Ateneo Taxation

ATENEO
CENTRAL
BAR
OPERATIONS 2007
Taxation Law
SUMMER REVIEWER
Advisers:
Atty.
Serafin
Salvador, Atty. Michael Dana
Montero,
Atty.
Gaudencio
Mendoza; Head: Julie Ann B.
Domino, Juan J. P. Enriquez III;
Understudies: Rachelle T. Sy,
Aldwin Mendoza, Timothy John
Batan
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PART I GENERAL PRINCIPLES
TAXATION power inherent in
every sovereign
State to impose a charge or burden
upon persons,
properties, or rights to raise
revenues for the use and
support of the government to
enable it to discharge
its appropriate functions
SCOPE OF TAXATION
TAXATION IS:
Unlimited,
Far-reaching,
Plenary
Comprehensive
Supreme
STAGES OF TAXATION: (LAP)
1. Levy
2. Assessment
3. Payment
Basic Principles of a Sound Tax
System
1. Fiscal Adequacy
2. Theoretical Justice
3. Administrative Feasibility
INHERENT LIMITATIONS (SPING)
1) Situs or territoriality of taxation
2) Must be for a Public purpose
Test is whether proceeds will be
used for something which is the
duty of the State to provide.

Legislature is not required to
adopt a policy of all or none.
Incidental benefit to individual
does not defeat exemption
3) International comity
Property of a foreign State of
government may not be taxed by
another
4) Non-delegability of the taxing
power
Contemplates power to
determine kind, object, extent,
amount, coverage, and situs of
tax;
Distinguish from power to assess
and collect
Exemptions: (a) presidential
taxing powers; (b) local
governments
5) Exemptions of Government
agencies
Taking money from one pocket
to the other
Applies only to entities exercising
government functions (acta jure
imperii)
CONSTITUTIONAL LIMITATIONS
A. Direct
1) Due process
Should not be harsh, oppressive,
or confiscatory (Substantive)
By authority of valid law
(Substantive)
Must be for a public purpose
(Substantive)
Imposed within territorial
jurisdiction (Substantive)
No arbitrariness in assessment
and collection (Procedural)
Right to notice and hearing
(Procedural)
2) Equal protection
All persons subject to legislation
shall be treated alike, under like
circumstances and conditions
both in privileges conferred and

liabilities imposed.
Power to tax includes power to
classify provided:
(a) Based on substantial
distinction
(b) Apply to present and future
conditions
(c) Germane to purpose of law
(d) Apply equally to all members of
the same class
3) Non-impairment clause
Rules
(a) When government is party to
contract granting exemption
cannot be withdrawn
without violating nonimpairment
clause
(b) When exemption generally
granted by law withdrawal
does not violate
(c) When exemption granted
under a franchise may be
revoked; Consti provides that
franchise is subject to
amendment, alteration, or
repeal by Congress.
4) Must be uniform and equitable
Taxation Law Summer Reviewer
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Uniform: all articles or properties
of the same class taxed at same
rate
Equity: apportionment must be
more or less just in the light of
taxpayers ability to shoulder tax
burden
5) Non-imprisonment for nonpayment
of poll tax
Taxpayer may be imprisoned for
non-payment of other kinds of

taxes where the law so expressly
provides.
6)
Congress
shall
evolve
a
progressive
system of taxation
As resources of the taxpayer
becomes higher, his tax rate
likewise increases (ex. Income
tax)
Constitution does not prohibit
regressive taxes; this is a
directive upon Congress, not a
justiciable right.
7) All appropriation, revenue or
tariff bills shall
originate exclusively in the House
of
Representatives, but the Senate
may
propose
or
concur
with
amendments
It is the bill, not the law, that
must
originate from House; bill may
undergo
extensive changes in Senate
Rationale: members of House are
more
sensitive to local needs.
8) Freedom of religion
Activities simply and purely for
propagation of faith are exempt
(e.g. sale
of bibles and religious articles by
nonstock,
non-profit organization at minimal
profit).
Tax is unconstitutional if it
operates as a
prior restraint on exercise of
religion
Income
even
of
religious
organizations
from any activity conducted for
profil or
from any of their property, real or

personal, regardless of disposition
of
such income, is taxable
9) Freedom of press/expression
Tax that operates as a prior
restraint
invalid.
If fee is only for purpose of
defraying cost
of registration and not for exercise
of
privilege, no violation.
10)
Charitable
institutions,
churches, and
parsonages
or
convents
appurtenant thereto,
mosques and non-profit cemeteries
and all
lands, buildings and improvements
ACTUALLY,
DIRECTLY
and
EXCLUSIVELY
USED for charitable, religious and
educational purposes shall be
exempt from
taxation
Pertains only to real estate tax.
Test of exemption: actual use of
the
property, not ownership
Use of word exclusively means
primarily rather than solely.
Exemption extends to property
incidental
to or reasonably necessary for the
accomplishment of the purposes
mentioned.
11) Tax exemption of all revenues
and assets of
(a)
non-stock,
non-profit
educational
institutions
(b) used ACTUALLY, DIRECTLY AND
EXCLUSIVELY for educational
purposes
Exemption
covers
income,
property,
donors tax, and customs duties
(distinguish from previous which
pertains
only to property tax)
Revenue must both be (a)
derived from
an activity in pursuance of
educational
purpose; and (b) proceeds must be
used
for the same purpose (ex. hospital
adjunct to medical school tax
exempt)
(ex. Interest income not exempt).
Income exempt provided it is
used for
maintenance or improvement of
institution.
Distinguish from tax treatment of
(a)
proprietary educational institutions
(Preferential
Tax);
and
(b)
government
educational institutions (exempt,
ex. UP)
12)
Delegated
authority
of
President to impose
tariff rates, import and export
quotas,
tonnage and wharfage dues
delegated by Congress
through a law
subject to Congressional limits
and
restrictions
within the framework of national
development program
13) Law granting tax exemption
(includes
amnesties,
condonations
and
refunds) shall
be passed with concurrence of
Congress -
majority of all members voting

separately
Relative majority (majority of
quorum) is
sufficient to withdraw exemption.
14) No use of public money or
property for
religious purposes except if priest
is assigned
to armed forces, penal institutions,
government
orphanage
or
leprosarium
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15) Special purpose - special fund
for said
purpose, balance goes to general
funds
16) Veto power of the President revenue/tariff
bill
17) Power of review of the SC
18) Power of Local Government to
create their
own sources and levy taxes, fees,
charges
19) Just share of local government
in national
revenue
which
shall
be
automatically
released.
20) Tax exemption of all revenues
and assets of
(a) proprietary or cooperative
educational
institutions
(b) subject to limitations provided
by law
21) Tax exemption of grants,
endowments,
donations or contributions USED
ACTUALLY,
DIRECTLY
and
EXCLUSIVELY
for educational purposes
CIR v. CA (298 SCRA 85)
Facts: YMCA is a non-stock, nonprofit institution,
which conducts various programs
and activities
beneficial to the public pursuant to
its religious,
educational
and
charitable
objective. In 1980, YMCA
earned an income of more than
P600K from leasing
out a portion of its premises to
small shop owners
and P47K from parking fees.
Issue: Is the rental income from
real property owned
by the YMCA subject to income
tax?
Held: YES, the exemption claimed
by YMCA is
expressly disallowed by the last
paragraph of then
27 of the NIRC. Furthermore, Art.
XIV, 4 (3) of the
Constitution only exempts YMCA
from property taxes
NOT income tax. YMCA cannot be
considered as an
educational institution within the
purview of the
above-cited article. The term
educational institution
under the Education Act of 1982
refers to schools.
The school system is synonymous
with formal
education,
which
refers
to
hierarchically structured
and
chronologically
graded
learnings organized and
provided by the formal school
system and for which
certification is required in order for

the learner to
progress through grades or more to
higher levels.
Nothing
in
the
Articles
of
Incorporation or By-Laws of
the YMCA suggests that it is an
educational
institution.
Classification of Taxes
A. As to subject matter of
object
1) personal, poll, capitation tax
(a) fixed amount

(b) individuals residing within
specified
territory
(c) without regard to their property,
occupation or business
Ex. Community Tax (Cedula)
2) property tax
(a) imposed on property, real or
personal
(b) in proportion to its value or
other
reasonable
method
of
apportionment
Ex. Real estate tax
3) excise, privilege tax (different from the
excise tax in Taxation II)
(a) imposed upon performance of
an act, the
enjoyment of a privilege or the
engaging
in an occupation, profession or
business
Ex. Income tax, VAT, estate tax,
donors tax
B. As to who bears the burden
1) Direct the tax is imposed on
the person
who also bears the burden thereof
Ex. Income tax, community tax,
estate tax
2) Indirect imposed on the

taxpayer who
shifts the burden of the tax to
another
Ex. VAT, specific tax, percentage
tax,
customs duties
C. As to determination of
amount
1) Specific tax imposed and
based on a
physical unit of measurement, as
by head,
number, weight, length or volume
Ex.
Tax
on
distilled
spirits,
fermented
liquors, cigars
2) Ad Valorem - tax of a fixed
proportion of the
value of property with respect to
which the
tax
is
assessed;
requires
intervention of
assessor.
Ex. Real estate tax, excise tax on
cars, nonessential
goods
D. As to purpose
1) General, fiscal or revenue imposed for the
general purpose of supporting the
government
Ex. Income tax, percentage tax
2) Special or regulatory imposed for a
special purpose, to achieve some
social or
economic objectives
Ex. Protective tariffs or customs
duties on
imported goods intended to protect
local
industries
E. As to authority imposing the
tax
1) National - imposed by the

national
government
Ex. National internal revenue
taxes, custom
duties
2) Municipal or local - imposed
by the
municipal corporations or local
governments
Ex. Real estate tax, occupation tax
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F. As to graduation of rate
(Three systems of
taxation)
1) Proportional - based on a fixed
percentage
of the amount of the property,
income or
other basis to be taxed
Ex.
Real
estate
tax,
VAT,
percentage tax
2) Progressive or graduated tax rate
increases as the tax base or
bracket
increases
Ex. Income tax, estate tax, donors
tax
3) Regressive - tax rate decreases
as the tax
base increases
4) Degressive - increase of rate is
not
proportionate to the increase of tax
base
SITUS OF TAXATION - the place
of taxation, the
country that has the power to levy
and collect the
tax.
TAX
DISTINGUISHED
FROM
POLICE POWER
TAX POLICE POWER (in
the form of a FEE)
Purpose Raise revenue Exercise to
promote
public welfare through
regulation
Amount of
exaction
No limit Limited to the cost of
regulation, issuance
of license, or
surveillance
Superiority
of
contracts
Contracts may
be impaired
unless (a)
government is
party to
contract
granting
exemption; or
(b) involves
franchise
Contracts may be
impaired
Transfer
of
property
rights
Taxes paid
form part of the
public funds
Allows merely the
restraint on the
exercise of property
rights
TAX
DISTNGUISHED
FROM
EMINENT DOMAIN
TAX EMINENT DOMAIN
Purpose Raise
revenue
The taking of
property for public
use
Compensation Payment of Just
compensation
taxes accrue
to the general
benefit of the
citizens of the
taxing State
is given the owner
of the expropriated
property
Persons
affected
Applies to all
persons,
property and
excises that
may be
subject
thereto
Only particular
property is
comprehended
TAX
DISTINGUISHED
FROM
LICENSE FEE
TAX LICENSE FEE
Source Exercise of
Taxing power
Emanate from the police
power of the State
Purpose Raise
revenue
Regulation
Object Persons,
property and
privilege
Right to exercise a
privilege
Amount no limit only necessary to
carry
out regulation
Distinction lies in the primary
purpose:
License fee if primary purpose is

to
regulate and the excess of the
amount
collected from the cost to carry out
the
regulation
is
minimal
and
incidental.
Tax if primary purpose, or at
least one of
the real and substantial purposes is
to
raise revenue.
If amount is too high for
regulation, it would
be a tax; unless imposed on nonuseful
occupations or businesses.
Purpose of distinction: limitations
and
exemptions apply only to one and
not to the
other (ex. Exemption from taxation
does not
include exemption from fee)
TAX
DISTINGUISHED
FROM
DEBT
TAX DEBT
Source Law; legal
obligation
Based on contract
Personal Assignable
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Generally not
subject to
compensation/setoff
May be the subject
of
compensation/setoff
Imprisonment is
sanction for nonpayment

No imprisonment
for non-payment
GENERAL RULE: Taxes cannot be
the subject of
compensation or set-off
* A person cannot refuse to pay a
tax on the ground
that the government owes him an
amount equal to or
greater than the tax being
collected. The collection of
tax cannot await the results of a
lawsuit against the
government.
Reasons:
a) lifeblood theory
b) taxes are not contractual
obligation (absence
of consent of taxpayer)
c) taxpayer and government are
not mutual
debtors and creditors of each other
EXCEPTIONS:
1) Both claims already became
overdue and
demandable as well as fully
liquidated there
must have already been an act of
appropriation
by the government (legislative) of
funds for
payment of the debt.
2)
Tax
overpayment
(BIRs
obligation to refund or
set-off arises from time tax was
paid)
3) If the case involves local
government taxes
TAX
DISTINGUISHED
FROM
SPECIAL
ASSESSMENT
TAX SPECIAL
ASSESSMENT
Imposed
on
persons,
properties, etc.
Only on land
Why
imposed
regardless of
public
improvement
Public improvement
that benefits the land
Purpose Support of
government
Contribution to cost
of public
improvement
When
imposed
Regular exaction Exceptional as to
time and locality
Basis Necessity Benefits obtained
TAX
DISTINGUISHED
FROM
TOLL
TAX TOLL
Kind of
demand
Demand of
sovereignty
Demand of
ownership
Purpose support of
government
Collection for the
use of property
Amount no limit depends
on need of the
government
Fair return of the
cost of the property
or improvement
TAX
DISTINGUISHED
FROM
CUSTOMS DUTY
TAX CUSTOMS
DUTY
Coverage More comprehensive
than customs duty
kind of tax
Object Persons, prop, etc goods

imported
or exported
DOCTRINE
OF
EQUITABLE
RECOUPMENT
1) refund of a tax illegally or
erroneously collected
or overpaid by a taxpayer
2) such tax refund is barred by
prescription
3) tax presently being assessed
against a taxpayer
4) may be recouped or set-off
against the tax barred
by prescription
not allowed in Philippines, reason LIFE BLOOD
CONCEPT OF DOUBLE TAXATION
Kinds of Double Taxation
A. DIRECT DUPLICATE
taxing same person, property or
right
twice
for the same purpose
by the same taxing authority
within the same jurisdiction or
taxing
district
within the same taxable period
and they must be of the same
kind or
character of tax
B. INDIRECT DUPLICATE
Exists if any of the elements for
Direct
taxation is not present
No constitutional prohibition on
double taxation.
However, where there is direct
duplicate taxation
then there may be violation of the
constitutional
precepts of equal protection and
uniformity in
taxation.

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TAX TREATY AS A MODE OF
ELIMINATING
DOUBLE TAXATION:
1) EXEMPTION METHOD the
income or capital
which is taxable in the state of
source or situs is
exempted in the state of residence,
although in
some instances it may taken into
account in
determining the rate of tax
applicable to the tax
payers
remaining
income
or
capital (ex. Tax
Sparing Credit scheme)
2) CREDIT METHOD the tax paid
in the state of
source is credited against the tax
levied in the
state of residence
Afisco Insurance Corp v. CA
(G.R. No. 112675,
Jan. 25, 1999)
Petitioners
are
local
non-life
insurance corps. Which
formed a pool in order to enter
into a Reinsurance
Treaty with a German company. BIR
assessed
deficiency taxes against the pool
on the ground that
it is considered a partnership
taxable as a corp.
Petitioners insist that the pool is a
mere agent, not
acting on its own and therefore,
cannot be taxed as a
corp.,
there
being
no
risk
undertaken by the pool, no
common fund and no control
exercised by its board in
the management of its fund.
Issue (1) : Is the Pool Taxable as a
Corp?
Held (1): YES. Pursuant to 24 of
the NIRC, the
pool
is
included
within
the
definition of domestic
corps. Which comprises even
unregistered
partnerships and associations. In
this case, the
ceding cos. Entered into an
association that would
handle all business under the
Treaty. It has a
common fund and an executive
board to manage its
affairs. Moreover, even if the pool
itself did not issue
any policies on its own, its work
was indispensable to
the
business
of
the
ceding
companies and the
German Co,
Issue
(2):
Is
there
double
taxation?
Held(2): NO. Double taxation
means taxing the
same person twice by the same
jurisdiction for the
same thing. The pool is a taxable
entity distinct from
the individual corporate entities of
the ceding
companies. The tax on its income
is obviously
different from the tax on the
dividends received by
the said companies.
Power to Tax Involves Power to
Destroy [Chief
Justice Marshall, McCullough v.

Maryland, 4 L.Ed.
579 (1819)]
The imposition of a valid tax could
not be judicially
restrained merely because it would
prejudice a
taxpayers property. As long as the
power to tax
does not violate any constitutional
or statutory
provisions, said power can be a
power to destroy.
But for all its plenitude, the power
to tax is not
unconfined
as
there
are
restrictions. Adversely
effecting as it does property rights,
both the due
process and equal protection
clauses of the
Constitution may properly be
invoked to invalidate in
appropriate
cases
a
revenue
measure. If it were
otherwise, there would be truth to
the dictum that the
power to tax involves the power to
destroy. The web
or unreality spun from Justice
Marshalls famous
dictum was brushed away by one
stroke of Mr.
Justice Holmes pen, thus: The
power to tax is not
the power to destroy while this
Court sits. So it is in
the
Philippines.
[Reyes
v.
Almanzor (1991), citing
Sison v. Ancheta (1984); Obillos v.
CIR (1985)].
Tax
Avoidance
(Tax
Minimization) tax saving
device that is legally permissible
Tax Evasion (Tax Dodging)
connotes fraud
through the use of pretenses and

forbidden devices
to lessen or defeat taxes; must be
willful and
intentional.
CIR vs. The Estate of Benigno
Toda, GR No.
147188, Sept. 14, 2004
Facts: This Court is called upon to
determine in
this case whether the tax planning
scheme adopted
by a corporation constitutes tax
evasion that would
justify an assessment of deficiency
income tax.
CIC authorized Toda, Jr., President
and owner
of 99.991% of its issued and
outstanding capital
stock, to sell the Cibeles Building
and the two
parcels of land on which the
building stands for an
amount of not less than P90M. Toda
then
purportedly sold the property for
P100 M to Rafael
Altonaga, who, in turn, sold the
same property on
the same day to RMI for P200M.
These 2
transactions were evidenced by
Deeds of Absolute
Sale. For the sale of the property to
RMI, Altonaga
paid capital gains tax in the
amount of P10M.
CIC filed its corporate annual ITR
for the year
1989, declaring, among other
things, its gain from
the sale of real property in the
amount of
P75,728.021. Toda sold all his
shares. He died 3
yrs. later.
The BIR sent an assessment notice
and
demand letter to the CIC for
deficiency income tax
for the year 1989 in the amount of
P79,099,999.22,
representing the tax, surcharge, &
interest on the
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NATURE OF TAX AMNESTY
1)
general
or
intentional
overlooking by the State of
its authority to impose penalties on
persons
otherwise guilty of evasion or
violation of a
revenue or tax law
2)
partakes
of
an
absolute
forgiveness or waiver of
the Government of its right to
collect
3) to give tax evaders, who wish to
relent & are
willing to reform a chance to do so
RULES ON TAX AMNESTY
1) Tax amnesty
(a) like tax exemption, never
favored nor
presumed
(b) construed strictly against the
taxpayer (must
show complete compliance with

the law)
2) Government not estopped from
questioning the
tax liability even if amnesty tax
payments were
already received
Reason: Erroneous application and
enforcement of the law by public
officers do
not block subsequent correct
application of
the statute. The government is
never
estopped by mistakes or errors of
its agents.
Basis: Lifeblood Theory
3) Defense of Tax amnesty, like
insanity, is a
personal defense.
Reason:
Relates
to
the
circumstances of a
particular accused and not the
character of
the acts charged in the information
PART
II
THE
NATIONAL
INTERNAL REVENUE
CODE OF 1997
TITLE I. ORGANIZATION AND
FUNCTION OF THE
BUREAU OF INTERNAL REVENUE
(BIR)
POWERS AND DUTIES OF THE
BIR (ACEEGA)
1) Assessment and Collection of
national internal
revenue:
(a) taxes
(b) fees
(c) charges
2) Enforcement of all
(a) forfeitures
(b) fines and
(c) penalties
connected therewith
3) Execution of all judgments

decided in BIRs favor
by
(a) the Court of Tax Appeals (CTA)
and
(b) the ordinary courts
4) Give effect to and Administer
the supervisory and
police powers conferred to it by
NIRC or by other
laws. (Sec. 2)
Officials of the BIR
1) one chief - Commissioner of
Internal Revenue
(Commissioner)
2) four assistant chiefs - Deputy
Commissioners
(Sec. 3)
*E.O.
430
(July
28,
1997)
designates each of the
4 Deputy Commissioners to head
the following
functional groups:
(a) Operations group
(b) Legal Enforcement Group
(c) Information Systems Group
(d) Resource Management Group
Powers of the Commissioner
A. Power to interpret tax law
and decide tax
cases (Sec 4)
1) Interpret provisions of NIRC and
other tax
laws subject to review by the
Secretary of
Finance
2) Decide:
(a) disputed assessments
(b) refunds of internal revenue
taxes, fees
and charges
(c) penalties imposed in relation
thereto
(d) other matters arising from NIRC
or other
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laws
or
portions
thereof
administered by
the BIR subject to the exclusive
appellate
jurisdiction of the CTA
B. Power to obtain information,
summon,
examine and take testimony of
persons (Sec.
5)
1) For the Commissioner to
ascertain:
(a) correctness of any return or in
making a
return where none has been made
(b) liability of any person for any
internal
revenue tax or in correcting such
liability
(c) tax compliance
The Commissioner is authorized:
2) to Examine any relevant Book,
paper, record
or other data
3) to Obtain any Information (costs,
volume of
production, receipts, sales, gross
income,
etc), on a regular basis from:
(a) any person other than the
person under
investigation or
(b) any office or officer of the
national/local
government, government agencies
and
instrumentalities (Bangko Sentral,
GOCCs)
4) To Summon
(a) the person liable for tax or

required to file
a return or
(b) any officer or employee of such
person
or
(c) any person having in his
possession/custody/ care
1. the books of accounts
2. accounting records of entries
relating
to the business of the person liable
for tax or any other person
5) to Produce such books, papers,
records and
other data and to give testimony
6) to take the Testimony of the
person
concerned, under oath as may be
relevant to
the inquiry
7) To cause revenue officers and
employees to
make a Canvass of any revenue
district or
region
nothing in Section 5 shall be
construed as
granting the Commissioner the
authority to
inquire into bank deposits other
than as provided
for under Sec. 6 (F) of the Code
(authority to
inquire into bank deposits).
C. Power to make assessments,
prescribe
additional requirements for tax
administration
and enforcement (Sec. 6)
1) Examination of returns and
determination of
tax due (a) After a return has been filed the
Commissioner or his representative
may
authorize
i. the Examination of any taxpayer;
and
ii. the Assessment of the correct
amount of tax;
(b) Failure to file a return shall not
prevent
the Commissioner from
authorizing the examination of any
taxpayer;
Any tax or deficiency tax so
assessed shall be
paid upon notice and demand from
the
Commissioner
or
his
representative.
Any
return,
statement
or
declaration filed in any
authorized office shall not be
withdrawn; but
within THREE YEARS from date of
filing, the
same may be modified, changed or
amended;
provided that no notice for audit or
investigation
of such return, has in the
meantime, been
actually served upon the taxpayer.
2) Failure to submit required
returns and other
documents
If a person
(a) fails to file a required return or
report at
the time prescribed or
(b) Willfully or otherwise files a
false or
fraudulent return,
The Commissioner shall Make or
Amend the
return from
(a) his own knowledge or
(b) from such information as he can
obtain
through testimony or otherwise
which shall be prima facie correct

and sufficient
for all legal purposes
3) Inventory-taking, Surveillance,
Presumptive
Gross Sales
(a) Commissioner may, at any time
during
the taxable year
1. order the Inventory taking of
goods
of any taxpayer; or
2.
may
place
the
business
operations of
any person (natural/juridical) under
Observation or Surveillance
if there is reason to believe that
such
person is not declaring his correct
income, sales or receipts for tax
purposes.
The findings may be used as basis
for
assessing the taxes and shall be
deemed
prima facie correct.
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(b) Commissioner may prescribe a
Minimum
amount of gross receipts, sales and
taxable base (taking into account
the
sales and income of other persons
engaged in similar business) :
1. When a person has failed to
issue
receipts as required by Sec. 113
(Invoice
requirements
for
VATregistered
persons) and Sec. 237
(Issuance
of
Receipts
or
Commercial
Invoices); or
2. When the books of accounts or
records do not correctly reflect the
declarations made or required to
be
made in a return,
such minimum amount shall
be prima facie correct
4) Terminate taxable period Commissioner shall declare the tax
period of
a taxpayer terminated and send
notice to the
taxpayer of such decision with a
request for
immediate payment of the tax,
when it has
come to the knowledge of the
Commissioner:
(RIRHO)
(a) that a taxpayer is Retiring from
business
subject to tax or
(b) is Intending to leave the
Philippines or
(c) to Remove his property
therefrom or
(d) to Hide or conceal his property
or
(e) is performing any act tending to
Obstruct
the proceedings for the collection
of tax
5) Prescribe Real Property Values The Commissioner is authorized to:
(a) divide the Philippines into
different zones
or areas and
(b) determine the fair market value
of real
properties located in each zone or
area
For tax purposes, the value of the
property
shall be whichever is higher of:

(a)
Fair
market
value
as
determined by the
Commissioner; or
(b) Fair market value as shown in
the
schedule of values of the provincial
and
city assessors.
6) Authority to Inquire into Bank
Deposit Notwithstanding R.A. 1405 (Bank
Secrecy
Law)
the
Commissioner
is
authorized to
inquire into the Bank deposits of:
(a) a decedent to determine his
gross estate
(b) a taxpayer who has filed an
application to
compromise
payment
of
tax
liability by
reason of financial incapacity
The taxpayers application for
compromise
shall not be considered unless he
waives in
writing his privilege under RA 1405
and other
general or special laws. Such
waiver shall
authorize the Commissioner to
inquire into
his bank deposits.
7) Authority to Register tax agents
(a)
The
Commissioner
shall
Accredit and
Register, individuals and general
professional partnerships and their
rep.
who prepare and file tax returns
and
other papers or who appear before
the
BIR
(b) The Commissioner shall create

national
and regional accreditation boards
Those
who
are
denied
accreditation may
appeal the same to the Sec. of
Finance who
shall rule on the appeal within 60
days from
receipt of such appeal. Failure of
the Sec. of
Finance to rule on the appeal
within the said
period shall be deemed as
approval for
accreditation.
8) Authority to Prescribe Additional
RequirementsThe Commissioner may prescribe
the
manner of compliance with any
documentary
or procedural requirement for the
submission
or
preparation
of
financial
statements
accompanying tax returns.
D. Authority to delegate power
(Sec. 7)
The Commissioner may delegate
the powers vested
in him to subordinate officials with
rank equivalent to
Division Chief or higher, subject to
limitations/restrictions
imposed
under the rules and
regulations EXCEPT, (the following
powers shall
NOT be delegated): (RIR CoA A)
1) power to Recommend the
promulgation
of rules and regulations by the Sec.
of
Finance
2) power to Issue rulings of first
impression
or to Reverse, revoke, modify any

existing rule of the BIR
3) power to Compromise or Abate
any tax
liability
EXCEPT, the regional evaluation
board
may compromise:
(a) assessments issued by regional
offices involving deficiency taxes of
P500,000 or less; and
(b) minor criminal violations as
may be
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determined by the rules
Regional
Evaluation
Board
is
composed
of:
i. Regional Director as Chairman
ii. Asst. Regional Director
iii. Heads of the Legal, Assessment
and
Collection Div.
iv. Revenue District Officer having
jurisdiction over the taxpayer
4) power to Assign or reassign
internal
revenue officers to establishments
where
articles subject to excise tax are
kept
E.
Assignment
of
Internal
Revenue Officers
(Secs. 16 &17)
The Commissioner may assign/
reassign internal
revenue officers:
1) involved in excise tax functions
as often as the
exigencies of revenue service may

require;
provided that he shall in no case
stay in his
assignment for more than 2 years
(Sec. 16)
2) without change in rank and
salary, to other or
special duties connected with the
enforcement
and administration of internal
revenue laws as
the exigencies of the service may
require;
provided that officers assigned to
perform
assessment or collection functions
shall not
remain in the same assignment for
more than 3
years; assignment of officers and
employees to
special duties shall not exceed 1
year (Sec. 17)
F. Internal Revenue Districts
(Sec. 9)
The Commissioner, with approval
of the Sec. of
Finance, shall divide the Philippines
into such
number of revenue districts for
administrative
purposes. Each district shall be
under the supervision
of a Revenue District Officer.
Duties of the Commissioner:
(PASO)
1) To Prescribe, provide and
distribute to the proper
officials the requisite licenses,
internal revenue
stamps, labels, all other forms,
certificates,
bonds, records, invoices, books,
receipts,
instruments and appliances used in

administering
laws falling within the jurisdiction
of BIR
2) To Acknowledge payment of any
tax under this
Code expressing
a) the amount paid and
b) the particular account for which
payment
was made (Sec. 8)
3) To Submit reports to the
appropriate committee
of Congress upon its request and in
aid of
legislation, which information or
report shall
include, but not be limited to:
(a) industry audits
(b) collection performance data
(c) status reports in criminal
actions initiated
against persons
(d) taxpayers returns
provided, any return or information
which can
be associated with or identifies,
directly or
indirectly a particular taxpayer,
shall be
furnished
to
the
appropriate
committee of
Congress only when sitting in
Executive
Session,
unless
the
taxpayer
consents in
writing to such disclosure
4) Submit reports to the Oversight
Committee
through the Chairman of the
Committee on Ways
and Means of the Senate and
House of
Representatives, on the exercise of
his powers of
abatement and compromise of

taxes (Sec. 204)
every 6 months of each calendar
year. (Sec. 20)
NATIONAL INTERNAL REVENUE
TAXES: (Sec.
21) (I VEE DOO)
1) Income tax
2) Estate and Donors tax
3) Value-Added tax
4) Other percentage tax
5) Excise tax
6) Documentary stamp tax
7) Such Other taxes as are or
hereafter may be
imposed and collected by the BIR
TITLE II. TAX ON INCOME
DEFINITION OF TERMS
1) Person an individual, a trust,
estate or corp.
2)
Corporation
include
partnerships (distinguish
between ordinary and general
professional
partnership)
3)
General
professional
partnership
partnerships formed for the sole
purpose of
exercising
their
common
profession, no part of its
income
being
derived
from
engaging in any trade
or business
4) Shares of stock includes
shares of stock of a
corp., warrants & options to
purchase shares of
stock, as well as units of
participation in a
partnership
(except
gen.
professional
partnership),
joint
stock
companies, joint
accounts, joint ventures taxable as
corp.,
associations
&
recreation
or
amusement clubs &
mutual fund certificates
5) Taxpayer any person subject
to tax
6) Taxable Year can either be
calendar year (Jan
1 to Dec 31), or the fiscal year
7) Fiscal Year an accounting
period of 12 months
ending on the last day of any
month other than
December (ex. Feb 1 to Jan 31)
8) Paid or incurred (cash
method) or Paid or
accrued
(accrual
method)
payment actually
made or if not paid, actually liable
for the
expense
TAXABLE INCOME
REQUISITES FOR INCOME TO BE
TAXABLE:
1) There must be a gain or addition
to net worth;
2) The gain must be realized or
received, actually or constructively;
recipient must have complete
dominion;
3) The gain must not be excluded
by law or treaty from taxation
Note:
Not recognized as income when
funds
were
merely
entrusted/held money in trust (with
obligation to return) to taxpayer
because taxpayer acquires no
control and does not receive
economic benefit from it.
Proceeds
embezzlement/swindling are
of
income
because
embezzler/swindler already has
complete dominion over them and
can use such for his economic
benefit.
Increase in the value of property
is not recognized as income;
this only constitutes an unrealized
increase which becomes taxable
income only upon disposition and
realization of gains. Same situation
for stocks and stock dividends.
Deposit with no interest does not
produce
income
for
the
depositary; there is no flow of
wealth.
In a debt/loan situation it is
important to determine whether
there was an original intention to
pay/consensual recognition of an
obligation to repay.
If yes, then the liability that
results just offsets the increase in
assets of the taxpayer borrower;
therefore, no increase in net worth
and no income derived from the
debt/loan.
If no (as in the case of a
swindler/estafa), the proceeds will
be considered as income and
therefore taxable in the hands of
the borrower swindler.
Income can be realized actually
and constructively.
Assignment
of
Income
Doctrine
Ex: A is entitled to his salary of
P10m but assigns it to B for
unknown reasons. In this case,
both A and B realize income. A
constructively
received income
(because he was able to assign
thus
has
complete
control/dominion over it) and B
actually received it. The income is
taxable in the hands of both A and
B.
Doctrine of Constructive
Receipt
Ex: A was informed that his check
dated December 16 is already
available and he can get it
anytime. A did not get the check
until January 30. In this case, A
constructively received income in
December and is taxable in that
taxable period.
Not recognized as income if
proceeds are
merely a return of capital.
Ex. Creditor lends debtor x amount.
Debtor repays x amount plus y
interest. Creditor does not have
income on x amount as this is
merely return on capital; he has
income only with respect to the
amount of y interest.
COMPUTATION
OF
TAXABLE
INCOME
1) Taxpayer earning purely
compensatory
IncomeGross Compensation - Personal
Exemption premium payments on
health and/or hospital insurance
amounting to P2,400 per year =
Taxable income
2) Taxpayer doing business,
whether
individual
or
corporation (domestic or FC
doing business)
Gross Revenue/Sales - Cost of Sales

= Gross Income
Gross
Income
Allowable
Deductions = Taxable Income
for individuals, an additional
deduction for
personal exemptions is allowed
Situs of Taxation is the place or
authority that has the right to
impose and collect taxes (CIR v.
Marubeni Corp).
The state where the subject to be
taxed has a situs may rightfully
levy and collect the tax.
The situs is necessarily in the state
which has jurisdiction or which
exercises
dominion
over
the
subject in question.
SOURCES OF INCOME
ITEM SOURCE
Interest Residence of the debtor
Compensation for
personal services
Place of performance
Rent and royalty Location of
property
Gain from sale of
real property
Location of property
Gain from sale of
personal property
Place of sale
Gain from sale of
shares of stock of
domestic
corporation
Philippine source
Dividend income (a) From a
domestic corp.
deemed income from within
Phil.
(b) From a foreign corp.
deemed income from without
provided more than 50% of the
corp.s worldwide income is not
derived from Phil. sources
Allocation
of
Unallocated
Deductions (partly Phil.
partly foreign)
GI, Philippines x Unallocated = Phil
deductions
GI, Worldwide deductions
GI, Outside Phil x Unallocated =
Foreign
GI,
Worldwide
deductions
deductions
Income from sale of personal
property derived from
sources partly within and partly
without the Phils.
Gain from sale of personal property
produced in
whole or in part in one country and
sold in another
country, where one of the countries
is the Philippines
is income derived from sources
partly within and
partly outside the Philippines.
Gains from the purchase of
personal property within
and sold without the Philippines or
the purchase of
personal property without and its
sale within the
Philippines shall be treated as
derived entirely from
sources within the country in which
it was sold.
GENERAL
PRINCIPLES
OF
INCOME TAXATION
IN THE PHILIPPINES
Taxpayer Tax Base Taxable on
income
Resident Citizen Taxable
Income
Within and
without the
Philippines
Nonresident Citizen Taxable
Income
Within the
Philippines
Resident Alien Taxable
Income
Within the
Philippines
Nonresident Alien
engaged in trade or
business
Taxable
Income
Within the
Philippines
Nonresident Alien not
engaged in trade or
business
Gross
Income
Within the
Philippines
General Professional
Partnership
Taxable
Income
Within
or/and
without the
Philippines
(depending
on
classification
of individual
partner)
Estate and Trust Taxable
Income
Same basis
as an
individual
(depending
on
classification
of decedent,
if estate,
trustor, if
trust)
Domestic Corporation Taxable
Income
Within and
Without the
Philippines
Resident Foreign
Corporation
Taxable
Income
Within the
Philippines
Non-resident Foreign
corporation
Gross
Income
Within the
Philippines
*Taxable Income = Gross income
(less) Deductions
(less) Personal and additional
exemptions
*Gross Income = all income
derived from whatever
source
TYPES OF INCOME TAXATION
UNDER THE NIRC
1) Net Income Tax/Taxable Income
(GI
Deductions Exemptions)
2) Gross Income Tax (All income
from whatever
source)
3) Final Income Tax (On passive
income and capital
gains)
4) Fringe Benefits Tax (amount of
benefits to
Managerial
and
Supervisory
Employee paid by
Employer; Ee is taxed but burden is
on Er)
5) Capital Gains Tax (Real property

and stocks not
traded in stock market)
6) Optional Corporate Income Tax
7) Minimum Corporate Income Tax
(2% of GI)
8)
Improperly
Accumulated
Earnings Tax
9) Preferential Rates (for special
corporations)
10) Branch Profit Remittance Tax
TYPES OF TAXPAYERS
A. Individuals
Kinds of Individuals
1) Resident Citizen
2) Nonresident Citizen = citizen of
the
Philippines who:
(a) Establishes the fact of his
physical
presence abroad with a definite
intention
to reside therein
(b) Leaves the Philippines during
the taxable
year
to
reside
abroad,
as
immigrant or for
employment on a permanent basis
(c) Works & derives income from
abroad &
whose employment requires him to
be
physically present abroad most of
the
time (i.e. not less than 183 days)
during
the taxable year
(d)
Previously
considered
as
nonresident
citizen & arrives in the Philippines
at any
time during the taxable year to
reside
permanently in the Philippines
3) Resident Alien
4) Nonresident Alien
a) Those engaged in trade or

business in
the Philippines who come and stay
in the
Philippines for an aggregate period
of
more than 180 days during any
calendar
year
b) Those not engaged in trade or
business
in the Philippines, which include
nonresident
aliens whose stay in the
Philippines is 180 days or less
c) Aliens employed by regional or
area
headquarters
and
regional
operating
headquarters
of
multinational
companies
in the Philippines
d) Aliens employed by offshore
banking
units
e) Aliens employed by petroleum
contractors and subcontractors
TYPES OF INCOME
1) General (part of gross income,
subject to 532%)
a) Compensation Income
b) Income from Business
c) Income from Exercise of
Profession
2) Special Types of Income (not
part of gross
income, subject to final tax)
a) Interests, royalties, prizes and
other
winnings subject to final tax
(Passive
Income)
b) Cash & property dividends (does
not
include stock dividends; these are
realized
only
upon
their
subsequent sale)
(Passive Income)
c) Capital gains from sale of real
property
d) Capital gains from sales of
shares of
stock not listed in the stock
exchange
e) Capital gains from sale of shares
of stock
listed in stock exchange (subject to
percentage tax
B. Estates and Trusts
Estate:
property,
rights
and
obligations of a
person which are not extinguished
by his death
and those that accrues thereto;
taxed in the same
way as an individual provided it is
irrevocable and
earns income; what is taxed is not
the property
that constitutes the trust (this was
already subject
to donors tax) but the income of
such property.
Trust: arrangement created by
agreement under
which title to property is passed to
another for
conservation or investment with
the income and
the corpus/principal distributed in
accordance
with the directions of the creator;
to be taxable as
a separate entity, grantor must
have absolutely
and irrevocably given up control
and benefit over
the trust.
C. Corporation
A
corporation
shall
include
partnerships, no matter
how created or organized. Joint

stock companies,
joint accounts, associations, and
insurance
companies
But does not include, for the
purpose of
imposing ordinary 35% corporate
income tax:
o general professional partnerships
o joint venture or consortium
formed for the
purpose
of
undertaking
construction
projects or engaging in petroleum,
coal,
geothermal
&
other
energy
operations
pursuant to an operating or
consortium
agreement
under
a
service
contract with
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the govt.
General Types:
1) Domestic Corporation is
created or
organized in the Philippines or
under its laws
2)
Foreign
Corporation
is
organized and
existing under the laws of a foreign
country
(a)
Resident
foreign
corporation foreign
corp. engaged in trade or business
within
the Philippines
(b)
Nonresident
foreign
corporation
foreign corp. not engaged in trade

or
business within the Philippines
D. Partnerships
Kinds of Partnerships
1)
General
Professional
Partnerships
Established solely for purpose of
exercising
common profession and not part of
income
derived from engaging in trade or
business.
As an entity, it is not subject to
income tax.
Partners are liable for income tax
on their
distributive share (computed by
dividing net
income of GPP). Each partner shall
report his
distributive share as part of his
gross income.
2)
Taxable/Business/Ordinary
Partnership
All other partnerships no matter
how created
or organized.
Includes
unregistered
joint
ventures and
business partnerships.
Taxable as an entity ordinary
corporate
income tax.
Joint ventures are not taxable as
corporations when its purpose if a)
undertaking construction projects;
b)
engaged in petroleum, coal and
other energy
operation under a service contract
with the
government.
Partners
are
considered
stockholders;
therefore, their distributive share is

taxed as
dividends.
TAX ON CORPORATIONS
I. DOMESTIC CORPORATIONS
A. In general
On taxable income from all
sources within and without
the Philippines
32% (2000-2005)
35% (2006-2008)
30% (2009
onwards)
B.
Optional
Gross
Income
Taxation
Effective Jan. 1, 2000: the President
(upon
recommendation of the Sec of
Finance) may
allow corporation an option to be
taxed at 15% of
gross income after the ff.
conditions are
satisfied:
Tax effort ratio 20% of
GNP
Ratio of IT collection to total tax
revenue
40%
VAT tax effort 4% of GNP
Ratio of Consolidated Public
Sector Financial Position
(CPSFP) to GNP
0.9%
Ratio of Cost of Sales to Gross
Sales from all sources
Does not
exceed 55%
The election of the option shall be
irrevocable
for 3 consecutive taxable years
during which the
corp. is qualified under the scheme
Gross Income = Gross Sales
( - ) Sales returns,
discounts and
allowances
( - ) Cost of goods sold
Cost of Goods Sold
Trading and Merchandising Concern
Invoice cost plus import duties
and
freight in transporting goods to the
place
where actually sold, including
insurance
while in transit
Manufacturing concern
Cost of production of finished
goods (raw
materials,
direct
labor
and
manufacturing
overhead, freight cost, insurance
premiums, and other costs to bring
the
raw materials to the factory)
If taxpayer is engaged in sale of
service:
Gross Income = Gross receipts
allowances and
discounts
C. Special Types of Domestic
Corporations
Proprietary
educational
institutions and
hospital which are
10% On related trade,
business or activity;
35% (2006) if total
gross income from
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nonprofit
unrelated trade,
business, or activity
exceed 50% of total

income
GOCC, Agencies
and
Intrumentalities,
including
PAGCOR
32%
(20002005)
35%
(2006)
Same tax rate upon
their taxable
income in a similar
business, industry,
or activity
GSIS/ SSS / PHIC
/ PCSO
Exempt
Depository Banks 10% On interest
income
from foreign
currency
transactions
including interest
income from
foreign loans
Proprietary
Educational
Institutions & Hospitals
(non-profit)
Proprietary
educational
institution any
private
school
maintained
&
administered by
private individuals or groups with
an issued
permit to operate from DECS, or
CHED or
TESDA
Taxable at 10% on taxable
income, except on
certain passive income (which are
subject to final
tax)
Predominance Test: if GI from

unrelated
trade/business/other
activity
>
50% of the total GI
from all sources, ENTIRE taxable
income shall
be subject to the REGULAR
corporate tax rate
(35% Effective 2006)
Distinguish from non-profit nonstock educational
institutions which are exempt from
tax on
revenues and assets Actually,
Directly and
Exclusively used for educational
purposes (See
above for discussion).
GOCCs
General Rule: all corporations,
agencies, or
instrumentalities
owned
or
controlled by the govt.
are taxable.
Exceptions:
1) GSIS
2) SSS
3) PHIC
4) PCSO
D.
Rule
for
Corporations
Exempt from Taxation
General Rule: those enumerated
under section 30
are exempt.
Exception: exempted corporations
are subject to
income tax on their income from
any of their
properties, real or personal, or from
any activities
conducted for profit regardless of
the disposition
made of such income.
Ex. Non-stock, non-profit religious
organization is exempt from 35%
ordinary
income tax on corporations (by

virtue of
section 30 which uses as such)
and from all
property
tax
(by
virtue
of
Constitution,
provided ADE use for its religious
purpose).
However, if it derives income from
its
property or conducts an activity
that is for
profit (even if the proceeds will be
used for
the
religious
purpose),
the
proceeds will be
taxable.
Ex. For educational institutions,
the
proceeds, to be exempt, must be
both a)
realized from educational activities
and b)
used for educational activities.
E. Minimum Corporate Income
Tax (MCIT)
1. MCIT Rate = 2% of gross
income (GI)
When to begin/apply MCIT?
Beginning on the
4th taxable year immediately
following the year in
which
such
corporation
commenced its business
operation
(Commencement of Business
Operation:
Upon
Issuance
of
BIR
Certificate of
Registration)
Imposed when on the 4th taxable
year, 2% of
the corporations GI is greater than
35% of its TI.
Example: for 2006 calendar year
GI = P500,000 2% of GI = P10,000
TI = P27,000 35% of TI = P9,450

2006 IT = P10,000
Rationale: This is designed to
prevent
corporations from escaping being
taxed by
including frivolous expenses in
their statement of
income (Ex. Over statement of
depreciation
expense)
2. Carry Forward of Excess
Minimum Tax
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Excess of MCIT over the normal
income tax shall
be carried forward & credited
against normal
income tax for the 3 succeeding
years
Example: (proceeding from above
example)
Situation A: If regular income tax
(35% of taxable
income) is greater than MCIT (2%
of GI) Pay
Regular Income Tax
For 2007 calendar year:
GI = P500,000 2% of GI = P10,000
TI = P50,000 35% of TI = P17,500
Income Tax payable for 2007
= 17,500 (Regular Income Tax)
550 (MCIT
Carry Forward from 2006: 10,0009450)
= 16,950
NOTE: You can deduct MCIT Carry
Forward only if
Regular Income Tax is greater than
MCITY
Situation B: If regular income tax is

less than
MCIT Pay MCIT
For 2007 calendar year:
GI = P500,000 2% of GI = P10,000
TI = P20,000 35% of TI = P7,000
Income Tax payable for 2007
= 10,000
NOTE: MCIT carry forward as of
2007 is already
3,550 (550 from 2006 and 3,000
from 2007).
So if in 2008, Regular Income Tax is
already
greater than MCIT, you may deduct
3,550
from payable Regular Income Tax.
3. Relief from MCIT
MCIT may be suspended by the Sec
of
Finance when corporations losses
are due
to:
(a) prolonged labor dispute
(b) force majeure
(c) legitimate business reverses
4. Gross Income (for purposes
of applying
MCIT)
Gross Income = Gross Sales
discounts & allowances
( - ) Cost of Goods sold
If taxpayer is engaged in sale of
service:
Gross Income = Gross Receipts
discounts and
allowances
( - ) Cost of Services
*means all direct costs and
expenses
necessarily incurred to provide the
services
required
by
the
customers
including:
a) salaries and employee benefits

of
personnel,
consultants
and
specialists
directly rendering the service;
b) costs of facilities directly utilized
in
providing the service such as
depreciation or
rental of equipment used and costs
of
supplies
II.
RESIDENT
FOREIGN
CORPORATION
A. In General (the rest is the
same as domestic
corp.)
On taxable income from all
sources within the
Philippines.
32% (2000-2005)
35% (2006-2008)
30% (2009 onwards)
B. MCIT - same as domestic corp.
C. Special types of resident
foreign corporations:
International Air
carriers
2.5% On Gross Philippine
Billings (see case of Air
Canada vs. CIR infra)
International
Shipping
2.5% On Gross Philippine
Billings
Offshore
banking units
10% Any interest income
derived from foreign
currency loans granted
to residents other than
offshore banking units
or local commercial
banks, including local
branches of foreign
banks that may be
authorized by the BSP

to transact business
with offshore banking
units
Offshore
banking units
Exempt Income derived by
offshore banking units
authorized by the BSP,
from foreign currency
transactions with
nonresidents, other
offshore banking units,
local commercial
banks, including
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branches of foreign
banks that may be
authorized by the BSP
to transact business
with offshore banking
units.
Regional/Area
Headquarters
Exempt
Regional
Operating
Headquarters of
Multinational
companies
10% On taxable income
Gross Philippine Billings
For international air carriers,
refers to gross
revenue derived from carriage of
persons,
excess baggage, cargo, and mail
originating
from the Philippines in a continuous
and
uninterrupted flight, irrespective of

the place
of sale or issue and the place of
payment of
the ticket or passage document
Provided, tickets revalidated,
exchanged
and/or
indorsed
to
another
international
airline form part of the GPB if the
passenger
boards a plane in a port or point in
the
Philippines
o If the ticket is indorsed to another
airline,
the GPB will be charged to the
transferee/indorsee
Provided, for a flight which
orginates in the
Philippines
but
transshipment
(transfer) of
passenger takes place at any port
outside
the Philippine on another airline,
only the
aliquot portion of the cost of the
ticket
corresponding to the leg flown from
the
Philippines
to
the
point
of
transshipment shall
form part of the GPB.
o Note: Transfer of airline company,
not
transfer of aircraft
GPB rule in the NIRC is a
departure from the
old rule which emphasized where
tickets
were bought.
Now we adopt the originating
rule meaning
to
form
part
of
GPB,
passenger/cargo must
originate from the Philippines
Does not apply to domestic

corporations (Ex.
PAL)
Carrier must be an alien resident
corporation;
if its not, then it will be subject to
35% tax on
GI
as
non-resident
alien
corporation.
Does not apply to offline carriers
o On line carriers: those with
landing rights
in the Philippines
o Off line carriers: those without
landing
rights but may nevertheless be
selling
tickets in the Phil subject to tax
treatment of ordinary resident
foreign
corporation
Whats controlling is the amount
stated in the
ticket and not the actual purchase
value.
Air Canada vs. CIR, CTA Case
No. 6572, Dec. 22,
2004
It is evident that the definition of
Gross Philippine
Billings under Section 28(A)(3)(a)
of the 1997 Tax
Code covers the gross revenue
derived from the
carriage
of
persons,
excess
baggage, cargo and mail
originating from the Philippines in
a continuous and
uninterrupted flight irrespective of
the place or sale
or issue and the place of payment
of the ticket or
passage document. To originate
would mean to
cause the beginning of; to start (a
person or thing) on
a course or journey; to begin,

start. In other words,
the flights carrying the passengers
must have
originated or started from the
Philippines. Verily,
petitioner,
being
an
off-line
international carrier, as
authorized to operate by the CAB
and having no
flights
originating
from
the
Philippines in a continuous
and uninterrupted flight, cannot be
taxed pursuant to
Section 28(A)(3)(a) of the 1997 Tax
Code, that is,
based on their Gross Philippine
Billings.
However, although petitioner Air
Canada is not
liable to pay the tax as an
international air carrier
(2.5% on gross Phil. Billings), it is
still liable to pay
income tax as a resident foreign
corporation.
Under Section 22 of the 1997 Tax
Code, the term
resident
foreign
corporation
applies to a foreign
corporation engaged in trade or
business within the
Philippines, while the term nonresident foreign
corporation applies to a foreign
corporation not
engaged in trade or business within
the Philippines.
However, with regard to the term
doing or engaged
in business, there is no fixed or
specific criterion as
what
constitutes
doing
or
engaging in business. In
the case of The Mentholatum Co.,
Inc., et al. vs.
Mangiliman, et al., 72 PHIL 524, the

