20%final tax; on loan is subject to 5- operations (Sec. 105 CTRP)
32% income tax; See last paragraph of The sale and importation of books are
Sec. 30, CTRP; transactions exempt from VAT under
(3) The football field is not subject to real Sec. 109y, CTRP. Hence San Beda is
property tax pursuant to Sec. 234LGC; not liable therefore.
(4) The basketball court is not subject to The educational services of San Beda is
real property tax pursuant to Sec. 234 not subject to VAT under Sec. 109m,
LGC only if San Beda can prove it is CTRP.
actually, directly and exclusively used
for educational purposes. See Province The following table may help you in
of Abra v Hernando, 107 SCRA 104, correlating the pertinent CTRP
important in determining its taxability. provisions in the above illustration.
Use, not source, of the property taxable.
See Abra Valley College, Inc. v Aquino, Giver Receiver
162 SCRA 106; Income Tax-
(5) The income from the rock concert, an Sec. 34H Sec. 32B(3)
unrelated activity from the purposes of Estate Tax
San Beda, is subject to 5-32% income Sec. 84, 87 N/A
tax. An activity is unrelated if the Donor’s Tax
conduct of which is not substantially Sec. 98, 101 N/A
related to the exercise or performance VAT
by the school of its primary purpose or Sec. 105, 109 same
function (Sec. 27 B, CTRP)
(6) The income from the operation of 13. If it is CEU seeking your advice with
cafeteria, a related or ancillary activity regard to the above matters?
from the purposes of San Beda, is not Same advice in the preceding problem
subject to income tax. However, if it is except on the income tax treatment of CEU
operated by concession, it is subject to as a proprietary educational institution.
tax. It is taxable just like any other domestic
(7) The donation received is an exclusion corporation. However, it may enjoy a
from gross income (Sec. 32B3, CTRP). preferential tax treatment(10% on its taxable
Hence it is not subject to income tax. income) if its gross income from unrelated
The donation is already subject to activity does not exceed 50% of the taxable
donor’s tax payable by the donor (Sec. gross income derived from all sources. See
98 CTRP). NB: The donor may claim Sec. 27B, CTRP.
exemption for the payment of the tax Note: Same considerations shall apply to
thereon pursuant to Sec. 101CTRP; religious, charitable institutions, etc.
provided, he can prove that not more
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14. When can a grant of tax-incentive be complete or partial investigation by an
taken away by the government without authorized revenue officer. This is issued
violating the rule on non-impairment of when the revenue officer finds himself
contracts? without enough time to conduct an
It depends on whether the grant is appropriate or thorough examination in view
unilaterally or bilaterally given by the of the impending expiration of the
government. If unilaterally given, there is no prescriptive period for issuing a valid
impairment. It constitutes a mere revocation assessment. To prevent the issuance of a
of a grant of privilege. If bilaterally given, jeopardy assessment, the taxpayer may be
there is impairment (Art. III, Sec. 10, required to execute a waiver of the statute of
Constitution). Exception: In case of grant limitations.
of franchise to public utilities when common
good so requires (Art. XII, Sec. 11, 18. When the BIR garnishes a taxpayer’s
Constitution) bank deposit, does it violate the Bank
Secrecy Law (RA 1405)?
15. How are tax laws construed? No. It is not a violation of the Bank
In case of doubt Secrecy Law because the BIR is not
a. Taxation – is construed against inquiring the balance of the deposit but
the government; merely attaching it without knowing the
b. Tax exemption – is construed balance of the same.(China Banking Corp.
against the taxpayer. Exception: vs. Ortega).
If the exemption is granted to a
government or religious 19. Is the revenue producing activity of the
institution. Note the Inherent government taxable?
limitation that the government is It depends.
not subject to tax. If the activity is performed by the
government in its sovereign capacity (jure
16. How are rulings classified? imperii), the General Rule is exemption, the
Rulings of first impression. – They are Exception is taxation. (Sec. 32, B7b, CTRP)
the rulings, opinions and interpretations of If the activity is performed by the
the Commissioner of Internal Revenue with government in its proprietary capacity (jure
respect to the provisions of the NIRC and gestionis), the General Rule is taxation, the
other tax laws without established Exception is exemption. (Sec. 27C, CTRP).
precedents. The term includes reversal,
modification or revocation of any existing 20. If a seller adds to the selling price the tax
ruling. imposed on him, can a tax-exempt
Rulings with established precedents purchaser claim a refund after paying for
– They are mere reiterations of previous the same?