Honorable
Supreme Court had thoroughly and
clearly explained
the term in this way:
There is no specific criterion as
to what
constitutes doing or engaging in
or transacting
business. Each case must be
judged in the light of
its
peculiar
environmental
circumstances. The term
implies continuity of commercial
dealings and
arrangements, and contemplates,
to that extent, the
performance of acts or works or the
exercise of some
of the functions normally incident
to, and in
progressive
prosecution
of
commercial gain or for the
purpose and object of the business
organization.
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In order that a foreign corporation
may be
regarded as doing business, there
must be continuity
of conduct and intention to
establish a continuous
business, such as the appointment
of a local agent,
and not one of a temporary
character. In other
words, a foreign airline company
selling tickets in the
Philippines through their local
agents, whether liaison
offices, agencies or branches, as in

the case at bar,
shall be considered as resident
foreign corporation
engaged in trade or business in
that country for such
activities
show
continuity
of
commercial dealings or
arrangements and performance of
acts or works or
the exercise of some functions
normally incident to
and in progressive prosecution of
commercial gain or
for the purpose and object of the
business
organization.
Branch Profit Remittance Tax
BPRT shall be imposed on any
profit remitted
by a branch to its head office.
Distinguish between a branch
and a
subsidiary
o If branch, subject to BPRT
o If subsidiary amounts received
by
non-resident foreign corporation
would
be treated as dividends it
becomes
part of its Gross Income from within
taxable at 35%
Branch will first be subjected to
ordinary
corporate tax as a resident foreign
corporation (35%). Afterwards, the
profits for
remittance shall then be subject to
15%
BPRT. (Because branch assumes
personality of an RFC and is
therefore
taxable as such)
Any remittance, so long as you
can trace it
from a branch to the foreign parent

corporation subject to BPRT
o Ex. X foreign corp. has both
regional
headquarters
and
branch
in
Philippines.
Instead of remitting straight to X,
branch
pays
amount
to
regional
headquarters
supposedly
for
administrative
support
services The amount paid for the
services will still be subject to BPRT
because the tax is imposed on any
form
of remittance, direct or indirect.
TAX SPARING CREDIT
Tax reduced by the Philippines
should be
fully applied or credited to the tax
on dividend
income received by the nonresident foreign
corporation imposed by the country
of its
domicile. This serves as an
incentive by
reducing their tax liability in the
Philippines
and in their residence countries.
Ex. Domestic corporation paid
cash dividend
to non-resident foreign corporation
(NRFC)
organized in Brazil. This shall form
part of
NRFCs income therefore taxable
also in
Brazil. The dividend received shall
only be
taxed at 15% in the Phils (instead
of 35%) if
Brazil will reduce/credit at least
20% of the
tax imposed in the Phils. from its

tax imposed
in Brazil. [See Section 28(5)(b)]
If Brazil will credit/reduce less
than 20% or
will not credit any amount, then the
Phils will
tax the dividend at 35% (ordinary
income
tax).
Phils. cannot give more than 15%
tax credit
because the law only allows such.
III.
NONRESIDENT
FOREIGN
CORPORATION
A. In General
Gross Income from all sources
within the Philippines (except
Capital Gains on sale of
domestic shares subject to final
tax)
32% (2000-2005)
35% (2006-2008)
30% (2009
onwards)
Gross Income includes interest,
dividends,
rents, royalties, salaries, premiums
(except
reinsurance
prem.),
annuities,
emoluments or
other fixed/determinable annual,
periodic/casual gains, Capital Gains
(not
subject to FT)
NON-RESIDENT
FOREIGN
CORPORATION
Cinematographic
Film owner, lessor
or distributor
25% On gross income
Owner or lessors
of vessel charted
by Philippine
nationals
4.5% On gross income
Owner or lessors
of aircraft,
machineries and
other equipment
7.5% On gross income
INCOME TAX RATES
I. INDIVIDUALS
A. In general
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Graduated rates of 5 to 32%.
B. Passive Income Please see
exhibit
Capital Gains from Sale of Real
Property
Final tax on gross selling price or
current fair
market value, whichever is higher.
Imposed upon capital gains
presumed to
have been realized from the sale,
exchange,
or other disposition of real property
located in
the Philippines, including pacto de
retro sales
and other forms of conditional
sales.
Law presumes a gain, hence,
even if the sale
was at a loss (bought for 2M, sold
for 1M),
CGT will still be imposed on entire
proceeds
of the disposition; law does not talk
about the
net gain, it only considers gross
selling
price/FMV whichever is higher.
Refers to real property held as
capital asset
(not used for business/investment)

as
opposed to ordinary asset (used in
ordinary
course of business).
Special Rule for disposition to
government
o Taxpayer has option of treating
the
proceeds as (a) taxable income (532%
on net gain) or as capital gains (6%
final
tax on FMV/gross selling price).
o If second option is chosen: 6%
final tax
shall
be
based
on
actual
consideration
and not FMV since the former is
usually
lower than FMV (BIR Ruling).
o If the disposition took nature of
expropriation (no meeting of the
minds,
not voluntary), transaction is not
subject
to CGT. Net gain (if any) will be
treated
as part of GI. Includes disposition
by
judicial order and other forms of
forced
disposition.
Rule for Exchange
o
FMV
of
the
property
exchanged/given up
shall be basis of CGT. (Ex. A
exchanges
property worth 1M for Bs property
worth
2M CGT on A will be based on 1M,
CGT on B will be based on 2M)
Exception on Principal Residence
o Gains presumed to have been
realized
from sale or disposition of principal
residence, the proceeds of which is

fully
utilized in acquiring new principal
residence within 18 months from
disposition shall be exempt from
CGT.
o Can be availed only once every
10 years.
o If the new principal residence is
cheaper
than old (meaning there is no full
utilization of the proceeds), the
difference
will be subject to CGT.
o Exemption does not include
exchange of
principal residence for a new
principal
residence subject to rules on
exchange above.
C. Special Tax Rates for Aliens
Please see
exhibit
II. CORPORATIONS
A. In general
2006-2008 35%
2009-onwards 30%
B. Passive Income and other
income Please see
exhibit
C. Tax rate for Resident Foreign
Corporation
Please see exhibit
D. Tax rate for special types of
Resident Foreign
Corporation Please see exhibit
IMPROPERLY
ACCUMULATED
EARNINGS TAX
(IAET)
(Sec. 29, as implemented by
Rev. Reg. 2-2001
which prescribes rules governing
the imposition of
IAET)
A. Rule
There is imposed for each taxable

year, in
addition to other taxes, a tax equal
to 10% of the
improperly
accumulated
taxable income of
domestic
and
closely-held
corporations
formed or availed of for the
purpose of avoiding
the income tax with respect to its
shareholders or
the shareholders of any other
corporation, by
permitting the earnings and profits
of the
corporation to accumulate instead
of dividing
them among or distributing them
to the
shareholders
(Ex.
Holding
company).
B. Rationale
If the earnings and profits were
distributed, the
shareholders would then be liable
for income tax;
if the distribution were not made to
them, they
would incur no tax in respect to the
undistributed
earnings
and profits
of the
corporation. It is a tax
in the nature of a penalty to the
corporation for
the improper accumulation of its
earnings, and a
deterrent to the avoidance of tax
upon
shareholders who are supposed to
pay dividends
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tax on the earnings distributed to
them.
C. Exception
The use of undistributed earnings
and profits for
the reasonable needs of the
business would
not
generally
make
the
accumulated or
undistributed earnings subject to
the tax. What is
meant by reasonable needs of
the business
is determined by the Immediacy
Test.
Immediacy Test It states that
the
reasonable
needs
of
the
business are the
1) immediate needs of the
business; and
2)
reasonably
anticipated
needs (Ex.
Expansion)
How to prove the reasonable
needs of
the business: The corporation
should prove
that there is
1) an immediate need for the
accumulation
of the earnings and profits; or
2) a direct correlation of
anticipated
needs to such accumulation of
profits.
D. Composition: The following
constitute
accumulation of earnings for the
reasonable
needs of the business: (ILL ABE)
1) Allowance for the increase in
the
accumulation of earnings up to
100% of the
paid-up capital of the corporation
as of
Balance Sheet date, inclusive of
accumulations taken from other
years;
2) Earnings reserved for definite
corporate
expansion projects or programs
requiring
considerable capital expenditure as
approved
by the Board of Directors or
equivalent body;
3) Earnings reserved for building,
plants or
equipment acquisition as approved
by the
Board of Directors or equivalent
body;
4)
Earnings
reserved
for
compliance with any
loan covenant or pre-existing
obligation
established under a legitimate
business
agreement;
5) Earnings required by law or
applicable
regulations to be retained by the
corporation
or in respect of which there is legal
prohibition against its distribution;
6) In the case of subsidiaries of
foreign
corporations in the Philippines, all
undistributed earnings intended or
reserved
for
investments
within
the
Philippines as can
be proven by corporate records
and/or
relevant documentary evidence.
E. Covered Corporations: Only
domestic and
closely-held corporations are

liable for IAET.
1. Closely-held corporations are
those:
a) at least 50% in value of the
outstanding capital
stock; or
b) at least 50% of the total
combined voting power
of all classes of stock entitled to
vote is owned
directly or indirectly by or for not
more than 20
individuals. Domestic corporations
not falling
under the aforesaid definition are,
therefore,
publicly-held corporations.
F. Exempt Corporations: The
IAET shall not apply
to the following corporations:
(BIG-PEN-T)
1) Banks and other non-bank
financial
intermediaries;
2) Insurance companies;
3) Publicly-held corporations;
4) Taxable partnerships;
5)
General
professional
partnerships;
6) Non- taxable joint ventures; and
7) Enterprises that are registered:
(a) with the Philippine Economic
Zone
Authority (PEZA) under R.A. 7916;
(b)
pursuant
to
the
Bases
Conversion and
Development Act of 1992 under
R.A.
7227; and
(c) under special economic zones
declared
by law which enjoy payment of
special
tax rate on their registered
operations or
activities in lieu of other taxes,

national or
local.
G. Period for Payment of
Dividend/IAET: The
dividends must be declared and
paid or issued
not
later
than
one
year
following the close of
the taxable year, otherwise, the
IAET, if any,
should be paid within fifteen (15)
days
thereafter.
H. Determination of Purpose to
Avoid Income
Tax
1) The fact that a corporation is a
mere holding
company
or
investment
company shall be
prima facie evidence of a purpose
to avoid
the tax upon its shareholders or
members
A holding or investment
company is a
corporation having practically no
activities except
holding property, and collecting the
income
therefrom or investing the same;
and
2) where the earnings or profits of
a corporation
are
permitted
to
accumulate
beyond the
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reasonable
needs
of
the
business.
I. Prima facie instances of

accumulation of
profits beyond the reasonable
needs of a
business and indicative of
purpose to avoid
income tax upon shareholders
1)
Investment
of
substantial
earnings and profits
of the corporation in unrelated
business or
in stock or securities of unrelated
business;
2) Investment in bonds and other
long-term
securities; and
3) Accumulation of earnings in
excess of 100%
of paid-up capital, not otherwise
intended
for the reasonable needs of the
business.
The controlling intention of the
taxpayer is
that which is manifested at the
time of
accumulation. A speculative and
indefinite
purpose will not suffice. The mere
recognition
of a future problem or the
discussion of
possible and alternative solutions is
not
sufficient. Definiteness of plan/s
coupled with
action/s
taken
towards
its
consummation is
essential.
Cyanamid Phils. vs. CA, GR No.
108067, Jan. 20,
2000
Ideally, the working capital should
equal the
current liabilities and there must
be 2 units of current
assets for every unit of current

liability, hence the socalled
"2 to 1" rule. A Debt-to-Equity ratio
(Current
Assets over Current Liabilites) of
2:1 is indicative of
the liquidity of a corporation, and
further
accumulation would expose it to
the IAET.
I. GROSS INCOME
All income derived from whatever
source, including
(but not limited to the following
items) (GRIP CARD
GPP)
1) Gross income derived from the
conduct of trade
or business or the exercise of a
profession
2) Rent Income
3) Interest Income
4) Prizes & winnings
5) Compensation for services in
whatever form paid,
including, but not limited to fees,
salaries, wages,
commissions & similar items
6) Annuities
7) Royalties
8) Dividend Income
9) Gains derived from dealings in
property
10) Pensions
11) Partners distributive share
from the net income
of the GPP (distributive share from
ordinary
partnerships
is
taxable
as
dividends; in this case,
the
ordinary
partnership
has
already been subject
to ordinary corporate income tax)
All income from whatever source
derived
Recovery
of
damages
(compensation for
injury; from tortious acts)
Not
taxable
Recovery of items
previously
deducted
from gross income (return of
capital)
Taxable
Forgiveness of indebtedness (if
effect of
entire transaction is a reduction of
purchase price of property acquired
in
prior year)
Not
Taxable
Income
derived
form
illegal
business
(gain)
Taxable
Recovery of lost earnings Taxable
BIR Ruling #017-2003
The transfer of land made by a
person to another in
payment of services rendered in
the form of attorneys
fees shall be considered as part of
the gross income
of the latter valued at either the
fair market value or
the zonal valuation, whichever is
higher, in the
taxable year received.
II. EXCLUSIONS FROM GROSS
INCOME (GIRL
CRM)
1) Gifts, Bequests & devises
But, income from such property
shall be
included in GI
Must be characterized by
disinterested
generosity and pure liberality

Difficult
to
establish
gift
situations if there is
an
Er-Ee
relationship
(A
bonus/assistance as
recognition of service rendered is
not
exempt)
If given under a) constraining
force of any
moral or legal duty or b) from the
incentive of
c) an anticipated benefit of an
economic
nature or where it is a return for
services
rendered, proceeds cannot qualify
as a gift.
Most critical consideration is the
givers
intention or motive.
Can be a gift if given on account
of filial
relationship.
2) Income Exempt under Treaty
To the extent required by any
treaty
obligation binding upon the Phil
govt.
3) Amount Received by Insured as
Return of
Premium
Under life insurance, endowment,
or annuity
contracts, received either during
the term or
at the maturity of the terms or
upon surrender
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of the contract
4) Life Insurance
Proceeds of life insurance policies

paid to the
heirs/beneficiaries upon the death
of the
insured
If such amounts are held by the
insurer under
an agreement to pay interest, the
interest
payments shall be included in the
GI
Insured must die to avail of total
exemption. If
he survives, there/s only partial
exemption
to the extent that the proceeds
constitute
return of capital (total amount of
premiums
paid).
5) Compensation for Injuries or
Sickness
Received through Accident/Health
Insurance
or Workmens Compensation Act,
as
compensation
for
personal
injuries/sickness
+ amount of damages received on
account of
such injuries/sickness
Damages will be exempt only if
they arise
together with personal injury;
however, if
damages only amount to return of
capital, it
is exempt (Ex. Damages from car
accident
exempt only if claim includes
compensation
for personal injury. If no personal
injury,
damages for car wreckage will only
be
exempt to the extent of the

amount of the
actual damage return of capital)
Must be physical injury, not injury
to rights.
6) Retirement Benefits, Pensions,
Gratuities
Forms
a) RA 7641 or Reasonable Private
Benefit Plan
o See below for rules
b)
Amount
received
as
a
consequence
of separation for any cause beyond
control (death, sickness or other
physical disability)
o Sickness must be job threatening
must render taxpayer
incapable of working (Ex. Does
not include STD)
o Benefits from separation due to
retrenchment come under
exemption (no choice/option; but
if the Ee avails of an optional
early retirement plan, he cannot
reason that he was separated for
reasons beyond his control,
therefore, he cannot claim
exemption of the benefits on this
ground but he can claim
under other grounds such as
RPBP or RA 7641.
c) Benefits received from a foreign
government by resident of non
resident citizens or aliens who
reside
permanently in the Philippines
d) Veterans benefits
e) Benefits under SSS
f) Benefits received from GSIS
2 Options under paragraph (a),
Section
32(B)(6)
g) RA 7641
o Conditions: (i) at least 60 years
old;
(ii) 5 years of service at time of

retirement
o Availed if there is no reasonable
private benefit plan (benefits under
this option is less)
o Limted exemption: month
salary
for every year of service. In RPBP,
all is excludable.
h) Reasonable Private Benefit Plan
o Conditions: (i) at least 50 yrs old;
(ii)
in the service of same employer for
at least 10 years at time of
retirement
o Must be approved by BIR
o A pension, gratuity, stock bonus
or
profit-sharing plan maintained by
an
ER for the benefit of some or all of
his officials/employees, wherein
contributions are made by such ER
for the officials/employees, or both,
for the purpose of distributing to
such
officials & employees the earnings
&
principal of the fund thus
accumulated; & provided in the
plan
that no part of the income shall be
used for/be diverted to any
purpose
other than for the exclusive benefit
of
the said officials & employees
Service must be continuous.
You can avail of the benefits only
once
(once youve availed of RPBP, you
cannot
avail of another RPBP); but you can
avail of
exemption under another ground
o Ex. A government employee can

claim
exemption for retirement benefits
received from the GSIS even after
availing of RPBP taxpayer can
claim
RPBP after qualifying as a private
employee
then
under
GSIS
proceeds
exemption after qualifying as a
government employee
o
Ex.
Employee
can
claim
exemption
under RPBP then later claim on the
ground that the amount he
received is a
consequence of his separation in a
subsequent job for any cause
beyond his
control
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Terminal Leave Pay: amount paid
for the
commutation of leave credits
o Excludable only for government
employees (this exemption does
not find
support in NIRC but is backed by SC
decision and BIR Ruling #143-98)
7) Miscellaneous Items
(a) income derived by foreign
government (from
investments in Philippines in loans,
stocks,
bonds or other domestic securities)
Refers only to passive income. If
the
foreign government engages in
trade,
income is taxable.
(b) income derived by govt./its

political
subdivisions (from public utility or
exercise
essential governmental function)
Key: Income should accrue to
government; if the income is
retained by
the public utility, it is not exempt
look
at
charter
of
political
subdivision/GOCC
to determine whether its income
accrues
to the government or not.
(c) prizes, awards in sports
competition
sanctioned by national sports
associations
whether held in Philippines or
abroad
Contemplates
a
particular
competition,
not a cumulative achievement (Ex.
Sportsman of the year award does
not
qualify for exemption)
(d) prizes & awards
in recognition of religious,
charitable,
scientific,
educational,
artistic,
literary or
civic achievement, but only if:
recipient was selected without
any action
on his part
recipient not required to render
substantial future services as a
condition
of receiving the prize/award
Example: Nobel prize award
Construed strictly, take note of 7
categories. It does not include
athletic
achievement.
Contemplates a rational selection
process; cannot just be randomly

selected.
(e) 13th month pay & other
benefits (i.e.
productivity incentives & Christmas
bonus)
Total exclusion shall not >
P30,000
(f) GSIS, SSS, Medicare, Pag-ibig
contributions
& union dues of individuals
(g) Gains form the sale of bonds,
debentures or
other certificates of indebtedness
with a
maturity of more than 5 years
(h) Gains from redemption of
shares in mutual
fund
BIR Ruling #125-98
The phrase shall not have availed
of the privilege
under a retirement benefit plan of
the same or
another ER found in Sec. 32 (B) (6)
(a) of the Tax
Code means that the retiring
official or EE must not
have
previously
received
retirement benefits from the
same or another employer who has
a qualified
retirement benefit plan.
BIR Ruling #143-98
The
terminal
leave
pay
of
government employees
whose employment is coterminous
is exempt since it
falls within the meaning of the
phrase for any cause
beyond the control of the said
official or EE found in
Sec. 32(B) of the CTRP.
SPECIAL
TREATMENT
OF
FRINGE BENEFIT
A. Fringe Benefit
Any good, service or other benefit

furnished or
granted in cash or in kind by an
employer to an
individual employee (except rank
and file employees)
such as, but not limited to the ff:
1) housing
2) expense account
3) vehicle of any kind
4) household personnel (such as
maid, driver &
others)
5) interest on loan at less than
market rate to the
extent of the difference between
the market rate
& actual rate granted
6) membership fees, dues & other
expenses borne
by the employer for the employee
in social &
athletic clubs or other similar
organizations
7) expenses for foreign travel
8) holiday & vacation expenses
9) educational assistance to the
employee or his
dependents
10) life or health insurance & other
non-life insurance
premiums or similar amounts in
excess of what
the law allows
B. Nature of FBT
Final tax imposed on the grossedup monetary value
of fringe benefit furnished/granted
to the EE by the
ER, whether an individual or corp.
(payable by the
employer)
Effective 1/1/98 34%
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1/1/99 33%
1/1/00 32%
Fringe benefit is an income of the
employee subject
to Fringe Benefit Tax but is payable
by the Employer.
Er can deduct FBT from its taxable
income.
Fringe benefits are only for
corporate
officers/management. For rank and
file, it is called an
allowance. Allowances (benefits to
rank and file) are
not subject to FBT.
C. Fringe Benefits not subject
to FBT
(a) FB authorized & exempted from
tax under
special laws
(b) Contributions of ER for the
benefit of the
employee to retirement, insurance
&
hospitalizations benefit plan
(c) Benefits given to the rank & file
employees,
whether granted under a CBA or
not
(d) De minimis benefits
De Minimis benefits
a) Monetized unused vacation
leave credits of
private employees not exceeding
10 days
during the year and monetized
value of leave
credits paid to government officials
and
employees
b) Medical cash allowance to
dependents of
employees not exceeding P750 per

semester
or P125 per month
c) Rice subsidy of P1,000 or 1 sack
of 50 kg
rice amounting to not more than
P1,000
d) Uniform and clothing allowance
not
exceeding P3,000 per year
e) Actual yearly medical benefits
not exceeding
P10,000
f) Laundry allowance of P300 per
month
g) Employee achievement awards,
for length of
service or safety achievement in
the form of
tangible personal property other
than cash or
gift certificate, with an annual
monetary value
not exceeding P10,000 received by
the
employee under an established
written plan
which does not discriminate in
favor of highly
paid employees
h)
Christmas
and
major
anniversary
celebrations not exceeding P5,000
per
employee per annum
i) Flowers, fruits, books or similar
items given
to
employees
under
special
circumstances
on account of illness, marriage,
birth of a
baby, etc
j) Daily meal allowance of overtime
work not
exceeding 25% of basic minimum
wage
CONVENIENCE
OF
THE
EMPLOYER RULE
When a fringe benefit is given
solely for the
convenience of the employer, the
fringe
benefit is exempt from FBT
because the
employee does not recognize
income from
the benefit.
Ex. Expenditure on housing of
engineer
within factory premises is not
subject to
FBT
General Rule: If housing is
located
outside, it is subject to FBT.
Exception: If the nature of the
Ers
business is hazardous to health of
Ee, housing can be located outside
the factory without being subject to
FBT.
Ex. If employee is given housing
allowance in
cash,
this
will
constitute
compensation of
the
employee
(income
from
whatever
source). However, if it qualifies as a
Fringe
Benefit, then it will be subject to
FBT and
the burden is shifted to Er (Tax on
Ee,
Burden on Er)
III. DEDUCTION FROM GROSS
INCOME
Defined as: Items or amounts
which the law allow
to be deducted from gross income
in order to
arrive at the taxable income.
The basic principle governing

deductions from
gross
income
apply
to
all
taxpayers.
Because deductions are strictly
construed
against the taxpayer, one seeking
a deduction
must point to some specific
provisions of the
statute in which that deduction is
authorized &
must be able to prove that he is
entitled to the
deduction which the law allows.
Adequate records should be kept
to support the
deductions.
The deduction claimed must have
been
subjected to withholding tax, if
required.
Deductions for income tax
purposes partake of
the nature of tax exemptions;
hence, if tax
exemptions are to be strictly
construed, then it
follows that deductions must be
STRICTLY
construed.
He must be able to prove that he
is entitled to the
deduction authorized or allowed.
(Atlas
Consolidated Mining & Devt. Corp.
vs. CIR,
January 12, 1981)
WHO MAY AVAIL OF THE
DEDUCTIONS?
1) Individuals
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(a) citizen
(b) resident alien
(c)
non-resident
alien
doing
business in the
Philippines
(d) member of GPP
2) Corporations
(a) domestic corp.
(b) resident foreign corp.
(c)
proprietary
educational
institutions &
hospitals
(d) GOCCs
WHO
CANNOT
AVAIL
OF
DEDUCTIONS FROM
GROSS INCOME:
1. Citizens and resident aliens
whose income is
purely
compensation
income
(except for
premium payments on health
and/or
hospitalization insurance);
2. Non-resident aliens not engaged
in trade or
business in the Philippines; and
3. Non-resident foreign corporation
THE
FOLLOWING
ARE
THE
ALLOWABLE
DEDUCTIONS
FROM
GROSS
INCOME BASED ON
CLASSES OF TAXPAYER:
1. Individuals with gross income
from employeeemployer
relationship only (gross income
only):
o Premium payments on health
and/or hospital
insurance
(if
requisites
are
complied with)
o
Personal
exemptions
and
additional
exemptions
2. Individuals with gross income

from business or
practice of profession:
o Optional Standard Deduction
(OSD) OR
Itemized deductions
o Optional Standard Deductions
10% of the
gross income. May be availed only
by
individuals (except nonresident
aliens) who
are
not
purely
compensation
income earners.
This is in lieu of the itemized
deductions.
o Premium payments on health
and/or hospital
insurance
(if
requisites
are
complied with)
o
Personal
and
additional
exemptions
3. Corporations
o Itemized Deductions
4. Estates and Trusts
Section 62 of the NIRC
ITEMIZED
DEDUCTIONS/
ALLOWABLE
DEDUCTIONS SEC. 34 (BELT DID
CRP)
1) Bad Debts
2) Expenses
3) Losses
4) Taxes
5) Depreciation
6) Interest
7) Depletion of oil & gas wells &
mines
8) Charitable & other contributions
9) Research & Development
10) Pension trusts
1. EXPENSES (SEC 34A)
1) Ordinary & necessary trade,
business or
professional expenses only
REQUISITIES
FOR
DEDUCTIBILITY:
a. Must be ordinary AND necessary
(both
must be complied with)
b. Must be paid or incurred during
the
taxable year
c. Must be paid or incurred in
carrying on or
which are directly attributable to,
the
development,
management,
operation
and or conduct of the trade,
business or
exercise of a profession, including
reasonable allowance for:
1. salaries, wages & other forms of
compensation for personal services
actually
rendered
(including
grossedup
monetary value of FB); but the
final tax should have been paid
2. travel expenses in pursuit of
trade,
business/ profession
3. rentals &/or other payments as
lessee, user or possessor
4. entertainment, amusement &
recreation expenses directly
connected to the devt., mgt. &
operation & conduct of trade,
business/ profession
> The Regulations impose a limit of
0.50% of net sales (gross sales less
sales
returns/allowances
&
sales
discounts) for
taxpayers engaged in sale of goods
or
properties; or 1% of net revenue
(gross
revenue less discounts) for those
engaged in
sale of services, including exercise

of
profession and use or lease of
properties.
(RR No. 10-02)
EXPENSES TO BE DEDUCTIBLE:
- Amount must be reasonable.
- Amount must be substantiated.
- It is not contrary to law, public
policy or morals.
- Tax required to be withheld must
have been paid to
the BIR
2) Substantiation Requirements:
sufficient
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evidence (i.e. official receipts,
financial
statements or other adequate
records) to
substantiate:
(a) amt. of expense deducted
(b) direct connection/relation of the
expense
to the development, management
operation &/or conduct of the
trade,
business or profession of the
taxpayer
3) Bribes, Kickbacks & Other
Similar Payments:
not deductible
Ordinary expense normal or
usual in relation
to the taxpayers business and the
surrounding
circumstance.
Necessary
expense
appropriate and helpful in
the development of taxpayers

business and are
intended to minimize losses or to
increase profits.
These are the day to day expenses.
While illegal income will form part
of the income
of the taxpayer, expenses which
constitute bribe,
kickback,
and
other
similar
payment, being
against law and public policy are
not deductible
from gross income (Sec. 34A1c).
Business
expense
expenditure related to the

business that is deductible in the
year incurred, in
the same taxable year.
Capital expense expenditure
that improves or
adds to the value of your property
or equipment.
Not immediately deductible. It is
deductible over
time, such as in the form of
depreciation.
Expenses allowable to private
educational
institutions: In addition to the
expenses
allowable as deductions, a private
educational
institution has the option to elect
either:
(a) to deduct as expense those
otherwise
considered as capital outlays of
depreciable
assets
for
the
expansion of
school facilities
(b) to capitalize asset & deduct
allowance
for depreciation
2. INTEREST
Requisites for deductibility, as

implemented
by Rev. Reg. 13-2000
(a) there must be an indebtedness
(b) there should be an interest
expense paid
or
incurred
upon
such
indebtedness
(c) indebtedness must be that of
the
taxpayer
(d)
indebtedness
must
be
connected with
the taxpayers trade, business or
exercise of profession
(e) interest expense must have
been paid or
incurred during the taxable year
(f) interest must have been
stipulated in
writing
(g) interest must be legally due
(h) interest payment arrangement
must not
be between related taxpayers
(i) interest must not be incurred to
finance
petroleum operations
(j) in case of interest incurred to
acquire
property used in trade, business or
exercise of profession, the same
was not
treated as a capital expenditure
(k) the interest id not expressly
disallowed
by law to be deducted from gross
income
of the taxpayer.
GENERAL RULE ON DEDUCTION
- The amount of interest expense
paid or incurred within a taxable
year
of indebtedness in connection with
the taxpayers trade, business, or
exercise of profession shall be
allowed as a deduction from the

taxpayers gross income.
LIMITATION ON DEDUCTION
Interest expense shall be reduced
by an amt.
equal to the ff. % of interest
income
subjected to FT:
1/1/00 38%
1/1/06
1/1/09
42% (RA9337)
33%
Example: Year 2006
Int. exp. = P2,000 Int. income
subjected to
FT = P1,500
Deduct as int. exp.: P2,000 (P1,500 x 42%)
= P1,370
The objective of the limitation is to
discourage tax
arbitrage on back to back loans,
the proceeds of
which are invested in income
earning interest that
is subject to 20% final tax.
Tax arbitrage- is a method of
borrowing without
entering into a debtor/creditor
relationship, often
to resolve financing and exchange
control
problems. In tax cases, back-toback loan is used
to take advantage of the lower rate
of tax on
interest income and a higher rate
of tax on
interest expense deduction.
DEDUCTIBLE
INTEREST
EXPENSE:
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1. interest on taxes, such as those
paid for
deficiency or delinquency, since
taxes are
considered indebtedness (provided
that the
tax is a deductible tax, except in
the case of
income
tax).
However,
fines,
penalties, and
surcharges on account of taxes are
not
deductible. The interest on unpaid
business
tax shall not be subjected to the
limitation on
deduction.
2. Interest paid by a corporation on
scrip
dividends.
3. Interest on deposits paid by
authorized banks
of the BSP to depositors, if it is
shown that
the tax on such interest was
withheld.
4. Interest paid by a corporate
taxpayer who is
liable on a mortgage upon real
property of
which the said corporation is the
legal or
equitable owner, even though it is
not directly
liable for the indebtedness.
NON-DEDUCTIBLE INTEREST
(a) interest paid in advance
through discount
or otherwise(in case of cash basis
taxpayer)
allowed as deduction in the year
the
debt is paid
if indebtedness is payable in
periodic amortizations, int. is
deducted in proportion of the amt.
of
the principal paid.
(b) payments made:
1. between members of a family
(include only brothers & sisters,
spouse, ancestors, & lineal
descendants)
2. between an individual & a corp.
more
than 50% in value of outstanding
stock is owned by such individual
(except in case of distributions in
liquidation)
3. between 2 corps. more than 50%
in
value of outstanding stock owned
by
same individual, if either one is a
personal holding co. or a foreign
holding co. during the taxable yr.
preceding
the
date
of
sale/exchange
4. between grantor & fiduciary of
any
trust
5. between Fiduciary of a trust &
the
fiduciary of another if same person
is
a grantor to each trust
6.
between
Fiduciary
&
a
beneficiary of
a trust
7. indebtedness is incurred by a
service
contractor to finance petroleum
corp.
8. interest on preferred stock which
in
reality is dividend
9. interest on unpaid salaries and
bonuses
10. interest calculated for cost

keeping
on account of capital or surplus
invested in business which does
not
represent charges arising under
interest-bearing obligation
11. interest paid when there is no
stipulation for the payment thereof
OPTIONAL
TREATMENT
OF
INTEREST
EXPENSE
- at the option of taxpayer, interest
incurred to acquire property used
in trade
or business may be allowed as:
(a) as expense (deduction)
(b) as capital expenditure
3. TAXES
- -the term taxes refers to
national and local
taxes, and means TAXES PROPER,
hence,
no deductions are allowed for:
o a. Interests
o b. surcharges
o c. penalties or fines incident to
delinquency (sec. 80, Rev. Reg. 2)
DEDUCTIBLE TAXES
- All taxes, national, or local, paid
or incurred
during
the
taxable
year
in
connection with the
taxpayers profession, trade or
business, are
deductible from gross income.
REQUISITES
FOR
DEDUCTIBILITY:
a. it must be paid or incurred within
the
taxable year
b. it must be paid or incurred in
connection with the taxpayers
trade,
profession or business
c. it must be imposed directly on

the
taxpayer
d. it must not be specifically
excluded
by law from being deducted from
the
taxpayers gross income
NON-DEDUCTIBLE TAXES
(a) Philippine income tax (but FBT
can be
deducted from gross income RR 898))
(b) income tax imposed by
authority of any
foreign country (except when the
taxpayer signifies his desire to
avail of
the tax credit for taxes of foreign
countries)
(c) estate & donors taxes
(d) taxes assessed against local
benefits of
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a kind tending to increase the
value of
the property assessed
(e) final taxes, being in the nature
of income
tax
(f) special assessments
Taxes, when refunded or credited,
shall be
included as part of GI in the year of
receipt to
the extent of income tax benefit of
said
deduction. (Tax Benefit Rule)
For NRAETB and RFC, taxes paid
or
incurred are allowed as deductions

only if
and to the extent that they are
connected
from income within the Philippines.
Exceptions to the rule that only
such persons
on whom the tax is imposed by law
can claim
deduction thereof:
a. taxes of shareholder upon his
interest as such and paid by the
corporation without
reimbursement from him, can be
claimed by the corporation as
deduction.
b. A corporation paying the tax for
the holder its bonds or other
obligation containing a tax-free
covenant clause cannot claim
deduction for such taxes paid by
it pursuant to such covenant.
LIMITATIONS ON DEDUCTIONS
In case of a nonresident alien
individual
engaged in trade/business in the
Philippines,
taxes to be deducted shall be
allowed only if
& to the extent that they are
connected with
income from sources w/in the
Philippines
Tax Credit: a right of an income
taxpayer to
deduct from income tax payable
the foreign
income tax he has paid to his
foreign country
subject to limitation.
WHO CAN CLAIM?
1. Citizen
2. Domestic Corp
3. Member of GPP
4. Beneficiary of an estate or trust
WHO CANNOT CLAIM?
1. Alien individual (except resident

aliens deriving income from within
&
without the Phils., if there is
reciprocity)
2. Foreign Corp.
Limitation of Credit (Substantiation
Requirements)
-The tax credit shall be allowed
only
if the taxpayer establishes to the
satisfaction of
the Commissioner the following:
a. The total amount of the income
derived
from
sources
without
the
Philippines;
b. The amount of income derived
from each
country, the tax paid or incurred to
which is
claimed as a credit under said
paragraph, such
amount to be determined under
rules and
regulations prescribed by the
Secretary of
Finance; and
c. All other information necessary
for the
verification and computation of
such credits.
What amount may be taken as
tax credit: The
amount of tax credit allowed is
equivalent to the
tax paid or incurred to a foreign
country during
the taxable year but NOT TO
EXCEED THE
FOLLOWING LIMITS:
Per Country Limitation Amount
of credit to tax
paid/incurred to any country shall
not exceed
same proportion of the tax against

which such
credit is taken
Income from outside the Phils (per
country)
Divided by Phil. Income
Subtotal
Multiplied by: TOTAL income from
ALL sources
Limitation per country
Global Limitation Total amount
of credit shall
not exceed same proportion of tax
which such
credit is taken
Total income from OUTSIDE the
Phils.
Divided by total income from ALL
sources
Subtotal
Multiplied by Philippine Income
Global Limitation
WHEN CREDIT FOR TAXES MAY
BE TAKEN:
- The credit for taxes provided by
Section
34(C)(3) to (7) may ordinarily be
taken either
in the return for the year in which
the taxes
accrued or on which the taxes were
paid,
dependent upon whether the
accounts of the
taxpayer are kept and his returns
filed upon
the accrual basis or upon cash
receipts and
disbursements.
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DIFFERENCES:
Deduction: included in the gross
income but later
deducted.
Exclusion: not included in the
computation of gross
income. Refers to income received
or earned but is
not taxable as income because of
exemption by
virtue of a law or treaty.
Tax Credit: paid beforehand and is
deducted from the
tax liability of the taxpayer.
Example:
Particulars Net
Income
Actual Foreign
Tax Paid in
Philippine
Peso
Phil
Income
Tax due at
32%
Country A P50,000 P18,000
Country B 40,000 P11,000
Philsource
income
110,000
Total NI
all
P200,000 P29,000 P64,000
A. PER COUNTRY LIMITATION
Country A : [(50,000/200,000 x
64,000)] = 16,000
Country B : [(40,000/200,000 x
64,000)] = 12,800
** maximum tax credit limit
B. GLOBAL LIMITATION
[(90,000/200,000 x 64,000)] =
P28,800
Computation of Allowable tax
credit
Tax Due on P200,000
at 32%
P64,000
Less: Allowable Foreign Tax Credit
Country A P16,000
Country B 11,000 27,000
Tax Still Due P37,000
** Cannot exceed maximum tax
credit limit
NOTE: For limitation A, Country A,
16K is lower than
the actual; Country B, 11K (actual)
is the lower
amount; get the total of all per
country amounts. For
limitation B, 28.8K is lower than
the total of the actual
amount. Comparing the total of
limitation A vs. B, the
former is the lower amount so that
is the allowable tax
credit.
4. LOSSES
Requisites for deductibility of
ordinary loss
(a) loss must be of the taxpayer
(b) actually sustained during the
taxable
year
(c) not compensated for by
insurance or
other forms of indemnity
(d) incurred in trade, business or
profession
OR property connected w/ trade,
business or profession lost through
fires,
storm,
shipwreck,
or
other
casualties OR
from
robbery,
theft
or
embezzlement
(e) evidenced by a completed
transaction
(f) not claimed as a deduction for
estate tax
purposes
(g) notice of loss must be filed with
the BIR
within 45 days from the date of

discovery
of the casualty or robbery, theft or
embezzlement
No loss shall be allowed as a
deduction
for income tax purposes if such
loss has
been claimed as a deduction for
estate
tax purposes.
The taxpayers failure to record in
his
books the alleged loss proves that
the
loss had not been suffered, hence,
not
deductible.
(City
Lumber
Vs.
Domingo
and CA, January 30, 1964).
Category and Types of Losses
1. Ordinary Losses
a. incurred in trade or business, or
practice of
profession
NET OPERATING LOSS CARRYOVER (NOLCO)
- Refers to the excess of allowable
deductions over
gross income of the business for
any taxable year,
which has not been previously
offset as deduction
from gross income.
REQUIREMENTS:
1. the taxpayer was not exempt
from income tax in
the year of such net operating loss;
2. the loss was not incurred in a
taxable year during
which the taxpayer was exempt
from income tax, and
3. there has been no substantial
change in the
ownership of the business or
enterprise.
There is no substantial change

in the ownership of
the business when:
a. not < 75% in nominal value of
outstanding
issued shares is held by same
persons
b. not < 75% of paid up capital of
corp. is
held by same persons
(a) Net operating loss of a business
shall be
carried over as deduction from GI
for the
next 3 consecutive taxable yrs.
immediately ff. the yr. of such loss
- the 3 year period shall continue to
run notwithstanding that the
corporation paid its taxes under
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MCIT, or that the individual availed
of
the 10% Optional Standard
Deduction
(b) Net Operating Loss = excess
of
allowable deduction over the GI
(c) For mines other than oil & gas
wells, if
loss incurred in any of the 1st 10
yrs. of
operation, carry-over for the next 5
yrs.
b. of property connected with the
trade,
business, or profession, if the loss
arises
from fires, storms, shipwreck or
other
casualties, or from robbery, theft or
embezzlement
Total Destruction- the replacement
cost to
restore the property to its normal
operating
condition, but in no case shall the
deductible
loss be more than the net book
value of the
property as a whole, immediately
before
casualty.
Partial Destruction- the excess over
the net
book value immediately before the
casualty
should be capitalized, subject to
depreciation
over the remaining useful life of the
property.
2. Special Types of Losses
(a) Capital Losses deductions
allowed only
to the extent of the gains from
such sales
or exchanges of capital assets
(does not
apply
to
banks
and
trust
companies)
a. losses from sale or exchange
of capital assets
b. losses resulting from securities
becoming worthless and which
are capital assets
c. losses from short sales of
property
d. losses due to failure to
exercise privilege or option to
buy or sell property
(b) Losses from wash sales of stock
or
securities
30 days before and after the date
of
the sale, the taxpayer has acquired
or has entered into a contract or
option
so
as
to
acquire,
substantially
identical stock/securities
General rule: not deductible
unless
claim is made by a dealer in
stock/securities & made in ordinary
course of business
(c) Wagering Losses - allowed only
to the
extent of the gains from such
losses
(d) Abandonment Losses
In case of abandoned petroleum
operations, accumulated
expenditures incurred prior to
1/1/79
allowed as deduction only from
income derived from same contract
area; notice of abandonment shall
be
filed with Commissioner
In case of abandoned producing
well, unamortized cost &
undepreciated costs of equipment
directly used, allowed as deduction
in the yr. of abandonment
(e) Losses from Illegal Transactions
- not
deductible
(f) Losses due to voluntary removal
of
building incident to renewal or
replacements deductible expense
from
gross income
(g) Loss of useful value of capital
assets due
to charges in business conditions
deductible expense only to the
extent of
actual
loss
sustained
(after
adjustment
for improvement, depreciation, and
salvage value)
(h) Losses from sales or exchanges

of
property
between
related
taxpayers
Not deductible as provided under
Section 36 of the NIRC but the
gains are
taxable
(i) Losses of Farmers deductible if
incurred in the operation of farm
business
(j) Loss in shrinkage in value of
stock if
the stocks of the corporation
become
worthless, the cost or other basis
may be
deducted by the owner in the
taxable
year in which the stocks became
worthless. Any amount claimed as
a loss
on account of shrinkage in value of
the
stock through fluctuation in the
market or
otherwise cannot be deducted from
gross
income
5. BAD DEBTS
- debts due to the taxpayer
actually
ascertained to be worthless and
charged
off during the year.
Actually ascertained to be
worthlessWorthlessness is not determined by
an
inflexible formula or slide rule
calculation but
upon the exercise of sound
business
judgment. The determination of
worthlessness must depend upon
the

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particular facts and circumstances
of the
case. It must be uncollectible even
in the
future. (Collector v.
Goodrich
International
Rubber Co., 21 SCRA 1336)
REQUISITES
FOR
DEDUCTIBILITY:
1..Existing indebtedness due to the
taxpayer which
must
be
valid
and
legally
demandable,
2. Connected with the taxpayers
trade, business
or practice of profession,
3. Must not be sustained in a
transaction entered
into between related parties,
4. Actually ascertained to be
worthless and
uncollectible as of the end of the
taxable year, and
5. Actually charged off in the books
of accounts
of the taxpayer as of the end of the
taxable year.
Recovery of bad debts previously
allowed
as deduction in the preceding yrs.
shall be
included as part of gross income in
the yr. of
recovery to the extent of the
income tax
benefit of such deduction (Tax
Benefit
Rule)
Ascertainment of Worthlessness:
Proof of two facts:

a. taxpayer did in fact ascertain the
debt
to be worthless in the year for
which
the deduction was sought;
b. that in so doing, he acted in
good faith
(Collector Vs. Goodrich, December
22,
1967)
depends upon the facts and the
circumstances of the case
good faith does not require that
the
taxpayer be an incorrigible optimist
but on the other hand, he may not
be unduly pessimistic
6. DEPRECIATION
- gradual diminution in the service
or useful
value of tangible property due from
exhaustion, wear and tear and
normal
obsolescence.
- also applies to amortization of
intangible
assets, the use of which in trade or
business
is of limited duration.
A reasonable allowance for the
exhaustion, wear
& tear of property used in the trade
or business;
to cause plant elements or the
plant as a whole
to suffer diminution in value
(a) In case of property held by one
person for life
w/ remainder to another person,
deduction is
computed as if the life tenant were
the
absolute owner of the property &
allowed to
life tenant
(b) In case of property held in trust,

deduction
apportioned between the income
beneficiaries & trustees
REQUISITES
FOR
DEDUCTIBILITY:
a. The allowance for depreciation
must be
reasonable.
b. It must be for property used for
employment in trade or business or
out
of its not being used temporarily
during
the year.
c. The allowance must be charged
off.
d. Schedule on the allowance must
be
attached to the return.
1) Methods of Depreciation
(a) straight-line method =
cost - salvage value
estimated life
example: cost=15,000; SV=5000;
est. life=5 years
15,000 - 5,000 = 2,000
5 years
(b) declining balance method =
cost - accumulated depreciation x
rate
estimated life
example: rate 200%
year 1 -- 15,000 - 0 x 200% =
6,000
5
year 2 -- 15,000 - 6000 x 200% =
3,600
5
(c) sum of years digits method
= nth period x (cost - salvage
value)
sum of the years digits
example: SYD: 5+4+3+2+1 = 15
year 1 -- 5/15 x (15,000 - 5,000) =
3,333.33
year 2 - 4/15 x (15,000 - 5,000) =

2,666,67
2)
Special
Types
of
Depreciation
(a) Petroleum operations
i. Depreciation of all properties
directly
related to production of petroleum
shall be allowed under straight-line
or declining-balance (DB) method
ii. May shift from DB method to SL
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method
iii. Useful life: 10 yrs. or shorter life
as
may be permitted by Commissioner
iv. Useful life of prop. not used
directly:
5 yrs. under straight-line method
(b) Mining operations
i. depreciation on all properties in
mining operations other than
petroleum operations at the normal
rate if expected life is 10 yrs or
less.
ii. if expected life is > 10 yrs.,
depreciate over any no. of yrs. bet.
5
yrs. & the expected life
Depreciation deductible by nonresident aliens
engaged in trade/business or nonresident
corporation
only
when
such
property is located in
the Philippines
The BIR and the taxpayer may
agree in writing
on the useful life of the property to
be
depreciated. The agreed rate may

be modified if
justified by facts or circumstances.
The change
shall not be effective before the
taxable year on
which notice in writing by certified
mail or
registered mail is served by the
party initiating.
7. DEPLETION OF OIL & GAS
WELLS & MINES
The reduction of cost or value of
natural
resources such as oil & gas wells, &
mines as the
resources
are
converted
into
inventories.
No further allowance is granted if
the allowance
for depletion = the capital invested
(1)
Intangible
exploration
&
development
drilling costs:
a) deduct in the yr. incurred if
incurred for
non-producing wells & mines
b) deduct in full OR capitalize &
amortize
of incurred for producing wells &
mines
in same contract area
(2) Intangible costs in petroleum
operations:
no salvage value & incidental to &
necessary for dwelling of wells &
preparation of wells for the
production of
petroleum
(3) Election to deduct exploration &
development
expenditures
for
mining
corps.
(a) deduct as cost
(b) deduct as adjusted basis
provided, total amt.
deductible shall not exceed

25% of NI
actual exploration & development
expenditures net of 25% of NI shall
be carried forward to succeeding
yrs.
until fully deducted
exploration expenditures =
pd/incurred for the purpose of
ascertaining
the
existence,
location,
extent, or quality of any deposit of
ore/other mineral & pd/incurred
before the beginning of the
development stage of the
mine/deposit
development expenditures =
paid/incurred during development
stage of the mine or other natural
deposits
(4) Depletion of Oil and Gas wells
and mines
deductible by a non-resident alien
or foreign corporation only in
respect of
oil and gas wells or mines located
in the
Phils.
8.
CHARITABLE
&
OTHER
CONTRIBUTIONS
(a) Contributions subject to
limitations
i. Contributions or gifts actually
paid or made
w/in the taxable yr.:
ii. to or for the use of the govt. or
its agencies or
any
political
subdivision,
exclusively for public
purpose
iii. or, to accredited domestic
corps./associations organized &
operated
exclusively for:
(1) religious
(2) charitable
(3) scientific
(4) youth & sports development
(5) cultural or educational purposes
(6) for the rehabilitation of
veterans
(7) to social welfare institutions
(8) to NGOs
iv. no part of NI inures to the
benefit of any
private stockholder or individual
for individual: not > 10% of
taxable
income before deducting the
charitable
contributions
for corporation: not > 5 % of
taxable
income before deducting the
charitable
contributions
(b) Contributions deductible in
full
i. Donations to the govt. to
finance, to
provide for, or to be used in
undertaking
priority activities in education,
health, youth &
sports
development,
human
settlements,
science & culture & in economic
development
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according to National Priority Plan
determined
by NEDA
If not in accordance w/ annual
priority
plan, donation is subject to
limitations in
(1) above
ii. Donations to certain foreign
institutions
or international organizations - in
pursuance
or compliance with agreements,
treaties, or
commitments entered into by Phil.
govt. &
foreign
institutions/international
organizations
iii. Donations to accredited NGOs
Organized & operated exclusively
for
scientific, educational, characterbuilding
& youth & sports development,
health,
social welfare, cultural or charitable
purposes or combination thereof
(no part
of NI inures to the benefit of any
private
individual)
W/in 15th of the 3rd month after
the close
of the taxable yr., makes utilization
directly for the active conduct of
activities
constituting the purpose/function of
the
org., unless pd. is extended
Administrative expense should
not be >
30% of total expenses
Upon dissolution, assets would be
distributed to
another nonprofit domestic corp.
organized for
similar purpose or to the state for
public purpose
or to another org. to be used in
same purpose as
the dissolved corp.
REQUISITES
FOR
DEDUCTIBILITY:
a. the contribution or gift must be

actually
paid.
b. it must be given to the
organizations
specified in the code.
c. the net income of the institution
must not
inure to the benefit of any private
stockholder or individual.
(c) VALUATION of property
donated other than
money: acquisition cost
9.
RESEARCH
AND
DEVELOPMENT
Paid or incurred by a taxpayer
during the taxable
yr. in connection w/ his trade,
business or
profession as ordinary & necessary
expenses w/c
are not chargeable to capital
account; allowed as
deduction during the taxable yr.
when
pd./incurred
REQUISITES
FOR
DEDUCTIBILITY AS
EXPENSE:
a. paid or incurred during the
taxable year
b.
ordinary
and
necessary
expenses in
connection with trade business or
profession
c. not chargeable to capital
account
Requisites for amortization of
certain R&D
expenditures (treated as deferred
expenses):
(1) paid/incurred by the taxpayer in
connection w/ his trade/business
(2) not treated as expense
(3) chargeable to capital acct. but
not
chargeable to property of a
character w/c
is subject to depreciation/depletion
(4) amortized over a period of not
< 60
months as may be elected by the
taxpayer
LIMITATIONS ON DEDUCTIONS
not
applicable to, EXCLUSIONS:
(1) Any expenditure for the
acquisition or
improvement of land, or for the
important
of prop. to be used in connection
w/ R&D
of
a
character
subject
to
depreciation &
depletion
(2) Any expenditure paid/ incurred
for the
purpose
of
ascertaining
the
existence,
location, extent, or quality of any
deposit
of ore or other mineral, including
oil or
gas (exploration exp.)
10. PENSION TRUSTS (past
service cost)
Pension Trust Contributions a
deduction applicable
only to the employer on account of
its contribution to
a private pension plan for the
benefit of its employee.
This deduction is purely business in
character.
Established or maintained by
employer to provide for
the
payment
of
reasonable
pensions to his
employees.
Normal Cost the contributions
during the
taxable year to cover the pension

liability
accruing during the taxable year.
Allowed as a
deduction under Sec. 34(A)(1) as
expenses in
general.
Past Service Cost amount in
excess of the
above
contribution
(covering
pension liability
pertaining to old employees which
accrued during
the
years
previous
to
the
establishment of the
pension
trust);
allowed
as
deduction only if:
(a) such amount not been allowed
as a
deduction
(b) apportioned in equal parts over
10
consecutive years beginning w/ the
yr. in w/c
the transfer/payment is made (Sec.
34[J])
REQUISITES
FOR
DEDUCTIBILITY:
a. The employer must have
established a
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pension or retirement plan to
provide for the
payment of reasonable pensions to
his
employees;
b. The pension plan is reasonable
and
actuarially sound;
c. It must be funded by the

employer;
d. The amount contributed must be
no longer
subject
to
the
control
and
disposition of the
employer;
e. The payment has not yet been
allowed as a
deduction; and
f. The deduction is apportioned in
equal parts
over a period of 10 consecutive
years
beginning with the year in which
the transfer
of payment is made.
Summary rules on Retirement
Benefits Plan/
Pension Trust
1. EXEMPT FROM INCOME TAX
employees
trust under Sec. 60(B)
2.
EXCLUSION
FROM
GROSS
INCOME
amount received by the employee
from the fund
upon
compliance
of
certain
conditions under Sec.
32(B)(6)
3. DEDUCTION FROM GROSS
INCOME
a. amounts contributed by the
employer
during the taxable year into the
pension plan to
cover the pension liability accruing
during the
year considered as ordinary and
necessary
expenses under Sec. 34(A)(1).
b. 1/10 of the reasonable amount
paid by the
employer to cover pension liability
applicable to
the years prior to the taxable year,

or so paid to
place the trust in a sound financial
basis
deductible under Sec. 34 (J).
11. PREMIUM PAYMENTS ON
HEALTH AND/OR
HOSPITALIZATION
INSURANCEan
amount of premium on health and
or
hospitalization
paid
by
an
individual taxpayer
(head of family or married), for
himself and
members of his family during the
taxable
year.
REQUISITES
FOR
DEDUCTIBILITY:
a. Insurance must have actually
been
taken;
b. The amount of premium
deductible from
gross income does not exceed
P2400
per family or P200 per month
during the
taxable year;
c. That said family had a gross
income of
not more than P250,000 for the
taxable
year;
d. In case of married individuals,
only the
spouse
claiming
additional
exemption
shall be entitled to this deduction.
Who
may
Avail
of
this
deduction:
1. Individual taxpayers earning
purely
compensation income during the
year.
2. Individual taxpayers earning

business
income or in practice of his
profession
whether availing of itemized or
optional
standard deductions during the
year.
12.
OPTIONAL
STANDARD
DEDUCTION (OSD)
a. Applicable to any individual,
except a
nonresident alien
b. Taxpayer may elect to pay a
standard
deduction in an amount not
exceeding 10%
of GI
a. Such election should be signified
in his return
& shall be irrevocable for the
taxable year for
which the return was made
Individual is not required to submit
his financial
statements
A. ADDITIONAL REQUIREMENT
FOR
DEDUCTIBILITY
OF
CERTAIN
PAYMENTS tax
required
to
be
deducted/withheld has been
paid to BIR
B. NON-DEDUCTIBLE ITEMS
Specific Items Under Section 36:
1. Personal, living or family
expenses
2. Amounts paid out for new
buildings or for
permanent
improvements
or
betterments made to
increase the value of any property
or estate (not
applicable to intangible drilling &
development
costs
incurred
in
petroleum
operation)
3. Amounts expended in restoring
property or in
making
good
the
exhaustion
thereof for w/c an
allowance is or has been made
4. Premiums on life insurance
policy when the
taxpayer is directly/indirectly a
beneficiary under
such policy
5. No deduction shall be allowed in
Losses from
Sales or Exchanges of Property
directly/indirectly:
a) between members of a family
(include only
brothers
&
sisters,
spouse,
ancestors, &
lineal descendants)
b) between an individual & a corp.
more than
50% in value of outstanding stock
is owned
by such individual (except in case
of
distributions in liquidation)
c) between 2 corps. more than 50%
in value of
outstanding stock owned by same
individual,
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if either one is a personal holding
co. or a
foreign holding co. during the
taxable yr.
preceding
the
date
of
sale/exchange
d) between grantor & fiduciary of

any trust
e) between Fiduciary of a trust &
the fiduciary of
another if same person is a grantor
to each
trust
f)
between
Fiduciary
&
a
beneficiary of a trust
A person is said to be financially
interested in the
taxpayers business if he is a
stockholder thereof or
he
is
to
receive
as
his
compensation a share of the
profits of the business.
C. PERSONAL EXEMPTION AND
OPTIONAL
STANDARD DEDUCTION (OSD)
Personal Exemption
Single
Married
Individual
(or
judicially
declared as legally separated
without any
dependent)
P20,000
Head of Family (unmarried or
legally
separated
with
qualified
dependent/s)
25,000
Each married individual
32,000
Each dependent (not exceeding 4)
8,000
Head of Family
1) an unmarried/legally separated
man/woman with
(a) One or both parent
(b) One or more brothers or sister
(c) One or more legitimate,
recognized
natural/legally adopted children
2) Who are living with & dependent
upon
him for their chief support
3)
Where
such
brothers/sisters/children are:
(a) Not more than 21 years old
(b) Unmarried, and
(c) Not gainfully employed
(d) Or, where such children,
brothers/sister, regardless of age,
are incapable of self support
because of mental or physical
defect
An illegitimate child is within the
meaning
of a recognized natural child.
Under the provision on additional
exemption
for
dependents,
illegitimate
children are specifically included
under the
term dependents.
A senior citizen, whether relative
or not,
lliving with the taxpayer or not, can
be
classified as a dependent to make
a taxpayer
a head of a family not exceeding 4
(RA 7432)
In case of married individuals,
where only
1 of the spouses is deriving gross
income,
only such spouse shall be allowed
additional
exemption.
Chief support means more than
one half
of the requirements for support.
Parents, brothers, and sisters,
who are
qualified dependents may entitle
the taxpayer
to the personal exemption of
P25,000 as
head of the family but not to the
additional
exemption of P8,000.
Note:
Personal
and
additional
exemptions are
available only to business income
and
compensation income earners.
> Non-resident aliens engaged in
trade or
business (NRAETB) may be entitled
to personal
exemptions subject to reciprocity:
1. country from which he is a
citizen has an
income tax law; and
2. the income tax law of his
country allows
personal exemption to citizens of
the Philippines not
residing
therein
but
deriving
income therefrom and
not to exceed the amount allowed
in NIRC.
3. the personal exemption shall be
equal to that
allowed by the income tax law of
the country to a
citizen of the Philippines not
residing therein, or the
amount provided in the NIRC,
whichever is LOWER.
ADDITIONAL EXEMPTION
P8,000 for EACH of the qualified
dependent
children not exceeding 4 in
number.
Qualified dependent children
legitimate,
recognized natural, illegitimate and
legally
adopted
The proper claimant of the
additional
exemption would be the husband,
being the
head of the family except under
the following
cases:
1. husband is unemployed
2. husband is working abroad like
an
OFW or a seaman
3. husband explicitly waived his
right
of the exemption in favor of his
wife in the
withholding exemption certificate.
Senior Citizen is:
1. any resident citizen of the
PHilippines
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2. at least sixty 60 years old,
including those
who have retired from both
government
offices and private enterprises, and
3. has an income of not more than
sixty
thousand pesos per annum subject
to the
review of the National Economic
Development
Authority(NEDA)
every three
years.
NRAETB may deduct personal
exemption (but
NOT additional exemption), but
only to the extent
allowed by his country to Filipinos
not residing
therein, and shall not exceed the
aforementioned
amounts.
NRANETB cannot claim any
personal or
additional exemption.
a.
Dependent
=
legitimate/illegitimate/legally
adopted child chiefly dependent
upon & living
with
the
taxpayer
if
such
dependent is not >
21 years old, unmarried & not
gainfully
employed OR if such dependent
regardless
of age is incapable of self-support
because of
mental/physical defect
i. For married individuals, claimed
by only 1
of the spouses
ii. For legally separated spouses,
claimed
only by the spouse who has
custody of the
children; may be claimed by both
as long
as they have custody of the
children but
total amount claimed by both shall
not
exceed the maximum allowed
b. Change of Status
i. The death of the taxpayer during
the
taxable year shall not affect the
amount
of
personal
and
additional
exemptions
his estate can claim, as if he died
at the
end of such year
ii. If the taxpayer got married or
should
have additional dependent (child
born
within the year) during the taxable
year,
he may claim the corresponding
personal
exemptions in full for such year
iii. If the spouse should die or any

of the
dependents become twenty one
years of
age, or become gainfully employed
during the taxable year, the
taxpayer
may
still
claim
the
same
exemptions as if
he/she died, or became twenty one
years
old or became gainfully employed
at the
close of such year.
NOTE:
Individuals not entitled to personal
and additional
exemptions:
d. Non-resident alien NOT engaged
in trade
or business
e. Alien individual employed by
Regional or
Area Headquarters of Multinational
Companies
f. Alien Individual employed by
Offshore
Banking Units
g. Alien Individual employed by
Pertroleum
Service
Contractor
and
Subcontractor
Deduction for Estate or Trust P20,000
F.
SPECIAL
RULES
ON
INSURANCE
COMPANIES
1. Income & Deductions of
Insurance
Companies
a.
Special
deductions:
net
additions
required by law to reserve funds &
the
sums other than dividends paid
w/in the
yr. on policy & annuity contracts;

released reserve treated as income
for
the yr. of release
b. Mutual Insurance Companies
Shall not report as income
premium
deposits returned to policyholder
Report income received from all
other sources plus such portion of
premium deposits retained by the
companies for purposes other than
payment of losses & expenses &
reinsurance reserves
c. Mutual Marine Insurance
Companies
Include in gross income, gross
premiums collected & received by
them less amounts paid for
reinsurance; include as deductions
amounts repaid to policyholders on
account of premiums previously
paid
by them & interest paid upon those
amounts
between
the
ascertainment
& payment thereof
d.
Assessment
Insurance
Companies
Deduct from gross income the
actual
deposit of sums w/ the officers of
the
Phil. governmentt as additions to
guarantee or reserve funds
G. CAPITAL GAINS & LOSSES
1. Definitions - No definition in
the Code for
capital assets. Only Ordinary assets
are defined
a. ORDINARY ASSETS:
(a) stock in trade of taxpayer
(b) property which would properly
be
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included in an inventory of the
taxpayer, if on hand
(c) merchandise inventory
(d) depreciable assets used in the
trade/business
(e)
real
property
used
in
trade/business
b. CAPITAL ASSETS property
held by
the taxpayer (whether or not
connected with
his trade or business)
Hence, capital assets are property
of a
taxpayer other than ordinary
assets.
c. NET CAPITAL GAIN gains >
loss from
sales/ exchanges of capital assets
d. NET CAPITAL LOSS loss >
gains from
sales/ exchanges of capital assets
2.
Percentage
taken
into
account
Taxpayer other than a corporation
(Individuals, estates and trusts)
- - 100% if the capital asset is held
for more
than 12 months
- - 50% if the capital asset is held
for less than
12 months
- Note:
GR: for purposes of computing
capital loss
and capital gain, the actual
holding period
is taken into account.
Exception: If securities become
worthless
during the taxable year and are

capital
assets, the loss resulting therefrom
shall be
considered as a loss from the sale
or
exchange, on the last day of such
taxable
year, of capital assets.
3. Limitation on Capital Loss
Allowed only to the extent of
the gains
from such sales or exchanges,
hence,
the net capital loss is not
deductible.
Example: Gains P 5,000
Losses 15,000
NCL P10,000
In this case, only P5,000 can be
claimed as
deduction (to the extent of the
gain)
Exception: Losses from such sale
incurred
by a domestic bank/trust co.
substantial
part of business is receipt of
deposits, sell
any bond, debenture, note or
certificate or
other evidence of indebtedness
issued by
any corp, w/ int. coupons or in
registered
form (including one issued by the
government or political subdivision)
4. Net Capital Loss Carry-over
a. Corporations cannot carry over a
net
capital loss
b. If net capital loss is sustained in
any
taxable yr., such loss is treated in
the
succeeding taxable yr. as a loss

from the
sale/exchange of a capital asset
held for not
more
than
12
mos.
(100%
deduction)
c. Such net capital loss that should
be carried
over should not exceed the net
income for
the year Incurred (prior years
net income)
d. Example: NI in 1996 = P6,000
NCL in 1996 = 10,000
treated as a loss in 1997(100%)
= P6,000
only since it should not exceed the
net
income of the taxable yr. w/c the
loss was
incurred
Net income should be understood
as
TAXABLE income according E.O. 37
5.
Retirement
of
Bonds,
Debentures, Notes or
Certificates or other evidences
of
indebtedness
Tax Base: Amount received by
the holder
for such transaction
These transactions result in
capital gain or
loss although there is no sale of
capital assets
6. Gain or Loss from Short
Sales of Property
a. Considered as gains & losses
from
sales/exchanges of capital assets
b. Gains & Losses attributable to
failure to
exercise privileges or options to
buy or
sell property = capital gains/losses
Note:
Short sale is a transaction in which
the seller
sells securities which he does not
own and,
therefore, cannot himself supply
the securities for
delivery, in expectation of the
decline in their
price.
Option to buy or sell property:
Example: Suppose X Inc. owns real
property
worth Php 10 M. Y gives X Inc. Php
2M as option
money for a 2-year option period.
Before the 2
year period ends, Y exercised the
option and
bought the property. What will the
tax treatment?
It will be subject to 6% capital
gains tax under
Section 27 (D) (5). Section 39 (F) or
the provision
on the failure to exercise privilege
will not apply.
Suppose the same situation above
but Y fails to
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exercise his option. What will be
the tax
treatment?
In that case, the option money will
be a capital
gain for X and a capital loss for Y.
Note: the property subject of option
need not
be a capital asset. The law does
not say if it
should be an ordinary or capital

asset. It only
says attributable to a property.
H.
DETERMINATION
OF
AMOUNT &
RECOGNITION OF GAIN OR
LOSS
1. Computation of Gain or Loss
a. GAIN = amt. realized >
basis/adjusted
basis for determining gain (in other
words,
selling price or proceeds > cost)
b. LOSS = basis/adjusted basis for
determining loss > amt. realized
(cost >
selling price/proceeds)
c. AMOUNT REALIZED = money
received +
fair market value of the property
(other
than money, if any) received
Mode of
Acquisition
Basis for determining gain/loss
from sale/disposition of
property
Purchase cost of property acquired
on/after
3/1/1913
Inheritance fair market value as
of the date
of acquisition (at the time of
death)
Gift the cost to the donor or to the
previous owner who did not
acquire it by gift; BUT, if such
basis > FMV at the time of the gift,
the basis shall be such FMV for
the purpose of determining the
loss
Acquired for
less than
adequate
consideration
amount paid by the transferee
if property
acquired where
G/L is not
recognized
Same as the basis of property,
stock/securities exchanged
(1) increased by:
dividends
amt. of any gain
recognized by the
exchange
(2) decreased by:
money received
fair market value of the
other property received
liability assumed by the
transferee
2. Exchange of property
a. GENERAL RULE: the entire
amount of
the gain or loss shall be recognized
upon
the sale or exchange of property
b. EXCEPTION: no gain or loss is
recognized (tax-free exchanges)
(1) If in pursuance to a plan of
merger or
consolidation
(a)
a
corporation
exchanges
property
solely for stocks in a corp. (both
parties to merger/consolidation)
(b) shareholder exchanges stock in
a
corp. for the stock of another
corp. (both corps. are parties to
the merger/consolidation)
(c) security holder of a corp.
exchanges his securities in such
corp. solely for stock or securities
in another corp. (both corps. are
parties to the
merger/consolidation)
(2) If property is transferred to a
corp. by
a
person
in
exchange
for
stock/unit of
participation in such corp. of w/c as
a
result of such exchange such
person,
alone/together w/ others, not
exceeding 4
persons, gains control of said
corp.
(stocks issued for services shall not
be
considered as issued in return for
property)
o Control is ownership of stocks in
a
corporation possessing at least
51%
of the total voting power of all
classes of stocks entitled to vote.
BASIS: same as the basis of
property,
stock/securities
exchanged
(a) decreased by:
money received
fair market value of the other
property received
(b) increased by:
amount treated as dividend
amount of any gain recognized
by the exchange
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property received as boot shall
have
the FMV as basis
if part of the consideration to the
transferor,
the
transferee
of
property
assumes a liability of the
transferor/acquires from the latter
property subject to a liability, such

assumption shall be treated as
money received by the transferor
on
the exchange
if transferor receives several
kinds of
stock/securities, Commissioner is
authorized to allocate the basis
among the several classes of
stocks/securities
basis of the prop. transferred in
the
hands of the transferee: same as
would be in the hands of the
transferor increased by the amt. of
the
gain
recognized
to
the
transferor
on the transfer
Note:
- Transferors basis is Section 40 (C)
(5) (a)
while transferees basis is Section
40 (C) (5)
(b).
- Boot is any cash or property given
in
addition to the shares of stock
received by a
transferor in a tax-free exchange.
- When there is no boot, the basis
is the
transferors property given up
because the
rules provided that the basis would
be the
same basis as the property given
up by the
transferor.
In
this
kind
of
transaction, the rule
is always the transferors basis.
- When there is boot, the basis is
the same
as transferors basis minus boot
increased by
the recognized gain.
IV. SOURCES OF INCOME

* The need to identify the situs of
the income arises
only when the taxable entity is
merely taxed on
income within. Hence, when the
taxable entity is an
individual resident citizen or a
domestic corporation,
the situs becomes irrelevant since
they are taxed on
worldwide income.
A.
GROSS
INCOME
FROM
SOURCES WITHIN THE
PHILIPPINES
Income Test of Source of
Income
Interests Residence of Debtor
Dividends a) from domestic corp.
income
within
b) from foreign corp.
income within, if :
> 50% of the Gross Income of
such foreign corp. for the 3yr. period ending w/ the close
of the taxable yr. prior to the
declaration of dividends (or
for such part of such period
as the corporation has been
in existence) was derived
from sources w/in the
Philippines
Extent:
Phil Gross Income x Dividend
=Income Total Gross Income
within
Income without, if
< 50% of the Gross Income of
such foreign corp. for the 3yr. period ending w/ the close
of the taxable yr. prior to the
declaration of dividends was
derived from sources w/in the
Philippines.
Therefore, nothing of such
dividends forms part of

income within
Services
(Compensation
for
labor/personal
services)
Place of performance of service
Rentals
Location
of
the
property/interest
in such property
Royalties Place of use or location of
intangibles (such as patents,
trademarks, etc.) giving rise to
royalties
Gain on sale of
Real property
Location of property
Gain on sale of
Personal
Property other
than shares of
stock in a
domestic
corporation
purchased in
one country and
sold in another
Place of Sale
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Gain on sale of
shares of stock
in a domestic
corporation
Philippines regardless of where
sold
ROYALTIES (from property or use
of property
located in Philippines), includes:
(a) use of/the right/privilege to use

in the
Philippines any copyright, patent,
design or
model, plan, secret formula or
process,
goodwill, trademark, trade brand or
other like
property or right
(b) use of/the right to use in the
Philippines any
industrial, commercial or scientific
equipment
(c) supply of scientific, technical,
industrial or
commercial
knowledge
or
information
(d) supply of any assistance that is
ancillary &
subsidiary to, & is furnished as a
means of
enabling
the
application
or
enjoyment of, any
such property/right in (a) above,
such
equipment
in
(b)
above
or
knowledge/info in (c)
above
(e) supply of services by a
nonresident person/his
employees in connection with the
use of
prop./rights belonging to, or the
installation or
operation of any brand, machinery
or other
apparatus purchased from such
nonresident
person
(f) technical advice, assistance or
services
rendered
in
connection
with
technical
mgt./admin. Of any scientific,
industrial or
commercial undertaking, venture,

project or
scheme
(g) the use of or the right to use:
i. motion picture films
ii. films or video tapes for use in
connection
with TV
iii. tapes for use in connection with
radio
broadcasting
Taxable Income from Sources
Within the Phils.
1. General Rule
Gross Income [GI] (within the
Philippines)
( - ) Deductions (attributable to GI
within)
= Taxable Income
by attributable is meant that
the expense can
be identified as the expense that
generated the
income. For instance, if ABC Corp.
manufactures clothes and sells it in
the Phils.,
and sells shoes in the US. The cost
of
manufacturing the clothes are
attributable to
the income generated from selling
the clothes.
Since the income from the sale of
clothes is
income within, then the expense
for
manufacturing them must be
deducted from
gross income within. However, the
cost of
selling the shoes may not be
deducted from
income within since it is not
attributable to
income within. Rather, it is
specifically
attributable to income without.

2. Deductions: expenses, losses
& other deductions
properly allocated thereto & a
ratable part of
expenses, interests, losses & other
deductions
effectively
connected
w/
the
business/trade
conducted exclusively w/in the
Philippines which
cannot definitely be allocated to
some items or
class of gross income
Such deductions shall be allowed
only if fully substantiated by all
info
necessary for its calculation
3. EXCEPTION: no deduction for
interest
paid/incurred abroad shall be
allowed unless
Indebtedness
was
actually
incurred
Indebtedness must be that of the
taxpayer
Interest must be legally due and
stipulated in
writing
Interest must be paid or incurred
during the
taxable year
Indebtedness must be in
connection w/ the
conduct
or
operation
of
trade/business in the
Philippines
B.
GROSS
INCOME
FROM
SOURCES WITHOUT
THE PHILIPPINES
1) Interests (other than those
derived from
sources within the Philippines)
2) Dividends (other than those
derived from
sources within the Philippines)
3) Compensation for labor or

personal services
performed w/o the Philippines
4) Rentals or royalties from
property located
w/o the Philippines or from any
interest in
such
property
including
rentals/royalties for
the use of or for the privilege of
using w/o
the Philippines, patents, copyrights,
secret
processes & formulas, goodwill,
trademarks,
trade brands, franchises & other
like
properties
5) Gains, profits & income from the
sale of real
property
located
w/o
the
Philippines
Tip: The foregoing enumeration is
merely the
reverse of the enumeration of
gross income
from
sources
within
the
Philippines. Hence,
so long as you know which income
are
considered as income within, all
else are
income without.
Taxable Income from Sources
Without the
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Philippines
1. General Rule
Gross
Income
(without
the
Philippines)
( - ) Deductions (attributable to GI
without)
= Taxable Income
2. Deductions: expenses, losses
& other deductions
properly
apportioned/allocated
thereto & a ratable
part of expenses, interests, losses
& other deductions
w/c cannot definitely be allocated
to some items or
class of gross income
C. INCOME FROM SOURCES
PARTLY WITHIN
AND PARTLY WITHOUT THE
PHILIPPINES.
These are:
1. Income from services rendered
partly within
and partly without;
2. Income from sale of personal
property
produced (in whole or in part)
within and sold
without the Philippines; and
3. Income from sale of personal
property
produced (in whole or in part)
without and
sold within the Philippines.
Personal Property Income
Produced here and sold
without
party within, partly
without
Produced here and sold
here
Income within
Produced abroad and
sold here
Income partly within,
partly without
Purchased without and
sold within
Income within
Purchased within and
sold without
Income without
Purchased within and
sold within
Income wiithin
Taxpayer sells it abroad
through a sales office
Income partly within,
partly without
As
for
unallocated
expenses,
meaning those which
are not entirely attributable to
either income within or
without, such expenses shall be
allocated using the
following formula:
Income
within
Deductions
-------------------------x Unallocated
expense
= from
Worldwide
Income
income
within
ACCOUNTING
PERIOD
&
METHODS OF
ACCOUNTING
A. ACCOUNTING PERIODS
1. General Rule (Sec. 43): Taxable
income is
computed upon the basis of
taxpayers
annual accounting period (fiscal or
calendar
year) in accordance with the
method of
accounting employed
2. If no method of accounting
employed or
method does not clearly reflect the
income,
computation shall be made in

accordance w/
such method as the opinion of the
Commissioner clearly reflects the
income.
3. taxable income is computed
based on
calendar year if:
(a) accounting period is other than
a fiscal
year
(b) taxpayer has no accounting
period
(c) taxpayer does not keep books
(d) taxpayer is an individual
4. fiscal year: accounting period of
12 months
ending on the last day of any
month other
than December
5. calendar year: accounting period
from
January 1 to December 31
B. PERIODS IN WHICH ITEMS OF
GROSS
INCOME INCLUDED (Sec. 44)
1. Amount of all items of gross
income shall be
included in the gross income for
the taxable
year in which received by the
taxpayer,
unless, any such amounts are to be
properly
accounted for in a different period
under
methods of accounting permitted
2. In case of death of taxpayer
include for the
taxable year in which falls the date
of his
death, all amounts which accrued
up to the
date of his death, if not otherwise
properly
includible in respect of such period

or a prior
period
C.
PERIOD
FOR
WHICH
DEDUCTION AND
CREDITS TAKEN (Sec. 45)
Income
without
Deductions
-------------------------x Unallocated
expense
= from
Worldwide
Income
income
without
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1. Deductions provided in this Title
shall be
taken for the taxable year in which
paid or
accrued or paid or incurred,
dependent
upon the method of accounting
upon the
basis of which the net income is
computed,
unless, in order to reflect the
income,
deductions should be taken as of a
different
period.
2. In case of death of taxpayer:
deductions
allowed for the taxable period in
which falls
the date of his death, amounts
accrued up to
the date of his death if not

otherwise properly
allowable in respect of such period
or a prior
period
D. CHANGE OF ACCOUNTING
PERIOD (Sec. 46)
1. Kinds of changes:
(a) from fiscal year to calendar
year
(b) from calendar year to fiscal
year
(c) from one fiscal year to another
fiscal
year
2. effect of change: net income
shall, with the
approval of the Commissioner, be
computed
on the basis of the new accounting
period,
subject to Sec. 47 on Final or
Adjustment
Returns for a Period of Less Than
12 Months
(as discussed below)
E. METHODS OF ACCOUNTING
1. CASH METHOD - recognition of
income and
expense dependent on inflow or
outflow of
cash (meaning, you recognize the
income
when you actually receive the cash
payment
for the sale, and you recognize the
expense
when you actually pay cash for the
expense)
2. ACCRUAL METHOD - method
under which
income, gains and profits are
included in
gross income when earned whether
received
or not, and expenses are allowed

as
deductions
when
incurred,
although not yet
paid. It is the right to receive and
not the
actual receipt that determines the
inclusion of
the amount in gross income
Examples:
(a) interest or rent income earned
but not yet
received
(b) rent exp. accrued but not yet
paid
(c)
wages/salaries
due
but
remaining unpaid
Illustration:
A leases an office space at P1M per
year and
lease payments are made on a
yearly basis and
are due every January 5. A leased
out the space
to X on January 1, 2004. However,
X will only
pay rent for one year on January 5,
2005. For
the year 2004, A should recognize
income of
P1M as of December 31, even if he
will receive
payment only on January 5
because the he is
considered to have earned the P1M
already for
allowing X to actually use the
space for the year
2004.
F. ACCOUNTING FOR LONGTERM
CONTRACTS
1. Long-term contracts: building,
installation or
construction contracts covering a
period in
excess of 1 yr
2. Persons whose gross income is
derived in
whole or in part from such
contracts shall
report such income upon the basis
of
percentage of completion
3.
The
return
should
be
accompanied by a
return certificate of architects or
engineers
showing
the
percentage
of
completion during
the taxable year of the entire work
performed
under the contract
4. Deductions from gross income:
all
expenditures made during the
taxable year
on account of the contract, account
being
taken of the material and supplies
on hand at
the beginning and end of the
taxable period
for use in connection with the work
under the
contract but not yet so applied.
5. Amended return may be
permitted/required
by the Commissioner: if upon
completion of
contract, taxable income has not
been clearly
reflected for any year(s)
This provision takes into account
that certain
businesses, like construction, takes
more than a
year for a project to be completed.
As such, it is
not practical (from the point of
view of the
government) to wait until the

project is finished
before
the
income
arising
therefrom is actually
reported and taxed. Hence, income
is spread
over
the
years
where
the
construction is in
progress, and the allocation is
made on the basis
of percentage of completion.
Illustration:
ABC Corp. entered into a contract
with X whereby the
former
agreed
construct
a
condominium for the latter
to be completed in 5 years for a fee
of P10M. For the
first year of construction, ABC Corp
was able to
construct 30% of the condominium.
It will therefore
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declare a gross income of P3M
computed as follows:
P 10 M
x 30%
P3M
INSTALLMENT BASIS
1. SALES OF DEALERS IN
PERSONAL
PROPERTY
Under Rules and Regulations
(R&R)
prescribed by the Sec. of Finance,
upon
recommendation
of
the
Commissioner: a
person who regularly sells or
otherwise
disposes of personal property on

the
installment plan may return as
income
therefrom in any taxable year that
proportion
of
the
installment
payments
actually received in that year,
which the
gross profit realized or to be
realized
when payment is completed, bears
to the
contract price.
Example: Sale in 1997 payable in 2
equal
annual
installments.
How
to
compute for
income:
Contract Price/ Installments
Receivable P100,000
Cost 75,000
(GP) P 25,000
* installments payable in 2 equal
annual
installments
GP/Contract Price ratio = 25T/100T
= 25%
Collections in 1997 = P50T
Income for 1997 = P50T x 25% =
P12,500
2. SALES OF REALTY AND
CASUAL SALES
OF PERSONALTY
1) in cases of:
(a) casual sale or other casual
disposition of personal property
(other than inventory on hand of
the
taxpayer at the close of the taxable
year) for a price > P1,000, or
(b) sale or other disposition of real
property, if in either case the initial
payments do not exceed 25% of
the
selling price
2) how may income be returned:

same as
in sales of dealer in personal
property
above
initial
payments:
payments
received in
cash or property other than
evidence of
indebtedness of the purchaser
during the
taxable period in which the sale or
other
disposition is made
3. SALES OF REAL PROPERTY
CONSIDERED
AS
CAPITAL
ASSET BY
INDIVIDUALS
1) individual who sells of disposes
of real
property, considered as capital
asset & is
otherwise qualified to report the
gain
under (2) above may pay the
capital
gains tax in installments under
R&R to be
promulgated by the Sec. of
Finance,
upon recommendation of the
Commissioner
2) capital asset: property held by
the
taxpayer
(whether
or
not
connected with
his trade or business) but does not
include:
(a) stock in trade of taxpayer
(b) property which would properly
included in inventory, if on hand
(c) merchandise inventory
(d) depreciable assets used in the
trade/business
(e)
real
property
used
in
trade/business
4. CHANGE FROM ACCRUAL TO

INSTALLMENT BASIS
1) taxpayer must be entitled to
benefits
under 1 (sales of dealers in
personal
property)
2) in computing income for the
year of
change or any subsequent year:
amounts actually received during
any
such year on account of sales or
other
dispositions of property made in
any prior
year shall not be excluded
G. ALLOCATION OF INCOME
AND DEDUCTIONS
1) Applicable to: cases of 2 or more
organizations, trades or businesses
(w/n
incorporated & w/n organized in
the
Philippines) owned or controlled
directly/indirectly by the same
interest
2) Commissioner is authorized to
distribute,
apportion or allocate gross income
or
deductions between or among such
organization, trade or business, if
he
determines that such distribution,
apportionment or allocation is
necessary in
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order to prevent evasion of taxes
or clearly to
reflect the income of any such

organization,
trade or business
RETURNS AND PAYMENT OF
TAX
Tax Return- This is a report made
by the taxpayer to
the BIR of all gross income received
during the
taxable
year,
the
allowable
deductions including
exemptions,
the
net
taxable
income, the income tax
rate, the income tax due, the
income tax withheld, if
any, and the income tax still to be
paid or refundable.
I. INDIVIDUAL RETURN
A. WHO ARE REQUIRED TO FILE
AN ITR:
I. Individual
1) Filipino citizen residing in the
Philippines
2) Filipino citizen residing outside
the
Philippines, on his income from
sources
within the Philippines
3) Alien residing in the Philippines,
on
income derived from sources within
the
Philippines
4) Nonresident alien engaged in
trade or
business or in the exercise of
profession
in the Philippines
5) An individual (citizen/alien)
engaged in
business or practice of a profession
within the Philippines regardless of
the
amount of gross income
6) Individual deriving compensation
income
concurrently at any time during the

taxable year
7)
Individual
whose
pure
compensation
income derived from sources within
the
Philippines exceeds P60,000.
II. Taxable Estate and Trust
III.
General
Professional
Partnership
IV. Corporation
1. Not exempt from Income tax
2. Exempt from income tax under
Section 30 of the NIRC but has not
shown
proof of exemption.
B. WHO ARE NOT REQUIRED TO
FILE AN
ITR: (but may be required to file an
information return pursuant to
Rules and
Regulations prescribed by the Sec.
of
Finance, upon recommendation of
the
Commissioner)
An individual whose gross income
does not
exceed his total personal and
additional
exemptions
An
individual
whose
compensation income
derived from one employer does
not exceed
P 60,000 and the income tax on
which has
been correctly withheld
An individual whose income has
been
subjected to final withholding tax
(alien
employee as well as Filipino
employee
occupying the same position as
that of the
alien
employee
of
regional
headquarters and
regional operating headquarters of
multinational
companies,
petroleum service
contractors and sub-contractors
and
offshore-banking
units,
nonresident aliens
not engaged in trade or business)
Those who are qualified under
substituted
filing. However, substituted filing
applies
only if all of the following
requirements are
present
the employee received purely
compensation
income (regardless of amount)
during the
taxable year
the employee received the
income from only
one employer in the Philippines
during the
taxable year
the amount of tax due from the
employee at
the end of the year equals the
amount of tax
withheld by the employer
the employees spouse also
complies with all
3 conditions stated above
the employer files the annual
information
return (BIR Form No. 1604-CF)
the employer issues BIR Form No.
2316 (Oct
2002 ENCS version ) to each
employee.
SUBSTITUTED FILING - is when
the employers
annual return may be considered
as he substitute
Income Tax Return of employee

inasmuch as the
information provided in his income
tax return would
exactly be the same information
contained in the
employers annual return.
SUBSTITUTED
FILING
OF
INCOME TAX
RETURNS
BY
EMPLOYEES
RECEIVING PURELY
COMPENSATION
INCOME,
REQUISITES:
1. The employee receives purely
compensation
income (regardless of amount)
during the taxable
year.
2. The employee receives the
income only from one
employer during the taxable year.
3. The amount of tax due from the
employee at the
end of the year equals the amount
of tax withheld by
the employer.
4. The employees spouse also
complies with all 3
conditions stated above.
5. The employer files the annual
information return.
6. The employer issues BIR form
2316
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INDIVIDUALS NOT QUALIFIED
FOR
SUBSTITUTED FILING:
1.
Individuals
deriving
compensation from two or
more employers concurrently or

successively during
the taxable year.
2.
Employees
deriving
compensation income
regardless of the amount, whether
from a single or
several employers during the
calendar year, the
income tax of which has not been
withheld correctly
resulting
to
collectible
or
refundable return
3. Employees whose monthly gross
compensation
income does not exceed P5,000 or
the statutory
minimum wage, whichever is
higher, and opted for
non-withholding of tax on said
income.
4. Individuals deriving other nonbusiness, nonprofessionrelated income in addition to
compensation
income
not
otherwise subject to final
tax.
5. Individuals receiving purely
compensation income
from a single employer although
the income tax of
which has been correctly withheld,
but whose spouse
falls under 1 to 4 above.
6. Non-resident aliens engaged in
trade or business
in the Philippines deriving purely
compensation
income, or compensation income
and other nonbusiness,
non-profession-related income.
Non-filing of ITR, for employees
who are qualified for
the substituted filing shall be
OPTIONAL for the
taxable year 2001, the returns fro

which shall be filed
on or before April 15, 2002.
Thereafter, substituted
filing where applicable shall be
MANDATORY.
Joint Certification- It is a sworn
statement made by
the employer and employee, which
serve the
following purposes:
1. It contains the employees
consent that BIR
form 1604CF may be considered
his substituted
return, in lieu of BIR Form No 1700,
which the
employee no longer filed.
2. It contains the employers
certification that
he has reported the employees
income to the BIR
and that he has remitted the taxes
on the employees
income, as indicated in BIR Form
1604-CF.
3. It serves as a proof of financial
capacity in
case the employee decides to
apply for a bank loan
or credit car, or for any other
purpose, as if he had in
fact filed a BIR Form 1700.
Individuals required to file an
information return:
Individuals not required to file an
income tax
return
may
nevertheless
be
required to file an
information return pursuant to
rules and regulations
prescribed by the Secretary of
Finance upon
recommendation
of
the
Commissioner.
C. WHERE TO FILE
Except in cases where the

Commissioner
otherwise permits:
1) Authorized agent bank
2) Revenue District Officer
3) Collection Agent
4) Duly authorized Treasurer of the
city/municipality in w/c such person
has
his legal residence/principal place
of
business in the Philippines, or
5) Office of Commissioner, if there
be no
legal residence/ place of business
in the
Philippines
D. WHEN TO FILE:
1)
for
any
individual
(compensation,
business, professional income)
on or before April 15 of each year
covering income for preceding
taxable year
example: individuals income
from
Jan. to Dec. 1997, shall be filed on
or
before April 15, 1998
2) individual subject to capital
gains tax
(a) sale/exchange of shares of
stock not
traded thru a local stock exchange:
within 30 days after each
transaction
(b) sale/disposition of real property
within 30 days following each
sale
or other disposition
HUSBAND AND WIFE
File 1 return for the taxable yr., if
ff.
requisites complied :
1) Married individuals (citizens,
resident
or nonresident aliens)
2) Do not derive income purely
from
compensation
If impracticable to file 1 return:
each
spouse may file a separate return
but the
returns shall be consolidated by the
Bureau for purposes of verification
for the
taxable yr.
UNMARRIED MINOR
Income of unmarried minors
derived from
property received by the living
parent
shall be included in the return of
the
parent, except:
1) when donors tax has been pd.
on
such property, or
2) when transfer of such property is
exempt from donors tax
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PERSONS UNDER DISABILITY
If unable to make a return, return
may be
made by:
1) duly authorized agent or
representative
2) guardian, or
3) other person charged w/ the
care of
his person/property
principal & his rep. or guardian
assumes
responsibility of making the return
&
incurs penalty for erroneous,

false/fraudulent returns
an individuals name signed in
the return
is prima facie evidence for all
purposes
that the return was actually signed
by
such individual
II. CORPORATION RETURNS
A. WHO IS REQUIRED TO FILE
AN ITR:
Every corporation subject to tax,
except
foreign corp. not engaged in
trade/business in the Philippines.
REQUIREMENTS: File in duplicate
a true
& accurate quarterly income tax
return &
final/adjustment return
Taxable year: fiscal or calendar
(corp.
shall not change accounting period
w/o
prior
approval
by
the
Commissioner)
B. RETURN OF CORPORATION
CONTEMPLATING DISSOLUTION/
REORGANIZATION
Which
corporation?
Every
corporation,
including a corporation w/c has
been
notified of possible involuntary
dissolution
by the SEC, or for its reorganization
within 30 days after the adoption
by the
corp. of a resolution/plan for its
dissolution
or for the liquidation of the
whole/any part
of its capital stock:
1) render a correct return
2) verified under oath
3) set forth the terms of such

resolution/plan & such other
information as the Sec. of Finance,
upon recommendation of the
Commissioner, shall, by Rules and
Regulations, prescribe
prior to issuance by the SEC of
Certificate
of Dissolution/Reorganization:
dissolving/reorganizing corporation
shall
secure
a
certificate
of
tax
clearance from
BIR to be submitted to the SEC
BPI vs. CIR, GR No. 38504, April
14, 2000
It was held that the 30-day period
is counted from
the approval of the SEC of the
corporations adopted
authority to dissolve.
C. RETURN ON CAPITAL GAINS
REALIZED
FROM SALE OF SHARES OF
STOCK NOT
TRADED IN PSE
File a return within 30 days after
each
transaction
AND, a final consolidated return
of all
transactions must be filed on or
before
15th day of the fourth month
following the
close of the taxable yr.
D. EXTENSION OF TIME TO FILE
RETURNS
Commissioner
may,
in
meritorious cases,
grant a reasonable extension of
time for
filing returns of income (or final &
adjustment returns in case of
corps.) This
is exceptional and in case of

calamity only
based on precedents.
E.
RETURNS
OF
GENERAL
PROFESSIONAL
PARTNERSHIPS
each GPP shall file in duplicate, a
return of
its income (except items under
exclusions
from gross income)
set forth:
1) items of gross income & of
deductions
allowed
2) names of partners
3) TIN
4) Share of each partner
F. PAYMENT OF TAX
1) IN GENERAL: Who shall pay?
(a) Total amount of tax shall be
paid
by the person subject thereto
at the time the return is filed
(b) For tramp vessels:
Filed & paid before departure by:
the
shipping
agents
&/
or
the
husbanding
agents; in their absence, captains
failure to do so: Bureau of
Customs
is authorized to hold the vessel &
prevent departure until proof of
payment of tax is presented or a
sufficient bond is filed to answer for
the tax due
2) INSTALLMENT PAYMENT (for
individuals
only)
If tax due > P2,000, the taxpayer,
other than a corp., may elect to
pay
in 2 equal installments:
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(a) 1st inst. pd. at the time the
return is filed
(b) 2nd inst. paid on/before July
15 ff. the close of calendar yr.
(c) If any inst. is not pd. on fixed
date, whole amount of the tax
unpaid becomes due &
payable + delinquency
penalties
3) PAYMENT OF CAPITAL GAINS TAX
Paid on the date the return is
filed
No payment is required if the
seller
submits proof of his intention to
avail
of exemption provided by law
In case of failure to qualify for
exemption, the tax due shall
immediately
become
due
&
payable
+ penalties
If tax has been paid, and seller
submits proof of intent w/in 6 mos.
From the registration of the
document
transferring
real
property,
he shall be entitled to a refund
upon
verification of his compliance with
requirements for such exemption
If taxpayer elects to report gain
by
installments, tax due shall be paid
w/in 30 days from such receipt of
payments
No registration of document
transferring real prop. Unless
Commissioner/duly authorized
representative certified that such
transfer has been reported & tax

due
has been paid
4) ASSESSMENT & PAYT. OF
DEFICIENCY
TAX
After
return
is
filed,
Commissioner
shall examine & assess the correct
amt. of tax
Any deficiency shall be paid upon
notice & demand of Commissioner
Deficiency means:
a. tax imposed > amount shown by
the taxpayer upon his return
amount shown in the return
shall be increased by
amount previously assessed
as a deficiency & decreased
by amounts previously
abated, credited, returned/
otherwise repaid
b. if:
1. no amt. is shown upon the
return as the tax, or
2. no return is made, then:
the amt. by w/c tax exceeds
the amts. previously assessed
as a deficiency; but such
amounts previously
assessed/collected w/o
assessment shall first be
decreased by the amts.
previously abated, credited,
returned or otherwise repaid
in respect of such tax
Withholding of Creditable Tax
at Source:
Sec. of Finance may require the
w/holding of a tax by
payor-corp., on income payable to
natural/juridical
persons, residing in the Philippines,
at rate of not
more than 1% but not more than
32%, which shall be
credited against the income tax

liability for the taxable
year
Most favored nation clause
Royalty income
paid by a domestic corporation to a
non-resident
foreign corporation which is a
resident of a
Contracting State with which the
Philippines has
an effective tax treaty is generally
subject to 15%
final withholding tax, but the rate
may be reduced
to
10%
for
certain
royalty
payments or under the
most-favored-nation-clause of the
tax treaty, such
as the Philippines-US Tax Treaty.
The purpose of the clause in a
tax treaty is to
grant to the other Contracting
State a tax
treatment that is no less favorable
than that
which is granted to the most
favored among
other countries.
It means each party to the treaty
pledges that
any tax concession given to any
other treaty
country will also be extended to
the other party to
the treaty; that is, it will not grant
more favorable
terms to other treaty countries
without granting
the same concession to the treaty
partner
involved.
ESTATES AND TRUSTS
SEPARATE TAXABLE ENTITIES
Sec. 60 (A):
1. Estates of deceased persons

under administration
or settlement;
2. Trusts where the income is to be
accumulated or
held for future distribution by the
fiduciary;
3. Trusts where the income may be
either
accumulated or distributed at the
discretion of the
fiduciary, and
4. Trusts where the income which is
to be distributed
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currently by the fiduciary or is
collected by a guardian
of an infant to be held or
distributed as the court may
direct.
REQUISITIES
FOR
THE
TAXABILITY OF TRUST:
1. it should be an irrevocable trust;
2. tax must be imposed on the
income of the trust,
and
3. the trust retains the income
REVOCABLE TRUST
A revocable trust is one where,
under the trust
treatment, the power to revest in
the grantor title
to the property transferred to the
trust or any part
of the corpus of such trust is
vested:
a. in the grantor, either alone or in
conjunction with any person not
having
substantial adverse interest in the

disposition of
such part of the corpus, or the
income therefore;
or
b. in any person not having a
substantial
adverse interest in the disposition
of such part of
the corpus or the income therefrom
- in short, it is a trust where the
title can revest
back to the grantor anytime
- not taxable as an entity because
the income
forms part of the income of the
grantor
NOTE:
An estate is taxable as a separate
entity
when it is already subject to a
judicial
proceeding
A trust is taxable as a separate
entity if the
trust is irrevocable. This is because
the
grantor has absolutely given up the
corpus
and any incidents thereto. In this
case, the
grantor has no control over the
corpus of the
trust. The benefits of the trust will
not to go
the grantor. The grantor has
transferred the
income earning property to a
beneficiary. He
has absolutely given up the
incidents of it. If
there is a condition that provides
that a
portion shall be reserved for the
grantors
medical expenses (for example),

this
condition does not convert the
irrevocable
trust to a revocable trust. But that
portion is
taxable income of the grantor. If it
is a
revocable trust, then the whole
income or he
property is taxable on the part of
the grantor.
An irrevocable trust is where the
grantor has
unconditionally parted with all the
incidents of
ownership.
If the transfer is revocable, the
entire income
shall be taxable in the hands of the
grantor.
Income Liable for Tax
Income accumulated in trust for
the benefit of unborn or
unascertained person or persons
with contingent interest, and
income accumulated or held for
future distribution under the
terms of the will or trust
Estate or Trust
Income to be distributed currently
by the fiduciary to the
beneficiaries, and income
collected by a guardian of an
infant which is to be held or
distributed as the court may
direct
Beneficiary
Income received by estates of
deceased persons during the
period of administration or
settlement of estates
Fiduciary or
Beneficiary,
depending upon
the amounts
which are
property paid or
credited
Incom which, in the discretion of
the fiduciary, may be either
distributed to the beneficiaries or
accumulated
Fiduciary or
beneficiary,
depending upon
the amounts
which are
property paid or
credited
Revocable trusts Grantor
Income for the benefit of the
grantor
Grantor
IMPOSITION OF TAX
A. Application of tax:
1) Applies to income of estates
or of any
kind of property held in trust,
including:
(a) income accumulated in trust:
1. for the benefit of unborn/
unascertained person(s) w/
contingent interests
2. held for future distribution under
the
terms of the will or trust
(b) income:
1. to be distributed currently by the
fiduciary to the beneficiaries
2. collected by a guardian of an
infant
to be held or distributed as the
court
may direct
(c) income received by estates of
deceased
persons during the period of
administration or settlement of the
estate
(d) income which, in the discretion
of the
fiduciary, may be either distributed

to
beneficiaries or accumulated
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2) Exception:
Employees trust which forms part
of a pension,
stock bonus or profit-sharing plan
of an employer
for the benefit of all or some of his
employees:
(a) if contributions are made to the
trust by
the employer/employees, or both
for the
purpose of distributing to such
employees the earnings + principal
of the
fund accumulated by the trust in
accordance w/ such plan
(b) if under the trust instrument, it
is
impossible, at any time prior to the
satisfaction of all liabilities w/
respect to
employees under the trust, for any
part of
income to be used for/diverted to,
purposes other than for the
exclusive
benefit of his employees (any
amount
distributed to employees shall be
taxable
in the yr. so distributed)
B. Consolidation of Income of
2/more trusts:
1) Requisites:
(a) 2/more trusts exist
(b) creator of the trust in each

instance is the
same person
(c) beneficiary in each instance is
the same
2)
tax
computed
on
such
consolidated income
3) proportion of each tax be
assessed &
collected from each trustee
C. Taxable Income
1) Computed in same manner & on
the same
basis as in the case of an
individual,
EXCEPT:
(a) deduction allowed: amount of
income of
the estate/trust for the taxable yr.
w/c is
to be distributed currently by the
fiduciary
to the beneficiaries & the amt. of
the
income collected by a guardian of
an
infant w/c is to be held./distributed
as the
court may direct
1. amt. allowed as deduction is
included as TI of the beneficiaries,
whether distributed or not
2. amt. allowed as deduction under
this subsection will not be allowed
as deduction under (b) hereof
(b) additional deduction: amt. of
the income
of the estate/trust for its taxable
yr.,
properly paid/credited during such
yr. to
any legatee, heir or beneficiary
applies to
cases of :
1. income received by estates of
deceased person during the
period of administration or
settlement of the estate
2. income w/c, in the discretion of
the
fiduciary, may be either
distributed to the beneficiary or
accumulated
3. amt. deducted is included in TI
of
the legatee, heir or beneficiary
2) for trust administered in a
foreign country:
deductions in a) and b) not allowed
provided,
the amt. of income included in the
return of
said trust shall not be included in
computing
the income of the beneficiaries
D.
Exemption
Allowed
to
Estates and Trusts:
P20,000
E. Revocable Trusts
1) Requisites: the power to re-vest
in the
grantor title to any part of the
corpus of the
trust is vested(a) in the grantor either alone/ in
conjunction
w/ any person not having a
substantial
of
such part of the corpus/income
therefrom
(b) in any person not having a
substantial
of
such part of the corpus/income
therefrom
2) effect: the income of such trust
shall be
included in computing the taxable
income of
the grantor
F. Income for Benefit of Grantor
1) Requisites: where any part of the
income
of a trust is, or in the discretion of
the
grantor/any person not having a
substantial adverse interest in the
disposition of such part of the
income
(a) may be held/accumulated for
future
distribution to the grantor
(b) may be distributed to the
grantor
(c) may be applied to the payment
of
premiums
upon
policies
of
insurance
on the life of the grantor
2) Effect: such part of the income
be
included in computing the taxable
income
of the grantor
G. Fiduciary Returns
1) Who shall make the return?
(a) Guardians
(b) Trustees
(c) Executors
(d) Administrators
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(e) Receivers
(f) Conservators
(g) All persons/corp.
2) File, in duplicate, a return of the
income of
the person, trust, or estate for
whom or
which they act in case such person,

trust,
or estate has a gross income =
P20,000 or
over during the taxable yr.
OTHER
INCOME
TAX
REQUIREMENTS
A. RETURN OF INFORMATION OF
BROKERS
Brokers(individual/corp./gen.
pawnshop) shall
render a correct return duly verified
under oath,
showing names of customers for
whom such
person, corp. or duly registered
gen. copartnership.
has transacted any business, w/
such details as to the profits, losses
or other info
B.
RETURN
OF
FOREIGN
CORPORATIONS
1)
Any
attorney,
accountant,
fiduciary, bank,
trust co., financial institution or
other person,
who aids, assists, counsels or
advises in, or
w/ respect to, the formation,
organization or
reorganization of any foreign corp.,
shall file
a return w/in 30 days
2) Such return shall be in the form
prescribe &
set forth under oath, to the full
extent of the
info w/in the possession or
knowledge or
under the control of the person
required to
file the return
C. DISPOSITION OF IT RETURNS,
PUBLICATION
OF LISTS OF TAXPAYERS & FILERS
1) After the assessment, the

returns, w/ the
corrections
made
by
the
Commissioner, shall
be filed in the Office of the
Commissioner &
shall constitute public records & be
open to
inspection as such upon order of
the Pres.
2) Commissioner may cause, each
yr., to
publish the lists containing the
names &
addresses of such persons who
have filed IT
returns
D. SUIT TO RECOVER BASED ON
FALSE/FRAUDULENT RETURNS
1) If tax is collected under an
assessment that
the list, statement or return is
false/fraudulently made, it cannot
be
recovered by any suit unless it is
proved that
the said list, statement or return
was not false
nor fraudulent & did not contain
any
understatement or undervaluation
2) Not applicable to statements or
returns made
or to be made in good faith
regarding annual
depreciation of oil or gas wells &
mines
E.
DISTRIBUTION
OF
DIVIDENDS/ASSETS BY
CORPS.
Dividends = any distribution
made by a corp. to
its SH out of its earnings or profits
& payable to
its SH, whether in money or in
other property
1. Gain/loss sustained by SH for

any liquidating
dividends received is a taxable
income or a
deductible loss (as the case may
be)
2. Stock Dividends representing
the transfer of
surplus to capital account shall not
be subject
to tax.
3. Amt. distributed in redemption
or cancellation
of stock is taxable income to the
extent that it
represents
a
distribution
of
earnings/profits
4. Net income of a partnership
after deducting
the corporate income tax shall be
deemed to
have
been
actually
or
constructively received
by the partners in the same
taxable yr. &
shall be taxed to them in their
individual
capacity,
whether
actually
distributed or not
DECLARATION OF INCOME TAX
BY
INDIVIDUALS
A. In general:
Filing of declaration of estimated
income for current
taxable yr.:
INDIVIDUAL receiving: Income from
self-employment (as sole source) or
Combined w/ salaries, wages &
other fixed/ determinable income
On/before
April 15 of
same taxable
yr.
NONRESIDENT CITIZEN for:
Income from w/in the Philippines;
NONRESIDENT ALIEN not

engaged in trade/business in the
Philippines.
Not required
to file
B.
RETURN
&
PAYMENT
OF
ESTIMATED
INCOME TAX BY INDIVIDUALS
1) Paid in 4 installments
2) 1st installment: paid at the time
of
declaration
3) 2nd & 3rd installment: paid on
Aug. 15 &
Nov. 15 of current yr.
4) 4th installment: paid on/before
Apr. 15 of the
ff. calendar yr. when final adjusted
income
tax is due to be filed
Estimated Tax means the amt.
which the
individual declared as income tax
in his final
adjusted & annual income tax
return for the
preceding taxable yr. minus the
sum of the
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credits allowed against the said tax
If during the current taxable yr.,
the taxpayer
reasonably expects to pay a bigger
IT, he
shall file an amended declaration
during any
interval of installment payment
dates
C. DECLARATION OF QUARTERLY
INCOME TAX
1) Every corp. shall file in duplicate

a quarterly
summary declaration of its GI and
deductions
on a cumulative basis for the
preceding
quarter(s) upon w/c the IT shall be
levied,
collected & paid
2) The tax shall be decreased by
the amt. of tax
previously pd./ assessed during the
preceding quarters & shall be paid
not less
than 60 days from the close of
each of the
first 3 quarters of the taxable yr.,
whether
calendar/fiscal yr.
D. FINAL ADJUSTMENT RETURN
1) Every corp. liable to tax shall file
a final
adjustment return covering the
total taxable
income
for
the
preceding
calendar/fiscal yr.
2) If sum of the quarterly tax
payments is not
equal to the total tax due on the
entire
taxable income of that yr., the
corp. shall
either:
(a) pay the balance of tax still due
(b) carry-over the excess credit
(c) be credited or refunded w/ the
excess
amt. paid, as the case may be
Example: 1997
Cumulative
Taxable Income
Tax
@35%:
Payable
(each Q)
Q1: P300,000; Q2:
P 1,000,000; (sum
of TI of Q1 & Q2);
Q3:P 2,000,000
105,000
350,000
700,000
105,000
245,000
350,000
Q4: P 2,500,000
(final adjustment
return)
875,000 175,000
E. PLACE & TIME OF FILING &
PAYMENT OF
QUARTERLY CORPORATE INCOME
TAX
1) The quarterly income tax
declaration & the
final adjustment return shall be
filed with:
(a) authorized agent banks
(b) Revenue District Officer
(c) Collection Agent
(d) Duly authorized Treasurer
2) Where?
(a) of the city/municipality having
jurisdiction
over the location of the principal
office of
the corp. filing the return
(b) or place where its main books
of
accounts & other data from w/c the
return
is prepared are kept
3) Time of Filing of IT Return
Corp.
quarterly
declaration
W/in 60 days ff. the close of the
first
3 quarters of the taxable yr.
Final
adjustment
return
On/before the 15th day of April