rulings, opinions and interpretations of the No. The purchaser paid the additional
Commissioner, as delegated to duly amount not as a tax but as part of the selling
authorized internal revenue officers. price of the product. The fact that a seller
added the amount of tax to the price of the
17. Distinguish prospective, official, and product did not make it a tax on the
jeopardy assessments. purchaser. See Phil. Acetylene Co. v CIR,
Prospective assessment informs the 20 SCRA 1056
taxpayer of the findings of the examiner who
recommends a deficiency assessment. The 21. In the case above, if the buyer is
taxpayer is usually given ten (10) days from specifically exempted from indirect
notice within which to explain his side. taxes, can he now claim a refund?
Official assessment is issued by the Yes, if his specific exemption from
BIR in case the taxpayer fails to respond to indirect taxes contemplates taxes which,
the proposed assessment, or his although not imposed upon or paid by him
explanation is not satisfactory to the directly, form part of price paid or to be paid
Commissioner, by him. See CIR v Gotamco, and Sons ,
Jeopardy assessment is a delinquency Inc.,148 SCRA 36; Maceda v Macaraig.
tax assessment made without the benefit of
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22. If the tax is paid by the seller but passed be paid. See CIR v Itogon Suyoc Mines,
on to the buyer, when can the seller Inc., 28 SCRA 867
claim a refund of the tax erroneously
paid by the former? 26. If the government fails to use the
It depends. taxpayer’s compelled contribution to a
If the tax is imposed directly on the thing fund for the purpose to which it was set
sold, only the buyer has the right to claim a up, can he compensate his contribution
refund. See Medina v City of Baguio (Taxes from his tax liability?
imposed therein were taxes on the No. The government does not owe
admission tickets sold). anything from him. They are not mutual
If the tax is imposed directly, not on the creditors and debtors of each other. See
thing sold, but on the act of the seller who is Republic v Mambulao Lumber Co., 4 SCRA
exclusively made liable for its timely 622 (The amount paid by the licensee as
payment, the seller can claim a refund and reforestation charges is in the nature of a tax
hold the refunded taxes in trust for the which forms part of the reforestation fund,
buyers. See CIR vs American Rubber Co. payable by it irrespective of whether the
area covered by its license is reforested or
23. When can a taxpayer compensate his not).
claims against the government from his NB: To reconcile the above cases, it may
tax liability? help to refer to the requisites of legal
As a general rule, taxes and debt cannot compensation under Art. 1279 Civil Code,
be compensated. An exception is when two specifically:
obligations are both due and demandable a. That each one of the obligors be
and all the requisites of a valid bound principally, and that he
compensation (Art. 1279 Civil Code) are be at the same time a principal
present. See Domingo v Garlitos, 8 SCRA creditor of the other;
447(Both the claim of the government and b. That the two debts be due;
intestate, the latter’s claim had earlier been
appropriated by a corresponding law, have
already become overdue and demandable
as well as fully liquidated). II. NATIONAL TAXATION
24. If the claim of the taxpayer against the 1. When is a seaman considered an OCW for
government has long been paid and purposes of income tax exemption from
deposited in a bank but he simply fails to sources not within the Philippines?
withdraw it, can he compensate it against (1) When the seaman receives
his tax liability? compensation abroad as a member of
No. There is no compensation if the the complement of a vessel; and,
parties involved are not creditors and (2) When such vessel is engaged
debtors of each other. See Francia v IAC, exclusively in international trade.
162 SCRA 753(The taxpayer knew that the
payment for his claim had long been 2. Is there an imprescriptible tax in the Tax
deposited to the bank but did not withdraw it. Code?
Further, his tax liability was due to a local Formerly documentary stamp tax. Now
government unit while his claim was against under the CTRP, a documentary stamp tax
the national government). return is required. Thus, there is no more
imprescriptible tax.