(calendar yr.) On/before the 15th
day of the 4th mo. after the close
of
the taxable yr. (fiscal yr.)
4) Time of Payment of IT: Income
tax is paid at
the time of the filing of the
declaration or
return
WITHHOLDING TAX ON WAGES
A. DEFINITIONS.
1) Wages means all remuneration
(other than
fees paid to a public official) for
services
performed by an employee for his
employer,
including the cash value of all
remuneration
paid in any medium other than
cash,
(a) shall not include remuneration
paid for:
1. agricultural labor paid entirely in
products of the farm where the
labor
is performed
2. domestic service in a private
home
3. casual labor not in the course of
the
employers trade or business
4. services by a citizen or resident
of the
Philippines
for
a
foreign
government
or an international organization
(b) if remuneration paid by an
employer to
an
employee
for
services
performed
during or more of any payroll
period of
not more than 31 consecutive days
constitutes
wages,
then
all
remuneration
pd. by such employer to such
employee
for such period shall be deemed to
be
wages
2) Payroll period means a period
for which
payment of wages is ordinarily
made to the
employee
by
his
employer;
miscellaneous
payroll period means a payroll
period other
than a daily, weekly, biweekly,
semi-monthly,
monthly, quarterly, semi-annual, or
annual
period
3) Employee refers to any
individual who is the
recipient of wages & includes an
officer,
employee or elected official of the
Philippine
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Government; includes an officer of
a corp.
4) Employer
(a) the person for whom an
individual
performs or performed any service,
of
whatever nature, as the employee
of
such person
(b) the person having control of the
payment
of such wages
(c) person paying wages on behalf

of a
nonresident
alien
individual,
foreign
partnership/corp.
B. LIABILITY FOR TAX
1) EMPLOYER:
(a) liable for withholding &
remittance of the
correct amt. of tax
(b) if failed to withhold & remit,
employer is
liable for the tax + penalties &
additions
to the tax
2) EMPLOYEE:
(a) If fails to file withholding
exemption cert.
or supplies inaccurate/false info,
the tax
shall be collected from him +
penalties or
additions to the tax
(b) Excess taxes w/held by the
employer shall not be
refunded if due to:
1. failure or refusal to file the
w/holding
exemption certificate
2. false & inaccurate information
C. STATEMENTS & RETURNS
1) Requirements
(a) employer shall furnish EE
on/before Jan.
31 of the succeeding yr. or on the
same
day of last payment made (if
employment
is terminated), a written statement
confirming the wages paid by the
employer to employee
1. Annual Information Returns
(b) employer shall submit an
annual
information
return
to
the
Commissioner
containing:
1. a list of employees
2. total amt. of compensation
income of
each EE
3. total amt. of taxes w/held during
the
yr.
4. With copies of statement
referred to in
(A) above
2) Extension of Time
Commissioner may grant the ER
a
reasonable extension of time to
furnish &
submit the statements & returns
required
Withholding Tax on Compensation:
Every employer must withhold from
compensation paid, an amount
computed in
accordance with the regulations.
Exception:
Where such compensation income
of an
individual:
1. Does not exceed the statutory
minimum
wages; or
2. Five thousand pesos (5,000)
monthly
(60,000 a year)
- whichever is higher
Elements of Withholding on
Compensation:
1. There must be an employeremployee relationship
2. There must be payment of
compensation or wages
for services rendered
3. There must be a payroll period
Compensation Exempted:
1. Remunerations received as an
incident of
employment
2.
Remunerations
paid
for
agriculture labor
3.
Remunerations
paid
for
domestic services
4. Remunerations for casual not in
the course of an
employers trade or business
5. Compensation for services of a
citizen, resident of
the Philippines, for a foreign
government or an
international organization
6. Damages
7. Life insurance
8. An amount received by the
insured as return of
premium
9. Compensation for injuries and
sickness
10. Income exempt under treaty
11. 13th month pay and other
benefits
12. GSIS, SSS, Philhealth and other
contributions
Tax Free Covenant Bonds
Covenant
Bonds
bonds,
mortgages, deeds of trust
and other similar obligations of
domestic/resident
foreign corporation, which contain
a
contract/provision by which the
obligor agrees:
1. to pay any portion of the tax
imposed upon the
obligee;
2. to reimburse the obligee for any
portion of the tax,
or
3. to pay the interest without
deduction for any tax
which
the
obligor
may
be
required/permitted to pay or
to retain therefrom.
Obligor shall deduct and withhold
a tax =
30% of the interest and other

payments
whether interest or other payments
are
payable annually or at a shorter
period;
whether
bonds,
securities,
obligations had
been/will be issued/ marketed and
the
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interest and other payments paid
within and
without the Philippines if the
interest or other
payment is payable to a nonresident alien or
a citizen or resident of the
Philippines.
Income of Recipient
- Income which any creditable tax
is required
to be withheld at source shall be
included in
the return of its recipient.
- The excess of the amount of tax
withheld
over the tax due on his return shall
be
refunded to him, subject to Section
204
(abatement, refund/credit taxes)
TITLE III. ESTATE TAX AND
DONORS TAX
CHAPTER I- ESTATE TAX
Nature and Definition
An EXCISE TAX on the rights of
transmitting property
at the time of death and on the
privilege that a person
is given in controlling to a certain

extent the
disposition of his property to take
effect upon death
A tax imposed upon the privilege to
transmit property
at the time of death; the tax should
not be construed
as a direct tax on the property of
the decedent
although the tax is based thereon
ESTATE TAX FORMULA
Gross Estate (Sec. 85)
Less: (1) Deduction (Sec. 86)
(2) Net share of the surviving
spouse in the
CP
--------------------------------------------------------------------Net Taxable Estate
X Tax rate (Sec. 84)
---------------------------------------------------------------------Estate Tax due
Less: Tax Credit (if any) Sec. 86 [E]
or 110 [B]
--------------------------------------------------------------------Estate Tax Due, if any
A. GROSS ESTATE includes (Sec.
85)
Residents and Nonresident
citizen,
resident alien decedent
Non-Resident
Alien Decedent
All properties, real or
personal, tangible or
intangible, wherever
situated
Only properties situated
in the Philippines
provided that, with
respect to the intangible
personal property, its
inclusion in the gross
estate is subject to the

rule of reciprocity
provided for under Sec
104 of the NIRC
ITEMS OF GROSS ESTATE: (DT
RALIC)
1) Decedent's Interest
2) Transfer in Contemplation of
Death
3) Revocable Transfer
4) Property Passing Under General
Power of Appointment
5) Proceeds of Life Insurance
6) Prior Interests
7)
Transfers
for
Insufficient
Consideration
DECEDENTS INTEREST
To the extent of the interest in
property of the
decedent at the time of his death
Transfer in Contemplation of Death
TRANSFER
IN
CONTEMPLATION OF
DEATH, Transfers impelled by the
thought of
an impending death (i.e., the
motivating
factor or controlling motive is the
thought of
death), without regard of the state
of health
of the transferor
Transfers
deemed
in
contemplation of
death:
transfers
involving
retention or
reservation of certain rights.
Transfers
made
before
the
decedents
death wherein decedent retained:
a. the possession or enjoyment of,
or the right to the income of the
property;
b. the right either alone or in
conjunction with any person, to
designate the person who shall
possess or enjoy the property or

its income EXCEPT bona fide
sales for an adequate and full
consideration in money or
moneys worth
REVOCABLE TRANSFER
A transfer whereby the terms of
enjoyment of
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the property may be altered,
amended, revoked
or terminated by the decedent
alone or in
conjunction with any other person,
or where any
such power is relinquished in the
contemplation
of the decedents death. It is
enough that the
decedent had the power to alter,
amend or
revoke though he did not exercise
such power
EXCEPT bona fide sales for an
adequate and full
consideration in money or moneys
worth
Property Passing Under General
Power of
Appointment
What is a GENERAL POWER OF
APPOINTMENT? The power to
designate,
without restrictions, the persons
who shall
receive, succeed to, possess or
enjoy the
property or its income received
from the estate
of a prior decedent
How is a general power of

appointment
exercised?
The GPA is exercised by:
a) will
b) deed executed in
contemplation of death
c) deed under which he has
retained for his life or for any
period which does not in fact end
before his death
The possession or
enjoyment of, or the right
to the income from, the
property or
The right, either alone or
in conjunction with any
person to designate the
persons who shall
possess or enjoy the
property or the income
therefrom EXCEPT bona
fide sales for an
adequate and full
consideration in money
or moneys worth
PRIOR INTERESTS
All
transfers,
trusts,
estates,
interests, rights,
powers and relinquishment of
powers made,
created, arising, existing, exercised
or
relinquished before or after the
effectivity of the
NIRC.
Proceeds of Life Insurance
PROCEEDS
FROM
LIFE
INSURANCE
FORM PART OF THE GROSS
ESTATE
ONLY WHEN:
o the beneficiary is the estate,
executor or administrator,
whether the designation is
revocable or irrevocable
o the beneficiary is other than the

estate, executor or administrator
AND the designation is
revocable
TRANSFERS FOR INSUFFICIENT
CONSIDERATION
Amount includible in the gross
estate is the
excess of the FMV at the time of
death over the
value of consideration received
Exclusions from the Gross
Estate
ACQUISITIONS
AND
TRANSFERS
EXPRESSLY
DECLARED
AS
EXEMPT:
o Merger of the usufruct in the
owner of the naked title
o Transmission or delivery of the
inheritance or legacy by the
fiduciary heirs or legatee to the
fiduciary
o Transmission from the first heirs,
legatees or donees in favor of
another beneficiary in
accordance with the desire of the
testator
o All bequests, devises, legacies,
or transfers to social welfare,
cultural or charitable institutions
Provided, not more than
30% of the value given is
used for administrative
purposes
Proceeds from life insurance
where the
beneficiary is other than estate,
executor
or
administrator
AND
the
designation is
irrevocable
SSS death benefits
Properties held in trust by the
decedent
Benefits received by beneficiaries
residing in the Philippines under

laws
administered by the US Veterans
Administration
Separate or exclusive properties
of the
surviving spouse
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Valuation
1. Real Property
FMV as determined by the
Commissioner
OR the FMV shown in schedule of
values
fixed by the assessors, whichever
is HIGHER
No zonal value: use the FMV in
the latest tax
declaration.
2. Shares of Stock
Listed shares: average of the
highest and
lowest quotation at date of death
(or the date
nearest to the date of death, if no
quotation is
available at the time of death)
Unlisted Shares
Common stocks: use BOOK
VALUE
Preferred stocks: use PAR VALUE
3. Personal Property
Valued at FMV
Special Rules on Intangible
Properties
INTANGIBLE
PERSONAL
PROPERTIES
WITH
SITUS
IN
THE
PHILIPPINES
(SECTION 104)
1. Franchise which must be

exercised
in the Philippines.
2. Shares, obligations or bonds
issued
by any corporation or sociedad
anonima organized or constituted
in
the Philippines in accordance with
its
laws,
issued
by any foreign corporation 85% of
the business of which is located in
the Philippines,
issued
by any foreign corporation, if such
shares, obligations or bonds have
acquired a business situs in the
Philippines,
5. Shares, rights in any partnership
business or industry established in
the Phil.
RECIPROCITY CLAUSE ON
INTANGIBLE
PERSONAL PROPERTY OF A
DECEDENT
WHO IS NON-RESIDENT ALIEN,
WITH A
SITUS IN THE PHILIPPINES
(SECTION
104). THE INTANGIBLES SHALL
NOT
FORM PART OF THE GROSS
ESTATE IF:
The decedent at that time of his
death
was a citizen and resident of a
foreign
country which at the time of his
death
1. did not impose a transfer tax or
death tax of any character
2. in respect of the intangible
personal property of citizens of

the Philippines not residing in
that foreign country; or
The law of the foreign country of
which
the decedent was a citizen and
resident
a the time of his death:
1. allow a similar exemptions from
transfer taxes or death taxes of
every character
2. in respect of the intangible
personal property owned by
citizens of the Philippines not
residing in that foreign country.
B. DEDUCTIONS FOR ESTATE OF
A CITIZEN OR
A
RESIDENT
(Revenue
Regulations 2-2003
and Sec. 86):
1) Expenses, Losses, Indebtedness,
and
Taxes:
(a) actual funeral expenses or five
percent
(5%) of the gross estate whichever
is
lower (not exceeding P200,000)
(b) judicial expenses of the
testamentary or
intestate proceedings
(c) claims against the estate
(d)
claims
against
insolvent
persons
included in the gross estate
(e)
unpaid
mortgages
or
indebtedness upon
property
(f) unpaid taxes
(g) losses incurred during the
settlement of
the estate
2) Transfers for Public Use-to the
government
of the Republic of the Philippines or
any
political
subdivision
thereof,
exclusively for
public purposes
3) Vanishing deductions
4) Family Home
5)
Standard
Deduction
-P1,000,000
6) Medical Expenses
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7) Amount Received by Heirs under
RA 4917
8) Net Share of the surviving
spouse in the
Conjugal Property
(1) ORDINARY DEDUCTIONS
A. Funeral expenses
FUNERAL EXPENSES are costs
which are
actually incurred in connection with
the interment
or burial of the deceased.
EXAMPLES
OF
FUNERAL
EXPENSES:
a) The mourning apparel of the
surviving
spouse and unmarried minor
children of the
deceased bought and used on the
occasion
of the burial;
b) Expenses for the deceaseds
wake, including
food and drinks;
c) Publication charges for death
notices;
d) Telecommunication expenses
incurred in
informing
relatives
of
the
deceased;
e) Cost of burial plot, tombstones,

monument or
mausoleum but not their upkeep. In
case the
deceased owns a family estate or
several
burial
lots,
only
the
value
corresponding
to the plot where he is buried is
deductible;
f) Interment and/or cremation fees
and
charges; and
g) All other expenses incurred for
the
performance of the rites and
ceremonies
incident to interment.
EXAMPLES
OF
NONDEDUCTIBLE FUNERAL
EXPENSES:
a) Expenses incurred after the
interment,
such as for prayers, masses,
entertainment, or the like are not
deductible.
b) Any portion of the funeral and
burial
expenses borne or defrayed by
relatives
and friends of the deceased are not
deductible.
Substantiation Requirements:
o The expenses must be duly
supported by
receipts or invoices or other
evidence to
show that they were actually
incurred
(RR 2-2003)
B. Judicial Expenses
What are JUDICIAL EXPENSES
for estate
taxation?
o These deductible items are
expenses
incurred during the settlement of

the
estate but not beyond the last day
prescribed by law, or the extension
thereof, for the filing of the estate
tax
return.
Judicial Expenses should be
supported by a
sworn statement of account issued
and signed by
the creditor.
EXAMPLES
OF
JUDICIAL
EXPENSES
(1)
Fees
of
executor
or
administrator
(2) Attorneys fees
(3) Court fees;
(4) Accountants fee;
(5) Appraisers fee;
(6) Clerk hire;
(7)
Cost
of
preserving
and
distributing the
estate;
(8) Brokerage fees for selling
property of the
estate.
CIR v. CA 328 SCRA 666
Expenses incurred in the
extrajudicial settlement
of the estate must be necessary
costs toward the
settlement of the case
Attorneys fees to be deductible
should essential
to the collection
of assets,
payment of debts or
the distribution of the estate
C. Claims against the Estate
Debts or demands of a pecuniary
nature which could
have been enforced against the
deceased in his
lifetime and could have been
reduced to simple
money judgments.
SOURCES OF CLAIMS AGAINST

THE
ESTATE:
1) Contract;
2) Tort; or
3) Operation of Law
REQUISITES
FOR
DEDUCTIBILITY:
a) A personal obligation of the
deceased
existing a the time of his death
except
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unpaid
obligations
incurred
incident to his
death such as unpaid funeral
expenses and
unpaid medical expenses which are
classified
under a different category of
deductions,
b) Contracted in good faith and
for adequate
and full consideration in money or
money's
worth,
c) Must be a debt or claim which
is valid in law
and enforceable in court,
d) Must not have been condoned
by the
creditors or the action must not
have
prescribed.
e) Duly substantiated
Substantiation in case of Loans or
other Similar
Indebtedness:
a) notarized at the time incurred,
except loans
from financial institutions where

notarization
not part of business practice or
policy
b) A statement under oath
executed by the
administrator or executor of the
estate
reflecting the disposition of the
proceeds of
the loan if said loan was contracted
within three
(3) years prior to the death of the
decedent
D. Claims against Insolvent
Persons
Condition for deductibility: The
value of
decedents interest in the claim is
included in the
gross estate and the incapacity of
the debtors to
pay their obligation is proven.
E. Unpaid Mortgage
CONDITIONS
FOR
DEDUCTIBILITY:
o The value of the decedents
interest over
the
property
encumbered
is
included as
part
of
the
gross
estate
undiminished by
the amount of mortgage
o The deduction shall be limited to
the
extent that the mortgage was
contracted
bona fide and for an adequate
consideration
Other Rules in Respect to Unpaid
Mortgage
o Determine the recipient or
beneficiary of
the loan which must be verified;
o If merely an accommodation
made by
decedent, then balance of loan

considered as receivable and part
of GE
o If there is a legal impediment to
recognize the same as receivable
of the
estate, the unpaid obligation shall
not be
allowed as a deduction from the GE
F. Taxes
What taxes are deductible?
Income taxes, real estate or
property taxes due at the
time of death which were unpaid as
of the time of
death
TAXES NOT DEDUCTIBLE:
1. estate taxes
2. income tax on income received
after
death
3. property taxes not accrued
before death
G. Losses
1.
REQUISITES
FOR
DEDUCTIBILITY:
1. Losses should arise from fire,
storm,
shipwreck, or other casualty,
robbery,
theft or embezzlement;
2.
Losses
should
not
be
compensated by
insurance or otherwise;
3. Losses should not be claimed as
deduction in the income tax return
of the
taxable estate;
4. The losses should occur during
the
settlement of the estate; AND that
5. The losses should occur before
the last
day for the payment of the estate
tax
(last day to pay 6 months after the
decedents death)
(2) TRANSFER FOR PUBLIC USE
2.
REQUISITES
FOR
DEDUCTIBILITY:
1) the disposition is in the last will
and
testament
2) to take effect after death
3) in favor of the government of
the
Philippines
or
any
political
subdivision
thereof
4) exclusive for public purpose
5) the value of property given is
included in
the gross estate
3. The transfer also contemplates
bequests,
devices, or transfers to social
welfare, cultural
and charitable institutions
(3) VANISHING DEDUCTIONS
(Property
Previously Taxed)
Nature and Purpose
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VANISHING DEDUCTIONS are
deductions
allowed for properties which were
already
subjected to transfer taxes (e.g.,
estate and donors
tax). The purpose is to minimize
the effect of
double taxation within a short
period of time since
the same property will be again
subjected to tax in
the form of estate tax.
REQUISITES
FOR
DEDUCTIBILITY:
1. Present decedent acquired the
property
by inheritance or donation within 5
yrs
prior to his death
2. The property must have formed
part of
the GE of previous decedent or the
taxable gift of the donor
3. Estate tax on the prior estate or
the
donors tax must have been paid
4. It must be the same property
received
from previous decedent or donor
5. Estate of previous decedent or
donor
have not previously availed of
vanishing
deduction
6. The property must be located in
the
Philippines
(4) FAMILY HOME
It is the dwelling house, including
the land on which it
is situated, where the husband and
wife, or a head of
the family, and members of their
family reside as
certified by Barangay Captain of
the locality.
The family home is deemed
constituted on the house
and lot from the time it is actually
occupied as a
family residence and is considered
as such for as
long as any of its beneficiaries
actually resides
therein.
o Actual occupancy of the house or
house
and lot as the family residence

shall not
be
considered
interrupted
or
abandoned
in such cases as the temporary
absence
from the constituted family home
due to
travel or studies or work abroad,
etc.
o The family home is generally
characterized by permanency, that
is, the
place to which, whenever absent
for
business or pleasure, one still
intends to
return.
CONDITIONS
FOR
THE
ALLOWANCE OF
FAMILY HOME AS DEDUCTION
FROM THE
GROSS ESTATE1) The family home must be the
actual
residential home of the decedent
and his
family at the time of his death, as
certified by the Barangay Captain
of the
locality where the family home is
situated;
2) The total value of the family
home must
be included as part of the gross
estate of
the decedent; and
3) Allowable deduction must be in
an
amount equivalent to the current
fair
market value of the family home as
declared or included in the gross
estate,
or the extent of the decedents
interest
(whether conjugal/community or
exclusive property), whichever is
lower,
but not exceeding 1 Million.
Note that:
o The family home must be part of
the
properties
of
the
absolute
community or
of the conjugal partnership, or of
the
exclusive properties of either
spouse,
depending upon the classification
of the
property (family home), and the
property
relations
prevailing
on
the
properties of
the husband and wife. It may also
be
constituted by an unmarried head
of a
family on his or her own property.
o For purposes of availing of a
family home
deduction to the extent allowable,
a
person may constitute only one
family
home.
(5) STANDARD DEDUCTIONS
A deduction in the amount of One
million pesos
(1,000,000) shall be allowed as an
additional
deductions
without
need
of
substantiation
Full amount shall be allowed as
deduction for the
benefit of the decedent
(6) MEDICAL EXPENSES
REQUISITES
FOR
DEDUCTIBILITY:
o Medical cost incurred within the
one year
prior to the death of the decedent

o Up to a maximum amount of
500,000,
whichever is lower
o Any excess over 500,000 cannot
be
deductible as claims against the
estate
o It must be duly substantiated
with official
receipts for services rendered
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o Any amount incurred within one
year from
death in excess of P500,000
CANNOT be
claimed as a deduction under
claims against
estate.
(7) Amount Received by Heirs
under RA 4917
o Amount received by the heirs
from the
decedents
employer
as
a
consequence of
death of the decedent employee in
accordance with RA4917
o Provided, such amount is
included in the
gross estate of the decedent.
(8) Net Share of the surviving
spouse in the
Conjugal Property
After deducting the allowable
deductions
(only the ordinary deductions)
appertaining to the
conjugal or community properties
included in the
gross estate, the share of the

surviving spouse
must be removed to ensure that
only the
decedents interest in the estate is
taxed.
SPECIAL
RULES
FOR
NONRESIDENT ALIENS
(for property situated in the
Philippines)
ALLOWABLE DEDUCTIONS:
A. Expenses, Losses, Indebtedness
and
Taxes
Only the proportion of the total
expenses, losses indebtedness and
taxes which the value of such part
bears to the value of his entire GE
wherever situated:
Estate situated in the Phils X
expenses, losses = allowable
Total
estate
everywhere
indebtedness,taxes deduction
B.
Property
Previously
Taxed
(vanishing
deductions in the properties in the
Philippines)
C. Transfers for Public Use
OTHER CONSIDERATIONS
Net Share of the surviving spouse
in the
Conjugal Property-deducted from
the net
estate of the decedent
To be allowed deductions for a
non-resident
alien, executor/administrator/ any
heir must
include in the return to be filed, the
value of
the gross estate not situated in the
Philippines
No deduction shall be allowed in
the case of
a nonresident not a citizen of the
Philippines,
unless the executor, administrator,

or anyone
of the heirs, as the case may be,
includes in
the return required to be filed
under Section
90 the value at the time of his
death of that
part of the gross estate of the
nonresident
not situated in the Philippines.
ESTATE TAX CREDIT
ESTATE TAX CREDIT is a remedy
against
international double taxation to
minimize the onerous
effect of taxing the same property
twice
Who may avail of tax credits?
o Only the estate of a citizen or
resident alien
at the time of the death can claim
tax credit
for any estate taxes paid to a
foreign country
What amount of tax credit may
be claimed?
Formulas:
Limitation A:
For estate taxes paid to one foreign
country
Allowable Final Tax Credit =
The lower amount between:
a. Tax actually paid to the foreign
country,
and
b. the amount derived from this
formula:
Net gifts, foreign country x Phil.
estate tax
Net gifts, world
For estate taxes paid to 2 or more
foreign
countries
the
lower
amount
between
limitation A and limitation B.
a. Limitation A (per country):

- the lower amount between the
actual foreign taxes paid to each
country and
the amount derived from the
forumula below:
Net gifts, foreign country x Phils.
estate tax
Net gifts, world
b. Limitation B (by total):
sum
of the actual taxes paid to ALL
foreign
countries and the answer to the
formula
below:
estate tax
Net gifts, world
EXEMPTION FROM ESTATE TAX
(Sec. 84 and
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87):
1) First P200,000.00 value of the
net estate
2) Merger of usufruct in the owner
of the naked
title
Example
A died leaving a fishpond; naked
title to B,
his son, and usufruct to C, another
son, for
life. C died a year later. The
fishpond will
be included in the gross estate of
A, being
the owner. Upon the death of C,
the
usufruct will be merged into the

owner of
the naked title B who shall become
the
absolute
owner
thereof.
The
transfer from
C to B is exempt from estate tax.
3) Transmission or delivery of the
inheritance or
legacy by the fiduciary heir or
legatee to the
fideicommissary
The substitution must not go
beyond one
degree from the heir originally
instituted
The fiduciary or first heir must be
both
living at the time of the testators
death
Example
A dies and leaves in his will a lot to
his
brother B who is entrusted with the
obligation to transfer the lot to C, a
son of
A when A reaches legal age. B is
the
fiduciary heir and C is the
fideicommissary. The transfer from
A to
B is subject to estate tax. But the
transmission or delivery to C upon
reaching legal age shall be exempt
from
estate tax.
4) Transmission from the first heir,
legatee or
donee
in
favor
of
another
beneficiary, in
accordance with the desire of the
predecessor
5) Bequests, devises, legacies or
transfers to
social welfare, cultural and
charitable
institutions,
no part of the net income of
which inures
to the benefit of any individual:
Provided not more than 30% of
the
transfers shall be used by such
institutions
for
administration
purposes
J. COMPLIANCE REQUIREMENTS
(1) Persons liable to pay estate
tax
The person primarily liable is
the estate
itself, through the executor and
administrator.
When there are 2 or more
executors or
administrators, all of them are
severally liable
for the payment of tax.
The heir or beneficiary has a
subsidiary
liability for the payment of that
portion of the
estate which his distributive share
bears to
the value of the net estate. The
extent of his
liability shall not, however, exceed
the value
of his share in the inheritance.
(2) Procedures
1) Filing of Notice of death
(a) Who files: the executor,
administrator or
any of the legal heirs,
(b) When to file: within 2 months
after the
decedent's death, or within a like
period
after qualifying as such executor or
administrator
(c) To whom filed: Commissioner.
2) Filing of Estate Tax Returns
When to file: within six (6)

months from
the decedent's death; except, the
Commissioner,
in
meritorious
cases,
grants a reasonable extension not
exceeding 30 days for filing the
return
Mandatory filing of estate tax
returns in
all cases of:
o transfers subject to the tax
imposed herein
o transfers though exempt from
tax,
where the gross value of the estate
exceeds P200,000
o regardless of the gross value, the
estate consists of registered or
registrable property for which a
clearance from the Bureau of
Internal Revenue is required for
the transfer of ownership in the
name of the transferee
Where to file:
o Authorized agent bank
o Revenue district officer
o Duly authorized city or municipal
treasurer of the place of
decedents domicile
o If there is no legal residence in
the
country, with the Commissioner
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3) Payment of Tax: Time of
Payment
(a) General Rule: at the time the
return is filed
by the executor, administrator or
the heirs
but
before
delivery
of
the
distributive share
in the inheritance to any heir or
beneficiary.
(b)
Exception:
when
the
Commissioner finds
that payment on due date would
impose
undue hardship upon the estate or
any of
the heirs, he may extend the time
for
payment of such tax:
1. not to exceed 5 years, in case
the
estate is settled through the
courts;
or
2. 2 years in case the estate is
settled
extrajudicially
In which case it shall be paid on or
before
expiration of the extension and
running of
the Statute of Limitations for
assessment
shall be suspended for the period
of any
such extension.
The Commissioner may require a
bond not
exceeding double the amount of
the tax
and with such sureties as the
Commissioner deems necessary
when an
extension for payment is granted.
(c) Restrictions as to Extension
of Time to
Pay:
o no extension shall be allowed
when taxes are assessed by
reason of : 1) negligence, 2)
intentional disregard of rules and
regulations, 3) fraud on the part of
the taxpayer
4) Distribution of Estate
Upon payment, the administrator
shall
deliver the distributive share in the
inheritance
to
any
heir
or
beneficiary. The
estate tax clearance issued by the
Commissioner or the Revenue
District
Officer having jurisdiction over the
estate
will serve as the authority to
distribute the
remaining/distributable
properties/share in
the inheritance to the heir or
beneficiary.
In case of installment payments,
the
clearance shall be released only
with
respect to the property the
corresponding
tax has been paid.
CHAPTER II- DONOR'S TAX
Definition and Subject
A tax on the privilege of
transmitting ones
property or property rights to
another or
others without adequate and full
valuable
consideration.
The subject of donors tax is the
gift or
donation. Article 725 of the Civil
Code
defines a gift or donation as an
act of
liberality
whereby
a
person
disposes
gratuitously of a thing or right in
favor of
another who accepts it. Thus, the
following
are the REQUISITES OF VALID

GIFT OR
DONATION
SUBJECT
TO
DONORS TAX:
1. Capacity of the donor
2. Intent to donate
3. Delivery of the subject gift,
whether
actual or constructive
4. Acceptance by the donee
THERE ARE TWO (2) KINDS OF
DONATIONS:
1. Donation inter vivos: a donation
made between living persons;
perfection is at the moment when
the
donor knows of the acceptance of
the donee (exception: donations of
immovable1 properties); subject to
donors tax
2. Donation mortis causa: a
donation
which takes effect upon the death
of
the donor; subject to estate tax
The law in force at the time of the
perfection
or completion of the donation shall
govern
the imposition of the donors tax.
( Sec 11 RR
2-2003 )
Note: Any contribution in cash or in
kind to
any candidate, political party, or
coalition of
1Must be in a public document
specifying therein the
property donated. The acceptance
may be made in
the same Deed of Donation or in a
separate public
document, but it shall not take
effect unless it is done
during the lifetime of the donor. If
the acceptance is
made in a separate instrument, the

donor shall be
notified thereof in an authentic
form, and this step
shall be noted in both instruments.
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parties for campaign purposes shall
be
governed by the Election Code as
amended.
(Sec 99 C of the NIRC).
PROPERTIES INCLUDED:
1. citizens or residents of the
Philippines all
properties located not only within
the
Philippines but also in foreign
countries
2. non-resident alien all real and
tangible
properties within the Philippines,
and
intangible
personal
property,
unless there is
reciprocity, in which case it is not
taxable.
- See reciprocity rules in the estate
taxes for intangible properties
(Section 104
NIRC)
Applicability of Laws Governing
the Imposition of
Donors Tax
The donors tax applies to a
completed gift.
The transfer is perfected from the
moment
the
donors
knows
of
the
acceptance by the
donee; it is completed by the

delivery, either
actual or constructively, of the
donated
property to the donee. The law in
force at the
time of the perfection/completion
of the
donation
shall
govern
the
imposition of
donors tax based on the FMV of
the
property.
A GIFT THAT IS INCOMPLETE
BECAUSE
OF
RESERVED
POWERS,
BECOMES COMPLETE WHEN
EITHER:
the donor renounces the power;
or
his right to exercise ceased
because of the happening of
some event or contingency or
the fulfillment of some condition,
other than the death of the
donor.
A. Gross Gifts
Gifts may be real or personal
properties.
Personal
properties
may
be
tangible,
intangible or mixed.
ITEMS DEEMED GIFTS OR
DONATIONS:
o Where property, other than a real
property2 that has been subjected
to
2 Note that in the case of real
properties considered
as capital assets, the difference
between the FMV
and the actual value received in
transfers for less
than
the
adequate
or
full
consideration shall not be
the final capital gains tax, is
transferred for less than an

adequate
and full consideration in money or
moneys worth, then the amount
by
which the fair market value of
the
property at the time of the
execution of the Contract to Sell
or
execution of the Deed of Sale
which
is not preceded by a Contract to
Sell
exceeded the value of the
agreed
or actual consideration or
selling
price shall be deemed a gift, and
shall be included in computing the
amount of gifts made during the
calendar year.
Real property considered
capital assets under the Tax
Code are exempted from this
rule (Sec. 100 in relation to
Sec. 24 (D) NIRC).
o Debt condoned or remitted
o Transfers made in trust for
another
person
o Renunciation by the surviving
spouse of his/her share in the
conjugal partnership or absolute
community after the dissolution of
the marriage in favor of the heirs of
the deceased spouse or any other
person; whereas, a general
renunciation by an heir, including
the
surviving spouse, of his/her share
in
the hereditary estate left by the
decedent is not subject to donors
tax, unless specifically and
categorically done in favor of
identified heir/s to the exclusion or

disadvantage of the other co-heirs
in
the hereditary estate. (Sec. 11,
Rev.
Reg. 2-2003)
See Estate of Fidel Reyes,
CTA Case No. 6747, Jan. 16,
2006
where the repudiation by the heirs
of an inheritance was held not to
be
a donation.
subject to donors tax. The
rationale is that under
Section 24 (d), the FMV itself, if
higher than the gross
selling price, is the base for the
computation of
capital gains tax. In essence, what
the seller avoids
in the payment of donors tax, it
pays for the capital
gains tax.
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Valuation:
o Personal property: FMV at the
time
of donation
o
Real
Property:
FMV
as
determined
by the Commissioner or the FMV in
the latest schedule of values of the
provincial
or
city
assessor,
whichever
is HIGHER
OBJECT OF TAXATION:
The donors tax shall be imposed to
the transfer
of property by gift, whether the

transfer is in trust or
otherwise, whether the gift is direct
or indirect, and
whether the property is real or
personal, tangible or
intangible. The computation of
donors tax is on a
cumulative basis over a period of
one calendar year.
B. Computation of Tax
1. On the 1st donation of the year
Gross Gift xx
Less: deductions/exemptions xx___
Net gift xx
X tax rate xx___
Donors tax xx
===========
2. On subsequent donation during
the year
Gross Gift xx
Less: deductions/exemptions xx___
Net gift xx
Add: prior net gift xx___
Aggregate net gifts xx
X tax rate xx___
Donors tax on aggregate gift xx
Less: prior donors tax paid xx___
Donors tax on this date xx
===========
C. Rates of Tax
1. Donee is a Stranger to the
Donor
Rate: 30%
Who is a stranger: A STRANGER
IS A
PERSON WHO IS NOT A:
1) Brother, sister (whether by
whole
or half-blood), spouse, ancestor
and lineal descendant
2) Relative by consanguinity in the
collateral line within the 4th degree
of relationship
A legally adopted child is entitled
to
all the rights and obligations

provided
by law to legitimate children, and
therefore, donation to him shall not
be considered as donation made to
stranger.
Donation made between business
organizations and those made
between an individual and a
business organization shall be
considered as donation made to a
stranger.
2. Donee is NOT a Stranger to
the Donor
Rate: Graduated Rates
D. EXEMPTION FROM GIFT TAX
(SEC. 101)
Exemptions are not to be treated
as
exclusions from the gross gifts of
the donor.
They partake the nature of
deductions and
are, therefore, deductible from
gross gifts in
order to arrive at the taxable net
gifts.
1) Made by a Resident
(a) Dowries or gifts made on
account of
marriage before its celebration or
within
one year thereafter by parents to
each of
their
legitimate,
recognized
natural, or
adopted children to the extent of
the first
P10,000
Note: Both parents may make
dowries
and gifts made on account of
marriage.
Each parent shall be entitled to the
exemption above. This has the
effect of
splitting the value of the gift into

half for
both spouses so each spouse can
claim
the exemption. However, both
spouses
must file separate returns because
the
husband and wife are considered
as
distinct entities for purposes of
donors
tax. (Sec. 12 RR-2-2003) However,
where there is failure to prove that
the
donation was actually made by
both
spouses, the donation is taxable as
an
exclusive act of the husband,
without
prejudice to the right of the wife to
question the validity of the
donation
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without her consent pursuant to
the
provisions of the Civl Code and the
Family Code.
(b) Gifts made to the National
Government
or any entity created by any of its
agencies which is not conducted
for
profit, or to any political subdivision
of the
said Government
(c) Gifts in favor of an non profit
educational
and/or charitable, religious, cultural

or
social
welfare
corporation,
institution
accredited
non-government
organization,
trust or philanthropic organization
or
research institution or organization;
provided, not more than 30% shall
be
used
by
such
donee
for
administration
purposes.
WHAT IS A NON-PROFIT
EDUCATIONAL
AND/OR
CHARITABLE
CORPORATION? It is one which is
incorporated as a non-stock entity
paying
no dividends, governed by trustees
who
received no compensation, and
devoting
all
its
income
to
the
accomplishment and
promotion
of
the
purposes
enumerated in
its Articles of Incorporation
(d) Encumbrances on the property
donated if
assumed by the donee in the deed
of
donation
(e) Donations made to entities as
exempted
under special laws.
(f) Donations to persons not
strangers of not
more than P100,000 per year (Sec.
99[A])
In order to be exempt from donors
tax and to claim
full deduction of the donation given
to qualified donee
institutions duly accredited by the

Philippine Council
for NGO Certification, Inc.(PCNC),
the donor
engaged in business shall give a
notice of donation
on every donation worth at least
Fifty Thousand
Pesos (P50,000) to the Revenue
District Office(RDO)
which has jurisdiction over his
place of business
within thirty (30) days after receipt
of the qualified
donee institutions duly issued
Certificate of Donation,
which shall be attached to the said
Notice of
Donation, stating that not more
than thirty percent
(30%) of the said donation/gifts for
the taxable year
shall be used by such accredited
non-stock, nonprofit
corporation/NGO
institution
(qualified-donee
institution)
for
administration
purposes pursuant to
the provisions of Section 101(A)
(3)and (B)(2) of the
Code (RR 2-2003).
Abello vs. CIR, GR No. 120721,
Feb. 23, 2005
Facts: During the 1987 national
elections,
petitioners, who are partners in the
ACCRA law firm,
contributed P882,661.31 each to
the campaign funds
of Senator Edgardo Angara, then
running for the
Senate. The BIR assessed each of
the petitioners for
their
contributions.
Petitioners
questioned the
assessment, claiming that political

or electoral
contributions are not considered
gifts under the
NIRC, and that, therefore, they are
not liable for
donors
tax.
The
claim
for
exemption was denied by
the Commissioner.
On appeal, the CTA ordered the
Commissioner
to desist from collecting donors
taxes from the
petitioners. The CA reversed and
set aside the CTA
decision, ordering the petitioners to
pay donors tax,
reasoning as follows:
The NIRC, as amended, provides:
Sec. 91. Imposition of Tax.
a) There shall be levied, assessed,
collected, and paid upon the
transfer by
any person, resident, or nonresident, of
the property by gift, a tax,
computed as
provided in Section 92.
b) The tax shall apply whether the
transfer
is in trust or otherwise, whether the
gift is
direct or indirect, and whether the
property is real or personal,
tangible or
intangible.
Pursuant to the above-quoted
provisions of law,
the transfer of property by gift,
whether the transfer is
in trust or otherwise, whether the
gift is direct or
indirect, and whether the property
is real or personal,
tangible or intangible, is subject to
donors or gift tax.
A gift is generally defined as a

voluntary transfer of
property by one to another without
any consideration
or compensation therefore.
In
the
instant
case,
the
contributions are
voluntary transfers of property in
the form of money
from private respondents to Sen.
Angara, without
considerations therefor. Hence,
they squarely fall
under the definition of donation or
gift.
As correctly pointed out by the
Solicitor General:
The fact that the contributions
were given to be
used as campaign funds of Sen.
Angara does not
affect the character of the fund
transfers as donation
or gift. There was thereby no
retention of control
over
the
disposition
of
the
contributions. There was
simply an indication of the purpose
for which they
were to be used. For as long as the
contributions
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were used for the purpose for
which they were
intended,
Sen.
Angara
had
complete and absolute
power
to
dispose
of
the
contributions. He was fully
entitled to the economic benefits of
the contributions.
Issue1: What is the definition of a

transfer of
property by gift?
Held1: The NIRC does not define
transfer of
property by gift. However, Article
18 of the Civil
Code, states: In matters which are
governed by the
Code of Commerce and special
laws, their deficiency
shall be supplied by the provisions
of this Code.
Thus, reference may be made to
the definition of a
donation in the Civil Code. Article
725 of said Code
defines donation as: . . . an act of
liberality whereby
a person disposes gratuitously of a
thing or right in
favor of another, who accepts it.
Donation
has
the
following
elements: (a) the
reduction of the patrimony of the
donor; (b) the
increase in the patrimony of the
donee; and, (c) the
intent to do an act of liberality or
animus donandi.
The present case falls squarely
within the
definition of a donation. Petitioners
each gave
P882,661.31 to the campaign funds
of Senator
Angara, without any material
consideration. All three
elements of a donation are present.
The patrimony
of the four petitioners were
reduced by P882,661.31
each. Senator Angaras patrimony
correspondingly
increased by P3,530,645.24. There
was intent to do
an act of liberality or animus

donandi was present
since each of the petitioners gave
their contributions
without any consideration.
Issue2: Since animus donandi or
the intention to
do an act of liberality is an
essential element of a
donation, petitioners argue that it
is important to look
into the intention of the giver to
determine if a political
contribution is a gift.
Held2: Untenable. First of all,
donative intent is a
creature of the mind. It cannot be
perceived except
by the material and tangible acts
which manifest its
presence. This being the case,
donative intent is
presumed present when one gives
a part of ones
patrimony to another without
consideration. Second,
donative intent is not negated
when the person
donating has other intentions,
motives or purposes
which do not contradict donative
intent. The Court
was not convinced that since the
purpose of the
contribution was to help elect a
candidate, there was
no donative intent. Petitioners
contribution of money
without any material consideration
evinces animus
donandi. The fact that their
purpose for donating was
to aid in the election of the donee
does not negate
the presence of donative intent.
Issue3: Petitioners maintain that

the definition of
an electoral contribution under
the Omnibus
Election Code is essential to
appreciate how a
political contribution differs from a
taxable gift.
Section 94(a) of the said Code
defines electoral
contribution as follows: The term
contribution
includes
a
gift,
donation,
subscription, loan, advance
or deposit of money or anything of
value, or a
contract, promise or agreement to
contribute,
whether or not legally enforceable,
made for the
purpose of influencing the results
of the elections but
shall not include services rendered
without
compensation
by
individuals
volunteering a portion or
all of their time in behalf of a
candidate or political
party. It shall also include the use
of facilities
voluntarily
donated
by
other
persons, the money
value of which can be assessed
based on the rates
prevailing in the area. Since the
purpose of an
electoral
contribution
is
to
influence the results of the
election, petitioners again claim
that donative intent is
not present.
Held3: Petitioners attempt to place
the barrier of
mutual
exclusivity
between
donative intent and the
purpose of political contributions.

The Court
reiterated that donative intent is
not negated by the
presence of other
intentions,
motives or purposes
which do not contradict donative
intent.
Petitioners would distinguish a gift
from a political
donation by saying that the
consideration for a gift is
the liberality of the donor, while
the consideration for
a political contribution is the desire
of the giver to
influence the result of an election
by supporting
candidates who, in the perception
of the giver, would
influence
the
shaping
of
government policies that
would promote the general welfare
and economic
well-being
of
the
electorate,
including the giver
himself.
Petitioners attempt is strained. The
fact that
petitioners will somehow in the
future benefit from the
election of the candidate to whom
they contribute, in
no way amounts to a valuable
material consideration
so
as
to
remove
political
contributions from the
purview of a donation. Senator
Angara was under no
obligation
to
benefit
the
petitioners. The proper
performance of his duties as a
legislator is his
obligation as an elected public
servant of the Filipino
people and not a consideration for

the political
contributions he received. In fact,
as a public
servant, he may even be called to
enact laws that are
contrary to the interests of his
benefactors, for the
benefit of the greater good.
In fine, the purpose for which the
sums of money
were given, which was to fund the
campaign of
Senator Angara in his bid for a
senatorial seat,
cannot be considered as a material
consideration so
as to negate a donation.
2) Made by a Nonresident Alien
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(a) Gifts made to the National
Government
or any entity created by any of its
agencies which is not conducted
for
profit, or to any political subdivision
of the
said Government
(b) Gifts in favor of an non profit
educational
and/or charitable, religious, cultural
or
social
welfare
corporation,
institution
accredited
non-government
organization,
trust or philanthropic organization
or
research institution or organization;
provided, not more than 30% shall

be
used
by
such
donee
for
administration
purposes
E. Net Gift
The net economic benefit from
the transfer
that accrues to the donee.
Accordingly, if a mortgaged
property is
transferred as a gift, but imposing
upon the
donee the obligation to pay the
mortgage
liability, then the net gift is
measured by
deducting from the fair market
value of the
property the amount of mortgage
assumed.
F. Donors Tax Credit
A situation may arise when the
property given
as a gift is located in a foreign
country and
the donor may be subject to
donors tax twice
on the same property by the
Philippine
government and by the foreign
government
where the property is situated.
Who are entitled to claim credits:
only
resident or citizen donors (resident
citizens,
non-resident citizens, and resident
aliens)
Limitations on Tax Credit:
The amount of the credit in
respect to the tax
paid to any country shall not
exceed the
same proportion of the tax against
which
such credit is taken, which the

decedents net
gifts situated within such country
taxable
under the NIRC bears to his entire
net gift;
and
The total amount of the credit
shall not
exceed the same proportion of the
tax
against which such credit is taken,
which the
decedents net gift situated outside
the
Philippines taxable under the NIRC
bears to
his entire net gift.
Formulas:
Limitation A:
For donors taxes paid to one
foreign country
Allowable Final Tax Credit =
The lower amount between:
a. Tax actually paid to the foreign
country,
and
b. the amount derived from this
formula:
Net gifts, foreign countryx Phil.
donors tax
Net gifts, world
For donors taxes paid to 2 or
more foreign
countries
the
lower
amount
between
limitation a and limitation b.
a. Limitation A (per country):
actual foreign taxes paid to each
country and
the amount derived from the
forumula below:
donors tax
Net gifts, world
b. Limitation B (by total):

sum
of the actual taxes paid to ALL
foreign
countries and the answer to the
formula
below:
donors tax
Net gifts, world
G. Special Rules on Husband
and Wife
Husband and wife are considered
as
separate and distinct taxpayers for
purposes
of the donors tax.
However, if what was donated is
a conjugal
or community property and only
the husband
signed the deed of donation, there
is only
one donor for donors tax purposes,
without
prejudice to the right of the wife to
question
the validity of the donation without
her
consent pursuant to the pertinent
provisions
of the Civil Code of the Philippines
and the
Family Code of the Philippines.
H. Compliance Requirements
(Sec. 103)
1) Who are liable to file donors tax
return?
Every person, whether natural or
juridical, resident or non-resident,
who
transfers or causes to transfer
property
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by gift, whether in trust or
otherwise,
whether the gift is direct or indirect
and
whether the property is real or
personal,
tangible or intangible.
2) When to file donors tax
The donors tax return shall be
filed
within 30 days after the date the
gift is
made
3) When to pay the tax
Pay at the time of filing (pay-asyou-file
system)
TITLE VIII REMEDIES
PART I. REMEDIES AVAILABLE
TO THE
GOVERNMENT
In General
1. Compromise (Sec. 204)
2.
Distraint
actual
and
constructive (Sec. 205208)
3. Levy (Sec. 207b)
4. Tax lien (Sec. 219)
5. Civil Action (Sec. 221)
6. Criminal Action (Sec. 221-222)
7. Forfeiture of Property (Sec. 224225)
8.
Suspension
of
business
operations in
violations of VAT (Sec. 115)
9. Enforcement of administrative
fine
the remedies of disraint and levy
as well
as collection by civil and criminal

actions
may in the discretion of the
Commissioner, be pursued singly
or
independently of each other, or all
of
them simultaneously.
No court shall have the authority to
grant an
injunction to restrain the collection
of any national
internal revenue tax, fee , or
charge imposed by the
NIRC (Sec. 218)
Justification: lifeblood theory
EXCEPTION: Injunction may be
issued by the CTA in
aid of its appellate jurisdiction
under Sec. 11 of RA
1125, as amended by RA 9282 (
when in the
opinion of the Court the collection
may jeopardize
the interest of the Government
and/or the taxpayer,
the Court any stage of the
proceeding may suspend
the said collection and require the
taxpayer either to
deposit the amount claimed or to
file a surety bond
for not more than double the
amount with the Court.)
Prescription
Prescriptive Periods
1) Assessment of Tax Liability
3 years from the following,
whichever
comes later (Sec. 203):
1. the last day prescribed by law
for
filing the return (when filed on or
before such date), or
2. the day when the return was
actually filed (when filed after the
last day prescribed).

10 years after the discovery of
the
falsity, fraud or omission in case of:
1. false or fraudulent return with
intent to evade tax, or
2. failure to file a return (Sec. 222
a)
The following are covered by the
general rule
(Sec. 203):
false return-filed with no intent to
evade tax
fraudulent return-filed with intent
to
evade tax
within the period agreed upon,
when
both the Commissioner and the
taxpayer have agreed in writing,
before
the expiration of the period in Sec.
203
for the assessment of tax, to an
assessment after such time. Such
period agreed upon may be
extended
by written agreement before the
expiration of such agreed upon
period.
(Sec.222 b)
SUSPENSION
OF
PRESCRIPTIVE
PERIODS: (Sec. 223)
1) Periods suspended:
(a) periods for assessment in Sec.
203 and 222
(b) beginning of distraint or levy
(c)
proceeding
in
court
for
collection
2) Grounds for suspension of
prescriptive periods: [ PLORP ]
a) Commissioner is Prohibited
from making the assessment or
beginning distraint or levy or a
proceeding in court and for 60
days thereafter
b) Taxpayer requests for
Reinvestigation which is granted
c) Taxpayer cannot be Located in
the address given in the return
filed, except if the taxpayer
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informs the Commissioner of a
change in address the
prescriptive period will not be
suspended
d) When the warrant is duly served
upon the taxpayer and no
Property could be located
e) When the taxpayer is Out of the
Phils.
Compromise
Definition
A contract whereby the parties,
by
reciprocal concessions, avoid
litigation or put an end to one
already
commenced. (Art. 2028, New Civil
Code)
REQUISITES:
o The taxpayer have a tax
liability
o There must be an offer (by
the taxpayer of an amount to
be paid by the taxpayer)
o There must be an
acceptance (by the
Commissioner or the
taxpayer as the case may
be) of the offer in the
settlement of the original
claim
When
may
taxes
be
compromised?
1. A reasonable doubt as to the

validity of the
claim against the taxpayer exists:
The delinquent account or
disputed assessment is one
resulting from a jeopardy
assessment3; or
The assessment seems to be
arbitrary in nature, appearing to
be based on presumptions and
there is reason to believe that it
is lacking in legal and/or factual
basis
3 A jeopardy assessment is a tax
assessment made
by an authorized Revenue Officer
without the benefit
of complete or partial trial in light
of the ROs belief
that assessment and collection of
tax will be
jeopardized by the delay caused by
the taxpayers
failure to 1) comply with audit and
investigation
requirements and 2) substantiate
any or all claims,
deductions or credits in his return.
2. The financial position of the
taxpayer
demonstrates a clear Inability to
pay the
assessed tax. (Sec. 204 A) in such
case, the
taxpayer
should
waive
the
confidentiality
privilege on bank deposits under
RA 1405
(Sec 6 (F)(2) NIRC).
The corporation ceased
operation or is already dissolved;
The taxpayer is suffering from
earning deficit resulting to an
impairment in the original capital
by at least 50%
The taxpayer is suffering from a
net worth deficit computed by

deducting total liabilities form
total assets, taken from the latest
audited financial statements
The taxpayer is a compensation
earner with no other sources of
income and the familys gross
monthly compensation does not
exceed (P 10,500/month if
single; P 21,000/month if
married) and that it appears that
the taxpayer possesses no other
leviable/distrainable assets,
other than his family home;
The taxpayer has been granted
by the SEC or by any competent
tribunals a moratorium or
suspension of payments to
creditors or otherwise declared
bankrupt or insolvent (Sec 3, RR
7-2001).
In general, the taxpayer's
criminal liability
arising from his violation of the
pertinent
provision of the Code may be
settled
extrajudicially instead of the BIR
instituting against the taxpayer a
criminal
action in Court.
A compromise in extra-judicial
settlement
of the taxpayer's criminal liability
for his
violation is consensual in character,
hence, may not be imposed on the
taxpayer without his consent.
Hence, the
BIR may only suggest settlement
of the
taxpayer's liability through a
compromise.
(RR 012-99)
CASES NOT SUBJECT TO
COMPROMISE:
1. Withholding tax cases

2. Criminal tax fraud cases
3. criminal violations already filed
in court
4. Delinquent accounts with duly
approved
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schedule of installment payments
5. cases where final reports of
reinvestigation or reconsideration
have
been issued resulting to reduction
in the
original
assessment
and
the
taxpayer is
agreeable to such decision
6. Cases which become final and
executory
after final judgment of a court (Sec
2 RR
7-2001).
Power to Compromise
o
Who
has
the
Power
to
Compromise?
The Commissioner of Internal
Revenue with respect to criminal
and civil cases arising from
violations of the tax code (Sec 7c
and 204).
The power to compromise is vested
in the CIR. The NIRC allows the
Commissioner of Internal Revenue
to
compromise the civil as well as
criminal cases arising thereunder.
No
similar provision exists, vis-a-vis
the
Collector or Commissioner of
Customs, in regard to violations of
the Tariff and Customs Code.

(People vs. Desiderio L-20805,
November 29, 1965).
If an offer of compromise is
rejected by the taxpayer, the
compromise penalty cannot be
enforced thru an action in court or
by
distraint and levy. The CIR should
file a criminal action if he believes
that the taxpayer is criminally
liable
for violation of the tax law as the
only
way to enforce a penalty.
(Commissioner vs. Abad, L-19627,
June 27, 1968).
o
LIMITATIONS
FOR
COMPROMISE OF TAX
LIABILITY: (Sec. 204A)
1. Minimum compromise rate:
a) In case of financial incapacity,
10% of basic assessed tax
b) In other cases, 40% of basic
assessed tax
2. Compromise subject to approval
of
Evaluation Board (composed of
Commissioner and 4 Deputy
Commissioners):
a) when basic tax involved exceeds
P1,000,000 or
b) where the settlement offered is
less than the prescribed
minimum rates
o Extent of the Commissioners
Discretion to
Compromise Criminal Violations
1. Before the complaint is filed with
the
prosecutors office: the CIR has full
discretion to compromise except
those involving fraud
2. After the complaint is filled with
the
prosecutors office but before the
information is filed with the court:

the
CIR can still compromise provided
the prosecutor must give consent
3. After information is filed with the
court: the CIR is no longer
permitted
to compromise with or without the
consent of the Prosecutor (People
vs. Magdaluyo, April 20, 1961)
This is more so when the court
has rendered a final judgment.
As a mere agent of the
Government, the Commissioner
is not authorized to accept
anything less than what is
adjucated in favor of the
government by virtue of such
final judgment, the government
has already acquired a vested
rights.
o Nature of a Compromise in
Extrajudicial
Settlement of the Taxpayers
Criminal
Liability for his Violation
It is consensual in character,
hence; may not be imposed on
the taxpayer without his consent.
The BIR may only suggest
settlement of his tax liability
through a compromise. The
extra-judicial settlement and the
amount of the suggested
compromise penalty should
conform with the schedule of
compromise penalties provided
under the relevant BIR
regulations or orders.
Remedy in Case the Taxpayer
Refuses or
Fails
to
Abide
the
Tax
Compromise
1. Enforce the Compromise
If it is a judicial compromise, it
can
be enforced by mere execution. A

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judicial compromise is one where a
decision based on the compromise
agreement is rendered by the court
on request of the parties
Any other compromise is
extrajudicial and like any other
contract can only be enforced by
court action
2. Regard it as rescinded and insist
upon
original demand (Art 2041, Civil
Code)
Other
Consideration
on
Compromise
Agreements
o Compromise Penalty
It is the amount of money which
the
taxpayer pays to compromise tax
violations. This is paid in lieu of
criminal prosecution. A taxpayer
cannot be compelled to pay a
compromise penalty if he does not
want to pay, in which case the CIR
must institute a criminal action.
o When may taxes be abated or
cancelled?
[ UJ ]
1. The tax or any portion thereof
appears to be
Unjustly or excessively assessed;
or
2.
The
administration
and
collection costs
involved
do
not
Justify
the
collection of the
amount due (Sec. 204 B)
Abatement vs. Compromise
In
Abatement,
theres
a
cancellation of the
entire
tax
liability,
while
compromise involves
a mere reduction of the tax.
Abatement
THE COMMISSIONER MAY
ABATE OR
CANCEL A TAX LIABILITY WHEN:
1. the tax or any portion thereof
appears
to be unjustly or excessively
assessed
(Sec 204 (b))
o when the filing of the
return/payment is made at the
wrong venue
o when the taxpayers mistake in
payment of his tax is due to
erroneous written official advice
of a revenue officer
o when the taxpayer fails to file the
return and pay the tax on time
due to substantial losses from
prolonged labor dispute, force
majure, legitimate business
reverses, provided, the
abatement shall only cover the
surcharges and the compromise
penalty and not the interest
imposed under Sec. 249
o when the assessment is brought
about or the result of taxpayers
non-compliance with the law due
to a difficult interpretation of said
law
o when the taxpayer fails to file the
return and pay the correct tax on
time due to circumstances
beyond his control, provided, the
abatement shall cover only the
surcharges and the compromise
penalty and not the interest
imposed under Sec 249
o late payment of the tax under
meritorious circumstances (Sec.
2, RR 13-2001)
2. the admission and collection
costs
involved
do
not
justify
the
collection of
the amount due (Sec 204 (b)
3. Abatement of penalties on
assessment
confirmed by the lower court but
appealed by the taxpayer to a
higher
court
withholding
tax assessment under meritorious
circumstances
delayed
installment
payment
under
meritorious
circumstances
6. abatement of penalties on
assessment
reduced after reinvestigation but
taxpayer is still contesting reduced
assessment
7. such other circumstances which
the
Commissioner
may
deem
analogous to
the enumerations above (Sec. 3,
RR
13-2001)
Distraint (Only For Personal
Property)
O Definition and Nature
It is the seizure by the government
of
personal property, tangible or
intangible to
enforce the payment of taxes on
the goods,
chattels or effects of the taxpayer
including
other
personal
property
of
whatever
character. The property may be

offered in a
public sale if taxes are not
voluntarily paid. It
is a summary remedy.
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The warrant is a summary
procedure
forcing the taxpayer to pay. The
receipt
of a warrant may or may not
partake the
character of a final decision. If it is
an
indication of a final decision, the
taxpayer
may appeal to the CTA within 30
days
from service of the warrant.
Types of Distraint
A. Actual Distraint
There is taking of possession of
the personal
property from the taxpayer by the
government. Physical transfer of
possession
is not always required. This is true
in case of
intangible property such as stocks
and
credits.
Resorted to only when the
taxpayer becomes
delinquent.
There is actual seizure of the
property of the
delinquent taxpayer.
Resorted to when there is actual
delinquency
in tax payment.
B. Constructive Distraint
There may be no actual
delinquency.
Taxpayer is prohibited from
disposing of the
property and must preserve the
same
ACTUAL
DISTRAINT
CONSTRUCTIVE
DISTRAINT
Made only on the
property of a
delinquent taxpayer
made on the property of
any taxpayer, whether
delinquent or not
there is taking or
possession
the taxpayer is merely
prohibited from disposing of
his property
Effected by leaving a
list of distrained
property or by service
of a warrant of distraint
or garnishment
Effected by requiring the
taxpayer to sign a receipt of
the property or by the
revenue officer preparing
and leaving a list of such
property
an immediate step for
collection of taxes
not necessarily an
immediate step for
collection of taxes
Both
Are summary remedies for the
collection
of taxes
Refer only to personal property
Cannot be availed of where the
amount
of the tax involved is not more than
P
100
REQUISITES FOR THE EXERCISE
OF THE
REMEDY OF DISTRAINT:
The taxpayer must be delinquent
(except in
constructive
distraint)
in
the
payment of taxes
There must be a subsequent
demand for its
payment
The taxpayer must have failed to
pay the tax
at the time required; and
The period within which to assess
or collect
the tax has not yet prescribed.
Distraint of Personal Property
(Actual Distraint)
WHO MAY EFFECT
DISTRAINT
AMOUNT
INVOLVED
Commissioner or his duly
authorized representative
In excess of
P1,000,000
Revenue District Officer (Sec.
207(a))
P1,000,000 or
less
PROPERTY
SEIZED
OR
DISTRAINED:
a) goods, chattels, effects and
other personal
property
b) including stocks and other
securities, debts,
credits, bank accounts, interests in
and rights
to personal property
PROCEDURE FOR THE ACTUAL
DISTRAINT OR
GARNISHMENT
1)
Report
on
the
Distraint
(Commencement of
distraint proceedings)
a) by the distraining officer
1. submitted within 10 days from
receipt of
the warrant
2. submitted to the Revenue
District Officer
and to the Revenue Regional
Director
b) by the Revenue Regional
Director - a
consolidated report, as may be
required by
the Commissioner
The order of Distraint may be
lifted by the
Commissioner or his representative
(Sec.
207 A)
2) Service of Warrant of Distraint
Procedure with respect to:
(a) Goods, effects, chattels and
other personal
property
1. a copy of an account of the
property
distrained, signed by the officer,
shall be
left either with the owner or the
person
from whom the property was taken
or at
the dwelling or place of business of
such
person and with someone of
suitable age
and discretion
2. together with a statement of the
sum
demanded
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3. and also a note of the time and
place of
sale
(b) Stocks and other Securities
1. serving a copy of the warrant
upon the
taxpayer AND upon the president,
manager,
treasurer
or
other
responsible
officer of the issuing corporation,
company, association
(c) Debts and Credits
1. leaving a copy of the warrant
with the
person owing the debts or having
in his
possession such credits or his
agent
the warrant shall be sufficient
authority to
the person served to pay to the
Commissioner the amount of such
debts
or credits
(d) Bank accounts (garnishment)
1. serve a warrant of garnishment
upon the
taxpayer AND upon the president,
manager,
treasurer
or
other
responsible
officer of the bank
2. bank shall turn over to the
Commissioner
so much of the bank accounts as
may be
sufficient (Sec.208)
3) Posting of Notice (Sec. 209)
Notice specifying the time and
place of sale
and the articles distrained.
The posting shall be made in not
less than 2
public places in the city or
municipality where
the distraint is made.
One of the places for posting of

such notice
is the Office of the Mayor of such
city or
municipality.
4) Sale of Property Distrained
CONSTRUCTIVE DISTRAINT
1) When may this occur?
[ HORRID ] (Sec. 206)
a) taxpayer is Delinquent
b) taxpayer is Retiring from any
business
subject to tax
c) taxpayer is Intending to leave
the Phil. or to
Remove his property therefrom
d) taxpayer Hides or conceals his
property
e) taxpayer performs any act
tending to
Obstruct the proceedings for
collection of any
tax due
2) Procedure
(a) Require the taxpayer or any
person having
possession/control of the property
to
1. sign a receipt covering property
distrained; and
2. obligate himself to preserve the
same
intact and unaltered; and
3. not to dispose of the property in
any
manner,
without
the
express
authority of
the Commissioner.
(b) Where taxpayer or person in
possession
refuses to sign:
distraining officer shall prepare a
list of
the property distrained
in the presence of 2 witnesses
leave a copy in the premises

where the
property is located
= after which the said property
shall be
deemed to have been placed under
constructive distraint (Sec. 206)
Note:
- Constructive distraint is an
additional
remedy because the government
can resort
to it while the remedy of actual
distraint is not
yet
available,
meaning
the
assessment
process is still to be done.
LEVY
(ONLY
ON
REAL
PROPERTY)
The seizure of real property of the
taxpayer and
interests or rights to such property
for the
satisfaction of taxes due from the
delinquent
taxpayer to enforce the payment
thereof. The
property may be offered in a public
sale, if after
seizure,
the
taxes
are
not
voluntarily paid.
When may Levy be effected?
It is effected by issuing a warrant
of levy and giving a
written notice to the taxpayer and
the Register of
Deeds, after which the real
property shall be sold at a
public sale to satisfy the tax
obligation of the
taxpayer.
When
exercised:
before,
simultaneously or
after the distraint of personal
property
belonging to the taxpayer
Procedure of Levy on Real

Property
Prepare Certificate of Levy
(a) Internal revenue officer shall
prepare a duly
authenticated certificate showing:
the name of taxpayer
amounts of tax and penalty due
(b) Enforceable as a legal execution
throughout
the Philippines
(c) officer shall write upon the
certificate a
description of the property upon
which levy is
made
written notice of levy shall be
mailed or served
upon
1. the delinquent taxpayer, or
if he is absent from the
Philippines, to his
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agent or manager if the business in
respect to which the liability arose,
or
if there be no agent, to the
occupant of
the property.
2. the Register of Deeds where the
property is
located (Sec. 207[B])
Advertisement of the time and
place of sale,
which shall contain
a) The amount of tax and penalties
due
b) Name of the taxpayer
c) Short description of the property
to be sold
the advertisement shall be made

within 20 days
after the levy, and the same shall
be for a period
of at least 30 days. It shall be
effected by:
a) posting a notice at the main
entrance of the
municipal building or the city hall
and in
public and conspicuous place in the
barrio or
district where the property is
located
b) by publication once a week for 3
consecutive
weeks in newspaper of general
circulation in
the municipality or city where the
property is
located (Sec. 213)
Sale
Awarded to the highest bidder
In case the proceeds of the sale
exceeds the
claim and costs of sale, the excess
shall be
turned over to the owner of the
property.
At any time before the day fixed
for the sale,
the taxpayer may discontinue all
proceedings
by paying the taxes, penalties, and
interests.
DISTRAINT VS. LEVY
DISTRAINT LEVY
refers to personal
property
involves real property
forfeiture of the property
in favor of the
government is not
provided
Forfeiture authorized if (
215):
There is no bidder or
If the highest bid is
insufficient to pay
the taxes, penalties
and costs
There is no right of
redemption on the
personal property
There is a right of
redemption in case of
real property levied upon
and sold or forfeited to
the government
Both:
summary remedies for collection
cannot be availed of where
amount involved
do not exceed P100
Redemption of Property Sold
Within 1 year from the date of
sale, the
property may be redeemed by the
delinquent
taxpayer or anyone from him, upon
the
payment of the taxes, penalties
and interest
thereon
from
the
date
of
delinquency to the
date of sale together with interest
on
purchase price at 15% per annum
from the
date of sale to the date of
redemption. (Sec.
214)
The taxpayer-owner shall not be
deprived of
possession of said property and
shall be
entitled to rents and other income
until the
expiration of the period for
redemption.
Forfeiture to the Government
If there is no bidder in the public

sale or if the
amount of the highest bid is
insufficient to
pay the taxes, penalties and costs,
the real
property shall be forfeited to the
Government
(Sec. 215)
Further Distraint and Levy
The remedy of distraint and levy
may be
repeated if necessary until the full
amount of
the tax delinquency due including
all
expenses is collected from the
taxpayer.
(Sec 217)
Otherwise, a clever taxpayer who
is also able
to conceal most of the valuable
part of his
property would escape payment of
his tax
liability
by
sacrificing
an
insignificant portion
of his holdings.
TAX LIEN
It is a legal claim or charge on
property, either
real or personal, established by law
as a security
in default of the payment of taxes
(51 AmJur
881). Generally, it attaches to the
property
irrespective
of
ownership
or
transfer thereof.
o Nature- a lien in favor of the
Government of the
Philippines when a person liable to
pay a tax
neglects or refuses to do so upon
demand
o Duration- lien exists from the

time assessment is
made by the Commissioner until
paid, with
interests, penalties and costs that
may accrue in
addition thereto
o Extent- upon all property and
rights to property
belonging to the taxpayer
o Effectivity against third personsonly when notice
of such lien is filed by the
Commissioner in the
Register
of
Deeds
in
the
province/city where the
property is situated (Sec. 219)
Superior to judgment claim of
private
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property
Attaches not only from the time
the warrant was
served BUT from the time tax was
due and
demandable (from the time when
the assessment
was made [Sec. 219]).
LIEN DISTRAINT
Directed against the
property subject to the
tax
Need not be directed
against the property
subject to tax
Regardless of the owner
of the property
Property seized must be
owned by the taxpayer
CIVIL ACTIONS
For tax remedy purposes, these

are actions
instituted by the government to
collect
internal revenue taxes. It includes
filing by
the government with the probate
court claims
against the deceased taxpayer.
Resorted to when the tax liability
becomes final and
unappealable, or when the decision
of the
Commissioner becomes final or
executory. When:
A tax is assessed and the
assessment becomes
final and unappealable because the
taxpayer
fails to file an administrative
protest with the BIR
within 30 days from the receipt of
the
assessment.
When an administrative protest
filed by the
taxpayer against the assessment is
o denied, in whole and in part or
o Is not acted upon within 180 days
from
submission of the documents, and
o The taxpayer adversely affected
by the
decision or inaction fails to file an
appeal
with the CTA within 30 days from
receipt
of said decision or from the lapse of
the
180 day period.
Where to File
1) Court of Tax Appeals- where the
principal
amount of taxes and fees exclusive
of
charges and penalties claimed is

one million
pesos and above
2) RTC, Mun. TC, Metro TC- where
the
principal amount of taxes and fees,
exclusive
of charges and penalties claimed is
less than
P1,000,000.00 (Sec 7[c], RA 9282)
The approval of the CIR is
essential in civil
cases (Sec. 220). However under
Sec. 7 of
NIRC, the Commissioner may
delegate such
power to a Regional Director.
Defenses which are Precluded
by Final and
Executory Assessment
Invalidity or illegality of the
assessment and
Prescription of the governments
right to
assess
CRIMINAL ACTIONS
The judgment in the criminal
cases shall not
only impose the penalty but shall
also order
the payment of taxes subject of
the criminal
case as finally decided by the
Commissioner
(Sec 205)
Resorted not only for the
collection of the
taxes but also for the enforcement
of
statutory penalties of all sorts.
Where to file
1) Court of Tax Appeals- on criminal
offenses
arising from violations of the NIRC
or TCC and
other laws administered by the BIR

and the BOC,
where the principal amount of
taxes and fees,
exclusive of charges and penalties
claimed is
P1,000,000.00 and above.
2) RTC, Mun. TC, Metro TC- on
criminal offenses
arising from violations of the NIRC
or TCC and
other laws administered by the BIR
and the BOC,
where the principal amount of
taxes and fess
exclusive of charges and penalties
claimed is
less than P1,000,000.00 or where
there is no
specified amount claimed (Sec
7[b], RA 9282)
Acquittal of the taxpayer in
criminal case does
not exonerate him from liability
to pay Taxes
Under the Penal Code the civil
liability is incurred by
reason of the offender's criminal
act. Stated
differently, the criminal liability
gives birth to the civil
obligation such that generally, if
one is not criminally
liable under the Penal Code, he
cannot become
civilly
liable
thereunder.
The
situation under the
income tax law is the exact
opposite. Civil liability to
pay taxes arises from the fact, for
instance, that one
has engaged himself in business,
and not because of
any criminal act committed by him.
The criminal
liability arises upon failure of the

debtor to satisfy his
civil obligation. The incongruity of
the factual
premises and foundation principles
of the two cases
is one of the reasons for not
imposing civil indemnity
on the criminal infractor of the
income tax law.
(Republic vs. Patanao).
While there can be no civil action
to enforce
collection before the assessment
procedures
provided in the Code have been
followed, there is no
requirement
for
the
precise
computation and
assessment of the tax before there
can be a criminal
prosecution
under
the
Code.
(Ungab vs. Cusi L41919-24, 30 May 1980, 97 SCRA
877)
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Effect
of
Subsequent
Satisfaction of Civil Liability
The subsequent satisfaction of
civil liability by
payment or prescription does not
extinguish
the taxpayers criminal liability.
No Subsidiary Imprisonment
In case of insolvency on the part
of the
taxpayer subsidiary imprisonment
cannot be
imposed as regards the tax which
he is
sentenced to pay. However, it may

be
imposed in cases of failure to pay
the fine
imposed. (Sec 280)
Criminal Action May be Filed
during the
Pendency of an Administrative
Protest in the BIR
It is not a requirement for the
filing thereof
that
there
be
a
precise
computation and
assessment of the tax, since what
is involved
in the criminal action is not the
collection of
tax but a criminal prosecution for
the violation
of the NIRC. Provided, however,
that there is
a prima facie showing of a willful
attempt to
evade taxes.
An assessment of a deficiency is
not
necessary to a criminal prosecution
for willful
attempt to defeat and evade the
income tax.
A crime is complete when the
violator has
knowingly and willfuly filed a
fraudulent return
with intent to evade and defeat the
tax. The
perpetration of the crime is
grounded upon
knowledge on the part of the
taxpayer that he
has made an inaccurate return, and
the
government's failure to discover
the error and
promptly
to
assess
has
no
connections with
the commission of the crime.

(Ungab v. Cusi,
L-41919-24, 30 May 1980, 97 SCRA
877)
See also CIR vs. Pascor Realty,
GR No.
128315, June 29, 1999, which
reached the
same conclusion as in Ungab.
HOWEVER, in the case of CIR vs.
CA, CTA,
& Fortune Tobacco (GR No.
119761, Aug.
29, 1996), the CIR held a contrary
position
CIVIL AND CRIMINAL ACTIONS:
1. Must be brought in the name of
the Government
of the Philippines
2. Conducted by legal officers of
the BIR
3. In case of actions for recovery of
taxes or
enforcement of a fine, penalty or
forfeiture, must
be filed with the approval of the
Commissioner
(Sec. 220)
FORFEITURE: (SEC. 224-225)
Divestiture of property without
compensation, in
consequence of a default or
offense.
forfeited property shall not be
destroyed until
at least 20 days from seizure
ENFORCEMENT OF REMEDY OF
FORFEITURE:
Personal Property Seizure and sale
or
destruction of specific
forfeited property
Real Property Judgment of
condemnation and sale
Distille spirits, liquors,
cigars, cigarettes
manufactured, products
of tobacco and apparatus
used for their production
Upon forfeiture, may be
destroyed by order of the
CIR where the sale may
be injurious to public
health or prejudicial to
law enforcement
Other articles subject to
excise tax which have
been manufactured or
removed in violation of
the Code, dies for
printing or making fake
revenue stamps and
labels
Upon forfeiture may be
sold or destroyed at the
discretion of the CIR.
Forfeited property shall
not be destroyed until at
least 20 days from
seizure
Effect of the Forfeiture of
Property
The effect is to transfer the title
to the specific
thing from the owner to the
government. All
the proceeds in case of a sale goes
to the
coffers of the government. The
provisions in
the Code which entitles the
taxpayer to the
balance of the proceeds in excess
of the tax
liability is entirely inapplicable to
forfeited
property. It relates solely to the
sale of
property distrained to pay taxes of
delinquents and the disposition of
the
proceeds thereof. (US v. Surla, 20

Phil 163).
There is a great difference
between a seizure
under forfeiture and a seizure to
enforce a
tax lien. In the former all the
proceeds
derived from the sale of the thing
forfeited
are turned over to the Collector of
Internal
Revenue; in the latter the residue
of such
proceeds over and above what is
required to
pay the tax sought to be realized,
including
expenses, is returned to the owner
of the
property. (Bank of Phil. Island v.
Trinidad, 42
Phil 220).
ASSESSMENT AND COLLECTION
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Letter of Authority
The letter of authority is an official
document that
empowers a Revenue Officer to
examine and
scrutinize a taxpayers books of
accounts and
other accounting records, in order
to determine
the taxpayers correct internal
revenue tax
liabilities
- WHO ISSUES LOA:
o CIR for those units reporting
directly under him
o Regional Directors for taxpayers

covered by his particular region. If
the CIR has already issued an LA to
investigate a particular taxpayer,
the
Regional Director shall desist from
issuing another LA for the same
taxpayer.
WHERE NO LETTER OF AUTHORITY
NEEDED:
- - Cases involving civil/criminal tax
fraud
which fall under the jurisdiction of
the tax
fraud division of the enforcement
services,
and
- - policy cases under audit by the
special
teams in national offices
PRE-ASSESSMENT STAGE
STEP 1: Notice of Informal
Conference
- - a written notice informing a
taxpayer that
the findings of the audit conducted
on his
books of accounts and accounting
records
indicate that additional taxes or
deficiency
assessments have to be paid
- - If, after the culmination of an
audit, a
Revenue Officer recommends the
imposition
of deficiency tax assessments, this
recommendation is communicated
by the
Bureau to the taxpayer concerned
during an
informal conference called for this
purpose,
the taxpayer shall have 15 days
from receipt
of the notice of informal conference

to
explain his side.
STEP 2: Informal Conference
- MATTERS TAKEN UP:
- 1. Discussion on the merits of the
assessment
- 2. Attempt of taxpayer to
convince the
examiner
to
conduct
a
reinvestigation and or
re-examination
- 3. Evaluate if the submission of
the waiver of
the SOL is necessary evaluation
may
extend beyond 3 years
- 4. Taxpayer to advise the
examiner if position
paper
JEOPARDY ASSESSMENT: a tax
assessment made by an authorized
revenue
officer without the benefit of a
complete or
partial audit if the officer believes
that the
assessment and collection will be
jeopardized by the delay caused by
the
taxpayers failure to:
a.
comply
with
audit
and
investigation
requirements to present his books
of
accounts and or pertinent records
b. substantiate all or any of the
deductions, exemptions or credits
claimed in his return.
- it is usually when statutory
prescriptive
periods for the assessment or
collection of
taxes are about to lapse due to
taxpayers
fault.
STEP 3: Issuance of PreAssessment Notice

(PAN)
- - Communication issued by the
Regional
Assessment Division or any other
concerned
BIR office, informing a taxpayer
who has
been audited of the findings of the
Revenue
Officer, following the review of
these findings.
The assessment shall be in writing,
and
should inform the taxpayer of the
law and the
facts on which the assessment is
made;
otherwise, the assessment is void.
- - If the taxpayer disagrees with
the findings in
the PAN, he has 15 days to file a
written
reply contesting the proposed
assessment.
WHEN PAN NO LONGER REQUIRED:
a. mathematical errors
b. discrepancy has been
determined between tax withheld
and amount actually remitted by
the withholding agent
c. when a taxpayer who opted to
claim a refund or tax credit of
excess creditable withholding tax
for a taxable period was
determined to have carried over
and automatically applied the
same amount claimed against
the estimated tax liabilities for
the taxable quarter or quarters of
the succeeding taxable year, or
d. when the excise tax due has not
been paid, or
e.
when
an
article
locally
purchased
or imported by an exempt person

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has been sold, traded, or
transferred to a non-exempt
person
BURDEN OF PROOF:
- There is a presumption of
correctness and good faith on the
part of the CIR, thus, the burden
lies
on the taxpayer. Otherwise, the
finding of the CIR will be conclusive
and he will assess the taxpayer.
The
same is true even if the CIR is
wrong, if the taxpayer does not
controvert it (Cagayan Robina
Sugar
Milling V. CA)
Reasons:
> lifeblood theory
> presumption of
regularity in the performance of
public functions
Note: assessments by the BIR must
have on its face the law and facts
upon which the presumption is
made.
FORMAL ASSESSMENT STAGE
Notice of Assessment is a formal
letter of
demand where a declaration of
deficiency taxes
is issued to a taxpayer who fails to
respond to a
pre-assessment notice within the
prescribed
period of time, or whose reply to
the PAN was
found to be without merit. This is

commonly
known as the Final Assessment
Notice. An
assessment contains not only a
computation of
under declaration of taxable sales,
receipts or
income,
OR
a
substantial
overstatement of
deductions
- - Failure to report sales, receipts,
or income
in an amount exceeding 30% of
that declared
per return, and a claim of
deductions
exceeding
30%
of
actual
deductions
constitute
substantial
under
declaration or
over declaration.
- - The state cannot be estopped by
the
neglect of its agents and officers.
The rule of
estoppel cannot be invoked by the
taxpayer
in order to preclude the collection
of taxes
that
is
rightfully
due
the
government.
What
Constitutes
an
Assessment?
There is no form for an
assessment, it can be
written anywhere as long as it is
signed by
the BIR. Any notice sent to the
taxpayer
demanding the tax liability is an
assessment.
GENERAL RULE: Taxes are selfassessing and do
not require the issuance of an
assessment notice in
order to establish the tax liability of

a taxpayer.
Exceptions:
1. Tax period of a taxpayer is
terminated (sec.
6d, NIRC)
2. Deficiency tax liability arisinf
from a tax audit
conducted by a BIR (sec 56b, NIRC)
3. Tax lien (sec. 219, NIRC)
4. Dissolving Corporation (sec. 52c,
NIRC)
Requisites
of
a
valid
assessment:
1. in writing
2. must state the facts and law
upon which it is
based (Sec. 228)
Assessments
Prima
facie
correct
Tax assessments by tax examiners
are presumed
correct and made in good faith.
The taxpayer has the
duty to prove otherwise. (Sy Po v.
CTA, GRN L81446 August 18, 1988.)
Assessment Discretionary on
the part of
Commissioner
Since
the
office
of
the
Commissioner of Internal
Revenue is charged with the
administration of
revenue laws, which is the primary
responsibility of
the executive branch of the
government, mandamus
may
not
lie
against
the
Commissioner to compel him
to impose a tax assessment not
found by him to be
due or proper for that would be
tantamount to a
usurpation of executive functions.
(Meralco Securities
vs. Savellano, L-36181 and L36748, Oct. 23, 1992).

Void vs. Illegal Assessment
An assessment is illegal and void
when the assessor
has no power to act at all. It is
erroneous when the
assessor has the power but errs in
the exercise of
that power.
It is settled in our jurisdiction that
where an
assessment is illegal and void, the
remedy of a
taxpayer, who has already paid the
realty tax under
protest, is to sue for refund in the
competent court.
On the other hand, where the
assessment is merely
erroneous, his recourse is to file an
appeal in the
Provincial Board of Assessment
Appeals within 60
days
from
receipt
of
the
assessment. (GR L-24213
March 13, 1968)
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PRESCRIPTIVE PERIODS FOR
THE
ASSESSMENT AND COLLECTION
OF TAXES
Rationale
The periods are designated to
secure the
taxpayers against unreasonable
investigation
after the lapse of the period
prescribed. They
are
also
beneficial
to
the
government
because tax officers will be
obligated to act
promptly.
Rules on Prescription
When the tax law itself is silent
on
prescription,
the
tax
is
imprescriptible
When no return is required, tax is
imprescriptible
N.B. Remedy of taxpayer is to file a
return
Defense of prescription is
waivable
Prescriptive Period for the
Assessment of Taxes
a) General Rule:
3 years after the date the return
is due or
filed, whichever is later (Sec 203)
b) Exceptions:
failure to file return: 10 years
from date of
discovery of the omission to file the
return
(Sec 222A)
False or fraudulent return
with intention to
evade the tax: 10 years from the
date of the
discovery of the falsity or fraud
(Sec 222A)
Nothing in Sec 222A shall be
construed to
authorize the examination and
investigation
or inquiry into any tax return filed
in
accordance with the provisions of
any tax
amnesty law or decree
Fraud must be alleged and
proved as a fact.
It must be the product of a

deliberate intent to
evade taxes. It may be established
by the:
1. intentional and substantial
understatement of the tax liability
by
the taxpayer (substantial
underdeclaration of income; >30%
of
that declared [Sec. 248])
2. intentional and substantial
overstatement of deductions of
exemptions (>30% of the actual
deductions [Sec. 248])
3. recurrence of the above
circumstances
Falsity constitutes a deviation
from the truth
due to mistake, carelessness or
ignorance.
There is fraud in the following
cases:
Fraud must be the product of
a deliberate intent to evade
taxes (Jalandoni V.
Republic)
Simple statement that return
filed was not fraudulent does
not disprove existence of
fraud (Tayengco V.
Collector)
Substantial underdeclarations
of income for six
consecutive years
demonstrate fraudulence of
returns (Perez V. CTA)
Presence of fictitious
expenses, with no evidence
presented, proves existence
of fraud (Tan Guan V. CIR)
No Fraud in the following cases:
mere understatement in the tax
return will not necessarily imply
fraud
(Jalandoni V. Republic)
Sale of real property for less than

FMV is not necessarily a false
return
( CIR v.Ayala Securities)
Fraud is a question of fact and
the
circumstances constituting fraud
must be alleged and proved in the
trial court (CIR v. Ayala Securities)
Farud is never imputed and the
courts never sustain findings of
fraud
upon circumstances that only
create
suspicion ( CIR v. Javier)
Mistakes of revenue officers on
three
different
occasions
remove
element
of fraud ( Aznar V. CTA and
Collector)
Agreement in writing to the
extension of the
period to assess between the CIR
and the
taxpayer before the expiration of
the 3 year
period.
The
extension
period
agreed upon
can further be extended by a
subsequent
written agreement made before the
expiration of the extended period
previously
agreed upon. (Sec. 222(b))
Written
waiver
or
renunciation of the
original 3 years limitation, signed
by the
taxpayer.
Notice of the assessment is
released, mailed or
sent to the taxpayer also within the
3 year period.
It is not required that the notice be
received by
the taxpayer within the prescribed

period. But the
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sending of the notice must clearly
be proven.
(Basilan Estate v. CIR, 21 SCRA 17).
Amendment of Return
If the amended return is
substantially
different from the original return,
the
prescriptive
period
shall
be
counted from the
filing of the amended return. But
the said
period shall run from the filing of
the original
return, if the same is sufficiently
complete to
enable the CIR to make proper
assessment (
CIR v. Phoenix Assurance Co.)
Within 3 years from the date of
such filing,
the same may be modified,
changed or
amended, provided that no notice
for audit or
investigation
of
such
return,
statement, or
declaration has in the meantime
been
actually served upon the taxpayer.
Effect of filing a wrong return: the
10 year
prescriptive period for cases where
returns
are not filed applies.
Collection of Taxes
5 years from assessment or

within period for
collection agreed upon in writing
before
expiration of the 5 year period (Sec
222)
10 years after discovery in
case of false or
fraudulent return with intent to
evade or failure to
file return, without need for an
assessment (Sec
222)
Prescriptive Period where the
Governments
Action is on a Bond which the
Taxpayer Executes
in order to Secure the Payment
of his Tax
Obligation
10 years under Art. 1144(1) of
the Civil Code
and not 3 years under the NIRC. In
this case
the taxpayers failed to pay the
installments
due despite demand. Hence, the
Government sued on the bond
which is a
separate and distinct obligation of
the parties
thereto. The action is for the
enforcement of
a contractual obligation. (Republic
v.
Araneta, GR No. L-14142, May 30,
1961)
Grounds for Suspension of the
Running of the
Statute of Limitation
1. when the CIR is prohibited from
making the
assessment or beginning the
distraint or levy
or a proceeding in court, and for 60
days
thereafter
2. when the taxpayer requests for
a
reconsideration which is granted by
the CIR
3. when the taxpayer cannot be
located in the
address given by him in the return,
unless he
informs the CIR of any change in
his address
4. when the warrant of distraint or
levy is duly
served and no property is located
5. when the taxpayer is out of the
Philippines
(Sec. 223)
A Tax Return is Considered
Filed for Purposes of
Starting the Running of the
Period of Limitation
The return is valid- it has
complied
substantially with the requirements
of the law
The return is appropriate- it is a
return for the
particular tax required by law.
a defective tax return is the same
as if no
return was filed at all.
Violation of Any
Provision of the Tax Code (Sec.
281)
should be filed 5 years from the
(1) day of the
commission of the violation of the
law, and if
the same shall be not known, from
the (2)
discovery
thereof
and
the
institution of the
judicial
proceedings
for
its
investigation and
punishment (Lim v. CA 190 SCRA

616)
1. Charge is failure or refusal to
pay deficiency
income-committed only after the
finality of
the assessment coupled with the
taxpayers
willful refusal to pay the taxes
within the
allotted period
2. Charge is filing of false or
fraudulent return
with
intent
to
evade
the
assessment- in
addition to the fact of discovery,
there must
be a judicial proceedings for the
investigation and punishment of
the tax
offense
before
the
5
year
prescriptive period
begins to run.
WHEN
TAX
DEEMED
COLLECTED:
1. By summary remedies when
the
Government avails of the summary
method of distraint and levy
procedure
2. By judicial remedies by filing a
complaint through the proper court
Note: if the decision of the CIR on
protested assessment is appealed
to the
CTA, the collection of tax is
considered
begun when the Government filed
its
answer to the taxpayers petition
for
review. (Fernandez Hermanos v.
CIR)
INFORMERS REWARD
-Persons
instrumental
in
the
discovery of
violations of the NIRC and in the

discovery and
seizure of smuggled goods
REQUISITES TO QUALIFY FOR
THE REWARD:
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1. Person is not an internal revenue
official or
employee,
public
official,
or
employee or relative
within
the
6th
degree
of
consanguinity
2. Voluntarily gives definite and
sworn information:
a. not yet in the possession of the
BIR
b. leading to discovery of frauds
c. resulting in the discovery of
revenue,
surcharges
and
fees,
and/or,
conviction of
the guilty party
d. not refer to a case already
pending or
previously
investigated
or
examined by the
CIR or his agents or the SOF or his
agents
Amount of Reward
- - 10% of the revenues, surcharges
or fees
recovered
and/or
fine/penalty
imposed, or
P1,000,000, whichever is LOWER.
- - the cash rewards shall be
subject to income
tax at the rate of 1-%
Note:
Status offering rewards must be
liberally construed in favor of
informers and with regard to the

purpose for which they are
intended,
with mere technicality yielding to
the
substantive purpose of the law
Same amount shall be given if
the
offerender offered to compromise
and such offer has been accepted
and collected by the CIR
If no revenue, surcharge, or fees
be
actually collected, such person is
not
entitled to a reward
For discovery and seizure of
SMUGGLED GOODS -> the cash
reward is 10% of the FMV of the
smuggled and confiscated goods,
or
P1,000,000, whichever is lower.
PART II. REMEDIES AVAILABLE
TO THE
TAXPAYER
General Remedies
1. Administrative
A. Before payment of taxes
a) protest of assessment
Filing
a
petition
for
reconsideration or
reinvestigation within 30 days from
receipt of
assessment.
Within 60 days from filing, all
relevant
documents
should
be
filed,
otherwise
assessment becomes FINAL and
cannot be
appealed (Sec 228)
Submission of documents within
the 60 days
period is optional to the taxpayer.
The
relevant supporting documents

mentioned in
the law refers to such documents
which the
taxpayer feels would be necessary
to support
his protest and not what the
Commissioner
feels
should
be
submitted,
otherwise the
taxpayer would always be at the
mercy of the
BIR which may require production
of such
documents which taxpayer could
not
produce. (Standard Chartered Bank
v. CTA,
Case No. 5696, Aug. 16, 2001)
A protest is a vital document
which is a
formal declaration of resistance of
the
taxpayer. It is a repository of all
arguments. It
can be used in court in case of
administrative
remedies have been exhausted. It
is also the
formal
act
of
the
taxpayer
questioning the
official actuations of the CIR. This is
equivalent to a pleading.
b) Entering into a compromise
(Sec. 204)
CHARACTERISTICS OF A VALID
PROTEST:
1. It is made in writing, and
addressed to the
Commissioner of Internal Revenue
2. It contains information as
specified in RR12-85
3. It states the facts, applicable
law, rules and
regulations or jurisprudence on
which his protest
is based, otherwise the protest

shall be
considered void and without force
and effect.
4. It is filed within the period
prescribed by law.
B. After payment of taxes
a) Claim for refund or tax credit
Within 2 years from the date of
payment
regardless of any supervening
cause
(Sec. 228)
2. Judicial Relief
A. Civil Action
a) Appeal to the CTA
within 30 days from receipt of the
decision on
the protest or from the lapse of the
180
days inaction of the Commissioner
(Sec.
228)
Within the 30 day period to
appeal, the
taxpayer mat file several motions
for
reconsideration
with
the
Commissioner
instead of at once filing his petition
for
review before the CTA. The
subsequent
motion for reconsideration tolls the
running of the prescriptive period.
The
prescriptive period begins to run
again
when the taxpayer receives the
letter
denying its request/motion for
recon. He
then only has the remainder of the
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original 30-day period to appeal to
the
CTA. (Surigao Electric Co. vs. CA,
1974)
A division of the CTA shall hear
the appeal.
(sec. 11, RA 1125)
b) Action to contest forfeiture of
chattel
at any time before the sale or
destruction
thereof, to recover the same, and
upon
giving proper bond, enjoin the
sale; or
after the sale and within 6
months, an action
to recover the net proceeds
realized at
the sale (Sec 231)
c) Action for damages
against a revenue officer by
reason of any
act done in the performance of
official duty
(Sec 227)
3. Criminal Action
a) Against erring BIR officials and
employees
b) Injunction
When the CTA in its opinion the
collection
by
the
BIR
may
jeopardize the
taxpayer.
Court
may
require
deposit of
an amount or surety bond for not
more
than double the amount
with the enactment of RA 9282,
the
CTA has now jurisdiction over
criminal
cases
Denial of Protest:
1. Direct Denial
The decision of the Commissioner
or his duly
rep shall (a) state the facts,
applicable law, rules and
regulations or jurisprudence on
which his protest is
based, otherwise the protest shall
be considered void
and without force and effect, in
which case the same
shall not be considered a decision a
disputed
assessment and (b) that the same
is his final
decision. (sec. 3.1.5, RR 12-99)
2. Indirect Denial
a. Commissioner did not rule on the
taxpayers MR of
the assessment it was only when
respondent
received summons on the civil
action for the
collection of deficiency income tax
that the period to
appeal commenced to run. (CIR vs.
Union Shipping
Corp.)
b. Referral by the Commissioner of
request for
reinvestigation to the Solicitor
General (Republic vs.
Lim Tian Teng Sons)
c. Reiterating the demand for
immediate payment of
the
deficiency
tax
due
to
taxpayers continued refusal
to execute waiver (CIR vs. Ayala
Securities Corp.)
d. Preliminary collection letter may
serve as
assessment notice (United Intl
Pictures vs. CIR)
Acts
of
BIR
Commissioner
Considered as Denial
of Protest which serves as a
Basis for Appeal to
CTA
filing by the BIR of a civil suit for
collection of
the deficiency tax (CIR v. Union
Shipping
Corp. 185 SCRA 547)
indication to the taxpayer by the
Commissioner
in
clear
and
unequivocal
language of his final denial. (CIR v.
Union
Shipping Corp)
BIR demand letter reiterating his
previous
demand to pay, sent to taxpayer
after his
protest of the assessment (Surigao
Electric
Co. Inc. v. CTA, 57 SCRA 523)
The actual issuance of a warrant
of distraint
and levy in certain cases cannot be
considered as final decision on a
disputed
settlement (CIR v. Union Shipping
Corp)
Protest of Assessment:
1. File a request for reinvestigation
or
reconsideration within 30 days
from receipt of the
assessment
request for reinvestigation a plea for re-evaluation of an
assessment
on the basis of newly discovered or
additional evidence that a taxpayer
intends
to
present
in
the
reinvestigation.
Involves a question of fact or law or
both.
request for reconsideration-
a plea for re-evaluation of the

assessment on the basis of existing
records without need of additional
evidence. Involves a question of
fact or
law or both. (Revenue Regulation
No.
12-85)
2. Within 60 days from filing of
protest, all relevant
supporting documents should have
been
submitted,
otherwise,
the
assessment shall
become
FINAL
(cannot
be
appealed). (Sec. 228)
Appeal of Protest to the CTA
(Judicial Relief):
(Sec. 228)
1. Grounds:
a) if the protest is denied in whole
or in part
or
b) is not acted upon within 180
days from
submission of documents
2. Appellate Court: Court of Tax
Appeals
3. Period to appeal:
a) within 30 days from receipt of
decision
denying the protest or
b) 30 days from the lapse of 180
day period
4. Effect of failure to appeal: the
decision shall be
final, executory and demandable
(NOTE: See
Lascona doctrine which gives the
taxpayer the
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option either to appeal to the CTA
or to await the
decision of the CIR.)
If taxpayer is not satisfied with the
CTA Divisions
ruling,
1. He may first file a motion for
recon before the
same division of the CTA within 15
days from notice
thereof. (sec. 11, RA1125)
2. Then, a party adversely affected
by a resolution of
a division of the CTA on a motion
for recon may file a
petition for review with the CTA en
banc. (sec. 18, RA
1125)
If the taxpayer is not satisfied with
the decision of the
CTA en banc, a party adversely
affected may file with
the SC a verified petition for review
on certiorari
pursuant to Rule 45 of the Rules of
Court. (sec. 19,
RA 1125)
REGLEMENTARY PERIODS IN
INCOME TAX
IMPOSED BY LAW UPON THE
TAXPAYER
(Pursuant to RR 12-99, Sec 228
and Rules of
Court)
FILING OF CLAIM FOR TAX
REFUND OR TAX
CREDIT
Parties Entitled to Refund
GR: The person entitled to ask for a
refund is the
taxpayer who paid the same
Exceptions:
Case Who is
entitled to
ask for
refund
Reason
Where tax
has been
shifted
The taxpayer
(even if tax
has been
actually
shifted by the
taxpayer to his
customers as
in sales tax
and even if
the tax has
been billed as
a separate
item in the
invoice) (CIR
vs. American
Rubber)
Because the sales tax
is imposed directly on
the seller as an
occupation tax for
selling Once
recovered, the seller
must hold the
refunded taxes in trust
for the individual
purchasers who
advanced payment
thereof and whose
name must appear on
his records
Where
payer is
not the
taxpayer
(e.g.
theater
owners
who paid
illegal
municipal
taxes billed
to and
collected
from
theater
goers)
Theater goers
are not
entitled to
claim refund
of such taxes
(Medina vs.
City of
Baguio)
Where
payer is
withholding
agent
Withholding
agent (CIR vs.
Procter &
Gamble)
"Taxpayer" is any
person subject to tax
imposed by this title
(income tax). The
withholding agent is
BIR makes a tax assessment
If taxpayer is not satisfied with the
assessment file a
protest within 30 days from the
receipt thereof
Submit
supporting
documents
within 60 days from date of the
filing
of the protest
If protest is denied, elevate the
matter to the CIR within 30 days
from the receipt of the decision of
the CIRs duly authorized
representative
Appeal to the Division of CTA within
30 days from the receipt of the
final
decision of CIR or his duly
authorized
representative
(taxpayer has the
option to appeal straight to CTA

upon receipt of the decision of CIR
[Lascona doctrine])
Appeal to the SC within 15 days
from the receipt of the CTA en banc
decision
Appeal to the CTA en banc from
receipt of the decision of CTA
division
(after denial by CTA division of
motion for reconsideration)
If the CIR or his rep fails to act on
the protest within 180 days from
date
of submission by taxpayer, the
latter may appeal within 30 days
from
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directly and
independently liable
for the correct amount
of tax that should be
withheld, and of
deficiency
assessments,
surcharges and
penalties
Where
donor's tax
was
assumed
by donee
Donee is the
proper party to
claim refund
of the donor's
tax (even if
the tax was
advanced by
the donor)
What is the nature of as a

claim for refund?
It partakes of the nature of an
exemption and is
strictly construed against the
claimant. He burden of
proof is on the taxpayer claiming
the refund that he is
entitled to the same (CIR v. Tokyo).
When are there erroneously
paid, or illegally
assessed or collected taxes?
Taxes are erroneously paid when a
taxpayer pays
under a mistake of fact, such as, he
is not aware of
an existing exemption in his favor
at the time that
payment is made. Taxes are
illegally collected when
payments are made under duress.
When may taxes be refunded
or credited?
1. Grounds for Tax refunded or
credited:
[EPWroSUn]
a) Taxes erroneously or illegally
received
b) Penalties imposed without
authority
c) Any sum alleged to have been
excessively or in any manner
wrongfully
collected
d) Refund the value of internal
revenue
stamps when returned in good
condition
by the purchaser
e) Redeem or change unused
stamps
rendered unfit for use and refund
their
value upon proof of destruction, in
the
discretion of the Commissioner
2. Procedure for credit/refund

a) taxpayer files in writing with the
Commissioner a claim for credit or
refund
b) filed within 2 yrs after the
payment of the
tax or penalty
no suit or proceeding shall begun
after the expiration of the said 2
yrs
regardless of any supervening
cause
that may arise after the payment
c) a return filed showing an
overpayment
shall be considered a written claim
for
credit or refund
3. Suit or proceeding for refund
a) a claim for refund or credit has
been filed
with the Commissioner
b) the suit may be maintained
whether or
not such tax/penalty/sum has been
paid
under protest
c) in any case, suit must be filed
within 2
yrs. from date of payment of the
tax/penalty regardless of any
supervening cause that may arise
after
payment
d) the Commissioner may, even
without a
written claim, refund or credit a
tax,
e) where on the face of the return
upon
which
payment
was
made,
payment
appears to be erroneous. (Sec. 204
C,
229)
4. Tax Credit Certificate
a) may be applied against any

internal
revenue tax, EXCEPT withholding
taxes
b) original copy is surrendered to
the
revenue officer
c) no tax refund will be given
resulting from
availment of incentives granted by
law
where no actual payment was
made
(Sec. 204 C)
5. Forfeiture of cash refund/tax
credit
a) Forfeiture of refund in favor of
the
government when a refund check
or
warrant remains unclaimed or
uncashed
within 5 yrs. from date of mailing or
delivery
b) Forfeiture of Tax Credit-a tax
credit
certificate which remains unutilized
after
5 yrs. from date of issue, shall be
invalid,
UNLESS revalidated. (Sec. 230)
Commencement
of
2-year
period under Sec.
204(3) and 229
Case 2-year
period starts
from
Notes
If the tax sought
to be refunded
is illegally or
erroneously
collected
From date tax
was paid
(CIR v
Victorias
Milling)
If the tax is paid
in installment or
only in part
From date of
the last or
final
There is no
payment until
the whole/entire
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installment or
payment
(CIR vs.
Prieto; CIR v
Palanca; CIR
v. TMX
Sales)
tax liability is
fully paid
If the taxpayer
merely made a
deposit
From
conversion of
the deposit to
payment
(Union
Garment v
Coll)
Merely making
a deposit is not
equivalent to
payment until
the amount is
actually applied
to the specific
purpose for
which it was
deposited
If tax has been
withheld from
source (through
the withholding
tax system)
From date it
falls due at
the end of the
taxable year
(Gibbs vs
CIR) He is
deemed to
have paid his
tax liability
when the
same falls
due at the
end of the
taxable year
(Aguilar vs.
CA)
A taxpayer who
contributes to
the withholding
tax system
performs and
extinguishes
his tax
obligation for
the year
concerned. In
other words, he
is paying his
tax liabilities for
that year.
Corporate
taxpayer
At the
earliest, on
the date of
the filing of
the adjusted
final return
(ACCPA
Investment
vs. CA)
The 2-yr
period
provided in
Sec 229
should be
computed
from the time
of filing of the
Adjusted
Return or
Annual ITR
and final
payment of
It is only then
that the
corporation can
ascertain
whether it
made profits or
incurred losses
in its business
operations
income tax
(CIR vs. TMX
Sales)
If tax was not
erroneously or
illegally paid but
the taxpayer
became entitled
to refund
because of
supervening
circumstances
From the
date the
taxpayer
becomes
entitled to
refund and
not from the
date of
payment (CIR
vs. Don
Pedro Central
Azucarera)
Before the right
to refund or
credit arises,
there is
absolutely no
basis to file a
claim with the
CIR or
commence a
suit in court
Payment Under Protest is NOT
Necessary under
NIRC
A suit or proceedings for tax
refund may be
maintained whether or not such
tax, penalty or
sum has been paid under protest or
duress (Sec.
229)
Similarly, payment under protest
is not necessary
in refund for local taxes. (Sec. 196
LGC),
however,
under
protest
is
necessary to claim for
(a) real property taxes (Sec. 252
LGC)
(b) custom duties (Sec 2308 TCC)
Suspension
of
the
2
yr
Prescriptive Period
1) there is a pending litigation
between the govt &
the taxpayer
2) CIR in that litigated case agreed
to abide by the
decision of the SC as to the
collection of taxes
relative thereto (Panay Electric Co.
v. Collector, May
28, 1858)
Interest on Tax Refunds
General Rule
Government cannot be required
to pay
interest on taxes refunded to the

taxpayer in
the
absence
of
a
statutory
provision clearly or
expressly directing or authorizing
such
payment. (CIR v. Sweeney, 106 Phil
59)
Exception
1) When the CIR acted with patent
arbitrariness.
Arbitrariness
presupposes
inexcusable or
obstinate
disregard
of
legal
provisions. (CIR v.
Victoria Milling, L-19667, Nov. 29,
1966)
2) Under Sec. 79 (c)(2) with respect
to income
taxes withheld on the wages of the
EEs
In case of the CIRs final denial of
the claim
for refund, the 30 days period to
appeal with
the CTA must be within the 2 yr
preemptory
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period for instituting a judicial
action
TITLE
IX.
COMPLIANCE
REQUIREMENTS
Examination and inspection of
all books and
records shall be made only
once in a taxable
year, EXCEPT:
1. Fraud, irregularity or mistakes,
as determined by
the Commissioner
2.
The
taxpayer
requests
reinvestigation.
3. Verification of compliance with
withholding tax laws
and regulations
4. Verification of capital gains tax
liabilities
5.
In
the
exercise
of
the
Commissioners power to
issue an access letter. (sec. 235)
Every person subject to any
internal revenue tax
shall register once with the
appropriate Revenue
District Officer:
- Within ten days from date of
employment, or
- On or before the commencement
of
business, or
- Before payment of any tax due, or
- Upon filing of a return, statement
or
declaration as required under the
Code (sec.
236)
Non-Retroactivity of Rulings
(Sec. 246, NIRC)
Any revocation, modification or
reversal of any of
the
rules
and
regulations
promulgated in accordance
with the preceding Sections or any
of the rulings or
circulars
promulgated by the
Commissioner shall not
be given retroactive application if
the revocation,
modification or reversal will be
prejudicial to the
taxpayers, except in the following
cases:
(a) Where the taxpayer deliberately
misstates or
omits material facts from his return
or any document
required of him by the BIR;

(b) Where the facts subsequently
gathered by
the BIR are materially different
from the facts on
which the ruling is based; or
(c) Where the taxpayer acted in
bad faith.
TITLE X. STATUTORY OFFENSES
& PENALTIES
CHAPTER I- ADDITIONS TO THE
TAX
(Sec. 247-252)
Definitions
Increments to the basic tax
incident due to
the taxpayers non-compliance with
certain
legal requirements.
Surcharge, defined. A surcharge
is a civil
penalty imposed by law as an
addition to the
main tax required to be paid. It is
not a
criminal penalty but a civil
administrative
sanction provided primarily as
safeguard for
the protection of the State revenue
and to
reimburse the government for the
expenses
of investigation and the loss
resulting from
the taxpayers fraud. A surcharge
added to
the main tax is subject to interest.
General Provisions
1) The additions to the tax or
deficiency tax apply
to all taxes, fees and charges
imposed in this
Code.
2) The amount so added to the tax
shall be
collected at the same time, in the

same
manner and as part of the tax.
3) If the withholding agent is the
Government or
any of its agencies, political
subdivisions or
instrumentalities, or a governmentowned or controlled
corporation,
the
employee
responsible for the withholding and
remittance of the tax shall be
personally
liable for the additions to the tax.
4) The term person, includes an
officer or
employee of a corporation who as
such
officer, employee or member is
under a duty
to perform the act in respect of
which the
violation occurs.
Additions to Tax
1. Civil Penalties (Sec. 248)
A) Penalty: 25% of the amount
due, in addition to
the tax required to be paid.
In case of the following: RIDT
(lets get RID of
Tax)
a) Failure to file any Return and
pay the tax
on the date prescribed; or
b) Filing a return with an Internal
revenue
officer other than those with whom
the
return is required to be filed, unless
otherwise authorized by the
Commissioner; or
c) Failure to pay the Deficiency tax
within
the time prescribed for its payment
in the
notice of assessment; or
d) Failure to pay on or before the
date
prescribed for its payment:
1. the full or part of the amount of
Tax shown on any return
required to be filed;
2. the full amount of tax due for
which no return is required to be
filed.
B) Penalty: 50% of the tax or of
the deficiency
tax, in case any payment has been
made on the
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basis of a return before the
discovery of the
falsity or fraud.
In case of: [ FiFa ]
a) Willful neglect to File the return
within
the period prescribed; or
b) False or fraudulent return is
willfully
made, in case any payment has
been made on the basis of such
return before the discovery of the
falsity or fraud.
Prima facie evidence of a false or
fraudulent return as determined by
the
Commissioner pursuant to the rules
and
regulations promulgated by the
Sec. of
Finance:
1. substantial under declaration of
taxable sales, receipts or income
- failure to report sales, receipts
or income in an amount
exceeding 30% of that declared

per return
2. substantial overstatement of
deductions - claim of deductions
in an amount exceeding 30% of
actual deductions
2. Interest (Sec. 249)
A) There shall be assessed and
collected an
Interest at 20% per annum on
any unpaid
amount of tax
B) OR higher rate prescribed by
rules and
regulations
from
the
date
prescribed for
payment until the amount is fully
paid.
C) FROM the date prescribed for its
payment
until the full payment.
(a) Deficiency Interest in the tax
due
(b) Delinquency Interest. - In case
of failure
to pay:
1. tax due on any return required to
be
filed, or
2. tax due for which no return is
required, or
3. A deficiency tax, or any
surcharge or
interest thereon on the due date
appearing in the notice and
demand of the Commissioner.
D) Interest shall form part of the
tax.
Bureau of Internal Revenue
Ruling #019-2003
Pursuant to Section 249 of the
1997 Tax Code,
the imposition of interest on
delinquency is
mandatory. (Jamora vs. Meer, 74
Phil. 22) The
imposition of interest is but a just

compensation
to the state for the delay in the
payment of the
tax, and for the concomitant use
by the taxpayer
of funds that rightfully should be in
the
government's hands
Interest on Extended Payment.
1) any person who is qualified and
elects to
pay the tax on installment but fails
to pay
the tax, or any installment, or any
part on
or before the date prescribed; or
2) where the Commissioner has
authorized
an extension of time within which
to pay
a tax or a deficiency tax or any part
thereof,
3) from the date of notice and
demand until
it is paid.
3. Failure to File Certain
Information Returns
(Sec. 250)
A) Penalty: P 1,000 for each
failure
B) The aggregate amount for all
such failure
shall not exceed P 25,000 during
a
calendar year
C) Upon notice and demand by the
Commissioner
D) Unless it is shown that such
failure is due
to reasonable cause and not to
willful
neglect.
In the case of each failure to
file:
1) information return;
2) statement or list;
3) keep any record;
4) supply any information
E) required by this Code or by the
Commissioner
on
the
date
prescribed
thereof.
4. Failure of a Withholding
Agent to Collect and
Remit Tax (Sec. 251)
A) Penalty: Amount of the tax not
withheld, or
not accounted for and remitted
plus other
penalties.
B) Liable only upon conviction
In case of the following:
1. Any person required to withhold,
account for, and remit any tax; or
2. Who willfully fails to withhold
such
tax, or account for and remit such
tax; or
3. Aids or abets in any manner to
evade any such tax or the payment
thereof,
5. Failure of a Withholding
Agent to Refund
Excess
Withholding
Tax.
(Sec.252)
Penalty: Amount of refund which
was not
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refunded to the employee resulting
from any
excess of the amount withheld over
the tax
actually due on their return plus
other
penalties
in
case
any
employer/withholding
agent fails or refuses to refund
excess
withholding tax.
CHAPTER II- CRIMES, OTHER
OFFENSES AND
FORFEITURES
A. General Provisions (Sec.
253)
1. Any person convicted of a crime
under this
Code is liable for the payment of
the tax and
is subject to the penalties imposed
herein.
2. Payment of the tax due after
apprehension is
not a valid defense in any
prosecution for
violation of any provision of this
Code or in
any action for the forfeiture of
untaxed
articles.
3. A person is liable in the same
manner as the
principal when he:
a) willfully aids or abets in the
commission
of a crime penalized herein or
b) causes the commission of any
such
offense by another.
4. If the offender is not a citizen of
the
Philippines:
a) he shall serve the sentence; and
b) Deported immediately after
serving the
sentence
without
further
proceedings
for deportation.
5. If he is a public officer or
employee:
a) the maximum penalty prescribed

for
the offense shall be imposed; and
b) he shall be dismissed from the
public
service and perpetually disqualified
from holding any public office, to
vote
and to participate in any election.
6. If the offender is a Certified
Public
Accountant, his certificate as a
Certified
Public Accountant shall, upon
conviction, be
automatically revoked or cancelled.
7. In the case of associations,
partnerships or
corporations, the penalty shall be
imposed on
the partner, president, general
manager,
branch manager, treasurer, officerin-charge,
and employees responsible for the
violation.
8. The fines to be imposed for any
violation of
the provisions of this Code shall:
a) not be lower than the fines
imposed
herein or
b) twice the amount of taxes,
interests
and surcharges due from the
taxpayer,
whichever is higher.
C. Crimes
1. Willful attempt to evade or
defeat tax.
2. Failure to file return, supply
correct and
accurate information, pay tax,
withhold and
remit tax and refund excess taxes
withheld
on compensation.
3. Penal liability of corporation.
4. Penal liability for making false
entries,
records, or reports, or using
falsified or fake
accountable forms.
5. Unlawful pursuit of business.
6. Illegal collection of foreign
payments.
7. Unlawful possession of cigarette
paper in
bobbins or rolls, etc.
8. Unlawful use of denatured
alcohol.
9. Shipment or removal of liquor or
tobacco
products under false name or
brand or as an
imitation of any existing or
otherwise known
product name or brand.
10. Unlawful possession or removal
of articles
subject to excise tax without
payment of the
tax.
11. Failure or refusal to issue
receipts or sales or
commercial invoices, violations
related to the
printing of such receipts or invoices
and other
violations.
12. Offenses relating to stamps.
13. Failure to obey summons.
14. Declarations under penalties of
perjury.
D. Other crimes and offenses
1.
Misdeclaration
or
misrepresentation of
manufacturers subject to excise
tax.
2. Forfeiture of property used in
unlicensed
business or dies used for printing

false
stamps, etc.
3. Forfeiture of goods illegally
stored or
removed.
Attempt to Evade or Defeat
Tax. (Sec. 254)
Penalty, upon conviction:
Fine - P30,000 or 100,000; and
Imprisonment - 2 to 4 years;
Plus other penalties
Who is liable: Any person who
willfully
attempts in any manner to evade
or defeat
any tax or the payment thereof.
The conviction or acquittal
obtained under
this Section shall not be a bar to
the filing
of a civil suit for the collection of
taxes.
Failure to File Return, Supply
Correct and
Accurate Information, Pay Tax,
Withhold and
Remit Tax and Refund Excess
Taxes Withheld on
Compensation. (Sec. 264)
Crime 1: Willful Omission of
Filing and Payment
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Obligations
o Fine - P10,000 or more; and
o Imprisonment - 1 to 10 years;
o Plus other penalties
Person liable: Any person
required:
1. to pay any tax,