25. If the taxpayer is clearly entitled to a tax
refund although the CIR has not yet 3. Distinguish “final withholding tax system”
approved the same, can he compensate from the “creditable withholding tax
it against his other tax liability? system” per BIR Revenue Regulations 2-
Yes. A return filed showing an 98.
overpayment shall be considered a written Under the final withholding tax system,
claim for refund (refer to Sec. 58(D) in the amount withheld by the withholding
relation to Sec. 204(C) CTRP). If not yet agent constitutes a full and final payment of
refunded, it may be deducted from the tax to the tax due from the taxpayer. Failure of the
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withholding agent to withhold the correct NB: If a corporate taxpayer will not
amount of tax will make him liable for the declare dividends, it will be subjected to
deficiency. The taxpayer is no longer 10% tax on improperly accumulated
required to file an income tax return. income (Sec. 29)
On the other hand, under the creditable
withholding tax system, the tax withheld is 5. Are stock dividends taxable? How about
intended to equalize or at least approximate liquidating dividends?
the tax due of the taxpayer on his income. As a rule, stock dividends are not
The taxpayer is still required to file an taxable. They will not result in a change in
income tax return and pay the difference interest of the stockholder. They will result
between the tax withheld and the tax due. in a new cost per share which will be used in
determining any gain or loss upon any
4. Are cash and property dividends taxable? subsequent sale of such shares.
If so, at what rate? They are taxable only if they will give
Cash and property dividends may either stockholder an interest different from that
be exempt or taxable depending on whether which his former stocks represent (i.e. when
the recipient is an individual or corporate the stockholder is given the option of
taxpayer. The tax rate depends on what choosing cash or property instead of
type of taxpayer is the recipient. stocks.). The measure of income in such
Consider the following summary of the case is the fair market value of stocks
pertinent CTRP provisions: received.
Liquidating dividends are not taxable to
Corporate Taxpayer the stockholder as dividends. They are
Foreign to Domestic Corporation considered as mere return of capital. But
☛ 32% (Sec. 32A) any gain or loss sustained by him is taxable
Domestic to Domestic Corporation income or deductible loss.
☛ Exempt (Sec. 27D)
c. Domestic to Foreign Corporation 6. An employer is planning to take a life
 Resident Foreign Corporation insurance policy on the life of his key
☛ Exempt(Sec. 28A7d) officer as part of the latter’s fringe
 Nonresident Foreign benefits. Both seek your advice about
Corporation ☛ 15% subject to the the tax treatment of the following:
condition stated in Sec. 28B5b. (1) Premium payments;
Otherwise, 32% (2) Amount to be received as return of
premium;
Individual Taxpayer (3) Proceeds of insurance
a. From Domestic Corporation
 Resident citizen, nonresident My advice depends on who will be the
citizen, resident alien ☛ 10%(Sec designated beneficiary. If the designated
24A) beneficiary is:
 Nonresident alien engaged in
business and trade ☛ 20%(Sec. The employee’s estate or his heirs
25A2) (1) Premium payments-
 Nonresident alien not engaged They are deductible by the employer for
in business and trade ☛ 25% on income tax purposes as ordinary and
gross income (Sec. 25B) necessary expenses (Sec. 34A1).
b. From Foreign Corporation They are not taxable fringe benefits of
the officer under Sec. 33C2
 Resident citizen, nonresident
(2) Amount to be received as return of
citizen, resident alien,
premium-
nonresident alien engaged in
The amount is not taxable under Sec.
business and trade ☛ 5-32%
32B2. It is considered as a mere return of
(Sec. 24, 25A1)
capital. Hence, not income.
 Nonresident alien not engaged
If the amount to be received is much
in business and trade ☛ 25% on
more than the total amount of the premiums,
gross income (Sec. 25B)
the excess amount is a taxable income.
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(3) Proceeds of life insurance- Yes. See Sec. 32A. Sec. 32B6
The proceeds of life insurance policy enumerates the exceptions.
paid to the heirs or decedent’s estate is NB: The amount received by an
excluded from gross income for income tax employee under a reasonable private benefit
purposes under Sec. 32B1. If such plan is excluded from gross income only if
proceeds are held by the insurer under an the fund cannot anymore be diverted by the
agreement to pay interest thereon, the employer for other purposes (Sec. 32B6a).
interest payments shall be included in gross Further, earnings of the trust fund are
income. not subject to income tax under Sec. 60B.
For estate tax purposes, if the Exception-the interest income or yield from
designated beneficiary is the bank deposit or deposit substitute of trust
 Estate-whether or not fund is subject to 20% final tax (Sec.
revocable-taxable 24B,60A)
 3rd person-
If revocable-taxable 10. For estate tax purposes, are they also
If irrevocable-not taxable(Sec. 85E) taxable?
Yes. They are taxable including those
The employer that are enumerated as exclusions from
(1) Premium payments- gross income under Sec. 32B6. Exception
They are not deductible by the employer ☛ the amount received by heirs under
for income tax purposes (Sec. 36A4) RA4917 (Sec. 86A7).
They are not considered fringe benefits
to the officer. 11. How will you treat the contributions of
(1) Sec.32B2 the employer to the retirement/pension
(2) Sec. 32B1 benefit plan?
The contributions are deductible by the
7. What if the employer instead considers employer for income tax purposes as
an accident or health insurance , what ordinary and necessary expenses or as
will be your advice? pension trusts (Sec. 34A,J).
My advice will be the same as in the For the employee/officer, the
case of life insurance policy payable to the contributions are not taxable fringe benefits.
employee’s estate in the preceding problem.
See Sec. 32B4. With regard to the 12. Are prizes and awards taxable as
proceeds thereof, the amount which income? If so, at what rate?
compensates the officer for lost profits is a It depends.
taxable income. If prizes and awards are given primarily
in recognition of charitable, civic, artistic,
8. As regards to his property insurance, the religious, literary, educational, scientific
employer asks you on the tax treatment achievement (CCAR-LES), they are
of the premium payments and the excluded from gross income provided the 2
proceeds thereof. What will be your requisites provided under Sec. 32B7c are
advice? met.
The premium payments are deductible If prizes and awards are given in cases
for income tax purposes as ordinary and other than the above, they are taxable
necessary expenses (Sec. 34A1) income. If the value thereof is more than
The proceeds thereof covering the book Php 10,000, the prizes and awards are
value of the property are not taxable. They subject to 20% final tax. If Php 10,000 or
are considered as a mere return of capital. less, they are subject to 5-32% income tax.
The amount in excess of the book value:
 If to be used in restoring the property 13. What about the prizes and awards given
☛ not taxable in sports competition?
 If not ☛ taxable It depends.
If the sports competition is sanctioned
9. Are retirement benefits, pensions taxable by the athlete’s national sports association,
as income? the prizes and awards are excluded from
gross income (Sec. 32B7d).
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If not sanctioned by the athlete’s 27D2)
national sports association, the prizes and Shares of stock of Stock transaction tax
awards are subject to income tax. If being domestic corp. listed (percentage tax)
an athlete is the recipient’s profession, the and traded thru a based on the GSP
prizes and awards are subject to 5-32% local stock exchange
income tax. If it is not his profession, the (Sec. 127)
prizes and awards are subject to 20% final Shares of stock in a Gains from
tax if their value is more than Php 10,000. If mutual fund redemption are
Php 10,000 or less, then they are subject to company (Sec. excluded from gross
5-32% income tax. 32B7h) income)
Bonds, debentures Gains from their
14. How are gains and losses treated? or other certificate of sale, exchange,
To determine the proper treatment of indebtedness (Sec. retirement are
gains and losses, it is imperative to 32B7g) excluded from gross
determine the type of property involved, income
whether it is an ordinary or a capital asset. Bonds, debentures Gains from their
See Sec. 39A. or other certificate of sale, exchange,
If it is an ordinary asset, the ordinary indebtedness (Sec. retirement are
gains and losses are considered in 32B7g) excluded from gross
determining income or loss from trade, income
business or profession. See Secs. 32A, Real property not Capital gains/losses
34D. located in the Phils are considered in
If it is a capital asset, determine further Personal property determining the
whether or not it is a real property located in located in/out the taxable income
the Philippines. If it is, then it is subject to Phils (including
capital gains tax (See Secs. 24D, 27D5. shares of stock of
See also Secs. 24C, 27D2). If not, the foreign corp.) (Sec.
capital gains and losses are considered in 39)
determining the taxable income (Sec. 39).
15. Your client whose house and lot are
NB: While both ordinary and capital being expropriated by the government
gains/losses affect the taxable income, asks you whether he is still subject to tax
distinction between them is important under thereon. What will be your advice?
Sec. 34H. The 5 or 10% limitation therein is He has two options. He may opt to be
based on income from trade, business or taxed at 6% of the FMV or GSP whichever is
profession without considering the net higher; he may consider the capital gain/loss
capital gains. Further, ordinary losses are thereon in computing his taxable income
deductible without limitations (Sec. 34D); subject to the normal rate.
capital losses have limitations (Sec. 39C). If the subject property is his principal
residence and the proceeds of the sale will
The following summary might help you: be utilized in acquiring or constructing a new
Type of Asset Tax Treatment principal residence, he may be exempted
Ordinary (see 4 Ordinary from paying the capital gains tax provided
types, Sec. 39A1, gains/losses are the requisites under Sec. 24D2 are met.