2. make a return,
3. keep any record, or
4. supply correct and accurate
information,
Nature of Offense: Willful
failure to
1. pay tax,
2. make a return,
3. keep the record,
4. supply such correct and accurate
information,
5. withhold or remit taxes withheld,
6. refund taxes withheld on
compensation, at the time or
times required.
Crime 2: Withdrawal of Returns
Filed
o Fine - P10,000 - 20,000; and
o Imprisonment - 1 to 3 years;
o Plus other penalties
Person liable: Any person who:
o attempts to make it appear for
any
reason that he or another has in
fact
filed a return or statement, or
o actually files a return or
statement
and subsequently withdraws the
same return or statement after
securing the official receiving seal
or
stamp of receipt of an internal
revenue office wherein the same
was
actually filed.
Penal Liability of Corporations
(Sec 256)
Penalty, upon conviction: Fine P50,000 100,000
o In addition to the penalties
imposed upon the responsible
corporate officers, partners, or
employees.
Who is liable: Any of the
following liable
for any of the acts or omissions
penalized
under this Code.
1. corporation,
2. association or
3. general co-partnerships
Penal Liability for Making False
Entries. Records
or Reports, or Using Falsified or
Fake
Accountable Forms (Sec. 257)
Penalty, upon conviction for
each act or
omission:
Fine - P50,000 - 100,000; and
Imprisonment - 2 to 6 years;
Special Penalties
1) If Offender is a Certified
Public Accountant, his
certificate shall be
automatically revoked or
cancelled upon conviction.
2) In the case of foreigners,
conviction under this Code
shall result in his immediate
deportation after serving
sentence, without further
proceedings for deportation.
Who is liable:
Any financial officer or
Independent Certified Public
Accountant engaged to examine
and
audit
books
of
accounts
of
taxpayers
under Sec.232 (A)
Any person under his direction.
Offense: FVC
1) Willfully Falsifies any report
or statement bearing on any
examination or audit
2) Renders a report, including
exhibits, statements,
schedules or other forms of

accountancy work which has
not been Verified by him
personally or under his
supervision or by a member
of his firm or by a member of
his staff in accordance with
sound auditing practices, or
3) Certifies financial statements
of a business enterprise
containing an essential
misstatement of facts or
omission in respect of the
transactions, taxable income,
deduction and exemption of
his client; or
E. Prescription of Actions
All violations of any provision of
the Code
shall prescribe after five (5) years
CHAPTER III OTHER PENAL
PROVISIONS
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Informer's Reward to Persons
Instrumental in the
Discovery of Violations of the
National Internal
Revenue Code and in Discovery
and Seizure of
Smuggled Goods (Sec. 282)
1. Amount of Reward
For Violations of Internal Revenue
Code
o 10% of the revenues, surcharges
or fees recovered and/or fine or
penalty imposed and collected or
P1M per case, whichever is
lower. Note that where the
offender has offered to
compromise and his offer has
been accepted, the same

amount of reward shall be given
to the informer.
o No revenue, surcharges or fees
actually recovered or collected:
NO REWARD
For Discovery and Seizure of
Smuggled
Goods
o 10% of the FMV of the smuggled
and confiscated goods or P1M
per case, whichever is lower.
The cash rewards of informers
subject to
income tax, collected as a final
withholding
tax, at the rate of 10%.
2. Persons Entitled to Reward
For Violations of Internal Revenue
Code
o Any person, except an internal
revenue official or employee, or
his relative within the sixth
degree of consanguinity.
For Discovery and Seizure of
Smuggled
Goods
o Persons instrumental in the
discovery and seizure of
smuggled goods EXCEPT:
all public officials,
whether incumbent or
retired, who acquired
information in the course
of the performance of
their duties during their
incumbency
3.
When
is
a
Person
Instrumental
A person is instrumental in the
discovery
and in collection or seizure when
he
voluntarily gives definite and sworn
information4:
o not yet in the possession of the
Bureau of Internal Revenue,

o leading to the discovery of frauds
upon the internal revenue laws
and violations of any of the
provisions thereof,
o thereby resulting in the recovery
of revenues, surcharges and
fees and/or the conviction of the
guilty party and/or the imposition
of any fine or penalty.
PART III - LOCAL GOVERNMENT
CODE OF 1991
(RA 7160-Effectivity: January 1,
1992)
Book II
Local
Taxation
and
Fiscal
Matters
Title I
LOCAL GOVERNMENT TAXATION
CHAPTER
1
GENERAL
PROVISIONS
Sources of Revenues:
1. Internal Revenue Allotment (IRA)
National internal revenue collected
and not
applied as hereinabove provided or
otherwise
specially disposed of by law shall
accrue to the
National Treasury and shall be
available for the
general
purposes
of
the
Government, with the
exception of the amounts set apart
by way of
allotment as provided for under
Republic Act No.
7160, otherwise known as the Local
Government
Code of 1991. (Sec. 283, NIRC)
Local government units shall have
a share in the
national internal revenue taxes
based on the
collection of the third fiscal year
preceding the current
fiscal year as follows (c) On the

third year and
thereafter, 40%... (Sec. 284, RA
7160)
4 Information shall not refer to a
case already
pending or previously investigated
or examined by
the Commissioner or any of his
deputies, agents or
examiners or the Secretary of
Finance or any of his
deputies or agents.
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2. 50% share in collections for the
ff: (2nd par., Sec.
283, NIRC)
a) VAT on sale of goods or
properties under Sec.
106, NIRC
b) VAT on sale of services and use
or lease or
properties under Sec. 108, NIRC
c) Percentage taxes under Sec.
116, NIRC
I. Power to Create Sources of
Revenue
EACH
LOCAL
GOVERNMENT
UNIT HAS THE
POWER TO:
1. create its own sources of
revenue and
2. levy taxes, fees, and charges
subject to the
provisions herein, consistent with
the basic policy
of local autonomy. (Sec. 129)
Such taxes, fees, and charges shall
accrue
exclusively to the local government

units. (NOTE: As
distinguished
from
internal
revenue taxes which do
not accrue exclusively to the
national government but
are
shared
to
the
local
governments in the form of
internal revenue allotments. See
Title XI, NIRC of
1997)
II. Nature of the Taxing Power
of Local
Government Units (LGUs)
1. not inherent
2. exercised only if delegated to
them by law or
Constitution
3.
not
absolute
subject
to
limitations provided for by
law
III. Fundamental Principles
The
fundamental
principles
governing the exercise of
the taxing and other revenueraising powers of LGUs
are [ U(EPuJul)LIP ]:
(a) Taxation shall be Uniform in
each local
government unit;
(b) Taxes, fees, charges and other
impositions shall
(EPuJuL):
1) be Equitable and based as far as
practicable on the taxpayer's
ability to
pay;
2) be levied and collected only for
Public
purposes;
3) not be unJust, excessive,
oppressive, or
confiscatory;
4) not be contrary to Law, public
policy,
national economic policy, or in the
restraint of trade;
(c) The collection of local taxes,
fees, charges and
other impositions shall in no case
be Left to any
private person;
(d) The revenue collected shall
Inure solely to the
benefit of the local government
unit levying the
tax, fee, charge or other imposition
unless
otherwise
specifically
provided
herein; and,
(e) Each local government unit
shall, as far as
practicable, evolve a Progressive
system of
taxation. (Sec. 130)
IV. Local Taxing Authority
The power to impose a tax, fee or
charge or to
generate revenue is exercised by
the Sanggunian of
the LGU concerned through an
appropriate
ordinance. (Sec. 132)
The local chief executive may veto
any ordinance of
the sangguniang panlalawigan,
panlungsod or bayan
on the ground that it is ultra vires
or prejudicial to the
public welfare, stating his reasons
therefore in
writing. The local chief executive,
except punong
barangay, may veto any particular
item of an
appropriations ordinance. (sec. 132
LGC)
He may only veto an ordinance or
resolution only
once.
The
sanggunian
may
override his veto by twothirds
vote of all its members, thereby

making the
ordinance effective even without
the approval of the
local chief executive concerned.
V. Power to Prescribe Penalties
for Tax
Violations
and
Limitations
Thereon
1. The Sanggunian is authorized to
prescribe fines or
other penalties for violations of tax
ordinances
a. in no case shall fines be less
than
P1,000 nor more than P5,000
b. nor shall the imprisonment be
less than
one month nor more than six
months
2. Such fine or other penalty shall
be imposed at the
discretion of the court.
3. The Sanggunian Barangay may
prescribe a fine of
not less than P100 nor more than
P1000.
Power to Adjust Local Tax Rate
(Sec. 191 LGC)
- LGUs are authorized to adjust the
tax
rates as prescribed herein not
oftener
than once every 5 years, and in no
case
shall such adjustment exceed 10%
of the
rates fixed under the LGC.
Power
to
Grant
Local
Exemptions (Sec. 192 LGC)
- LGUs, may through ordinances
duly
approved, grant tax exemptions,
incentives or reliefs under such
terms and
conditions, as they may deem

necessary.
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Tax Exemptions existing before
the Effectivity of
the LGC:
Unless otherwise provided by the
LGC, tax
exemptions or incentives granted
to, or presently
enjoyed by all persons, whether
natural or juridical,
including
GOCCs
are
hereby
withdrawn upon the
effectivity of the LGC except the ff:
1. local water districts,
2. cooperatives duly registered
under RA 6938,
non-stock and non-profit hospitals
and
3. educational institutions.
Tax Exemptions not applicable
to Regulatory
Fees
The power to grant tax exemptions,
tax
incentives and tax reliefs shall not
apply to regulatory
fees which are levied under the
police power of the
LGU.
Tax Exemption Certificate:
Tax exemptions shall be conferred
through
the issuance of a non-transferable
tax exemption
certificate.
Guidelines for the Granting of
Tax Exemptions,
Tax Incentives and Tax Reliefs

(Art. 282 [B], Rules
and Regulations Implementing
the LGC)
1. On the grant of tax exemptions
or tax reliefs:
a. the same may be granted in
cases of
natural
calamities,
civil
disturbance, general
failure of crops, or adverse
economic
conditions such as substantial
decrease in
prices or agricultural or agri-based
products.
b. The grant shall be through an
ordinance.
c. Any exemption or relief granted
to a type
or kind of business shall apply to all
business
similarly situated.
d. The same shall take effect only
during the
next calendar year for a period not
exceeding
12 months as may be provided by
the
ordinance.
e. In the case of shared revenue,
the
exemption or relief shall only
extend to the
LGU granting such exemption or
relief.
2. On the grant of tax incentives
a. The same shall be granted only
to new
investments in the locality and the
ordinance
shall prescribe the terms and
conditions
therefore.
b. The grant shall be for a definite
period of
not exceeding 1 calendar year.

c. The grant shall be by ordinance
passed
prior to the 1st day of January of
any year.
d. Any grant to a type or kind of
business
shall apply to all businesses
similarly
situated.
Levying of Local Taxes (Local
Tax Ordinance)
REQUISITES:
1. the procedure applicable to local
govt ordinances
in general should be observed.
(Sec. 187, LGC)
2. Procedural details (Secs. 54, 55,
and 59 LGC):
a. necessity of quorum
b. submission for approval by the
local chief
executive
c. the matter of veto and overriding
the same
d. the publication and affectivity
3. Public hearings are required
before any local tax
ordinance is enacted (Sec. 187,
LGC)
Within 10 days after their approval,
publication
in full for 3 consecutive days in a
newspaper of
general circulation. In absence of
such newspaper in
the province, city or municipality,
then the ordinance
may be posted in at least two
conspicuous and
publicly accessible places (Sec. 189
LGC)
Residual Taxing Powers of the
LGU (Sec. 186
LGC)
To levy taxes, fees or charges on

any base or subject
NOT
a. specifically enumerated in LGC
b. taxed under the provisions of the
NIRC,
as amended
c. other applicable laws.
Conditions:
a. That the taxes, fees or charges
shall not
be unjust, excessive, oppressive,
confiscatory or contrary to declared
national
policy.
b. The ordinance levying such
taxes, fees or
charges shall not be enacted
without any
prior public hearing conducted for
the
purpose.
Limitations of the Residual
Power
1. Constitutional limitations on
taxing power
2. Common limitations prescribed
in Sec. 133 of
LGC
3.
Fundamental
principles
governing the exercise of
the taxing power of the LGUs
prescribed under Sec.
130 of the LGC
4. The ordinance levying such
residual taxes shall
not be enacted without any prior
public hearing
conducted for the purpose and
5. The principle of preemption.
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Principle of Preemption or
Exclusion
Where the national govt elects to
tax a
particular
area,
it
impliedly
withholds from the local
govt the delegated power to tax
the same field. This
doctrine principally rests on the
intention of
Congress.
Excluded impositions pursuant
to the doctrine of
preemption)
1. Taxes which are levied under the
NIRC, unless
otherwise provided by LGC of 1991;
2. Taxes, fees, etc. which are
imposed under the
TCC;
3. Taxes, fees, etc. the imposition
of which
contravenes
existing
govtal
policies or which violates
the fundamental principles of
taxation;
4. Taxes, fees and other charges
imposed under
special law.
Local Tax Ordinance:
Requirements
1. Satisfy the requirements of
procedural and
substantive due process;
2. Public hearing is required with
quorum,
voting and approval and/or veto
requirements
complied with;
3. Publication of ordinance within
10 days from
approval for 3 consecutive days in
a
newspaper of general circulation
and/or
posting in at least 2 conspicuous

and publicly
accessible places.
VI. COMMON LIMITATIONS ON
THE TAXING
POWERS OF LGUS
LGUs
CANNOT
LEVY:
[ IDECTA_BEV_TRELEBI ]
or CADET-VIBE-LIBERTE'
(a) Income tax, except on banks
and other financial
institutions;
(NOTE: Since income tax is already
imposed
by the National Government under
NIRC,
LGUs cannot impose the same
even on
banks
and
other
financial
institutions. The
exception is referring to the
percentage tax
on banks specified income.)
(b) Documentary stamp tax;
(c) Estate Tax, inheritance, gifts,
legacies and other
acquisitions mortis causa, except
as otherwise
provided;
(d) Customs duties, registration
fees of vessel and
wharfage on wharves, tonnage
dues, and all
other kinds of customs fees,
charges and dues,
except
wharfage on wharves
constructed and
maintained
by
the
local
government unit
concerned;
(e) Taxes, fees, and charges and
other impositions
upon goods carried into or out of,
or passing
through, the territorial jurisdictions
of local
government units in the guise of

charges for
wharfage, tolls for bridges or
otherwise,
(f) Taxes, fees or charges on
Agricultural and
aquatic products when sold by
marginal farmers
or fishermen;
(g) Taxes on business enterprises
certified to by the
Board of Investments as pioneer or
non-pioneer
for a period of 6 and 4 years,
respectively from
the date of registration;
(h) Excise taxes on articles
enumerated under the
national Internal Revenue Code, as
amended,
and taxes, fees or charges on
petroleum
products;
(i) Percentage or VAT on sales,
barters or
exchanges or similar transactions
on goods or
services
except
as
otherwise
provided;
(j) Taxes on the gross receipts of
Transportation
contractors and persons engaged
in the
transportation of passengers or
freight by hire
and common carriers by air, land or
water, except
as provided in the Code;
(k) Taxes on premiums paid by way
of Reinsurance
or retrocession;
(l) Taxes, fees or charges for the
registration of
motor vehicles and for the issuance
of all kinds of
Licenses or permits for the driving

thereof, except
tricycles;
(m) Taxes, fees, or other charges
on Philippine
products actually Exported, except
as otherwise
provided;
(n) Taxes, fees, or charges, on
Countryside and
Barangay Business Enterprises and
cooperatives
duly registered under R.A. 6810
and R.A. 6938
(Cooperative
Code
of
the
Philippines); and
(o) Taxes, fees or charges of any
kind on the
National Government, its agencies
and
Instrumentalities,
and
local
government units.
Classification
of
Common
Limitations
1. Taxes which are levied under the
NIRC unless
otherwise provided by the LGC
*a, b, c, h, I, j
2. Taxes, fees, etc. which are
imposed under the
TCC
*d
3. Taxes, fees and charges where
the imposition of
which contravenes existing govtal
policies or which
are violative of the fundamental
principles of taxation
*e, f, g, k, m, n, s
4. Taxes, fees and charges imposed
under special
laws.
*l
Provinces (see chart)
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Provinces (refers to Local Govt.
Provisions on Tax)
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SPECIFIC PROVISION ON THE
TAXING AND OTHER REVENUE
RAISING POWERS OF THE LGU
A. PROVINCES
Type of Tax Rate Exceptions
Notes
Tax on Transfer of Real Property
Ownership. The province may
impose a tax on the sale, donation,
barter, or on any other mode of
transferring ownership or title of
real
property.
Not more than 50% of
the 1% of the total
consideration or of the
fair market value,
whichever is higher
Sale, transfer or other
disposition of real
property pursuant to R.A.
No. 6657 (CARL).
It shall be the duty of the seller,
donor,
transferor or administrator to pay
the
tax imposed within 60 days from
the
date of the execution of the deed
or
from the date of the decedent's

death.
Tax on Business of Printing and
Publication. The province may
impose a tax on the business of
persons engaged in the printing
and/or publication of books, cards,
posters, leaflets, handbills,
certificates, receipts, pamphlets,
and
others of similar nature.
Not exceeding 50% of
1% of the gross annual
receipts for the
preceding calendar
year.
Newly started business,
the tax shall not exceed
1/20 of 1% of the capital
investment. School texts
or references, prescribed
by the DECS shall be
exempt from the tax.
Franchise Tax. Notwithstanding any
exemption granted by any law or
other special law, the province may
impose a tax on businesses
enjoying
a franchise.
Not exceeding 50% of
1% of the gross annual
receipts for the
preceding calendar
year, within its territorial
jurisdiction.
Newly started business,
the tax shall not exceed
1/20 of 1% of the capital
investment.
Tax on Sand, Gravel and Other
Quarry Resources. The province
may levy and collect taxes on
ordinary stones, sand, gravel,
earth,
and
other
quarry
resources
extracted
from public lands or from the beds

of
seas, lakes, rivers, streams, creeks,
and other public waters within its
territorial jurisdiction.
fair market value in the
locality
The permit to extract resources
shall be
issued exclusively by the provincial
governor,
pursuant
to
the
ordinance of
the sangguniang panlalawigan.
Proceeds distributed as follows:
Province -30% Component City or
Municipality where the quarry
resources are extracted - 30%
Barangay
where
the
quarry
resources
are extracted - 40%.
Professional Tax. The province
may levy an annual professional
tax
on each person engaged in the
exercise
or
practice
of
his
profession
At such amount and
reasonable
classification as the
sangguniang
Professionals exclusively
employed in the
government shall be
exempt from the payment
To be paid to the province where
he/she practices his/her profession
or
where he/she maintains principal
office
in case the practice is in several
places
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requiring government examination.
To be paid on or before the 31st
day
of January. Any person first
beginning to practice a profession
after the month of January must,
however, pay the full tax before
engaging therein.
panlalawigan may
determine but shall in
no case exceed
P300.00.
of this tax. Provided, After
payment he/she shall
be entitled to practice his/her
profession in any part of the
Phils.
w/out being subjected to any
other
national or local tax, license, or
fee
for
the
practice
of
the
profession.
Amusement Tax. The province may
levy an amusement tax to be
collected from the proprietors,
lessees, or operators of theaters,
cinemas, concert halls, circuses,
boxing stadia, and other places of
amusement
the gross receipts from
admission fees.
The holding of operas,
concerts, dramas, recitals,
painting and art
exhibitions, flower shows,
musical programs, literary
and oratorical
presentations, except
pop, rock, or similar
concerts shall be exempt.
Sangguniang panlalawigan may
prescribe the time, manner, terms

and
conditions for the payment of tax.
In
case of fraud or failure to pay, the
sangguniang panlalawigan may
impose
surcharges, interest and penalties.
The
proceeds from the amusement tax
shall
be shared equally by the province
and
the municipality where such
amusement places are located.
Annual Fixed Tax For Every
Delivery
Truck or Van of Manufacturers or
Producers, Wholesalers of, Dealers,
or Retailers in, Certain Products.
The province may levy an annual
fixed tax for every truck or any
vehicle used by manufacturers,
producers, wholesalers, dealers or
retailers in the delivery of distilled
spirits, soft drinks, cigars and
cigarettes, and other products as
may be determined by the
sanggunian, to sales outlets, or
consumers, whether directly or
indirectly, within the province.
Amount not exceeding
P500.00.
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B. MUNICIPALITIES
SCOPE: Municipalities may levy
taxes, fees and
charges not otherwise levied by
provinces. (sec. 142,
LGC)
Tax on Business
The municipality may impose taxes
on the following:
a. On manufacturers, assemblers,
repackers,
processors,
brewers,
distillers,
rectifiers, and
compounders of liquors, distilled
spirits, and
wines or manufacturers of any
article of
commerce of whatever kind or
nature.
b. On wholesalers, distributors, or
dealers in any
article of commerce of whatever
kind or nature.
c.
On
exporters,
and
on
manufacturers, millers,
producers,
wholesalers,
distributors, dealers or
retailers of the following essential
commodities
(where the rate prescribed is only
of the
regular rate [Sec. 143 par. c, LGC])
(RW CLAPS C):
1. Rice and corn;
2. Wheat or cassava flour, meat,
dairy
products, locally manufactured,
processed or preserved food,
sugar, salt
and other agricultural, marine, and
fresh
water products, whether in their
original
state or not;
3. Cooking oil and cooking gas;
4. Laundry soap, detergents, and
medicine;
5.
Agricultural
implements,
equipment and
post-harvest facilities, fertilizers,
pesticides and other farm inputs;
6. Poultry feeds and other animal

feeds;
7. School supplies; and
8. Cement.
d. On retailers
e. On contractors and other
independent
contractors
f. On banks and other financial
institutions,
g. On peddlers engaged in the sale
of any
merchandise
or
article
of
commerce
h. On any business, which the
sanggunian
concerned may deem proper to
tax. For
businesses subject to the excise,
value-added or
percentage tax, the tax rate shall
not exceed 2%
of gross sales of the preceding
calendar year.
Rates of Tax within the
Metropolitan Manila
Area shall not exceed by 50% the
maximum
rates prescribed for a-h. (Sec. 144)
The sanggunian concerned may
prescribe a
schedule of graduated tax rates
but in no
case shall exceed the rates
prescribed in the
LGC.
The tax is payable for every
separate or
distinct establishment or place
where
business is conducted. (Sec. 146)
The municipality may impose and
collect
such reasonable fees and charges
on
business and occupation except

professional
taxes reserved for provinces. (Sec
147)
SPECIFIC:
Municipalities may im pose such
reasonable
rates for the sealing and licensing
of weights
and
measures
as
shall
be
prescribed by the
sangguniang bayan.
Municipalities shall have the
exclusive
authority to grant fishery privileges
in the
municipal waters. The sanggunian
may:
a) Grant fishery privileges to erect
fish
corrals, oysters, or other aquatic
beds or
bangus fry areas
1. Duly registered organizations
and
cooperatives of marginal fishermen
shall have the preferential right;
2. The sanggunian may require a
public
bidding pursuant to an ordinance
for
the grant of such privilege;
3. Absent of such orgs. and coops
or
their failure to exercise their
preferential right, other parties
may
participate in the public bidding
b) Grant the privilege to gather,
take or
catch bangus fry, prawn fry or fry
of other
species and fish from the municipal
waters by nets or other fishing
gears to
marginal fishermen free of rental or

fee
c) Issue licenses for the operation
of fishing
vessels of three (3) tons or less.
(Sec.
149)
Payment of Business Taxes:
a. It shall be payable for every
separate or
distinct establishment or place
where the
business subject to the tax is
conducted and
one line of business does not
become
exempt by being conducted with
some other
business for which such tax has
been paid.
b. The tax on a business must be
paid by the
person conducting the same.
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c. In cases where a person
conducts or
operates 2 or more of the
businesses
mentioned in Section 143 of LGC
a. Which are subject to the same
rate
of tax, the tax shall be computed
on
the combined total gross sales or
receipts of the said 2 or more
related
businesses.
b. Which are subject to different
rates
of tax, the gross sales or receipts of
each business shall be separately

reported for the purpose of
computing the tax due from each
business.
VII. Situs of Local Taxation
Situs According to the Cases:
Excise Tax not dependent on the
domicile of the
taxpayer, but on the place in which
the act is
performed or the occupation is
engaged in; not upon
the location of the office, but the
place where the
place is perfected. (Allied Thread
Co., Inc. v. City
Mayor of Manila, L-40296)
Sales Tax it is the place of the
consummation of the
sale, associated with the delivery
of the things which
are the subject matter of the
contract that determines
the situs of the contract for
purposes of taxation, and
not merely the place of the
perfection of the contract.
(Shell Co., Inc. v. Municipality of
Sipocot, Camarines
Sur, 105 Phil 1263)
SITUS ACCORDING TO SECTION
150, LGC
Rule 1: For purposes of collection
of the taxes under
Section 143 (tax on business),
businesses
maintaining or operating branch or
sales outlet
elsewhere shall record the sale in
the branch or sales
outlet
making
the
sale
or
transaction, and the tax
thereon shall accrue and shall be
paid to the
municipality where such branch or
sales outlet is
located.
Rule 2: In case there is no branch
or sales outlet in
the city or municipality where the
sale is made, the
sale shall be recorded in the
principal office and the
taxes due shall accrue and be paid
to such city or
municipality.
Rule 3: The following sales
allocation for sales
recorded in the principal office of
businesses with
factories, project offices, plants,
and plantations:
30% of all sales recorded in the
principal
office shall be taxable by the city or
municipality where the principal
office is
located; and
70% of all sales recorded in the
principal
office shall be taxable by the city or
municipality where the factory,
project office,
plant, or plantation is located.
Rule 4: Where the plantation
located at a place other
than the place where the factory is
located, the above
mentioned 70% shall be divided as
follows:
60% to the city or
municipality where the
factory is located; and
40% to the city or
municipality where the
plantation is located.
Rule 5: Where there are 2 or more
factories, project
offices, plants, or plantations
located in different
localities, the above mentioned
70% shall be prorated
among the localities where the

factories, project
offices, plants, and plantations are
located in
proportion to their respective
volumes of production
during the period for which the tax
is due. (Sec. 150)
NOTE: In case of manufacturers or
producers which
engage
the
services
of
an
independent contractor to
produce or manufacture some of
their products,
these rules shall apply except that
the factory or plant
and warehouse of the contractor
utilized for the
production and storage of the
manufacturers
products shall be considered as the
factory or plant
and
warehouse
of
the
manufacturer. (IRR)
The city or municipality where the
port of loading is
located shall not levy and collect
reasonable fees
unless the exporter maintains in
said city or
municipality its principal office, a
branch, sales office,
or warehouse, factory, plant or
plantation in which
case, the rule on the matter shall
apply accordingly.
(IRR)
C. CITIES
The city may levy the taxes, fees,
and charges
which the province or municipality
may impose.
The tax rates that the city may
levy may exceed
the maximum rates allowed for the
province or
municipality by not more than 50%

except the
rates
of
professional
and
amusement taxes.
(Sec. 151)
IRR:
The cities may levy and collect a
percentage
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tax on ANY business not otherwise
specified in the
LGC or the IRR, at rates not
exceeding 3% of the
gross sales or recipts of the
preceding calendar year.
D. BARANGAYS
Scope of Taxing Powers. - The
barangays may levy
the following taxes and charges,
which shall
exclusively accrue to them: [ TOBS
]
(a) Taxes - On stores or retailers
with fixed business
establishments with gross sales of
receipts of the
preceding
calendar
year
of
P50,000.00 or less for
cities and P30,000.00 or less, in the
case of
municipalities,
rate
=
not
exceeding 1% on gross
sales or receipts.
(b) Service Fees or Charges for
services rendered
in connection with the regulations
or the use of
barangay-owned
properties
or
service facilities
such as palay, copra, or tobacco

dryers.
(c) Barangay Clearance. - No city
or municipality
may issue any license or permit for
any business
or activity unless a clearance is
first obtained
from the barangay where such
business or
activity is located or conducted.
(d) Other fees and Charges. - The
barangay may
levy reasonable fees and charges:
(CRB)
1. On commercial breeding of
fighting
Cocks and cockpits;
2. On places of Recreation which
charge
admission fees; and
3. On Billboards, signboards, neon
signs,
and outdoor ads. (Sec. 152)
VIII.
COMMON
REVENUERAISING POWERS OF
LGUS (Secs. 153-155) [ SPT ]
a. Service Fees and Charges for
services rendered
b. Pubic Utility Charges for the
operation of public
utilities owned, operated and
maintained by
LGUs within their jurisdiction.
c. Toll Fees or Charges for the use
of any public
road, pier, or wharf, waterway,
bridge, ferry or
telecommunication system funded
and
constructed by the LGU concerned.
Exceptions:
1. officers and enlisted men of the
AFP and
PNP on mission,
2. post office personnel delivering

mail,
3.
physically-handicapped,
and
disabled
citizens who are sixty-five (65)
years or
older.
When public safety and welfare so
requires, the
sanggunian
concerned
may
discontinue the collection
of the tolls, and thereafter the said
facility shall be
free and open for public use.
IX. Community Tax
Cities or municipalities may levy
a community tax
(Sec. 156)
A.
Individuals
Liable
to
Community Tax - [ IER ]
a. Inhabitant of the Philippines
b. Eighteen years of age or over
c. Regularly employed on a wage
or salary basis for
at least 30 consecutive working
days during any
calendar year,
or who is engaged in business or
occupation,
or who owns real property with an
aggregate
assessed value of P1,000.00 or
more,
or who is required by law to file an
income tax
return
Rate = P5.00 and an annual
additional tax of P1.00
for every P1,000.00 of income
regardless of whether
from
business,
exercise
of
profession or from
property which in no case shall
exceed P5,000.00.
In the case of husband and wife,
the tax
imposed shall be based upon the

total property
owned by them and the total gross
receipts or
earnings derived by them. (Sec.
157)
B. Juridical Personalities (Sec.
158)
Corporations,
no
matter
how
created or organized,
whether domestic or resident
foreign, engaged in or
doing business in the Philippines
are also liable to
pay an annual community tax.
Rate = P500.00 and an annual
additional tax, which
shall not exceed P10,000.00 in
accordance with the
following schedule:
a. For every P5,000.00 worth of
real property in the
Philippines owned by it during the
preceding year
based on the valuation used for the
payment of
real property tax - P2.00; and
b. For every P5,000.00 of gross
receipts derived by
it from its business in the
Philippines during the
preceding year - P2.00.
The dividends received by a
corporation
shall, for the purpose of the
additional tax, be
considered as part of the gross
receipts or earnings
of said corporation.
C. Those exempt from the
community tax are:
1.
Diplomatic
and
consular
representatives; and
2. Transient visitors when their stay
does not
exceed 3 months.

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D. Place and time of Payment
Place of Payment - place of
residence of the
individual, or in the place where
the principal
office of the juridical entity is
located. (Sec. 160)
Time for Payment - accrues on
the 1st day of
Jan. of each year which shall be
paid not later
than the last day of Feb. of each
year
Penalties for Delinquency. - An
interest of 24%
per annum from the due date until
it is paid shall
be added on the amount due.
A community tax certificate may
also be issued to
any person or corporation not
subject to the
community tax upon payment of
P1.00. (Sec.
162)
Collection of Local Revenues by
the Treasurer:
(Sec. 170, LGC)
All local taxes, fees and charges
shall be
collected by the provincial, city,
municipal or
barangay treasurer, or their duly
authorized deputies.
The provincial, city or municipal
treasurer
may designate
the barangay
treasurer or his deputy
to collect local taxes, fees or

charges. In case a bond
is required for the purpose, the
provincial, city or
municipal government shall pay
the premiums
thereon
in
addition
to
the
premiums of the bond that
may be required under the Code.
PROVINCE OF BULACAN vs. CA
(299 SCRA 442)
Facts: The Province passed an
Ordinance imposing
a 10% tax on the value of stones,
sand and other
quarry resources from public lands.
The Provincial
Treasurer levied upon Republic
Cement P2.5M for
its extraction of resources from
private land.
Issue: Does the province have
authority to levy the
tax?
Held: NO. Although 186 of the
LGC authorizes
municipal corps. to levy taxes
other than those
specifically enumerated therein,
the subject
ordinance was quite specific about
the fact that the
taxable articles must come from
public land.
Moreover, a province may not levy
excise taxes on
articles already taxed by the NIRC.
The current
Tax Code already imposes a tax on
ALL quarry
resources, regardless of origin,
hence, the Province
may no longer impose any
additional amounts from
Republic Cement.
Presentation of Community Tax

Certificate on
Certain Occasions: (Sec. 163,
LGC)
A. Individual
1. When an individual subject to
the comm. tax
acknowledges
any
document
before a notary
public;
2. Takes the oath of office upon
election or
appointment to any position in the
government service;
3. Receives any license, certificate
or permit
from any public authority;
4. Pays any tax or fee;
5. Receives any money from any
public fund;
6. Transacts other official business;
or
7. Receives any salary or wage
from any
person or corporation.
The presentation of the CTC shall
not be required in
connection with the registration of
a voter.
B. Corporation
1. receives any license, certificate
or permit
from any public authority;
2. pays any tax or fee;
3. receives any money from any
public
fund; or
4. transacts other official business.
The city or municipal treasurer
deputizes the
barangay treasurer to collect the
community tax in
their respective jurisdictions. (Sec.
164, LGC)
The proceeds of the comm. tax is
actually and
directly collected by the city or

municipal treasurer
shall accrue entirely to the general
fund of the city or
municipality concerned.
Proceeds of the comm. tax
collected through the
barangay
treasurers
shall
be
apportioned as follows:
50% accrues to the general fund
of the city or
municipality concerned; and
50% accrues to the barangay
where the tax
is collected.
CHAPTER 3 - COLLECTION OF
TAXES
Taxable Period The tax period
of ALL local taxes,
fees and charges shall be the
calendar year, unless
otherwise provided in the Code.
Accrual of Tax ALL local taxes,
fees, and charges
accrue on first day of January of
each hear, unless
otherwise provided in the Code.
Time of Payment ALL local
taxes, fees, and
charges shall be paid within the
first twenty (20) days
of January or of each subsequent
quarter, as the
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case may be, unless otherwise
provided in the Code.
Surcharges and Penalties on
Unpaid Taxes, Fees,
or Charges The sanggunian may
impose a
surcharge not exceeding twenty

five percent (25%)
per month of the unpaid taxes, fees
or charges not
paid on time and an interest at the
rate not exceeding
two percent (2%) per month of the
unpaid taxes, fees
or charges including surcharges,
until such amount is
fully paid but in no case shall the
total interest on the
unpaid amount or portion thereof
exceed thirty six
(36) months.
Interest
on
other
unpaid
revenues On any other
source of revenue, LGUs are
authorized to imposed
an interest of a maximum of 2%
per month, maximum
of 36 months, on the amount
unpaid.
Manner of Payment Such taxes,
fees or charges
may
be
paid
in
quarterly
installments.
COLLECTION
OF
LOCAL
REVENUES BY THE
TREASURER (sec. 170, LGC)
All local taxes, fees and charges
shall be
collected by the provincisl, city,
municipal or
barangay treasurer, or their duly
authorized deputies.
The provincial, city or municipal
treasurer may
designate the barangay treasurer
or his deputy to
collect local taxes, fees or charges.
In case a bond is
required for the purpose, the
provincial, city or
municipal government shall pay
premiums thereon in
addition to the premiums of the

bond that may be
required under the Code.
LOCAL TAX REMEDIES UNDER
THE LGC
TAX REMEDIES OF THE LGUs
CIVIL REMEDIES OF THE LGU TO
EFFECT
COLLECTION OF TAXES
1. Local Governments Lien Local
taxes, fees,
charges
and
other
revenues
constitute a lien,
superior to all liens, charges or
encumbrances in
favor of any person, enforceable by
any appropriate
administrative or judicial action.
2. Civil Remedies
a. by administrative action through
distraint of
personal property and by levy upon
real property
i. Distraint
seizure or confiscation of assets in
sufficient quantity to satisfy the
liability
accounting of distrained goods
publication of the sale of distrained
properties
sale
disposition of the proceeds of the
sale
by application of such proceeds to
the
delinquency and expenses of sale
return of balance to the owner
NOTE: Where the proceeds of the
sale are
insufficient to satisfy the claim,
other properties may
be distrained.
ii. Levy
delinquency
levy of real property before,
simultaneous or after distraint
of personal property belonging

to delinquent taxpayer
local treasurer shall prepare a
duly authenticated certificate
showing the name of taxpayer
and amount of tax, fee and
penalty due to him
NOTE: Levy shall be effected by
writing upon said
certificate the description of the
property upon which
levy is made.
b. by judicial action
Either of these remedies or all may
be pursued
concurrently or simultaneously at
the discretion of the
LGU concerned.
Jurisdiction of courts over local
taxation cases:
a. With the amendment brought by
RA No. 9282, the
Court of Tax Appeals now has
appellate jurisdiction
over local taxation cases decided
by the RTC in the
exercise of its appellate or original
jurisdiction.
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b. Regular judicial courts are not
prohibited from
enjoining the collection of local
taxes, subject to Rule
58 (preliminary injunction) of the
Rules of Court.
NOTE: Unlike the NIRC, the Local
Tax Code does
not contain any specific provision
prohibiting courts
from enjoining the collection of

local taxes. Such
statutory lapse or intent may have
allowed
preliminary injunction where local
taxes are involved.
But it cannot negate the procedural
rules and
requirements under Rule 58 of the
Rules of Court.
(Valley Trading Co. vs. CFI of
Isabela, 1989)
PRESCRIPTIVE
PERIODS
OF
ASSESSMENT
1. Local taxes, fees or charges
five (5) years from
the date they became due (sec.
194, LGC)
2. When there is fraud or intent to
evade the payment
of taxes, fees or charges ten (10)
years from
discovery of fraud or intent to
evade payment (sec.
194, LGC)
PRESCRIPTIVE
PERIOD
OF
COLLECTION
Local taxes, fees or charges may
be collected
within five years from the date of
assessment by
administrative or judicial action. No
such action shall
be instituted after the expiration of
such period. (sec.
194, LGC)
Grounds for the Suspension of
the Running of
the Prescriptive Periods
a.
The
treasurer
is
legally
prevented from the
assessment or collection of the tax;
b. The taxpayer requests for a
reinvestigation and
executes a waiver in writing before
the expiration of
the period within which to assess

or collect; and
c. The taxpayer is out of the
country or otherwise
cannot be located. (sec. 194, LGC)
TAX
REMEDIES
OF
THE
TAXPAYER
REMEDIES OF THE TAXPAYER IN
LOCAL
TAXATION
A. ADMINISTRATIVE
Before assessment
a. Protest against a newly enacted
ordinance any
question on constitutionality or
legality of tax
ordinance within 30 days from
effectivity thereof to
Secretary of Justice (sec. 187, LGC)
Such appeal
shall not have the effect of
suspending the effectivity
of the ordinance and the accrual
and payment of tax.
b. Declaratory relief whenever
applicable
After Assessment
a. Protest within 60 days from
receipt of
assessment
(sec.
195,
LGC).
Payment under protest
is not necessary.
b. Payment & subsequent refund or
tax credit within
2 years from payment of taxto local
treasurer (sec.
196, LGC). It is to be noted that,
unlike in internal
revenue taxes, the supervening
cause applies in local
taxation because th period for the
filing of the claims
for refund or credit of local taxes is
counted not
necessarily from the date of
payment but from the
date of taxpayer is entitled to a tax

credit.
c. Right of redemption 1 year
from the date of
sale or from the date of forfeiture
(sec. 179, LGC)
B. JUDICIAL
1. Court action
- within 30 days after receipt of
decision or lapse of
60 days of Secretary of Justices
inaction (sec. 187,
LGC)
- within 30 days from receipt when
protest of
assessment is denied (sec. 195,
LGC)
- if no action is taken by the
treasurer in refund cases
and the two year period is about to
lapse (sec. 195,
LGC)
- if remedies available does not
provide plain, speedy
and adequate remedy.
2. Action for Declaratory Relief
3. Injunction if irreparable
damage would be caused
to the taxpayer and no adequate
remedy is available.
PART IV - REAL PROPERTY
TAXATION
(LGC of 1991)
Definition:
A direct tax on ownership of lands
and
buildings or other improvements
thereon payable
regardless of whether the property
is used or not,
although the value may vary in
accordance with such
factor. Under the LGC, it covers the
administration,
appraisal, assessment, levy and
collection of Real
Property Tax, i.e. tax on land and

building and other
structures and improvements on it,
including
machineries.
(Subject
to
the
definition given by Art.
415 of the Civil Code)
Improvement valuable addition
made to a property
or amelioration in its condition
amounting to more
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than a mere replacement of parts
involving capital
expenditures and labor.
I. CHARACTERISTIC OF REAL
PROPERTY TAX:
[LIPAD]
1. Direct tax on the ownership of
real property
2. Ad Valorem tax. The value is
based on the tax
base
3. Proportion - the tax is calculated
on the basis of a
certain percentage of the value
assessed
4. Indivisible single obligation
5. Local Tax
II. PROPERTIES LIABLE UNDER
REAL
PROPERTY TAX
According to the Local Government
Code, Real
Property liable for Real Prop tax
are:
1. Land,
2. Buildings
3. Machinery and
4.
Other
improvements
not
otherwise exempted
under said code (Sec 232, LGC)
Note: Although the term real
property has not been
expressly defined in the LGC, early
decisions of the
Supreme Court in Mindanao Bus
Co. v City Assessor
of Cagayan de Oro, 6 SCRA `97;
Board of
Assessment Appeals v Meralco,
119 PHIL 328;
Manila Electric Co. v Board of
Assessment Appeals,
10 SCRA 68) seem to suggest that
Art 415 of the
Civil Code could also be controlling.
Real property includes machinery
as defined by
the LGC.
Machinery embraces machines,
equipment,
mechanical
contrivances,
instruments,
appliances or apparatus which may
or may not
be attached, permanently or
temporarily, to the
real property. It includes the
physical facilities for
production, the installations and
appurtenant
service facilities, those which are
mobile, selfpowered
or self-propelled, and those not
permanently attached to the real
property which
are
actually,
directly,
and
exclusively used to
meet the needs of the particular
industry,
business or activity and which by
their very
nature and purpose are designed
for, or
necessary to its manufacturing,

mining, logging,
commercial,
industrial
or
agricultural purposes.
(Sec. 199 [o], LGC)
Machinery which are of general
purpose use
including but not limited to office
equipment,
typewriters, telephone equipment,
breakable or
easily damaged containers (glass
or cartons),
microcomputers,
facsimile
machines, telex
machine,
cash
dispensers,
furnitures and
fixtures, freezers, refrigerators,
display cases or
racks, fruit juice or beverage
automatic
dispensing machines which are
not directly and
exclusively used to meet the
needs of a
particular industry, business or
activity shall not
be
considered
within
the
definition of
machinery. (Sec. 290 [o], IRR of
RA 7160)
III. CLASSIFICATION OF LAND
for purposes of
assessment - Sec 218 (a)
[CARMITS]
1. Commercial
2. Agricultural
3. Residential
4. Mineral
5. Industrial
6. Timberland
7. Special
Classification of lands made by
respective
sanggunian in accordance with
zoning
ordinances and
It is based on actual use.
IV. SPECIAL CLASSES OF REAL
PROPERTY (Sec
216, LGC) [HCS LG]
1. HOSPITALS
2.
CULTURAL and
SCIENTIFIC
purposes
3. owned and used by LOCAL
WATER
DISTRICTS
4. GOCCs rendering essential
public services in
the supply and distribution of water
and/or
generation or transmission of
electric power.
V. PROPERTIES EXEMPT from
real property tax
(Sec. 234) [CWERC]
1. Owned by the REPUBLIC of the
PHILS or its
political subdivisions
except: when beneficial use has
been
granted to a taxable person
2. Charitable institutions, churches,
parsonages,
convents
thereto,
mosques,
non-profit or religious cemeteries,
buildings
and improvements actually directly
and
exclusively used for religious,
charitable or
educational purposes.
3.
Machinery
and
Equipment
actually, directly,
and exclusively used by local
Water districts
and GOCCs engaged in the supply
and
distribution
of
water
and/or
generation and
transmission of electric power
4. Real property owned by duly

registered
Cooperatives under RA 6938
5. Machinery & equipment for
pollution control
and Environment protection
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Exemptions previously granted,
(not falling within the
above enumeration) are withdrawn.
Although powerless to grant RPT
exemption,
LGU in MM can exempt the 5% ad
valorem
tax on idle lands.
LGUs (within and outside MM)
may also
grant condonation which actually
partake of
exemption.
Proof of Tax Exemption:
Every person by or for whom real
property is
declared who shall claim the
exemption shall file with
the provincial, city or municipal
assessor within 30
days from date of declaration of
real property
sufficient documentary evidence in
support of such
claim (i.e. corporate charters, title
of ownership,
articles of incorporation, contracts,
affidavits, etc.)
Actual Use of Property as Basis
for Assessment
(Sec. 217, LGC)
Real property shall be classified,
valued and
assessed on the basis of actual use

regardless of
where located, whoever owns it,
and whoever uses it.
Unpaid realty taxes attach to the
property
and is chargeable against the
person who had actual
or beneficial use and possession of
it regardless of
whether or not he is the owner. To
impose the RPT
on the subsequent owner which
was neither the
owner nor the beneficial user of the
property during
the designated periods would not
only be contrary to
law but also unjust. (Estate of Lim
v. City of Manila,
GR No. 90639, Feb 21, 1990)
VI. FUNDAMENTAL PRINCIPLES
IN Assessment
of REAL PROPERTY TAXES (Sec.
198) [CUANE]
1. CURRENT and fair market value
is the basis of
appraisal
2. UNIFORMITY in classification in
each local govt
unit should be observed
3. ACTUAL USE of the property
should be the basis
of classification
4. appraisal, assessment, levy and
collection should
NOT BE LET to any private person.
5.
EQUITABLE
appraisal
and
assessment
Types of Real Property Tax:
1. Basic real property tax
2. Special levies:
a. Special Education Fund (SEF)
1%
additional real estate tax to finance
the SEF (Sec. 236, LGC) within
MM area only
b. Additional Ad Valorem on the
Lands
not exceeding 5% of the assessed
value of the property (Sec. 236,
LGC)
c. For Public Works on lands
specially benefited by public works,
projects or improvements funded
by
the LGU
May be imposed even by
municipalities outside MM
provided:
Special levy shall not exceed
60% of the actual cost of such
projects and improvements,
including the costs of acquiring
land and such other real property
in connection therewith not apply
to lands exempt from basic real
property tax and the remainder
of the land have been donated to
the local government unit
concerned for the construction of
said projects. (Sec. 240, LGC)
What Are Considered as Idle
Lands: (Sec. 237,
LGC)
1. Agricultural lands More than
1 hectare if
more than of which remain
uncultivated or
unimproved by the owner of the
property or
person
having
legal
interest
therein.
Not Idle Lands:
Agricultural lands planted to
permanent or perennial crops with
at
least 50 trees to a hectare
Lands actually used for grazing
purposes shall likewise not be
considered idle lands
2. Non-Agricultural Lands More

than 1,000
sq. m. in area if more than of
which remain
uncultivated or unimproved by the
owner of
the property or person having legal
interest
therein.
Idle Lands Exempt From Tax:
(Sec. 238, LGC)
By reason of:
1. force majeure
2. civil disturbance
3. natural calamity
4. or any cause which physically or
legally
prevents the owner of the property
or person
having legal interest therein from
improving
the land
WHO
ADMINISTER
REAL
PROPERTY TAX
1. Provinces
2. Cities
3.
Municipalities
within
Metropolitan Manila
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STEP 1 - DECLARATION OF REAL
PROPERTY
1. Declared by Owner or
Administrator (Sec 202203)
When: once every 3 years during
the period
from January 1 to June 30
What: file a sworn declaration with
the
assessor with description of the

property
IF newly acquired property a. files with assessor within 60
DAYS from
date of transfer a
b. SWORN statement containing
FMV and
description of property
IF improvement on real property
a. file w/in 60 DAYS upon
completion or
occupation (whichever is earlier)
b. SWORN statement containing
FMV and
description of property
2. Declared by Provincial /
City / Municipal
Assessor (Sec 204)
WHEN only when the person under
Sec 202
refuses or fails to make the
Declaration within
the prescribed time
No oath by assessor is required
NOTE:
IF
FILING
FOR
EXEMPTION (Sec
206)
WHAT person claiming exemptions
must file with
assessor sufficient documentary
evidence to support
claim
WHEN within 30 days from the
date of
DECLARATION of property
IF required evidence is not
submitted
within 30 days, the property will be
listed
as taxable in the roll
IF proven to be tax-exempt,
property will
be dropped from the roll
NOTE:
IF
PROPERTY
DECLARED FOR
THE FIRST TIME (Sec. 222)

If declared for 1st time, real
property shall be
assessed for back taxes
a) for not more than 10 yrs prior to
the
date of initial assessment
b) taxes shall be computed on the
basis
of applicable schedule of values in
force during the corresponding
periods
STEP 2: LISTING OF REAL
PROPERTY IN THE
ASSESSMENTROLLS
(Sec 205, 207)
Listing of all Real Property
whether taxable
or exempt within the jurisdiction of
LGU
o Undivided real property in
the
name of the estate or heirs or
devisees
o Corporation, partnership and
association same as individuals
o Owned by the Republic of the
Philippines,
its
instrumentalities,
political
subdivisions,
beneficial
use is transferred to a taxable
person in the name of the
possessor
All declarations shall be kept and
filed under
a uniform classification system to
be
established by the provincial, city
or
municipal assessor.
STEP
3:
APPRAISAL
AND
VALUATION OF REAL
PROPERTY
(Sec 212-214, 224-225)
How to determine Fair Market

Value:
FOR LAND
1. Assessor of the province/city or
municipality may
summon the owners of the
properties to be affected
and
may
take
depositions
concerning the property, its
ownership amount, nature and
value. (sec. 213,
LGC)
2. Assessor prepares a schedule of
FMV for different
classes of properties
3. Sanggunian enacts an ordinance
4. The schedule of FMV is published
in a newspaper
of general circulation in the
province city or
municipality concerned or in the
absence thereof
shall be posted in the provincial
capitol city or
municipal
hall
places
therein
(sec.212, LGC)
FOR MACHINERY
1. For Brand New machinery : FMV
is acquisition
cost
2. In all other cases:
FMV = Remaining eco. life X
Replacement cost
Estimated eco. life
STEP 4: DETERMINE ASSESSED
VALUE (Sec
218)
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Procedure
1. take the schedule of FMV
2. Assessed value = FMV X