32) taxable
income/deductible 16. Is the immediately preceding advice
losses from business (allowing exemption) available to all
Real Property loc. in Capital gains tax types of taxpayer?
the Phils.(Secs. 24D, based on FMV or No. It is not available to a corporate
27D5) GSP whichever is taxpayer. Moreover, not all individual
higher taxpayer can avail of the said exemption.
Shares of stock of Capital gains tax They are only the following:
domestic corp. not based on the net (1) A resident citizen
listed and traded capital gains (2) A non-resident citizen (i.e. OCW). But
thru a local stock not an immigrant to a foreign country.
exchange(Sec. 24C,
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(3) Alien resident under the Donative intent is essential. Further, the
following cases: formal requisites must also be observed.
a. Property acquired by intestate See Arts. 748,749 Civil Code.
succession;
b. Natural-born citizen who lost his Filipino N.B.: There is another kind of transfer
citizenship (see Sec. 10, RA 7042 as tax which is found under the Local
amended by RA 8179-Foreign Government Code (LGC) – the tax on
Investments Law) transfer of real property ownership imposed
c. Condominium by provinces (Sec. 135, LGC).
(4) A nonresident alien engaged in
business and trade (in case of a former 18. In case of transfer of property during the
Filipino citizen who still maintains a residence lifetime of the decedent, when is such
in the Phil.). transfer subject to capital gains tax,
estate tax, donor’s tax?
A nonresident alien not engaged in business It depends on the type of the property
and trade cannot avail of the exemption. involved and whether there is a full,
inadequate, or no consideration at all.
17. What are the transfer taxes under the ☛ In case of real property located in the
CTRP? Discuss. Philippines-
The transfer taxes under the CTRP are Full Consideration
as follows: The transfer is subject to capital gains
tax. Estate and donor’s taxes are not applicable
Capital gains tax since there are no succession and donation
This is a tax imposed upon capital gains (gratuitous titles) to speak of.
presumed to have been realized from the No consideration
sale, exchange or other disposition of real The transfer is subject to either estate
property located in the Philippines classified tax or donor’s tax. Capital gains tax is not
as capital asset. This includes pacto de applicable since there is no sale or exchange to
retro sales and other forms of conditional speak of.
sales (Sec. 24D) Insufficient consideration
This is also imposed upon the net In cases of transfer in contemplation of
capital gains realized from the sale, death, revocable transfer, transfer under the
exchange or other disposition of shares of general power of attorney, the transfer is subject
stock in a domestic corporation not listed to estate tax pursuant to Sec. 85G. In any other
and traded through a local stock exchange transfer involving real property located in the
(Sec. 24C). Philippines, the transfer is subject to capital
In both cases, consideration is essential. gains tax (NB: the tax is based on the FMV or
GSP whichever is higher).
Estate tax A real property subjected to 6% capital
This is a tax imposed on the right to gains tax under Sec. 24(D) on sale of real
transmit property upon the death of the property by an individual will no longer be
decedent and on certain transfers by the subjected to Donor’s tax on the amount by which
decedent during his lifetime which are made the FMV exceeded the consideration. While not
by law the equivalent of a testamentary explicitly provided in the CTRP law, it is also
disposition. See Sec. 84 CTRP, Art. 774 deemed that same treatment shall be applied to
Civil Code. lands and/or buildings held as capital assets by
Death of the decedent is essential. In a corporate seller and subjected to the 6%
case of wills, formal requisites must be capital gains tax under Sec. 27(1)(5).
complied with. See Arts. 804-814 Civil
Code. ☛ In case of property other than real property
located in the Philippines-
Donor’s tax
This is a tax imposed on the transfer by
a person of the property by gift. See Sec. 98
CTRP, Art. 725 Civil Code.

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With consideration  When the donor reserves the right to
The corresponding gain or loss is a revoke the donation at his pleasure;
taxable income or deductible loss for income tax  When the intention of donor is to
purposes. Further, the transfer is subject to transfer ownership after his death;
VAT provided it is in the ordinary course of trade  When the donor reserves the right to
or business (Sec. 105). Estate and donor’s dispose of property.
taxes are not applicable.
The transfer is subject to donor’s tax if it
No consideration constitutes a donation inter-vivos, that is
The transfer is either subject to estate or when its effectivity is independent of donor’s
donor’s tax. For income tax purposes, the value death.
of the property may be claimed as a deduction
under Sec. 34H. NB: Disposition is different from
Insufficient consideration execution. Disposition or its taking effect
In case of transfer in contemplation of does not depend whether the property is
death, revocable transfer, transfer under the delivered during the lifetime or after the
general power of attorney, the transfer is subject death of donor. See Art. 729 Civil Code
to estate tax pursuant to Sec. 85G. In any other Effectivity of donation may be subject to
transfer involving property not a real property condition/term (i.e.death).
located in the Philippines, the transfer is subject
to donor’s tax under Sec. 100. 21. Are checks acceptable for the payment of
In case there is no donative intent, the internal revenue taxes?
corresponding loss is a deductible loss for Checks payable to BIR as payment for
income tax purposes. taxes are no longer acceptable beginning
May 1, 1997, except in remote areas where
there are no Accredited Agent Banks. The
The following summary might help you: BIR however accepts cashier’s or manager’s
Capital Gains Estate Tax Donor’s check (Rev. Regs. No. 6-98).
Tax Tax
With Full 22. Is criminal action allowed as a remedy for
Consideration the collection of taxes?
Sec. 24C,D N/A N/A Yes, but no such action can be filed
No without the approval of the Commissioner of
Consideration Internal Revenue (see Sec. 221 & 222,
N/A Sec. 84 Sec. 98 CTRP). The approval may be given by the
Insufficient Regional Director. (Arches vs. Bellosillo, L-
Consideration 23534, May 10, 1967.)
Sec. 24D Sec. 85G Sec. 100

19. For income tax purposes, is the resulting III. LOCAL TAXATION AND REAL
loss from transfer of property (other than PROPERTY TAXATION
real property located in the Philippines)
for insufficient consideration always 1. What is the nature of a business tax?
deductible? This is a tax paid for each and every
No. See losses which are not business activity. A tax on business is
deductible under Sec. 36B. distinct from a tax on the article itself.
20. When is the gratuitous transfer of 2. When can a local government unit
property during the lifetime of the donor impose an excise tax on the sale
subject to estate tax? subject to donor’s transactions perfected within its
tax? jurisdiction?
The transfer is subject to estate tax if it It depends.
constitutes a donation mortis causa. There a. If the sale is perfected and paid for within
is donation mortis causa if its effectivity is the jurisdiction of local taxing authority but
dependent on donor’s death, such as: delivered to the customer outside its

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jurisdiction, the sale is taxable by the local Provinces - 1%
taxing authority. Reason: Delivery to
Carrier is Delivery to Buyer (Art. 1423 Civil 8. Can Municipalities outside Metro Manila
Code). See Philippine Match Co. v City of impose real property tax?
Manila 81 SCRA 99 No. However, they may impose a
b. If the sale is perfected within the special levy or assessment.
jurisdiction of local taxing authority but paid
and delivered to customer outside its 9. As contemplated in the real property tax
jurisdiction, not taxable by local taxing code, what is “property discovered for
authority. Reason: Delivery to carrier is not the first time”? What is its tax
considered delivery to buyer. Carrier is treatment?
merely considered as agent of seller. See This refers to a property that has not
Shell v Municipality of Sipocot 105 Phil. been declared for tax purposes for so many
1263 years and when discovered, the owner must
NB: To reconcile the above cases, pay back taxes plus incremental penalties.
check where the sale is consummated Assessed taxes shall cover not more than
(where payment is made). 10 years prior to the date of the initial
assessment.
3. Can regular courts enjoin the collection
of local tax?
Yes, subject to the provisions of Rule 58 IV. TARIFF AND CUSTOMS LAWS
of Rules of Court(Preliminary Injuction).
1. What is a port of entry?
4. Distinguish fair market value(FMV) from A port of entry refers to a domestic port
assessed value(AV). open to both foreign and coastwise trade
a. FMV is declared by the owner subject to (Sec. 3514, TCC).
the final determination by the assessor.