Assessment level
3. Tax = Assessed value X Tax rate
STEP
5:
PAYMENT
AND
COLLECTION OF TAX
WHEN January 1 of every year
(Sec 246)
tax shall constitute as superior lien
(Sec
246)
HOW a. basic real prop tax in 4
equal installments
(Mar 31,Jun 30,Sep 30, Dec 31)
b. special levy - governed by
ordinance
NOTE: INTEREST for LATE
PAYMENT
- two percent (2%) each month on
unpaid amt.
until the delinquent amt is paid.
- provided in no case shall the
total interest
exceed thirty-six (36) months
NOTE: FOR ADVANCE and
PROMPT
PAYMENT
a) advance payment - discount not
exceeding
20% of annual tax (Sec 251, LGC)
b) prompt payment - discount not
exceeding 10%
of annual tax due(Art 342 IRR)
Collection of Tax (Sec.247, LGC)
The collection of the real property
tax with interest
thereon and related expenses and
the enforcement if
the remedies provided by the LGC
or any applicable
laws shall be the responsibility of
the city or municipal
treasurer concerned.
The city or municipal treasurer my
deputize the
barangay treasurer to collect all
taxes on real
property located in the barangay

provided the
barangay treasurer is properly
bonded.
WHO COLLECTS The provincial,
city, municipal or
barangay treasurer
PERIOD WITHIN WHICH TO
COLLECT (Sec 270):
within five (5) yrs from the date
they become due
within ten (10) yrs. from discovery
of fraud, in case
there is fraud or intent to evade
Period of prescription shall be
SUSPENDED
when: (Sec 270, LGC)
1. local treasurer is legally
prevented to collect tax
2. the owner of prop requests for
reinvestigation
and writes a waiver before
expiration of period to
collect
3. the owner of the prop is out of
the country or
cannot be located
REMEDIES IN REAL PROPERTY
TAXATION
Tax Remedies of the Local
Government to Effect
Collection of Taxes
A. Administrative
1. Lien (Sec. 257, LGC) superior
to all liens,
charges or encumbrances and is
enforceable
by administrative or judicial action.
It is
extinguished only upon payment of
tax and
other expenses.
2. Levy (Sec. 258, LGC)
Issuance of Warrant by the LGU
treasurer
(on or before or simultaneously

with the
institution of civil action for
collection of
delinquent tax)
Advertise Sale or Auction (within 30
days
after service of warrant) by posting
and
publication
Sale
Report of Sale (within 30 days after
sale)
Preparation of Certificate of Sale
(containing
the name of the purchaser,
description of the
property, amount of delinquent tax
and its
interests, expenses)
Redemption (within 1 year from
date of sale)
Issuance of Final Deed to Purchaser
(upon
the delinquent taxpayers failure to
redeem)
The proceeds of the sale in
excess of the
delinquent tax, the interest due
thereon and
the expenses of sale shall be
remitted to the
owner of real property or person
having legal
interest.
3. Distraint (Sec. 254, LGC) - with
notice of
delinquency posted and published.
Personal
property may be distrained to
effect payment.
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4. Purchase of property by local
treasurer
for want of bidder (Sec. 263,
LGC) in
case there is no bidder for the real
property
advertised or if the highest bid for
an amount
insufficient to pay the RPT and
other costs.
B. Judicial
Civil Action (Sec. 266, 270, LGC)
filed by the local
treasurer within 5 or 10 years as
provided in Sec. 270
of the LGC.
Prescriptive Periods for the
Collection of RPT
1. Basic RPT and any other tax
levied under the
title on RPT five years from the
date they
became due. (Sec. 270, LGC)
2. When there is fraud or intent to
evade the
payment of taxes ten years from
discovery
of the fraud or intent to evade
payment.
GROUNDS
FOR
THE
SUSPENSION OF THE
RUNNING
OF
THE
PRESCRIPTIVE PERIODS:
1.
The
treasurer
is
legally
prevented from the
assessment or collection of the tax;
2. The taxpayer requests for a
reinvestigation
expiration of the executes a waiver
in writing
before the expiration of the period
within
which to assess or collect; and
3. The taxpayer is out of the

country or
otherwise
cannot
be
located
(Sec.270, LGC)
Tax Remedies of the Taxpayer
A. Administrative
1. Protest
Pay the Tax under Protest
File Written Protest with Local
Treasurer
(within 30 days from payment of
tax)
Treasurer Decides
(within 60 days from receipt of
protest)
Approved Denied
Apply for Tax Refund Appeal with
the LBAA
or Tax Credit (in case of denial of
protest
or inaction of the treasurer
after the lapse of 60 days)
Appeal with the CBAA
(w/in 30 days from receipt of
adverse decision by LBAA)
Appeal to CTA (within 30 days
from receipt of adverse
decision rendered by CBAA)
2. Claim for Tax Refund or
Credit (Sec. 253,
LGC)
a. The taxpayer may file a written
claim for
refund or credit with the provincial
or city
treasurer within 2 years from the
date the
taxpayer is entitled to such
reduction or
adjustment.
b. Provincial or city treasurer
should decide the
claim within 60 days from receipt
of the
claim.
c. In case of denial of refund or

credit, appeal to
LBAA within 30 days as in protest
case.
3. Redemption of Real Property
(Sec. 261,
LGC)
a. Within 1 year from the date of
sale, the
owner of the delinquent real
property, or
person having legal interest or his
representative, shall have the right
to redeem
the property upon payment to the
local
treasurer the ff:
a. Amount of delinquent tax
b. Interest thereon
c. Expenses of sale from date of
delinquency to date of the sale
d. Interest of not more than 2% per
month on the purchase price from
date of sale to date of redemption
b. A certificate of redemption shall
be issued,
and the certificate of sale issued to
the
purchaser shall be invalidated.
Remedy
against
the
Assessment/Appeal
1st: within 60 days from notice of
assessment of
provincial,
city
or
municipal
assessor to
LBAA
(Sec. 226, LGC)
2nd: within 30 days from receipt of
decision of
LBAA to CBAA (sec. 230, LGC)
3rd: within 30 days from receipt of
decision of
CBAA to CTA en banc
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4th: within 15 days from receipt of
decision of
CTA en banc to SC.
Appeals
in
Real
Property
Taxation
Provincial,
City
or
Municipal
Assessor
Within 60 days
Owner/Person with legal interest
must file:
1. Written Petition under Oath
2. With Supporting Documents
Local Board of Assessment Appeals
(LBAA should decide within 120
days from receipt of
petition)
Within 30 days from receipt of
decision from LBAA,
dissatisfied party may appeal to
CBAA
Central Board of Assessment
Appeals
Party adversely affected by
LBAAs decision may appeal
with CTA within 30 days
from receipt of decision.
CTA (En BANC)
Within 15 days
Supreme Court
Condonation
Real
Property
Taxes
1. By Sanggunian
RPT may be condoned wholly or
partially in a
given LGU when:
a. There is general failure of crops;
b. There is substantial decrease in
the
price of agricultural or agri-based
products; or
c. There is calamity.
2. By the President of the

Philippines
When public interest so requires
B. Judicial
1. Court Action appeal of
CBAAs decision to CTA
en banc;
2. Suit assailing validity of tax;
3. Recovery of refund of taxes
paid (Sec. 64, PD
464)
4. Suit to declare invalidity of
tax due to
irregularity in assessment and
collection;
5. Suit assailing the validity of
tax sale (Sec. 83,
PD 464 and Sec. 267, LGC)
VALUE-ADDED TAX
Nature and Characteristics
Value added is the value that a
producer adds to
his raw materials or purchases
(other than labor)
before selling the new or improved
product or
service
VAT is an indirect tax levied on
goods and
services; not on persons, and
ultimately paid by
consumers in the form of higher
prices
VAT is a tax on consumption
levied on the sale,
barter, exchange or lease of goods
or properties
and services in the Philippines and
on
importation of goods into the
Philippines.
Seller is the one statutorily liable
for the payment
of the tax but the amount of the
tax may be
shifted or passed on to the buyer,

transferee or
lessee of the goods, properties or
services.
In the case of importation, the
importer is the one
liable for the VAT
Apply to existing contracts of sale
or lease of
goods, properties or services at the
time of
effectivity of RA No. 7716 (9337).
Person refers to any individual,
trust, estate,
partnership,
corporation,
joint
venture, cooperative or
association
Taxable person refers to any
person liable for
payment
of
VAT,
whether
registered or registrable in
accordance with Sec. 236 of the
Tax Code
VAT-registered person refers to
any person who is
registered as a VAT taxpayer under
Sec. 236 of the
Tax Code. His status shall continue
until the
cancellation of such registration.
Taxable sale refers to the sale,
barter, exchange
and/or lease of goods or properties,
including
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transactions deemed sale and the
performance of
service
for
a
consideration,
whether in cash or in kind
Definition of in the course of

trade or business
(Rule of Regularity)
o The regular conduct or pursuit of
a
commercial
or
an
economic
activity, including
transactions incidental thereto, by
any person
regardless of whether or not the
person
engaged therein is a non-stock,
nonprofit
private organization or government
entity
o
Non-resident
persons
who
perform services
in the Philippines are deemed to be
making
sales in the course of trade or
business, even
if the performance of services is
not regular
Incidental to the principal
business
o
Something
necessary,
appertaining to, or
depending upon another which is
termed the
principal, something incident to the
main
purpose.
Exceptions to the rule of
regularity
1. Any business where the gross
sales or receipt do
not exceed P100,000 during any
12-month period
shall be considered principally for
subsistence or
livelihood and not in the course of
trade or
business
2. Services rendered in the
Philippines by nonresident
foreign persons shall be considered

as
being rendered in the course of
trade or
business.
CIR v.Magsaysay Lines, Inc. et
al Gr. No. 146984
(2006)
FACTS:
Pursuant to a government program
of
privatization, NDC decided to sell
to private
enterprise all of its shares in its
wholly-owned
subsidiary the National Marine
Corporation(NMC).
The NDC sold in one lot its NMC
shares and five of
its ships.
ISSUE:
Whether or not the sale of the five
vessels is subject
to VAT?
HELD:
The court ruled that the sale was
not in the ordinary
course of the trade or business of
NDC and is
sufficient to declare the sale as
outside the coverage
of VAT.
DOCTRINE:
Any sale, barter or exchange of
goods or services
not in the course of trade or
business is not
subject to VAT.
Gross Selling Price: the total
amount of money or
its equivalent which the purchaser
pays or is
obligated to pay to the seller in
consideration of sale,
barter or exchange of the goods or
properties,
excluding the VAT. The excise

tax, if any, of such
goods or properties shall form
part of the gross
selling price.
Zero-rated transactions
1. Export sales
The sale and actual shipment of
goods
from the Philippines to a foreign
country
Section 105. Persons liable
1. Any person who, in the course of
trade or
business
o Sells, barters, or exchanges
goods or
properties (seller or transferor)
o Leases goods or properties
(lessor)
o
Renders
services
(service
provider)
2. imports goods (importer)
Sec 106. VAT on Sale of Goods
or
Properties
Goods:
all
tangible
and
intangible objects
which are capable of pecuniary
estimation.
Includes:
o Real properties held primarily for
sale to customers or held for lease
in the ordinary course of business
o the right or the privilege to use
patent, copyright, design or model,
plan, secret formula or process,
goodwill, trademark, trade brand
or other like property or right
o the right or the privilege to use in
the Philippines of any industrial,
commercial or scientific equipment
o the right or the privilege to use
motion picture films, film tapes
and disc
o radio, television, satellite
transmission and cable television

time
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i. Irrespective of any shipping
arrangement
ii. Paid for in acceptable foreign
currency or its equivalent in
goods or services
iii. Accounted for in accordance
with
the rules and regulations of the
BSP
Sale of raw materials or
packaging
materials by a VAT-registered entity
to a
nonresident buyer
i. for delivery to a resident local
export-oriented enterprise
ii. Used in the manufacturing,
processing, packing, repacking
in the Philippines of the said
buyers goods
iii. Paid for in acceptable foreign
currency
iv. Accounted for in accordance
with
BSP
Sale of raw materials or
packaging
materials
to
export-oriented
enterprise
whose export sales exceed 70% of
total
annual production
Sale of gold to the BSP
Those considered export sales
under the
Omnibus Investment Code of 1987
The sale of goods, supplies,

equipment
and fuel to persons engaged in
international
shipping
or
international air
transport operations
i. Limited to goods, supplies,
equipment and fuel pertaining to
or attributable to the transport of
goods and passengers from a
port in the Philippines directly to
a foreign port without docking or
stopping at any other ports in the
Philippines
Export sales
Zero-rated if made by VATregistered
persons
Exempt sales if made by person
not VATregistered
Origin Principle: only national
taxpayers
would be exposed to the tax,
without
distinguishing
between
transactions
consumed locally or abroad.
Export taxable,
imports exempt. Situs: country of
production
Destination Principle: VAT is
imposed in
the country in which the products
or services
are actually consumed or used.
Exports
exempt, imports taxable. Situs:
country of
consumption
Cross boarder doctrine: No
VAT shall be
imposed to form part of the cost of
goods
sold destined for consumption
outside of the
territorial boarder of the taxing

authority.
Actual shipment of the goods
from the
Philippines to a foreign country is a
precondition of an export sale
following the
destination principle being adhered
to by our
VAT system
CIR
v.
American
Express
International, Inc. GR.
No. 152609 (2006)
The Supreme Court voided the
Cross boarder
doctrine.
The court mentioned that the law
neither makes a
qualification nor adds a condition
in determining the
tax situs of a zero-rated service.
Under this criterion,
the place where the service is
rendered determines
the jurisdiction to impose the VAT.
Performed in the
Philippines,
such
service
is
necessarily subject to its
jurisdiction,
for
the
State
necessarily has to have a
substantial connection to it, in
order to enforce a
zero rate. The place of payment
is immaterial;
much less is the place where
the output of the
service will be further or
ultimately used.
Sales
to
export-oriented
enterprise
Seller complies with other
requirements like
registration with the BOI and the
PEZA
The entirety of the sales to such

enterprise that is
to be zero-rated, not only a
proportion to the
actual exports made by such
enterprise
Omnibus
Investment
Code:
following sales,
without actual exportation are
considered
constructively exported:
Sales to bonded manufacturing
warehouses
of export-oriented manufacturers
Sales
to
registered
PEZA
enterprises
Sales to registered export traders
operating
bonded
trading
warehouses
supplying raw
materials used in the manufacture
of export
products
Sales to diplomatic missions and
other
agencies and/or instrumentalities
granted tax
immunities,
of
locally
manufactured,
assemble, or repacked products,
whether
paid for in foreign currency or not
RMO No. 9-2000
Sales of goods, properties, or
services made
by a VAT-registered supplier to a
BOITaxation
Law Summer Reviewer
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registered
exported
shall
be
accorded
automatic zero-rating
RMC No. 74-99
Sales made by a VAT-registered
supplier to
a PEZA-registered enterprise is
subject to
zero-percent VAT.
However, if the VAT registration
of the PEZAregistered
enterprise is an erroneous
registration, it is not entitled to
input taxes on
its purchases from its supplier
2.
Foreign
Currency
Denominated Sale (Internal
Exports)
Sale to a nonresident of goods,
except those
mentioned
in
Section
149(automobiles) and
150 (non-essential goods),
Assembled or manufactured in
the
Philippines
For delivery to a resident in the
Philippines
Paid for in acceptable foreign
currency
Accounted for in accordance with
the rules
and regulations of the BSP
Sale of locally manufactured or
assembled
goods
for
household
and
personal use to
Filipinos abroad and other nonresidents of
the Philippines as well as returning
Overseas
Filipinos under the Internal Export
Program
paid for in convertible foreign
currency,
and accounted for in accordance
with the
rules and regulations of the BSP

shall be
considered export sales
3. Sales to persons or entities
whose exemption
under
special
laws
or
international
agreements
to
which
the
Philippines is a
signatory
Refer to exemptions granted
under special
laws or treaties which are extended
not only
to the grantee but also to its
supplier of
goods
Effectively zero-rated sale of
goods and
properties: refer to the local sale
of goods
and properties by a VAT-registered
person to
a person or entity who was granted
indirect
tax exemption under special laws
or
international agreement
Transactions which, although not
involving
actual export, are considered as
constructive
export shall be entitled to the
benefit of zerorating
Transactions deemed sale
1. Transfer, use or consumption not
in the course of
business of goods or properties
originally
intended for sale or for use in the
course of
business.
Transfer of goods or properties
not in the
course of business can take place
when
VAT-registered person withdraws

goods
from his business for personal use
2. Distribution or transfer to:
i. Shareholders or investors share
in the
profits of VAT-registered person
Property dividends which
constitute stocks in trade or
property primarily held for sale or
lease declared out of RE on or
after Jan.1, 1996 and distributed
by the company to its
shareholders shall be subject to
VAT based on the zonal value or
fair market value at the time of
distribution, whichever is
applicable.
ii. Creditors in payment of debt or
obligation
3. Consignment of goods if actual
sale is not made
within 60 days following the date
such goods
were consigned
Consigned goods returned by the
consignee within the 60-day period
are
not deemed sold
4. Retirement from or cessation of
business with
respect to inventories of taxable
goods existing
as of such retirement or cessation
Change of ownership of the
business
(when a single proprietorship
incorporates or the proprietor of a
single
proprietorship sells his entire
business
Dissolution of a partnership and
creation
of a new partnership which takes
over
the business
Not subject to output VAT

The VAT shall not apply to goods or
properties
existing as of the occurrence of the
following:
1. Change of control of a
corporation by the
acquisition
of
the
controlling
interest of such
corporation by another stockholder
or group of
stockholders.
2. Change in the trade or corporate
name of the
business
3. Merger or consolidation of
corporations.
Changes in or Cessation of
Status of a VAT
registered Person
1. subject to output VAT
a. change of business activity from
VAT
taxable status to VAT-exempt
status
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b. approval of a request for
cancellation of
registration due to reversion to
exempt
status
c. approval of a request for
cancellation of
registration due to a desire to
revert to
exempt status after the lapse of 3
consecutive years from the time of
registration by a person who
voluntarily
registered despite being exempt

under
Sec 109 (2) of the Tax Code
d. approval of a request for
cancellation of
registration
of
one
who
commenced
business with the expectation of
gross
sales
or
receipt
exceeding
P1,500,000
but who failed to exceed this
amount
during the first 12 months of
operations
2. not subject to output VAT
a. change of control of a
corporation by the
acquisition
of
the
controlling
interest of
such
corporation
by
another
stockholder
or group of stockholders
b. change in the trade or corporate
name of
the business
c. merger or consolidation of
corporations
Allowable
deductions
from
gross selling price
a) discounts determined and
granted at the time
of sale (expressly indicated in the
invoice)
b) sales returns and allowances for
which a
proper credit or refund was made
during the
month or quarter to the buyer for
sales
previously recorded as taxable
sales
Sale of Real Properties
o sale of real properties held
primarily for sale
to customers or held for lease

in the
ordinary course of trade or
business of
the seller shall be subject to VAT
o real estate dealer shall be subject
to VAT on
the
installment
payments,
including penalties
and interest (real properties on
the
installment plan)
o sale of residential lot exceeding
P1,500,000,
residential house and lot or other
residential
dwellings exceeding P2,500,000,
where the
instrument of sale was executed
on or after
July 1, 2005, shall be subject to
VAT (house
and lot is taxable though not in the
ordinary
course of business)
o installment sale of residential
house and lot
or other residential dwellings
exceeding
P1,000,000 where the instrument
was
executed prior to July 1, 2005,
shall be
subject to VAT
o sale of real property on
installment plan:
sale of real property by a realestate dealer,
the initial payments of which in the
year of
sale do not exceed 25% of the
gross selling
price.
o In the case of sale on the
deferredpayment
basis, the transaction shall be
treated as cash sale which makes

the entire
selling price taxable in the month
of sale
(sale of real property where the
initial
payment exceeds 25% of the gross
selling
price.
o Initial payments: covers any
down payment
made and includes all payments
actually or
constructively received during the
year of
sale
o Real estate dealer: includes any
person
engaged in the business of buying,
developing, selling, exchanging
real
properties as principal and holding
himself
out as a full or part-time dealer in
real estate
o Transmission of property to a
trustee shall
not be subject to VAT if the
property is to be
merely held in trust for the trustor
and/or
beneficiary
SEC. 107 VAT ON IMPORTATION
OF GOODS
VAT is imposed on goods brought
into the
Philippines, whether for use in
business or
not
Tax base = total value used by
BOC in
determining tariff and customs
duties +
custom duties + excise tax + other
charges
(postage, commission, and similar

charges,
prior to the release of the goods
from
customs custody
If the valuation used is based on
volume or
quantity of the imported goods, the
landed
cost shall be the basis for
computing VAT.
Landed cost = invoice amount
+ customs
duties + freight + insurance +
other charges
(excise tax shall form part of the
tax base)
the said tax shall be paid by the
importer
prior to the release of such goods
from
customs custody.
Importer: refers to any person
who brings
goods into the Philippines, whether
or not
made in the course of his trade or
business.
Includes non-exempt persons or
entities who
acquire tax-free imported goods
from exempt
persons, entities or agencies
Sale, transfer, or exchange of
imported
goods by tax-exempt persons:
In the case
of goods imported by VAT-exempt
persons,
entities or agencies which are
subsequently
sold, transferred or exchange in the
Philippines to non-exempt persons
or
entities,
the
latter
shall
be
considered the

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importers thereof and shall be
liable for VAT
due on such importation.
Importation begins when the
carrying vessel
or aircraft enters the jurisdiction of
the
Philippines with intention to unload
therein
Importation
is
deemed
terminated upon
payment of the duties, taxes and
other
charges due upon the articles, or
secured to
be paid, at the port of entry and
the legal
permit for withdrawal shall have
been
granted
SEC 108. VAT ON SALE OF
SERVICE AND USE
OR LEASE OF PROPERTIES
1. Sale or exchange of service, as
well as the
use or lease of properties shall be
subject to
12% VAT
2. Sale or Exchange of Service:
the
performance of all kind of services
in the
Philippines for others for a fee,
remuneration
or consideration, whether in cash
or in kind
i. Construction and service contract
ii. Stock, real estate, commercial,
customs and immigration brokers
iii. Lessors of property, whether

personal or real
iv. Persons engaged in warehouse
services
v. Lessors or distributors of
cinematographic film
vi. Persons engaged in milling,
processing, manufacturing, or
repacking goods for others
vii.
Proprietors,
operators,
or
keepers of
hotels,
motels,
rest
houses,
pension
houses, inns, resorts, theaters, and
movie houses
viii. Proprietors or operators of
restaurants, refreshment parlors,
cafes and other eating places,
including clubs and caterers
ix. Dealers in securities
x. Lending investor
xi. Transportation contractors on
their
transport of goods or cargoes,
including persons who transport
goods or cargoes for hire and other
domestic common carriers by land
relative to their transport of goods
or
cargoes
xii. Common carriers by air and sea
relative to their transport of
passenger, goods, or cargoes from
one place in the Philippines to
another place in the Philippines
xiii.
Sales
of
electricity
by
generation,
transmission, and/or distribution
companies
xiv. Franchise grantees of electric
utilities, telephone and telegraph,
radio
and/or
broadcasting
television
and all other franchise grantees
except franchise grantees of radio
and/or
television
broadcasting
whose
annual gross receipt of the
preceding
year do not exceed P10,000,000
and
franchise grantees of gas and
water
utilities
xv. Non-life insurance companies
(except their crop insurances),
including surety, fidelity, indemnity
and bonding companies
xvi. Similar services regardless of
whether or not the performance
thereof calls for the exercise or use
of the physical or mental faculties
3. Sale or exchange of service
shall also
include:
i. Lease or the use of or the right or
privilege to use any copyright,
patent, design or model, plan,
secret
formula or process, goodwill,
trademark, trade brand, or other
like
property or right
ii. The lease or the use of, or the
right
to use any industrial, commercial
or
scientific equipment
iii. The supply of scientific,
technical,
industrial or commercial knowledge
or information
iv. The supply of any assistance
that is
ancillary and subsidiary to and
furnished as a means of enabling
the
application or enjoyment of any
such
property, or right as is mentioned
in
subparagraph (b) hereof or any

such
knowledge or information as is
mentioned in subparagraph (c)
hereof
v. The supply of services by a
nonresident
person or his employee in
connection with the use of property
or rights belonging to, or the
installation or operation of any
brand,
machinery, or other apparatus
purchased from such nonresident
person
vi. The supply of technical advise,
assistance or services rendered in
connection with technical
management or administration of
any
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scientific, industrial or commercial
undertaking, venture, project or
scheme
vii. The lease of motion picture
films, film
tapes, and discs
viii. The lease or use of, or the right
to
use, radio, television, satellite
transmission and cable television
time
4. Lessors of property all forms
of property
for lease, whether real or personal,
are liable
to VAT
5. real estate lessor: includes
any person
engaged in the business of leasing

or
subleasing real property
i. regardless of the place where the
contract of lease or licensing
agreements was executed if the
property leased or used is
located
in the Philippines
ii. VAT on rental and/or royalties
payable to non-resident foreign
corp
or owners for the sale of services
and use or lease of properties in
the
Philippines shall be based upon on
the contract price agreed upon by
the licensor and the licensee
6. non resident lessor/owner:
any person,
natural or juridical, an alien, or a
citizen who
establishes to the satisfaction of
the CIR the
fact of physical presence abroad
with definite
intention to reside therein, and who
owns/leases properties, real or
personal,
whether tangible or intangible,
located in the
Philippines
7. Advance payment:
i. A loan to the lessor from the
lessee,
or
ii. An option money for the
property, or
iii. A security deposit to insure the
faithful performance of certain
obligations of the lessee to the
lessor, or
iv. Pre-paid rental
If the advance payment is for the
faithful
performance of certain obligations

of the
lessee, it is not subject to VAT
A security deposit that is applied
to rental
shall be subject to VAT at the time
of its
application
If
the
advance
payment
constitutes a prepaid
rental, then such payment is
taxable
to the lessor in the month when
received,
irrespective of the accounting
method
employed by the lessor
8.
warehousing
service:
rendering personal
service of a warehouseman such as
i. engaging in the business of
receiving
and
storing
goods
for
compensation
ii.
receiving
goods
and
merchandise to
be stored in his warehouse for hire;
or
iii. keeping and storing goods for
others,
as a business and for use
9. miller: a person engaged in
milling for others
(except palay into rice and corn
into corn
grits, and sugarcane into raw
sugar) is
subject to VAT on sale of services.
Cash: VAT shall be based on his
gross
receipts for the month or quarter
Receives a share of the milled
products
instead of cash: VAT shall be based
on
the actual market value of his

share
Sale by the owner or miller of his
share
of the milled product (except rice,
corn
grits and raw sugar) shall be
subject to
VAT)
10. all receipts from service, hire,
or operating
lease of transportation equipment
not subject
to the percentage tax on domestic
carriers
and keepers of garages shall be
subject to
VAT
11. common carries: refers to
persons,
corporations, firms or associations
engaged
in the business of carrying or
transporting
passengers or goods or both, by
land, water
or air for compensation, offering
services to
the public and shall include
transportation
contractors
12. common carriers by land
with respect to
their gross receipts from the
transport of
passengers including operators of
taxicabs,
utility cars for rent or hire driven by
the
lessees, and tourist buses used for
the
transport of passengers shall be
subject to
percentage tax
13. domestic common carriers by
air and sea are
subject to 12% VAT on their gross

receipts
from their transport of passengers,
goods or
cargoes from one place in the
Philippines to
another place in the Philippines
14.
sale
of
electricity
by
generation,
transmission,
and
distribution
companies
shall be subject to 12% vat on their
gross
receipts (sale of power or fuel
generated
through renewable sources of
energy
such as biomass, solar, wind,
hydropower, geothermal, ocean
energy,
and other emerging energy
sources using
technologies such as fuel cells
and
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hydrogen fuels shall be subject
to 0%
VAT)
15.
generation
companies:
refers to persons or
entities authorized by the ERC to
operate
facilities used in the generation of
electricity.
16. Gross receipts (sale of
electricity):
i. Total amount charged by
generation
companies for the sale of electricity
and related ancillary services;

and/or
ii. Total amount charged by
transmission companies for
transmission of electricity and
related
ancillary services; and/or,
iii. Total amount charged by
distribution
companies
and
electric
cooperatives
for distribution and supply of
electricity and related electric
services. The universal charged
passed on and collected by
distribution companies and electric
cooperatives shall be excluded
from
the computation of the GR
17. dealers in securities and
lending
investors: subject to VAT on the
basis of
their gross receipts. For dealer in
securities,
the term gross receipts means
gross
selling price less cost of the
securities
sold
18.
service
of
franchise
grantees of telephone
and
telegraph,
radio
and/or
television
broadcasting, toll road operations
and all
other franchise grantees, except
gas and
water utilities, shall be subject to
VAT
radio
and/or
television
broadcasting:
annual gross receipt of the
preceding
year do not exceed P10,000,000
shall
not be subject to VAT but 3%

percentage tax.
Gas and water utilities: subject
to 2%
franchise tax on their gross
receipts
Telephone and telegraph:
subject to
VAT on their gross receipts derived
from
their
telephone,
telegraph,
telewriter
exchange, wireless and other
communication equipment services
Amounts received for overseas
dispatch,
message,
or
conversion
originating
from
the
Philippines are
subject to percentage tax and
hence
exempt from VAT
19.
non-life
insurance
companies: including
surety, fidelity, indemnity and
bonding
companies are subject to VAT
not liable to premium tax under
Sec. 23
(percentage tax) of the Tax Code
gross receipts: total premiums
collected,
whether paid in money, notes,
credits or
any substitute for money
non-life reinsurance premiums
are
subject to VAT
insurance
and
reinsurance
commissions,
whether life or non-life, are subject
to
VAT
Vat due from the foreign
reinsurance
company is to be withheld by the

local
insurance company and to be
remitted to
the BIR
20. pre-need companies: the
compensation for
their services is the premiums or
payments
received from the plan holders
21.
health
maintenance
organizations (HMO)
gross receipts: total amount of
money or
its equivalent representing the
service
fee actually or constructively
received
during the taxable period for the
services
performed or to be performed ,
excluding
VAT
Gross Receipts: total amount of
money or its
equivalent
representing
the
contract price,
compensation, service fee, rental
or royalty, including
the amount charged for materials
supplied with the
services and deposits applied as
payments for
services rendered and advance
payments actually or
constructively received during the
taxable period for
the services performed or to be
performed for
another person, excluding VAT.
Constructive
receipt:
occurs
when the money
consideration or its equivalent is
placed at the control
of the person who rendered the
service without
restrictions by the payor.

Deposit in banks which are made
available to the seller of service
without
restrictios
Issuance by the debtor of a
notice to
offset any debt or obligation and
acceptance thereof by the seller as
payment for services rendered
Transfer of amounts retained by
the
payor to the account of the
contractor
Zero-rated sales of service
The following services performed in
the Philippines
by a VAT-registered person shall be
subject to 0%
VAT rate:
1. processing, manufacturing, or
repacking
goods for other persons doing
business
outside the Philippines,
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a. which goods are subsequently
exported
b. where the services are paid for
in
acceptable foreign currency
c. accounted for in accordance with
BSP
2. services other than processing,
manufacturing, or repacking
a. rendered to a person engaged in
business conducted outside the
Philippines or to a non-resident
person not engaged in business
who is outside the Philippines when

the services are performed [CIR v.
Busmeirter, et al, GR No. 153205
(2007) require performance of
services to nonresident to qualify
as
zero-rated.]
b. The consideration of which is
paid
for in acceptable foreign currency
c. accounted for in accordance with
BSP
3. services rendered to persons or
entities
whose exemptions under special
laws or
international agreements to which
the
Philippines is a signatory effectively
subjects
the supply of such services to zero
percent
rate
4. services rendered to persons
engaged in
international
shipping
or
air
transport
operations, including leases of
property for
use thereof
shall not pertain to those made to
common carriers by air and sea
relative
to their transport of passengers,
goods or
cargoes from one place in the
Philippines
to another place in the Philippines
(subject to 12% VAT)
5.
services
performed
by
subcontractors
and/or contractors in processing,
converting,
or manufacturing goods for an
enterprise
whose export sales exceed 70% of

the total
annual production
6. transport of passengers and
cargo by
domestic air or sea carriers from
the
Philippines to a foreign country.
Gross receipts of international air
carriers
doing business in the Philippines
and
international sea carriers doing
business
in the Philippines are still liable to
percentage tax
7. sale of power or fuel generated
through
renewable sources of energy such
as, but
not limited to, biomass, solar, wind,
hydropower,
geothermal
and
steam, ocean
energy,
and
other
emerging
sources using
technologies such as fuel cells and
hydrogen fuels.
Zero rating shall apply strictly to
the sale
of power or fuel generated through
renewable sources of energy, and
shall
not extend to the sale of services
related
to the maintenance or operation of
plants
generating said power
Effectively Zero-Rated Sale of
Services: refer to
the local sale of services by a VATregistered person
to a person or entity who was
granted indirect tax
exemption under special laws or
international
agreement (limited to 3, 4, 5)
Concerned taxpayer must seek

prior
approval or prior confirmation from
the
appropriate offices to the BIR so
that a
transaction
is
qualified
for
effectively
zero-rating
Without an approved application
for
effective
zero-rating,
the
transaction
otherwise entitled to zero-rating
shall be
considered exempt
SEC
109.
VAT
EXEMPT
TRANSACTIONS
Refer to the sale of goods or
properties
and/or services and the use or
lease of
properties that is not subject to VAT
and the
seller is not allowed any tax credit
of VAT on
purchases
Exempt transactions:
1.
sale
or
importation
of
agricultural and
marine food products in their
original state,
livestock and poultry of a kind
generally
used as, or yielding or producing
foods for
human consumption; and breeding
stock
and genetic materials thereof
Livestock: cows, bulls and
calves, pigs,
sheep, goats and rabbits
Poultry: fowls, ducks, geese and
turkey
Does not include fighting cocks,
race
horses, zoo animals and other

animals
generally considered as pets
Marine food products: fish and
crustaceans, such as but not
limited to,
eels,
trout,
lobster,
shrimps,
prawns,
oysters, mussels and clams
Meat, fruit, vegetables and other
agricultural
and
marine
food
products are
considered in their original state
even if
hey undergone the simple process
of
preparation or preservation for the
market : freezing, drying, salting,
broiling,
roasting, smoking or stripping,
shrink
wrappings in plastic, vacuum
packing,
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tetra-pack,
and
other
similar
packaging
methods
Polished and/or husked rice,
corn
grits and raw cane sugar and
molasses, ordinary salt and
copra
shall
be
considered
as
agricultural
product in their original state
Sugar whose content of sucrose
by
weight, in the dry state : parameter
reading of 99.5 and above are
presumed
to be refined sugar
Cane sugar produced from the
following
shall be presumed to be refined
sugar:
o Product of a refining process
o Products of sugar refinery
o Product of a production line of a
sugar mill accredited by the BIR
to be producing and/or capable
of producing sugar with
polarmeter reading of 99.5
Bagasse is not included in the
exemption
provided for under this section
2. sale or importation of fertilizers,
seeds,
seedlings and fingerlings, fish,
prawn,
livestock
and
poultry
feeds,
including
ingredients,
whether
locally
produced or
imported, used in the manufacture
of
finished feeds (except specialty
feeds for
race horses, fighting cocks,
aquarium
fishes, zoo animals and other
animals
generally considered as pets)
3. importation of personal and
household
effects
belonging to residents of the
Philippines returning from abroad
and non-resident citizens coming to
resettle in the Philippines
such goods are exempt fro
customs
duties under the Tariff and Customs
Code of the Philippines
4. Importation of professional
instruments and
implements,
wearing
apparel,
domestic
animals, and personal household
effects
(except any vehicle, vessel,
aircraft,
machinery and other goods for
use in the
manufacture and merchandise
of any
kind in commercial quantity)
Belonging to persons coming to
settle in the Philippines
For their own use and not for
sale,
barter or exchange,
Accompanying such persons or
arriving within 90 days before or
after their arrival
Upon the production of evidence
satisfactory to the CIR that such
persons are actually coming to
settle in the Philippines
The change of residence is
bonafide
5. services subject to percentage
tax
6. services by agricultural contract
growers
and milling for others of palay into
rice, corn
into grits and sugar into raw sugar
7. medical, dental, hospital and
veterinary
services, except those rendered by
professionals
laboratory services are exempted
if the hospital or clinic operates a
pharmacy or drug store, the sale of
drugs and merchandise is subject
to
VAT
8. Educational services rendered by
private
educational
institutions
duly
accredited by
the DepED, CHED and TESDA and

those
rendered
by
government
educational
institutions
Does not include seminars,
inservice
training, review classes and
other similar services rendered by
persons who are not accredited by
the DepED, the CHED and/or
TESDA
9. Services rendered by individuals
pursuant to
an employer-employee relationship
10. Services rendered by regional
or area HQ
established
in
the
RP
by
multinational
corporations
which
act
as
supervisory,
communications
and
coordinating
centers
for
their
affiliates,
subsidiaries or
branches in the Asia Pacific Region
and do
not earn or derive income from
the RP
11. Transactions which are exempt
under
international agreements to which
the RP is
a signatory
12.
sales
by
agricultural
cooperatives duly
registered and in good standing
with the
CDA to their members, as well as
sale for
their produce, whether in its
original state or
processed form, to non-members
their importation of direct farm
inputs,
machineries
and
equipment,
including spare parts thereof, to be

used directly and exclusively in the
production and/or processing of
their produce
13. Gross receipts from lending
activities by
credit
or
multi-purpose
cooperatives duly
registered and in good standing
with the
CDA
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14. Sales by non-agricultural, nonelectric and
non-credit
cooperatives
duly
registered with
and in good standing with the CDA
Share capital contribution of each
member does not exceed 15,000
and regardless of the aggregate
capital and net surplus ratably
distributed among the members
Importation of machineries and
equipment, including spare parts
thereof, to be used by them are
subject to VAT
15. Export sales by persons who
are not VATregistered
16. The following sales of real
properties are
exempt from VAT:
Not primarily held for sale to
customers or held for lease in the
ordinary course of trade or
business
Sale of real properties utilized
for
low-cost housing
A subdivision or a condominium
registered and licensed by the
HLURB
Undertaken by the govt or
private developers
Unit selling price ceiling:
P750,000
Utilized for socialized housing
Price ceiling per unit: P225,000
Residential lot valued at 1.5M and
below, or house and lot and other
residential dwellings valued at
2.5M
and below
Instrument must be executed on
or after July 1, 2005
If two or more adjacent
residential lots are sold or
disposed in favor of one buyer,
for the purpose of utilizing the
lots as one residential lot, the
sale shall be exempt from VAT
only if the aggregate value of
the lots do not exceed 1.5M
17. Lease of residential units
Monthly RENTAL: not exceeding
P10,000
If the aggregate of such rentals of
the
lessor during the year do not
exceed
1.5M,: exempt from VAT but subject
to
3% percentage tax
GR from rentals exceeding 10T
per
month per unit shall be subject to
VAT if
the aggregate annual GR from
said
units only (not including the GR
from
units leased for not more than 10T)
exceeds 1.5M. Otherwise, subject
to
3% percentage tax
18. Sale, importation, printing or
publication of
books
and
any
newspaper,
magazine,
review, or bulletin
which appears at regular
intervals
with fixed prices for subscription
and
sale
which is not devoted principally
to the
publication of paid advertisements
19. Sale, importation, or lease of
passenger or
cargo
vessels
and
aircraft,
including engine,
equipment and spare parts thereof
for
domestic or international transport
operations
Limited to 150 tons and above,
including
engine and spare parts of said
vessels
Comply with the age limit
requirement,
at the time of acquisition counted
from
the date of he vessels original
commissioning
o Passenger/cargo vessel: 15
years old
o Tankers: 10 years old
o High-speed passenger crafts: 5
years old
Exemption shall be subject to the
provisions
of
The
Domestic
Shipping
Development Act
20. Importation of fuel, goods and
supplies by
persons engaged in international
shipping or
air transport operations
Shall be used exclusively or shall
pertain
to the transport of goods and/or
passengers from a port in the

Philippines
directly to a foreign port without
stopping
at any other port in the Philippines
21. Services of banks, non-bank
financial
intermediaries performing quasibanking
functions, and other non-bank
financial
intermediaries
subject
to
percentage tax
such as money changers and
pawnshops
22. Sale or lease of goods or
properties or the
performance of services other than
the
transaction mentioned in the
preceding
paragraphs, the gross annual sales
and/or
receipts do not exceed 1.5M.
For purposes of the threshold of
1.5M,
the husband and wife shall be
considered separate taxpayer.
The aggregation rule for each
taxpayer
shall apply
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A VAT-registered person may, elect
that that the
exemption shall not apply to his
sales of goods or
services or properties which is
irrevocable for a
period of 3 years.
Credits for Input Tax
Input Tax
The VAT due on or paid by a VATregistered
person on importation of goods or
local
purchases of goods, properties, or
services,
including lease or use of properties,
in the
course of trade or business
Include the transitional and the
presumptive
input tax
Includes input taxes which can be
directly
attributed to transactions subject
to the VAT
plus a ratable portion of any input
taxes
which cannot be directly attributed
to either
the taxable or exempt activity
Evidenced by a VAT invoice or
official
receipt issued by a VAT-registered
person
1. Purchase or impartation of goods
a) For sale ; or
b) For conversion into or intended
to
form part of a finished product for
sale,
including
packaging
materials;
or
c) For use as supplies I the course
of
business; or
d) For use as raw materials
supplied in
the sale of services; or
e) For use in trade or business for
which deduction for depreciation or
amortization is allowed under the
Tax Code
2. Purchase of real properties for
which a
VAT has actually been paid

3. Purchases of services in which a
Vat has
actually been paid;
4. Transactions deemed sale
5. Transitional input tax
6. Presumptive input tax
7. Transitional input tax credits
allowed
under the transitory and other
provisions
of these Regulations
Persons who Can Avail of the
Input Tax Credit
1. to the importer upon payment of
VAT prior to
the release of goods from customs
custody
2. To the purchaser of the domestic
goods or
properties upon consummation of
the sale; or
3. To the purchaser of services or
the lessee or
licensee upon payment of the
compensation,
rental, royalty or fee
Claim
for
Input
Tax
on
Depreciable Goods
Requisites:
A
VAT-registered
person
purchases or
imports capital goods (which are
depreciable
goods for income tax purposes)
Aggregate acquisition cost of
which
(exclusive of VAT) in a calendar
month
exceed 1M
Manner of claiming input tax
1. estimated useful life of a
capital good is 5
years or more:
a. input tax spread evenly over a
period
of 60 months
b. commenced in the calendar
month
when the capital good is acquired
2. estimated useful life is less
than 5 years:
a. input tax spread evenly on
monthly
basis by the actual number of
months comprising the estimated
useful life of the capital good
b. commenced in the calendar
month
when the capital good is acquired
Aggregate
acquisition
cost
does not exceed 1M:
total input taxes will be allowable
as credit against
output tax in the month of
acquisition
Aggregate acquisition cost of a
depreciable asset
in any calendar month: refers to
the total price
agreed upon for one or more assets
acquired and not
on the payments actually made
during the calendar
month.
If the depreciable capital good
is sold/transferred
within the period of 5 years or
prior to the
exhaustion of the amortizable
input tax thereon:
entire unamortized input tax on the
capital goods
sold, can be claimed as input tax
credit during the
month or quarter when the sale or
transfer was made
but subject to limitation
Apportionment of Input Tax on
Mixed
Transactions
A vat-registered person who is also

engaged in
transactions not subject to VAT
shall be allowed to
recognize input tax credit on
transactions subject to
VAT as follows:
all the input taxes that can be
directly
attributed to transactions subject
to VAT may
be recognized for input tax credit
o input taxes which are directly
attributable to Vat taxable sales of
goods and services from the
Government or any of its political
subdivisions, instrumentalities or
agencies, including GOCC shall not
be credited against output taxes
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arising
from
sales
to
nongovernment
entities
if any input tax cannot be directly
attributed to
either a VAT taxable or VAT-exempt
transaction, the input tax shall be
pro-rated to
the VAT taxable and VAT-exempt
transactions
o
only
the
ratable
portion
pertaining to
transactions subject to VAT may be
recognized for input tax credit
input tax attributable to VATexempt sales
shall not be allowed as credit
against the
output tax but should be
treated as part of
CGS
for persons engaged in both
zero-rated
sales and non-zero rated sales,
the
aggregate input taxes shall be
allocated
ratably between the zero-rated
sale and
non-zero-rated sale
Determination of Input Tax
Credit during a
taxable month or quarter
All creditable input taxes during the
month or quarter
+ any amount of input taxes
carried-over from
preceding month/qtr
- (claim for VAT refund or tax credit
certificate)
- (other adjustments purchase
returns or
allowances)
- (input tax attributable to exempt
sales)
- (input tax attributable to sales
subject to final VAT
withholding)
Input Tax Credit
Determination of the Output
Tax and VAT payable
and
Computation
of
VAT
Payable or Excess Tax
Credit
Computation of output tax
1. Goods or properties: Gross
selling price x
VAT rate
2. Sellers of service: Gross
receipts x VAT
rate
VAT payable computation:
Output Tax
- Input Tax
Vat payable
VAT Payable (Excess Output) or

Excess Input Tax
If at the end of any taxable quarter
the output tax >
the input tax: the excess shall be
paid by the VATregistered
person
Ex. Output tax 100
Input tax (80)
VAT Payable 20
Transitional/Presumptive Input
Tax Credits
A.
Transitional
Input
Tax
Credits on
Beginning Inventories (2%)
o Taxpayers who became VATregistered
persons
upon
exceeding
the
minimum
turnover of 1.5M in any 12-month
period
o Voluntarily register even if their
turnover
does not exceed 1.5M (except
franchise
grantees of radio and television
broadcasting whose threshold is
10M.
Entitled to a transitional input tax
on the
inventory on hand as of the
effectivity of their
VAT registration
1. goods purchase for resale in
their
present condition;
2. Materials purchased for further
processing, but which have not yet
undergone processing;
3. goods which have been
manufactured by the taxpayer;
4. goods in process for sale;
5. goods and supplies for use in
the
course of the taxpayers trade or
business as a VAT-registered person
TIT = 2% of the value of the

beginning inventory on
hand or actual VAT paid on such
goods, materials
and
supplies,
whichever
is
higher
o such amount shall be creditable
against the
output tax of VAT-registered person
o value allowed for income tax
purposes on
inventories shall be the basis for
the
computation of the 2% TIT,
excluding goods
that are exempt from VAT
B.
Presumptive
Input
Tax
Credits (4%)
Covered:
Persons
or
firms
engaged in the
processing of sardines, mackerel,
and milk and in
the manufacturing refined sugar,
cooking oil and
packed noodle-based instant meals
Rate: 4% of the gross value in
money of their
purchases of primary agricultural
products which
are used as inputs to their
production
Creditable: against the output tax
Processing:
pasteurization,
canning and
activities which through physical or
chemical
process alter the exterior texture or
form or inner
substance of a product in such a
manner as to
prepare it for special use to which
it could not
have been put in its original form
or condition
Claims for Refund/Tax Credit
Certificate of Input
Tax
1. Zero-rated and Effectively Zerorated Sales
of goods, Properties or services
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o Vat-registered person may apply
for the
issuance of a TCC/refund of input
tax
attributable to such sales
o Input tax that may be subject of
the claim
shall exclude the portion of input
tax that
has been applied against the
output tax
o Application should be filed
within 2
years after the close of the
taxable
quarter when such sales were
made
o In case of zero-rated sales:
the
payments for the sales must have
been
made
in
acceptable
foreign
currency duly
accounted for in accordance with
the
BSP rules and regulations
o Taxpayer is engaged in both
zerorated
or effectively zero-rated sales
and in taxable or exempt
transactions
and the amount of creditable
input tax
due or paid cannot be directly
and
entirely attributed to any one

of the
transactions:
only
the
proportionate
share of input taxes allocated to
zerorated
or effectively zero-rated sales can
be claimed for refund or issuance
of a
TCC
o A person engaged in the
transport of
passenger and cargo by air or
sea
vessels from the Philippines to
a
foreign country: input taxes shall
be
allocated ratably between his zerorated
sales and non-zero-rated sales.
2. Cancellation of VAT registration
Why: due to retirement from or
cessation of
business, or due to changes in or
cessation
of status under Sec 106(c) of the
TAX Code
When: within 2 years from the
date of
cancellation
What: apply for the issuance of a
TCC for
any unused input tax which he may
use in
payment of his other internal
revenue taxes
However: shall only be entitled to
a refund if
he has no internal revenue tax
liabilities
against which the TCC may be
utilized
3. Where to file the claim for
refund/TCC
o Filed with the appropriate BIR

office (LTS
or RDO) having jurisdiction over
the
principal place of business of the
taxpayer
o Direct exporters: may file their
claim for
TCC with the One Stop Shop Center
of
the DOF
o Filing of the claim with one office
shall
preclude the filing of the same
claim with
another office
4. Period within which refund or
TCC of input
taxes shall be made
CIR shall grant a TCC/refund for
creditable input taxes within 120
days
from the date of submission of
complete
documents in support of the
application
Taxpayer may appeal to the CTA
within
30 days from receipt of said denial
If no action on the claim for
refund has
been taken by the CIR after the 120
day
period from the date of submission
of the
application
with
complete
documents, the
taxpayer ,may appeal to the CTA
within
30 days from the laps of the 120day
period
5. Manner of giving refund
Refund shall be made upon
warrants
drawn by the CIR or by his duly
authorized representative without

the
necessity of being countersigned
by the
Chairman of COA
Refunds under this paragraph
shall be
subject to post audit by the COA
COURT OF TAX APPEALS
What is the new law governing
the CTA?
RA 9282, an act expanding the
jurisdiction of
the CTA, and elevating it to the
level of the
Court of Appeals
What is the composition of the
CTA and how may
the CTA rule?
CTA shall consist of a Presiding
Justice and
five (5) Associate Justice
They may rule as follows:
1. En banc
2. Sitting in 2 divisions, each
division
with 3 justices each
What is the quorum?
The affirmative votes of 4 Justices
for
sessions En Banc and 2 Justices for
sessions of a Division shall be
necessary for
he rendition of a decision or
resolution
When the required quorum
cannot be
constituted, the Presiding Justice
shall
designate any Justice of other
Divisions of
the court to sit temporarily therein
What
is
the
APPELLATE
JURISDICTION OF THE
CTA?
The CTA shall exercise exclusive

appellate
jurisdiction to review by appeal:
1. Decisions of CIR
2. Inaction of CIR
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3. Decisions of RTC on local tax
cases
4. Decisions of Commissioner of
Customs
5. Decisions of CBAA (on exercise
of
appellate jurisdiction over RPT tax
cases decided by LBAA)
6. Decisions of DOF on customs
cases elevated to him on
automatic
review
due
to
adverse
decision
versus
the
government
7.
Decisions
of
DTI
(on
nonagricultural
products) and
Department of Agriculture (on
agricultural products) involving
dumping and countervailing
duties
Does the CTA have jurisdiction
over criminal
cases?
Yes, the CTA have jurisdiction
over the
following cases involving criminal
offenses:
1. ORIGINAL - FOR CRIMINAL ACTS
UNDER NIRC AND CUSTOMS
CODE 1M OR ABOVE
Over appeals from the decision of
RTC in tax
cases
1. Over petitions for review of the

decision of the RTC in the exercise
of their appellate jurisdiction over
tax
cases originally decided by the MTC
Does the CTA have jurisdiction
over tax
collection cases?
Yes, the CTA have jurisdiction
over the
following
cases
involving
tax
collection:
1. ORIGINAL 1M OR ABOVE
Exclusive appellate jurisdiction in
tax
collection cases:
1. Over appeals from Decision of
RTC
in tax collection cases
2. Over petitions for review of the
decision of the RTC in the exercise
of their appellate jurisdiction over
tax
collection cases originally decided
by
the MTC
What is the Procedure?
1. Appeal within 30 days from
receipt of
decision or period of inaction of
CIR, COC,
Secretary of Finance, Secretary of
Trade and
Industry
or
Secretary
of
Agriculture, or the
CBAA or the RTC:
a. Generally, appeal will be to a
Division
b. Except: appeal by filing a
petition for
review to En Banc in case of
decisions of CBAA or RTC in the
exercise of its appellate jurisdiction
2. In case the decision of the
Division is
adverse:
a. File MR with same Division within