On the other hand, AV is determined by 2. For customs purposes, who is
the application of the assessment level considered the owner of articles
to the FMV. imported into the Philippines?
b. FMV is the actual value of the real All articles imported into the Phil. shall
property in the market; AV is merely a be held to be the property of:
percentage of the FMV. a. the person to whom the same are
consigned; or,
5. What is appraisal? b. the holder of the bill of lading duly
It is the act or process of determining endorsed by the consignee therein
the value of the property as of a specific named, or,
date for a specific purpose (Sec. 199, LGC) c. the underwriters of the abandoned
articles saved from a wreck at sea,
6. What is an assessment level? along a coast or in any area of the
The percentage applied to the FMV to Philippines (Sec. 1203, TCC)
determine the taxable value of the property.
3. Is a search warrant issued by a court
7. How is assessed value (taxable value) of necessary to effect searches and
real property computed? seizures under the TCC?
As a general rule, a search warrant is
FMV x Assessment level (%) = not required to enforce the provisions of the
Assessed Value customs code because of the Lifeblood
Theory. However, in case of searches of a
Assessment level depends on the dwelling place, a search warrant issued by a
nature of the property; whether court is required.
residential, agricultural, commercial,
industrial, mining, timberland, or special. 4. When are personal and household
Tax Rates: effects of a RETURNING resident
Cities - 2%, conditionally-free from duties?
Municipalities in Metro Manila - 2%
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They are considered conditionally free Rev. Regulation No. 12-85 provides that
from duties when the returning resident: decisions of Regional Directors may be
a. Is a Filipino citizen; appealed to the CTA. A Regional Director
b. Has stayed in a foreign country for a possesses delegated powers to issue
period of at least six months. assessment notices on behalf of the CIR. (In
Fortaleza vs. Collector, the Regional
5. Who is a BALIKBAYAN entitled to avail of Director's assessment was made with
the tax-free purchase incentive at Duty- endorsement of the Commissioner, so there
free shops? was no need for the petitioner to elevate his
A Balikbayan is either a: case to the Commissioner).
a. Filipino citizen who has been
continuously out of the Philippines for a EXCEPTION: In Commissioner of
period of at least 1 year; or Customs v. Planter's Products Inc, Mar. 16,
b. Filipino overseas worker; or 1989, while a claim for refund was still
c. Former Filipino .citizen, as well as his pending in the Office of the Collector of
family, who has been naturalized in a Customs, the importer was allowed to file an
foreign country and comes or returns to appeal with the Tax Court even in the
the Philippines. (Sec. 2. [a], RA 6768). absence of an administrative decision of the
claim for refund. The SC took note of the
The term family shall mean the spouse fact that the prescriptive period for judicial
and children of the balikbayan who are appeals on refunds (2 years) was about to
not balikbayans in their own right (Sec. expire.
2 [b]).
3. Who may appeal?
6. When can there be an automatic review a. Any person, association or corporation
of the decision of the Collector of adversely affected by a decision of the
Customs? CIR/Customs;
When the decision of the Collector of b. Stockholders of a dissolved company;
Customs in seizure and protest cases is c. Stockholders of a corporation who have
adverse to the government, it shall unpaid subscription.
automatically be reviewed by the Note:
Commissioner of Customs. If the amount The Government cannot appeal to the
involved is P5 million and above, there will CTA. The right is available only to persons,
be an automatic review by the Secretary of associations, or corporations. Further, it is
Finance. not adversely affected by the decision of the
BIR since the BIR itself is an agency of the
Government.
V. COURT OF TAX APPEALS (CTA):
RA 1125, effective June 16, 1954 4. What Decisions are Appealable?
• In Commissioner vs. Villa, Jan.
1. Does the CTA possess advisory and 20, 1968, the term "decisions" in
criminal jurisdiction? Sec. 7 of RA 1125 was interpreted
It has no advisory jurisdiction. Neither to mean decisions of the CIR on the
does it have criminal jurisdiction although it protest of the taxpayer against the
can take cognizance over cases involving assessments. Mere assessments of
the imposition by the Commissioner of the CIR are not appealable to the
compromise penalties. CTA.

2. Whose decisions are appealable to the • In cases where the taxpayer


CTA? files several requests for
GENERAL RULE: Decisions of either reconsideration of a protested
the Commissioner of Internal Revenue or assessment and these requests for
the Commissioner of Customs are reconsideration are all denied, the
appealable to the CTA. appealable decision is the letter of
denial where the CIR not only
demanded payment BUT made a
12
statement regarding a resort to legal
remedies.

• A reiteration of BIR's previous


demand for payment amounts to
finality of its decision.

• Administrative actions which are


tantamount to appealable decisions
(when the action to collect is by
judicial remedies).

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