15
days from notice thereof
3. In case resolution of Division on
the MR or
new trial is still adverse:
a. File petition for review with CTA
En
Banc
4. IN case the decision of the CTA
En Banc is
adverse, file a review on certiorari
with the
SC pursuant to Rule 45 of Rules of
Court
Where can you appeal a
decision of a local
assessment board?
To the Central Board of
Assessment Appeals
(CBAA) and not yet to the CTA.
It is only after the CBAA has ruled
that an
appeal may be made to the CTA
In which case, the appeal shall be
by petition
for review to the CTA En Banc
What is the rule on suspension
of collection?
General Rule: no injunction to
restrain
collection of taxes
Exception: Under Section 9 of RA
9282,
suspension is allowed when the
following
conditions concur:
o It is an appeal to the CTA from a
decision of CIR, COC or the RTC,
provincial, municipal treasurer, or
the
Secretary of Finance, Secretary of
Trade and Industry or Secretary of
Agriculture, as the case may be;
and
o In the opinion of the Court, the
collection by the aforementioned

government agencies may
jeopardize the interest of the
Government and/or taxpayer
In case of suspension, what is
the taxpayer
required to do?
The taxpayer will be required to
either
deposit the amount claimed or file
a surety
bond for not more than double the
amount
with the Court.
PART VI - TARIFF AND CUSTOMS
CODE
DEFINITIONS
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1. TARRIF: Custom duties, toll or
tribute
payable upon merchandise to
govt.
2.
CUSTOMS
DUTIES:
Tax
assessed upon
merchandise from or exported to a
foreign
country (Garcia v. Executive Sec.,
211
SCRA 227 [1992])
3. FLEXIBLE TARIFF: Import
duties which are
modified by the President upon
investigation
by the Tariff Commission and
recommendation of the NEDA in
the interest
of national economy, general
welfare and
national security.
Dumping
Duty
Countervailing
Duty
Marking
Duty
Discriminato
ry Duty
Imposing
Authority
Special
Committee
on AntiDumping
(compose
d of Sec.
of Finance
as
Chairman;
Members:
the Sec. of
DTI and
either the
Sec. of
Agriculture
if article in
question is
agri.
Product or
the Sec. of
Labor if
non-agri.)
Sec. of
finance
Commissi
oner of
Customs
President of
the
Philippines
FLEXIBLE TARIFF CLAUSE
The President may fix tariff rates
import and export
quotas, etc. under TCC (See Sec.
28, Art. VI,
Constitution and Sec 401, TCC)
1. To increase, reduce or remove

existing
protective rates of import duty
(including any
necessary change in classification)
The existing rates may be
increased
or decreased to any level on one or
several stages but in no case shall
the increased rate of import duty
be
higher than a maximum of 100%
ad
valorem.
2. To establish import quota or to
ban imports of
any commodity, as may be
necessary and
3. To impose an additional duty on
all imports
not exceeding 10% ad valorem
whenever
necessary.
LIMITATIONS
IMPOSED
REGARDING THE
1.
Conduct
by
the
Tariff
Commission of an
investigation in public hearing.
The Commission shall also hear
the
views and recommendations of any
govt
office
agency
or
instrumentality
concerned.
The NEDA thereafter submits its
recommendation to the President.
2. The power of the President
to increase or
decrease the rates of import
duty within
the
abovementioned
limits
fixed in the
Code
shall
include
the
modification in the
form of duty.
In such a case, the corresponding

ad
valorem or specific equivalents of
the duty
with respect to the imports from
the principal
competing foreign country for the
most recent
representative period shall be used
as bases
(Sec. 401, TCC)
OTHER
TYPES
OF
FEES
CHARGED BY THE BOC
1. Arrastre charge
2. Wharfage due- counterpart
of license,
charged not for the use of any
wharf but
for a special fund- Port Works
Fund
3. Berthing fee
4. Harbor fee
5. Tonnage due
Meaning and Scope of the Tariff
and Customs
Laws
Includes not only the provisions
of the Tariff
and Customs Code (TCC) and
regulations
pursuant thereto, but all other laws
and
regulations which are subject to the
Bureau
of Customs (BOC) or otherwise
within its
jurisdiction.
As to its scope: tariff and custom
laws extend
not only to the provisions of the
TCC but to
all other laws as well, the
enforcement of
which is entrusted to BOC.
BUREAU OF CUSTOMS
FUNCTIONS:
1. Assessment and collection of the

lawful revenues
from imported articles and all other
dues, fees,
charges,
fines
and
penalties
accruing under the
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tariff and customs laws.
2. Prevention and suppression of
smuggling and
other frauds upon the customs.
3. Supervision and control over the
entrance and
clearance of vessels and aircraft
engaged in
foreign commerce.
4. Enforcement of tariff and
customs laws, rules and
regulations relating to the tariff and
customs
administration.
5. Supervision and control over the
handling of
foreign mails arriving in the Phils.
For the
purpose of the collection of the
lawful duty on
dutiable articles thus imported and
prevention of
smuggling through the medium of
such mails
6. Supervision and control all
import and export
cargoes, landed or stored in piers,
airports,
terminal
facilities
including
container yards and
freight stations for the protection of
government
revenue.
7. Exercise exclusive jurisdiction

over seizure and
forfeiture cases under the tariff and
customs
laws. (Sec. 602)
JURISDICTION OF COLLECTOR
OF CUSTOMS
OVER
IMPORTATION
OF
ARTICLES
1. Cause all articles for importation
to be
entered in the customhouse
2. Cause all such articles to be
appraised and
classified
3. Assess and collect the duties,
taxes and
other charges thereon
4. Hold possession of all imported
articles until
the duties, taxes and other charges
are paid
thereon (Sec 1206)
TERRITORIAL JURISIDICTION OF
THE BOC
1. All the seas within the
jurisdiction of the
Phils.
2. All coasts, ports, airports,
harbors, bays,
rivers and inland waters whether
navigable or
not from the sea (1st par., Sec.
603)
APPLICATION OF THE TCC
Only after importation has begun
but before
importation is terminated
DURATION OF IMPORTATION:
BEGINNING
When the conveying vessel or
aircraft enters
the jurisdiction of the Philippines
with the
intention to unload therein
TERMINATION
Upon payment of the duties,

taxes, and other
charges due upon the articles, or
secured to
be paid at the port of entry and
legal permit
for withdrawal shall have been
granted
In case the articles are free of
duties, taxes
and other charges until they have
legally left
the jurisdiction of customs (Sec.
1202)
Intention to Unload
Even if not yet unloaded, and
there is
unmanifested cargo forfeiture may
take
place because importation has
already
begun.
GOODS
PROHIBITED
FROM
BEING IMPORTED
1. Absolutely prohibited
a. Weapons of war
b. Immoral/obscene or insidious
articles
c. Articles for treason
d. Prohibited drugs/narcotics
e. Gambling paraphernalia/devices
f. Those prohibited under Special
Laws
(Sec 102 TCC)
2. Qualifiedly prohibited
o Where such conditions as to
warrants a lawful importation do
not
exist, the legal effects of the
importation
of
qualifiedly
prohibited
articles are the same as those
absolutely prohibited articles.
(Auyong Hian v. CTA, 59 SCRA 110)
Conditionally-free from tariff
and customs duties
Certain imported articles are

exempt from
import taxes upon compliance with
certain
requirements. These are
1. Those provided for in Sec. 105 of
the
TCC;
2. Those granted to government
agencies, GOCC with agreements
with foreign countries;
3. Those given to international
institutions entitled to exemption
by
agreement or special law; and
4. Those that may be granted by
the
President upon Nedas
recommendation.
Exempt articles under Sec. 105
Article Conditions
Animals and plants For scientific,
experimental,
propagation, botanical,
breeding, zoological and
national defense purposes
Aquatic products o caught or
gathered by
vessels of Philippine registry
o Not have landed in foreign
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territory, or if landed, solely
for transshipment
Equipment used
for the salvage of
vessels or aircraft
not available
locally
o Bond= 1 x of ascertained
duties, taxes and charges

o Must be exported within 6
months
Costs of repair
made in foreign
country of Phil
vessels or aircraft
o Phil must not have adequate
facilities to make repair
o Vessel was compelled by
weather or casualty to go to a
foreign port of repair
o Excludes value of article
used for repair
Articles brought
into the Philippines
for repair,
processing, or
reconditioning
o to be re-exported upon
completion of the repair,
processing or reconditioning
o Bond = 1 x of ascertained
duties, taxes and charges
Trophies, prizes (
medals, badges,
cups) Those
received as
honorary
distinction
Samples in such
quantity and of
such dimensions
or constructions as
to render them
unsaleable or of
no appreciable
commercial value,
o models not adopted for
practical use, and
o samples not for sale
o marked sample sale
punishable by law
o for purpose of introducing
new product
o imported by person duly
registered and identified to

be engaged in that trade
o Importations authorized by
Sec of Finance
Personal and
household effects
of returning Phil
residents
o formally declared and
listed before departure
and identified under
oath before the
Collector of Customs
when exported from the
Phil by such returning
residents upon their
departure therefrom or
during their stay abroad
o personal and
household effects
including wearing
apparel, articles of
personal adornment
(except luxury items)
toilet articles,
instruments related to
ones profession and
analogous personal or
household effects,
excluding vehicles,
watercraft, aircraft and
animals, purchased in
foreign countries by
residents of the
Philippines which were
necessary, appropriate
and normally used for
their comfort and
convenience during
their stay abroad,
accompanying them on
their return or arriving
within a reasonable
time which, barring
unforeseen and
fortuitous events, in no
case shall exceed 60

days after the owners
return, subject however
to the following
provisions:
1. That the personal and
household effects shall
neither be in
commercial quantities
nor intended for barter,
sale or hire and that the
total dutiable value of
which shall not exceed
P10,000
2. That the returning
resident has not
previously availed of
the privilege under this
section within 365 days
prior to his arrival
3. That a 50% ad valorem
duty across the board
shall be levied and
collected on the
personal and
household effects in
excess of P10,000
Wearing apparel,
articles of personal
adornment, toilet
articles, portable
tools and
instruments,
theatrical
costumes and
similar personal
effects
arriving within a
reasonable time, before
or after the owners,
in use of and necessary
and appropriate for the
wear or use of such
persons according to
their profession or
position
for the immediate

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accompanying
travelers or
tourists in their
baggage
purposes of their
journey and their
present comfort and
convenient.
Personal and
household effects,
vehicles of foreign
consultants and
experts hired or
rendering service
to govt, including
staff and families
Accompany them or
arrive at a reasonable
time
In quantities and kind
necessary and suitable
to the profession, rank
or position
For their own use, NOT
for sale, barter, hire
Collector may require:
written commitment or
bond
Professional
instruments, tools
of trade, wearing
apparel, domestic
animals, personal
and household
effects belonging
to persons coming
to settle in the Phil
and OFW
In quantities and kind

necessary and suitable
to the profession, rank
or position
For their own use, NOT
for sale, barter, hire
Change of residence is
bona fide
Privilege of free entry
was never granted to
them before or qualifies
under LOI 105, 163,
210
Articles used
exclusively for
public
entertainment;
display in public
expos; exhibition
or competition for
prizes; devices for
projecting picture
Must file bond
Exported within 6
months
Not exhibited for profit
Otherwise, confiscation
+penalty
Brought by foreign
film producers for
making or
recording motion
pictures on
location in Phil.
Photographic and
cinematographic
films,
undeveloped,
exposed outside
Phil by resident
Filipinos or Phil.
producing
companies
Must file a bond
Exported within 6
months (unless
extended by the
Collector for another 6
months)
Principal actors are
Filipinos
Affidavit by importer
that the exposed films
are same films
previously exported
Importations used Reciprocity: such
foreign
by foreign
embassies,
legations,
agencies of foreign
govt
country must grant
same privilege to Phil.
agencies
Articles for
personal or family
use of members
and attaches of
foreign embassies,
legations, consular
officers and other
reps of foreign
govt
Such privileges must be
accorded in a special
agreement between
Phil and the foreign
country
Privilege may be granted
only upon specific
instructions of Sec. of
Finance which will be
given only upon request
of the DFA
Articles donated to
or for account of
relief organization
Org not for profit
For free distribution to
the needy
Containers,
holders and similar

receptacles
Except those that are
reusable for shipment
or transportation of
goods
Supplies of vessel
or aircraft
For use or consumption
of passengers on board
Any surplus or excess
shall be dutiable
Articles and
salvage after 2
years from filing
protest
Vessels must have
been wrecked or
abandoned in Phil
waters
Coffins or urns
containing human
remains, bones
ashes. Personal
and household
effects of
deceased except
vehicles
Not exceed P10,000
Economic,
technical,
vocational,
scientific,
philosophical,
historical, and
cultural books and
publications
Phil articles
previously
exported and
returned without
increasing value or
improved
condition.
Foreign articles
Note that if a drawback or
bounty was allowed to any Phil

article under this subsection,
upon re-importation article shall
be subject to duty equal to the
bounty or drawback
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previously
exported when
returned after
having been
exported and
loaned for use
temporarily abroad
solely for
exhibition
Foreign container
used in packing
exported Phil
products
Articles and
supplies imported
by and for use of
scheduled airlines
operating under
congressional
franchise
Such articles are not
available locally in
reasonable quantity,
quality and price
Necessary or incidental
to proper operations
Machineries,
equipments, tools
for production,
plants to convert
mineral ores into
saleable form,
spare parts,
supplies,
materials,
accessories,
explosives,
chemicals, transpo
and
communications
facilities imported
by and used by
new mines and old
mines
Aircrafts imported
by agro industrial
companies, spare
parts and
accessories
Such articles are not
available locally in
reasonable quantity,
quality and price
Necessary or incidental
to proper operations
Used in their agri and
industrial operations
Spare parts of
vessels or aircrafts
of foreign registry
engaged in foreign
trade
Brought to Phil as
replacement or for
emergency repair
Spare parts utilized to
secure safety,
seaworthiness, or
airworthiness, enable it
to continue voyage or
flight
Articles for easy
identification
Cannot be repaired
locally
exported from Phil
for repair and
subsequently
reimported
Cost of repair made on
article shall pay 30% ad

valorem
Trailer chassis
imported by
shipping
companies for
handling
containerized
cargo
Bond (1 x) to cover 1
year
Must be properly
identified and
registered with the LTO
Subject to customs
supervision fee
Deposited in Customs
zone when not in use
Upon expiration of
period (1 year or as
extended by
Commissioner) duties
and taxes shall be paid
Personal and
household effects
(including one car)
officer or
employee of DFA,
attach, staff
assigned to Phil
diplomatic mission
abroad, personnel
of Reparations
Missions in Tokyo,
AFP military
personnel in
SEATO, AFP
military personnel
accorded
diplomatic rank on
duty abroad
= returning from
regular
assignment,
reassignment,
dies, resigns or
retires
Car must have been
purchased or ordered
before the mission or
consulate received his
order of recall
The value of personal
and household effects
shall not exceed 30% of
his total salary.
Free from tariff and customs
duties
Imported goods must be entered
in the
customhouse at their port of entry
otherwise
they shall be considered as
contraband and the
importer
shall
be liable
for
smuggling (sec
1201)
Port of entry means a domestic
port open to
both foreign and coastwise trade
including
airport of entry. (Sec. 3514)
All articles when imported from
any country into
the Philippines shall be subject to
duty upon
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each importation, even though
previously
exported from the Phils. except as
otherwise
specifically provided for in the TCC
or other
laws. (sec 1201)
LIABILITY
FOR
CUSTOMS
DUTIES
General Rule: No exemptions

from customs
duties
The provisions of general and
special laws,
including those granting franchises,
to the
contrary notwithstanding, there
shall be no
exemptions whatsoever from the
payment of
customs duties (Sec. 105, last par.)
EXCEPTIONS:
1. If provided under the TCC (e.g.
conditionallyfree
importation)
2. Exemptions granted to GOCCs
with existing
contracts,
commitments,
agreements or
obligations with foreign countries
3. Exemptions of international
institutions,
associations
or
organizations
pursuant to
agreements and special laws
4. Exemptions granted by the
President of the
Phils. Upon recommendation of
NEDA in the
interest of national economic
development.
(Sec. 1205)
LIABILITY OF IMPORTER FOR
CUSTOMS DUTIES
1. A personal debt due from the
importer
which can be discharged only by
payment in
full of all duties and taxes
2. a lien upon imported articles
which may be
enforced while they are in custody
or subject
to the control of the government
(sec 1204)
EXTENT
OF
IMPORTERS
LIABILITY
limited to the value of the
imported merchandise.
In case of forfeiture of the seized
materials, the
maximum civil penalty is the
forfeiture itself.
(Mendoza v. David, 1 SCRA 791)
PREFERENCE ON THE OWNER
OF IMPORTED
ARTICLES
FOR
CUSTOMS
PURPOSES
All articles imported into the
Philippines shall be held
to be the property of:
the person to whom the property
is
consigned
the holder of the bill of lading
duly endorsed
by the consignee therein named
the consignee if consigned to
order by the
consignor
the
underwriters
of
the
abandoned articles
saved from a wreck at sea, along
the coast
or in any area in the Phils.
DUTIABLE IMPORTATION
Articles although previously
exported from the
Philippines, become dutiable from
the entry of the
vessel or aircraft into the Philippine
jurisdiction
until the payment of duties, taxes,
and other
charges and the issuance of the
permit for the
withdrawal of said goods from the
custom
houses.
BASIS OF DUTIABLE VALUE
(Sec. 201 TCC, as
amended by RA 9135)
Sec. 201.
Method One. Transaction
Value. - The dutiable
value of an imported article subject
to an ad valorem
rate
of
duty
shall
be
the
transaction value, which shall
be the price actually paid or
payable for the goods
when sold for export to the
Philippines, adjusted by
adding:
1. The following to the extent that
they are incurred
by the buyer but are not included
in the price
actually paid or payable for the
imported goods:
Commissions and brokerage fess
(except buying
commissions);
Cost of containers;
Cost of containers;
The cost of packing, whether for
labor or
materials;
The value, apportioned as
appropriate, of the
following goods and services:
materials,
components, parts and similar
items incorporated
in the imported goods; tools; dies;
moulds and
similar
items
used
in
the
production of imported
goods; materials consumed in the
production of
the
imported
goods;
and
engineering,
development, artwork, design work
and plans
and
sketches
undertaken
elsewhere than in the
Philippines and necessary for the

production of
imported goods, where such goods
and services
are supplied directly or indirectly
by the buyer
free of charge or at a reduced cost
for use in
connection with the production and
sale for
export of the imported goods;
The amount of royalties and
license fees related
to the goods being valued that the
buyer must
pay, either directly or indirectly, as
a condition of
sale of the goods to the buyer;
2. The value of any part of the
proceeds of any
subsequent resale, disposal or use
of the
imported
goods
that accrues
directly or indirectly
to the seller;
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3. The cost of transport of the
imported goods from
the port of exportation to the port
of entry in the
Philippines;
4. Loading, unloading and handling
charges
associated with the transport of the
imported
goods
from
the
country
of
exportation to the port
of entry in the Philippines; and
5. The cost of insurance.
All additions to the price actually

paid or
payable shall be made only on the
basis of objective
and quantifiable data.
No additions shall be made to the
price actually
paid or payable in determining the
customs value
except as provided in this Section:
Provided, That
Method One shall not be used in
determining the
dutiable value of imported goods if:
a) There are restrictions as to the
disposition or use
of the goods by the buyer other
than restrictions
which:
Are imposed or required by law or
by
Philippine authorities;
Limit the geographical area in
which the
goods may be resold; or
Do not substantially affect the
value of the
goods.
b) The sale or price is subject to
some condition or
consideration for which a value
cannot be
determined with respect to the
goods being
valued;
c) Part of the proceeds of any
subsequent resale,
disposal or use of the goods by the
buyer will
accrue directly or indirectly to the
seller, unless
an appropriate adjustment can be
made in
accordance with the provisions
hereof; or
d) The buyer and the seller are

related to one
another, and such relationship
influenced the
price of the goods. Such persons
shall be
deemed related if:
They are officers or directors of
one anothers
businesses;
They are legally recognized
partners in business;
There exists an employeremployee relationship
between them;
Any person directly or indirectly
owns, controls or
holds five percent (5%) or more of
the
outstanding voting stock or shares
of both seller
and buyer;
One of them directly or indirectly
controls the
other;
Both of them are directly or
indirectly controlled
by a
third
pers
on;
Tog
ethe
r
they
directly or indirectly control a third
person; or
They are members of the same
family, including
those related by affinity or
consanguinity up to
the fourth civil degree.
Persons who are associated in
business with one
another in that one is the sole
agent, sole distributor
or sole concessionaire, however

described, of the
other shall be deemed to be
related for the purposes
of this Act if they fall within any of
the eight (8) cases
above.
(B) Method Two. Transaction
Value of
Identical Goods. Where the
dutiable value cannot
be determined under method one,
the dutiable value
shall be the transaction value of
identical goods sold
for export to the Philippines and
exported at or about
the same time as the goods being
valued. "Identical
goods" shall mean goods which are
the same in all
respects,
including
physical
characteristics, quality
and reputation. Minor differences in
appearances
shall not preclude goods otherwise
conforming to the
definition from being regarded as
identical.
(C)
Method
Three.
Transaction Value of
Similar Goods. Where the
dutiable value cannot
be determined under the preceding
method, the
dutiable value shall be the
transaction value of similar
goods sold for export to the
Philippines and exported
at or about the same time as the
goods being valued.
"Similar goods" shall mean goods
which, although
not alike in all respects, have like
characteristics and
like component materials which

enable them to
perform the same functions and to
be commercially
interchangeable. The quality of the
goods, their
reputation and the existence of a
trademark shall be
among the factors to be considered
in determining
whether goods are similar.
If the dutiable value still cannot be
determined
through the successive application
of the two
immediately preceding methods,
the dutiable value
shall be determined under method
four or, when the
dutiable value still cannot be
determined under that
method, under method five, except
that, at the
request of the importer, the order
of application of
methods four and five shall be
reversed: Provided,
however, That if the Commissioner
of Customs
DRAWBACK: It is a device
resorted to for
enabling a commodity affected by
taxes to be
exported and sold in foreign
markets upon the
same terms as if it had not been
taxed at all. (Uy
Chiaco Sons vs. Collector of
Customs, 24 Phil
562)
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deems that he will experience real
difficulties in
determining the dutiable value
using method five, the
Commissioner of Customs may
refuse such a
request in which event the dutiable
value shall be
determined under method four, if it
can be so
determined. xxx
CONDITIONS FOR GRANT OF
DRAWBACK
1. Imported material was actually
used in the
production
of
article
to
be
exported.
2. Refund or credit shall not exceed
100% of
duties paid on the imported
material
3. No determination by NEDA of the
requirement for certification on
nonavailability
of locally produced or
manufactured
competitive
substitutes for the
imported
material
(no
local
substitute for the
materials)
4. Exportation must be made within
1 year after
importation of material and claim
for refund
or credit must be made within 6
months from
exportation
5. When 2 or more result from the
used of same
imported material, apportionment
shall be
made.
o Every application for drawback
must
pay P500 filing, processing, and
supervision fees
o Claims shall be paid by BoC
within
60 days after receipt of properly
accomplished claims
TRANSACTION VALUE UNDER
RA 8181
It is the invoice value of the
goods plus freight,
insurance, costs, expenses.
The Dutiable value of an
imported article shall
be the transaction price, which
shall be the
price actually paid or payable for
the goods
when sold for export to the Phil.,
adjusted by
adding the ff to the extent that
they are incurred
by the buyer but not included in
the price paid:
o Commissions and brokerage fees,
costs of containers, costs of
packing
o Value of materials, components,
parts and item incorporated in the
importer good
o Royalties and license fees that
buyer
paid
o Any part of the proceeds of a
subsequent resale, disposal or use
of good that accrues to the seller;
o Transportation cost from port of
export to port of entry in Phil
o Loading, unloading and handling
charges(arrastre)
o insurance
This
replaces
the
Home
Consumption Value as
basis of valuation of goods.
CLASSIFICATION OF CUSTOMS
DUTIES
1. Regular duties those which
are imposed
ordinarily as a matter of course

without order
from the higher authorities and
collected
merely as a source of revenue
a. Ad Valorem Duty this is a
duty based
on the value of the imported article
b. Specific Duty- this is duty
based on the
dutiable weight of goods (either the
gross
weight, legal weight or the net
weight)
2. Special duties- those which are
imposed
and collected in addition to
ordinary duties
usually to protect local industries
against
foreign competition:
a. Dumping Duty
b. Countervailing duty
c. Marking duty
d. Discriminatory duty
NATURE AND PURPOSE OF
SPECIAL CUSTOMS
DUTIES
1. These are additional import
duties imposed on
specific kinds of imported articles
under certain
conditions
2. These are imposed for the
protection of
consumers and manufacturers as
well as Phil.
Products from undue competition
posed by
foreign made products.
o These cannot be imposed without
regular
duties because the law says that it
is to
be in addition to such.
SPECIAL DUTIES are:
DUTIES NATURE AMOUNT

/RATE
IMPOSING
Authority
Dumping
Duty
Imposed
on foreign
articles:
a. Being
Difference
between the
actual price
and the
Special
Committee
on Antidumping
IMPORT ENTRY: It is a declaration
to the
BOC showing particulars of the
imported
article that will enable the customs
authorities to determine the correct
duties.
An importer is required to file an
import
entry. It must be accomplished at
the
moment
the
last
cargo
is
disembarked from
the vessel.
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importe
d into,
sold or
is likely
to be
sold in
the
Phils.
b. At a
price
less
than its
normal
value
The
importation
or sale of
which
might injure
an industry
producing
like goods
in the Phils.
normal
value of the
article
(extent of
the
underpricing
)
(Sec. of
Financechairman;
members:
Sec of DTI,
Sec. of
Agriculture/
Sec of Labor)
Counterv
ailing
Duty
Imposed
upon
foreign
goods
enjoying
subsidy
thus
allowing
them to sell
at lower
prices to
the
detriment
of local
products
similarly
situated
Equivalent
to the
bounty,
subsidy or
subvention
Sec of
Finance
Marking
Duty
Imposed
upon those
not
properly
marked as
to the place
of origin of
the goods
5% ad
valorem of
articles
Comm of
Custom
Discrimin
atory
Duty
Imposed
upon
goods
coming
from
countries
that
discriminat
Pres. Of the
Phil.
e against
Philippine
products
Sec. 28, ART VI of the 1987
Constitution and Sec.
401, TCC.
The President may fix tariff

rates, import and
export quotas, etc. under TCC
1. To increase, reduce or remove
existing
protective rates of import duty
(including any
necessary change in classification)
the existing rates may be
increased or
decreased to any level on one or
several
stages but in no case shall be
higher
than a maximum of 100% as
valorem
2. To establish import quota or to
ban imports of
any commodity, as may be
necessary
3. To impose an additional duty on
all imports
not exceeding 10% ad valorem
whenever
necessary
LIMITATION
IMPOSED
REGARDING THE
1.
Conduct
by
the
Tariff
Commission of an
investigation in a public hearing
The Commissioner shall also hear
the
views and recommendations of any
government office, agency or
instrumentality concerned
The NEDA thereafter shall
submits its
recommendation to the President
2. The power of the President to
increase or
decrease the rates of import duty
within the
abovementioned limits fixed in the
Code shall
include the modification in the form

of duty.
In such a case the corresponding
ad
valorem or specific equivalents of
the
duty with respect to the imports
from the
principal competing country for the
most
recent representative period shall
be
used as bases. (Sec 401 TCC)
REQUIREMENT
TO
KEEP
RECORDS (Sec. 3514
TCC, as amended by RA 9135)
All importers are required to keep
at their
principal place of business, in the
manner prescribed
by regulations to be issued by the
Commissioner of
Customs and for a period three (3)
years from the
date of importation, all the records
of their
importations
and/or books of
accounts, business and
computer systems and all customs
commercial data
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including payment records relevant
for the verification
of the accuracy of the transaction
value declared by
the importers/customs brokers on
the import entry.
All brokers are required to keep at
their principal
place of business, in the manner

prescribed by
regulations to be issued by the
Commissioner of
Customs and for a period of three
(3) years from the
date of importation copies of the
above mentioned
records covering transactions that
they handle.
THE TARIFF COMMISSION
FUNCTION
OF
THE
TARIFF
COMMISSIONS
I. Investigative Powers
a) The administration of and the
fiscal and
industrial effects of the tariff and
customs
laws of this country now in force or
which
may hereafter be enacted.
b) The relations between the rates
of duty on
raw materials and the finished or
partly
finished products.
c) The effects of ad valorem and
specific duties
and of compound specific and ad
valorem
duties.
d) All questions relative to the
arrangement of
schedules and classification of
articles in the
several schedules in the tariff law.
e) The tariff relations between the
Philippines
and
other
foreign
countries
commercial
treaties, preferential provisions,
economic
alliances, the effect of export
bounties and
preferential transportation rates.
f) The volume of importations

compared with
domestic
production
and
consumption; and
g) In general, to investigate the
operation of
customs and tariff laws, including
their
relation to the national revenues,
their effect
upon the industries and labor of
the country
and to submit reports of its
investigation as
provided. (Sec. 506, TCC)
II. Administrative Assistance to the
President and
Congress (Sec. 506, TCC)
Tax Remedies Under the Tariff
and Customs
Code (TCC)
REMEDIES
OF
THE
GOVERNMENT TO EFFECT
COLLECTION OF TAXES
I. Administrative/Extrajudicial
1. Tax Lien (Sec. 1508, TCC)
Attaches on the goods, regardless
of
ownership, while still in the custody
or
control of the Govt.
Availed of when the importation
is neither
prohibited nor improperly made.
2. Administrative Fines and
Forfeitures
Applied when the importation in
unlawful;
And it may be exercised even
where the
articles are not or no longer in
Customs
custody unless the importation is
merely
attempted in which case it may be
effected only while the goods are

still
within the Customs jurisdiction or
in the
hands of a person who is aware
thereof
(Sec. 2531 & 2530 TCC)
Under Sec. 2530 (a) of the TCC,
in order
to warrant forfeiture, it is not
necessary
that the vessel or aircraft must
itself carry
the
contraband.
The
complementary if
collateral use of the Cessna plane
for
smuggling operations is sufficient
for it to
be deemed to have been used in
smuggling (Llamado v. Comm. Of
Customs, 122 SCRA 118)
3. Reduction of customs
duties/compromise:
Subject to approval of Sec. of
finance
(Sec. 709, 2316 TCC)
4. Seizure, Search, Arrest (Sec.
2205, 2210,
2211 TCC)
II. Judicial
this remedy is normally availed of
when the tax
lien is lost by the release of the
goods
1. Civil action (Sec. 1204 TCC)
2. Criminal action
REMEDIES OF THE TAXPAYER
I. Administrative
1. Protest
Any importer or interested party
dissatisfied with published value
within
15 days from date of publication, or
within 5 days from the date the
importer
is entitled to refund if payment is

rendered erroneous or illegal by
events
occurring after the payment.
Taxpayer - within 15 days from
assessment.
Payment
under
protest is
necessary (Sec. 2308, 2210 TCC)
2. Refund
A written claim for refund may be
submitted by the importer in
abatement
cases
on
missing
packages,
deficiencies
in the contents of packages or
shortages
before arrival of the goods in the
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Philippines,
articles
lost
or
destroyed
after such arrival, dead or injured
animals, and for manifest clerical
errors
and
Drawback cases where the goods
are reexported.
(Sec. 1701-1708 TCC)
3. Settlement of any seizure by
payment of
fine or redemption
BUT this shall not be allowed in
any case
where importation is absolutely
prohibited or the release would be
contrary to law or when there is an
actual
and intentional fraud (Sec. 2307
TCC)
4. Appeal
Within 15 days to Commissioner

after
notification by collector of his
decision
(Sec. 2313 TCC)
II. Judicial
1. Appeal
decision of
the Commissioner or Secretary of
Finance to the division of the CTA
(Sec.
2403 TCC, Sec. 7 RA 1125, as
amended
by Sec. 9 RA 9282)
Since Sec. 11 of RA 1125, as
amended
by Sec. 9 RA 9282 empowers the
tax
court to issue injunctions, it would
appear
than an importer may appeal
without first
paying the duties, such as in
seizure but
not in protest cases.
2. Action to question the
legality of seizure
3. Abandonment (Sec. 1801 TCC)
i. expressly (Sec. 1801 TCC)
ii. impliedly
failure to file an import entry
within
30 days from the discharge of
goods
or
having filed an entry, fails to
claim
within 15 days but it shall not be so
effective until so declared by the
collector. (Sec. 1801, as amended
by RA 7651)
TWO KINDS OF PROCEEDINGS
IN THE BOC
1. Customs protest cases
2. Customs seizure and forfeiture

cases
A. Customs Protest Cases
Definition: These are cases which
are solely with
liability for customs duties, fees,
and other charges.
NOTE: Before filing a protest there
must first be a
payment under protest.
When
Customs
Protest
Applicable
The customs protest is required
to be filed
only in case the liability of the
taxpayer for
duties, taxes, fees and other
charges is
determined and the taxpayer
disputes said
liability.
When Customs Protest NOT
Required
When there is no dispute, but the
claim for
refund arises by reason of the
happening of
supervening events such as when
the raw
material imported is utilized in the
production
of finished products subsequently
reported
and a duty drawback is claimed.
REQUIREMENTS FOR MAKING A
PROTEST
1. Must be in writing
2. Must point out the particular
decision or
ruling of the Collector of Customs
to which to
which exception is taken or
objection made;
3. Must state the grounds relied
upon for relief;
4. Must be limited to the subject

matter of a
single adjustment;
5. Must be filed when the amount
claimed is
paid or within 15 days after the
payment;
6. Protestant must furnish samples
of goods
under protest when required.
PROCEDURE
ON
CUSTOMS
PROTEST CASES
1. The Collector acting within his
jurisdiction
shall cause the imported goods to
be entered
at the customhouse.
2. The Collector shall assess,
liquidate, and
collect the duties thereon, or detain
the said
goods if the party liable does not
pay the
same.
3. The party adversely affected
may file a
written protest on his foregoing
liability with
the Collector within 15 days after
the
liquidated amount (the payment
under
protest rule applies)
4. Hearing within 15 days from
receipt of the
duly presented protest. Upon
termination of
the hearing, the Collector shall
decide on the
same within 30 days
IF DECISION IS
ADVERSE TO THE
PROTESTANT
IF DECISION IS
ADVERSE TO THE
GOVERNMENT
Appeal with the

Commissioner within 15
days from notice
Automatic review by
Commissioner
Appeal with CTA division
within 30 days from
notice
Automatic review by Sec.
of Finance
Appeal with the CTA en If decision
of
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banc Commissioner or Sec. is
adverse to the protestant,
he may appeal to the
CTA and SC under the
same procedure on the
left.
Appeal by certiorari to
the SC within 15 days
from notice
B. Seizure and Forfeiture Cases
Definition: These refer to matters
involving
smuggling. It is administrative and
civil in nature and
is directed against the res or
imported articles and
entails a determination of the
legality of their
importation. These actions are in
rem.
Thus, it is of no defense that the
owner of the
vessel sought to be forfeited had
no actual
knowledge that his property was
used
illegally. The absence or lack of

actual
knowledge of such use is a defense
personal
to the owner himself which cannot
in any way
absolve the vessel from the liability
of
forfeiture. (Comm. Of Customs v.
Manila
Starr Ferry, Inc., 227 SCRA 317)
Smuggling
A. An act of any person who shall:
Fraudulently import any article
contrary to
law, or
Assist in so doing, or
Receive, conceal, buy, sell,
facilitate or
transport such article knowing its
illegal
importation (sec. 3601 TCC)
Export contrary to law (Sec. 3514
TCC)
B. The Philippines is divided into
various ports of
entry - entry other than port of
entry will be
SMUGGLING.
ALL articles imported into the
Philippines
whether subject to duty or not shall
be
entered through a customs house
at a port of
entry.
ENTRY in Customs law means The documents filed at the
Customs house
The submission and acceptance
of the
documents
The procedure of passing goods
through the
customs house (Rodriguez v. CA,
Set. 18,
1995)
Evidence for Conviction in
Smuggling Cases
Mere possession of the article in
question
UNLESS
the
defendant
could
explain that his
possession
is
lawful
to
the
satisfaction of the
court (Sec. 3601 TCC).
Payment of the tax due after
apprehension is
not a valid defense (Rodriguez v.
CA, 248
SCRA 288)
Things Subject to Confiscation
in Smuggling
Cases
Anything that was used for
smuggling is
subject to confiscation, like the
vessel, plane,
etc. (Llamado v. Comm. of
Customs, 1983).
Exception: Common carriers that
are not privately
chartered cannot be confiscated.
Right of Customs Officers to
Effect Seizure &
Arrest
May seize any vessel. Aircraft,
cargo,
article, animal or other movable
property
when the same is subject to
forfeiture or
liable for any time as imposed
under tariff
and customs laws, rules and
regulations.
May exercise such powers
only in
conformity with the laws and
provisions
of the TCC (Sec. 2205)
Common Carriers, Forfeiture
Common carriers are generally

not subject to
forfeiture although if the owner has
knowledge of its use in smuggling
and was a
consenting party, it may also be
forfeited.
If a motor vehicle is hired to carry
smuggled
goods but it has no Certificate of
Public
Convenience (CPC), It is not a
common
carrier. It is thus subject to
forfeiture and
lack of personal knowledge of the
owner or
carrier is not a defense to
forfeiture.
Properties
Not
Subject
to
Forfeiture In The
Absence
of
Prima
Facie
Evidence The forfeiture of the vehicle,
vessel or aircraft
shall not be effected if it is
established that
the owner thereof or his agent in
charge of
Contraband: Articles of prohibited
importations
or exportations. (Sec. 3514 TCC)
Port of Entry: A domestic port
open to both
foreign
and
coastwise
trade
including airport of
entry. (Sec. 3514 TCC)
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the means of conveyance used as
aforesaid
has no
knowledge of or participation in the
unlawful act:
Provided, however, that a prima
facie presumption
shall exist against the vessel,
vehicle or aircraft under
any of the following circumstances:
1. If the conveyance has been used
for
smuggling at least twice before;
2. If the owner is not in the
business for
which the conveyance is generally
used; and
3. If the owner is financially not in
the
position to own such conveyance.
DOCTRINE OF HOT PURSUIT
Requisites
1. Over Vessels
a. An act is done in Phil. Waters
which
constitutes a violation of the tariff
and
custom laws.
b. A pursuit of such vessel began
within
the jurisdictional waters which
i. may continue beyond the
maritime zone, and
ii. the vessel may be seized on
the high seas.
2. Over Imported Articles
a. There is a violation of the tariff
and
customs laws.
b. As a consequence, they may be
pursued in the Phils
c. With jurisdiction over them at
any
place therein for the enforcement
of
the law. (2nd par. Sec. 603 TCC)
RTC v. BOC
The RTCs do not have jurisdiction

over
seizure and forfeiture proceedings
conducted
by the BOC and to interfere with
these
proceedings. The Collector of
Customs has
exclusive jurisdiction over all
questions
touching on the seizure and
forfeiture of
dutiable goods.
No petitions for certiorari,
prohibition or
mandamus filed with the RTC will
lie because
these are in reality attempt to
review the
Commissioners actuations. Neither
replevin
filed with the RTC will issue.
Rationale: Doctrine of Primary
Jurisdiction.
Even if a Customs seizure is illegal,
exclusive
jurisdiction (to the exclusion of
regular courts)
still belongs to the Bureau of
Customs. (Jao
v. CA, Oct. 6, 1995)
Goods in Customs Custody
Beyond Reach of
Attachment
Goods in the customs custody
pending
payments of customs duties are
beyond the
reach of attachment. As long as the
importation
has
not
been
terminated, the
imported goods remain under the
jurisdiction
of the Bureau of Customs. (Viduya
v.
Berdiago, 73 SCRA 553)
Persons
Having
Police
Authority To Enforce The
Tariff and Customs Laws and
Effect Searches,
Seizures and Arrests
1. Officials of the BOC, district
collectors, police
officers, agents, inspectors and
guests of the
BOC;
2. Officers of the Phil. Navy and
other members
of the AFP and national law
enforcement
agencies when authorized by the
Comm. Of
Customs;
3. Officials of the BIR on all cases
falling within
the regular performances of their
duties,
when the payment of internal taxes
are
involved
4. Officers generally empowered by
law to
effect
arrests
and
execute
processes of
courts, when acting under the
direction of the
Collector. (Sec. 2203 TCC)
Administrative
and
Judicial
Procedures Relative
to
Customs
Seizures
and
Forfeitures
1. Determination of probable cause
and
issuance of warrant.
2. Actual seizure of the articles.
3. Listing of description, appraisal
and
classification of seized property.
4. Report of seizure to Comm. Of
Customs and
the Chairman, Comm. On Audit.
5. Issuance by the Collector of

warrant of
detention.
6. Notification to owner or importer.
7. Formal hearing.
8. District collector renders his
decisions.
If decision is not
favorable to the
aggrieved owner or
importer
If decision is not
favorable to the
government
Appeal by aggrieved
owner or importer
Automatic review by
Comm.
REQUIREMENTS FOR CUSTOMS
FORFEITURE
1. The wrongful making by the
owner, importer,
exporter or consignee of any
declaration or
affidavit, or the wrongful making or
delivery
by the same persons of any
invoice, letter or
paper - all touching on the
importation or
exportation of merchandise; and
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2. That such declaration, affidavit,
invoice, letter
or paper is false. (Farolan, Jr. v.
CTA, 217
SCRA 298)
Places Where Searches and
Seizures May Be
Conducted
Enclosures
dwelling house (there must be
search
warrant issued by a judge)
vessels or aircrafts and persons
or articles
conveyed therein
vehicles, beasts or persons
persons arriving from foreign
countries
Burden of Proof in Seizure or
Forfeiture
claimant (Sec. 2535 TCC)
Requirements for Manifest
A manifest in coastwise trade for
cargo and
passengers transported from one
place or
port in the Phils. to another is
required when
one or both of such places is a port
of entry.
(Sec. 906 TCC) Manifests are also
required
of vessels from a foreign port. (Sec.
1005
TCC)
Query: Is Manifest Required
Only for Imported
Goods?
No. Articles subject to seizure do
not have to
be imported goods. Manifests are
also required of
articles found on vessels or
aircrafts engaged in
coastwise trade (Rigor v. Robles,
117 SCRA 780)
Unmanifested Cargo is Subject
to Forfeiture
Whether the act of smuggling is
established
or not under the principle of res
ipsa loquitur.
It is enough that the cargo is
unmanifested
and that there was no showing that

payment
of duties thereon had been made
for it to be
subject to forfeiture.
Settlement of Forfeiture Cases
General Rule: Settlement of cases
by payment of
fine or redemption of forfeited
property is allowed.
Exceptions:
1. The importation is absolutely
prohibited or
2. The surrender of the property to
the person
offering to redeem would be
contrary to law,
or
3. Where there is fraud (Sec. 2307
TCC)
Acquittal in Criminal Charge
Not Res Judicata in
Seizure
or
Forfeiture
Proceedings
Reasons:
Criminal proceedings are actions
in
personam
while
seizure
or
forfeiture
proceedings are actions in rem.
Customs compromise does not
extinguish
criminal liability (Pp. v. Desiderio,
Nov. 26,
1965)
At any time prior to the sale, the
delinquent importer
may settle his obligations with the
Bureau of Customs
in which case the aforementioned
articles may be
delivered upon payment of the
corresponding duties
and taxes and compliance with all
other legal
requirements. (Sec. 1508 TCC)
Abatement
The reduction or non-imposition
of customs
duties
on
certain
imported
materials as a
result of;
o Damage incurred during voyage;
o Deficiency in contents package;
o Loss or destruction of articles
after
arrival;
o Death or injury of animals.
Fraudulent
Practices
Considered As Criminal
Offences
Against
Customs
Revenue Laws
Unlawful importation;
Entry of imported or exported
article by
means of any false or fraudulent
practices,
invoice, declaration, affidavit or
other
documents;
Entry of goods at less than their
true weights
or
measures
or
upon
a
classification as to
quality or value;
Payment of less than the amount
due.
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PROCEDURE TO PROTEST
CUSTOM
COLLECTORS
ASSESSMENT
Articles appraised, classified and
assessed
Taxpayer agrees with assessment
Taxpayer
disagrees
with
assessment
Pays duties, taxes, etc. Files written
protest with ruling of Collector
(Sec.
2303, TCC)
assessment
No protest considered unless
amount due is paid
Goods released Collector schedules
hearing of protest w/in 15 days
from receipt of protest
Collector renders decision w/in 30
days from
termination of hearing
Protest Granted Protest Denied
Automatic appeal to Customs
Commissioner
(Sec. 2313, TCC)
Appeal to Customs Commissioner
w/in
15 days from notice
(Sec. 2313, TCC)
Protest Denied
Protest Denied
Automatic appeal to Sec. of
Finance
Commissioner of Customs fails to
render decision w/in 30 days
Protest Affirmed
Assessment final
If unfavorable, appeal to CTA w/in
30
days from receipt of decision
Assessment final (Sec. 7, RA 1125)
Automatic appeal to Sec. of
Finance
reports elevated w/in 5 days from
promulgation or after lapse of 30
days if
no decision
Assessment final
CTA decides w/in 30
days
Appeal to SC w/in 15 days from
notice (Rule 43, ROC)
No appeal assessment final
Protest Affirmed
Articles enter customs house
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EXHIBITS
TAX ON INDIVIDUALS
Type of Income Tax Rate For
Resident Citizen
Rate For NonResident Citizen
(Incl. OCW)
Tax Rate For
Resident Alien
Non-Resident
Alien engaged in
trade / business
Non-Resident
Alien NOT
engaged in trade /
business
Interest from any currency bank
deposit & yield or any other
monetary benefit from deposit
substitutes & from trust funds &
similar arrangements
Royalties (except on books &
other
literary works & musical
compositions)
Prizes > P10,000
Other winnings except PCSO &
Lotto
20% Final Tax 20% Final Tax 20%

Final Tax 20% Final Tax 25% Final
tax
Royalties on books & other
literary
works & musical compositions
Final Tax of 10% Final Tax of 10%
Final Tax of 10% Final Tax of 10%
25% Final tax
Prizes < P10,000 Schedular rate
Schedular rate Schedular rate
Schedular rate 25% Final tax
Winnings from PCSO & Lotto
exempt exempt Exempt Exempt
25% Final tax
Interest Income received by an
individual (except a nonresident
individual) from a depositary bank
under the expanded foreign
currency deposit system
7.5% Final Tax exempt 7.5% Final
Tax Exempt Exempt
Interest income from long term
deposit or investment in the form
of
savings, common or individual trust
fund,
deposit
substitutes,
investment
management accounts & other
investments evidenced by
certification
in
such
form
prescribed
by the BSP
Exempt from tax Exempt from tax
Exempt from tax Exempt from tax
25% Final tax
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Resident Citizen
Rate For Non-
Resident Citizen
(Incl. OCW)
Tax Rate For
Resident Alien
Non-Resident
Alien engaged in
trade / business
Non-Resident
Alien NOT
engaged in trade /
business
Pre-termination of such certificate
before the 5th year (i.e. 4 years to
less than 5 years)
5% Final tax on
the entire income
5% Final tax on
the entire income
5% Final tax on
the entire income
5% Final tax on
the entire income
N/A
3 years to less than 4 years 12%
12% 12% 12% N/A
less than 3 years 20% 20% 20%
20% N/A
Cash and/or Property Dividends
from a domestic corp. or from a
joint
stock co., insurance or mutual fund
companies & regional operating
headquarters of multinational
companies;
Share of an individual in the
distributable net income after tax
of a
partnership (except GPP);
Share of an individual in the net
income after tax of an assn., a joint
account or a joint venture or
consortium taxable as a corp. of
w/c
he is a member/co-venturer
10% Final Tax 10% Final Tax 10%

Final Tax 20% Final Tax 25% Final
tax
Capital gains from sale, barter,
exchange or other disposition of
shares of stock (of domestic corp.)
not traded in the stock exchange
For the first P100,000
5% Final tax on
net capital gains
realized during the
taxable yr:
5% Final tax on
net capital gains
realized during
the taxable yr:
5% Final tax on
net capital gains
realized during the
taxable yr:
5% Final tax on net
capital gains
realized during the
taxable yr:
5% Final tax on net
capital gains
realized during the
taxable yr:
On any amount in excess of
P100,000
10% 10% 10% 10% 10%
Capital gains from sale, exchange
or other disposition of real property
located in Philippines, classified as
capital assets, including pacto de
retro sales & other forms of
conditional sales
6% Final Tax on
the gross selling
price or current
fair market value
or zonal value
whichever is
higher
6% Final Tax on
the gross selling
price or current
fair market
value or zonal
value whichever
is higher
6% Final Tax on
the gross selling
price or current
fair market value
or zonal value
whichever is
higher
6% Final Tax on
the gross selling
price or current
fair market value
or zonal value
whichever is higher
6% Final Tax on
the gross selling
price or current
fair market value
or zonal value
whichever is higher
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Resident Citizen
Rate For NonResident Citizen
(Incl. OCW)
Tax Rate For
Resident Alien
Non-Resident
Alien engaged in
trade / business
Non-Resident
Alien NOT
engaged in trade /
business
CG
from
sale/disposition
of
principal
residence by natural persons, the
proceeds of which is fully utilized in
acquiring/constructing a new
principal residence w/in 18 mos.
from
date of sale, provided historical
cost/adjusted basis of sold prop be
carried to the new principal
residence built/acquired
Commissioner. Duly notified w/in
30
days from sale Tax exemption can
only be availed once every 10
years
If no full utilization of proceeds of
sale, such portion shall be subject
to
CG tax
Exempt from CG
tax
Exempt from CG
tax
Exempt from CG
tax
Exempt from CG
tax
Exempt from CG
tax
**a nonresident alien engaged
in trade or business is an
individual who shall come to the
Philippines & stay therein for an
aggregate period of more than
180 days during any calendar year
TAX ON CORPORATIONS
Type of Income Domestic Corp
Resident Foreign Corp NonResident Foreign
Interest
on
currency
bank
deposits & yield or any other
monetary benefit form deposit
substitutes & from trust funds
& similar arrangement
Royalties (similar within the

Philippines)
20% Final Tax 20% Final Tax
32%/35% Income Tax
Interest
income
from
a
depositary
bank
under
the
expanded
foreign currency deposit system
(EFCDS)
7.5% Final Tax 7.5% Final Tax
Exempt from tax
CG from sale, barter, exchange or
other disposition of shares
of stock (of domestic corp.) not
traded in the stock exchange
For the first P100,000
5% Final tax on net
capital gains realized
during the taxable yr:
5% Final tax on net
capital gains realized
during the taxable yr:
5% Final tax on net cap.l
gains realized during the
taxable yr:
On any amount in excess of
P100,000 10% 10% 10%
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Income derived by depositary
bank under the EFCDS from
foreign currency transactions with
non-residents, offshore
banking unites in the Philippines,
local commercial banks
including branches of foreign banks
that may be authorized
by the BSP to transact business
with FCDS units & other
depositary banks under the EFCDS
Exempt from Final tax
Part of gross income

subject to 32/%35% corp.
income tax (RA 9294)
Exempt from Final tax
Part of gross income
subject to 32%/35%
corp. income tax (RA
9294)
N/A
Interest income form foreign
currency loans granted by such
depository banks under said EFCDS
to RESIDENTS
10% Final Tax 10% Final Tax N/A
Inter-corporate dividends (from
a domestic corp.) Exempt form tax
Exempt form tax 15% Final Tax
* subject to the rule on
tax credit for tax actually
paid and tax deemed
paid. Otherwise, subject
to regular income tax rate
of 32%/35%
CG from sale, exchange or other
disposition of lands and/or
buildings which are not used in the
business of a corp. & are
treated as capital assets
6% Final tax on gross
selling price or FMV or
zonal value, whichever is
higher
32%/35% income tax 32%/35%
income tax
Type of Corporate Taxpayer Tax
Rate
International Air Carrier
Gross Phil. Billings = amount of
gross
revenue
derived
from
carriage
of
persons,
excess
baggage,
cargo & mail originating form the
Philippines in a continuous &
uninterrupted flight, irrespective of
the
place of sale/issue & the place of

payment of the ticket or passage
document; Includes tickets
revalidated,
exchanges
&/or
indorsed to another intl airline if
the passenger boards a plane in a
port/point in the Philippines. For a
flight which originates from the
Philippines but transshipment of
passenger takes place at any port
outside the Philippines on another
airline, only the aliquot portion of
the cost of the ticket corresponding
to the leg flown from the
Philippines
to
the
point
of
transshipment
shall form part of the GPB
International Shipping
Gross Phil Billings = gross revenue
whether for passenger, cargo or
mail originating from the
Philippines. up to final destination,
regardless of the place of sale/
payments of passage of freight
documents
2 % on Gross Phil Billings
Offshore Banking Units Final Tax of
10% on gross income
from transactions with residents
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Branch
Profits remitted (connected with
the conduct of its trade/business in
the Philippines.) = based on the
total profits applied/earmarked for
remittance without any deduction
for the tax component thereof
(except those registered with the
PEZA)
15% on branch profits remittance
Regional/Area
Headquarters
of
Multinational Cos. = do not
earn/derive
income
from
the
Philippines. &
w/c
act
as
supervisory,
communication
&
coordinating
center
for
their
affiliates,
subsidiaries or
branches in the Asia-Pacific Region
& other foreign markets
Regional Operating Headquarters
of Multinational Companies =
engaged in any of the following
services:
a.
General
Administration
&
planning
b. Business planning & coordination
c. Sourcing & procurement of raw
materials & components
d. Corporate finance advisory
services
e. Marketing control & sales
promotion
f. Training & personnel mgt.
g. Logistic services
h. Research & development
i. Services & product development
j. Technical support & maintenance
k.
Data
processing
&
communication
l. Business development
Exempt from tax
10% of taxable income
Type of Taxpayer Tax Rate
Nonresident cinematographic film
owner, lessor or distributor (NOTE:
Even to
individuals)
25% of gross income
Nonresident owner or lessor of
vessels chartered by the Phil.
Nationals 4.5% of gross rentals,
lease or charter fees
Nonresident owner or lessor of
aircraft, machineries & other
equipment 7.5% of gross rentals

or fees
Alien Individual Employed By
Regional Or Area
Headquarters & Regional
Operating Headquarters of
Multinational Cos.
Offshore
Banking
Units
Petroleum Service
Contractor &
Subcontractor
Gross Income = Salaries, Wages,
Annuities,
Compensation,
Remuneration,
Other
Emoluments (i.e. honoraria &
allowances)
received from such cos. Provided,
same tax
15% of gross income 15% of gross
income 15% of gross income
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treatment shall apply to Filipinos
abroad
employed & occupying same
positions in these
companies
** Multinational company = a
foreign firm/entity engaged in
international
trade
with
affiliates/subsidiaries/branch offices
in the Asia
Pacific Region & other foreign
markets
ATENEO
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Taxation Law
SUMMER REVIEWER
Advisers:
Atty.
Serafin
Salvador, Atty. Michael Dana
Montero,
Atty.
Gaudencio
Mendoza; Head: Julie Ann B.
Domino, Juan J. P. Enriquez III;
Understudies: Rachelle T. Sy,

Aldwin Mendoza, Timothy John
Batan
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Ateneo Taxation

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Ateneo Taxation

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ATENEO

duty of the State to provide.

both in privileges conferred and

non-payment of other kinds of

from any of their property, real or

majority of all members voting

certification is required in order for

(a) fixed amount

2) Indirect imposed on the

1) National - imposed by the

License fee if primary purpose is

sanction for nonpayment

Object Persons, prop, etc goods

Taxation Law Summer Reviewer

Justice Marshall, McCullough v.

through the use of pretenses and

show complete compliance with

3) Execution of all judgments

(a) the person liable for tax or

which shall be prima facie correct

shall be whichever is higher of:

(b) The Commissioner shall create

or to Reverse, revoke, modify any

exigencies of revenue service may

instruments and appliances used in

abatement and compromise of

Gross Revenue/Sales - Cost of Sales

5) Capital Gains Tax (Real property

a) Those engaged in trade or

how created or organized. Joint

foreign corp. not engaged in trade

therefore, their distributive share is

exceed 50% of total

Predominance Test: if GI from

income tax on corporations (by

TI = P27,000 35% of TI = P9,450

Situation B: If regular income tax is

a) salaries and employee benefits

authorized by the BSP

uninterrupted flight, irrespective of

Does not apply to domestic

a course or journey; to begin,

Mangiliman, et al., 72 PHIL 524, the

offices, agencies or branches, as in

from a branch to the foreign parent

tax imposed in the Phils. from its

(not used for business/investment)

residence, the proceeds of which is

There is imposed for each taxable

TIFF (Uncompressed) decompressor

closely-held corporations are

activities in lieu of other taxes,

I. Prima facie instances of

assets for every unit of current

Proceeds of life insurance policies

exempt to the extent of the

(ii) 5 years of service at time of

o Ex. A government employee can

(b) income derived by govt./its

process; cannot just be randomly

Any good, service or other benefit

employees not exceeding P750 per

The basic principle governing